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2012 CON Union Bank - 2012 General Obligation Refunding Bonds
NOTE TO FILE 09-16-14 IN THE MATTER OF: Resolution of the City Council of the City of National City authorizing the issuance of its 2012 General Obligation Refunding Bonds, authorizing and directing the execution of a Paying Agent Agreement and certain other related documents, and authorizing actions related thereto. Please note the following: NO FULLY EXECUTED ORIGINAL PAYING AGENT AGREEMENT WAS FILED WITH THE OFFICE OF THE CITY CLERK ORIGINATING DEPARTMENT: _ CDC _ Housing & Grants City Attorney _ Human Resources City Manager _ MIS Community Svcs. _ Planning _ Engineering _ Police X Finance Public Works Fire NTF Jones Hall Draft 5/21/12 PAYING AGENT AGREEMENT By and Between CITY OF NATIONAL CITY and UNION BANK, N.A., as Paying Agent Dated as of July 1, 2012 Relating to $ City of National City 2012 General Obligation Refunding Bonds TABLE OF CONTENTS ARTICLE I DEFINITIONS; AUTHORITY Section 1.01. Definitions. 2 Section 1.02. Authority for this Agreement. 7 ARTICLE II THE BONDS Section 2.01. Authorization. 8 Section 2.02. Terms of Bonds. 8 Section 2.03. Redemption. 9 Section 2.04. Form of Bonds 10 Section 2.05. Execution of Bonds. 11 Section 2.06. Transfer of Bonds 11 Section 2.07. Exchange of Bonds. 11 Section 2.08. Bond Register. 11 Section 2.09. Temporary Bonds. 12 Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen 12 Section 2.11. Book -Entry; Limited Obligation of City. 12 Section 2.12. Representation Letter. 13 Section 2.13. Transfers Outside Book -Entry System 13 Section 2.14. Payments and Notices to the Nominee 13 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF BOND PROCEEDS; SECURITY FOR THE BONDS Section 3.01. Issuance and Delivery of Bonds. 15 Section 3.02. Application of Proceeds of Sale of Bonds 15 Section 3.03. Validity of Bonds 15 Section 3.04. Security for the Bonds. 15 ARTICLE IV FUNDS AND ACCOUNTS Section 4.01. Proceeds Fund. 16 Section 4.02. Debt Service Fund 16 Section 4.03. Administration and Disbursements From Debt Service Fund 16 Section 4.04. Bond Service Fund. 16 Section 4.05. Investment of Moneys. 16 Section 4.06. Costs of Issuance Fund 16 ARTICLE V OTHER COVENANTS OF THE CITY Section 5.01. Punctual Payment. 18 Section 5.02. Extension of Time for Payment 18 Section 5.03. Payment of Claims. 18 Section 5.04. Books and Accounts 18 Section 5.05. Protection of Security and Rights of Bondowners. 18 Section 5.06. Continuing Disclosure 18 Section 5.07. Further Assurances. 18 Section 5.08. No Arbitrage. 19 Section 5.09. Federal Guarantee Prohibition 19 Section 5.10. Private Activity Bond Limitation. 19 Section 5.11. Maintenance of Tax -Exemption 19 Section 5.12. Rebate Requirement. 19 li Section 5.13. Information Report 19 Section 5.14. Small Issuer Exemption from Bank Nondeductibility Restriction. 19 ARTICLE VI THE PAYING AGENT Section 6.01. Appointment of Paying Agent. 20 Section 6.02. Paying Agent May Hold Bonds. 20 Section 6.03. Liability of Agents. 20 Section 6.04. Notice to Agents. 21 Section 6.05. Compensation, Indemnification. 22 Section 6.06. Funds and Accounts 22 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BONDOWNERS Section 7.01. Events of Default. 23 Section 7.02. Application of Funds. 23 Section 7.03. Other Remedies of Bondowners 24 Section 7.04. Non -Waiver. 24 Section 7.05. Remedies Not Exclusive 25 ARTICLE VIII SUPPLEMENTAL AGREEMENTS Section 8.01. Amendments Permitted. 26 Section 8.02. Owners' Meetings 26 Section 8.03. Procedure for Amendment with Written Consent of Owners 27 Section 8.04. Disqualified Bonds 27 Section 8.05. Effect of Supplemental Agreement. 27 Section 8.06. Endorsement or Replacement of Bonds Issued After Amendments. 28 Section 8.07. Amendatory Endorsement of Bonds. 28 ARTICLE IX MISCELLANEOUS Section 9.01. Benefits of Agreement Limited to Parties 29 Section 9.02. Successor is Deemed Included in All References to Predecessor. 29 Section 9.03. Discharge of Agreement 29 Section 9.04. Execution of Documents and Proof of Ownership by Owners. 30 Section 9.05. Waiver of Personal Liability. 30 Section 9.06. Notices to and Demands on City and Paying Agent. 30 Section 9.07.. Partial Invalidity. 30 Section 9.08. Unclaimed Moneys 31 Section 9.09. Applicable Law. 31 Section 9.10. Conflict with Act 31 Section 9.11. Conclusive Evidence of Regularity. 31 Section 9.12. Payment on Business Day. 31 Section 9.13. Counterparts. 31 EXHIBIT A FORM OF BOND I I PAYING AGENT AGREEMENT This Paying Agent Agreement (the "Agreement") is made and entered into as of July 1, 2012, by and between the City of National City, a general law city organized and existing under the laws of the State of California (the "City") and Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States, as Paying Agent (the "Paying Agent") WITNESSTH: WHEREAS, an election was duly and regularly held in the City on March 5, 2002 for the purpose of submitting to the qualified electors of said City the question of whether bonds should be issued in the principal amount of not to exceed $6,000,000 to finance the acquisition, construction and completion of a public library; and WHEREAS, more than two-thirds of the votes cast at said election were in favor of the issuance of said bonds; and WHEREAS, pursuant to the authorization received at such election, the City has previously issued its $6,000,000 original principal amount of General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"); and WHEREAS, the City now desires to issue its 2012 General Obligation Refunding Bonds (the "Bonds") in order to refund the Prior Bonds, in order to achieve debt service savings and lower the property tax override levied on the property owners of the City to pay debt service on the Prior Bonds; and WHEREAS, this City has sold the Bonds as previously approved in the City Resolution (hereinafter defined); NOW THEREFORE, the City and the Paying Agent agree as follows: l� ARTICLE I DEFINITIONS; AUTHORITY Section 1.01. Definitions. The terms defined above and in this Section 1.01, as used and capitalized herein, shall, for all purposes of this Agreement, have the meanings ascribed to them below, unless the context clearly requires some other meaning. "Act" means, collectively, Article 9 (commencing with section 53550) and Article 11 of Chapter 3 (commencing with section 53580) of Part 1 of Division 2 of Title 5 of the California Government Code, as in effect on the date of adoption hereof and as amended hereafter. "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement, and the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. "Authorized Investments" means any investments permitted by law to be made with moneys belonging to, or in the custody of, the City. "Beneficial Owner" means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees or depositories including, but not limited to, through the Nominee. "Bond Counsel" means any attorney or firm of attorneys nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities. "Bond Service Fund" means the 2012 Bond Service Fund established pursuant to Section 4.04 hereof. "Bond Year" means the twelve month period beginning on August 2 and ending on the following August 1, except that the first Bond year shall begin on the Closing Date and end on August 1, 2012. "Bonds" means the City of National City 2012 General Obligation Bonds Outstanding pursuant to this Agreement. "Business Day" means a day which is not a Saturday or Sunday or a day on which banks in San Francisco and Los Angeles, California, and New York, New York, are not required or permitted to be closed. "City" means the City of National City, a general law city duly organized and existing under the laws of the State of California. "City Manager" means the City Manager or such other duly appointed officer of the City authorized by the City Council by resolution to perform the functions of the manager of the City. "City Representative" means the City Manager, the Finance Manager or any other person authorized by resolution of the City Council of the City to act on behalf of the City with respect to this Agreement. 2 I,, "City Resolution" means of the Resolution of the City Council adopted on 2012, authorizing the issuance of the Bonds. "City Treasurer" means the City Treasurer or any other person authorized by resolution of the City Council to act on behalf of the City with respect to this Agreement. "Closing Date" means the date upon which there is an exchange of Bonds for the proceeds representing the purchase price of the Bonds by the Purchaser, being 2012. "Code" means the Internal Revenue Code of 1986. "Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate dated the Closing Date and executed by the City, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Costs of Issuance Fund" means the 2012 Costs of Issuance Fund established pursuant to Section 4.06 hereof. "Debt Service" means the scheduled amount of interest and principal, including principal paid pursuant to mandatory sinking fund redemption, payable on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Debt Service Fund" means the 2012 Debt Service Fund established pursuant to Section 4.02 hereof. "Depository" means any securities depository appointed to act as Depository under Section 2.13 hereof. "Excess Investment Earnings" means an amount equal to the sum of: (i) the excess of (A) the aggregate amount earned on all Nonpurpose Investments (other than amounts attributable to such excess), over (B) the amount which would have been earned if the Yield on such Nonpurpose Investments (other than amounts attributable to such excess) had been equal to the Yield on the Bonds, (ii) any income attributable to the excess described in clause (i). "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated 3 1S interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security --State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and related parties do not own more than a ten percent (10%) beneficial interest if the return paid by the fund is without regard to the source of investment. "Federal Securities" means United States Treasury notes, bonds, bills or certificates of indebtedness or those for which the faith and credit of the United States are pledged for the payment of principal and interest. "Finance Manager" means the Finance Manager or such other duly appointed officer of the City authorized by the City Council by resolution to perform the functions of the finance manager of the City. "Fitch" means Fitch, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "General Fund" means the General Fund of the City. "Gross Proceeds" means the sum of the following amounts: (a) original proceeds, namely, net amounts received by or for the City as a result of the sale of the Bonds, excluding original proceeds which become transferred proceeds (determined in accordance with applicable Regulations) of obligations issued to refund in whole or in part the Bonds; (b) investment proceeds, namely, amounts received at any time by or for the City, such as interest and dividends, resulting from the investment of any original proceeds (as referenced in paragraph (a) above) or investment proceeds (as referenced in this paragraph (b)) in Nonpurpose Investments, increased by any profits and decreased (if necessary, below zero) by any losses on such investments, excluding investment proceeds which become transferred proceeds (determined in accordance with applicable Regulations) of obligations issued to refund in whole or in part the Bonds; (c) sinking fund proceeds, namely, amounts, other than original proceeds or investment proceeds (as referenced in paragraphs (a) and (b) above) of the Bonds, which are held in the Debt Service Account and any other fund to the extent that the City reasonably expects to use such other fund to pay Debt Service on the Bonds; (d) amounts in any fund established as a reasonably required reserve or replacement fund; (e) Investment Property pledged as security for payment of Debt Service on the Bonds by the City; 4 (f) amounts, other than as specified in this definition, used to pay Debt Service on the Bonds; and (0) definition. amounts received as a result of investing amounts described in this "Information Services" means, in accordance with then current guidelines of the Securities and Exchange Commission, such services providing information with respect to the redemption of bonds as the City may designate in a Written Request of the City filed with the Paying Agent. "Investment Property" means any security (as said term is defined in section 165(g)(2)(A) or (B) of the Code), obligation, annuity contract or investment -type property, excluding, however, obligations (other than specified private activity bonds as defined in section 57(e)(5)(6) of the Code) the interest on which is excluded from gross income, under section 103 of the Code, for federal income tax purposes. "Issuance Expenses" means all items of expense directly or indirectly relating to the execution, issuance and delivery of the Bonds including, but not limited to, filing and recording costs, settlement costs, underwriting fees, printing costs, reproduction and binding costs, legal fees and charges, bond insurance premiums, fees and expenses of the Paying Agent, financial and other professional consultant fees, costs of obtaining credit ratings and bond insurance premiums. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency for any reason, the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Nominee" means the nominee of the Depository as determined from time to time in accordance with Section 2.13. "Nonpurpose Investments" means any Investment Property which is acquired with the Gross Proceeds of the Bonds and is not acquired in order to carry out the governmental purpose of the Bonds. "Outstanding," when used as of any particular time with reference to Bonds, means all Bonds except: (a) Bonds theretofore canceled by the Paying Agent or surrendered to the Paying Agent for cancellation; (b) Bonds paid or deemed to have been paid within the meaning of Section 9.03 hereof; and (c) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the City pursuant to the Agreement. "Owner" or "Bondowner" mean any person who shall be the registered owner of any Outstanding Bond. 5 n "Participant" means those broker -dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as a securities depository. "Participating Underwriter" has the meaning assigned to such term in the Continuing Disclosure Certificate. "Person" means an individual, corporation, firm, association, partnership, trust or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Principal Office" means the corporate trust office of the Paying Agent in Santa Ana, California, or, solely for purposes of the presentation of Bonds for payment, transfer or exchange, such corporate trust operations office designated by the Paying Agent, or such other location as approved by the City. "Prior Bonds" shall have the meaning assigned to it in the preambles to this Agreement. "Prior Bonds Paying Agent" means Union Bank of California, N.A., as paying agent for each of the Prior Bonds. "Private Business Use" means use directly or indirectly in a trade or business carried on by a natural person or in any activity carried on by a person other than a natural person, excluding, however, use by a governmental unit and use as a member of the general public. "Proceeds Fund" means the 2012 Proceeds Fund established pursuant to Section 4.01 hereof. "Purchase Price" The term, for the purpose of computation of the Yield of the Bonds, has the same meaning as the term "issue price" in sections 1273(b) and 1274 of the Code, and, in general, means the initial offering price of the Bonds to the public (not including bond houses and brokers, or similar persons or organizations acting in the capacity of underwriters or wholesales) at which price a substantial amount of the Bonds are sold or, if the Bonds are privately placed, the price paid by the first buyer of the Bonds or the acquisition cost of the first buyer. The term "Purchase Price," for the purpose of computation of the Yield of Nonpurpose Investments, means the fair market value of the Nonpurpose Investments on the date of use of Gross Proceeds of the Bonds for acquisition thereof, or if later, on the date that Investment Property constituting a Nonpurpose Investment becomes a Nonpurpose Investment of the Bonds. "Purchaser" means Estrada Hinojosa & Co., Inc. "Regulations" means temporary and permanent regulations promulgated under the Code. "Refunding Instructions" means the Irrevocable Refunding Instructions dated the Closing Date from the City to the Prior Bonds Paying Agent relating to the refunding of the Prior Bonds. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, except that if such corporation shall be dissolved or liquidated or 6 shall no longer perform the functions of a securities rating agency for any reason, the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Securities Depositories" means The Depository Trust Company or, in accordance with then -current guidelines of the Securities and Exchange Commission, such other securities depositaries, or no such depositaries, as the Agency may indicate in a certificate of the Agency delivered to the Paying Agent. "Supplemental Agreement" means any agreement supplemental to or amendatory of this Agreement entered into in accordance with Article VIII hereof. "Written Request of the City" means an instrument in writing signed by the City Representative. "Yield" means that yield which, when used in computing the present worth of all payments of principal and interest (or other payments in the case of Nonpurpose Investments which require payments in a form not characterized as principal and interest) on a Nonpurpose Investment or on the Bonds produces an amount equal to the Purchase Price of such Nonpurpose Investment or the Bonds, all computed as prescribed in applicable Regulations. Section 1.02. Authority for this Agreement. This Agreement is being entered into pursuant to the authority set forth in the Act and the City Resolution constitutes a continuing agreement with the Owners of all of the Bonds issued or to be issued hereunder and then Outstanding to secure the full and final payment of principal of and premiums, if any, and the interest on all pursuant to the provisions of the Act. 7 Iq ARTICLE II THE BONDS Section 2.01. Authorization. Bonds in the aggregate principal amount of million thousand dollars ($ ) are hereby authorized to be issued by the City under and subject to the terms of the Act and which may from time to time be executed and delivered hereunder, subject to the covenants, agreements, provisions and conditions herein contained. The Bonds shall be designated the "City of National City 2012 General Obligation Bonds". Section 2.02. Terms of Bonds. (a) Form; Numbering: The Bonds shall be issued as fully registered Bonds, without coupons, in the denomination of $5,000 each or any integral multiple thereof, but in an amount not to exceed the aggregate principal amount of Bonds maturing in the year of maturity of the Bond for which the denomination is specified. Bonds shall be lettered and numbered as the Paying Agent shall prescribe. (b) Date of Bonds: The Bonds shall be dated their date of issuance and delivery, being , 2012. (c) CUSIP Identification Numbers: "CUSIP" identification numbers shall be imprinted on the Bonds, but such numbers shall not constitute a part of the contract evidenced by the Bonds and any error or omission with respect thereto shall not constitute cause for refusal of the Purchaser to accept delivery of and pay for the Bonds. In addition, failure on the part of the City to use such CUSIP numbers in any notice to Owners of the Bonds shall not constitute an event of default or any violation of the City's contract with such Owners and shall not impair the effectiveness of any such notice. (d) Maturities; Interest. The Bonds shall bear interest at the rate or rates set forth below, payable on August 1, 2012 and on each February 1 and August 1 thereafter (each an "Interest Payment Date"), and shall mature and become payable as to principal on August 1 of the years and in the amounts as set forth below. 8 Maturity Date Principal Interest Amount Rate Each Bond shall bear interest from the Interest Payment Date next preceding the date of registration and authentication thereof unless (i) it is registered and authenticated as of an Interest Payment Date, in which event it shall bear interest from such date, or (ii) it is registered and authenticated prior to an Interest Payment Date and after the close of business on the fifteenth day of the month preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is registered and authenticated on or prior to July 15, 2012, in which event it shall bear interest from the date of original issuance and authentication of the Bonds; provided, however, that if at the time of registration and authentication of a Bond, interest is in default thereon, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on the Bonds shall be calculated on the basis of a 360-day year composed of twelve 30-day months. (e) Payment. Interest on the Bonds (including the final interest payment upon maturity or earlier redemption) is payable by check mailed on the applicable Interest Payment Date to the Owner thereof at his or her address as it appears on the registration books maintained by the Paying Agent at the close of business on the fifteenth (15th) day of the month preceding the Interest Payment Date, or at such other address as the Owner may have filed with the Paying Agent for that purpose; provided that an Owner of $1,000,000 or more aggregate principal amount of Bonds, or the Owner of all of the Bonds at the time Outstanding, shall, at his or her option, receive payment of interest by wire transfer to an account in the United States of America designated by such Owner to the Paying Agent no later than the fifteenth (15) day of the month immediately preceding the applicable Interest Payment Date. Principal of the Bonds is payable in lawful money of the United States of America at the Principal Office of the Paying Agent. Section 2.03. Redemption. (a) Optional Redemption. The Bonds maturing on or before August 1, are not subject to redemption prior to their respective maturity dates. Bonds maturing on or after 9 August 1, shall be subject to redemption prior to their respective maturity dates as a whole or in part on any date, as designated by the City and, absent any such designation, in inverse order of maturities and by lot within a maturity from money provided at the option of the City, in each case on and after August 1, , at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest to the date of redemption, without premium. (b) Redemption Procedure. The Paying Agent shall cause notice of any redemption to be mailed, first class mail, postage prepaid, at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption, to the respective Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books maintained by the Paying Agent and to the Securities Depositories and the Information Services; but such mailing shall not be a condition precedent to such redemption and failure to mail or to receive any such notice shall not affect the validity of the proceedings for the redemption of such Bonds. The Paying Agent shall not mail any notice of redemption until it has sufficient moneys on deposit to pay the redemption price of all Bonds to be redeemed; provided, however, that such restriction shall not apply when the Bonds are redeemed with the proceeds of another obligation of the City; and provided further that in the event the Bonds are being redeemed with such proceeds, the City shall have the right to cancel the notice of redemption by providing written notice of such cancellation to the Paying Agent at least seven (7) Business Days prior to the date set for redemption. Such notice shall state the redemption date and the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption, shall designate the serial numbers of the Bonds to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, or by stating that all of the Bonds of one or more maturities have been called for redemption, and shall require that such Bonds be then surrendered at the Principal Office of the Paying Agent for redemption at the said redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. In the event term bonds are redeemed in part, the City shall deliver a revised sinking fund schedule to the Paying Agent. Upon surrender of Bonds redeemed in part only, the City shall execute and the Paying Agent shall authenticate and deliver to the Owner, at the expense of the City, a new Bond or Bonds, of the same maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds. From and after the date fixed for redemption, if notice of such redemption shall have been duly given and funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption shall have been duly provided, such Bonds so called shall cease to be entitled to any benefit under this Agreement other than the right to receive payment of the redemption price, and no interest shall accrue thereon on or after the redemption date specified in such notice. All Bonds redeemed pursuant to this Section 2.03 shall be canceled by the Paying Agent, and a certificate of cancellation shall be submitted by the Paying Agent to the City. Section 2.04. Form of Bonds. The Bonds, the form of the Paying Agent's certificate of authentication and registration and the form of assignment to appear thereon shall be substantially in the forms, respectively, with necessary or appropriate variations, omissions and 10 insertions, as permitted or required by this Agreement, as are set forth in Exhibit A attached hereto. Section 2.05. Execution of Bonds. The Bonds shall be executed on behalf of the City by the manual or facsimile signatures of its Mayor, Mayor Pro Tern or City Manager and its Treasurer, and attested by the manual or facsimile signature of its City Clerk, who are in office on the date of execution of this Agreement or at any time thereafter, and the seal of the City shall be impressed, imprinted or reproduced by facsimile thereon. If any officer whose signature appears on any Bond ceases to be such officer before delivery of the Bonds to the Purchaser, such signature shall nevertheless be as effective as if the officer had remained in office until the delivery of the Bonds to the Purchaser. Any Bond may be signed and attested on behalf of the City by such persons as at the actual date of the execution of such Bond shall be the proper officers of the City although at the nominal date of such Bond any such person shall not have been such officer of the City. Only such Bonds as shall bear thereon a certificate of authentication and registration in the form set forth in Exhibit A attached hereto, executed and dated by the Paying Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Agreement, and such certificate of the Paying Agent shall be conclusive evidence that the Bonds so registered have been duly authenticated, registered and delivered hereunder and are entitled to the benefits of this Agreement. Section 2.06. Transfer of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the books required to be kept pursuant to the provisions of Section 2.08 hereof, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the Principal Office at the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. The Paying Agent shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Paying Agent shall authenticate and deliver a new Bond or Bonds, for like aggregate principal amount. No transfers of Bonds shall be required to be made (a) fifteen days prior to the date established for selection of Bonds for redemption or (b) with respect to a Bond after such Bond has been selected for redemption (except with respect to the unredeemed portion thereof). Section 2.07. Exchange of Bonds. Bonds may be exchanged at the Principal Office of the Paying Agent for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The Paying Agent shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. No exchanges of Bonds shall be required to be made (a) fifteen days prior to the date established for selection of Bonds for redemption or (b) with respect to a Bond after such Bond has been selected for redemption (except with respect to the unredeemed portion thereof). Section 2.08. Bond Register. The Paying Agent shall keep or cause to be kept sufficient books for the registration and transfer of the Bonds, which shall at all times be open to inspection by the City upon reasonable notice; and, upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, Bonds as herein before provided. Section 2.09. Temporary Bonds. The Bonds may be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be determined by the City, and may contain such reference to any of the provisions of this Agreement as may be appropriate. Every temporary Bond shall be executed by the City upon the same conditions and in substantially the same manner as the definitive Bonds. If the City issues temporary Bonds it will execute and furnish definitive Bonds without delay, and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Principal Office of the Paying Agent and the Paying Agent shall deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits pursuant to this Agreement as definitive Bonds executed and delivered hereunder. Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated the City, at the expense of the Owner of said Bond, shall execute, and the Paying Agent shall thereupon authenticate and deliver, a new Bond of like maturity and principal amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Paying Agent of the Bond so mutilated and provision of indemnity satisfactory to the Paying Agent. Every mutilated Bond so surrendered to the Paying Agent shall be canceled by it and delivered to, or upon the order of, the City. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the City and the Paying Agent and, if such evidence be satisfactory to the City and the Paying Agent and indemnity satisfactory to it shall be given, the City, at the expense of the Owner, shall execute, and the Paying Agent shall thereupon authenticate and deliver, a new Bond of like maturity and principal amount in lieu of and in substitution for the Bond so lost, destroyed or stolen. The City may require payment of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the City and the Paying Agent in the premises. Any Bond issued under the provisions of this Section 2.10 in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Agreement with all other Bonds issued pursuant to this Agreement. Section 2.11. Book -Entry; Limited Obligation of City. The Bonds may be issued in the form of a separate single fully registered Bond (which may be typewritten) for each maturity. The ownership of such Bond shall be registered in the registration books kept by the Paying Agent in the name of the Nominee as nominee of the Depository. With respect to Bonds registered in the registration books kept by the Paying Agent in the name of the Nominee, the City and the Paying Agent shall have no responsibility or obligation to such Participant or to any Person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the City and the Paying Agent shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant or any other Person, other than as shown in the registration books kept by the Paying Agent, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository and its 12 Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part, or (iv) the payment to any Participant or any other Person, other than a Nominee as shown in the registration books kept by the Paying Agent, of any principal of, premium, if any, or interest on the Bonds. The City and the Paying Agent may treat and consider the Person in whose name each Bond is registered in the registration books kept by the Paying Agent as the owner and absolute Owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on such Bond, for the purpose of giving notices of prepayment and other matters with respect to such Bond, for the purposes of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Paying Agent shall pay all principal, premium, if any, and interest with respect to the Bonds, only to or upon the order of the respective Owners, as shown in the registration books kept by the Paying Agent, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the registration books kept by the Paying Agent, shall receive a Bond evidencing the obligation of the City to make payments of principal, premium, if any, and interest pursuant to this Paying Agent Agreement. Upon delivery by the Depository to the Nominee, the Paying Agent and the City of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions regarding the payment of the principal of and interest on the Bonds set forth in Section 2.02(e), the word Nominee in this Agreement shall refer to such new nominee of the Depository. Section 2.12. Representation Letter. In order to qualify the Bonds for the Depository's book -entry system, the City shall execute, seal, countersign and deliver to such Depository a letter from the City representing such matters as shall be necessary to so qualify the Bonds (the "Representation Letter"). The execution and delivery of the Representation Letter shall not in any way limit the provisions of Section 2.11 hereof or in any other way impose upon the City or the Paying Agent any obligation whatsoever with respect to Persons having interests in the Bonds other than the Owners, as shown on the registration books kept by the Paying Agent. In the written acceptance of the Paying Agent, such Paying Agent shall agree to take all actions necessary for all representations of the City in the Representation Letter with respect to the Paying Agent to at all times be complied with. In addition to the execution and delivery of the Representation Letter, the City shall take any other actions, not inconsistent with this Agreement, to qualify the Bonds for the Depository's book -entry system. Section 2.13. Transfers Outside Book -Entry System. The City may, by written request, at any time or for any reason, remove the Depository and appoint a successor or successors thereto. In the event (i) the Depository determines not to continue to act as securities depository for any series of Bonds, or (ii) the City determines that the Depository shall no longer so act, then the City will discontinue the book -entry system with the Depository. If the City fails to identify another qualified securities depository to replace the Depository then the Bonds shall no longer be restricted to being registered in the registration books kept by the Paying Agent in the name of the Nominee, but shall be registered in whatever name or names Owners of such Bonds transferring or exchanging such Bonds shall designate, in accordance with the provisions of Section 2.06. Section 2.14. Payments and Notices to the Nominee. Notwithstanding any other provision of this Agreement to the contrary, so long as any Bond is registered in the name of the Nominee, all payments of principal of, premium, if any, and interest on such Bond and all 13 notices with respect to such Bond shall be made and given, respectively, as provided in the Representation Letter or as otherwise instructed in writing by the Depository. 14 ni ARTICLE III ISSUANCE OF BONDS; APPLICATION OF BOND PROCEEDS; SECURITY FOR THE BONDS Section 3.01. Issuance and Delivery of Bonds. At any time after the execution of this Agreement the City may issue and deliver Bonds in the aggregate principal amount of million thousand dollars ($ ). The Mayor, the Mayor Pro Tern, the City Manager or the Finance Manager, and the City Treasurer are hereby directed to cause the Bonds substantially in the form attached hereto as Exhibit A to be printed, signed and sealed, and to be delivered to the Purchaser through the Depository on receipt of the purchase price therefor. The appropriate officials of the City are hereby authorized to take any and all action any of them deem reasonable in order to enable the City to execute and deliver the Bonds. The Paying Agent is hereby authorized to deliver the Bonds to the Purchaser, upon receipt of a Written Request of the City. Section 3.02. Application of Proceeds of Sale of Bonds. Upon the receipt of payment for the Bonds, the proceeds thereof, being $ (constituting the par amount thereof ($ ), plus net original issue premium in the amount of $ , less the discount in the amount of $ retained by the Purchaser), shall be paid to the Paying Agent who shall forthwith set aside, pay over and deposit such proceeds as follows: (a) Deposit in the Costs of Issuance Fund the amount of $ ; and (b) Deposit in the Proceeds Fund, the remainder of the proceeds of the Bonds, being $ , which the Paying Agent will immediately transfer to the Prior Bonds Paying Agent for deposit under the Refunding Instructions as provided in Section 4.01. Section 3.03. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be dependent upon the completion of the Project or upon the performance by any person of his or her obligation with respect to such Project. Section 3.04. Security for the Bonds. The Bonds are general obligations of the City and the City has the power, is obligated and hereby covenants to levy ad valorem taxes upon all property within the City subject to taxation by the City, without limitation of rate or amount (except with respect to certain personal property which is taxed at limited rates), for the payment of the Bonds and the interest thereon, in accordance with all relevant provisions of law. The City hereby covenants to direct the County of San Diego to collect such ad valorem taxes in such amounts and at such times as is necessary to ensure the timely payment of Debt Service. 15 ARTICLE IV FUNDS AND ACCOUNTS Section 4.01. Proceeds Fund. There is hereby established with the Paying Agent as a separate fund the 2012 Proceeds Fund (the "Proceeds Fund"), to the credit of which a deposit shall be made as required by Section 3.02(b). Money in the Proceeds Fund shall be transferred by the Paying Agent, immediately upon receipt thereof, to the Prior Bonds Paying Agent for deposit under and pursuant to the Refunding Instructions. At such time as no amounts remain on deposit in the Proceeds Fund, the Paying Agent shall close the Proceeds Fund. Section 4.02. Debt Service Fund. There is hereby established with the City as a separate fund, to be maintained distinct from all other funds of the City, the 2012 Debt Service Fund. Upon the receipt thereof, the City shall deposit the proceeds of the ad valorem property taxes levied to pay Debt Service in the Debt Service Fund and, if any, other moneys lawfully available to pay debt service on the Bonds as provided in Section 3.04. The City shall also deposit in the Debt Service Fund the amount required by Section 3.04 hereof. The Debt Service Fund shall be administered and disbursements made in the manner and in the order set forth in Section 4.03 hereof. Section 4.03. Administration and Disbursements From Debt Service Fund. All moneys in the Debt Service Fund shall be used and withdrawn by the City solely for the purpose of paying the principal of and interest on the Bonds as the same shall become due and payable. On the last day of January and July in each year, commencing July 31, 2012, the City shall transfer to the Paying Agent moneys on deposit in the Debt Service Fund for application by the Paying Agent on the next succeeding Interest Payment Date to the payment of principal of and interest on the Bonds. Amounts representing accrued interest on the Bonds or premium with respect to the Bonds shall be applied to pay interest on the Bonds prior to amounts collected pursuant to Section 3.04 being so applied. Section 4.04. Bond Service Fund. There is hereby established as a separate fund the 2012 Bond Service Fund (the "Bond Service Fund"), to be held by the Paying Agent. All moneys received by the Paying Agent from the City pursuant to Section 4.03 shall be deposited into the Bond Service Fund. The moneys on deposit in the Bond Service Fund shall be used solely to pay principal and interest on the Bonds when due. The funds in the Bond Service Fund shall be invested in a money market fund (including any fund for which the Paying Agent or any its affiliates maintains or acts as sponsor or advisor) assigned a rating of Aaa by Moody's and AAA by S&P and Fitch. Section 4.05. Investment of Moneys. Subject to the provisions of Section 5.08 hereof, amounts on deposit in the Project Fund and the Debt Service Fund may be invested in Authorized Investments, and earnings on such investments shall remain in the respective fund or account. Authorized Investments may be purchased at such prices as the City may determine, but in no event at more than their Fair Market Value. Section 4.06. Costs of Issuance Fund. There is hereby established as a separate fund the 2012 Costs of Issuance Fund (the "Costs of Issuance Fund"), to be held by the Paying Agent, to the credit of which a deposit shall be made as required by Section 3.02(a). Moneys on deposit in the Costs of Issuance Fund shall be used by the Paying Agent to pay Issuance Expenses. If on September 30, 2012 amounts remain on deposit in the Costs of Issuance Fund, the Paying Agent will transfer such amounts to the Bond Service fund to be applied to pay 16 interest on the Bonds on February 1, 2013, provided that the Paying Agent shall notify the City at least 15 days prior to making such transfer. At such time as no amounts remain on deposit in the Costs of Issuance Fund, the Paying Agent shall close the Costs of Issuance Fund. 17 2 9 ARTICLE V OTHER COVENANTS OF THE CITY Section 5.01. Punctual Payment. The City will punctually pay, or cause to be paid, the principal of and interest on the Bonds, in strict conformity with the terms of the Bonds and of this Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of this Agreement and of the Bonds. Nothing herein contained shall prevent the City from making advances of its own moneys, howsoever derived, to any of the uses or purposes permitted by law. Section 5.02. Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the City will not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and will not, directly or indirectly, approve any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the City, such claim for interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits of this Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have so extended or funded. Section 5.03. Payment of Claims. The City will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the project financed with the proceeds of the Bonds which might impair the security of the Bonds. Nothing herein contained shall require the City to make any such payment so long as the City in good faith shall contest the validity of said claims. Section 5.04. Books and Accounts. The City will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the City in which complete and correct entries shall be made of all transactions relating to the project financed with proceeds of the Prior Bonds. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Paying Agent and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives authorized in writing. Section 5.05. Protection of Security and Rights of Bondowners. The City will preserve and protect the security of the Bonds and the rights of the Bondowners, and will warrant and defend their rights against all claims and demands of all persons. From and after the sale and delivery of any of the Bonds by the City, the Bonds shall be incontestable by the City. Section 5.06. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the terms of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Certificate shall not be an Event of Default under Section 7.01 hereof; provided, however, any Participating Underwriter, any Owner or any Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Section 5.06 and the Continuing Disclosure Certificate. Section 5.07. Further Assurances. The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the 18 re A better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Agreement. Section 5.08. No Arbitrage. The City shall not take, or permit or suffer to be taken by the Paying Agent or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Bonds would have caused the Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code. Section 5.09. Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code. Section 5.10. Private Activity Bond Limitation. The City shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code. Section 5.11. Maintenance of Tax -Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds. Section 5.12. Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of Excess Investment Earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds. Section 5.13. Information Report. The Finance Manager is hereby directed to assure the filing of an information report for the Bonds in compliance with Section 149(e) of the Code. [Section 5.14. Small Issuer Exemption from Bank Nondeductibility Restriction. The City hereby designates the Bonds for purposes of paragraph (3) of section 265(b) of the Code and covenants that none of the Bonds constitute private activity bonds as defined in section 141 of the Code, and that not more than $10,000,000 aggregate principal amount of obligations the interest on which is excludable (under section 103(a) of the Code) from gross income for federal income taxes (excluding, however, private activity bonds, as defined in section 141 of the Code, other than qualified 501(c)(3) bonds as defined in section 145 of the Code), including the Bonds, have been or shall be issued by the City, including all subordinate entities of the City, during the calendar year 2012.] 19 ARTICLE VI THE PAYING AGENT Section 6.01. Appointment of Paying Agent. Union Bank, N.A., at its Principal Office in San Francisco, California, or in such other location as approved by the City, is hereby appointed Paying Agent for the Bonds. The Paying Agent undertakes to perform such duties, and only such duties, as are specifically set forth in this Agreement, and, even during the continuance of an Event of Default, no implied covenants or obligations shall be read into this Agreement against the Paying Agent. The Paying Agent shall signify its acceptance of the duties and obligations imposed upon it by this Agreement by executing and delivering to the City this Agreement. The City may remove the Paying Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor shall be a bank or trust company doing business in the State of California, having (or, if such bank or trust company is a member of a bank holding company, its parent holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least fifty million dollars ($50,000,000), and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section 6.01 the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Paying Agent may at any time resign by giving written notice to the City and the Bondowners of such resignation. Upon receiving notice of such resignation, the City shall promptly appoint a successor Paying Agent by an instrument in writing. Any resignation or removal of the Paying Agent and appointment of a successor Paying Agent shall become effective upon acceptance of appointment by the successor Paying Agent. If the City fails to appoint a successor Paying Agent within 30 days of the Paying Agent's removal or resignation, the Paying Agent may petition a court of competent jurisdiction for the appointment of a siuccessor. Section 6.02. Paying Agent May Hold Bonds. The Paying Agent may become the owner of any of the Bonds in its own or any other capacity with the same rights it would have if it were not Paying Agent. Section 6.03. Liability of Agents. The recitals of facts, covenants and agreements herein and in the Bonds contained shall be taken as statements, covenants and agreements of the City, and the Paying Agent assumes no responsibility for the correctness of the same, nor makes any representations as to the validity or sufficiency of this Agreement or of the Bonds, nor shall incur any responsibility in respect thereof, other than as set forth in this Agreement. The Paying Agent shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful default. In the absence of bad faith, the Paying Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Paying Agent and conforming to the requirements of this Agreement; but in the case of any such certificates or opinions by which any provision hereof are specifically required to be furnished to the Paying Agent, the Paying Agent shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement. 20 The Paying Agent shall not be liable for any error of judgment made in good faith by a responsible officer unless it shall be proved that the Paying Agent was negligent in ascertaining the pertinent facts. No provision of this Agreement shall require the Paying Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Paying Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Paying Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. The Paying 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 Paying Agent shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Paying Agent e-mail or facsimile instructions (or instructions by a similar electronic method) and the Paying Agent in its discretion elects to act upon such instructions, the Paying Agent's understanding of such instructions shall be deemed controlling. The Paying Agent shall not be liable for any losses, costs or expenses arising directly or indirectly from the Paying 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 Paying Agent, including without limitation the risk of the Paying Agent acting on unauthorized instructions, and the risk of interception and misuse by third parties. Any banking association or corporation into which the Paying Agent may be merged, converted or with which the Paying Agent may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Paying Agent shall be a party, or any banking association or corporation to which all or substantially all of the corporate trust business of the Paying Agent shall be transferred, shall succeed to all the Paying Agent's rights, obligations and immunities hereunder without the execution or filing of any paper or any further act on the part of the parties hereto, anything herein to the contrary notwithstanding. Section 6.04. Notice to Agents. The Paying Agent may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Paying Agent may consult with counsel, who may be of counsel to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Whenever in the administration of its duties under this Agreement the Paying Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering 21 33 any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Paying Agent, be deemed to be conclusively proved and established by a certificate of the City, and such certificate shall be full warrant to the Paying Agent for any action taken or suffered under the provisions of this Agreement upon the faith thereof, but in its discretion the Paying Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. Section 6.05. Compensation, Indemnification. The City shall pay to the Paying Agent from time to time reasonable compensation for all services rendered under this Agreement, and also all reasonable expenses, charges, counsel fees and other disbursements, including those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Agreement. A City Representative is hereby authorized to execute an agreement or agreements with the Paying Agent in connection with such fees and expenses. The City further agrees to indemnify and save the Paying Agent and its officers, agents, directors and employees harmless against any liabilities, costs, expenses (including, without limitation, legal fees and expenses), losses, judgments, damages, claims and suits which it may incur in the exercise and performance of its powers and duties hereunder which are not due to its negligence or bad faith. This Section 6.05 shall survive the termination of this Agreement and the earlier removal or resignation of the Paying Agent. Section 6.06. Funds and Accounts. The Paying Agent may establish such funds and accounts as it reasonably deems necessary or appropriate to perform its obligations under this Agreement. 22 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BONDOWNERS Section 7.01. Events of Default. If one or more of the following events ("Events of Default") shall happen, that is to say: (a) if default shall be made by the City in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or by declaration or otherwise; (b) if default shall be made by the City in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable; (c) if default shall be made by the City in the observance of any of the covenants, agreements or conditions on its part in this Agreement or in the Bonds contained, and such default shall have continued for a period of thirty (30) days after written notice thereof to the City Representative; or (d) if the City shall file a petition seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, seeking reorganization of the City under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of its property; then, and in each and every event of default and upon written request of the Owners of not less than sixty percent (60%) in aggregate principal amount of the Bonds at the time Outstanding, the principal of all of the Bonds then Outstanding, and the interest accrued thereon, shall be declared to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Agreement or in the Bonds contained to the contrary notwithstanding. Such declaration may be rescinded by the Owners of not less than sixty percent (60%) in aggregate principal amount of the Bonds at the time Outstanding provided the City cures such default or defaults, including the deposit with the Paying Agent of a sum sufficient to pay all principal on the respective Bonds matured prior to such declaration and all matured installments of interest (if any) on the Bonds, with interest at the rate of twelve percent (12%) per annum on such overdue installments of principal and, to the extent such payment of interest is lawful at that time, on such overdue installments of interest, so that the City is currently in compliance with all payment, deposit and transfer provisions of this Agreement, and a sum sufficient to pay any expenses incurred by the Paying Agent in connection with such default. Section 7.02. Application of Funds. All of the sums in the funds and accounts provided for in Sections 4.03 and 4.05 hereof, upon the date of the Event of Default as provided in Section 7.01 hereof, and all sums thereafter received by the Paying Agent hereunder, shall be 23 applied by the Paying Agent in the following order upon presentation of the Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: First, to the payment of the costs and expenses of the Paying Agent hereunder in declaring such event of default, including reasonable compensation to her or their agents, attorneys and counsel; Second, in case the principal of the Bonds shall not have become due and payable, to the payment of the interest in default in the order of the seniority of the installments of such interest, with interest on the overdue installments at the rate of twelve percent (12%) per annum (to the extent that such interest on overdue installments shall have been collected), such payments to be made ratably to the persons entitled thereto without discrimination or preference; Third, in case the principal of the Bonds shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon the Bonds for principal and interest, with interest on the overdue principal and installments of interest at the rate of twelve percent (12%) per annum (to the extent that such interest on overdue installments of interest shall have been collected), and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. Section 7.03. Other Remedies of Bondowners. Any Bondowner shall have the right, for the equal benefit and protection of all Bondowners similarly situated: (a) by mandamus, suit, action or proceeding, to compel the City and its members, officers, agents or employees to perform each and every term, provision and covenant contained in this Agreement and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Bondowners' rights; or (c) upon the happening of any event of default (as defined in Section 7.01 hereon), by suit, action or proceeding in any court of competent jurisdiction, to require the City and its members and employees to account as if it and they were the Paying Agents of an express trust. Section 7.04. Non -Waiver. Nothing in this Article VII or in any other provision of this Agreement, or in the Bonds, shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as herein provided, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds. A waiver of any default by any Bondowner shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of any Owner of any of the Bonds to exercise any right or power accruing upon any default shall impair any such 24 right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Bondowners by this Article VI may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners of the Bonds. If a suit, action or proceeding to enforce any right or exercise any remedy be abandoned or determined adversely to the Bondowners, the City and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. Section 7.05. Remedies Not Exclusive. No remedy herein conferred upon the Owners of Bonds shall be exclusive of any other remedy and that each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereafter conferred on the Bondowners. 25 ARTICLE VIII SUPPLEMENTAL AGREEMENTS Section 8.01. Amendments Permitted. This Agreement and the rights and obligations of the City and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 8.04. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the City of any pledge or lien upon the ad valorem taxes of the taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or this Agreement), or reduce the percentage of Bonds required for the amendment hereof. Any such amendment may not modify any of the rights or obligations of the Paying Agent without its written consent. This Agreement and the rights and obligations of the City and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes: (a) to add to the covenants and agreements of the City in this Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power herein reserved to or conferred upon the City; (b) to make modifications not adversely affecting any outstanding series of Bonds of the City in any material respect, as determined by the City; (c) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in this Agreement, or in regard to questions arising under this Agreement, as the City and the Paying Agent may deem necessary or desirable and not inconsistent with this Agreement, and which shall not materially adversely affect the rights of the Owners of the Bonds, as determined by the City; and (d) to make such additions, deletions or modifications as may be necessary or desirable to assure compliance with Section 148 of the Code relating to required rebate of Excess Investment Earnings to the United States or otherwise as may be necessary to assure exclusion from gross income for federal income tax purposes of interest on the Bonds or to conform with the Regulations. The Paying Agent shall, prior to executing such Supplemental Agreement, be entitled to receive and rely upon an opinion of counsel stating that such Supplemental Agreement is authorized or permitted in accordance with the terms of this Agreement. Section 8.02. Owners' Meetings. The City may at any time call a meeting of the Owners. In such event the City is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof, and to fix and adopt rules and regulations for the conduct of said meeting. 26 Section 8.03. Procedure for Amendment with Written Consent of Owners. The City and the Paying Agent may at any time adopt a Supplemental Agreement amending the provisions of the Bonds or of this Agreement or any Supplemental Agreement, to the extent that such amendment is permitted by Section 8.01, to take effect when and as provided in this Section. A copy of such Supplemental Agreement, together with a request to Owners for their consent thereto, shall be mailed by first class mail, by the Paying Agent to each Owner of Bonds Outstanding, but failure to mail copies of such Supplemental Agreement and request shall not affect the validity of the Supplemental Agreement when assented to as in this Section provided. Such Supplemental Agreement shall not become effective unless there shall be filed with the Paying Agent the written consents of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding (exclusive of Bonds disqualified as provided in Section 8.04) and a notice shall have been mailed as hereinafter in this Section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Bonds for which such consent is given, which proof shall be such as is permitted by Section 9.04. Any such consent shall be binding upon the Owner of the Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Paying Agent prior to the date when the notice hereinafter in this Section provided for has been mailed. After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Agreement, the City shall mail a notice to the Owners in the manner hereinbefore provided in this Section for the mailing of the Supplemental Agreement, stating in substance that the Supplemental Agreement has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in this Section (but failure to mail copies of said notice shall not affect the validity of the Supplemental Agreement or consents thereto). Proof of the mailing of such notice shall be filed with the Paying Agent. A record, consisting of the papers required by this Section 8.03 to be filed with the Paying Agent, shall be proof of the matters therein stated until the contrary is proved. The Supplemental Agreement shall become effective upon the filing with the Paying Agent of the proof of mailing of such notice, and the Supplemental Agreement shall be deemed conclusively binding (except as otherwise hereinabove specifically provided in this Article) upon the City and the Owners of all Bonds at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such sixty-day period. Section 8.04. Disqualified Bonds. Bonds owned or held for the account of the City, excepting any pension or retirement fund, shall not be deemed Outstanding for the purpose of any vote, consent or other action or any calculation of Outstanding Bonds provided for in this Article VIII, and shall not be entitled to vote upon, consent to, or take any other action provided for in this Article VIII; except that in determining whether the Paying Agent shall be protected in relying upon any such approval or consent of an Owner, only Bonds which the Paying Agent actually knows to be owned or held for the account of the City (excepting any pension or retirement fund) shall be disregarded unless all Bonds are so owned in which case such Bonds shall be considered outstanding for the purpose of such determination. Section 8.05. Effect of Supplemental Agreement. From and after the time any Supplemental Agreement becomes effective pursuant to this Article VIII, this Agreement shall be deemed to be modified and amended in accordance therewith, the respective rights, duties 27 3`� and obligations under this Agreement of the City and all owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Agreement shall be deemed to be part of the terms and conditions of this Agreement for any and all purposes. Section 8.06. Endorsement or Replacement of Bonds Issued After Amendments. The City may determine that Bonds issued and delivered after the effective date of any action taken as provided in this Article VIII shall bear a notation, by endorsement or otherwise, in form approved by the City, as to such action. In that case, upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his Bond for that purpose at the Principal Office of the Paying Agent or at such other office as the City may select and designate for that purpose, a suitable notation shall be made on such Bond. The City may determine that new Bonds, so modified as in the opinion of the City is necessary to conform to such Owners' action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Bonds then Outstanding, such new Bonds shall be exchanged at the Principal Office of the Paying Agent without cost to any Owner, for Bonds then Outstanding, upon surrender of such Bonds. Section 8.07. Amendatory Endorsement of Bonds. The provisions of this Article VIII shall not prevent any Owner from accepting any amendment as to the particular Bonds held by him or her. 28 ARTICLE IX MISCELLANEOUS Section 9.01. Benefits of Agreement Limited to Parties. Nothing in this Agreement, expressed or implied, is intended to give to any person other than the City, the Paying Agent and the Owners, any right, remedy, claim under or by reason of this Agreement. Any covenants, stipulations, promises or agreements in this Agreement contained by and on behalf of the City shall be for the sole and exclusive benefit of the Owners and the Paying Agent. Section 9.02. Successor is Deemed Included in All References to Predecessor. Whenever in this Agreement or any Supplemental Agreement either the City or the Paying Agent is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Agreement contained by or on behalf of the City or the Paying Agent shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 9.03. Discharge of Agreement. The City shall have the option to pay and discharge the indebtedness on all or any portion of the Bonds Outstanding in any one or more of the following ways: (a) by paying or causing to be paid the principal of, and interest and any premium on, such Bonds Outstanding and designated for defeasance, as and when the same become due and payable; (b) by depositing with the Paying Agent, in trust, at or before maturity, money which, together with, in the event of a discharge of all of the Bonds, the amounts then on deposit in the funds provided for in Sections 4.02 and 4.04 is fully sufficient to pay such Bonds Outstanding and designated for defeasance, including all principal, interest and redemption premiums; or (c) by irrevocably depositing with the Paying Agent, in trust, cash and Federal Securities in such amount as the City shall determine as confirmed in writing by an independent certified public accountant will, together with the interest to accrue thereon and, in the event of a discharge of all of the Bonds, moneys then on deposit in the funds and accounts provided for in Sections 4.02 and 4.04, be fully sufficient to pay and discharge the indebtedness on such Bonds Outstanding and designated for defeasance (including all principal, interest and redemption premiums) at or before their respective maturity dates. If the City shall have taken any of the actions specified in (a), (b) or (c) above, and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been given as in this Agreement provided or provision satisfactory to the Paying Agent shall have been made for the giving of such notice, then, at the election of the City, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the funds and moneys provided for in this Agreement and all other obligations of the City under this Agreement with respect to such Bonds Outstanding shall cease and terminate. Notice of such election shall be filed with the Paying Agent. Notwithstanding the foregoing, the obligation of the City to pay or cause to be paid to the Owners of the Bonds not so surrendered and paid all sums due thereon and all amounts owing to the Paying Agent pursuant to Section 6.05 shall continue in any event. 29 Upon compliance by the City with the foregoing with respect to all Bonds Outstanding and designated for defeasance, any funds held by the Paying Agent after payment of all fees and expenses of the Paying Agent, which are not required for the purposes of the preceding paragraph, shall be paid over to the City. Section 9.04. Execution of Documents and Proof of Ownership by Owners. Any request, declaration or other instrument which this Agreement may require or permit to be executed by Owners may be in one or more instruments of similar tenor, and shall be executed by Owners in person or by their attorneys appointed in writing. Except as otherwise herein expressly provided, the fact and date of the execution by any Owner or his attorney of such request, declaration or other instrument, or of such writing appointing such attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the person signing such request, declaration or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. Except as otherwise herein expressly provided, the ownership of registered Bonds and the amount, maturity, number and date of holding the same shall be proved by the registry books. Any request, declaration or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the City or the Paying Agent in good faith and in accordance therewith. Section 9.05. Waiver of Personal Liability. No member, officer, agent or employee of the City shall be individually or personally liable for the payment of the principal of, or interest or any premium on, the Bonds; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law. Section 9.06. Notices to and Demands on City and Paying Agent. Any notice or demand which by any provision of this Agreement is required or permitted to be given or served by the Paying Agent to or on the City may be given or served by being deposited postage prepaid in a post office letter box addressed (until another address is filed by the City with the Paying Agent) to the City of National City, 525 San Anselmo Avenue, San Anselmo, California 94960, Attn: Finance and Administrative Services Director. Any notice or demand which by any provision of this Agreement is required or permitted to be given or served by the City to or on the Paying Agent may be given or served by being deposited postage prepaid in a post office letter box addressed (until another address is filed by the Paying Agent with the City) to Union Bank, N.A., 550 Kearny Street, Suite 600, San Francisco, California 94108, Attention: Milly Canessa. Section 9.07. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Agreement shall for any reason be held illegal or unenforceable, such holding shall not affect the validity of the remaining portions of this Agreement. The City hereby declares that it would have adopted this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issue of the Bonds pursuant thereto irrespective of 30 the fact that any one or more Sections, paragraphs, sentences, clauses, or phrases of this Agreement may be held illegal, invalid or unenforceable. Section 9.08. Unclaimed Moneys. Anything contained herein to the contrary notwithstanding, any moneys held by the Paying Agent in trust for the payment and discharge of the principal of, and the interest and any premium on, the Bonds which remains unclaimed for two (2) years after the date when the payments of such principal, interest and premium have become payable, if such moneys was held by the Paying Agent at such date, shall be repaid by the Paying Agent (without liability for interest) to the City as its absolute property free from any trust, and the Paying Agent shall thereupon be released and discharged with respect thereto and the Bond Owners shall look only to the City for the payment of the principal of, and interest and any premium on, such Bonds. Section 9.09. Applicable Law. This Agreement shall be governed by and enforced in accordance with the laws of the State of California applicable to contracts made and performed in the State of California. Section 9.10. Conflict with Act. In the event of a conflict between any provision of this Agreement with any provision of the Act as in effect on the Closing Date, the provision of the Act shall prevail over the conflicting provision of this Agreement. Section 9.11. Conclusive Evidence of Regularity. Bonds issued pursuant to this Agreement shall constitute conclusive evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the ad valorem taxes securing the payment of the Bonds. Section 9.12. Payment on Business Day. In any case where the date of the maturity of interest or of principal (and premium, if any) of the Bonds or the date fixed for redemption of any Bonds or the date any action is to be taken pursuant to this Agreement is other than a Business Day, the payment of interest or principal (and premium, if any) or the action need not be made on such date but may be made on the next succeeding day which is a Business Day with the same force and effect as if made on the date required and no interest shall accrue for the period after such date. Section 9.13. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original. 31 IN WITNESS WHEREOF, the City has caused this Agreement to be executed in its name and the Paying Agent has caused this Agreement to be executed in its name, all as of the date first written above. CITY OF NATIONAL CITY By: City Manager UNION BANK, N.A., as Paying Agent By: Authorized Officer 32 UL/ No. $ EXHIBIT A FORM OF BOND Interest Rate UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF SAN DIEGO CITY OF NATIONAL CITY 2012 GENERAL OBLIGATION BOND Maturity Date August 1, 20_ REGISTERED OWNER: Cede & Co. PRINCIPAL SUM: DOLLARS Issue Date April , 2012 CUSIP The CITY OF NATIONAL CITY, a general law city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), for value received hereby promises to pay to the Registered Owner stated above, or registered assigns (the "Owner"), on the Maturity Date stated above (subject to any right of prior redemption hereinafter provided for), the Principal Sum stated above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the interest payment date next preceding the date of authentication of this Bond (unless (i) this Bond is authenticated on an interest payment date, in which event it shall bear interest from such date of authentication, or (ii) this Bond is authenticated prior to an interest payment date and after the close of business on the fifteenth day of the month preceding such interest payment date, in which event it shall bear interest from such interest payment date, or (iii) this Bond is authenticated on or prior to July 15, 2012, in which event it shall bear interest from the Issue Date stated above; provided however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the interest payment date to which interest has previously been paid or made available for payment on this Bond) until payment of such Principal Sum in full, at the rate per annum stated above, payable on August 1, 2012 and on each February 1 and August 1 thereafter, calculated on the basis of 360-day year composed of twelve 30-day months. Principal hereof and premium, if any, upon early redemption hereof are payable at the designated corporate trust office of Union Bank, N.A., (the "Paying Agent"). Interest hereon (including the final interest payment upon maturity or earlier redemption) is payable by check mailed on the applicable Interest Payment Date to the Owner at his or her address as it appears on the registration books maintained by the Paying Agent as of the close of business on the fifteenth day of the month next preceding such interest payment date, or at such other address as the Owner may have filed with the Paying Agent for that purpose. A-1 y This Bond is one of a duly authorized issue of bonds of the City designated as "City of National City 2012 General Obligation Refunding Bonds" (the "Bonds"), in an aggregate principal amount of million thousand dollars ($ ), all of like tenor and date (except for such variation, if any, as may be required to designate varying numbers, maturities, interest rates or redemption and other provisions) and all issued pursuant to the provisions of Article 9 (commencing with section 53550) and Article 11 of Chapter 3 (commencing with section 53580) of Part 1 of Division 2 of Title 5 of the California Government Code (collectively, the "Act"), pursuant to a resolution of the City adopted , 2012 (the "Resolution"), authorizing the issuance of the Bonds and a Paying Agent Agreement dated as of July 1, 2012 (the "Agreement") between the City and the Paying Agent. Reference is hereby made to the Resolution and the Agreement (copies of which are on file at the office of the Paying Agent) and the Act for a description of the terms on which the Bonds are issued and the rights thereunder of the owners of the Bonds and the rights, duties and immunities of the Paying Agent and the rights and obligations of the City thereunder, to all of the provisions of which Resolution and Agreement the Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued for the purpose of refunding certain previously issued general obligation bonds of the City. This Bond and the interest hereon and on all other Bonds and the interest thereon (to the extent set forth in the Agreement) are general obligations of the City and the City has the power, is obligated and has covenanted to levy ad valorem taxes for the payment of the Bonds and the interest thereon, in accordance with all relevant provisions of law. The City has covenanted in the Agreement to direct the County of San Diego to levy and collect such ad valorem taxes in such amounts and at such times is necessary to ensure the timely payment of debt service on the Bonds. Further, if and to the extent the amount of such ad valorem taxes collected is insufficient to pay debt service on the Bonds, the City is obligated, under the Agreement, to use any other moneys lawfully available therefor to pay debt service on the Bonds. The Bonds maturing on or before August 1, are not subject to redemption prior to their respective maturity dates. Bonds maturing on or after August 1, , shall be subject to redemption prior to their respective maturity dates as a whole or in part on any date, as designated by the City and, absent any such designation, in inverse order of maturities and by lot within a maturity from money provided at the option of the City, in each case on and after August 1, , at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest to the date of redemption, without premium. As provided in the Agreement, notice of redemption shall be given by mail no less than thirty (30) nor more than sixty (60) days prior to the redemption date to the respective registered owners of any Bonds designated for redemption at their addresses appearing on the Bond registration books maintained by the Paying Agent, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for redemption. If this Bond is called for redemption and payment is duly provided therefor as specified in the Agreement, interest shall cease to accrue hereon from and after the date fixed for redemption. If an Event of Default, as defined in the Agreement, shall occur, the principal of all Bonds may be declared due and payable upon the conditions, in the manner and with the effect A-2 WA.. provided in the Agreement, but such declaration and its consequences may be rescinded and annulled as further provided in the Agreement. The Bonds are issuable as fully registered Bonds, without coupons, in denominations of $5,000 and any integral multiple thereof. Subject to the limitations and conditions and upon payment of the charges, if any, as provided in the Agreement, Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations and of the same maturity. This Bond is transferable by the Owner hereof, in person or by his attorney duly authorized in writing, at said office of the Paying Agent, but only in the manner and subject to the limitations provided in the Agreement, and upon surrender and cancellation of this Bond. Upon registration of such transfer a new Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The City and the Paying Agent may treat the Owner hereof as the absolute owner hereof for all purposes, and the City and the Paying Agent shall not be affected by any notice to the contrary. The Agreement may be amended without the consent of the Owners of the Bonds to the extent set forth in the Agreement. It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time and manner as required by the laws of the State of California, and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit prescribed by any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Agreement. This Bond shall not be entitled to any benefit under the Agreement or become valid or obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by the Paying Agent. Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the City or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. A-3 IN WITNESS WHEREOF, the City of National City has caused this Bond to be executed in its name and on its behalf with the facsimile signatures of its City Manager, its Treasurer and its City Clerk and its seal to be reproduced hereon, all as of the Issue Date stated above. ATTEST: City Clerk A-4 CITY OF NATIONAL CITY By: City Manager By: Treasurer [FORM OF PAYING AGENT'S CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within -mentioned Agreement. Date of Authentication: UNION BANK, N.A., as Paying Agent Authorized Signatory ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to applicable laws or Tax Regulations: TEN COMM--as tenants in common TEN ENT --as tenants by the entireties JT TEN --as joint tenants with right of survivorship and not as tenants in common COMM PROP --as community property UNIF TRANS MIN ACT Custodian (Cust.) (Minor) under Uniform Transfers to Minors Act (State) ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE LIST ABOVE A-5 h�9 within ASSIGNMENT For value received, the undersigned do(es) hereby sell, assign and transfer unto the (Name, Address and Tax Identification or Social Security Number of Assignee) the within Bond and do(es) hereby irrevocably constitute and appoint attorney, to transfer the same on the registration books of the Paying Agent, with full power of substitution in the premises. Dated: Signature Guaranteed: Notice: Signature(s) must be guaranteed by a qualified guarantor institution Notice: The signature(s) on this assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. A-6 Jones Hall Draft 5/2212 IRREVOCABLE REFUNDING INSTRUCTIONS For City of National City General Obligation Bonds, Election of 2002, Series A These IRREVOCABLE REFUNDING INSTRUCTIONS (these "Instructions"), dated as of , 2012, is between the CITY OF NATIONAL CITY, a general law city organized and existing under the laws of the State of California (the "City"), and UNION BANK OF CALIFORNIA, N.A., a national banking association organized and existing under the laws of the United States of America, acting as paying agent for the City's General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"). BACKGROUND: 1. The City has previously issued, executed and delivered the Prior Bonds under a a resolution adopted by the City Council on April 1, 2003 (the "Prior Bonds Resolution"), pursuant to which Union Bank of California, N.A. was appointed as Paying Agent fro the Prior Bonds (the "Prior Bonds Paying Agent"). 2. The Prior Bonds are all currently subject to redemption in full on any date, and in order to raise funds to pay the redemption price of the Prior Bonds, the City and Union Bank, N.A. (as the "2012 Paying Agent") have entered into a Paying Agent Agreement dated as of July 1, 2012 (the "2012 Paying Agent Agreement") for the purpose of authorizing the execution and delivery of the City's 2012 General Obligation Refunding Bonds, in the aggregate principal amount of $ (the "2012 Bonds"), the proceeds of which will be used to refund and redeem the Prior Bonds prior to their maturity date. 3. The City has conducted proceedings to issue the 2012 Bonds to refund the Prior Bonds for purposes of defeasing and redeeming them on , 2012. 4. The City wishes to give these Instructions to the Prior Bonds Paying Agent for the purpose of establishing an irrevocable escrow fund to be funded, invested, held and administered for the purpose of providing for the payment in full of the principal, interest and prepayment premium represented by the Prior Bonds upon the redemption thereof on , 2012. INSTRUCTIONS: In order to provide for the payment and prepayment of the Prior Bonds and to discharge the Prior Bonds and the obligations represented thereby, the City hereby irrevocably directs the Prior Bonds Paying Agent as follows: SECTION 1. Establishment of Escrow Fund. The Prior Bonds Paying Agent is directed to establish an escrow fund (the "Escrow Fund") to be held by the Prior Bonds Paying Agent in trust as an irrevocable escrow securing the payment of the Prior Bonds and the City's obligations with respect thereto, as hereinafter set forth. All cash and securities in the Escrow Fund are hereby irrevocably pledged as a special fund for the payment of the principal and interest represented by the Prior Bonds in accordance with the Prior Bonds Resolution. If at any time the Prior Bonds Paying Agent receives actual knowledge that the cash and securities in the Escrow Fund will not be sufficient to make any payment required by Section 3 in respect of the Prior Bonds, the Prior Bonds Paying Agent shall notify the City of such fact and the City shall immediately cure such deficiency from any source of legally available funds. The Prior Bonds Paying Agent has no liability for any such insufficiency. SECTION 2. Deposit into Escrow Fund. Concurrently with delivery of the 2012 Bonds, the Prior Bonds Paying Agent shall transfer into the Escrow Fund the amount of $ received from the City (or as designated by the City) in immediately available funds, to be derived from the proceeds of sale of the 2012 Bonds and $ being held by the City with respect to the Prior Bonds, for a total amount of $ SECTION 3. No Investment. The Prior Bonds Paying Agent shall hold the entire amount of $ in the Escrow Fund in cash, uninvested. SECTION 4. Instructions as to Application of Deposit. The Prior Bonds Paying Agent shall apply the cash and securities held in the Escrow Fund for the sole purpose of paying the principal of and interest and redemption premium on the Prior Bonds to and including , 2012, as set forth in Appendix A. The City hereby elects to redeem, on , 2012, the Prior Bonds outstanding on that date. Neither the Paying Agent or the Prior Bonds Paying Agent have any lien upon or right of set off against the securities and cash at any time on deposit in the Escrow Fund. Neither the Paying Agent or the Prior Bonds Paying Agent are liable for the accuracy of any calculations provided as to the sufficiency of the moneys and securities deposited with it to pay the principal interest or redemption premium on the Prior Bonds. The deposit made into the Escrow Fund under this Agreement constitutes an irrevocable deposit for the payment and redemption of the Prior Bonds in accordance with the Prior Bonds Resolution. The City hereby elects that the pledge of the funds provided for in the Prior Bonds Resolution, and all other obligations of the Prior Bonds Paying Agent and the City with respect to the Prior Bonds, shall cease and terminate, with the effect and subject to the limitations set forth in the Prior Bonds Resolution. SECTION 5. Disposition of Excess Funds. Following payment and redemption in full of all of the Prior Bonds on , 2012, the Prior Bonds Paying Agent shall withdraw any amounts remaining on deposit in the Escrow Fund and transfer those amounts to the 2012 Paying Agent, to be deposited in the Bond Service Fund established under the 2012 Paying Agent Agreement, and applied to pay a portion of the next interest coming due and payable on the 2012 Bonds. SECTION 6. Irrevocable Election to Redeem Prior Bonds; Redemption Notice. The City hereby irrevocably elects to redeem all of the outstanding Prior Bonds on , 2012. The Prior Bonds Paying Agent acknowledges that it has given notice of redemption to the owners of the Prior Bonds in accordance with the requirements of each of the Prior Bonds Paying Agent Agreement. SECTION 7. Application of Certain Terms of Prior Bonds Resolution. All of the terms of the Prior Bonds Resolution relating to the payment and redemption of principal of and -2- interest and redemption premium on the Prior Bonds, and the indemnifications, protections, immunities and limitations from liability afforded the Prior Bonds Paying Agent are incorporated in these Instructions as if set forth in full herein. SECTION 8. Compensation to Prior Bonds Paying Agent. The City shall pay the Prior Bonds Paying Agent full compensation for its services under these Instructions, including out-of-pocket costs such as publication costs, redemption expenses, legal fees and other costs and expenses relating hereto and, in addition, all fees, costs and expenses relating to the purchase, substitution or withdrawal of any securities after the date hereof. Under no circumstances shall amounts deposited in or credited to the Escrow Fund be deemed to be available for said purposes. The Prior Bonds Paying Agent has no lien upon or right of set off against the cash and securities at any time on deposit in the Escrow Fund. SECTION 9. Execution in Counterparts. These Instructions 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. -3- SECTION 10. Applicable Law. These Instructions shall be governed by and construed in accordance with the laws of the State of California. ACCEPTED: UNION BANK OF CALIFORNIA, N.A., as Prior Bonds Paying Agent By Authorized Officer CITY OF NATIONAL CITY By City Manager -4- APPENDIX A PAYMENT AND REDEMPTION SCHEDULE OF PRIOR BONDS Principal Interest Redemption Payment Payment Payment Premium Date Amount Amount Amount -0- Total A-1 Jones Hall Draft 5/22/12 PRELIMINARY OFFICIAL STATEMENT DATED , 2012 NEW ISSUE — BOOK -ENTRY ONLY RATINGS: S&P: " " Bank Qualified (See "RATING" herein) In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described herein, under existing law, the interest on the Bonds is excludable from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individual and corporate, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings, and the Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See "TAX MATTERS" herein. CITY OF NATIONAL CITY 2012 General Obligation Refunding Bonds Dated: Date of Delivery Due: August 1, as shown inside cover Purpose. The bonds captioned above (the "Bonds") are being issued by the City of National City (the "City") to refund all or a portion of its General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"). See "PLAN OF FINANCE - Purpose of Issue." Issuance. The Bonds are being issued by the City under provisions of the California Government Code and under a Resolution adopted by the City Council of the City (the "City Council") on 2012 (the "Bond Resolution") and a Paying Agent Agreement, dated as of July 1, 2012, between the City and Union Bank, N.A., as paying agent (the "Paying Agent"). The Prior Bonds were authorized in 2002 at an election of the registered voters of the City, at which more than two-thirds of the persons voting on the propositions voted to authorize the issuance and sale of general obligation bonds. See "PLAN OF FINANCE." Security. The Bonds are general obligations of the City, payable solely from ad valorem property taxes levied by the City and collected by the County of San Diego (the "County"). The City Council is empowered and is obligated to annually levy ad valorem taxes for the payment of interest on, and principal of, the Bonds upon all property subject to taxation by the City, without limitation of rate or amount (except certain personal property which is taxable at limited rates). See "SECURITY FOR THE BONDS." Book -Entry Only. The Bonds will be issued in book -entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"). The Bonds are issuable as fully registered securities in denominations of $5,000 or any integral multiple of $5,000. Purchasers of the Bonds (the "Beneficial Owners") will not receive physical certificates representing their interest in the Bonds. See "THE BONDS" and "APPENDIX E - DTC AND THE BOOK - ENTRY ONLY SYSTEM." Payments. Interest on the Bonds accrues from the date of delivery and is payable semiannually on February 1 and August 1 of each year, commencing August 1, 2012. Payments of principal of and interest on the Bonds will be paid by U.S. Bank National Association, as Paying Agent, to DTC for subsequent disbursement to DTC Participants, which will remit such payments to the Beneficial Owners of the Bonds. See "THE BONDS - Description of the Bonds." Redemption. The Bonds are subject to redemption prior to maturity as provided herein. See "THE BONDS - Redemption." Cover Page. This cover page contains certain information for general reference only. It is not intended to be a summary of the security for or the terms of the Bonds. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined shall have the meaning set forth herein. MATURITY SCHEDULE (See inside cover) The Bonds are offered when, as and if executed and delivered, subject to the approval as to their legality by Jones Ball, A Professional Law Corporation, San Francisco, California, Bond Counsel. Jones Hall, A Professional Law Corporation is also serving as Disclosure Counsel to the City. Certain legal matters are being passed upon for the City by the City Attorney. The Bonds are expected to be available for delivery through the facilities of DTC of New York, New York, on 2012. Estrada Hinojosa & Company, Inc. Dated: 2012. * Preliminary, subject to change. MATURITY SCHEDULE CITY OF NATIONAL CITY 2012 General Obligation Refunding Bonds Base CUSIPt: 635400 $ Serial Bonds Maturity Date Principal Coupon Price (August 11 Amount Rate or Yield CUSIP 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 t Copyright 2012, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. None of the City, the Underwriter or the Paying Agent assumes any responsibility for the accuracy of these CUSIP data. M GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any bond owner and the City or the Underwriter. This Official Statement and the information contained herein are subject to completion or amendment without notice. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations relating to the Bonds other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the City or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Estimates and Projections. When used in this Official Statement and in any continuing disclosure by the City, in any press release and in any oral statement made with the approval of an authorized officer of the City, the words or phrases "will likely result," "are expected to", "will continue", "is anticipated", "estimate", "project," "forecast", "expect", "intend" and similar expressions identify "forward looking statements." Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward -looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Information in Official Statement. The information set forth in this Official Statement has been furnished by the City and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness by the City. The underwriter has reviewed the information in this official statement pursuant to its responsibilities to investors under the federal securities laws, but the underwriter does not guarantee the accuracy or completeness of such information. All summaries of the Bond Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Bonds have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the City, or the other parties described in this Official Statement, or the condition of the property within the City since the date of this Official Statement. CITY OF NATIONAL CITY SAN DIEGO COUNTY, CALIFORNIA CITY COUNCIL Ron Morrison, Mayor Alejandra Sotelo-Solis, Vice Mayor Luis Natividad, Councilmember Mona Rios, Councilmember Rosalie Zarate, Councilmember CITY ADMINISTRATION Leslie Deese, City Manager Tina Norrdin, Financial Services Officer Claudia Silva, City Attorney PROFESSIONAL SERVICES Paying Agent Union Bank, N.A. Santa Ana, California Bond Counsel and Disclosure Counsel Jones Hall, A Professional Law Corporation San Francisco, California Financial Advisor Urban Futures, Inc. Orange, California rn TABLE OF CONTENTS Page INTRODUCTION 1 REFINANCING PLAN 3 Purpose of Issue 3 Estimated Sources and Uses of Funds 3 Annual Debt Service 4 THE BONDS 5 General 5 Redemption 5 Events of Default and Remedies for the Bonds 7 SECURITY FOR THE BONDS 9 Ad Valorem Taxes 9 Debt Service Fund 9 Limited Obligation 10 PROPERTY TAXATION 10 Property Tax Collection Procedures 10 Taxation of State -Assessed Utility Property 11 Alternative Method of Tax Apportionment - Teeter Plan 11 Tax Rates 14 Tax Levies and Delinquencies 14 Major Taxpayers 15 Direct and Overlapping Debt 15 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS 17 Article XIIIA of the State Constitution 17 Article XIIIB of the State Constitution 17 Proposition 62 18 Article XIIIC and XIIID of the State Constitution 18 Proposition 1A; Proposition 22; Proposition 26 20 Unitary Property 21 Future Initiatives 21 TAX MATTERS 22 CERTAIN LEGAL MATTERS 23 ABSENCE OF MATERIAL LITIGATION 23 FINANCIAL ADVISOR 23 UNDERWRITING 23 RATING 24 CONTINUING DISCLOSURE 24 MISCELLANEOUS 24 APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E - CITY AND COUNTY GENERAL AND ECONOMIC DATA - AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR 2010-11 - PROPOSED FORM OF OPINION OF BOND COUNSEL - FORM OF CONTINUING DISCLOSURE CERTIFICATE - DTC AND THE BOOK -ENTRY ONLY SYSTEM OFFICIAL STATEMENT CITY OF NATIONAL CITY 2012 General Obligation Refunding Bonds INTRODUCTION This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of Bonds to potential investors is made only by means of the entire Official Statement. The City. The City of National City (the "City") is the second oldest city in San Diego County (the "County"), with a history that dates to 1868 when the original community was laid out by the California missionaries. The City is a general law city and was incorporated in 1887. The City encompasses an area of approximately nine square miles and enjoys a fairly constant population of approximately 58,000. The City is bordered by the City of San Diego on the north and east, the City of Chula Vista on the south and San Diego Bay on the west. The City is substantially developed: See "APPENDIX A - CITY AND COUNTY GENERAL AND ECONOMIC DATA," for demographic and financial information regarding the City. Purpose for Issuance. The Bonds are being issued to refund the City's $6,000,000 original principal amount of General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"), currently outstanding in the principal amount of $4,945,000. See "REFINANCING PLAN - Purpose of Issue." Authority for Issuance. The Prior Bonds were authorized at an election of the registered voters of the City, at which more than two-thirds of the persons voting on the proposition voted to authorize the issuance and sale of general obligation bonds. See "PLAN OF FINANCE - Purpose of Issue." The Bonds are being issued under Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, a Resolution adopted by the City Council of the City (the "City Council") on , 2012 (the "Bond Resolution") and a Paying Agent Agreement, dated as of July 1, 2012 (the "Paying Agent Agreement"), between the City and Union Bank, N.A., as paying agent (the "Paying Agent"). • Preliminary, subject to change. Security and Sources of Payment for the Bonds. The Bonds are general obligations of the City payable solely from ad valorem property taxes levied by the City and collected by the County. The City Council is empowered and is obligated to annually levy ad valorem taxes for the payment of interest on, and principal of, the Bonds upon all property subject to taxation by the City, without limitation of rate or amount (except with respect to certain personal property which is taxable at limited rates). See "SECURITY FOR THE BONDS." Payment and Registration of the Bonds. The Bonds will be dated their date of original issuance and delivery (the "Dated Date") and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple of $5,000, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"), and will be available under the book -entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described below. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See "THE BONDS" and "APPENDIX E - DTC AND THE BOOK -ENTRY ONLY SYSTEM." Interest on the Bonds accrues from their date of issuance and is payable semiannually on February 1 and August 1 of each year, commencing August 1, 2012. See "THE BONDS - Description of the Bonds." Early Redemption. The Bonds are subject to optional redemption and mandatory redemption from sinking fund payments prior to their maturity as described in "THE BONDS - Redemption." The Bonds are not subject to optional redemption prior to maturity. Other Information. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to in this Official Statement and information concerning the Bonds are available from the City Clerk of the City. The City may impose a charge for copying, mailing and handling. -2- REFINANCING PLAN Purpose of Issue On March 5, 2002 an election was duly and regularly held in the City for the purpose of submitting to the qualified electors of the City the questions whether bonds should be issued in the principal amount of not to exceed $6,000,000 to finance the acquisition, construction and completion of a public library in the City. The measure passed by more than 2/3 of the votes cast in favor of the bond issuance (the "2002 Authorization"). Pursuant to the 2002 Authorization, the City issued the Prior Bonds in 2003, currently outstanding in the principal amount of $4,945,000. The City is issuing the Bonds to provide for the payment in full of the principal of and interest on the Prior Bonds maturing August 1, 2013 through August 1, 2028, without redemption premium. , as paying agent for the Prior Bonds, will establish an irrevocable escrow fund to be funded with the net proceeds of the Bonds, to be invested, held and administered for the purpose of providing for the payment in full of the principal and accrued interest represented by the Prior Bonds to the redemption date of August 1, 2012. Proceeds deposited into the Escrow Fund on the date of issuance of the Bonds will not be available to pay debt service on the Bonds. Estimated Sources and Uses of Funds The proceeds of the sale of the Bonds received by the City are expected to be applied as follows: Sources of Funds Bond Proceeds Prior Bonds Debt Service Fund Premium Total Sources Uses of Funds Escrow Fund Underwriter's Discount Cost of Issuance "I Total Uses (1) Issuance costs include Bond Counsel and Disclosure Counsel fees, financial advisory fees, rating agency fees, Official Statement printing costs, and paying agent fees. -3- Annual Debt Service Table 1 below presents a schedule of the annual debt service for the Bonds. Table 1 CITY OF NATIONAL CITY 2012 General Obligation Refunding Bonds Annual Debt Service Schedule Year Ending August 1 Principal Interest Total 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -4- THE BONDS General The Bonds are initially available in book -entry form only. So long as Cede & Co. is the registered owner of the Bonds as nominee of The Depository Trust Company ("DTC"), New York, New York, references herein to the Bondowners or registered owners of the Bonds shall mean Cede & Co. and shall not mean the beneficial owners of the Bonds. In addition, so long as Cede & Co. is the registered owner of the Bonds, purchasers of the Bonds will not receive certificates representing their interest in the Bonds purchased. Interest on and principal of the Bonds will be payable by the Paying Agent to Cede & Co. by wire transfer in immediately available funds in accordance with the terms of a Letter of Representation delivered by the City to DTC. The Bonds will be issued as fully registered bonds in denominations of $5,000 principal amount or any integral multiple thereof. The Bonds will be dated their date of issuance and delivery being , 2012, will bear interest at the rates and will mature on the dates and in the principal amounts set forth on the front cover page hereof. Interest on the Bonds is computed on the basis of a 360-day year consisting of twelve 30-day months. Interest on the Bonds is payable semiannually on February 1 and August 1 of each year (each an "Interest Payment Date") commencing August 1, 2012. Each Bond shall bear interest from the Interest Payment Date next preceding the date of registration and authentication thereof unless (i) it is registered and authenticated as of an Interest Payment Date, in which event it shall bear interest from such date, or (ii) it is registered and authenticated prior to an Interest Payment Date and after the close of business on the fifteenth day of the month preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is registered and authenticated on or prior to July 15, 2012, in which event it shall bear interest from the date of original issuance and authentication of the Bonds; provided, however, that if at the time of registration and authentication of a Bond, interest is in default thereon, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. For long as the bonds are in book -entry form only and registered in the name of Cede & Co., the interest on and principal of the Bonds will be payable by the Paying Agent to Cede & Co. by wire transfer in immediately available funds in accordance with the terms of the Letter of Representation. See "APPENDIX E - DTC AND THE BOOK -ENTRY ONLY SYSTEM." Redemption Optional Redemption. The Bonds maturing on or before August 1, 20_ are not subject to redemption prior to maturity. The Bonds maturing on or after August 1, 20_ are subject to redemption at the option of the City, as a whole or in part and by lot within a maturity, from any source of available funds, on any date on and after August 1, 20_ at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds maturing August 1, 20_ are subject to mandatory sinking fund redemption in part, by lot, prior to their stated maturity date, on each August 1 on and after August 1 20_, at a redemption price equal to 100% of the principal -5- e amount thereof called for redemption, plus accrued interest to the redemption date, without premium, as follows: Date (August 1) Amount Redemption Procedures. The Paying Agent shall cause notice of any redemption to be mailed, first class mail, postage prepaid, at least thirty days but not more than sixty days prior to the date fixed for redemption, to the respective Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books maintained by the Paying Agent and to the Securities Depositories and the Information Services; but such mailing shall not be a condition precedent to such redemption and failure to mail or to receive any such notice shall not affect the validity of the proceedings for the redemption of such Bonds. The Paying Agent shall not mail any notice of redemption until it has sufficient moneys on deposit to pay the redemption price of all Bonds to be redeemed; provided, however, that such restriction shall not apply when the Bonds are redeemed with the proceeds of another obligation of the City; and provided further that in the event the Bonds are being redeemed with such proceeds, the City shall have the right to cancel the notice of redemption by providing written notice of such cancellation to the Paying Agent at least seven Business Days prior to the date set for redemption. Such notice shall state the redemption date and the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption, shall designate the serial numbers of the Bonds to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, or by stating that all of the Bonds of one or more maturities have been called for redemption, and shall require that such Bonds be then surrendered at the Principal Office of the Paying Agent for redemption at the said redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. In the event term bonds are redeemed in part, the City shall deliver a revised sinking fund schedule to the Paying Agent. Upon surrender of Bonds redeemed in part only, the City shall execute and the Paying Agent shall authenticate and deliver to the Owner, at the expense of the City, a new Bond or Bonds, of the same maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds. From and after the date fixed for redemption, if notice of such redemption has been duly given and funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption have been duly provided, such Bonds so called shall cease to be entitled to any benefit other than the right to receive payment of the redemption price, and no interest shall accrue thereon on or after the redemption date specified in such notice. -6- Events of Default and Remedies for the Bonds The Paying Agent Agreement contains the following events of default and remedies: If one or more the following events ("Events of Default") shall happen, that is to say: (a) if default is made by the City in the due and punctual payment of the principalof or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or by declaration or otherwise; (b) if default is made by the City in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable; (c) if default is made by the City in the observance of any of the covenants, agreements or conditions on its part in the Paying Agent Agreement or in the Bonds contained, and such default shall have continued for a period of thirty days after written notice thereof to the City; or (d) if the City files a petition seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction approves a petition, seeking reorganization of the City under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction assumes custody or control of the City or of the whole or any substantial part of its property; then, and in each and every event of default and upon written request of the Owners of not less than sixty percent in aggregate principal amount of the Bonds at the time Outstanding, the principal of all of the bonds then Outstanding, and the interest accrued thereon, shall be declared to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Paying Agent Agreement or in the bonds contained to the contrary notwithstanding. Such declaration may be rescinded by the Owners of not less than sixty percent in aggregate principal amount of the Bonds at the time Outstanding provided the City cures such default or defaults, including the deposit with the Paying Agent of a sum sufficient to pay all principal on the respective Bonds matured prior to such declaration and all matured installments of interest (if any) on the Bonds, with interest at the rate of twelve percent per annum on such overdue installments of principal and, to the extent such payment of interest is lawful at that time, on such overdue installments of interest, so that the City is currently in compliance with all payment, deposit and transfer provisions of the Paying Agent Agreement, and a sum sufficient to pay any expenses incurred by the Paying Agent in connection with such default. Upon the date of the Event of Default as provided above, all of the sums in the Debt Service Fund held by the City and all sums thereafter received by the Paying Agent under the Paying Agent Agreement, shall be applied by the Paying Agent in the following order upon presentation of the Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: -7- First, to the payment of the costs and expenses of the Paying Agent under the Paying Agent Agreement and of the costs and expenses of Bondowners in declaring such event of default, including reasonable compensation to the Bondowners or their agents, attorneys and counsel; Second, in case the principal of the Bonds shall not have become due and payable, to the payment of the interest in default in the order of the seniority of the installments of such interest, with interest on the overdue installments at the rate of twelve percent (12%) per annum (to the extent that such interest on overdue installments shall have been collected), such payments to be made ratably to the persons entitled thereto without discrimination or preference; Third, in case the principal of the Bonds shall have become and shall be then due and payable, all such sums shall be applied to the payment of the whole amount then owing and unpaid upon the Bonds for principal and interest, with interest on the overdue principal and installments of interest at the rate of twelve percent (12%) per annum (to the extent that such interest on overdue installments of interest shall have been collected), and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. The remedies available to the Paying Agent and the registered owners of the Bonds upon an event of default under the Paying Agent Agreement and any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of the legal documents with respect to the Bonds is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. -8- SECURITY FOR THE BONDS Ad Valorem Taxes Bonds Payable from Ad Valorem Property Taxes. The Bonds are general obligations of the City, payable solely from ad valorem property taxes levied by the City and collected by the County. The City is empowered and is obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the City subject to taxation by the City, without limitation of rate or amount (except certain personal property which is taxable at limited rates). Levy and Collection. The City will levy and the County will collect such ad valorem taxes in such amounts and at such times as is necessary to ensure the timely payment of debt service. Such taxes, when collected, will be deposited into a debt service fund for the Bonds, which is maintained by the City and which is irrevocably pledged for the payment of principal of and interest on the Bonds when due. City property taxes are assessed and collected by the County in the same manner and at the same time, and in the same installments as other ad valorem taxes on real property, and will have the same priority, become delinquent at the same times and in the same proportionate amounts, and bear the same proportionate penalties and interest after delinquency, as do the other ad valorem taxes on real property. As described below, the County has adopted the Teeter Plan which provides that the City will receive all of the property taxes which are levied by the City, and that any penalties and interest on delinquent taxes will be retained by the County. See "PROPERTY TAXATION - Alternative Method of Tax Apportionment - Teeter Plan." Annual Tax Rates. The amount of the annual ad valorem tax levied by the City to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the City and the amount of debt service due on the Bonds. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property in the City may cause the annual tax rate to fluctuate. Economic and other factors beyond the City's control, such as economic recession, deflation of land values, a relocation out of the City or financial difficulty or bankruptcy by one or more major property taxpayers, or the complete or partial destruction of taxable property caused by, among other eventualities, earthquake, flood or other natural disaster, could cause a reduction in the assessed value within the City and necessitate a corresponding increase in the annual tax rate. Debt Service Fund The City will establish the Debt Service Fund (the "Debt Service Fund"), which will be established as a separate fund to be maintained distinct from all other funds of the City. All taxes levied by the City pursuant to the Bond Resolution for the payment of the principal of and interest and premium (if any) on the Bonds will be deposited in the Debt Service Fund by the City promptly upon the receipt from the County. The Debt Service Fund is pledged for the payment of the principal of and interest and premium (if any) on the Bonds when and as the same become due. The City will transfer amounts in the Debt Service Fund, to the extent necessary to pay the principal of and interest on the Bonds as the same become due and payable, to the Paying Agent as required to pay the principal of and interest and premium (if any) on the Bonds. -9- If, after payment in full of the Bonds, any amounts remain on deposit in the Debt Service Fund, the City shall transfer such amounts to its General Fund, to be applied solely in a manner which is consistent with the requirements of applicable state and federal tax law. Limited Obligation The Bonds are payable solely from the proceeds of an ad valorem tax levied by the City, and collected by the County, for the payment of principal and interest on the Bonds. Although the County is obligated to collect the ad valorem tax for the payment of the Bonds, the Bonds are not a debt of the County. PROPERTY TAXATION Property Tax Collection Procedures In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The "secured roll" is that part of the assessment roll containing state assessed public utilities' property and real property, the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1 1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the County. Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction as of the preceding January 1. A bill enacted in 1983, SB813 (Statutes of 1983, Chapter 498), however, provided for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Thus, this legislation eliminated delays in the realization of increased property taxes from new assessments. As amended, SB813 provided increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date and result in increased assessed value. Property taxes on the unsecured roll are due on the January 1 lien date and become delinquent, if unpaid on the following August 31. A 10% penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1 1/2% per month accrues with respect to such taxes beginning the first day of the third month following -10- the delinquency date. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent. Taxation of State -Assessed Utility Property The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization ("SBE") and taxed locally. Property valued by the SBE as an operating unit in a primary function of the utility taxpayer is known as "unitary property", a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State -assessed unitary and "operating nonunitary" property (which excludes nonunitary property of regulated railways) is allocated to the counties based on the situs of the various components of the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nonunitary property is taxed at special county -wide rates and tax proceeds are distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. Alternative Method of Tax Apportionment - Teeter Plan The Board of Supervisors of the County has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, the County apportions secured property taxes on an accrual basis when due (irrespective of actual collections) to local political subdivisions, including the City, for which the County acts as the tax -levying or tax -collecting agency. Unsecured taxes are not normally covered under the Teeter Plan. The Teeter Plan was effective beginning the fiscal year commencing July 1, 1993. The County's Teeter Plan applies to the City and the Bonds. The Teeter Plan is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. If the Teeter Plan is discontinued subsequent to its implementation, only those secured property taxes actually collected would be allocated to political subdivisions (including the City) for which the County acts as the tax -levying or tax -collecting agency. Assessed Valuations The California Constitution requires the State Board of Equalization to annually assess property, except franchises, owned or used by regulated railway, telegraph, or telephone companies, car companies operating on railways in the state, and companies transmitting or selling gas or electricity. It also requires the State Board of Equalization to annually assess -11- f pipelines, flumes, canals, ditches, and aqueducts lying within two or more counties. Except for the railway car companies, the assessed values are allocated to the counties and other local tax jurisdictions in which the property is located. The taxes are levied and collected in the same manner as they are for county -assessed properties. State assessed property is assessed at its fair market value or its full value as of 12:01 a.m. January 1. The county assessor must annually assess all taxable property in the county, except for state -assessed property, to the person, business, or legal entity owning, claiming, possessing, or controlling the property on January 1. The duties of the county assessor are to discover all assessable property, to inventory and list all taxable property, to value the property, and to enroll the property on the local assessment roll. The assessed value determined and enrolled by the county assessor is multiplied by the appropriate tax rate to form the basis of the current year's tax bill. The tax rate is 1 percent plus (1) the amount necessary to make annual payments due on general obligation bonds or other indebtedness incurred prior to July 1, 1978; (2) any bonded indebtedness for the acquisition or improvement of real property approved by a two-thirds majority of voters on or after July 1, 1978; and (3) effective January 1, 2001, certain bonded indebtedness for school facilities approved by 55 percent of the voters. The collection of these taxes and their allocation to the appropriate taxing jurisdictions are functions of the county tax collector and the county auditor, respectively. Like the county assessor, these officials are governed by state law. The County Assessor of San Diego County assesses all real and personal property in the City for tax purposes except public utility property which is assessed by the State Board of Equalization. California law requires a $7,000 reduction of taxable value for qualifying owner - occupied homes. The state reim- burses local agencies for the loss in property tax revenue. The homeowner must make a simple one-time filing with the county assessor for the exemption. Personal property held for sale or lease in the ordinary course of business is exempt. "Business inventory" includes merchandise held for sale or lease, animals used in the production of food or fiber, and incidental supplies passed on to the customer. The exemption does not include property in use on the lien date (except animals) or ordinary supplies. No filing is required, but the assessor may audit the taxpayer to verify whether the property qualifies. Revenue estimated to be lost to local taxing agencies due to exemptions is reimbursed from State sources. Such reimbursement is based upon total taxes due upon such exempt values and is not reduced by any amount for estimated delinquencies. The table below shows a five-year history of the City's assessed valuation. Table 2 CITY OF NATIONAL CITY Assessed Valuations of All Taxable Property Fiscal Years 2007-08 to 2011-12 Local Secured Utility Unsecured Total 2007-08 $2,764,499,932 $4,039,249 $157,294,577 $2,925,833,758 2008-09 2,953,195,474 5,858,889 170,461,026 3,129,515,389 2009-10 2,820,539,327 5,586,456 207,380,749 3,033,506,532 2010-11 2,786,114,776 5,195,618 202,638,779 2,993,949,173 2011-12 2,787,205,706 5,195,618 203,565,939 2,995,967,263 Source: California Municipal Statistics, Inc. -12- Assessed Valuation by Land Use. The following table shows the land use of parcels in the City, according to assessed valuation. As shown, the majority of land in the City is used for residential purposes. Table 3 CITY OF NATIONAL CITY Assessed Valuation and Parcels by Land Use Fiscal Year 2011-12 Number of 2011-12 Assessed Percent of Secured Land Use Parcels Valuation A.V.(1) Single Family Residential 6,657 $ 993,090,427 35.56% Commercial 694 894,184,524 32.02 Multi Family Residential 1,489 478,416,800 17.13 Industrial 302 272,823,794 9.77 Vacant 756 74,928,161 2.68 Institutional 58 49,414,234 1.77 Recreational 45 29,543,385 1.06 Total All Secured 10,001 $2,792,401,324 100.00% (1) Based on Fiscal Year 2011-12 secured assessed valuation of $2,792,401,324. Source: Urban Futures, Inc. with information from the San Diego County 2011-12 Secured Property Tax Roll. Assessed Valuation of Single Family Residential Parcels. The following table shows a breakdown of the assessed valuations of improved single-family residential parcels in the City, according to assessed valuation. Table 4 CITY OF NATIONAL CITY Per Parcel 2011-12 Assessed Valuation of Single Family Homes (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. -13- Tax Rates The table below summarizes the total ad valorem tax rates levied by all taxing entities in Tax Rate Area (which corresponds to $ of assessed valuation, which is approximately _% of the City's total assessed valuation) for each $100 of assessed valuation during the fiscal years 2007-08 through 2011-12. Table 5 CITY OF NATIONAL CITY Summary of Ad Valorem Tax Rates $1 per $100 of Assessed Valuation Fiscal Years 2007-08 to 2011-12 (Tax Rate Area 6-000) Ad Valorem Tax General Tax Rate School Bonds (K-12) Community College Bonds General Obligation Bonds Metro Water District Total Tax Rate 2007-08 2008-09 2009-10 2010-11(1) 2011-12(1) 1.000000 1.000000 1.000000 1.00000 1.000000 0.127470 0.125670 0.147570 0.055170 0.039930 0.025320 0.059240 need 0.036350 0.014300 0.013000 0.012700 from 0.014200 0.004500 0.004300 0.004300 HdL 0.003700 1.186200 1.168290 1.223810 1.109420 (1) Tax Rate Area 006-045 used in 2010-11 and 2011-12. Source: City of National City Financial Statements, FY 2010-11, page 133 & HdL Property Tax Reports 2010-11 and 2011-12 Tax Levies and Delinquencies Because the County has adopted the Teeter Plan, the amount of ad valorem property taxes received by the City is equal to the amount levied rather than the amount collected by the County. See "- Alternative Method of Apportionment - Teeter Plan," above. -14- Major Taxpayers The following table shows the twenty largest taxpayers in the City as determined by their secured assessed valuations in 2011-12: Table 6 CITY OF NATIONAL CITY Largest 2011-12 Local Secured Taxpayers Property Owner Rocky Mountain Chocolate PVHR LLC /Adventist Health Pasha Automotive Services Plaza II Bonita LP Plaza Bonita LP Mpt Of Paradise Valley LP Sweetwater Associates LP Dixieline Lumber Company Williams G W Company Prime Healthcare Svcs Foun Inc. Total 2011-12 Secured Assessed Valuation $129,536,153 57,480,830 42,291,632 35, 926,636 34,815,887 29,416,894 23,007,972 22,852,802 22,683,186 21,912,097 $419,924,089 Primary Land Use Commercial Commercial Industrial Commercial Commercial Institutional Commercial Commercial Multi Family Residential Institutional Percentage of AV (1) 4.64% 2.06 1.51 1.29 1.25 1.05 0.82 0.82 0.81 0.78 15.04% (1) Based on Fiscal Year 2011-12 secured assessed valuation of $2,792,401,324 Source: Urban Futures, Inc. with information from the San Diego County 2011-12 Secured Property Tax Roll. Direct and Overlapping Debt Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc. and effective 1, 2012. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2) the second column shows the percentage that the City's assessed valuation represents of the total assessed valuation of each public agency identified in the first column; and the third column is an apportionment of the dollar amount of each public agency's outstanding debt to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City's assessed valuation represented in the second column. -15- c Table 7 CITY OF NATIONAL CITY STATEMENT OF DIRECT AND OVERLAPPING BONDED DEBT (As of 1, 2012) Source: California Municipal Statistics, Inc. -16- CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the State Constitution Article XIIIA of the State Constitution, known as Proposition 13, was approved by the voters in June 1978 and has been amended on occasions, including most recently on November 7, 2000 to reduce the voting percentage required for the passage of school bonds. Section 1(a) of Article XIIIA limits the maximum ad valorem tax on real property to 1% of "full cash value," and provides that such tax shall be collected by the counties and apportioned according to State statutes. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes levied to pay interest or redemption charges on any (1) indebtedness approved by the voters prior to July 1, 1978, (2) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition and (3) bonded indebtedness incurred by a school district, community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55 percent of the voters voting on the proposition. Section 2 of Article XIIIA defines "full cash value" to mean the county assessor's valuation of real property as shown on the 1975-76 Fiscal Year tax bill, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. See "Litigation Relating to Two Percent Limitation" below. Legislation implementing Article XIIIA provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. Such legislation further provides that each county will levy the maximum tax permitted by Article XIIIA, which is $1.00 per $100 of assessed market value. Since its adoption, Article XIIIA has been amended a number of times. These amendments have created a number of exceptions to the requirement that property be reassessed when it is purchased, newly constructed or undergoes a change in ownership. These exceptions include certain transfers of real property between family members, certain purchases of replacement dwellings for persons over age 55 and by property owners whose original property has been destroyed in a declared disaster, and certain improvements to accommodate disabled persons and for seismic upgrades to property. These amendments have resulted in marginal reductions in the property tax revenues of the City. Both the State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA. Article XIIIB of the State Constitution In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual "appropriations limit" imposed by Article XIIIB which effectively limits the amount of such revenues those entities are permitted to spend. Article XIIIB, approved by the voters in July 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of _17- each government entity applies to "proceeds of taxes," which consist of tax revenues, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by such entity in providing the regulation, product or service." "Proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non -tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government. The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. Proposition 111 requires that each agency's actual appropriations be tested against its limit every two years. If the aggregate "proceeds of taxes" for the preceding two-year period exceeds the aggregate limit, the excess must be returned to the agency's taxpayers through tax rate or fee reductions over the following two years. Proposition 62 On November 4, 1986, California voters adopted Proposition 62, which requires that (i) any local tax for general governmental purposes (a "general tax") must be approved by a majority vote of the electorate; (ii) any local tax for specific purposes (a "special tax") must be approved by a two-thirds vote of the electorate; (iii) any general tax must be proposed for a vote by two-thirds of the legislative body; and (iv) proceeds of any tax imposed in violation of the vote requirements must be deducted from the local agency's property tax allocation. Most of the provisions of Proposition 62, which was a statutory initiative, were affirmed by the 1995 California Supreme Court decision in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a special sales tax for transportation purposes because fewer than two-thirds of the voters voting on the measure had approved the tax. The City believes that none of its general fund revenues are subject to challenge under Proposition 62. Article XIIIC and XIIID of the State Constitution General. On November 5, 1996, the voters of the State approved Proposition 218, known as the "Right to Vote on Taxes Act." Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. —18— rat On November 2, 2010, California voters approved Proposition 26, entitled the "Supermajority Vote to Pass New Taxes and Fees Act". Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as "fees." Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. The amendments to Article XIIIC define "taxes" that are subject to voter approval as "any levy, charge, or exaction of any kind imposed by a local government," with certain exceptions. Taxes. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City ("general taxes") require a majority vote; taxes for specific purposes ("special taxes"), even if deposited in the City's General Fund, require a two-thirds vote. The voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. Property -Related Fees and Charges. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property -related fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a "special benefit," as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Reduction or Repeal of Taxes, Fees and Charges. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City's General Fund. If such repeal or reduction occurs, the City's ability to pay debt service on the Bonds could be adversely affected. Burden of Proof. Article XIIIC provides that local government "bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity." Similarly, Article XIIID provides that in "any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance" with Article XIIID. Impact on City's General Fund. The approval requirements of Articles XIIIC and XIIID reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase the taxes, fees, charges or taxes in the future that it may need to meet increased expenditure needs. -19- The City does not believe that any material source of General Fund revenue is subject to challenge under Proposition 218 or Proposition 26. Judicial Interpretation. The interpretation and application of Articles XIIIC and XIIID will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination. Proposition 1A; Proposition 22; Proposition 26 Proposition 1A. Proposition 1A, proposed by the Legislature in connection with the State's fiscal year 2004-05 Budget, approved by the voters in November 2004 and generally effective in fiscal year 2006-07, provided that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibited the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county had to be approved by two-thirds of both houses of the Legislature. Proposition 1A provided, however, that beginning in fiscal year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaimed that the shift is needed due to a severe state financial hardship, the shift was approved by two-thirds of both houses and certain other conditions were met. The State could also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. See the section entitled "RISK FACTORS — Impact of State Budget on City Revenues" for information about the State's fiscal year 2009-10 budget and a shift of local property revenues under Proposition 1A (which must be repaid within three years). The City participated in the Proposition 1A securitization program, and received 100% of the amount of the property tax reduction, so no money is due to the City. Proposition 22. Proposition 22, entitled "The Local Taxpayer, Public Safety and Transportation Protection Act," was approved by the voters of the State in November 2010. Proposition 22 eliminates or reduces the State's authority to (i) temporarily shift property taxes from cities, counties and special districts to schools, (ii) use vehicle license fee revenues to reimburse local governments for State -mandated costs (the State will have to use other revenues to reimburse local governments), (iii) redirect property tax increment from redevelopment agencies to any other local government, (iv) use State fuel tax revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of State fuel tax revenues. The City expects Proposition 22 to result in more stable revenues for the City. Proposition 26. Proposition 26, or the "Supermajority Vote to Pass New Taxes and Fees Act," which was passed by the voters of the State of California on November 2, 2010, requires a two-thirds vote to approve State laws that increase taxes, even if the law does not increase State revenues, and would repeal recent State laws that conflict with the measure, unless subsequently approved by two-thirds of each house of the Legislature. In addition, -20- PO Proposition 26 categorizes certain fees and charges imposed by government as taxes requiring two-thirds approval at the State level or two-thirds voter approval at the local level. For example, regulatory fees and certain business assessments that are now approved with a majority vote of the local governing body would be considered taxes requiring two-thirds voter approval. The Legislative Analyst's Office ("LAO") states in its analysis of Proposition 26 that Proposition 26 will make it more difficult for the State and local governments to pass new laws to raise revenues and could result in a major decrease in State and local revenues and spending, depending upon future actions of the Legislature, local governing bodies, and local voters. Additionally, in its analysis of Proposition 26, the LAO states that Proposition 26 will not apply to fees imposed by local governments that are in effect as of November 2, 2010, but will apply to future increase or extensions of those fees. The City is reviewing Proposition 26 to determine the potential impact on the City. The interpretation and application of Proposition 26 will ultimately be determined by the courts, and it is not possible at this time to predict with certainty the outcome of such determination. Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization ("Unitary Property"), commencing with the 1988-89 fiscal year, will be allocated as follows: (i) each jurisdiction will receive up to 102% of its prior year State -assessed revenue; and (ii) if county -wide revenues generated from Unitary Property are less than the previous year's revenues or greater than 102% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State -assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID and Proposition 62 were each adopted as measures that qualified for the ballot through California's initiative process. From time to time other initiative measures could be adopted, further affecting the City's revenues. -21- 2/ TAX MATTERS Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the [Issuer] comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code") that must be satisfied subsequent to the issuance of the Bonds. The [Issuer] has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded. Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight- line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not -22- deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds. California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Other Tax Considerations. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. Form of Opinion. The proposed form of opinion of Bond Counsel for the Bonds is attached hereto as APPENDIX C. CERTAIN LEGAL MATTERS The legal opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, approving the validity of the Bonds, in substantially the form attached hereto as APPENDIX C, will be made available to purchasers at the time of original delivery of the Bonds. Jones Hall, A Professional Law Corporation, is also serving as Disclosure Counsel to the City. Payment of fees of Bond Counsel and Disclosure Counsel is contingent upon the issuance of the Bonds. ABSENCE OF MATERIAL LITIGATION No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The City is not aware of any litigation pending or threatened questioning the political existence of the City or contesting the City's ability to receive ad valorem taxes or to collect other revenues or contesting the City's ability to issue and retire the Bonds. FINANCIAL ADVISOR Urban Futures, Inc., Orange, California, has served as financial advisor (the "Financial Advisor") to the City with respect to the sale of the Bonds. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. UNDERWRITING The Bonds are being purchased by Estrada Hinojosa & Company, Inc. (the "Underwriter") pursuant to a bond purchase agreement with respect to the Bonds. The Underwriter has agreed to purchase the Bonds from the City at the purchase price of $ representing the par amount of the Bonds, being $ , plus original -23- P3 issue premium of $ , less an underwriter's discount of $ , and less costs of issuance in the amount of $ which the Underwriter has agreed to pay. The Underwriter is committed to purchase all (but not less than all) of the Bonds. RATING Standard & Poor's Credit Market Services, a division of The McGraw Hill Companies, Inc. ("S&P") has assigned its municipal bond rating of " " to the Bonds. The rating reflects only the views of such organization, and an explanation of the significance of such rating may be obtained from S&P. There is no assurance that the rating will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agency, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. CONTINUING DISCLOSURE The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than March 31 after the end of each fiscal year of the City (currently June 30'h), commencing with the report for the 2011-12 fiscal year (the "Annual Report"), and to provide notices of the occurrence of certain listed events. The specific nature of the information to be contained in the Annual Report or the notices of certain events is summarized in "APPENDIX D - FORM OF CONTINUING DISCLOSURE CERTIFICATE," attached to this Official Statement. These covenants have been made in order to assist the Underwriter (as defined below) in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the "Rule"). The City has complied with all of its material obligations under existing continuing disclosure undertakings during the past five years. [CONFIRM] MISCELLANEOUS At the time of delivery and payment for the Bonds, an authorized representative of the City will deliver a certificate stating that to the best of his knowledge this Official Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. Such certificate will also certify that to the best of his knowledge from the date of this Official Statement to the date of such delivery and payment there was no material adverse change in the information set forth herein. City. The execution and delivery of this Official Statement has been duly authorized by the -24- CITY OF NATIONAL CITY By: City Manager APPENDIX A CITY AND COUNTY GENERAL AND ECONOMIC DATA General Description The City. The City of National City (the "City") is situated in the southwestern coastal area of San Diego County, facing the San Diego Bay. The City lies adjacent to the cities of San Diego and Chula Vista. The City's boundaries encompass approximately nine square miles. The County. The County of San Diego (the "County") is the southern -most county in California. The County covers an area of approximately 4,280 square miles, about the size of the state of Connecticut. The County is bordered by the Pacific Ocean to the west, Orange and Riverside Counties to the north, Imperial County to the east, and the State of Baja California, Mexico to the south. The County includes 70 miles of the Pacific Ocean coastline, the Anza- Borrego Desert, which forms the eastern third of the county, the Laguna Mountains, the San Diego Bay, one of the world's largest natural deep -water harbors, and the San Diego International Airport. Population The following table lists population figures for the San Diego County for the last five calendar years. SAN DIEGO COUNTY Population Estimates Calendar Years 2007 through 2011 2007 2008 2009 2010 2011 Carlsbad 101,337 103,406 105,055 105,432 106,555 Chula Vista 227,723 230,397 234,011 244,269 246,496 Coronado 22,957 23,030 23,158 23,092 23,011 Del Mar 4,548 4,561 4,609 4,168 4,187 El Cajon 97,255 97,555 98,512 99,684 100,116 Encinitas 63,259 63,615 64,393 59,628 59,910 Escondido 141,788 143,259 145,388 144,125 145,196 Imperial Beach 27,709 28,092 28,351 26,367 26,459 La Mesa 56,250 56,445 57,096 57,184 58,041 Lemon Grove 25,451 25,511 25,748 25,370 25,478 National City 61,115 56,144 56,730 58,699 58,785 Oceanside 176,644 178,102 180,376 167,241 168,173 Poway 50,830 50,744 51,322 47,903 48,155 San Diego 1,316,837 1,333,617 1,359,132 1,301,535 1,311,882 San Marcos 79,812 82,419 83,468 83,900 84,734 Santee 55,158 55,850 57,064 53,456 54,183 Solana Beach 13,418 13,447 13,600 12,896 12,945 Vista 94,962 95,400 96,455 94,020 94,431 Total Unincorporated 481,216 489 958 500,994 482,610 490.139 Total County 3,098,269 3,131,552 3,185,462 3,091,579 3,118,876 Source: State Department of Finance estimates (as of January 1). A-1 Employment The City is included in the San Diego Metropolitan Statistical Area ("MSA"), which includes all of San Diego County. Set forth below is data from calendar years 2007 through 2011, reflecting the County's civilian labor force, employment and unemployment. These figures are county -wide statistics and may not necessarily accurately reflect employment trends in the City. Annual information is not yet available for 2012. SAN DIEGO COUNTY Civilian Labor Force, Employment and Unemployment (Annual Averages) 2007 2008 2009 2010 2011 Civilian Labor Force (1) 1,531,200 1,566,200 1,560,000 1,557,500 1,583,800 Employment 1,461, 500 1,472,400 1,435,200 1,393,200 1,426,100 Unemployment 69,700 93,800 124,800 164,300 157,700 Unemployment Rate 4.6% 6.0% 8.0% 10.6% 10.0% Wage and Salary Employment: (2) Agriculture 1,319,700 1,309,300 1,240,900 10,500 10,000 Mining and Logging 10,900 10,500 9,500 400 400 Construction 400 400 400 55,300 55,200 Manufacturing 87,000 76,100 61,100 92,900 92,800 Wholesale Trade 102,500 102,800 95,300 40,100 40,700 Retail Trade 45,500 44,900 40,600 130,700 132,200 Transportation, Warehousing and Utilities 148,100 142,000 131,600 26,500 26,100 Information 28,800 29,000 27,400 25,100 24,000 Finance and Insurance 31,300 31,400 28,200 41,300 41,600 Real Estate and Rental and Leasing 50,200 46,100 43,300 25,900 25,300 Professional and Business Services 30,100 29,200 26,500 207,700 211,500 Educational and Health Services 223,200 222,300 206,800 145,500 149,100 Leisure and Hospitality 129,500 137,300 144,300 154,800 156,900 Other Services 161,800 164,000 154,800 46,200 47,100 Federal Government 48,300 48,400 46,800 47,000 46,700 State Government 40,900 41,600 43,700 42,500 43,100 Local Government 40,500 41,800 42,000 140,900 138,700 Total, All Industries (3) 1,319,700 1,309,300 1,240,900 1,233,300 1,241,200 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. A-2 The following table lists the major employers in the County as of January 1, 2012. Employer Name Barona Casino Callaway Golf Co Fleet Anti -Submarine Warfare General Dynamics NASSCO Goodrich Aerostructures Group Marine Corps Recruit Depot Merchants Building Maintenance Palomar Medical Ctr Palomar Pomerado Health Rehab San Diego County Sheriff San Diego Naval Medical Center San Diego Zoo Scripps Research Institute Sea World San Diego Sharp Mary Birch Hosp-Women Sharp Memorial Hospital Sharp Rees-Stealy Medical Center Solar Turbines Inc Sycuan Casino Tri-City Medical Center Tri-Union Seafoods US Post Office Viejas Casino & Outlet Center SAN DIEGO COUNTY Major Employers Location Lakeside Carlsbad San Diego San Diego Chula Vista San Diego San Diego Escondido Escondido Santee San Diego San Diego La Jolla San Diego San Diego San Diego San Diego San Diego El Cajon Oceanside San Diego San Diego Alpine Source: California Employment Development Dept., America's Labor Market Info 1� Edition. A-3 Industry Casinos Golf Equipment & Supplies -Wholesale Government Offices -Us Ship Builders & Repairers (Mfrs) Aircraft Components -Manufacturers Military Bases Janitor Service Hospitals Rehabilitation Services Police Departments Military Bases Zoos Schools -Universities & Colleges Academic Amusement & Theme Parks Hospitals Hospitals Hospitals Turbines -Manufacturers Casinos Schools -Universities & Colleges Academic Food Products (Whls) Post Offices Casinos rmation System (ALMIS) Employer Database, 2012 Construction Activity The following tables show valuation summaries of building permits issued in the City and the County for the years 2006 through 2010. Permit Valuation: New Single-family New Multi -family Res. Alterations/Additions Total Residential New Commercial New Industrial New Other Corn. Alterations/Additions Total Nonresidential CITY OF NATIONAL CITY Building Permit Valuation (Dollars in Thousands) 2006 2007 2008 2009 2010 $18,194.9 $15,337.5 $5,806.6 $1,974.1 $889.6 8,513.9 0.0 45,640.1 0.0 0.0 5.384.2 9.414.3 2.237.4 591.9 1,201.8 32,093.0 24,751.8 53,684.1 2,566.0 2,091.4 4,892.8 4,526.4 1,080.1 344.0 800.0 0.0 0.0 0.0 0.0 0.0 1,757.7 339.4 6,366.2 62.1 131.4 7.266.9 12.237.1 13.817.8 2,232.9 2.522.5 13,917.4 17,102.9 21,641.1 2,639.0 3,453.9 New Dwelling Units: Single Family 101 68 29 9 7 Multiple Family 97 0 433 0 0 TOTAL 198 68 462 9 7 Source: Construction Industry Research Board, Building Permit Summary. Permit Valuation: New Single-family New Multi -family Res. Alterations/Additions Total Residential New Commercial New Industrial New Other Corn. Alterations/Additions Total Nonresidential SAN DIEGO COUNTY Building Permit Valuation (Dollars in Thousands) 2006 2007 2008 2009 2010 $1,373,554.8 $1,052,192.7 $754,716.8 $550,409.3 $648,573.3 736,965.1 485,049.3 319,304.3 132,230.1 127,847.4 360,168.1 315,137.1 265,223.7 196,061.6 198 064.4 2,470,688.0 1,852,379.1 1,339,244.8 878,701.0 974,485.1 668,762.5 596,981.4 338,667.4 91,590.6 95,031.3 153,474.4 118,401.6 57,119.9 25,699.0 7,863.9 252,359.3 191,114.0 165,385.3 123, 633.3 124, 348.3 547.014.1 510.327.4 500,628.1 343.041.2 431.623.4 $1,621,610.2 1,416,824.4 1,061,800.6 583,964.1 658,867.0 New Dwelling Units: Single Family 4,753 3,503 2,352 1786 2,254 Multiple Family 6,024 33 942 22 802 1204 1 092 TOTAL 10,777 7,445 5,154 2990 3,346 Source: Construction Industry Research Board, Building Permit Summary. A-4 Commercial Activity In 2009, the State Board of Equalization converted the business codes of sales and use tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 and 2010 is not comparable to that of prior years. A summary of historic taxable sales within the City during the past five years in which data is available is shown in the following table. Total taxable sales during calendar year 2010 in the City were reported to be $1.13 billion, a 7.2% increase over the total taxable sales of $1.05 billion reported during calendar year 2009. Figures are not yet available for 2011. CITY OF NATIONAL CITY Number of Permits and Valuation of Taxable Transactions ($000's) Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transactions 2006 1,286 1,330,336 2,118 1,510,206 2007 1,169 1,228,611 1,898 1,394,601 2008 1,159 898,221 2,498 1,095,026 2009 (1) 1,200 892,625 1,679 1,054,258 2010(1) 1,295 958,855 1,762 1,129,833 (1) Not comparable to prior years. "Retail" category now includes "Food Services". Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). During calendar year 2010, total taxable transactions in the County were reported to be $41.6 billion, a 4.8% increase over the total taxable transactions of $39.7 billion that were reported in the County during calendar year 2009. A summary of historic taxable sales within the County during the past five years for which data is available is shown in the following table. Figures are not yet available for 2011. SAN DIEGO COUNTY Number of Permits and Valuation of Taxable Transactions ($000's) Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transactions 2006 42,359 $34,619,067 91,251 $47,835,514 2007 40,011 34,038,545 85,341 47,485,988 2008 41,695 31,715,672 87,050 45,329,136 2009 (1) 52,808 27,958,518 80,595 39,728,657 2010(1) 55,462 29,475,489 83,194 41,623,636 (1) Not comparable to prior years. "Retail" category now includes "Food Services". Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). A-5 Effective Buying Income "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other labor -related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner -occupants of non -farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income." The following table summarizes the total effective buying income for San Diego County, the State and the United States for 2006 through 2010. SAN DIEGO COUNTY Effective Buying Income 2006 through 2010 Year Area Total Effective Buying Income (000's Omitted) 2006 City of National City $ 661,505 San Diego County 66,110,993 California 764,120,963 United States 6,107,092,244 2007 City of National City San Diego County California United States 2008 City of National City San Diego County California United States $ 677,558 71,339,303 814,894,438 6,300,794,040 $ 642,998 72,630,155 832,531,445 6,443,994,426 2009 City of National City $ 685,375 San Diego County 74,134,315 California 844,823,319 United States 6,571,536,768 2010 City of National City San Diego County California United States Source: Neilson & Co., Inc. $ 639,270 70,231,474 801,393,028 6,365,020,076 A-6 Median Household Effective Buying Income $31,412 47,368 46,275 41,255 $32,996 50,024 48,203 41,792 $32,979 50,383 48,952 42,303 $33,838 51,733 49,736 43,252 $31,518 48,248 47,177 41,368 lat A Transportation Surface, sea and air transportation facilities serve County residents and businesses. Interstate 5 parallels the coast from Mexico to the Los Angeles Area and points north. Interstate 15 runs inland, leading to Riverside -San Bernardino, Las Vegas, and Salt Lake City. Interstate 8 runs eastward through the southern United States. San Diego's International Airport (Lindbergh Field) is located approximately one mile west of the downtown area at the edge of San Diego Bay. The facilities are owned and maintained by the San Diego Airport Authority and are leased to commercial airlines and other tenants. The airport is California's third most active commercial airport, served by 20 major airlines. In addition to San Diego International Airport, there are several general aviation airports located in the County, including McClellan -Palomar Airport in Imperial Beach. Services The City provides a full range of municipal services, including police and fire protection, sanitation services, the construction and maintenance of streets and public infrastructure, library services, recreational activities and cultural events. MUNICIPAL GOVERNMENT The City is a general law city of the State of California. The City was incorporated on September 17, 1887 and operates under a Council -Manager form of government. The City's political and legislative body is the City Council and is empowered by the general laws of the State of California to formulate citywide policy, including a fiscal program, City services and appointment of City Manager and City Attorney. It approves all ordinances, resolutions and major contracts, modifies and approves the budget. All major changes in direction or emphasis and organizational changes must be approved by the City Council. It sets the policy, and the City Manager and staff enforce the laws and implement the programs and policies. The City Council consists of four members who are elected by popular vote to serve a four-year term, and a mayor elected by a popular vote to serve a four-year term. Elections are held every two years. The City Clerk and The City Treasurer are also elective city administrative positions. The Mayor and current members of the City Council, together with their office and the date their term expires, are listed below: Name Office Term Expires Ron Morrison Mayor December 2014 Alejandra Sotelo-Solis Vice Mayor December 2012 Luis Natividad Councilmember December 2014 Mona Rios Councilmember December 2014 Rosalie Zarate Councilmember December 2012 The City Manager is appointed by the City Council and serves as the Council's pleasure as administrative head of the City. The City Manager is responsible for appointment of all City employees, except the City Attorney, who is appointed by the City Council. A-7 Leslie Deese is the City Manager. Previously, Ms. Deese served as the Assistant City Manager and prior to that, she was City's Community Services Director. Ms. Deese earned her Masters Degree in Business Administration from National University. Claudia G. Silva, Esq., is the appointed City Attorney. Ms. Silva was appointed in July of 2010. Prior to that appointment, Ms. Silva served as a Senior Assistant City Attorney. Ms. Silva has been in practice for over 18 years. Her career has been in municipal law serving public entities. Tina Norrdin is the Financial Services Officer for the City. She is a certified public accountant and has served the City since . Previously, Ms. Norrdin was employed by . She is a graduate of Budget Process The fiscal year of the City begins on the first day of July of each year and ends on the 30" day of June of the following year. At such date as the City Manager determines, each department head must furnish to the City Manager an estimate of revenues and expenditures for such department for the ensuing fiscal year, detailed in such manner as may be prescribed by the City Manager. In preparing the proposed budget, the City Manager review the estimates, holds conferences thereon with the respective department heads, and revises the estimates as the City Manager deems advisable. Prior to the beginning of each fiscal year, the City Manager submits to the City Council the proposed budget. After reviewing and making such revisions as it deems advisable, the City Council determines the time for the holding of a public hearing thereon and causes to be published a notice thereof not less than ten days prior to the hearing date. Copies of the proposed budget are available for inspection by the public in the office of the City Clerk at not less than ten days prior to the hearing. At the conclusion of the public hearing, the City Council further considers the proposed budget and makes revisions thereto that it deems advisable. On or before June 30 of each year, it adopts the budget with revisions, if any, by the affirmative vote of at least a majority of the total members of the City Council. From the effective date of the budget, the several amounts stated as proposed expenditures become appropriated to the several departments, offices and agencies for the objects and purposes named, provided that the City Manager may transfer the appropriations of a fund from one object or purpose to another within the same department. All appropriations lapse at the end of the fiscal year to the extent that they have not been expended or lawfully encumbered. At the public meeting after the adoption of the budget, the City Council may amend or supplement the budget by motion adopted by the majority vote of the City Council. The City Council employs, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as specified by the City Council, at least annually, and at such other times as the City Council shall determine, examines the financial statements of the City in accordance with generally accepted auditing standards, including such tests of the accounting records and such other auditing procedures as such accountant considers necessary. As soon as practicable after the end of the final audit and report is submitted by A-8 Q A such accountant to the City Council and a copy of the financial statements as of the close of the fiscal year is published. Budget Overview General. The City's general fund budget figures for the year ended June 30, 2011, the City's audited actual figures for the year ended June 30, 2011, and the City's adopted budget for the year ended June 30, 2012 are set forth in the following table. Table A-9 CITY OF NATIONAL CITY General Fund Budgets For Fiscal Years 2010-11 through 2011-12 [please confirm/provide budget figures — budget categories do not correlate to audit categories] Adopted Audited Adopted Budget Actual Budget 2010-11 2010-11 2011-12 Revenues: Taxes $29,819,949 $31,750,265 31,060,129 Licenses & Permits 613,604 767,876 Fines and forfeitures 1,380,168 1,434,437 Interest and rents 374,492 381,692 746,884 Intergovernmental 520,348 684,993 485,000 Charges for services: 992,115 1,011,653 Other revenues 665,724 740,928 Total revenues 34,366,400 36,771,826 36,023,207 Expenditures: Current: General government 4,741,836 3,893,535 Public safety 28,825,500 25,671,368 28,610,717 Transportation 1,423,320 1,212,963 Culture and leisure 2,008,734 1,736,096 Capital outlay 900,202 286,219 Debt service: principal 232,948 227,360 Debt service: interest and fees 59,256 57,831 Total expenditures 38,191,796 33,085,372 28,610,717 Excess (deficiency) of revenues over (under) expenditures (3,825,396) 3,686,454 Other financing sources (uses) Transfers in 3,463,960 1,760,491 Transfers out (3,706,094) (3,712,121) Total other financing sources (uses) (242,134) (1,951,630) Net change in fund balances (4,067,530) 1,734,824 Fund balance, beginning of year Fund balance, end of year Financial Statements 11, 826,025 11, 826,025 $7,758,495 $13,560,849 The accounting policies of the City conform to generally accepted accounting principles. The Governmental Accounting Standards Board ("GASB") published its Statement No. 34 "Basic Financial Statements — and Management's Discussion and Analysis — for State and Local Governments" on June 30, 1999. Statement No. 34 provides guidelines to auditors, state A-9 and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management's Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information. Accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. There are three groups of funds- governmental funds (which include the General Fund), proprietary funds (which include enterprise funds and internal service funds) and fiduciary funds (which are used to account for resources held for the benefit of parties outside the City). The City maintains 16 individual governmental funds. Information is presented separately in the governmental statement of revenues, expenditures, and changes in fund balances for the General Fund and the Construction Fund, both of which are considered to be major funds. Data for the 14 other funds are combined into a single aggregated presentation. All governmental funds and fiduciary funds use the modified accrual basis of accounting. The proprietary funds use the accrual basis of accounting. The General Fund is the general operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund. The City's audited financial statements for fiscal year 2010-11 are attached to this Official Statement as Appendix B. The City has not sought nor has it received the consent of the auditor to include the audited financial statements in this Official Statement, and the auditor has not undertaken any post -audit review of the audited financial statements. A-10 Set forth in the following pages are (i) a general fund balance sheet for fiscal years 2008-09 through 2010-11 and (ii) a statement of revenues, expenditures and changes in fund balances for the City's general fund for the last three fiscal years and the 2011-12 budgeted year. Table A-10 CITY OF NATIONAL CITY General Fund Balance Sheet As of June 30 for Fiscal Years 2008-09 through 2010-11 Audited Audited Audited 2008-09 2009-10 2010-11 ASSETS: Cash and investments $12,255,859 $9,024,317 $11,287,422 Accounts receivable 680,983 731,539 729,435 Interest receivable 178,554 64,196 58,917 Due from other funds 4,266,136 1,636,843 701,701 Due from other governmental entities 2,973,625 2,919,636 3,368,938 Total assets $20,355,157 $14,376,531 $16,146,413 LIABILITIES: Accounts payable and accrued liabilities 1,147,113 849,314 $1,167,720 Salaries payable 361,503 975,789 766,047 Due to other funds 218,070 Deposits payable 128,537 150,120 128,398 Deferred revenue 39,246 13,794 13,794 Advances from other funds 563,382 509,605 Total liabilities 1,914,469 2,552,399 2,585,564 Fund Balances: Reserved 1,164,034 1,126,408 4,829,800 Unreserved 9,333,522 10,699,617 7,059,792 Total fund balances 18,440,688 11,826,025 13,560,849 Total liabilities and fund balances $20,355,157 $14,378,424 $16,146,413 Source: City of National City Audited Financial Statements. A-11 P-5 Table A-11 CITY OF NATIONAL CITY Statement of General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years 2008-09 through 2010-11 (audited) and 2011-12 (budgeted) [please confirm/provide budget figures — budget categories do not correlate to audit categories] Revenues: Taxes Licenses and permits Fines and forfeitures Interest and rents Intergovernmental Charges for services Other revenue Total revenues Expenditures: Current: General government Public safety Transportation Community development Culture and leisure Capital outlay Debt service: principal Debt service: interest; fees Total expenditures Excess of revenues over (under) expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balance Fund balance - July 1 * Audited 2008-09 $31,230,431 723,913 1,137,181 1,488,925 663,436 564,347 380,627 Audited Audited Budget 2009-10 2010-11 2011-12 $29,007,351 551,517 1,219,418 432,226 571,308 482,975 593,968 $31,750,265 31,060,129 767,876 1,434,437 381,692 746,884 684,993 485,000 1,011,653 740,928 36,188,860 32,858,763 36,771,826 36,023,207 3,931,370 26,673,528 2,726,801 26,934 2,086,779 1,013,344 214,837 57,481 4,578,197 3,893,535 28,402,451 25,671,368 1,777,073 1,212,963 1,828,785 1,736,096 301,404 286,219 261,174 227,360 23,962 57,831 28,610, 717 36,731,074 37,173,046 33,085,372 (542,214) (4,314,283) 3,686,454 902,137 (1,945,467) (1,043,330) (1,585,544) 20,026,232 3,047,887 1,760,491 (5,348,267) (3,712,121) (2,300,380) (6,614,663) 18,440,688 (1,951,630) 1,743,824 11,826,025 36,910,217 (887,010) Fund balance - June 30 $18,440,688 Source: City of National City A-12 $11,826,025 $13,560,849 -! 6 MAJOR GENERAL FUND REVENUE SOURCES Following is a discussion of the City's principal General Fund revenue sources: sales taxes; property taxes; transient occupancy taxes; other taxes; licenses and permits; fines, forfeitures and penalties; revenue from other agencies; and other charges and revenues. The table below shows a five-year history of the major general fund revenue sources for the City. Table A-12 CITY OF NATIONAL CITY Major General Fund Revenue Sources Fiscal Years 2006-07 through 2010-11 2006-07 2007-08 2008-09 2009-10 2010-11 Taxes 31,375,184 33,638,924 31,230,431 29,007,351 31,750,265 Transient Occupancy Taxes 859,430 799,452 723,913 551,517 767,876 Other Taxes 783,056 1,084,647 1,137,181 1,219,418 1,434,437 Licenses and Permits 2,056,097 2,168,962 1,488,925 432,226 381,692 Fines, Forfeitures and Penalties 1,259,455 802,557 663,436 571,308 684,993 Revenues from Other Agencies 1,318,470 414,298 564,347 482,975 1,011,635 Other Revenues 430,423 152,148 380,627 593,968 740,928 Source: City of National City Taxes The City derives a majority of its revenues from taxes, with sales tax providing the single major revenue source. Sales and Use Taxes. Sales and use taxes represent the largest source of tax revenue to the City (approximately % of general fund tax revenues in fiscal year 2010-11). This section describes the current system for levying, collecting and distributing sales and use tax revenues in the State of California. Sales Tax Rates. The City collects a percentage of taxable sales in the City (minus certain administrative costs imposed by the State Board of Equalization) pursuant to the Bradley -Burns Uniform Local Sales and Use Tax (the "Sales Tax Law"), as shown below. As part of the State's 2003-04 Budget, the State Legislature authorized, and the voters of the State approved, a redirection to the State from local jurisdictions (including the City) of sales revenues in the amount of 0.25% of the basic 1.0% local sales tax rate, starting July 1, 2004. The State of California uses such revenues to pay the State's economic recovery bonds. Under the California Economic Recovery Act, which includes legislation commonly referred to as the "Triple Flip", the State redirected certain property taxes in the Education Augmentation Revenue Fund ("ERAF") to local governments, including the City, to compensate for this redirection of sales taxes on a "dollar for dollar" basis. Under this legislation, along with the guarantees provided by the passage of Proposition 1A in November 2004, the City expects that there will not be any significant fiscal impacts on the City resulting from the "Triple Flip". Currently, taxable transactions in the City are subject to the following sales and use tax, of which the City's share is only a portion. In June 2006, the City's voters within the City approved Proposition D (District Tax), a one -cent increase in local sales tax effective until 2016. The revenues from the one cent district tax have generated between $ million and $ A-13 million annually to the City's General Fund. The State collects and administers the tax, and makes distributions on taxes collected within the City, as follows: Table A-13 CITY OF NATIONAL CITY Sales Tax Rates Fiscal Year 2011-12 State (General Fund) State (Fiscal Recovery Fund) State (Local Revenue Fund) State (Local Public Safety Fund)) Local (City and County Operations) Local (County Transportation Funds) Total Statewide Sales Tax Rate Local Sales Tax 5.000%(W) 0.250 0.500 0.500 0.250 0.750 7.250% 1.500% Total City Sales Tax Rate 8.750% Source: California State Board of Equalization. Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State of California. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State of California where the use will occur within the State of California. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax. Certain transactions are exempt from the State sales tax, including sales of the following products: food products for home consumption; prescription medicine; newspapers and periodicals; edible livestock and their feed; seed and fertilizer used in raising food for human consumption; and gas, electricity and water when delivered to consumers through mains, lines and pipes. This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the State Board of Equalization's June 2005 Publication No. 61 entitled "Sales and Use Taxes: Exemptions and Exclusions," which can be found on the State Board of Equalization's website at http://www.boe.ca.gov/. Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the California State Board of Equalization. According to the State Board of Equalization, it A-14 distributes quarterly tax revenues to cities, counties and special districts using the following method: Using the prior year's like quarterly tax allocation as a starting point, the Authority first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The State Board of Equalization disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter's actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment. Under the Sales and Use Tax Law, all sales and use taxes collected by the State Board of Equalization under a contract with any city, city and county, redevelopment agency, or county are required to be transmitted by the Board of Equalization to such city, city and county, redevelopment agency, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter. Under its procedures, the State Board of Equalization projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the State Board of Equalization's quarterly projection. During the last month of each quarter, the State Board of Equalization adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter. The Board of Equalization receives an administrative fee based on the cost of services provided by the Board to the City in administering the City's sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City. History of Taxable Transactions. In 2009, the State Board of Equalization converted the business codes of sales and use tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 and 2010 is not comparable to that of prior years. A summary of historic taxable sales within the City during the past five years in which data is available is shown in the following table. Total taxable sales during calendar year 2010 in the City were reported to be $1,129,833,000, a 7.2°A) increase over the total taxable sales of $1,054,258,000 reported during calendar year 2009. Figures are not yet available for 2011. A-15 Table A-14 CITY OF NATIONAL CITY VALUATION OF TAXABLE TRANSACTIONS (in thousands of dollars) Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transactions 2006 1,286 $1,330,336 2,118 $1,510,206 2007 1,169 1,228,611 1,898 1,394,601 2008 1,159 898,221 2,498 1,095,026 2009(1) 1,200 892,625 1,679 1,054,258 2010(1) 1,295 958,855 1,762 1,129,833 (1) Not comparable to prior years. "Retail" category now includes "Food Services". Source: California Board of Equalization. Franchise Taxes. The City levies franchise taxes on gas, electricity, refuse and cable television companies, representing the second largest source of tax revenue to the City. Telephone companies, railroads and wharves and piers are exempt from local franchising authority. Franchise taxes totaled approximately $1,602,483 in fiscal year 2010-11, representing approximately 4.7% of General Fund tax revenues in 2010-11, and are projected to total $1,613,126 of General Fund tax revenues in 2011-12. Property Taxes. Property taxes represent the third largest source of tax revenue to the City (approximately % of general fund tax revenues in fiscal year 2010-11). A property tax is imposed on real property (land and permanent improvements) and tangible personal property (furniture, fixtures and equipment). The general tax levy rate is 1% of assessed value, adjusted by an annual inflation factor not to exceed 2%. Property in the City is assessed by County of San Diego Assessor, except for certain public utility property which is assessed by the State Board of Equalization. Cities and other local agencies, such as schools, special districts, and the County of San Diego share in the County -wide property tax pool for purchases made within the County, but not within a specific jurisdiction. ERAF Shift and Triple Flip Legislation. Certain property taxes have been shifted from local government agencies to schools by the State Legislature for deposit in the Education Revenue Augmentation Fund ("ERAF"), a shift that has resulted in diversion of City property taxes since fiscal year 1992-93. See "State Budgets" below. As discussed in "Sales and Use Taxes" below, on March 2, 2004, the State's voters approved a bond initiative known as the "California Economic Recovery Act" which includes provisions known as "Triple Flip" legislation, calling for a diversion of a portion of local governments' share of sales taxes to the State of California, and in return, a redirection of certain property taxes from the ERAF to local government. This has resulted in a cumulative loss of over $10 million over the past 15 years. Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing A-16 'no State -assessed public utilities property and real property the taxes on which are a lien sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State of California and may be sold at public auction. Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to support prior voted debt, and prescribed how levies on county -wide property values are to be shared with local taxing entities within each county. Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS" in the body of the Official Statement. Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of "base" revenues from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year. Assessed Valuation History. See "PROPERTY TAXATION — Assessed Valuation" in the body of the Official Statement. Major Property Taxpayers. See "PROPERTY TAXATION — Assessed Valuation" in the body of the Official Statement. Impact of Proposition 1A Borrowing. The declaration by the State of California of a fiscal emergency under Proposition 1A and a subsequent take -away of the equivalent of 8% of fiscal year 2008-09 property related tax revenues from cities had an impact of $ million on the City in fiscal year 2009-10. These tax revenues must be paid back by the State with interest A-17 1N1 within three years. The City participated in .the Proposition 1A Securitization Program to mitigate this loss of revenue. [confirm] Transient Occupancy Taxes. A transient occupancy tax is imposed on occupants of hotels, inns, motels and other lodging facilities for occupancy of 30 days or less. The tax is applied to a customer's lodging bill. Taxes are remitted quarterly for all approved lodging operators in the City. The current hotel tax rate is %. [describe how it is broken down among the County, City and any other agencies] The other _% is used by the City for general purposes. Hotel tax revenue for fiscal year 2010-11 was $767,876. Projected hotel tax revenue for fiscal year 2011- 12 is $733,091. Intergovernmental In 2010-11, approximately % of General fund revenues came from other governmental agencies, primarily from state shared revenues. Known as subventions, these shared revenues may be in lieu of local taxes, replacement revenue for taxes previously levied by cities or general state assistance for specific purposes. The largest of these revenues are the Motor Vehicle In -Lieu Tax received from the State of California. Vehicle license fees ("VLF") imposed for the operation of vehicles on state highways are collected by the State Department of Motor Vehicles. VLFs were historically assessed in the amount of two percent of a vehicle's depreciated market value for the privilege of operating a vehicle on the State's public highways. Beginning in 1999, the VLF paid by vehicle owners was offset (or reduced) to the effective rate of 0.65 percent. In connection with the offset of the VLF, the State Legislature authorized appropriations from the State General Fund to "backfill" the offset so that local governments, which receive all of the vehicle license fee revenues, would not experience any loss of revenues. The legislation that established the VLF offset program also provided that if there were insufficient State General Fund moneys to fully "backfill" the VLF offset, the percentage offset would be reduced proportionately (i.e., the license fee payable by drivers would be increased) to assure that local governments would not be underfunded. In June 2003, the State Director of Finance ordered the suspension of VLF offsets due to a determination that insufficient State General Fund moneys would be available for this purpose, and, beginning in October 2003, the VLF paid by vehicle owners were restored to the two percent level. However, the offset suspension was rescinded by the Governor on November 17, 2003, and State offset payments to local governments resumed. As part of the 2004 Budget Act negotiations, an agreement was made between the State and local government officials (the "State -local agreement") under which the VLF rate was permanently reduced from two percent to 0.65 percent. In order to protect local governments, the reduction in VLF revenue to cities and counties from this rate change was replaced by an increase in the amount of property tax they receive. Under the State -local agreement, for fiscal years 2004-05 and 2005-06 only, the replacement property taxes that cities and counties receive were reduced by $700 million. Commencing in fiscal year 2004-05, local governments began to receive their full share of replacement property taxes, and those replacement property A-18 taxes now enjoy constitutional protection against certain transfers by the State due to the approval of Proposition 1A at the November 2004 election. Since this revenue represents taxation of vehicles, new auto sales are a critical component to growth of this revenue source. Beginning in fiscal year 2005-06, the VLF Swap amount has been increasing at a similar rate to property taxes, and is based on property assessed value increases in the City. Due to the slowing economy and property reassessments, VLF revenues declined during the past two fiscal years and are expected to continue this trend in fiscal year 2011-12. VLF revenues constituted approximately $4.9 million of General Fund revenues in each of the last three fiscal years. About _% of General Fund revenues are expected to come from Intergovernmental revenues in 2011-12. Charges for ServicesThe City imposes charges for various services, including licenses, permits, planning fees and the expense of providing certain services such as police and fire These fees represented about _% of General Fund revenues in 2010-11 and are expected to represent _% of General Fund revenues in 2011-12. Fines, Forfeitures and Penalties The City shares with the County all fines collected upon conviction of a misdemeanor or an infraction in any municipal or justice court and bail moneys forfeited following a misdemeanor or infraction charge when such a fine or forfeiture results from a misdemeanor or infraction committed within City boundaries. The City also receives revenues from vehicle code fines, parking citations, and penalties associated with building permits. As part of its budget act a number of years ago, the State diverted 50% of cities' vehicle code fines to State uses. Beginning in fiscal year 1998-99, the State returned these vehicle code fines to cities. In addition, cities for the first time have received revenue derived from those individuals who attend traffic school. As a result of this State action, The City receives approximately $ annually. Vehicle code fines were $ in fiscal year 2010-11 and are budgeted at $ for fiscal year 2011-12. [confirm] A-19 to Other Revenues Other miscellaneous charges that contribute revenues to the general fund include recreation fees and . These charges represented _% of General Fund revenues ub 2010-11 and are projected to represent % in 2011-12. Impact of State Budget on City Revenues The State of California is experiencing significant financial and budgetary stress. State budgets are affected by national and state economic conditions and other factors over which the City has no control. The State's financial condition and budget policies affect communities and local public agencies throughout California. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget. The State's 2008-09, 2009-10, 2010-11 and 2011-12 budgets contained or contain a number of measures that impact the finances of local agencies. Information on Current State Budget Difficulties. Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State's website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only; the information contained within the websites has not been reviewed by the City and is not incorporated in this Official Statement by reference. The California State Treasurer's Internet home page at www.treasurer.ca.gov, under the heading "Financial Information," posts the State's audited financial statements. In addition, the "Financial Information" section includes the State's Rule 15c2-12 filings for State bond issues. The "Financial Information" section also includes the "Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation" from the State's most current Official Statement, which discusses the State budget and its impact on school districts. The California Department of Finance's Internet home page at www.dof.ca.gov, under the heading "California Budget," includes the text of proposed and adopted State Budgets. The State Legislative Analyst's Office the ("LAO") prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the heading "Products." 2011-12 State Budget Following the veto by the Governor of a 2011-12 Budget proposed by the Legislature on June 15, 2011, the Legislature passed by majority vote a $86 billion general fund State Budget which attempted to close the State's estimated $9.6 billion budget deficit. The 2011-12 Budget was signed by Governor Brown on June 29, 2011. According to a summary of the 2011-12 Budget released by the Department of Finance (the "Department of Finance Report"), the 2011-12 Budget sought to close a $26.6 billion deficit identified in the Governor's May Revise through a combination of measures totaling $27.2 billion. Specifically, the 2011-12 Budget included $15 billion of expenditure reductions, $900 A-20 )D1 million of targeted revenue increases, $2.9 billion of other measures and a positive adjustment to the State's revenue outlook totaling $8.3 billion. Other budget -related legislation passed in June, 2011 called for the wind-up and dissolution of California redevelopment agencies in order to eliminate the diversion of property taxes from school districts to redevelopment agencies. This legislation was upheld by the California Supreme Court on December 29, 2011, making the terms of such legislation operative February 1, 2012. Related legislation allowing redevelopment agencies to continue under certain circumstances was invalidated by the Court. Other challenges or delays relating to the implementation of these statutes cannot be predicted at this time. The 2011-12 Budget projected an additional $4 billion in revenues during fiscal year 2011-12 and a plan to seek voter approval of a ballot measure, by November of 2012, which would protect public safety realignment and supplement the State's revenues. With the implementation of all measures, the 2011-12 Budget assumed, for fiscal year 2010-11, year-end revenues of $94.8 billion and expenditures of $91.5 billion and a 2010-11 ending budget deficit of $2 billion. Projected revenues for 2011-12 were $88.5 billion and authorized expenditures were $85.9 billion, with projections for an ending $543 million surplus. In the event that during fiscal year 2011-12 revenues did not reach the forecasts included in the 2011-12 Budget, a series of "trigger" reductions that were authorized to be implemented. "Tier 1 Trigger Cuts" would be triggered if, by January 2012, State revenues fell short of projections by $1-2 billion. Tier 1 Trigger Cuts relate to cuts in university, social services and library funding and would total approximately $600 million. "Tier 2 Trigger Cuts" would be triggered if, by January 2012, revenues were projected to fall short by more than $2 billion. Tier 2 Trigger Cuts relate to K-12 revenue limit funding and home -to -school transportation and total approximately $1.9 billion. See "January 1, 2012: Trigger Reductions Commence" below. The 2011-12 Budget also included decreases in Proposition 98 funding to $48.7 billion, including $32.8 billion from the State general fund, which reflected a decrease from the prior year of $1.1 billion. This decrease was a net figure reflective of all budgetary actions taken with respect to the State's share of Proposition 98 funding, including increases in baseline revenues, redirection of certain sales tax revenues related to the realignment of public safety programs, and the rebenching of the Proposition 98 minimum funding guarantee. The 2011-12 Budget also made a significant, one-time modification to State budgeting requirements for school districts, requiring them to project the same level of revenue per student in 2011-12 as in 2010- 11, as well as to maintain staffing and program levels commensurate with such level of funding. A related provision of the 2011-12 Budget provided that school districts would only be required to budget for the current year, and will not be required to demonstrate that they can meet their financial obligations for the subsequent two fiscal years (2012-13 and 2013-14). Other significant measures with respect to K-12 education funding were: • Apportionment Deferral. An additional deferral of $1.2 billion in education spending in order to maintain programmatic funding at the fiscal year 2010-11 level. • Part -Day Preschool. A decrease of $62.3 million to reflect a reduction of income eligibility levels to 70% of the State Median Income, and across-the-board reductions to provider contracts. A-21 inC. Charter Schools. $11 million in supplemental categorical funding to charter schools that begin operations between 2008-09 and 2011-12. Clean Technology and Renewable Energy Training. $3.2 million of increased funding for clean technology and renewable energy job training, career technical education and the Dropout Prevention Program, each of which was designed to provide at -risk high school students with occupational training in areas such as conservation, renewable energy and pollution reduction. Child Care and Development. A decrease of $180.4 million to child care and development programs, including reductions to license -exempt provider rates, reductions of income eligibility levels to 70% of the State Median Income, and across- the-board reductions to provider contracts. CALTIDES. A decrease of $2.1 million to reflect elimination of funding for the California Longitudinal Teacher Integrated Data System (CALTIDES). Although the CALTIDES program was intended to provide a central State information depository regarding the teaching workforce, the 2011-12 Budget indicated the program is not a critical need. Office of the Secretary of Education. The 2011-12 Budget projected a budget savings of $1.6 million through the elimination of the Office of the Secretary of Education. November 16, 2011 LAO Report. The LAO report entitled "The 2012-13 Budget: California's Fiscal Outlook" estimated that State General Fund revenues and transfers in 2011- 12 would be $3.7 billion less than the levels assumed in the 2011-12 Budget. This revenue shortfall would translate into $2 billion of potential Tier 1 and Tier 2 Trigger Cuts (described above). The LAO estimated that the State would end 2011-12 with a $3 billion deficit, including the effects of the trigger cuts. The LAO forecasted that in 2012-13 the State would face increased costs due to the expiration of a number of temporary budget measures, a significant increase in Proposition 98 school costs under current law, the required repayment of a $2 billion Proposition 1A property tax loan used to help balance the budget in 2009, and other factors. The LAO projected a $10 billion operating shortfall in 2012-13. January 1, 2012: Trigger Reductions Commence. On December 13, 2011, Governor Jerry Brown announced that $980 million in mid -year trigger cuts would be implemented following the determination by the Department of Finance that the State would fall $2.2 billion short of the revenue forecast contained in the 2011-12 Budget. These include Tier 1 Trigger Cuts and a portion of Tier 2 Trigger Cuts. Effective January 1, 2012, cuts to funding for University of California, California State University, community colleges, developmental services, local libraries and state -subsidized child care and K-12 school bus service funding, among others, became effective. Effective February 1, 2012, a cut to general revenue limit funding for K-12 school districts totaling $79.6 million will be implemented. 2012-13 State Budget. On January 5, 2012, Governor Brown submitted his 2012-13 Proposed Budget to the Legislature. The 2012-13 Proposed Budget acknowledged a $9.2 billion budget deficit, consisting of an $4.1 billion deficit that would remain at the end of Fiscal Year 2012-13 (absent budgetary action), and a $5.1 billion shortfall between current -law revenues and expenditures in 2012-13, with a proposed reserve of $1.1 billion. The 2012-13 Proposed Budget relies on a plan to submit to the voters at a regular election in November 2012 a $6.9 billion tax increase, A-22 including a higher rate for personal income over $250,000 and a half -cent sales tax hike. If the voters do not approve such revenue -raising measures, the 2012-13 Proposed Budget specifies $5.4 billion in additional trigger cuts affecting funding for each of: schools and community colleges ($4.8 billion cut, likely eliminating three weeks of instruction from the school year), the University of California and California State University ($200 million cut), State courts ($125 million cut, equivalent to court closures of three days per month), Parks and Recreation and Fish and Game (number of safety officers and lifeguards decreased), Forestry and Fire Prevention (substantial reduction in firefighting capability and emergency air response program, closure of fire stations), Department of Water (flood control programs cut) and Department of Justice (law enforcement programs reduced). The 2012-13 Proposed Budget includes additional expense reducing measures as follows: Changes to CaIWORKs and subsidized child care to, among other things, reduce assistance to families not meeting work requirements. ($1.4 billion reduction), merging service delivery for those who are eligible for both MediCal and Medicare ($842 million reduction), eliminating InuHome Supportive Services in shared living arrangements. ($164 million reduction), eliminating supplemental funding for schools associated with the elimination of the sales tax on gasoline ($544 million reduction), reducing grants for students of private institutions ($302 million reduction), suspending state mandates on local governments ($828 million reduction) and expanding the alternative custody program for female prison inmates (millions of dollars reduced in future years). The 2012-13 also includes continuation of the use of weight fees to offset future State general fund costs connected with transportation expenses ($350 million savings) and a one-time shift of monies from the State's Unemployment Compensation Disability Fund to pay the federal government for interest costs on the State's outstanding Unemployment Insurance loan. Additionally, concurrently with the 2012-13 Proposed Budget, the Governor has proposed a constitutional amendment, to be submitted to the voters at the November 2012 general election, to secure funding for local governments so they can provide public services recently shifted to them under the State's "realignment" plan. Voter approval of such an amendment might give the State less budget flexibility, but could also strengthen local support for current and additional realignment. January 11, 2012 LAO Report. An LAO report dated January 11, 2011 stated that the 2012-13 Proposed Budget were reasonable, and either of (i) the proposed multiyear tax increases and significant reductions in social services and subsidized child care programs or (ii) larger cuts, aimed largely at schools, move the State budget much closer to balance over the next several years. However, the LAO noted that its revenue estimates —including estimates of state revenue gains from the Governor's proposed tax raising initiatives —are lower than the Governor's and that if LAO estimates are correct, the Legislature will have to pursue billions of dollars more in budget -balancing solutions. The LAO was supportive of major restructuring of the school finance system, community college categorical funding, and education mandates, but suggested that alternatives to reforms in the CaIWORKs program should be considered. The LAO further encouraged caution in setting the size of the trigger cuts, determining the specific education reductions to impose, and designing tools to help schools, community colleges, and universities respond to the trigger cuts. February 27, 2012 LAO Report. In its Economic and Revenue Update dated February 27, 2012, the LAO stated that despite promising job growth news in the past few months, California's unemployment levels remain high and the housing market remains troubled. However, corporate profits and technology companies are likely to generate additional state tax revenues in the coming few years. The LAO provided an updated revenue forecast of $6.5 billion lower than the Governor's in 2011-12 and 2012-13 combined (in November 2011, the LAO forecasted $6.8 billion lower revenues), meaning that if the LAO's revenue forecast proves to be more accurate than the administration's, the Legislature and the Governor will have to identify additional budgetary solutions to bring the 2012-13 state spending plan into balance. May Revision. On May 14, 2012, Governor Brown issued his proposed May Revision of the 2012-13 State Budget. The May Revision estimated that the State budget deficit had increased from $9.2 billion to $15.7 billion, and predicted that, absent actions to eliminate the State's structural deficit, the State would face an approximately $8 billion budget shortfall each year. The increase in the amount of the State budget deficit was attributed to an overly optimistic forecast of revenue to be received by April 2012 (which is tied to an ongoing modest economic recovery), year -over -year increases in Proposition 98 funding for K-14 education, and the U.S. Federal Government and certain courts rejecting certain cuts proposed in the Governor's initial State Budget. The May Revision proposed $16.7 billion in aggregate budget balancing measures and to build a $1 billion reserve. Under the May Revision, forthcoming budgets would be balanced on an ongoing basis, thereby enabling the State to pay down $33 billion in outstanding borrowing that has accumulated since 2002. The May Revision suggests that the State's outstanding debt could be reduced to $6.6 billion by the end of fiscal year 2015- 16. To bridge the State budget gap, the Governor proposed an additional $4.1 billion in spending reductions, including (i) shifting of the source of payment for local trial courts, (ii) implementing various reductions to hospital, nursing home and in home care funding, (iii) establishing standards for participation in the Cal Grant Program, (iv) reducing the cost of state employee compensation by 5% through a reduced workweek or a commensurate reduction in work hours and pay, (v) transferring cash assets previously held by redevelopment agencies to cities, counties and special districts to fund core public services, (vi) using proceeds from the National Mortgage Settlement to offset existing State general fund costs, and (vii) making various other adjustments. The May Revision also assumes passage of the Governor's proposed revenue - generating initiatives at the November 2012 election. The Governor's measures increase the personal income tax on the State's highest income generating taxpayers for seven years and increase the State sales tax by .25% for four years, guaranteeing the revenue generated thereby will be allocated to schools. If the Governor's measures were to fail, the May Revision provides for an additional $6.1 billion in trigger cuts, effective January 1, 2013, which are to include, a $5.5 billion reduction in funding for schools and community colleges (equivalent to the cost of three weeks instruction), $250 million reductions to each of the University of California and California State University, and reductions to numerous public safety programs. The May Revision also notes that, even assuming passage of the Governor's measures, the State may face long-term cost increases that could take future budgets out of balance, including, but not limited to, costs associated with actions to reduce the Federal deficit, Federal government and court decisions, the pace of economic recovery, an aging population and rising health care costs. Uncertainty Regarding Future State Budgets. The City cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State's current or future budget deficits. Future State budgets will be affected by national and state economic conditions and other factors over which the City has no control. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make A-24 adjustments to its budget. Decreases in such revenues may have an adverse impact on the City's ability to pay Base Rental payments. Current Investment Portfolio The City's investments are limited to those allowable under state statutes as incorporated into the City's Investment Policy that is even more conservative than that allowed by the state statue. Investment of debt proceeds held by fiscal agent are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy. The risks associated with the City's cash and investments are interest rate risk, credit risk and custodial risk. Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment and custodial credit risk is for deposits is the risk that, in the event of the failure of a depository financial institution, a depositor will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The City's cash and investments at June 30, 2011 are as follows: Table A-15 CITY OF NATIONAL CITY Investment Portfolio as of June 30, 2011 Total U.S. Agency Securities $13,212,247 Certificates of Deposit-CDARS 2,000,000 Local Agency Investment Fund 51,108,733 Commercial Paper 510,320 Cash with Fiscal Agent: Treasury Coupon Securities 1,094,028 Money Market 5,967,159 Guaranteed Investment Contracts 305,907 Commercial Paper 2,344,000 Money Market Mutual Funds 34,058,588 Total Cash and Investments $110,600,982 Source: City of National City The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated. Retirement and Pension Systems Plan Description. The City contributes to the California Public Employees' Retirement System ("PERS"), an agent multiple -employer public employee retirement system. PERS provides retirement, disability and death benefits. The miscellaneous employees of the City and the safety employees are part of a single -employer defined benefit pension plan. PERS provides retirement and disability benefits, annual cost of living adjustment, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from its executive office at 400 "P" Street, Sacramento, California 95814. Miscellaneous and safety participants are required to contribute 8% and 9%, respectively, of their annual covered salary. The City makes the contributions required of City employees on their behalf and for their account. Benefit provisions and all other requirements are established by state statute and City contract with employee bargaining groups. Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution (ARC) plus an adjustment for the cumulative difference between the APC and the employer's actual plan contributions for the year. The cumulative difference is called the net pension obligation (NPO). The ARC for the period July 1,2010 to June 30, 2011 has been determined by an actuarial valuation of the plan as of June 30, 2008. The contribution rate indicated for the period is 29.383% of payroll for the safety plan and 16.656% of payroll for the miscellaneous plan. In order to calculate the dollar value of the ARC for inclusion in the financial statements prepared as of June 30, 2011, the contribution rate is multiplied by the payroll of covered employees that were paid during the period from July 1, 2010 to June 30, 2011. Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a rolling 30-year period, which results in an amortization of 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 year amortization period. Following is three-year trend information of Annual Pension Cost (Employer Contribution). Pension Cost APC Pension Miscellaneous employees (APC) Contributed Obligation 06/30/09 $3,199,780 100% 06/30/10 3,461,800 100% 06/30/11 3,277,155 100% Safety employees 06/30/09 $1,901,577 100% 06/30/10 1,871,038 100% 06/30/11 1,683,420 100% Other Post Employment Benefits Plan Description. The City provides a fixed dollar monthly contribution equal to $5 ($10 for management and executive employees) times the number of years of service. Safety A-26 I I ft employees may receive the contribution towards non -City health insurance, if evidence of coverage is provided. The City's contribution is payable to age 65 or Medicare eligibility, if earlier. Management and executive employees are eligible for the City's contribution during their lifetime. Eligibility. Employees are eligible for retiree health benefits if they retire from the City on or after age 50 with at least 20 years of service (10 years for management and executive employees). Membership of the plan consisted of the following at June 30, 2011, the date of the latest actuarial valuation: Retirees and beneficiaries receiving benefits Active plan members Total 46 280 326 Funding Policy. The contribution requirements of plan members and the City are established and may be amended by City Council. The contribution required to be made under City Council and labor agreement requirements is based on a pay-as-you-go basis (i.e., as medical insurance premiums become due). For fiscal year 2010-11, the City contributed $75,020 to the plan for current premiums. Annual OPEB Cost and Net OPEB Obligation. The City's annual other postemployment benefit ("OBEB") cost is calculated based on the annual required contribution of the employer (ARC"), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45 The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City's net OPEB obligation for these benefits: Annual Required Contribution $126,454 Increase in net OPEB obligation 2,690 Adjustments to ARC (2,690) Annual OPEB cost (expense) 126,454 Contributions made (including premiums paid) (75,020) Increase in net OPEB obligation 51,434 Net OPEB obligation, beginning of year 53,795 Net OPEB obligation, beginning of year $105,229 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the last 3 fiscal years were as follows: Fiscal Year Annual % of Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2009 $110,954 68% $34,624 6/30/2010 $110,954 83% $53,795 6/30/2011 $126,454 59% 105,229 Funded Status and Funding Progress. The funded status of the plan as of June 30, 2011 was as follows: Actuarial accrued liability (AAL) $1,370,805 A-27 !�! Actuarial value of plan assets Unfunded actuarial accrued liability (UAAL) $1.370.805 Funded ratio (actuarial value of plan assets/AAL) 0.0% Covered payroll (active plan members) 18,322,000 UAAL as percentage of covered payroll 7.5% See "APPENDIX B — Comprehensive Audited Financial Report for the Year Ended June 30, 2011 — Note 9" for a description of actuarial methods and assumptions relating to the plan. Risk Management The City is a member of the San Diego Pooled Insurance Program Authority (the "Program Authority"), a joint powers authority established to provide insurance and insurance - related services to its members. The Program Authority's governing board consists of one member from each participating city and is responsible for the selection of management as well as budgeting and finance. Insurance activities are financed by charges to member cities. Each participating city has its own self -insured retention level. The City is insured for general liability with a self -insured retention of $150,000. Losses between the self -insured retention level and $2,000,000 are shared by the participant cities. Excess liability insurance coverage is provided by the Program Authority for losses greater than $2,000,000 up to $35,000,000. Losses in excess of $35,000,000 are not covered and are self -funded by the City. The City is completely self -insured for unemployment claims. The City is also a member of CSAC Excess Insurance Authority ("CSAC"), a joint powers authority, for workers compensation claims. The City is self -insured for workers compensation claims and losses up to $500,000 per occurrence. Losses between the self - insured retention level and $5,000,000 are shared by the participant cities. Losses in excess of $5,000,000 up to $200,000,000 are reinsured by a commercial insurance carrier. The City is completely self -insured for unemployment claims. During fiscal year 2010-11, there were no significant reductions in insurance coverage from the prior year. For each of the past three fiscal years, the settlements have not exceeded the City's insurance coverage. A-28 Long -Term Debt The City generally incurs long-term debt to finance projects or purchase assets which will have useful lives equal to or greater than the related debt. The City's long-term debt for the fiscal year ended June 30, 2011 is as follows: Table A-16 CITY OF NATIONAL CITY Long -Term Debt Type of Indebtedness Final Amount Outstanding Maturity Issued 6/30/2011 General Obligation Bonds: Election of 2002, Series A* 2028 $6,000,000 $5,120,000 Lease Revenue Refunding Bonds 2018 3,115,000 3,115,000 Claims Payable 6,114,000 Compensated Absences 2,815,341 OPEB 105,229 Capitalized Lease Obligations 2,416,722 Note Payable 2,276,885 To be refunded with Bond proceeds. Source: City of National City A-29 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR 2010-11 B-1 10.1 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL City Council City of National City 1243 National City Boulevard National City, California 91950-4301 , 2012 OPINION: $ City of National City 2012 General Obligation Refunding Bonds Members of the City Council: We have acted as bond counsel in connection with the issuance by the City of National City (the "City") of its $ aggregate principal amount of City of National City 2012 General Obligation Refunding Bonds, dated , 2012 (the `Bonds"). The Bonds have been issued by the City pursuant to the Constitution and laws of the State of California, a resolution adopted by the City Council of the City on , 2012 (the "Resolution") and a Paying Agent Agreement dated as of July 1, 2012 (the "Paying Agent Agreement") between the City and Union Bank, N.A. as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Paying Agent Agreement and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The City is duly organized and validly existing as a general law city and municipal corporation under the Constitution and laws of the State of California, with the power to adopt the Resolution, to execute and deliver the Paying Agent Agreement and to perform the agreements on its part contained therein, and to issue the Bonds. 2. The Bonds are valid and binding general obligations of the City. 3. The City has the power, is obligated, and in the Paying Agent Agreement has covenanted, to levy ad valorem taxes upon all property within the City which is subject to taxation by the City, without limitation of rate or amount, for the payment of the Bonds and the interest thereon. 4. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code"), and, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction is allowed for 80 percent of that portion of such financial institutions' interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding sentences are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes and that the Bonds be, or continue to be, qualified tax-exempt obligations. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 5. The interest on the Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Bonds and the enforceability of the Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. Respectfully submitted, A Professional Law Corporation C-2 116 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of National City (the "City") in connection with the issuance by the City of its $ 2012 General Obligation Refunding Bonds (the "Bonds"). The Bonds are being issued pursuant to a resolution adopted by the City Council of the City on , 2012 and a Paying Agent Agreement (the "Paying Agent Agreement"), dated as of July 1, 2012, by and between the City and Union Bank, N.A., as paying agent (the "Paying Agent"). Pursuant to Section 5.06 of the Paying Agent Agreement, the City covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Paying Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Annual Report Date" means January 1 of each year for so long as the Bonds remain outstanding. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Dissemination Agent" shall mean the City or an entity selected and retained by the City, or any successor thereto selected by the City. The initial Dissemination Agent shall be Urban Futures, Inc. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate and any other event legally required to be reported pursuant to the Rule. "MSRB" means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. "Participating Underwriter" shall mean Estrada Hinojosa & Company, Inc. and any other original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. D-1 "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. Section 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than each Annual Reporting Date, commencing January 1, 2013 for the report for the 2011-12 fiscal year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate. If the Dissemination Agent is not the City, not later than fifteen (15) Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent. The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder. The Dissemination Agent may conclusively rely upon such certification of the City. (b) If by fifteen (15) Business Days prior to the date specified in subsection (a) for filing the Annual Report with the MSRB, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with subsection (a). (c) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (d) With respect to each Annual Report, the Dissemination Agent shall: (I) determine each year prior to the Annual Report Date the then -applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) Audited Financial Statements of the City for the most recently completed fiscal year prepared in accordance with GAAP, as in effect from time to time, as such principles are modified by GASB (or, if Audited Financial Statements are not available, unaudited Financial Statements will be provided, if available, and Audited Financial Statements will be provided as soon as available); (b) The approved budget of the City for the current fiscal year; D-2 (c) Changes, if any, in the operation of the County of San Diego's Teeter Plan affecting the City; (d) Any change the County of San Diego's investment pool which would affect the City's access to property tax collections used to pay debt service on the Bonds; (e) Assessed value of taxable property within the jurisdiction of the City; (f) Property tax collection delinquencies for the prior fiscal year for the City if the City is no longer a participant in the County of San Diego's Teeter Plan; (g) Amount of all general obligation debt of the City outstanding, and total scheduled debt service on such general obligation debt; and (g) The Top ten real property tax assessees of the City for the current fiscal year, as measured by secured assessed valuation and percentage of total secured assessed value. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the City is an "obligated person" (as defined by the Rule), which are available to the public on the MSRB's Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds: 1. principal and interest payment delinquencies; 2. non-payment related defaults, if material; 3. modifications to rights of Bondowners, if material; 4. Bond calls, if material, and tender offers; 5. defeasances; 6. rating changes; 7. adverse tax opinions or events affecting the tax-exempt status of the Bonds, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax-exempt status of the Bonds; D-3 l/q 8. unscheduled draws on the debt service reserves, if any, reflecting financial difficulties; 9. unscheduled draws on credit enhancements reflecting financial difficulties; 10. substitution of credit or liquidity providers, or their failure to perform; 11. release, substitution, or sale of property securing repayment of the Bonds, if material; 12. Bankruptcy, insolvency, receivership or similar event of the obligated person; 13. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Resolution. (c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier "if material." The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the City determines the event's occurrence is material for purposes of U.S. federal securities law. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City. D-4 Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The City's and the Dissemination Agent's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(f) hereof. Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign at any time by providing at least 60 days' notice in writing to the City and the Paying Agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first Annual Report filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to this Disclosure Certificate modifying the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. D-5 A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5(c). Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner of the Bonds may take such actions, as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Paying Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City or the Dissemination Agent (if not the City) to comply with this Disclosure Certificate shall be an action to compel performance. The City hereby represents and warrants that it is currently not in default under any other continuing disclosure arrangement entered into in connection with the Rule. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their respective powers and duties hereunder, including the costs and expenses (including attorneys' fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Bondowners, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and the payment of the Bonds. Section 13. Notices. Any notices or communications to be given to the City pursuant to this Disclosure Certificate may be given as follows: City of National City 1243 National City Boulevard National City, California 91950-4301 Attn: Finance Manager Any person may, by written notice to the other persons listed above, designate a different address to which subsequent notices or communications should be sent. D-6 l APPENDIX E DTC AND THE BOOK -ENTRY ONLY SYSTEM The following description of the Depository Trust Company ("DTC'), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the City nor the Paying Agent take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. The Depository Trust Company, New York, NY, will act as securities depository for the securities (the "Bonds"). The Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Bond certificate will be issued for the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing E-1 Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information contained on this Internet site is not incorporated herein by reference. 3. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. 4. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's E-2 t Co Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. 10. The City may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. E-3 CITY OF NATIONAL CITY 2012 GENERAL OBLIGATION REFUNDING BONDS BOND PURCHASE AGREEMENT City of National City 1243 National City Boulevard National City, California 91950-4301 Ladies and Gentlemen: ,2012 Estrada Hinojosa & Co., Inc. (the "Underwriter") offers to enter into this Bond Purchase Agreement (this "Purchase Agreement") with the City of National City (the "City"), which, upon your acceptance hereof, will be binding upon the City and the Underwriter. This offer is made subject to (i) the written acceptance of this Purchase Agreement by the City and (ii) withdrawal by the Underwriter upon written notice (by telecopy or otherwise) delivered to the City at any time prior to the acceptance of this Purchase Agreement by the City. The City acknowledges and agrees that: (i) the purchase and sale of the Bonds (as defined below) pursuant to this Purchase Agreement is an arm's length commercial transaction between the City and the Underwriter; (ii) in connection with such transaction, the Underwriter is acting solely as a principal and not as an agent or a fiduciary of the City; (iii) the Underwriter has not assumed (individually or collectively) a fiduciary responsibility in favor of the City with respect to: (x) the offering of the Bonds or the process leading thereto (whether or not any Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the City on other matters); or (y) any other obligation to the City except the obligations expressly set forth in this Purchase Agreement; and (iv) the City has consulted with its own advisors to the extent it has deemed appropriate in connection with the Bonds. 1. Purchase and Sale of the Bonds. Upon the terms and conditions and in reliance upon the representations, warranties and agreements herein set forth, the Underwriter hereby agrees to purchase from the City for reoffering to the public, and the City hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of $ in aggregate principal amount of the City's 2012 General Obligation Refunding Bonds (the "Bonds"). The Bonds shall bear interest at the rates and shall mature in the years shown in Appendix A hereto, which is incorporated herein by this reference. ►n n The purchase price of the Bonds shall be $ , consisting of the $ principal amount of the Bonds, plus $ net original issue premium, less an underwriter's discount of $ 2. The Bonds; Purpose of the Issue. The Bonds shall be dated the date of their original delivery. The Bonds shall mature on August 1 in the years shown in Appendix A hereto, except as provided herein, and shall otherwise be as described in, and shall be issued and secured under the provisions of the Resolution of the City Council adopted on , 2012 (the "Bond Resolution"), and Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing with Section 53550 of said Code (the "Bond Law") and other applicable provisions of law. The Bonds shall be executed and delivered under and in accordance with the provisions of the Paying Agent Agreement, dated as of July 1 2012 (the "Paying Agent Agreement") between the City and Union Bank, N.A., as paying agent (the "Paying Agent"). The Bonds shall be issued for the purpose of refunding the City of National City General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"), in accordance with Irrevocable Refunding Instructions (the "Refunding Instructions") to be given by the City to Union Bank of California, N.A., as paying agent for the Prior Bonds (the "Prior Bonds Paying Agent"). 3. Use of Documents. The City hereby authorizes the Underwriter to use, in connection with the offer and sale of the Bonds, this Purchase Agreement, the Preliminary Official Statement (defined below), the Official Statement (defined below), the Continuing Disclosure Certificate (defined below), the Paying Agent Agreement, the Refunding Instructions and all information contained herein and therein and all of the documents, certificates or statements furnished by the City to the Underwriter in connection with the transactions contemplated by this Purchase Agreement (except as such documents otherwise provided). To assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) ("Rule 15c2-12"), the City will execute a Continuing Disclosure Certificate (the "Continuing Disclosure Certificate") pursuant to which it will agree to provide annual reports and notices of certain events. 4. Public Offering of the Bonds. The Underwriter agrees to make a bona fide public offering of all the Bonds at the initial public offering prices or yields to be set forth on the cover page of the Official Statement and Appendix A hereto. Subsequent to such initial public offering, the Underwriter reserves the right to change such initial public offering prices or yields as it deems necessary in connection with the marketing of the Bonds. 5. Review of Official Statement. The Underwriter hereby represents that it has received and reviewed the Preliminary Official Statement with respect to the Bonds, dated , 2012 (the Preliminary Official Statement"). The City represents that it deemed the Preliminary Official Statement to be final as of its date, except for either revision or addition of the offering price(s), yield(s) to maturity, selling compensation, aggregate principal amount and maturity value, denominational amount and maturity value per maturity, delivery date, rating(s) and other terms of the Bonds which depend upon the foregoing as provided in and under Rule 15c2-12. -2- /a/ The Underwriter agrees that prior to the time the final Official Statement (the "Official Statement") relating to the Bonds is available, the Underwriter will send to any potential purchaser of the Bonds, upon the request of such potential purchaser, a copy of the most recent Preliminary Official Statement. Such Preliminary Official Statement shall be sent by first class mail (or other equally prompt means) not later than the first business day following the date upon which each such request is received. The Underwriter hereby represents that it will provide, consistent with the requirements of Municipal Securities Rulemaking Board ("MSRB") Rule G-32, for the delivery of a copy of the Official Statement to each customer who purchases any Bonds during the underwriting period (as such term is defined in MSRB Rule G-11), and deliver a copy of the Official Statement to a national repository on or before the Closing Date, and that it will otherwise comply with all applicable statutes and regulations in connection with the offering and sale of the Bonds, including, without limitation, MSRB Rule G-32 and Rule 15c2-12. References herein to the Preliminary Official Statement and the final Official Statement include the cover page and all appendices, exhibits, maps, reports and statements included therein or attached thereto. 6. Closing. At 9:00 A.M., California time, on , 2012, or at such other time or on such other date as shall have been mutually agreed upon by the City and Underwriter, (the "Closing Date"), the City will deliver to the Underwriter at the offices of The Depository Trust Company ("DTC") in New York, New York, or at such other place as the City and the Underwriter may mutually agree upon, the Bonds in fully registered book -entry form, duly executed and registered in the name of Cede & Co., as nominee of DTC, and in San Francisco, California, the other documents hereinafter mentioned; and the Underwriter will accept such delivery and pay the purchase price thereof in immediately available funds by wire transfer to (i) the escrow account established by the Prior Bonds Paying Agent and (ii) to the Paying Agent, to pay the costs of issuing the Bonds. 7. Representations, Warranties and Agreements of the City. The City hereby represents, warrants and agrees with the Underwriter that: (a) Due Organization. The City is a general law city and municipal corporation duly organized and validly existing under the Constitution and laws of the State of California, with the power to issue the Bonds under the Bond Law; (b) Due Authorization. (i) On or before the Closing Date, the City will have taken all action required to be taken by it to authorize the issuance and delivery of the Bonds; (ii) the City has full legal right, power and authority to enter into the Paying Agent Agreement, this Purchase Agreement, the Refunding Instructions and the Continuing Disclosure Certificate, and to perform its obligations under the Paying Agent Agreement, the Refunding Instructions and the Continuing Disclosure Certificate; and (iii) this Purchase Agreement constitutes, and when executed, the Paying Agent Agreement, the Refunding Instructions and the Continuing Disclosure Certificate, will constitute the valid and legally binding obligation of the City; -3- 126 (c) Consents. Except for the action of parties hereto, no consent, approval, authorization, order, filing, registration, qualification, election or referendum of or by any court or governmental agency or public body whatsoever is required in connection with the issuance, delivery or sale of the Bonds or the consummation of the other transactions contemplated herein or hereby, except for such actions as may be necessary to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and jurisdictions of the United States as the Underwriter may reasonably request, or which have not been taken or obtained; (d) Internal Revenue Code. The City has covenanted to comply with the Internal Revenue Code of 1986, as amended, with respect to the Bonds; (e) No Conflicts. To the best knowledge of the City, the issuance of the Bonds, and the execution, delivery and performance of this Purchase Agreement, the Paying Agent Agreement, the Refunding Instructions, the Continuing Disclosure Certificate and the Bonds, and the compliance with the provisions hereof do not conflict with or constitute on the part of the City a violation of or default under, the Constitution of the State of California or any existing law, charter, ordinance, regulation, decree, order or resolution, and do not conflict with or result in a violation or breach of, or constitute a default under, any agreement, indenture, mortgage, lease or other instrument to which the City is a party or by which it is bound or to which it is subject; Litigation. No action, suit, proceeding, hearing or investigation is pending or, based on reasonable inquiry, threatened against the City: (i) in any way affecting the existence of the City or in any way challenging the respective powers of the several officers of the City required to execute any documents or certificates in connection with the delivery of the Bonds or of the titles of the officials of the City to such offices; or (ii) seeking to restrain or enjoin the sale, issuance or delivery of any of the Bonds, the application of the proceeds of the sale of the Bonds, or the collection of taxes of the City pledged or to be pledged or available to pay the principal of and interest on the Bonds, or the pledge thereof, or, the levy of any taxes contemplated by the Bond Resolution, or in any way contesting or affecting the validity or enforceability of the Bonds, the Paying Agent Agreement, the Refunding Instructions, the Continuing Disclosure Certificate or this Purchase Agreement or contesting the powers of the City or its authority with respect to the Bonds, the Paying Agent Agreement, the Refunding Instructions, the Continuing Disclosure Certificate, or this Purchase Agreement; or (iii) in which a final adverse decision could (a) materially adversely affect the operations of the City or the consummation of the transactions contemplated by this Purchase Agreement or the Paying Agent Agreement„ (b) declare this Purchase Agreement to be invalid or unenforceable in whole or in material part, or (c) adversely affect the exclusion of the interest (f) -4- /3/ (g) paid on the Bonds from gross income for federal income tax purposes and the exemption of such interest from California personal income taxation; No Other Debt. Between the date hereof and the Closing Date, without the prior written consent of the Underwriter, neither the City directly, nor any other governmental agency or other body on behalf of the City, will have issued in the name and on behalf of the City any bonds, notes or other obligations for borrowed money except for such borrowings as may be described in or contemplated by the Official Statement; (h) Arbitrage Certificate. The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that the City is a bond issuer whose arbitrage certificates may not be relied upon; (I) Continuing Disclosure. Except as disclosed in the Official Statement, the City has not failed to comply in all material respects with any previous continuing disclosure undertaking under Rule 15c2-12 during the past five years; and (j) Certificates. Any certificates signed by any officer of the City and delivered to the Underwriter shall be deemed a representation by the City to the Underwriter, but not by the person signing the same, as to the statements made therein. 8. Representations, Warranties and Agreements of the Underwriter. The Underwriter represents to and agrees with the City that, as of the date hereof and as of the Closing Date: (a) The Underwriter is duly authorized to execute this Purchase Agreement and to take any action under this Purchase Agreement required to be taken by it. (b) The Underwriter is in compliance with MSRB Rule G-37 with respect to the City, and is not prohibited thereby from acting as underwriter with respect to securities of the City. (c) The Underwriter has, and has had, no financial advisory relationship with the City with respect to the Bonds, and no investment firm controlling, controlled by or under common control with the Underwriter has or has had any such financial advisory relationship. (d) The Underwriter has reasonably determined that the City's obligations under the Continuing Disclosure Certificate are sufficient to effect compliance with Rule 15c2-12. 9. Covenants of the City. The City covenants and agrees with the Underwriter that: -5- (a) Securities Laws. The City will furnish such information, execute such instruments, and take such other action in cooperation with the Underwriter if and as the Underwriter may reasonably request in order to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and jurisdictions, provided, however, that the City shall not be required to consent to service of process in any jurisdiction in which they are not so subject as of the date hereof; (b) Application of Proceeds. The City will apply the proceeds from the sale of the Bonds for the purposes for which the Bonds were authorized; (c) Official Statement. The City hereby agrees to deliver or cause to be delivered to the Underwriter, not later than the 7th business day following the date this Purchase Agreement is signed, copies of a final Official Statement substantially in the form of the Preliminary Official Statement, with only such changes therein as shall have been accepted by the Underwriter and the City (such Official Statement with such changes, if any, and including the cover page and all appendices, exhibits, maps, reports and statements included therein or attached thereto being herein called the "Official Statement") in such quantities (including a representative number of originally executed copies) as may be requested by the Underwriter in order to permit the Underwriter to comply with paragraph (b)(4) of Rule 15c2-12 and with the rules of the Municipal Securities Rulemaking Board; (d) Subsequent Events. The City hereby agrees to notify the Underwriter of any event or occurrence that may affect in any material respect the accuracy or completeness of any information set forth in the Official Statement relating to the City, until the date which is 90 days following the Closing Date or until such time (if earlier) as the Underwriter shall no longer hold any of the Bonds for sale; (e) Amendments to Official Statement. For a period of 90 days after the Closing Date or until such time (if earlier) as the Underwriter shall no longer hold any of the Bonds for sale, the City will not adopt any amendment of or supplement to the Official Statement to which, after having been furnished with a copy, the Underwriter shall object in writing or which shall be disapproved by the Underwriter (the Underwriter's approval of such amendment or supplement shall not be unreasonably withheld); and if any event relating to or affecting the City shall occur as a result of which it is necessary, in the opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in light of the circumstances existing at the time it is delivered to a purchaser, the City shall forthwith prepare and furnish (at the expense of the City) a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to the Underwriter) which will amend or -6- /33 supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time such supplemental Official Statement is delivered to a purchaser, not misleading. 10. Conditions to Closing. The Underwriter has entered into this Purchase Agreement in reliance upon the representations and warranties of the City contained herein and the performance by the City of its obligations hereunder, both as of the date hereof and as of the date of Closing. The Underwriter's obligations under this Purchase Agreement are and shall be subject at the option of the Underwriter, to the following further conditions at the Closing Date: (a) Representations True. The representations and warranties of the City contained herein shall be true, complete and correct in all material respects at the date hereof and at and as of the Closing Date as if made on and as of the Closing Date, and the statements made in all certificates and other documents delivered to the Underwriter on the Closing Date pursuant hereto shall be true, complete and correct in all material respects on the Closing Date; and each of the City shall be in compliance with each of the agreements made by it in this Purchase Agreement; (b) Obligations Performed. On the Closing Date, (i) the Paying Agent Agreement, the Official Statement, this Purchase Agreement, the Continuing Disclosure Certificate and the Refunding Instructions shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Underwriter; and (ii) all actions under the Bond Law which, in the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California ("Bond Counsel"), shall be necessary in connection with the transactions contemplated hereby shall have been duly taken and shall be in full force and effect. (c) Adverse Rulings. No decision, ruling or finding shall have been entered by any court or governmental authority since the date of this Purchase Agreement (and not reversed on appeal or otherwise set aside), or to the best knowledge of the City, pending or threatened which has any of the effects described in Section 7(f) or contesting in any way the completeness or accuracy of the Official Statement; (d) Marketability. Between the date hereof and the Closing Date, the market price or marketability or the ability of the Underwriter to enforce contracts for the sale of the Bonds, at the initial offering prices set forth in the Official Statement, of the Bonds shall not have been materially adversely affected by reason of any of the following: (1) legislation enacted or introduced in the Congress or recommended for passage by the President of the United States, or a decision rendered by a court established under Article Ill of the Constitution of the United States or by the -7- f2� United States Tax Court, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made: (I) by or on behalf of the United States Treasury Department, or by or on behalf of the Internal Revenue Service, with the purpose or effect, directly or indirectly, of causing inclusion in gross income for purposes of federal income taxation of the interest received by the owners of the Bonds; or (ii) by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction over the subject matter thereof, to the effect that the Bonds, or obligations of the general character of the Bonds, including any and all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended; (2) legislation enacted by the legislature of the State of California (the "State"), or a decision rendered by a court of the State, or a ruling, order, or regulation (final or temporary) made by State authority, which would have the effect of changing, directly or indirectly, the State tax consequences of interest on obligations of the general character of the Bonds in the hands of the holders thereof; (3) the declaration of war or engagement in major military hostilities by the United States or the occurrence of any other national emergency or calamity relating to the effective operation of the government or the financial community in the United States; (4) the declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange; (5) the imposition by the New York Stock Exchange, other national securities exchange, or any governmental authority, of any material restrictions not now in force with respect to the Bonds, or obligations of the general character of the Bonds, or securities generally, or the material increase of any such restrictions now in force; (6) an order, decree or injunction of any court of competent jurisdiction, or order, filing, regulation or official statement by the Securities and Exchange Commission, or any other governmental agency having jurisdiction over the subject matter thereof, issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, as contemplated hereby or by the Official Statement, is or would -8- (7) (8) be in violation of the federal securities laws, as amended and then in effect; the withdrawal or downgrading of any rating of the City's outstanding indebtedness by a national rating agency; or any event occurring, or information becoming known which, in the reasonable judgment of the Underwriter, makes untrue in any material adverse respect any statement or information contained in the Official Statement, or has the effect that the Official Statement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading, and which the City fails or is unwilling to correct by the submission of supplemental information. (e) Delivery of Documents. On or before the Closing Date, the City shall deliver (or cause to be delivered) sufficient copies of the following documents, in each case dated as of the Closing Date and satisfactory in form and substance to the Underwriter: (1) Paying Agent Agreement. The Paying Agent Agreement, fully executed by the City and the Paying Agent. (2) Refunding Instructions. Refunding Instructions, fully executed by the City and the Prior Bonds Paying Agent. (3) Bond Counsel Opinion. An approving opinion of Bond Counsel, as to the validity and tax-exempt status of the Bonds, dated the Closing Date, addressed to the City, in substantially the form attached as an appendix to the Official Statement, together with a reliance letter from Bond Counsel to the effect that the Underwriter can rely upon such approving opinion. (4) Bond Counsel Supplemental Opinion. The supplemental opinion of Bond Counsel to the effect that: (i) The statements contained in the Official Statement pertaining to the Bonds under the captions "INTRODUCTION," "THE BONDS," "SECURITY FOR THE BONDS," and "TAX MATTERS," excluding any material that may be treated as included under such captions by cross-reference, insofar as such statements expressly summarize certain provisions of the Bonds, the Paying Agent Agreement and its final opinion, are accurate in all material respects; and (ii) the Bonds are exempt from registration under the Securities Act of 1933, as amended. -9- (5) Disclosure Counsel lob-5 Opinion. The opinion of Bond Counsel, acting as disclosure counsel to the City ("Disclosure Counsel"), in form and substance satisfactory to the Underwriter, addressed to the Underwriter and the City, dated the Closing Date, to the effect that during the course of serving as Disclosure Counsel in connection with the issuance of the Bonds and without having undertaken to determine independently or assuming any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement, no information came to the attention of the attorneys in such firm rendering legal services in connection with the issuance of the Bonds that would lead them to believe that the Official Statement (excluding therefrom the financial statements, any financial or statistical data, or forecasts, charts, numbers, estimates, projections, assumptions or expressions of opinion included in the Official Statement and the appendices to the Official Statement as to which no opinion need be expressed), as of the date thereof or the Closing Date, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (6) City Attorney Opinion. The opinion of the City Attorney, in form and substance satisfactory to the Underwriter, addressed to the Underwriter and the City, dated the Closing Date, to the effect that: (i) The Bond Resolution has been duly adopted and is in full force and effect and has not been amended or rescinded in whole or in part; (ii) The Paying Agent Agreement, the Purchase Contract and the Continuing Disclosure Certificate have been duly authorized, executed and delivered by the City and constitute the valid, legal and binding agreements of the City enforceable in accordance with their terms. (iii) The City is a general law city and municipal corporation duly organized and validly existing under the Constitution and laws of the State of California; (iv) The statements contained in the Official Statement under the caption "ABSENCE OF MATERIAL LITIGATION" fairly and accurately summarize the information presented therein; provided that the City Attorney need not express any opinion with respect to any financial or statistical information contained therein; and (v) Except as otherwise disclosed in the Official Statement and to the best knowledge of such counsel after due -10- ! 37 (7) inquiry, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental agency of body, pending or threatened against the City, challenging the creation, organization or existence of the City, or the validity of the Bond Resolution or seeking to restrain or enjoin the repayment of the Bonds or in any way contesting or affecting the validity of the Bond Resolution. Certificate of the City. A certificate signed by appropriate officials of the City to the effect that (i) such officials are authorized to execute the Paying Agent Agreement, the Refunding Instructions, the Continuing Disclosure Certificate and this Purchase Agreement; (ii) the representations, agreements and warranties of the City herein are true and correct in all material respects as of the date of Closing; (iii) the City has complied with all the terms of the Bond Resolution, the Paying Agent Agreement, the Refunding Instructions and this Purchase Agreement that are necessary to be complied with prior to or before the Closing Date and such documents and the Continuing Disclosure Certificate are in full force and effect; and (iv) the City has reviewed the Official Statement and on such basis certifies that the Official Statement does not contain any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, excepting therefrom those sections of the Official Statement describing the Depository Trust Company and its Book -Entry -Only System, any bond insurance and the provider of such bond insurance. (8) Arbitrage. A non -arbitrage certificate of the City in a form satisfactory to Bond Counsel. (9) Ratings. Evidence satisfactory to the Underwriter that the Bonds shall have been rated " " by Standard & Poor's Ratings Service and that such ratings have not been revoked or downgraded. (10) Bond Resolution. A certificate, together with fully executed copies of the Bond Resolution, of the City Clerk to the effect that: (i) such copies are true and correct copies of the Bond Resolution; and (ii) that the Bond Resolution was duly adopted and has not been modified, amended, rescinded or revoked and is in full force and effect on the Closing Date. -11- (11) Continuing Disclosure Certificate. A Continuing Disclosure Certificate of the City in substantially the form set forth in the Preliminary Official Statement. (10) Underwriter's Certifications. At or before Closing, and contemporaneously with the acceptance of delivery of the Bonds and the payment of the purchase price thereof, the Underwriter will provide (or cause to be provided) to the City: (i) the receipt of the Underwriter, in form satisfactory to the City and signed by an authorized officer of the Underwriter, confirming delivery of the Bonds to the Underwriter, receipt of all documents required by the Underwriter, and the satisfaction of all conditions and terms of this Purchase Agreement by the City, and confirming to the City that as of the Closing Date all of the representations of the Underwriter contained in this Purchase Agreement are true, complete and correct in all material respects. (ii) a certificate of the Underwriter regarding the initial reoffering price of the Bonds to the public, in form and substances acceptable to the Underwriter and Bond Counsel. (11) Certificate of Paving Agent and Prior Bonds Paving Agent. A certificate of each of the Paying Agent and the Prior Bonds Paying Agent, dated the date of Closing, addressed to the City and the Underwriter, to the following effect: (i) The Paying Agent is duly organized and existing as a national banking association under the laws of the United States of America, having the full power and authority to perform the duties of the Paying Agent and the Prior Bonds Paying Agent set forth in the Paying Agent Agreement and the Refunding Instructions, respectively. (ii) To the best knowledge of the Paying Agent, after due inquiry, there is no action, suit, proceeding or investigation, at law or in equity, before or by any court or governmental agency, public board or body that has been served on the Paying Agent or threatened against the Paying Agent which in the reasonable judgment of the Paying Agent would affect the existence of the Paying Agent or in any way contesting the powers of the Paying Agent or its authority to perform its obligation under the Paying Agent Agreement or the Refunding Instructions (in its role as Prior Bonds Paying Agent). (iii) To the best knowledge of the Paying Agent, the acceptance by the Paying Agent of its duties and obligations under the Paying Agent Agreement and the -12- 13? (f) Refunding Instructions (in its role as Prior Bonds Paying Agent) and compliance with the provisions thereof will not conflict with or constitute a breach of or default under any law, administrative regulation, consent decree or any agreement or other instrument to which the Paying Agent is subject or by which the Paying Agent is bound. (12) Other Documents. Such additional legal opinions, certificates, proceedings, instruments and other documents as the Underwriter or Bond Counsel may reasonably request to evidence (i) compliance by the City with legal requirements, (ii) the truth and accuracy, as of the time of Closing, of the representations of the City herein contained, and (iii) the due performance or satisfaction by the City at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the City. Termination. Notwithstanding anything to the contrary herein contained, if for any reason whatsoever the Bonds shall not have been delivered by the City to the Underwriter prior to the close of business, California time, on , 2012, then the obligation to purchase Bonds hereunder shall terminate and be of no further force or effect except with respect to the obligations of the City and the Underwriter under Section 12. If the City is unable to satisfy the conditions to the Underwriter's obligations contained in this Purchase Agreement or if the Underwriter's obligations shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement may be canceled by the Underwriter at, or at any time prior to, the time of Closing. Notice of such cancellation shall be given to the City in writing, or by telephone or telegraph, confirmed in writing. Notwithstanding any provision herein to the contrary, the performance of any and all obligations of the City hereunder and the performance of any and all conditions contained herein for the benefit of the Underwriter may be waived by the Underwriter in writing at its sole discretion. 11. Conditions to Obligations of the City. The performance by the City of its obligations is conditioned upon (i) the performance by the Underwriter of their obligations hereunder; and (ii) receipt by the City and the Underwriter of opinions and certificates being delivered on the Closing Date by persons and entities other than the City. 12. Expenses. The Underwriter shall be under no obligation to pay and the City shall pay or cause to be paid the expenses incident to the performance of the obligations of the City hereunder including but not limited to: (i) the fees and expenses of the City and City Attorney; (ii) the fees and expenses of Bond Counsel; (iii) the fees and expenses of any accountant, consultant or other expert retained by the City; (iv) all costs and expenses incurred in connection with the preparation and printing of the Bonds; (v) all expenses in connection with the preparation, printing, distribution and delivery of the Preliminary Official Statement, the Official Statement and any amendment or supplement thereto; (vi) fees and expenses of Standard & Poor's Ratings Service in connection with the rating of the Bonds; and (vii) fees of the verification agent; and (vii) the fees and expenses of the paying agent for the Bonds and the Prior Bonds Paying Agent. -13- / 1G The Underwriter shall pay (from its underwriter's discount or otherwise), and the City shall be under no obligation to pay, all expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds, including but not limited to CDIAC, DTC, and CUSIP Bureau, if any, and all advertising expenses in connection with the public offering of the Bonds. 13. Notices. Any notice or other communication to be given under this Purchase Agreement may be given by delivering the same in writing: To the City: To the Underwriter. The City of National City 1243 National City Boulevard National City, California 91950-4301 Attention: City Manager Estrada Hinojosa & Co., Inc. 437 J Street, Suite 212 San Diego, California 92101 Attention: Ruben Mendoza 14. Parties in Interest; Survival of Representations and Warranties. This Purchase Agreement when accepted by the City in writing as heretofore specified shall constitute the entire agreement between the City and the Underwriter. This Purchase Agreement is made solely for the benefit of the City and the Underwriter (including the successors or assigns of the Underwriter). No person shall acquire or have any rights hereunder or by virtue hereof. All representations, warranties and agreements of the City in this Purchase Agreement shall survive regardless of (a) any investigation or any statement in respect thereof made by or on behalf of the Underwriter, and (b) delivery of and payment by the Underwriter for the Bonds hereunder. 15. Severability. In the event any provision of this Purchase Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision thereof. 16. Non -assignment. Notwithstanding anything stated to the contrary herein, neither party hereto may assign or transfer its interest herein, or delegate or transfer any of its obligations hereunder, without the prior consent of the other party hereto. 17. Entire Agreement. This Purchase Agreement, when executed by the parties hereto, shall constitute the entire agreement of the parties hereto, including their permitted successors and assigns, respectively. 18. Execution in Counterparts. This Purchase Agreementmay be executed in several counterparts each of which shall be regarded as an original and all of which shall constitute but one and the same document. -14- lI 19. Applicable Law. This Purchase Agreement shall be interpreted, governed and enforced in accordance with the law of the State of California applicable to contracts made and performed in such State. Very truly yours, ESTRADA HINOJOSA & CO., INC. By: Authorized Officer The foregoing is hereby agreed to and accepted as of the date first above written: CITY OF NATIONAL CITY By: City Manager -15- $ APPENDIX A MATURITY SCHEDULE Serial Bonds Maturity Date Principal (August 1) Amount Interest Yield Price 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Exhibit A-1 13 RESOLUTION NO. 2012 — 136 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NATIONAL CITY AUTHORIZING THE ISSUANCE OF ITS 2012 GENERAL OBLIGATION REFUNDING BONDS, AUTHORIZING AND DIRECTING THE EXECUTION OF A PAYING AGENT AGREEMENT AND CERTAIN OTHER RELATED DOCUMENTS, AND AUTHORIZING ACTIONS RELATED THERETO WHEREAS, an election was duly and regularly held in the City on March 5, 2002, for the purpose of submitting to the qualified electors of National City the question of whether bonds should be issued in the principal not to exceed amount of $6,000,000 to finance the acquisition, construction and completion of a public library; and WHEREAS, more than two-thirds of the votes cast at said election were in favor of the issuance of said bonds; and WHEREAS, pursuant to the authorization received at such election, the City of National City ("City") has previously issued its $6,000,000 original principal amount of General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"); and WHEREAS, the City now desires to issue its 2012 General Obligation Refunding Bonds (the "Bonds") to refund the Prior Bonds, in order to achieve debt service savings and lower the property tax override levied on the property owners of the City to pay debt service on the Prior Bonds; and WHEREAS, to provide for development of the most favorable debt structure for the City and to ensure the most favorable reception in the market place for the Bonds, the City has determined to sell the Bonds by negotiated sale pursuant to the terms of a Bond Purchase Agreement (the "Bond Purchase Agreement") by and between the City and Estrada Hinojosa & Co., Inc., as underwriter (the "Underwriter"); and WHEREAS, the City Council of National City has duly considered such transactions and desires at this time to approve said transactions and the documents related thereto. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of National City as follows: Section 1. Findings and Determinations. Pursuant to Section 53552 of the Refunding Law (hereinafter defined), the City Council of the City of National City hereby finds and determines that the prudent management of the fiscal affairs of the City requires that the Bonds be issued under the authority of Articles 9 and 11 (commencing with Section 53550) of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California (the "Refunding Law"), the Paying Agent Agreement (as defined below), and this Resolution. The total net interest cost to maturity on the Bonds plus the principal amount of the Bonds shall not exceed the total net interest cost to maturity on the Prior Bonds plus the principal amount of the Prior Bonds. Section 2. Approval of Paying Agent Agreement. The proposed form of the Paying Agent Agreement by and between the City of National City and Union Bank, N.A. (the "Paying Agent"), which is on file with the City Clerk (the "Paying Agent Agreement"), is hereby approved, and the Mayor, the City Manager and the Finance Manager of the City (collectively, the "Authorized Officers"), each acting alone, are hereby authorized and directed, for and in the name and on Resolution No. 2012 — 136 June 5, 2012 Page Two behalf of the City, to execute and deliver the Paying Agent Agreement in substantially said form, with said additions thereto (including the insertion of the maturity dates, principal amounts, and interest rates of the Bonds), and changes therein as the Authorized Officers, each acting alone, may approve, such approval to be conclusively evidenced by the execution and delivery thereof. Section 3. Approval of Form of Bonds. The form of Bonds set forth in the form of the Paying Agent Agreement is hereby approved, and the Authorized Officers of the City, each acting alone, the City Treasurer and the City Clerk, are hereby authorized and directed to execute the Bonds in the name and on behalf of the City and under its seal, and to cause the delivery thereof as provided for below. Section 4. Sale and Issuance of Bonds. The City Council of the City of National City hereby approves the sale of the Bonds by negotiation pursuant to the Bond Purchase Agreement in substantially the form on file with the City Clerk together with any changes therein or additions thereto approved by an Authorized Officer, whose execution thereof shall be conclusive evidence of approval to any such changes or additions. The Bond Purchase Agreement shall be executed in the name and on behalf of the City of National City by an Authorized Officer, who is hereby authorized and directed to execute and deliver said form of Bond Purchase Agreement on behalf of the City. Notwithstanding anything herein to the contrary, the Bonds shall be issued only if such issuance results in present value debt service savings of not less than 3.5%, and the Underwriter's discount or fee (excluding original issue discount, if any) for the Bonds shall not exceed 1% of the principal amount of the Bonds. Pursuant to Section 53583(c)(1) of the California Government Code , the Bonds shall be sold on a negotiated basis and at a price, above or below par, as the Authorized Officer executing the Bond Purchase Agreement determines. In order to achieve the debt service savings specified in the preceding paragraph, the City Manager or the Finance Manager of the City may determine to refund less than all of the Prior Bonds. Section 5. Approval of Preliminary and Final Official Statement. The form of the Preliminary Official Statement, as presented to this meeting is hereby approved. The Authorized Officers are hereby authorized and directed, for and on behalf of the City, to execute all certificates necessary to deem final the Preliminary Official Statement as of its date, with the exception of certain final pricing, and related information. The Authorized Officers are hereby authorized and directed, for and on behalf of the City, to execute and deliver the final Official Statement. The use and distribution of said Preliminary Official Statement and use and distribution of the final Official Statement in connection with the sale of the Bonds is hereby ratified and approved. Section 6. Bond Insurance. The Authorized Officers, each acting alone, are hereby authorized to take any and all action that they deem necessary to qualify the bonds for municipal bond insurance. Section 7. Delegation of Authority to Authorized Officer. The Authorized Officers are hereby authorized and directed to execute, sign, and deliver any and all approvals, certificates, statements, requests, requisitions, and orders of the City in connection with the sale and issuance of the Bonds, the purchase of the Bonds and the other transactions described herein. Resolution No. 2012 — 136 June 5, 2012 Page Three The Authorized Officers may authorize such other officers of the City as they deem appropriate to undertake any of the actions that he or she is authorized or directed to undertake pursuant hereto. Section 8. General Authority. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things, and to execute and deliver any and all documents that they may deem necessary or advisable in order to consummate the transactions described herein or to otherwise effectuate the purpose of this Resolution, including refunding instructions relating to the defeasance and redemption of the Prior Bonds and preparing, or causing to be prepared, and executing all appropriate disclosure documents relating to the Bonds and agreements necessary to comply with the disclosure requirements of Rule 15c2-12, as amended, of the Securities and Exchange Commission. Any such actions previously taken by such officers are hereby ratified and confirmed. Section 9. Severability. If any section, paragraph, or provision of this Resolution shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect any remaining provisions hereof. Section 11. Effective Date. This resolution shall take effect from and after the date of its passage and adoption. PASSED and ADOPTED this 5th day of Juj e, 2012. on Morrison, Mayor ATTEST: el ?�el R. Da!!a. it Clerk M: y Mich APPROVED AS TO F i' M: laudia City Atto Passed and adopted by the Council of the City of National City, California, on June 19, 2012 by the following vote, to -wit: Ayes: Councilmembers Morrison, Natividad, Rios, Sotelo-Solis, Zarate. Nays: None. Absent: None. Abstain: None. AUTHENTICATED BY: RON MORRISON Mayor of the City of National City, California / City Clerk of the City of National City, California By: Deputy I HEREBY CERTIFY that the above and foregoing is a full, true and correct copy of RESOLUTION NO. 2012-136 the City of National City, California, passed and adopted by the Council of said City on June 19, 2012. City Clerk of the City of National City, California By: Deputy CITY OF NATIONAL CITY, CALIFORNIA COUNCIL AGENDA STATEMENT MEETING DATE: June 19, 2012 AGENDA ITEM NO. 24 'EM TITLE: Resolution of the City Council of the City of National City authorizing the issuance of its 2012 General Obligation Refunding Bonds, authorizing and directing the execution of a Paying Agent Agreement and certain other related documents, and authorizing actions related thereto. PREPARED BY: Leslie Deese, City Manager- 619-336-4240 DEPARTMENT: City Manager/Finance Stacey Stevenson, Human Resource Director - PHONE: 61, 43 EXPLANATION: See Attached FINANCIAL STATEMENT: N/A ACCOUNT NO. ENVIRONMENTAL REVIEW: N/A ORDINANCE: INTRODUCTION: FINAL ADOPTION: APPROVED: APPROVED: Finance MIS STAFF RECOMMENDATION: Adopt the Resolution BOARD / COMMISSION RECOMMENDATION: N/A ATTACHMENTS: 1) Resolution 2) Staff Report 3) Market Update 4) Paying Agent Agreement 5) Irrevocable Refunding Instructions for National City 6) 2012 General Obligation Refunding Bonds 7) Bond Purchase Agreement RESOLUTION NO. 2012 — RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NATIONAL CITY AUTHORIZING THE ISSUANCE OF ITS 2012 GENERAL OBLIGATION REFUNDING BONDS, AUTHORIZING AND DIRECTING THE EXECUTION OF A PAYING AGENT AGREEMENT AND CERTAIN OTHER RELATED DOCUMENTS, AND AUTHORIZING ACTIONS RELATED THERETO WHEREAS, an election was duly and regularly held in the City on March 5, 2002, for the purpose of submitting to the qualified electors of National City the question of whether bonds should be issued in the principal not to exceed amount of $6,000,000 to finance the acquisition, construction and completion of a public library; and WHEREAS, more than two-thirds of the votes cast at said election were in favor of the issuance of said bonds; and WHEREAS, pursuant to the authorization received at such election, the City of National City ("City") has previously issued its $6,000,000 original principal amount of General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"); and WHEREAS, the City now desires to issue its 2012 General Obligation Refunding Bonds (the "Bonds") to refund the Prior Bonds, in order to achieve debt service savings and lower the property tax override levied on the property owners of the City to pay debt service on the Prior Bonds; and WHEREAS, to provide for development of the most favorable debt structure for the City and to ensure the most favorable reception in the market place for the Bonds, the City has determined to sell the Bonds by negotiated sale pursuant to the terms of a Bond Purchase Agreement (the "Bond Purchase Agreement") by and between the City and Estrada Hinojosa & Co., Inc., as underwriter (the "Underwriter"); and WHEREAS, the City Council of National City has duly considered such transactions and desires at this time to approve said transactions and the documents related thereto. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of National City as follows: Section 1. Findings and Determinations. Pursuant to Section 53552 of the Refunding Law (hereinafter defined), the City Council of the City of National City hereby finds and determines that the prudent management of the fiscal affairs of the City requires that the Bonds be issued under the authority of Articles 9 and 11 (commencing with Section 53550) of Chapter 3 of Division 2 of Title 5 of the Government Code of the'State of California (the "Refunding Law"), the Paying Agent Agreement (as defined below), and this Resolution. The total net interest cost to maturity on the Bonds plus the principal amount of the Bonds shall not exceed the total net interest cost to maturity on the Prior Bonds plus the principal amount of the Prior Bonds. Section 2. Approval of Paying Agent Agreement. The proposed form of the Paying Agent Agreement by and between the City of National City and Union Bank, N.A. (the "Paying Agent"), which is on file with the City Clerk (the "Paying Agent Agreement"), is hereby approved, and the Mayor, the City Manager and the Finance Manager of the City (collectively, the "Authorized Officers"), each acting alone, are hereby authorized and directed, for and in the name and on Resolution No. 2012 — June 5, 2012 Page Two behalf of the City, to execute and deliver the Paying Agent Agreement in substantially said form, with said additions thereto (including the insertion of the maturity dates, principal amounts, and interest rates of the Bonds), and changes therein as the Authorized Officers, each acting alone, may approve, such approval to be conclusively evidenced by the execution and delivery thereof. Section 3. Approval of Form of Bonds. The form of Bonds set forth in the form of the Paying Agent Agreement is hereby approved, and the Authorized Officers of the City, each acting alone, the City Treasurer and the City Clerk, are hereby authorized and directed to execute the Bonds in the name and on behalf of the City and under its seal, and to cause the delivery thereof as provided for below. Section 4. Sale and Issuance of Bonds. The City Council of the City of National City hereby approves the sale of the Bonds by negotiation pursuant to the Bond Purchase Agreement in substantially the form on file with the City Clerk together with any changes therein or additions thereto approved by an Authorized Officer, whose execution thereof shall be conclusive evidence of approval to any such changes or additions. The Bond Purchase Agreement shall be executed in the name and on behalf of the City of National City by an Authorized Officer, who is hereby authorized and directed to execute and deliver said form of Bond Purchase Agreement on behalf of the City. Notwithstanding anything herein to the contrary, the Bonds shall be issued only if such issuance results in present value debt service savings of not less than 3.5%, and the Underwriter's discount or fee (excluding original issue discount, if any) for the Bonds shall not exceed 1% of the principal amount of the Bonds. Pursuant to Section 53583(c)(1) of the California Government Code , the Bonds shall be sold on a negotiated basis and at a price, above or below par, as the Authorized Officer executing the Bond Purchase Agreement determines. In order to achieve the debt service savings specified in the preceding paragraph, the City Manager or the Finance Manager of the City may determine to refund less than all of the Prior Bonds. Section 5. Approval of Preliminary and Final Official Statement. The form of the Preliminary Official Statement, as presented to this meeting is hereby approved. The Authorized Officers are hereby authorized and directed, for and on behalf of the City, to execute all certificates necessary to deem final the Preliminary Official Statement as of its date, with the exception of certain final pricing, and related information. The Authorized Officers are hereby authorized and directed, for and on behalf of the City, to execute and deliver the final Official Statement. The use and distribution of said Preliminary Official Statement and use and distribution of the final Official Statement in connection with the sale of the Bonds is hereby ratified and approved. Section 6. Bond Insurance. The Authorized Officers, each acting alone, are hereby authorized to take any and all action that they deem necessary to qualify the bonds for municipal bond insurance. Section 7. Delegation of Authority to Authorized Officer. The Authorized Officers are hereby authorized and directed to execute, sign, and deliver any and all approvals, certificates, statements, requests, requisitions, and orders of the City in connection with the sale and issuance of the Bonds, the purchase of the Bonds and the other transactions described herein. Resolution No. 2012 — June 5, 2012 Page Three The Authorized Officers may authorize such other officers of the City as they deem appropriate to undertake any of the actions that he or she is authorized or directed to undertake pursuant hereto. Section 8. General Authority. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things, and to execute and deliver any and all documents that they may deem necessary or advisable in order to consummate the transactions described herein or to otherwise effectuate the purpose of this Resolution, including refunding instructions relating to the defeasance and redemption of the Prior Bonds and preparing, or causing to be prepared, and executing all appropriate disclosure documents relating to the Bonds and agreements necessary to comply with the disclosure requirements of Rule 15c2-12, as amended, of the Securities and Exchange Commission. Any such actions previously taken by such officers are hereby ratified and confirmed. Section 9. Severability. If any section, paragraph, or provision of this Resolution shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect any remaining provisions hereof. Section 11. Effective Date. This resolution shall take effect from and after the date of its passage and adoption. PASSED and ADOPTED this 5th day of June, 2012. ATTEST: Michael R. Dalla, City Clerk APPROVED AS TO FORM: Claudia Gacitua Silva City Attorney Ron Morrison, Mayor AUTHORIZING THE ISSUANCE OF ITS 2012 GENERAL OBLIGATION REFUNDING BONDS, AUTHORIZING AND DIRECTING THE EXECUTION OF A PAYING AGENT AGREEMENT AND CERTAIN OTHER RELATED DOCUMENTS, AND AUTHORIZING ACTIONS RELATED THERETO SUMMARY At the May 1, 2012 City Council meeting, staff presented, and the Council approved, a proposal to move forward with the refinancing of the City's 2002 General Obligation Bonds. As discussed during the meeting, staff informed the Council of its intent to return to the Council and present the necessary documents to refinance the existing debt for taxpayer savings. Proceeds for the refinancing will be allocated towards a reduction in the current property tax assessment. SUMMARY RECOMMENDATION: It is recommended that the City Council approve the attached Resolutions and execute the necessary documents to issue refinance the City's outstanding General Obligation Bonds, Election of 2002, Series A for the purposes of redeeming all bonds, pay transaction costs related and to lower the current tax assessment to property owners within the City of National City. DISCUSSION: The subject bonds were issued pursuant to an Indenture of Trust, dated May 15, 2003 by the City of National City (the Issuer), in order to match. State grant funds to fund design and construction of the City's Library located in the City of National City at 1401 National City Boulevard. The bonds are secured by a General Obligation property tax assessment approved by the voters in 2002. Because the bonds were issued with MBIA bond insurance, the Bonds were rated "AAA" by Error! Reference source not found. when investors purchased the bonds. Unfortunately MBIA has been downgraded to "BBB" and as a result the bonds also received a downgrade from Standard & Poor's to "A" on June 5th, 2009. The current rating represents the City underlying rating. Current Market Trends The Municipal market continues to hold at historically low rates. Yields in all maturities have been on average higher less than 2% of the time in the past 11 years. Currently, the 30-year Municipal Market Data (MMD) is at 3.42% (see attached market update). It is important to note that increases in municipal bond supply have begun to affect interest rates. Supply has been heavy with the State of California's $2 billion issuance of General Obligation bonds in March and anticipated issuance of $1.3 billion at the writing of this report. National supply for the next 30 days is expected to be $9.8 billion. As a result, MMD has increased slightly in recent weeks. However, the continued inflows into bond funds have meant that accounts still have cash to invest. Municipal bond funds have experienced inflows in all but two weeks in the last six months. Because of the fluid nature of the bond market, the City must respond to these opportunities in a timely manner to refinance outstanding callable bonds for saving to our tax payers. Refunding Opportunity The City's financial advisor has reviewed the City's outstanding debt and noted the City's 2002A Bonds can be refinanced for savings in today's market. Approximately $4.95 million of the 2002A Bonds are outstanding and callable on August 1, 2012 at 100%. Interest rates range from 3.70% to 5.57%. Additionally, the bonds carry a rating of "A" from Standard & Poor's. Should the City complete the refunding prior to August, savings will appear on the tax rolls starting in FY 2012-13. FISCAL IMPACT: Based on current interest rates, a refunding of the 2002A Bonds would generate overall net present value (NPV) savings of roughly $250,000, or 6% of the refunded par amount of the bonds. Average annual savings to all affected property owners is equal to approximately $20,000, totaling $300,000 in savings over the life of the bonds. The savings is determined by the relationship between the total citywide assessed valuation and the amount of the debt service due on the bonds for that year. Therefore, the parcel savings is based on the parcels percentage value of the total valuation. Properties representing the highest percentages will save the most. Staff is aware Sweetwater Union High School District is considering refinancing of General Obligation debt which could save taxpayers over $14 million. In these times when taxpayers are looking for tax relief it makes sense for all issuers, including the City and School Districts, to take advantage of any refunding opportunities to show taxpayers that they are good custodians of their public trust and dollars. Overall savings to taxpayers per parcel will definitely be higher and more significant with overlapping jurisdictions doing their own refinancings. The cost of financing, often referred to as the cost of issuance, is broken down below. The proposed fees are within the contractual rates for each of the firms included on the finance team. Cost of Issuance Amount Underwriter 34,620 Financial Advisor 25,000 Bond/Disclosure Counsel 36,000 Trustee & Counsel 3,500 Standard & Poor's Rating Fees 10,000 Verification Agent 2,000 Printing of Official Statement 2,000 California Debt Investment Advisory Commission (CDIAC) 750 Miscellaneous 2,500 Documents to Be Approved Approval of the Resolution approving, authorizing and directing execution of certain bond financing documents, authorizing and directing the sale of 2012 General Obligation Refunding Bonds, approving a Preliminary Official Statement, and authorizing and directing certain actions with respect thereto will authorize the execution of the following documents which are not included with the document due to their length, but are available for review in the City Clerks Office: • City Resolution. A Resolution of the City Council of the City of National City approving the issuance of its National City 2012 General Obligation Refunding Bonds. • Irrevocable Refunding Instructions. This document contains the terms and conditions necessary to defease the Series 2002 General Obligation Bonds. • Paying Agent Agreement. This document contains the terms of the Bonds, including payment and redemption provisions, definition and pledge of Tax Revenues to pay the Bonds, Rights and Duties of the Trustee, remedies upon a default in the payment of the Bonds, and final discharge of the Bonds and other related matters. • Preliminary Official Statement. This is the City's document pursuant to which the Bonds will be offered for purchase by the public. This document must contain all facts material to the Bonds and the City (with certain permitted exceptions to be completed in the final Official Statement) and must not omit any such material facts. • Bond Purchase Contract. This document contains the obligation of the underwriter to accept and pay for the Bonds, provided that all of the covenants and representations of the City are met and certain other conditions excusing performance by the underwriter do not exist. May 2012 Market Update ESTRADA - HINOJOSA INVESTMENT BANKERS Dallas • Austin • Chicago • Houston • Miami • New York • Phoenix • San Antonio • San Diego Market Update Negotiated Calendar Week of May 21 Issue Description New York City General Obligation Bonds Ratings Par Amount Sale ($000) Moody's S&P Fitch 5/21 $ 800,000 Aa2 AA AA City of San Antonio, Texas 5/21 $ 650,000 Aa1 AA AA+ State of Washington 5/21 $ 432,000 Aa2 Federal Highway Grant Anticipation Revenue (Garvees) San Diego County Regional Transportation Commission Sales Tax Revenue Bonds 2012 Series A 5/21 $ 385,000 Aa2 AAA NR VRA, Virginia 5/21 $ 341,190 AA2 AA NR Infrastructure Revenue Bonds, Series 2012 A Phoenix, AZ General 5/21 $ 203,335 Aal AAA NR Obligation Refunding Bonds, Series 2012C Houston Independent 5/21 $ 186,455 Aaa AAA NR School District Variable - Rate Limited Tax Bonds, Series 2012 Connecticut Housing 5/21 $ 176,995 Aaa AAA NR Finance Authority Housing Mortgage Finance Program Bonds University of Arizona 5/21 $ 155,000 Aa3 AA- NR Refunding Certificates of Participation Arizona Board of Regents 5/21 $ 152,000 Aa1 AAA NR Refunding Certificates of Participation University of Arizona Projects Bond Buyer 30-Day Visible', Supply*" —May it 3 5 7 9 11 13 1 7 19 21 23 25 27 29 *Source: Bond Buyer **Source: Municipal Market Data 1 ESTRADA- H[NOJOSA Tax -Exempt and Treasury Spreads: 3 Year History Commentary for the week of May 21st • Municipal Markets closed after a week of mixed sessions that provided little market direction. This may be due to the anticipated increase in issues this week. • The current AAA MMD curve was left relatively unchanged throughout last week. ® This week of tax-exempt issuance is over $9 billion, which is $3 billion over the 2012 weekly average of $6 billion. • Treasuries remained flat despite concerns with Greece and other troubled European sovereigns. Source: Municipal Market Data Thomson Reuters TM3 2 AAA MMD to BBB MMD Spreads 251 150 100 50 Apr-09 =2OY AAA vs BBB MMD spread -- - -30Y MA vs_BOB MMD Spread Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 ESTRADA-I-iiNOJ05A `AAA' MMD History Since 2000 -00 ■ I I 1 ,f_-1 ,1 1 { -1 --I f °I_• d d`_ I I I I I I: -1 ...J -..L 10.111-213141,51.617'18192021 222324252627282930 Year Maximum f— Minimum - 4 ; M3K -'"-a t 8 -.'9 10, `11 13 ° 34 ].5- i6 °17 '18 19 'J20 ti ,21' :22-• 23 ` ,34 -; 25 26;: 27 28-_ 29-! '30- 8%. `98% ,98.%' •99% 99%' `99% '99% 99% 99% 99% .99%. 99% 99% 99% 99% 99% 99% 99%, 99%' ,99% 99% 99%_ 99%- 99% ,99% 99% 99% 99%_99% Curren ". `.' 1 _L�-'-,_98% As of 5/21/2012 ESTAADA•HENOJOSA Bond Buyer Indices vs. 30 Year Treasury: 20 Year History BB-Revenuelndex - �3p-YearTmzsury .',s 6 54.-__ ' ze .:~ "d. `.uXaY;aL._rn hh 6.94 8.14 Low -3.34 °': 438' 2.53 Avera.e x-; 5.02 , . -.5.52 5.51 :,Current .: =' _- 3.53 =4.75 Source: Bond Buyer May-12 ESTAADA • H f MOJOSA Disclaimer This document is intended for discussion purposes only and, in conjunction with oral presentations and further negotiations, is subject to the final terms of definitive transaction related written agreements, if appropriate, and is not a commitment to lend money, underwrite or purchase securities or commit capital, nor does it obligate this firm to enter into written agreements. Terms and conditions described herein are an indicative summary which may be amended or replaced by subsequent summaries. This document is intended for the exclusive use of the entity identified on the cover page hereof or otherwise identified as the recipient by a member of the firm and may contain information proprietary to Estrada Hinojosa, which by acceptance of this document obligates you to keep confidential the proposed terms for any prospective transaction. Estrada Hinojosa does not provide accounting, tax or legal advice and any discussion of such matters herein should not be relied upon by you as a guarantee or commitment of a specific result should a transaction occur. All numbers and prices discussed herein are preliminary and indicative of market conditions on the date prepared and do not represent bids or offers, and you should determine, without reliance upon us, the economic risks and merits as well as the legal and tax consequences of any such transaction, keeping in mind that the results of analyses from any quantitative model which represent potential future events that may or may not occur, and that may not include every particular material fact related to a proposed transaction, are by their nature subject to further discussion and examination. © 2012 Estrada Hinojosa & Company, Inc. Member: FINRA & SIPC. All rights reserved. No part of this document may be reproduced in any manner without the written permission of Estrada Hinojosa. 5 ESTRADA^ H [NOJOSA Jones Hall Draft 5/21/12 PAYING AGENT AGREEMENT By and Between CITY OF NATIONAL CITY and UNION BANK, N.A., as Paying Agent Dated as of July 1, 2012 Relating to $ City of National City 2012 General Obligation Refunding Bonds Jo TABLE OF CONTENTS ARTICLE I DEFINITIONS; AUTHORITY Section 1.01. Definitions. 2 Section 1.02. Authority for this Agreement. 7 ARTICLE II THE BONDS Section 2.01. Authorization. 8 Section 2.02. Terms of Bonds. 8 Section 2.03. Redemption. 9 Section 2.04. Form of Bonds 10 Section 2.05. Execution of Bonds. 11 Section 2.06. Transfer of Bonds 11 Section 2.07. Exchange of Bonds. 11 Section 2.08. Bond Register. 11 Section 2.09. Temporary Bonds. 12 Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen 12 Section 2.11. Book -Entry; Limited Obligation of City. 12 Section 2.12. Representation Letter. 13 Section 2.13. Transfers Outside Book -Entry System 13 Section 2.14. Payments and Notices to the Nominee 13 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF BOND PROCEEDS; SECURITY FOR THE BONDS Section 3.01. Issuance and Delivery of Bonds. 15 Section 3.02. Application of Proceeds of Sale of Bonds. 15 Section 3.03. Validity of Bonds 15 Section 3.04. Security for the Bonds. 15 ARTICLE IV FUNDS AND ACCOUNTS Section 4.01. Proceeds Fund. 16 Section 4.02. Debt Service Fund 16 Section 4.03. Administration and Disbursements From Debt Service Fund 16 Section 4.04. Bond Service Fund 16 Section 4.05. Investment of Moneys. 16 Section 4.06. Costs of Issuance Fund 16 ARTICLE V OTHER COVENANTS OF THE CITY Section 5.01. Punctual Payment. 18 Section 5.02. Extension of Time for Payment 18 Section 5.03. Payment of Claims. 18 Section 5.04. Books and Accounts 18 Section 5.05. Protection of Security and Rights of Bondowners. 18 Section 5.06. Continuing Disclosure 18 Section 5.07. Further Assurances. 18 Section 5.08. No Arbitrage. 19 Section 5.09. Federal Guarantee Prohibition 19 Section 5.10. Private Activity Bond Limitation. 19 Section 5.11. Maintenance of Tax -Exemption 19 Section 5.12. Rebate Requirement. 19 �I Section 5.13. Information Report 19 Section 5.14. Small Issuer Exemption from Bank Nondeductibility Restriction. 19 ARTICLE VI THE PAYING AGENT Section 6.01. Appointment of Paying Agent. 20 Section 6.02. Paying Agent May Hold Bonds. 20 Section 6.03. Liability of Agents. 20 Section 6.04. Notice to Agents 21 Section 6.05. Compensation, Indemnification. 22 Section 6.06. Funds and Accounts 22 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BONDOWNERS Section 7.01. Events of Default. 23 Section 7.02. Application of Funds. 23 Section 7.03. Other Remedies of Bondowners 24 Section 7.04. Non -Waiver. 24 Section 7.05. Remedies Not Exclusive 25 ARTICLE VIII SUPPLEMENTAL AGREEMENTS Section 8.01. Amendments Permitted. 26 Section 8.02. Owners' Meetings 26 Section 8.03. Procedure for Amendment with Written Consent of Owners. 27 Section 8.04. Disqualified Bonds 27 Section 8.05. Effect of Supplemental Agreement. 27 Section 8.06. Endorsement or Replacement of Bonds Issued After Amendments. 28 Section 8.07. Amendatory Endorsement of Bonds. 28 ARTICLE IX MISCELLANEOUS Section 9.01. Benefits of Agreement Limited to Parties 29 Section 9.02. Successor is Deemed Included in All References to Predecessor 29 Section 9.03. Discharge of Agreement. 29 Section 9.04. Execution of Documents and Proof of Ownership by Owners 30 Section 9.05. Waiver of Personal Liability. 30 Section 9.06. Notices to and Demands on City and Paying Agent. 30 Section 9.07. Partial Invalidity. 30 Section 9.08. Unclaimed Moneys. 31 Section 9.09. Applicable Law. 31 Section 9.10. Conflict with Act 31 Section 9.11. Conclusive Evidence of Regularity. 31 Section 9.12. Payment on Business Day. 31 Section 9.13. Counterparts. 31 EXHIBIT A FORM OF BOND II PAYING AGENT AGREEMENT This Paying Agent Agreement (the "Agreement") is made and entered into as of July 1, 2012, by and between the City of National City, a general law city organized and existing under the laws of the State of California (the "City") and Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States, as Paying Agent (the "Paying Agent") WITNESSTH: WHEREAS, an election was duly and regularly held in the City on March 5, 2002 for the purpose of submitting to the qualified electors of said City the question of whether bonds should be issued in the principal amount of not to exceed $6,000,000 to finance the acquisition, construction and completion of a public library; and WHEREAS, more than two-thirds of the votes cast at said election were in favor of the issuance of said bonds; and WHEREAS, pursuant to the authorization received at such election, the City has previously issued its $6,000,000 original principal amount of General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"); and WHEREAS, the City now desires to issue its 2012 General Obligation Refunding Bonds (the "Bonds") in order to refund the Prior Bonds, in order to achieve debt service savings and lower the property tax override levied on the property owners of the City to pay debt service on the Prior Bonds; and WHEREAS, this City has sold the Bonds as previously approved in the City Resolution (hereinafter defined); NOW THEREFORE, the City and the Paying Agent agree as follows: 13 ARTICLE I DEFINITIONS; AUTHORITY Section 1.01. Definitions. The terms defined above and in this Section 1.01, as used and capitalized herein, shall, for all purposes of this Agreement, have the meanings ascribed to them below, unless the context clearly requires some other meaning. "Act" means, collectively, Article 9 (commencing with section 53550) and Article 11 of Chapter 3 (commencing with section 53580) of Part 1 of Division 2 of Title 5 of the California Government Code, as in effect on the date of adoption hereof and as amended hereafter. "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement, and the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. "Authorized Investments" means any investments permitted by law to be made with moneys belonging to, or in the custody of, the City. "Beneficial Owner" means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees or depositories including, but not limited to, through the Nominee. "Bond Counsel" means any attorney or firm of attorneys nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities. "Bond Service Fund" means the 2012 Bond Service Fund established pursuant to Section 4.04 hereof. "Bond Year" means the twelve month period beginning on August 2 and ending on the following August 1, except that the first Bond year shall begin on the Closing Date and end on August 1, 2012. "Bonds" means the City of National City 2012 General Obligation Bonds Outstanding pursuant to this Agreement. "Business Day" means a day which is not a Saturday or Sunday or a day on which banks in San Francisco and Los Angeles, California, and New York, New York, are not required or permitted to be closed. "City" means the City of National City, a general law city duly organized and existing under the laws of the State of California. "City Manager" means the City Manager or such other duly appointed officer of the City authorized by the City Council by resolution to perform the functions of the manager of the City. "City Representative" means the City Manager, the Finance Manager or any other person authorized by resolution of the City Council of the City to act on behalf of the City with respect to this Agreement. 2 'if "City Resolution" means of the Resolution of the City Council adopted on 2012, authorizing the issuance of the Bonds. "City Treasurer" means the City Treasurer or any other person authorized by resolution of the City Council to act on behalf of the City with respect to this Agreement. "Closing Date" means the date upon which there is an exchange of Bonds for the proceeds representing the purchase price of the Bonds by the Purchaser, being 2012. "Code" means the Internal Revenue Code of 1986. "Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate dated the Closing Date and executed by the City, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Costs of Issuance Fund" means the 2012 Costs of Issuance Fund established pursuant to Section 4.06 hereof. "Debt Service" means the scheduled amount of interest and principal, including principal paid pursuant to mandatory sinking fund redemption, payable on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Debt Service Fund" means the 2012 Debt Service Fund established pursuant to Section 4.02 hereof. "Depository" means any securities depository appointed to act as Depository under Section 2.13 hereof. "Excess Investment Earnings" means an amount equal to the sum of: (i) the excess of (A) the aggregate amount earned on all Nonpurpose Investments (other than amounts attributable to such excess), over (B) the amount which would have been earned if the Yield on such Nonpurpose Investments (other than amounts attributable to such excess) had been equal to the Yield on the Bonds, (ii) any income attributable to the excess described in clause (i). "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated 3 interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security --State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and related parties do not own more than a ten percent (10%) beneficial interest if the return paid by the fund is without regard to the source of investment. "Federal Securities" means United States Treasury notes, bonds, bills or certificates of indebtedness or those for which the faith and credit of the United States are pledged for the payment of principal and interest. "Finance Manager" means the Finance Manager or such other duly appointed officer of the City authorized by the City Council by resolution to perform the functions of the finance manager of the City. "Fitch" means Fitch, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "General Fund" means the General Fund of the City. "Gross Proceeds" means the sum of the following amounts: (a) original proceeds, namely, net amounts received by or for the City as a result of the sale of the Bonds, excluding original proceeds which become transferred proceeds (determined in accordance with applicable Regulations) of obligations issued to refund in whole or in part the Bonds; (b) investment proceeds, namely, amounts received at any time by or for the City, such as interest and dividends, resulting from the investment of any original proceeds (as referenced in paragraph (a) above) or investment proceeds (as referenced in this paragraph (b)) in Nonpurpose Investments, increased by any profits and decreased (if necessary, below zero) by any losses on such investments, excluding investment proceeds which become transferred proceeds (determined in accordance with applicable Regulations) of obligations issued to refund in whole or in part the Bonds; (c) sinking fund proceeds, namely, amounts, other than original proceeds or investment proceeds (as referenced in paragraphs (a) and (b) above) of the Bonds, which are held in the Debt Service Account and any other fund to the extent that the City reasonably expects to use such other fund to pay Debt Service on the Bonds; (d) amounts in any fund established as a reasonably required reserve or replacement fund; (e) Investment Property pledged as security for payment of Debt Service on the Bonds by the City; 4 1� (f) amounts, other than as specified in this definition, used to pay Debt Service on the Bonds; and (g) amounts received as a result of investing amounts described in this definition. "Information Services" means, in accordance with then current guidelines of the Securities and Exchange Commission, such services providing information with respect to the redemption of bonds as the City may designate in a Written Request of the City filed with the Paying Agent. "Investment Property" means any security (as said term is defined in section 165(g)(2)(A) or (B) of the Code), obligation, annuity contract or investment -type property, excluding, however, obligations (other than specified private activity bonds as defined in section 57(e)(5)(6) of the Code) the interest on which is excluded from gross income, under section 103 of the Code, for federal income tax purposes. "Issuance Expenses" means all items of expense directly or indirectly relating to the execution, issuance and delivery of the Bonds including, but not limited to, filing and recording costs, settlement costs, underwriting fees, printing costs, reproduction and binding costs, legal fees and charges, bond insurance premiums, fees and expenses of the Paying Agent, financial and other professional consultant fees, costs of obtaining credit ratings and bond insurance premiums. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency for any reason, the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Nominee" means the nominee of the Depository as determined from time to time in accordance with Section 2.13. "Nonpurpose Investments" means any Investment Property which is acquired with the Gross Proceeds of the Bonds and is not acquired in order to carry out the governmental purpose of the Bonds. "Outstanding," when used as of any particular time with reference to Bonds, means all Bonds except: (a) Bonds theretofore canceled by the Paying Agent or surrendered to the Paying Agent for cancellation; (b) Bonds paid or deemed to have been paid within the meaning of Section 9.03 hereof; and (c) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the City pursuant to the Agreement. "Owner" or "Bondowner" mean any person who shall be the registered owner of any Outstanding Bond. 5 r7 "Participant" means those broker -dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as a securities depository. "Participating Underwriter" has the meaning assigned to such term in the Continuing Disclosure Certificate. "Person" means an individual, corporation, firm, association, partnership, trust or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Principal Office" means the corporate trust office of the Paying Agent in Santa Ana, California, or, solely for purposes of the presentation of Bonds for payment, transfer or exchange, such corporate trust operations office designated by the Paying Agent, or such other location as approved by the City. "Prior Bonds" shall have the meaning assigned to it in the preambles to this Agreement. "Prior Bonds Paying Agent" means Union Bank of California, N.A., as paying agent for each of the Prior Bonds. "Private Business Use" means use directly or indirectly in a trade or business carried on by a natural person or in any activity carried on by a person other than a natural person, excluding, however, use by a governmental unit and use as a member of the general public. "Proceeds Fund" means the 2012 Proceeds Fund established pursuant to Section 4.01 hereof. "Purchase Price" The term, for the purpose of computation of the Yield of the Bonds, has the same meaning as the term "issue price" in sections 1273(b) and 1274 of the Code, and, in general, means the initial offering price of the Bonds to the public (not including bond houses and brokers, or similar persons or organizations acting in the capacity of underwriters or wholesales) at which price a substantial amount of the Bonds are sold or, if the Bonds are privately placed, the price paid by the first buyer of the Bonds or the acquisition cost of the first buyer. The term "Purchase Price," for the purpose of computation of the Yield of Nonpurpose Investments, means the fair market value of the Nonpurpose Investments on the date of use of Gross Proceeds of the Bonds for acquisition thereof, or if later, on the date that Investment Property constituting a Nonpurpose Investment becomes a Nonpurpose Investment of the Bonds. "Purchaser" means Estrada Hinojosa & Co., Inc. "Regulations" means temporary and permanent regulations promulgated under the Code. "Refunding Instructions" means the Irrevocable Refunding Instructions dated the Closing Date from the City to the Prior Bonds Paying Agent relating to the refunding of the Prior Bonds. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, except that if such corporation shall be dissolved or liquidated or 6 shall no longer perform the functions of a securities rating agency for any reason, the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Securities Depositories" means The Depository Trust Company or, in accordance with then -current guidelines of the Securities and Exchange Commission, such other securities depositaries, or no such depositaries, as the Agency may indicate in a certificate of the Agency delivered to the Paying Agent. "Supplemental Agreement" means any agreement supplemental to or amendatory of this Agreement entered into in accordance with Article VIII hereof. "Written Request of the City" means an instrument in writing signed by the City Representative. "Yield" means that yield which, when used in computing the present worth of all payments of principal and interest (or other payments in the case of Nonpurpose Investments which require payments in a form not characterized as principal and interest) on a Nonpurpose Investment or on the Bonds produces an amount equal to the Purchase Price of such Nonpurpose Investment or the Bonds, all computed as prescribed in applicable Regulations. Section 1.02. Authority for this Agreement. This Agreement is being entered into pursuant to the authority set forth in the Act and the City Resolution constitutes a continuing agreement with the Owners of all of the Bonds issued or to be issued hereunder and then Outstanding to secure the full and final payment of principal of and premiums, if any, and the interest on all pursuant to the provisions of the Act. 7 II l ARTICLE II THE BONDS Section 2.01. Authorization. Bonds in the aggregate principal amount of million thousand dollars ($ ) are hereby authorized to be issued by the City under and subject to the terms of the Act and which may from time to time be executed and delivered hereunder, subject to the covenants, agreements, provisions and conditions herein contained. The Bonds shall be designated the "City of National City 2012 General Obligation Bonds". Section 2.02. Terms of Bonds. (a) Form; Numbering: The Bonds shall be issued as fully registered Bonds, without coupons, in the denomination of $5,000 each or any integral multiple thereof, but in an amount not to exceed the aggregate principal amount of Bonds maturing in the year of maturity of the Bond for which the denomination is specified. Bonds shall be lettered and numbered as the Paying Agent shall prescribe. (b) Date of Bonds: The Bonds shall be dated their date of issuance and delivery, being , 2012. (c) CUSIP Identification Numbers: "CUSIP" identification numbers shall be imprinted on the Bonds, but such numbers shall not constitute a part of the contract evidenced by the Bonds and any error or omission with respect thereto shall not constitute cause for refusal of the Purchaser to accept delivery of and pay for the Bonds. In addition, failure on the part of the City to use such CUSIP numbers in any notice to Owners of the Bonds shall not constitute an event of default or any violation of the City's contract with such Owners and shall not impair the effectiveness of any such notice. (d) Maturities; Interest. The Bonds shall bear interest at the rate or rates set forth below, payable on August 1, 2012 and on each February 1 and August 1 thereafter (each an "Interest Payment Date"), and shall mature and become payable as to principal on August 1 of the years and in the amounts as set forth below. 8 Maturity Date Principal Interest Amount Rate Each Bond shall bear interest from the Interest Payment Date next preceding the date of registration and authentication thereof unless (i) it is registered and authenticated as of an Interest Payment Date, in which event it shall bear interest from such date, or (ii) it is registered and authenticated prior to an Interest Payment Date and after the close of business on the fifteenth day of the month preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is registered and authenticated on or prior to July 15, 2012, in which event it shall bear interest from the date of original issuance and authentication of the Bonds; provided, however, that if at the time of registration and authentication of a Bond, interest is in default thereon, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on the Bonds shall be calculated on the basis of a 360-day year composed of twelve 30-day months. (e) Payment. Interest on the Bonds (including the final interest payment upon maturity or earlier redemption) is payable by check mailed on the applicable Interest Payment Date to the Owner thereof at his or her address as it appears on the registration books maintained by the Paying Agent at the close of business on the fifteenth (15th) day of the month preceding the Interest Payment Date, or at such other address as the Owner may have filed with the Paying Agent for that purpose; provided that an Owner of $1,000,000 or more aggregate principal amount of Bonds, or the Owner of all of the Bonds at the time Outstanding, shall, at his or her option, receive payment of interest by wire transfer to an account in the United States of America designated by such Owner to the Paying Agent no later than the fifteenth (15) day of the month immediately preceding the applicable Interest Payment Date. Principal of the Bonds is payable in lawful money of the United States of America at the Principal Office of the Paying Agent. Section 2.03. Redemption. (a) Optional Redemption. The Bonds maturing on or before August 1, are not subject to redemption prior to their respective maturity dates. Bonds maturing on or after 9 August 1, shall be subject to redemption prior to their respective maturity dates as a whole or in part on any date, as designated by the City and, absent any such designation, in inverse order of maturities and by lot within a maturity from money provided at the option of the City, in each case on and after August 1, , at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest to the date of redemption, without premium. (b) Redemption Procedure. The Paying Agent shall cause notice of any redemption to be mailed, first class mail, postage prepaid, at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption, to the respective Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books maintained by the Paying Agent and to the Securities Depositories and the Information Services; but such mailing shall not be a condition precedent to such redemption and failure to mail or to receive any such notice shall not affect the validity of the proceedings for the redemption of such Bonds. The Paying Agent shall not mail any notice of redemption until it has sufficient moneys on deposit to pay the redemption price of all Bonds to be redeemed; provided, however, that such restriction shall not apply when the Bonds are redeemed with the proceeds of another obligation of the City; and provided further that in the event the Bonds are being redeemed with such proceeds, the City shall have the right to cancel the notice of redemption by providing written notice of such cancellation to the Paying Agent at least seven (7) Business Days prior to the date set for redemption. Such notice shall state the redemption date and the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption, shall designate the serial numbers of the Bonds to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, or by stating that all of the Bonds of one or more maturities have been called for redemption, and shall require that such Bonds be then surrendered at the Principal Office of the Paying Agent for redemption at the said redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. In the event term bonds are redeemed in part, the City shall deliver a revised sinking fund schedule to the Paying Agent. Upon surrender of Bonds redeemed in part only, the City shall execute and the Paying Agent shall authenticate and deliver to the Owner, at the expense of the City, a new Bond or Bonds, of the same maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds. From and after the date fixed for redemption, if notice of such redemption shall have been duly given and funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption shall have been duly provided, such Bonds so called shall cease to be entitled to any benefit under this Agreement other than the right to receive payment of the redemption price, and no interest shall accrue thereon on or after the redemption date specified in such notice. All Bonds redeemed pursuant to this Section 2.03 shall be canceled by the Paying Agent, and a certificate of cancellation shall be submitted by the Paying Agent to the City. Section 2.04. Form of Bonds. The Bonds, the form of the Paying Agent's certificate of authentication and registration and the form of assignment to appear thereon shall be substantially in the forms, respectively, with necessary or appropriate variations, omissions and 10 insertions, as permitted or required by this Agreement, as are set forth in Exhibit A attached hereto. Section 2.05. Execution of Bonds. The Bonds shall be executed on behalf of the City by the manual or facsimile signatures of its Mayor, Mayor Pro Tern or City Manager and its Treasurer, and attested by the manual or facsimile signature of its City Clerk, who are in office on the date of execution of this Agreement or at any time thereafter, and the seal of the City shall be impressed, imprinted or reproduced by facsimile thereon. If any officer whose signature appears on any Bond ceases to be such officer before delivery of the Bonds to the Purchaser, such signature shall nevertheless be as effective as if the officer had remained in office until the delivery of the Bonds to the Purchaser. Any Bond may be signed and attested on behalf of the City by such persons as at the actual date of the execution of such Bond shall be the proper officers of the City although at the nominal date of such Bond any such person shall not have been such officer of the City. Only such Bonds as shall bear thereon a certificate of authentication and registration in the form set forth in Exhibit A attached hereto, executed and dated by the Paying Agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Agreement, and such certificate of the Paying Agent shall be conclusive evidence that the Bonds so registered have been duly authenticated, registered and delivered hereunder and are entitled to the benefits of this Agreement. Section 2.06. Transfer of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the books required to be kept pursuant to the provisions of Section 2.08 hereof, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the Principal Office at the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. The Paying Agent shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Paying Agent shall authenticate and deliver a new Bond or Bonds, for like aggregate principal amount. No transfers of Bonds shall be required to be made (a) fifteen days prior to the date established for selection of Bonds for redemption or (b) with respect to a Bond after such Bond has been selected for redemption (except with respect to the unredeemed portion thereof). Section 2.07. Exchange of Bonds. Bonds may be exchanged at the Principal Office of the Paying Agent for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The Paying Agent shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. No exchanges of Bonds shall be required to be made (a) fifteen days prior to the date established for selection of Bonds for redemption or (b) with respect to a Bond after such Bond has been selected for redemption (except with respect to the unredeemed portion thereof). Section 2.08. Bond Register. The Paying Agent shall keep or cause to be kept sufficient books for the registration and transfer of the Bonds, which shall at all times be open to 11 inspection by the City upon reasonable notice; and, upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, Bonds as herein before provided. Section 2.09. Temporary Bonds. The Bonds may be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be determined by the City, and may contain such reference to any of the provisions of this Agreement as may be appropriate. Every temporary Bond shall be executed by the City upon the same conditions and in substantially the same manner as the definitive Bonds. If the City issues temporary Bonds it will execute and furnish definitive Bonds without delay, and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Principal Office of the Paying Agent and the Paying Agent shall deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits pursuant to this Agreement as definitive Bonds executed and delivered hereunder. Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated the City, at the expense of the Owner of said Bond, shall execute, and the Paying Agent shall thereupon authenticate and deliver, a new Bond of like maturity and principal amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Paying Agent of the Bond so mutilated and provision of indemnity satisfactory to the Paying Agent. Every mutilated Bond so surrendered to the Paying Agent shall be canceled by it and delivered to, or upon the order of, the City. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the City and the Paying Agent and, if such evidence be satisfactory to the City and the Paying Agent and indemnity satisfactory to it shall be given, the City, at the expense of the Owner, shall execute, and the Paying Agent shall thereupon authenticate and deliver, a new Bond of like maturity and principal amount in lieu of and in substitution for the Bond so lost, destroyed or stolen. The City may require payment of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the City and the Paying Agent in the premises. Any Bond issued under the provisions of this Section 2.10 in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Agreement with all other Bonds issued pursuant to this Agreement. Section 2.11. Book -Entry; Limited Obligation of City. The Bonds may be issued in the form of a separate single fully registered Bond (which may be typewritten) for each maturity. The ownership of such Bond shall be registered in the registration books kept by the Paying Agent in the name of the Nominee as nominee of the Depository. With respect to Bonds registered in the registration books kept by the Paying Agent in the name of the Nominee, the City and the Paying Agent shall have no responsibility or obligation to such Participant or to any Person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the City and the Paying Agent shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Participant or any other Person, other than as shown in the registration books kept by the Paying Agent, of any notice with respect to the Bonds, including any notice of redemption, (iii) the selection by the Depository and its 12 Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part, or (iv) the payment to any Participant or any other Person, other than a Nominee as shown in the registration books kept by the Paying Agent, of any principal of, premium, if any, or interest on the Bonds. The City and the Paying Agent may treat and consider the Person in whose name each Bond is registered in the registration books kept by the Paying Agent as the owner and absolute Owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on such Bond, for the purpose of giving notices of prepayment and other matters with respect to such Bond, for the purposes of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Paying Agent shall pay all principal, premium, if any, and interest with respect to the Bonds, only to or upon the order of the respective Owners, as shown in the registration books kept by the Paying Agent, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the registration books kept by the Paying Agent, shall receive a Bond evidencing the obligation of the City to make payments of principal, premium, if any, and interest pursuant to this Paying Agent Agreement. Upon delivery by the Depository to the Nominee, the Paying Agent and the City of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions regarding the payment of the principal of and interest on the Bonds set forth in Section 2.02(e), the word Nominee in this Agreement shall refer to such new nominee of the Depository. Section 2.12. Representation Letter. In order to qualify the Bonds for the Depository's book -entry system, the City shall execute, seal, countersign and deliver to such Depository a letter from the City representing such matters as shall be necessary to so qualify the Bonds (the "Representation Letter"). The execution and delivery of the Representation Letter shall not in any way limit the provisions of Section 2.11 hereof or in any other way impose upon the City or the Paying Agent any obligation whatsoever with respect to Persons having interests in the Bonds other than the Owners, as shown on the registration books kept by the Paying Agent. In the written acceptance of the Paying Agent, such Paying Agent shall agree to take all actions necessary for all representations of the City in the Representation Letter with respect to the Paying Agent to at all times be complied with. In addition to the execution and delivery of the Representation Letter, the City shall take any other actions, not inconsistent with this Agreement, to qualify the Bonds for the Depository's book -entry system. Section 2.13. Transfers Outside Book -Entry System. The City may, by written request, at any time or for any reason, remove the Depository and appoint a successor or successors thereto. In the event (i) the Depository determines not to continue to act as securities depository for any series of Bonds, or (ii) the City determines that the Depository shall no longer so act, then the City will discontinue the book -entry system with the Depository. If the City fails to identify another qualified securities depository to replace the Depository then the Bonds shall no longer be restricted to being registered in the registration books kept by the Paying Agent in the name of the Nominee, but shall be registered in whatever name or names Owners of such Bonds transferring or exchanging such Bonds shall designate, in accordance with the provisions of Section 2.06. Section 2.14. Payments and Notices to the Nominee. Notwithstanding any other provision of this Agreement to the contrary, so long as any Bond is registered in the name of the Nominee, all payments of principal of, premium, if any, and interest on such Bond and all 13 notices with respect to such Bond shall be made and given, respectively, as provided in the Representation Letter or as otherwise instructed in writing by the Depository. 14 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF BOND PROCEEDS; SECURITY FOR THE BONDS Section 3.01. Issuance and Delivery of Bonds. At any time after the execution of this Agreement the City may issue and deliver Bonds in the aggregate principal amount of million thousand dollars ($ ). The Mayor, the Mayor Pro Tern, the City Manager or the Finance Manager, and the City Treasurer are hereby directed to cause the Bonds substantially in the form attached hereto as Exhibit A to be printed, signed and sealed, and to be delivered to the Purchaser through the Depository on receipt of the purchase price therefor. The appropriate officials of the City are hereby authorized to take any and all action any of them deem reasonable in order to enable the City to execute and deliver the Bonds. The Paying Agent is hereby authorized to deliver the Bonds to the Purchaser, upon receipt of a Written Request of the City. Section 3.02. Application of Proceeds of Sale of Bonds. Upon the receipt of payment for the Bonds, the proceeds thereof, being $ (constituting the par amount thereof ($ ), plus net original issue premium in the amount of $ , less the discount in the amount of $ retained by the Purchaser), shall be paid to the Paying Agent who shall forthwith set aside, pay over and deposit such proceeds as follows: (a) Deposit in the Costs of Issuance Fund the amount of $ ; and (b) Deposit in the Proceeds Fund, the remainder of the proceeds of the Bonds, being $ , which the Paying Agent will immediately transfer to the Prior Bonds Paying Agent for deposit under the Refunding Instructions as provided in Section 4.01. Section 3.03. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be dependent upon the completion of the Project or upon the performance by any person of his or her obligation with respect to such Project. Section 3.04. Security for the Bonds. The Bonds are general obligations of the City and the City has the power, is obligated and hereby covenants to levy ad valorem taxes upon all property within the City subject to taxation by the City, without limitation of rate or amount (except with respect to certain personal property which is taxed at limited rates), for the payment of the Bonds and the interest thereon, in accordance with all relevant provisions of law. The City hereby covenants to direct the County of San Diego to collect such ad valorem taxes in such amounts and at such times as is necessary to ensure the timely payment of Debt Service. 15 ARTICLE IV FUNDS AND ACCOUNTS Section 4.01. Proceeds Fund. There is hereby established with the Paying Agent as a separate fund the 2012 Proceeds Fund (the `Proceeds Fund"), to the credit of which a deposit shall be made as required by Section 3.02(b). Money in the Proceeds Fund shall be transferred by the Paying Agent, immediately upon receipt thereof, to the Prior Bonds Paying Agent for deposit under and pursuant to the Refunding Instructions. At such time as no amounts remain on deposit in the Proceeds Fund, the Paying Agent shall close the Proceeds Fund. Section 4.02. Debt Service Fund. There is hereby established with the City as a separate fund, to be maintained distinct from all other funds of the City, the 2012 Debt Service Fund. Upon the receipt thereof, the City shall deposit the proceeds of the ad valorem property taxes levied to pay Debt Service in the Debt Service Fund and, if any, other moneys lawfully available to pay debt service on the Bonds as provided in Section 3.04. The City shall also deposit in the Debt Service Fund the amount required by Section 3.04 hereof. The Debt Service Fund shall be administered and disbursements made in the manner and in the order set forth in Section 4.03 hereof. Section 4.03. Administration and Disbursements From Debt Service Fund. All moneys in the Debt Service Fund shall be used and withdrawn by the City solely for the purpose of paying the principal of and interest on the Bonds as the same shall become due and payable. On the last day of January and July in each year, commencing July 31, 2012, the City shall transfer to the Paying Agent moneys on deposit in the Debt Service Fund for application by the Paying Agent on the next succeeding Interest Payment Date to the payment of principal of and interest on the Bonds. Amounts representing accrued interest on the Bonds or premium with respect to the Bonds shall be applied to pay interest on the Bonds prior to amounts collected pursuant to Section 3.04 being so applied. Section 4.04. Bond Service Fund. There is hereby established as a separate fund the 2012 Bond Service Fund (the "Bond Service Fund"), to be held by the Paying Agent. All moneys received by the Paying Agent from the City pursuant to Section 4.03 shall be deposited into the Bond Service Fund. The moneys on deposit in the Bond Service Fund shall be used solely to pay principal and interest on the Bonds when due. The funds in the Bond Service Fund shall be invested in a money market fund (including any fund for which the Paying Agent or any its affiliates maintains or acts as sponsor or advisor) assigned a rating of Aaa by Moody's and AAA by S&P and Fitch. Section 4.05. Investment of Moneys. Subject to the provisions of Section 5.08 hereof, amounts on deposit in the Project Fund and the Debt Service Fund may be invested in Authorized Investments, and earnings on such investments shall remain in the respective fund or account. Authorized Investments may be purchased at such prices as the City may determine, but in no event at more than their Fair Market Value. Section 4.06. Costs of Issuance Fund. There is hereby established as a separate fund the 2012 Costs of Issuance Fund (the "Costs of Issuance Fund"), to be held by the Paying Agent, to the credit of which a deposit shall be made as required by Section 3.02(a). Moneys on deposit in the Costs of Issuance Fund shall be used by the Paying Agent to pay Issuance Expenses. If on September 30, 2012 amounts remain on deposit in the Costs of Issuance Fund, the Paying Agent will transfer such amounts to the Bond Service fund to be applied to pay 16 interest on the Bonds on February 1, 2013, provided that the Paying Agent shall notify the City at least 15 days prior to making such transfer. At such time as no amounts remain on deposit in the Costs of Issuance Fund, the Paying Agent shall close the Costs of Issuance Fund. 17 ARTICLE V OTHER COVENANTS OF THE CITY Section 5.01. Punctual Payment. The City will punctually pay, or cause to be paid, the principal of and interest on the Bonds, in strict conformity with the terms of the Bonds and of this Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of this Agreement and of the Bonds. Nothing herein contained shall prevent the City from making advances of its own moneys, howsoever derived, to any of the uses or purposes permitted by law. Section 5.02. Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the City will not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and will not, directly or indirectly, approve any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the City, such claim for interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits of this Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have so extended or funded. Section 5.03. Payment of Claims. The City will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the project financed with the proceeds of the Bonds which might impair the security of the Bonds. Nothing herein contained shall require the City to make any such payment so long as the City in good faith shall contest the validity of said claims. Section 5.04. Books and Accounts. The City will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the City in which complete and correct entries shall be made of all transactions relating to the project financed with proceeds of the Prior Bonds. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Paying Agent and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives authorized in writing. Section 5.05. Protection of Security and Rights of Bondowners. The City will preserve and protect the security of the Bonds and the rights of the Bondowners, and will warrant and defend their rights against all claims and demands of all persons. From and after the sale and delivery of any of the Bonds by the City, the Bonds shall be incontestable by the City. Section 5.06. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the terms of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Agreement, failure of the City to comply with the Continuing Disclosure Certificate shall not be an Event of Default under Section 7.01 hereof; provided, however, any Participating Underwriter, any Owner or any Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Section 5.06 and the Continuing Disclosure Certificate. Section 5.07. Further Assurances. The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Agreement, and for the 18 better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Agreement. Section 5.08. No Arbitrage. The City shall not take, or permit or suffer to be taken by the Paying Agent or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Bonds would have caused the Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code. Section 5.09. Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code. Section 5.10. Private Activity Bond Limitation. The City shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code. Section 5.11. Maintenance of Tax -Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds. Section 5.12. Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of Excess Investment Earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds. Section 5.13. Information Report. The Finance Manager is hereby directed to assure the filing of an information report for the Bonds in compliance with Section 149(e) of the Code. [Section 5.14. Small Issuer Exemption from Bank Nondeductibility Restriction. The City hereby designates the Bonds for purposes of paragraph (3) of section 265(b) of the Code and covenants that none of the Bonds constitute private activity bonds as defined in section 141 of the Code, and that not more than $10,000,000 aggregate principal amount of obligations the interest on which is excludable (under section 103(a) of the Code) from gross income for federal income taxes (excluding, however, private activity bonds, as defined in section 141 of the Code, other than qualified 501(c)(3) bonds as defined in section 145 of the Code), including the Bonds, have been or shall be issued by the City, including all subordinate entities of the City, during the calendar year 2012.] 19 ARTICLE VI THE PAYING AGENT Section 6.01. Appointment of Paying Agent. Union Bank, N.A., at its Principal Office in San Francisco, California, or in such other location as approved by the City, is hereby appointed Paying Agent for the Bonds. The Paying Agent undertakes to perform such duties, and only such duties, as are specifically set forth in this Agreement, and, even during the continuance of an Event of Default, no implied covenants or obligations shall be read into this Agreement against the Paying Agent. The Paying Agent shall signify its acceptance of the duties and obligations imposed upon it by this Agreement by executing and delivering to the City this Agreement. The City may remove the Paying Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor shall be a bank or trust company doing business in the State of California, having (or, if such bank or trust company is a member of a bank holding company, its parent holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least fifty million dollars ($50,000,000), and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section 6.01 the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Paying Agent may at any time resign by giving written notice to the City and the Bondowners of such resignation. Upon receiving notice of such resignation, the City shall promptly appoint a successor Paying Agent by an instrument in writing. Any resignation or removal of the Paying Agent and appointment of a successor Paying Agent shall become effective upon acceptance of appointment by the successor Paying Agent. If the City fails to appoint a successor Paying Agent within 30 days of the Paying Agent's removal or resignation, the Paying Agent may petition a court of competent jurisdiction for the appointment of a siuccessor. Section 6.02. Paying Agent May Hold Bonds. The Paying Agent may become the owner of any of the Bonds in its own or any other capacity with the same rights it would have if it were not Paying Agent. Section 6.03. Liability of Agents. The recitals of facts, covenants and agreements herein and in the Bonds contained shall be taken as statements, covenants and agreements of the City, and the Paying Agent assumes no responsibility for the correctness of the same, nor makes any representations as to the validity or sufficiency of this Agreement or of the Bonds, nor shall incur any responsibility in respect thereof, other than as set forth in this Agreement. The Paying Agent shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful default. In the absence of bad faith, the Paying Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Paying Agent and conforming to the requirements of this Agreement; but in the case of any such certificates or opinions by which any provision hereof are specifically required to be furnished to the Paying Agent, the Paying Agent shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement. 20 e�. The Paying Agent shall not be liable for any error of judgment made in good faith by a responsible officer unless it shall be proved that the Paying Agent was negligent in ascertaining the pertinent facts. No provision of this Agreement shall require the Paying Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Paying Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Paying Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. The Paying 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 Paying Agent shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Paying Agent e-mail or facsimile instructions (or instructions by a similar electronic method) and the Paying Agent in its discretion elects to act upon such instructions, the Paying Agent's understanding of such instructions shall be deemed controlling. The Paying Agent shall not be liable for any losses, costs or expenses arising directly or indirectly from the Paying 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 Paying Agent, including without limitation the risk of the Paying Agent acting on unauthorized instructions, and the risk of interception and misuse by third parties. Any banking association or corporation into which the Paying Agent may be merged, converted or with which the Paying Agent may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Paying Agent shall be a party, or any banking association or corporation to which all or substantially all of the corporate trust business of the Paying Agent shall be transferred, shall succeed to all the Paying Agent's rights, obligations and immunities hereunder without the execution or filing of any paper or any further act on the part of the parties hereto, anything herein to the contrary notwithstanding. Section 6.04. Notice to Agents. The Paying Agent may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Paying Agent may consult with counsel, who may be of counsel to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Whenever in the administration of its duties under this Agreement the Paying Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering 21 any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Paying Agent, be deemed to be conclusively proved and established by a certificate of the City, and such certificate shall be full warrant to the Paying Agent for any action taken or suffered under the provisions of this Agreement upon the faith thereof, but in its discretion the Paying Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. Section 6.05. Compensation, Indemnification. The City shall pay to the Paying Agent from time to time reasonable compensation for all services rendered under this Agreement, and also all reasonable expenses, charges, counsel fees and other disbursements, including those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Agreement. A City Representative is hereby authorized to execute an agreement or agreements with the Paying Agent in connection with such fees and expenses. The City further agrees to indemnify and save the Paying Agent and its officers, agents, directors and employees harmless against any liabilities, costs, expenses (including, without limitation, legal fees and expenses), losses, judgments, damages, claims and suits which it may incur in the exercise and performance of its powers and duties hereunder which are not due to its negligence or bad faith. This Section 6.05 shall survive the termination of this Agreement and the earlier removal or resignation of the Paying Agent. Section 6.06. Funds and Accounts. The Paying Agent may establish such funds and accounts as it reasonably deems necessary or appropriate to perform its obligations under this Agreement. 22 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BONDOWNERS Section 7.01. Events of Default. If one or more of the following events ("Events of Default") shall happen, that is to say: (a) if default shall be made by the City in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or by declaration or otherwise; (b) if default shall be made by the City in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable; (c) if default shall be made by the City in the observance of any of the covenants, agreements or conditions on its part in this Agreement or in the Bonds contained, and such default shall have continued for a period of thirty (30) days after written notice thereof to the City Representative; or (d) if the City shall file a petition seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, seeking reorganization of the City under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of its property; then, and in each and every event of default and upon written request of the Owners of not less than sixty percent (60%) in aggregate principal amount of the Bonds at the time Outstanding, the principal of all of the Bonds then Outstanding, and the interest accrued thereon, shall be declared to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Agreement or in the Bonds contained to the contrary notwithstanding. Such declaration may be rescinded by the Owners of not less than sixty percent (60%) in aggregate principal amount of the Bonds at the time Outstanding provided the City cures such default or defaults, including the deposit with the Paying Agent of a sum sufficient to pay all principal on the respective Bonds matured prior to such declaration and all matured installments of interest (if any) on the Bonds, with interest at the rate of twelve percent (12%) per annum on such overdue installments of principal and, to the extent such payment of interest is lawful at that time, on such overdue installments of interest, so that the City is currently in compliance with all payment, deposit and transfer provisions of this Agreement, and a sum sufficient to pay any expenses incurred by the Paying Agent in connection with such default. Section 7.02. Application of Funds. All of the sums in the funds and accounts provided for in Sections 4.03 and 4.05 hereof, upon the date of the Event of Default as provided in Section 7.01 hereof, and all sums thereafter received by the Paying Agent hereunder, shall be 23 applied by the Paying Agent in the following order upon presentation of the Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: First, to the payment of the costs and expenses of the Paying Agent hereunder in declaring such event of default, including reasonable compensation to her or their agents, attorneys and counsel; Second, in case the principal of the Bonds shall not have become due and payable, to the payment of the interest in default in the order of the seniority of the installments of such interest, with interest on the overdue installments at the rate of twelve percent (12%) per annum (to the extent that such interest on overdue installments shall have been collected), such payments to be made ratably to the persons entitled thereto without discrimination or preference; Third, in case the principal of the Bonds shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon the Bonds for principal and interest, with interest on the overdue principal and installments of interest at the rate of twelve percent (12%) per annum (to the extent that such interest on overdue installments of interest shall have been collected), and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. Section 7.03. Other Remedies of Bondowners. Any Bondowner shall have the right, for the equal benefit and protection of all Bondowners similarly situated: (a) by mandamus, suit, action or proceeding, to compel the City and its members, officers, agents or employees to perform each and every term, provision and covenant contained in this Agreement and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Bondowners' rights; or (c) upon the happening of any event of default (as defined in Section 7.01 hereon), by suit, action or proceeding in any court of competent jurisdiction, to require the City and its members and employees to account as if it and they were the Paying Agents of an express trust. Section 7.04. Non -Waiver. Nothing in this Article VII or in any other provision of this Agreement, or in the Bonds, shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as herein provided, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds. A waiver of any default by any Bondowner shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of any Owner of any of the Bonds to exercise any right or power accruing upon any default shall impair any such 24 right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Bondowners by this Article VI may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners of the Bonds. If a suit, action or proceeding to enforce any right or exercise any remedy be abandoned or determined adversely to the Bondowners, the City and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. Section 7.05. Remedies Not Exclusive. No remedy herein conferred upon the Owners of Bonds shall be exclusive of any other remedy and that each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereafter conferred on the Bondowners. 25 ARTICLE VIII SUPPLEMENTAL AGREEMENTS Section 8.01. Amendments Permitted. This Agreement and the rights and obligations of the City and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 8.04. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the City of any pledge or lien upon the ad valorem taxes of the taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or this Agreement), or reduce the percentage of Bonds required for the amendment hereof. Any such amendment may not modify any of the rights or obligations of the Paying Agent without its written consent. This Agreement and the rights and obligations of the City and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes: (a) to add to the covenants and agreements of the City in this Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power herein reserved to or conferred upon the City; (b) to make modifications not adversely affecting any outstanding series of Bonds of the City in any material respect, as determined by the City; (c) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in this Agreement, or in regard to questions arising under this Agreement, as the City and the Paying Agent may deem necessary or desirable and not inconsistent with this Agreement, and which shall not materially adversely affect the rights of the Owners of the Bonds, as determined by the City; and (d) to make such additions, deletions or modifications as may be necessary or desirable to assure compliance with Section 148 of the Code relating to required rebate of Excess Investment Earnings to the United States or otherwise as may be necessary to assure exclusion from gross income for federal income tax purposes of interest on the Bonds or to conform with the Regulations. The Paying Agent shall, prior to executing such Supplemental Agreement, be entitled to receive and rely upon an opinion of counsel stating that such Supplemental Agreement is authorized or permitted in accordance with the terms of this Agreement. Section 8.02. Owners' Meetings. The City may at any time call a meeting of the Owners. In such event the City is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof, and to fix and adopt rules and regulations for the conduct of said meeting. 26 Section 8.03. Procedure for Amendment with Written Consent of Owners. The City and the Paying Agent may at any time adopt a Supplemental Agreement amending the provisions of the Bonds or of this Agreement or any Supplemental Agreement, to the extent that such amendment is permitted by Section 8.01, to take effect when and as provided in this Section. A copy of such Supplemental Agreement, together with a request to Owners for their consent thereto, shall be mailed by first class mail, by the Paying Agent to each Owner of Bonds Outstanding, but failure to mail copies of such Supplemental Agreement and request shall not affect the validity of the Supplemental Agreement when assented to as in this Section provided. Such Supplemental Agreement shall not become effective unless there shall be filed with the Paying Agent the written consents of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding (exclusive of Bonds disqualified as provided in Section 8.04) and a notice shall have been mailed as hereinafter in this Section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Bonds for which such consent is given, which proof shall be such as is permitted by Section 9.04. Any such consent shall be binding upon the Owner of the Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Paying Agent prior to the date when the notice hereinafter in this Section provided for has been mailed. After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Agreement, the City shall mail a notice to the Owners in the manner hereinbefore provided in this Section for the mailing of the Supplemental Agreement, stating in substance that the Supplemental Agreement has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in this Section (but failure to mail copies of said notice shall not affect the validity of the Supplemental Agreement or consents thereto). Proof of the mailing of such notice shall be filed with the Paying Agent. A record, consisting of the papers required by this Section 8.03 to be filed with the Paying Agent, shall be proof of the matters therein stated until the contrary is proved. The Supplemental Agreement shall become effective upon the filing with the Paying Agent of the proof of mailing of such notice, and the Supplemental Agreement shall be deemed conclusively binding (except as otherwise hereinabove specifically provided in this Article) upon the City and the Owners of all Bonds at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such sixty-day period. Section 8.04. Disqualified Bonds. Bonds owned or held for the account of the City, excepting any pension or retirement fund, shall not be deemed Outstanding for the purpose of any vote, consent or other action or any calculation of Outstanding Bonds provided for in this Article VIII, and shall not be entitled to vote upon, consent to, or take any other action provided for in this Article VIII; except that in determining whether the Paying Agent shall be protected in relying upon any such approval or consent of an Owner, only Bonds which the Paying Agent actually knows to be owned or held for the account of the City (excepting any pension or retirement fund) shall be disregarded unless all Bonds are so owned in which case such Bonds shall be considered outstanding for the purpose of such determination. Section 8.05. Effect of Supplemental Agreement. From and after the time any Supplemental Agreement becomes effective pursuant to this Article VIII, this Agreement shall be deemed to be modified and amended in accordance therewith, the respective rights, duties 27 and obligations under this Agreement of the City and all owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Agreement shall be deemed to be part of the terms and conditions of this Agreement for any and all purposes. Section 8.06. Endorsement or Replacement of Bonds Issued After Amendments. The City may determine that Bonds issued and delivered after the effective date of any action taken as provided in this Article VIII shall bear a notation, by endorsement or otherwise, in form approved by the City, as to such action. In that case, upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his Bond for that purpose at the Principal Office of the Paying Agent or at such other office as the City may select and designate for that purpose, a suitable notation shall be made on such Bond. The City may determine that new Bonds, so modified as in the opinion of the City is necessary to conform to such Owners' action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Bonds then Outstanding, such new Bonds shall be exchanged at the Principal Office of the Paying Agent without cost to any Owner, for Bonds then Outstanding, upon surrender of such Bonds. Section 8.07. Amendatory Endorsement of Bonds. The provisions of this Article VIII shall not prevent any Owner from accepting any amendment as to the particular Bonds held by him or her. 28 ARTICLE IX MISCELLANEOUS Section 9.01. Benefits of Agreement Limited to Parties. Nothing in this Agreement, expressed or implied, is intended to give to any person other than the City, the Paying Agent and the Owners, any right, remedy, claim under or by reason of this Agreement. Any covenants, stipulations, promises or agreements in this Agreement contained by and on behalf of the City shall be for the sole and exclusive benefit of the Owners and the Paying Agent. Section 9.02. Successor is Deemed Included in All References to Predecessor. Whenever in this Agreement or any Supplemental Agreement either the City or the Paying Agent is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Agreement contained by or on behalf of the City or the Paying Agent shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 9.03. Discharge of Agreement. The City shall have the option to pay and discharge the indebtedness on all or any portion of the Bonds Outstanding in any one or more of the following ways: (a) by paying or causing to be paid the principal of, and interest and any premium on, such Bonds Outstanding and designated for defeasance, as and when the same become due and payable; (b) by depositing with the Paying Agent, in trust, at or before maturity, money which, together with, in the event of a discharge of all of the Bonds, the amounts then on deposit in the funds provided for in Sections 4.02 and 4.04 is fully sufficient to pay such Bonds Outstanding and designated for defeasance, including all principal, interest and redemption premiums; or (c) by irrevocably depositing with the Paying Agent, in trust, cash and Federal Securities in such amount as the City shall determine as confirmed in writing by an independent certified public accountant will, together with the interest to accrue thereon and, in the event of a discharge of all of the Bonds, moneys then on deposit in the funds and accounts provided for in Sections 4.02 and 4.04, be fully sufficient to pay and discharge the indebtedness on such Bonds Outstanding and designated for defeasance (including all principal, interest and redemption premiums) at or before their respective maturity dates. If the City shall have taken any of the actions specified in (a), (b) or (c) above, and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been given as in this Agreement provided or provision satisfactory to the Paying Agent shall have been made for the giving of such notice, then, at the election of the City, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the funds and moneys provided for in this Agreement and all other obligations of the City under this Agreement with respect to such Bonds Outstanding shall cease and terminate. Notice of such election shall be filed with the Paying Agent. Notwithstanding the foregoing, the obligation of the City to pay or cause to be paid to the Owners of the Bonds not so surrendered and paid all sums due thereon and all amounts owing to the Paying Agent pursuant to Section 6.05 shall continue in any event. 29 Upon compliance by the City with the foregoing with respect to all Bonds Outstanding and designated for defeasance, any funds held by the Paying Agent after payment of all fees and expenses of the Paying Agent, which are not required for the purposes of the preceding paragraph, shall be paid over to the City. Section 9.04. Execution of Documents and Proof of Ownership by Owners. Any request, declaration or other instrument which this Agreement may require or permit to be executed by Owners may be in one or more instruments of similar tenor, and shall be executed by Owners in person or by their attorneys appointed in writing. Except as otherwise herein expressly provided, the fact and date of the execution by any Owner or his attorney of such request, declaration or other instrument, or of such writing appointing such attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the person signing such request, declaration or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. Except as otherwise herein expressly provided, the ownership of registered Bonds and the amount, maturity, number and date of holding the same shall be proved by the registry books. Any request, declaration or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the City or the Paying Agent in good faith and in accordance therewith. Section 9.05. Waiver of Personal Liability. No member, officer, agent or employee of the City shall be individually or personally liable for the payment of the principal of, or interest or any premium on, the Bonds; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law. Section 9.06. Notices to and Demands on City and Paying Agent. Any notice or demand which by any provision of this Agreement is required or permitted to be given or served by the Paying Agent to or on the City may be given or served by being deposited postage prepaid in a post office letter box addressed (until another address is filed by the City with the Paying Agent) to the City of National City, 525 San Anselmo Avenue, San Anselmo, California 94960, Attn: Finance and Administrative Services Director. Any notice or demand which by any provision of this Agreement is required or permitted to be given or served by the City to or on the Paying Agent may be given or served by being deposited postage prepaid in a post office letter box addressed (until another address is filed by the Paying Agent with the City) to Union Bank, N.A., 550 Kearny Street, Suite 600, San Francisco, California 94108, Attention: Milly Canessa. Section 9.07. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Agreement shall for any reason be held illegal or unenforceable, such holding shall not affect the validity of the remaining portions of this Agreement. The City hereby declares that it would have adopted this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issue of the Bonds pursuant thereto irrespective of 30 the fact that any one or more Sections, paragraphs, sentences, clauses, or phrases of this Agreement may be held illegal, invalid or unenforceable. Section 9.08. Unclaimed Moneys. Anything contained herein to the contrary notwithstanding, any moneys held by the Paying Agent in trust for the payment and discharge of the principal of, and the interest and any premium on, the Bonds which remains unclaimed for two (2) years after the date when the payments of such principal, interest and premium have become payable, if such moneys was held by the Paying Agent at such date, shall be repaid by the Paying Agent (without liability for interest) to the City as its absolute property free from any trust, and the Paying Agent shall thereupon be released and discharged with respect thereto and the Bond Owners shall look only to the City for the payment of the principal of, and interest and any premium on, such Bonds. Section 9.09. Applicable Law. This Agreement shall be governed by and enforced in accordance with the laws of the State of California applicable to contracts made and performed in the State of California. Section 9.10. Conflict with Act. In the event of a conflict between any provision of this Agreement with any provision of the Act as in effect on the Closing Date, the provision of the Act shall prevail over the conflicting provision of this Agreement. Section 9.11. Conclusive Evidence of Regularity. Bonds issued pursuant to this Agreement shall constitute conclusive evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the ad valorem taxes securing the payment of the Bonds. Section 9.12. Payment on Business Day. In any case where the date of the maturity of interest or of principal (and premium, if any) of the Bonds or the date fixed for redemption of any Bonds or the date any action is to be taken pursuant to this Agreement is other than a Business Day, the payment of interest or principal (and premium, if any) or the action need not be made on such date but may be made on the next succeeding day which is a Business Day with the same force and effect as if made on the date required and no interest shall accrue for the period after such date. Section 9.13. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original. 31 IN WITNESS WHEREOF, the City has caused this Agreement to be executed in its name and the Paying Agent has caused this Agreement to be executed in its name, all as of the date first written above. CITY OF NATIONAL CITY By: City Manager UNION BANK, N.A., as Paying Agent By: Authorized Officer 32 y/ No. $ EXHIBIT A FORM OF BOND Interest Rate UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF SAN DIEGO CITY OF NATIONAL CITY 2012 GENERAL OBLIGATION BOND Maturity Date August 1, 20 REGISTERED OWNER: Cede & Co. PRINCIPAL SUM: DOLLARS Issue Date April _, 2012 CUSIP The CITY OF NATIONAL CITY, a general law city duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City"), for value received hereby promises to pay to the Registered Owner stated above, or registered assigns (the "Owner"), on the Maturity Date stated above (subject to any right of prior redemption hereinafter provided for), the Principal Sum stated above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the interest payment date next preceding the date of authentication of this Bond (unless (i) this Bond is authenticated on an interest payment date, in which event it shall bear interest from such date of authentication, or (ii) this Bond is authenticated prior to an interest payment date and after the close of business on the fifteenth day of the month preceding such interest payment date, in which event it shall bear interest from such interest payment date, or (iii) this Bond is authenticated on or prior to July 15, 2012, in which event it shall bear interest from the Issue Date stated above; provided however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the interest payment date to which interest has previously been paid or made available for payment on this Bond) until payment of such Principal Sum in full, at the rate per annum stated above, payable on August 1, 2012 and on each February 1 and August 1 thereafter, calculated on the basis of 360-day year composed of twelve 30-day months. Principal hereof and premium, if any, upon early redemption hereof are payable at the designated corporate trust office of Union Bank, N.A., (the "Paying Agent"). Interest hereon (including the final interest payment upon maturity or earlier redemption) is payable by check mailed on the applicable Interest Payment Date to the Owner at his or her address as it appears on the registration books maintained by the Paying Agent as of the close of business on the fifteenth day of the month next preceding such interest payment date, or at such other address as the Owner may have filed with the Paying Agent for that purpose. A-1 This Bond is one of a duly authorized issue of bonds of the City designated as "City of National City 2012 General Obligation Refunding Bonds" (the "Bonds"), in an aggregate principal amount of million thousand dollars ($ ), all of like tenor and date (except for such variation, if any, as may be required to designate varying numbers, maturities, interest rates or redemption and other provisions) and all issued pursuant to the provisions of Article 9 (commencing with section 53550) and Article 11 of Chapter 3 (commencing with section 53580) of Part 1 of Division 2 of Title 5 of the California Government Code (collectively, the "Act"), pursuant to a resolution of the City adopted , 2012 (the "Resolution"), authorizing the issuance of the Bonds and a Paying Agent Agreement dated as of July 1, 2012 (the "Agreement") between the City and the Paying Agent. Reference is hereby made to the Resolution and the Agreement (copies of which are on file at the office of the Paying Agent) and the Act for a description of the terms on which the Bonds are issued and the rights thereunder of the owners of the Bonds and the rights, duties and immunities of the Paying Agent and the rights and obligations of the City thereunder, to all of the provisions of which Resolution and Agreement the Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued for the purpose of refunding certain previously issued general obligation bonds of the City. This Bond and the interest hereon and on all other Bonds and the interest thereon (to the extent set forth in the Agreement) are general obligations of the City and the City has the power, is obligated and has covenanted to levy ad valorem taxes for the payment of the Bonds and the interest thereon, in accordance with all relevant provisions of law. The City has covenanted in the Agreement to direct the County of San Diego to levy and collect such ad valorem taxes in such amounts and at such times is necessary to ensure the timely payment of debt service on the Bonds. Further, if and to the extent the amount of such ad valorem taxes collected is insufficient to pay debt service on the Bonds, the City is obligated, under the Agreement, to use any other moneys lawfully available therefor to pay debt service on the Bonds. The Bonds maturing on or before August 1, are not subject to redemption prior to their respective maturity dates. Bonds maturing on or after August 1, , shall be subject to redemption prior to their respective maturity dates as a whole or in part on any date, as designated by the City and, absent any such designation, in inverse order of maturities and by lot within a maturity from money provided at the option of the City, in each case on and after August 1, , at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest to the date of redemption, without premium. As provided in the Agreement, notice of redemption shall be given by mail no less than thirty (30) nor more than sixty (60) days prior to the redemption date to the respective registered owners of any Bonds designated for redemption at their addresses appearing on the Bond registration books maintained by the Paying Agent, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for redemption. If this Bond is called for redemption and payment is duly provided therefor as specified in the Agreement, interest shall cease to accrue hereon from and after the date fixed for redemption. If an Event of Default, as defined in the Agreement, shall occur, the principal of all Bonds may be declared due and payable upon the conditions, in the manner and with the effect A-2 provided in the Agreement, but such declaration and its consequences may be rescinded and annulled as further provided in the Agreement. The Bonds are issuable as fully registered Bonds, without coupons, in denominations of $5,000 and any integral multiple thereof. Subject to the limitations and conditions and upon payment of the charges, if any, as provided in the Agreement, Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations and of the same maturity. This Bond is transferable by the Owner hereof, in person or by his attorney duly authorized in writing, at said office of the Paying Agent, but only in the manner and subject to the limitations provided in the Agreement, and upon surrender and cancellation of this Bond. Upon registration of such transfer a new Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The City and the Paying Agent may treat the Owner hereof as the absolute owner hereof for all purposes, and the City and the Paying Agent shall not be affected by any notice to the contrary. The Agreement may be amended without the consent of the Owners of the Bonds to the extent set forth in the Agreement. It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time and manner as required by the laws of the State of California, and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit prescribed by any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Agreement. This Bond shall not be entitled to any benefit under the Agreement or become valid or obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by the Paying Agent. Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the City or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. A-3 IN WITNESS WHEREOF, the City of National City has caused this Bond to be executed in its name and on its behalf with the facsimile signatures of its City Manager, its Treasurer and its City Clerk and its seal to be reproduced hereon, all as of the Issue Date stated above. ATTEST: City Clerk A-4 CITY OF NATIONAL CITY By: City Manager By: Treasurer [FORM OF PAYING AGENT'S CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within -mentioned Agreement. Date of Authentication: UNION BANK, N.A., as Paying Agent Authorized Signatory ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to applicable laws or Tax Regulations: TEN COMM--as tenants in common TEN ENT --as tenants by the entireties JT TEN --as joint tenants with right of survivorship and not as tenants in common COMM PROP --as community property UNIF TRANS MIN ACT Custodian (Cust.) (Minor) under Uniform Transfers to Minors Act (State) ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE LIST ABOVE A-5 within ASSIGNMENT For value received, the undersigned do(es) hereby sell, assign and transfer unto the (Name, Address and Tax Identification or Social Security Number of Assignee) the within Bond and do(es) hereby irrevocably constitute and appoint attorney, to transfer the same on the registration books of the Paying Agent, with full power of substitution in the premises. Dated: Signature Guaranteed: Notice: Signature(s) must be guaranteed by a qualified guarantor institution Notice: The signature(s) on this assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. A-6 Jones Hall Draft 5/2212 IRREVOCABLE REFUNDING INSTRUCTIONS For City of National City General Obligation Bonds, Election of 2002, Series A These IRREVOCABLE REFUNDING INSTRUCTIONS (these "Instructions"), dated as of , 2012, is between the CITY OF NATIONAL CITY, a general law city organized and existing under the laws of the State of California (the "City"), and UNION BANK OF CALIFORNIA, N.A., a national banking association organized and existing under the laws of the United States of America, acting as paying agent for the City's General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"). BACKGROUND: 1. The City has previously issued, executed and delivered the Prior Bonds under a a resolution adopted by the City Council on April 1, 2003 (the "Prior Bonds Resolution"), pursuant to which Union Bank of California, N.A. was appointed as Paying Agent fro the Prior Bonds (the "Prior Bonds Paying Agent"). 2. The Prior Bonds are all currently subject to redemption in full on any date, and in order to raise funds to pay the redemption price of the Prior Bonds, the City and Union Bank, N.A. (as the "2012 Paying Agent") have entered into a Paying Agent Agreement dated as of July 1, 2012 (the "2012 Paying Agent Agreement") for the purpose of authorizing the execution and delivery of the City's 2012 General Obligation Refunding Bonds, in the aggregate principal amount of $ (the "2012 Bonds"), the proceeds of which will be used to refund and redeem the Prior Bonds prior to their maturity date. 3. The City has conducted proceedings to issue the 2012 Bonds to refund the Prior Bonds for purposes of defeasing and redeeming them on , 2012. 4. The City wishes to give these Instructions to the Prior Bonds Paying Agent for the purpose of establishing an irrevocable escrow fund to be funded, invested, held and administered for the purpose of providing for the payment in full of the principal, interest and prepayment premium represented by the Prior Bonds upon the redemption thereof on 2012. INSTRUCTIONS: In order to provide for the payment and prepayment of the Prior Bonds and to discharge the Prior Bonds and the obligations represented thereby, the City hereby irrevocably directs the Prior Bonds Paying Agent as follows: SECTION 1. Establishment of Escrow Fund. The Prior Bonds Paying Agent is directed to establish an escrow fund (the "Escrow Fund") to be held by the Prior Bonds Paying Agent in trust as an irrevocable escrow securing the payment of the Prior Bonds and the City's obligations with respect thereto, as hereinafter set forth. All cash and securities in the Escrow Fund are hereby irrevocably pledged as a special fund for the payment of the principal and interest represented by the Prior Bonds in accordance with the Prior Bonds Resolution. If at any time the Prior Bonds Paying Agent receives actual knowledge that the cash and securities in the Escrow Fund will not be sufficient to make any payment required by Section 3 in respect of the Prior Bonds, the Prior Bonds Paying Agent shall notify the City of such fact and the City shall immediately cure such deficiency from any source of legally available funds. The Prior Bonds Paying Agent has no liability for any such insufficiency. SECTION 2. Deposit into Escrow Fund. Concurrently with delivery of the 2012 Bonds, the Prior Bonds Paying Agent shall transfer into the Escrow Fund the amount of $ received from the City (or as designated by the City) in immediately available funds, to be derived from the proceeds of sale of the 2012 Bonds and $ being held by the City with respect to the Prior Bonds, for a total amount of $ SECTION 3. No Investment. The Prior Bonds Paying Agent shall hold the entire amount of $ in the Escrow Fund in cash, uninvested. SECTION 4. Instructions as to Application of Deposit. The Prior Bonds Paying Agent shall apply the cash and securities held in the Escrow Fund for the sole purpose of paying the principal of and interest and redemption premium on the Prior Bonds to and including , 2012, as set forth in Appendix A. The City hereby elects to redeem, on , 2012, the Prior Bonds outstanding on that date. Neither the Paying Agent or the Prior Bonds Paying Agent have any lien upon or right of set off against the securities and cash at any time on deposit in the Escrow Fund. Neither the Paying Agent or the Prior Bonds Paying Agent are liable for the accuracy of any calculations provided as to the sufficiency of the moneys and securities deposited with it to pay the principal interest or redemption premium on the Prior Bonds. The deposit made into the Escrow Fund under this Agreement constitutes an irrevocable deposit for the payment and redemption of the Prior Bonds in accordance with the Prior Bonds Resolution. The City hereby elects that the pledge of the funds provided for in the Prior Bonds Resolution, and all other obligations of the Prior Bonds Paying Agent and the City with respect to the Prior Bonds, shall cease and terminate, with the effect and subject to the limitations set forth in the Prior Bonds Resolution. SECTION 5. Disposition of Excess Funds. Following payment and redemption in full of all of the Prior Bonds on , 2012, the Prior Bonds Paying Agent shall withdraw any amounts remaining on deposit in the Escrow Fund and transfer those amounts to the 2012 Paying Agent, to be deposited in the Bond Service Fund established under the 2012 Paying Agent Agreement, and applied to pay a portion of the next interest coming due and payable on the 2012 Bonds. SECTION 6. Irrevocable Election to Redeem Prior Bonds; Redemption Notice. The City hereby irrevocably elects to redeem all of the outstanding Prior Bonds on , 2012. The Prior Bonds Paying Agent acknowledges that it has given notice of redemption to the owners of the Prior Bonds in accordance with the requirements of each of the Prior Bonds Paying Agent Agreement. SECTION 7. Application of Certain Terms of Prior Bonds Resolution. All of the terms of the Prior Bonds Resolution relating to the payment and redemption of principal of and -2- interest and redemption premium on the Prior Bonds, and the indemnifications, protections, immunities and limitations from liability afforded the Prior Bonds Paying Agent are incorporated in these Instructions as if set forth in full herein. SECTION 8. Compensation to Prior Bonds Paying Agent. The City shall pay the Prior Bonds Paying Agent full compensation for its services under these Instructions, including out-of-pocket costs such as publication costs, redemption expenses, legal fees and other costs and expenses relating hereto and, in addition, all fees, costs and expenses relating to the purchase, substitution or withdrawal of any securities after the date hereof. Under no circumstances shall amounts deposited in or credited to the Escrow Fund be deemed to be available for said purposes. The Prior Bonds Paying Agent has no lien upon or right of set off against the cash and securities at any time on deposit in the Escrow Fund. SECTION 9. Execution in Counterparts. These Instructions 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. -3- SECTION 10. Applicable Law. These Instructions shall be governed by and construed in accordance with the laws of the State of California. ACCEPTED: UNION BANK OF CALIFORNIA, N.A., as Prior Bonds Paying Agent By Authorized Officer CITY OF NATIONAL CITY By City Manager -4- APPENDIX A PAYMENT AND REDEMPTION SCHEDULE OF PRIOR BONDS Principal Interest Redemption Payment Payment Payment Premium Date Amount Amount Amount -0- Total A-1 Jones Hall Draft 5/22/12 PRELIMINARY OFFICIAL STATEMENT DATED 2012 NEW ISSUE — BOOK -ENTRY ONLY RATINGS: S&P: " " Bank Qualified (See "RATING" herein) In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described herein, under existing law, the interest on the Bonds is excludable from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individual and corporate, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings, and the Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See "TAX MATTERS" herein. CITY OF NATIONAL CITY 2012 General Obligation Refunding Bonds Dated: Date of Delivery Due: August 1, as shown inside cover Purpose. The bonds captioned above (the "Bonds") are being issued by the City of National City (the "City") to refund all or a portion of its General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"). See "PLAN OF FINANCE - Purpose of Issue." Issuance. The Bonds are being issued by the City under provisions of the California Government Code and under a Resolution adopted by the City Council of the City (the "City Council") on , 2012 (the "Bond Resolution") and a Paying Agent Agreement, dated as of July 1, 2012, between the City and Union Bank, N.A., as paying agent (the "Paying Agent"). The Prior Bonds were authorized in 2002 at an election of the registered voters of the City, at which more than two-thirds of the persons voting on the propositions voted to authorize the issuance and sale of general obligation bonds. See "PLAN OF FINANCE." Security. The Bonds are general obligations of the City, payable solely from ad valorem property taxes levied by the City and collected by the County of San Diego (the "County"). The City Council is empowered and is obligated to annually levy ad valorem taxes for the payment of interest on, and principal of, the Bonds upon all property subject to taxation by the City, without limitation of rate or amount (except certain personal property which is taxable at limited rates). See "SECURITY FOR THE BONDS." Book -Entry Only. The Bonds will be issued in book -entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"). The Bonds are issuable as fully registered securities in denominations of $5,000 or any integral multiple of $5,000. Purchasers of the Bonds (the "Beneficial Owners") will not receive physical certificates representing their interest in the Bonds. See "THE BONDS" and "APPENDIX E - DTC AND THE BOOK - ENTRY ONLY SYSTEM." Payments. Interest on the Bonds accrues from the date of delivery and is payable semiannually on February 1 and August 1 of each year, commencing August 1, 2012. Payments of principal of and interest on the Bonds will be paid by U.S. Bank National Association, as Paying Agent, to DTC for subsequent disbursement to DTC Participants, which will remit such payments to the Beneficial Owners of the Bonds. See "THE BONDS - Description of the Bonds." Redemption. The Bonds are subject to redemption prior to maturity as provided herein. See "THE BONDS - Redemption." Cover Page. This cover page contains certain information for general reference only. It is not intended to be a summary of the security for or the terms of the Bonds. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined shall have the meaning set forth herein. MATURITY SCHEDULE (See inside cover) The Bonds are offered when, as and if executed and delivered, subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Jones Hall, A Professional Law Corporation is also serving as Disclosure Counsel to the City. Certain legal matters are being passed upon for the City by the City Attorney. The Bonds are expected to be available for delivery through the facilities of DTC of New York, New York, on , 2012. Estrada Hinojosa & Company, Inc. Dated: , 2012. `Preliminary, subject to change. MATURITY SCHEDULE CITY OF NATIONAL CITY 2012 General Obligation Refunding Bonds Base CUSIPt: 635400 $ Serial Bonds Maturity Date Principal Coupon Price (August 1) Amount Rate or Yield CUSIP 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 t Copyright 2012, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. None of the City, the Underwriter or the Paying Agent assumes any responsibility for the accuracy of these CUSIP data. GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any bond owner and the City or the Underwriter. This Official Statement and the information contained herein are subject to completion or amendment without notice. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations relating to the Bonds other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the City or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Estimates and Projections. When used in this Official Statement and in any continuing disclosure by the City, in any press release and in any oral statement made with the approval of an authorized officer of the City, the words or phrases "will likely result," "are expected to", "will continue", "is anticipated", "estimate", "project," "forecast", "expect", "intend" and similar expressions identify "forward looking statements." Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward -looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Information in Official Statement. The information set forth in this Official Statement has been furnished by the City and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness by the City. The underwriter has reviewed the information in this official statement pursuant to its responsibilities to investors under the federal securities laws, but the underwriter does not guarantee the accuracy or completeness of such information. All summaries of the Bond Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Bonds have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the City, or the other parties described in this Official Statement, or the condition of the property within the City since the date of this Official Statement. • CITY OF NATIONAL CITY SAN DIEGO COUNTY, CALIFORNIA CITY COUNCIL Ron Morrison, Mayor Alejandra Sotelo-Solis, Vice Mayor Luis Natividad, Councilmember Mona Rios, Councilmember Rosalie Zarate, Councilmember CITY ADMINISTRATION Leslie Deese, City Manager Tina Norrdin, Financial Services Officer Claudia Silva, City Attorney PROFESSIONAL SERVICES Paying Agent Union Bank, N.A. Santa Ana, California Bond Counsel and Disclosure Counsel Jones Hall, A Professional Law Corporation San Francisco, California Financial Advisor Urban Futures, Inc. Orange, California TABLE OF CONTENTS Page INTRODUCTION 1 REFINANCING PLAN 3 Purpose of Issue 3 Estimated Sources and Uses of Funds 3 Annual Debt Service 4 THE BONDS 5 General 5 Redemption 5 Events of Default and Remedies for the Bonds 7 SECURITY FOR THE BONDS 9 Ad Valorem Taxes 9 Debt Service Fund 9 Limited Obligation 10 PROPERTY TAXATION 10 Property Tax Collection Procedures 10 Taxation of State -Assessed Utility Property 11 Alternative Method of Tax Apportionment - Teeter Plan 11 Tax Rates 14 Tax Levies and Delinquencies 14 Major Taxpayers 15 Direct and Overlapping Debt 15 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS 17 Article XIIIA of the State Constitution 17 Article XIIIB of the State Constitution 17 Proposition 62 18 Article XIIIC and XIIID of the State Constitution 18 Proposition 1A; Proposition 22; Proposition 26 20 Unitary Property 21 Future Initiatives 21 TAX MATTERS 22 CERTAIN LEGAL MATTERS 23 ABSENCE OF MATERIAL LITIGATION 23 FINANCIAL ADVISOR 23 UNDERWRITING 23 RATING 24 CONTINUING DISCLOSURE 24 MISCELLANEOUS 24 APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E - CITY AND COUNTY GENERAL AND ECONOMIC DATA - AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR 2010-11 - PROPOSED FORM OF OPINION OF BOND COUNSEL - FORM OF CONTINUING DISCLOSURE CERTIFICATE - DTC AND THE BOOK -ENTRY ONLY SYSTEM OFFICIAL STATEMENT CITY OF NATIONAL CITY 2012 General Obligation Refunding Bonds INTRODUCTION This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of Bonds to potential investors is made only by means of the entire Official Statement. The City. The City of National City (the "City") is the second oldest city in San Diego County (the "County"), with a history that dates to 1868 when the original community was laid out by the California missionaries. The City is a general law city and was incorporated in 1887. The City encompasses an area of approximately nine square miles and enjoys a fairly constant population of approximately 58,000. The City is bordered by the City of San Diego on the north and east, the City of Chula Vista on the south and San Diego Bay on the west. The City is substantially developed. See "APPENDIX A - CITY AND COUNTY GENERAL AND ECONOMIC DATA," for demographic and financial information regarding the City. Purpose for Issuance. The Bonds are being issued to refund the City's $6,000,000 original principal amount of General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"), currently outstanding in the principal amount of $4,945,000. See "REFINANCING PLAN - Purpose of Issue." Authority for Issuance. The Prior Bonds were authorized at an election of the registered voters of the City, at which more than two-thirds of the persons voting on the proposition voted to authorize the issuance and sale of general obligation bonds. See "PLAN OF FINANCE - Purpose of Issue." The Bonds are being issued under Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, a Resolution adopted by the City Council of the City (the "City Council") on , 2012 (the "Bond Resolution") and a Paying Agent Agreement, dated as of July 1, 2012 (the "Paying Agent Agreement"), between the City and Union Bank, N.A., as paying agent (the "Paying Agent"). Preliminary, subject to change. -1- Security and Sources of Payment for the Bonds. The Bonds are general obligations of the City payable solely from ad valorem property taxes levied by the City and collected by the County. The City Council is empowered and is obligated to annually levy ad valorem taxes for the payment of interest on, and principal of, the Bonds upon all property subject to taxation by the City, without limitation of rate or amount (except with respect to certain personal property which is taxable at limited rates). See "SECURITY FOR THE BONDS." Payment and Registration of the Bonds. The Bonds will be dated their date of original issuance and delivery (the "Dated Date") and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple of $5,000, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"), and will be available under the book -entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described below. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See "THE BONDS" and "APPENDIX E - DTC AND THE BOOK -ENTRY ONLY SYSTEM." Interest on the Bonds accrues from their date of issuance and is payable semiannually on February 1 and August 1 of each year, commencing August 1, 2012. See "THE BONDS - Description of the Bonds." Early Redemption. The Bonds are subject to optional redemption and mandatory redemption from sinking fund payments prior to their maturity as described in "THE BONDS - Redemption." The Bonds are not subject to optional redemption prior to maturity. Other Information. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to in this Official Statement and information concerning the Bonds are available from the City Clerk of the City. The City may impose a charge for copying, mailing and handling. -2- REFINANCING PLAN Purpose of Issue On March 5, 2002 an election was duly and regularly held in the City for the purpose of submitting to the qualified electors of the City the questions whether bonds should be issued in the principal amount of not to exceed $6,000,000 to finance the acquisition, construction and completion of a public library in the City. The measure passed by more than 2/3 of the votes cast in favor of the bond issuance (the "2002 Authorization"). Pursuant to the 2002 Authorization, the City issued the Prior Bonds in 2003, currently outstanding in the principal amount of $4,945,000. The City is issuing the Bonds to provide for the payment in full of the principal of and interest on the Prior Bonds maturing August 1, 2013 through August 1, 2028, without redemption premium. , as paying agent for the Prior Bonds, will establish an irrevocable escrow fund to be funded with the net proceeds of the Bonds, to be invested, held and administered for the purpose of providing for the payment in full of the principal and accrued interest represented by the Prior Bonds to the redemption date of August 1, 2012. Proceeds deposited into the Escrow Fund on the date of issuance of the Bonds will not be available to pay debt service on the Bonds. Estimated Sources and Uses of Funds The proceeds of the sale of the Bonds received by the City are expected to be applied as follows: Sources of Funds Bond Proceeds Prior Bonds Debt Service Fund Premium Total Sources Uses of Funds Escrow Fund Underwriter's Discount Cost of Issuance (I) Total Uses (1) Issuance costs include Bond Counsel and Disclosure Counsel fees, financial advisory fees, rating agency fees, Official Statement printing costs, and paying agent fees. -3- Annual Debt Service Table 1 below presents a schedule of the annual debt service for the Bonds. Table 1 CITY OF NATIONAL CITY 2012 General Obligation Refunding Bonds Annual Debt Service Schedule Year Ending August 1 Principal Interest Total 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -4- THE BONDS General The Bonds are initially available in book -entry form only. So long as Cede & Co. is the registered owner of the Bonds as nominee of The Depository Trust Company ("DTC"), New York, New York, references herein to the Bondowners or registered owners of the Bonds shall mean Cede & Co. and shall not mean the beneficial owners of the Bonds. In addition, so long as Cede & Co. is the registered owner of the Bonds, purchasers of the Bonds will not receive certificates representing their interest in the Bonds purchased. Interest on and principal of the Bonds will be payable by the Paying Agent to Cede & Co. by wire transfer in immediately available funds in accordance with the terms of a Letter of Representation delivered by the City to DTC. The Bonds will be issued as fully registered bonds in denominations of $5,000 principal amount or any integral multiple thereof. The Bonds will be dated their date of issuance and delivery being , 2012, will bear interest at the rates and will mature on the dates and in the principal amounts set forth on the front cover page hereof. Interest on the Bonds is computed on the basis of a 360-day year consisting of twelve 30-day months. Interest on the Bonds is payable semiannually on February 1 and August 1 of each year (each an "Interest Payment Date") commencing August 1, 2012. Each Bond shall bear interest from the Interest Payment Date next preceding the date of registration and authentication thereof unless (i) it is registered and authenticated as of an Interest Payment Date, in which event it shall bear interest from such date, or (ii) it is registered and authenticated prior to an Interest Payment Date and after the close of business on the fifteenth day of the month preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is registered and authenticated on or prior to July 15, 2012, in which event it shall bear interest from the date of original issuance and authentication of the Bonds; provided, however, that if at the time of registration and authentication of a Bond, interest is in default thereon, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. For long as the bonds are in book -entry form only and registered in the name of Cede & Co., the interest on and principal of the Bonds will be payable by the Paying Agent to Cede & Co. by wire transfer in immediately available funds in accordance with the terms of the Letter of Representation. See "APPENDIX E - DTC AND THE BOOK -ENTRY ONLY SYSTEM." Redemption Optional Redemption. The Bonds maturing on or before August 1, 20_ are not subject to redemption prior to maturity. The Bonds maturing on or after August 1, 20 are subject to redemption at the option of the City, as a whole or in part and by lot within a maturity, from any source of available funds, on any date on and after August 1, 20_ at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds maturing August 1, 20 are subject to mandatory sinking fund redemption in part, by lot, prior to their stated maturity date, on each August 1 on and after August 1 20_, at a redemption price equal to 100% of the principal -5- amount thereof called for redemption, plus accrued interest to the redemption date, without premium, as follows: Date (August 1) Amount Redemption Procedures. The Paying Agent shall cause notice of any redemption to be mailed, first class mail, postage prepaid, at least thirty days but not more than sixty days prior to the date fixed for redemption, to the respective Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books maintained by the Paying Agent and to the Securities Depositories and the Information Services; but such mailing shall not be a condition precedent to such redemption and failure to mail or to receive any such notice shall not affect the validity of the proceedings for the redemption of such Bonds. The Paying Agent shall not mail any notice of redemption until it has sufficient moneys on deposit to pay the redemption price of all Bonds to be redeemed; provided, however, that such restriction shall not apply when the Bonds are redeemed with the proceeds of another obligation of the City; and provided further that in the event the Bonds are being redeemed with such proceeds, the City shall have the right to cancel the notice of redemption by providing written notice of such cancellation to the Paying Agent at least seven Business Days prior to the date set for redemption. Such notice shall state the redemption date and the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption, shall designate the serial numbers of the Bonds to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, or by stating that all of the Bonds of one or more maturities have been called for redemption, and shall require that such Bonds be then surrendered at the Principal Office of the Paying Agent for redemption at the said redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. In the event term bonds are redeemed in part, the City shall deliver a revised sinking fund schedule to the Paying Agent. Upon surrender of Bonds redeemed in part only, the City shall execute and the Paying Agent shall authenticate and deliver to the Owner, at the expense of the City, a new Bond or Bonds, of the same maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds. From and after the date fixed for redemption, if notice of such redemption has been duly given and funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption have been duly provided, such Bonds so called shall cease to be entitled to any benefit other than the right to receive payment of the redemption price, and no interest shall accrue thereon on or after the redemption date specified in such notice. -6- Events of Default and Remedies for the Bonds The Paying Agent Agreement contains the following events of default and remedies: If one or more the following events ("Events of Default") shall happen, that is to say: (a) if default is made by the City in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or by declaration or otherwise; (b) if default is made by the City in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable; (c) if default is made by the City in the observance of any of the covenants, agreements or conditions on its part in the Paying Agent Agreement or in the Bonds contained, and such default shall have continued for a period of thirty days after written notice thereof to the City; or (d) if the City files a petition seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction approves a petition, seeking reorganization of the City under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction assumes custody or control of the City or of the whole or any substantial part of its property; then, and in each and every event of default and upon written request of the Owners of not less than sixty percent in aggregate principal amount of the Bonds at the time Outstanding, the principal of all of the bonds then Outstanding, and the interest accrued thereon, shall be declared to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Paying Agent Agreement or in the bonds contained to the contrary notwithstanding. Such declaration may be rescinded by the Owners of not less than sixty percent in aggregate principal amount of the Bonds at the time Outstanding provided the City cures such default or defaults, including the deposit with the Paying Agent of a sum sufficient to pay all principal on the respective Bonds matured prior to such declaration and all matured installments of interest (if any) on the Bonds, with interest at the rate of twelve percent per annum on such overdue installments of principal and, to the extent such payment of interest is lawful at that time, on such overdue installments of interest, so that the City is currently in compliance with all payment, deposit and transfer provisions of the Paying Agent Agreement, and a sum sufficient to pay any expenses incurred by the Paying Agent in connection with such default. Upon the date of the Event of Default as provided above, all of the sums in the Debt Service Fund held by the City and all sums thereafter received by the Paying Agent under the Paying Agent Agreement, shall be applied by the Paying Agent in the following order upon presentation of the Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: -7- First, to the payment of the costs and expenses of the Paying Agent under the Paying Agent Agreement and of the costs and expenses of Bondowners in declaring such event of default, including reasonable compensation to the Bondowners or their agents, attorneys and counsel; Second, in case the principal of the Bonds shall not have become due and payable, to the payment of the interest in default in the order of the seniority of the installments of such interest, with interest on the overdue installments at the rate of twelve percent (12%) per annum (to the extent that such interest on overdue installments shall have been collected), such payments to be made ratably to the persons entitled thereto without discrimination or preference; Third, in case the principal of the Bonds shall have become and shall be then due and payable, all such sums shall be applied to the payment of the whole amount then owing and unpaid upon the Bonds for principal and interest, with interest on the overdue principal and installments of interest at the rate of twelve percent (12%) per annum (to the extent that such interest on overdue installments of interest shall have been collected), and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. The remedies available to the Paying Agent and the registered owners of the Bonds upon an event of default under the Paying Agent Agreement and any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of the legal documents with respect to the Bonds is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. -8- SECURITY FOR THE BONDS Ad Valorem Taxes Bonds Payable from Ad Valorem Property Taxes. The Bonds are general obligations of the City, payable solely from ad valorem property taxes levied by the City and collected by the County. The City is empowered and is obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the City subject to taxation by the City, without limitation of rate or amount (except certain personal property which is taxable at limited rates). Levy and Collection. The City will levy and the County will collect such ad valorem taxes in such amounts and at such times as is necessary to ensure the timely payment of debt service. Such taxes, when collected, will be deposited into a debt service fund for the Bonds, which is maintained by the City and which is irrevocably pledged for the payment of principal of and interest on the Bonds when due. City property taxes are assessed and collected by the County in the same manner and at the same time, and in the same installments as other ad valorem taxes on real property, and will have the same priority, become delinquent at the same times and in the same proportionate amounts, and bear the same proportionate penalties and interest after delinquency, as do the other ad valorem taxes on real property. As described below, the County has adopted the Teeter Plan which provides that the City will receive all of the property taxes which are levied by the City, and that any penalties and interest on delinquent taxes will be retained by the County. See "PROPERTY TAXATION - Alternative Method of Tax Apportionment - Teeter Plan." Annual Tax Rates. The amount of the annual ad valorem tax levied by the City to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the City and the amount of debt service due on the Bonds. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property in the City may cause the annual tax rate to fluctuate. Economic and other factors beyond the City's control, such as economic recession, deflation of land values, a relocation out of the City or financial difficulty or bankruptcy by one or more major property taxpayers, or the complete or partial destruction of taxable property caused by, among other eventualities, earthquake, flood or other natural disaster, could cause a reduction in the assessed value within the City and necessitate a corresponding increase in the annual tax rate. Debt Service Fund The City will establish the Debt Service Fund (the "Debt Service Fund"), which will be established as a separate fund to be maintained distinct from all other funds of the City. All taxes levied by the City pursuant to the Bond Resolution for the payment of the principal of and interest and premium (if any) on the Bonds will be deposited in the Debt Service Fund by the City promptly upon the receipt from the County. The Debt Service Fund is pledged for the payment of the principal of and interest and premium (if any) on the Bonds when and as the same become due. The City will transfer amounts in the Debt Service Fund, to the extent necessary to pay the principal of and interest on the Bonds as the same become due and payable, to the Paying Agent as required to pay the principal of and interest and premium (if any) on the Bonds. -9- • If, after payment in full of the Bonds, any amounts remain on deposit in the Debt Service Fund, the City shall transfer such amounts to its General Fund, to be applied solely in a manner which is consistent with the requirements of applicable state and federal tax law. Limited Obligation The Bonds are payable solely from the proceeds of an ad valorem tax levied by the City, and collected by the County, for the payment of principal and interest on the Bonds. Although the County is obligated to collect the ad valorem tax for the payment of the Bonds, the Bonds are not a debt of the County. PROPERTY TAXATION Property Tax Collection Procedures In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The "secured roll" is that part of the assessment roll containing state assessed public utilities' property and real property, the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1 1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the County. Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction as of the preceding January 1. A bill enacted in 1983, SB813 (Statutes of 1983, Chapter 498), however, provided for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Thus, this legislation eliminated delays in the realization of increased property taxes from new assessments. As amended, SB813 provided increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date and result in increased assessed value. Property taxes on the unsecured roll are due on the January 1 lien date and become delinquent, if unpaid on the following August 31. A 10% penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1 1/2% per month accrues with respect to such taxes beginning the first day of the third month following -10- the delinquency date. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent. Taxation of State -Assessed Utility Property The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization ("SBE") and taxed locally. Property valued by the SBE as an operating unit in a primary function of the utility taxpayer is known as "unitary property", a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State -assessed unitary and "operating nonunitary" property (which excludes nonunitary property of regulated railways) is allocated to the counties based on the situs of the various components of the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nonunitary property is taxed at special county -wide rates and tax proceeds are distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. Alternative Method of Tax Apportionment - Teeter Plan The Board of Supervisors of the County has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, the County apportions secured property taxes on an accrual basis when due (irrespective of actual collections) to local political subdivisions, including the City, for which the County acts as the tax -levying or tax -collecting agency. Unsecured taxes are not normally covered under the Teeter Plan. The Teeter Plan was effective beginning the fiscal year commencing July 1, 1993. The County's Teeter Plan applies to the City and the Bonds. The Teeter Plan is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. If the Teeter Plan is discontinued subsequent to its implementation, only those secured property taxes actually collected would be allocated to political subdivisions (including the City) for which the County acts as the tax -levying or tax -collecting agency. Assessed Valuations The California Constitution requires the State Board of Equalization to annually assess property, except franchises, owned or used by regulated railway, telegraph, or telephone companies, car companies operating on railways in the state, and companies transmitting or selling gas or electricity. It also requires the State Board of Equalization to annually assess -11- pipelines, flumes, canals, ditches, and aqueducts lying within two or more counties. Except for the railway car companies, the assessed values are allocated to the counties and other local tax jurisdictions in which the property is located. The taxes are levied and collected in the same manner as they are for county -assessed properties. State assessed property is assessed at its fair market value or its full value as of 12:01 a.m. January 1. The county assessor must annually assess all taxable property in the county, except for state -assessed property, to the person, business, or legal entity owning, claiming, possessing, or controlling the property on January 1. The duties of the county assessor are to discover all assessable property, to inventory and list all taxable property, to value the property, and to enroll the property on the local assessment roll. The assessed value determined and enrolled by the county assessor is multiplied by the appropriate tax rate to form the basis of the current year's tax bill. The tax rate is 1 percent plus (1) the amount necessary to make annual payments due on general obligation bonds or other indebtedness incurred prior to July 1, 1978; (2) any bonded indebtedness for the acquisition or improvement of real property approved by a two-thirds majority of voters on or after July 1, 1978; and (3) effective January 1, 2001, certain bonded indebtedness for school facilities approved by 55 percent of the voters. The collection of these taxes and their allocation to the appropriate taxing jurisdictions are functions of the county tax collector and the county auditor, respectively. Like the county assessor, these officials are governed by state law. The County Assessor of San Diego County assesses all real and personal property in the City for tax purposes except public utility property which is assessed by the State Board of Equalization. California law requires a $7,000 reduction of taxable value for qualifying owner - occupied homes. The state reim- burses local agencies for the loss in property tax revenue. The homeowner must make a simple one-time filing with the county assessor for the exemption. Personal property held for sale or lease in the ordinary course of business is exempt. "Business inventory" includes merchandise held for sale or lease, animals used in the production of food or fiber, and incidental supplies passed on to the customer. The exemption does not include property in use on the lien date (except animals) or ordinary supplies. No filing is required, but the assessor may audit the taxpayer to verify whether the property qualifies. Revenue estimated to be lost to local taxing agencies due to exemptions is reimbursed from State sources. Such reimbursement is based upon total taxes due upon such exempt values and is not reduced by any amount for estimated delinquencies. The table below shows a five-year history of the City's assessed valuation. Table 2 CITY OF NATIONAL CITY Assessed Valuations of All Taxable Property Fiscal Years 2007-08 to 2011-12 Local Secured Utility Unsecured Total 2007-08 $2,764,499,932 $4,039,249 $157,294,577 $2,925,833,758 2008-09 2,953,195,474 5,858,889 170,461,026 3,129,515,389 2009-10 2,820,539,327 5,586,456 207,380,749 3,033,506,532 2010-11 2,786,114,776 5,195,618 202,638,779 2,993,949,173 2011-12 2,787,205,706 5,195,618 203,565,939 2,995,967,263 Source: California Municipal Statistics, Inc. -12- Assessed Valuation by Land Use. The following table shows the land use of parcels in the City, according to assessed valuation. As shown, the majority of land in the City is used for residential purposes. Table 3 CITY OF NATIONAL CITY Assessed Valuation and Parcels by Land Use Fiscal Year 2011-12 Number of 2011-12 Assessed Percent of Secured Land Use Parcels Valuation A.V.(1) Single Family Residential 6,657 $ 993,090,427 35.56% Commercial 694 894,184,524 32.02 Multi Family Residential 1,489 478,416,800 17.13 Industrial 302 272,823,794 9.77 Vacant 756 74,928,161 2.68 Institutional 58 49,414,234 1.77 Recreational 45 29,543,385 1.06 Total All Secured 10,001 $2,792,401,324 100.00% (1) Based on Fiscal Year 2011-12 secured assessed valuation of $2,792,401,324. Source: Urban Futures, Inc. with information from the San Diego County 2011-12 Secured Property Tax Roll. Assessed Valuation of Single Family Residential Parcels. The following table shows a breakdown of the assessed valuations of improved single-family residential parcels in the City, according to assessed valuation. Table 4 CITY OF NATIONAL CITY Per Parcel 2011-12 Assessed Valuation of Single Family Homes (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. -13- Tax Rates The table below summarizes the total ad valorem tax rates levied by all taxing entities in Tax Rate Area (which corresponds to $ of assessed valuation, which is approximately % of the City's total assessed valuation) for each $100 of assessed valuation during the fiscal years 2007-08 through 2011-12. Table 5 CITY OF NATIONAL CITY Summary of Ad Valorem Tax Rates $1 per $100 of Assessed Valuation Fiscal Years 2007-08 to 2011-12 (Tax Rate Area 6-000) Ad Valorem Tax General Tax Rate School Bonds (K-12) Community College Bonds General Obligation Bonds Metro Water District Total Tax Rate 2007-08 2008-09 2009-10 2010-11(1) 2011-12(1) 1.000000 1.000000 1.000000 1.00000 1.000000 0.127470 0.125670 0.147570 0.055170 0.039930 0.025320 0.059240 need 0.036350 0.014300 0.013000 0.012700 from 0.014200 0.004500 0.004300 0.004300 HdL 0.003700 1.186200 1.168290 1.223810 1.109420 (1) Tax Rate Area 006-045 used in 2010-11 and 2011-12. Source: City of National City Financial Statements, FY 2010-11, page 133 & HdL Property Tax Reports 2010-11 and 2011-12 Tax Levies and Delinquencies Because the County has adopted the Teeter Plan, the amount of ad valorem property taxes received by the City is equal to the amount levied rather than the amount collected by the County. See "- Alternative Method of Apportionment - Teeter Plan," above. -14- Major Taxpayers The following table shows the twenty largest taxpayers in the City as determined by their secured assessed valuations in 2011-12: Table 6 CITY OF NATIONAL CITY Largest 2011-12 Local Secured Taxpayers Property Owner Rocky Mountain Chocolate PVHR LLC/Adventist Health Pasha Automotive Services Plaza II Bonita LP Plaza Bonita LP Mpt Of Paradise Valley LP Sweetwater Associates LP Dixieline Lumber Company Williams G W Company Prime Healthcare Svcs Foun Inc. Total 2011-12 Secured Assessed Valuation $129,536,153 57,480,830 42,291,632 35,926,636 34,815,887 29,416,894 23,007,972 22,852,802 22,683,186 21,912,097 $419,924,089 Primary Land Use Commercial Commercial Industrial Commercial Commercial Institutional Commercial Commercial Multi Family Residential Institutional Percentage of AV (1) 4.64% 2.06 1.51 1.29 1.25 1.05 0.82 0.82 0.81 0.78 15.04% (1) Based on Fiscal Year 2011-12 secured assessed valuation of $2,792,401,324 Source: Urban Futures, Inc. with information from the San Diego County 2011-12 Secured Property Tax Roll. Direct and Overlapping Debt Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc. and effective 1, 2012. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2) the second column shows the percentage that the City's assessed valuation represents of the total assessed valuation of each public agency identified in the first column; and the third column is an apportionment of the dollar amount of each public agency's outstanding debt to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City's assessed valuation represented in the second column. -15- Table 7 CITY OF NATIONAL CITY STATEMENT OF DIRECT AND OVERLAPPING BONDED DEBT (As of 1, 2012) Source: California Municipal Statistics, Inc. -16- CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the State Constitution Article XIIIA of the State Constitution, known as Proposition 13, was approved by the voters in June 1978 and has been amended on occasions, including most recently on November 7, 2000 to reduce the voting percentage required for the passage of school bonds. Section 1(a) of Article XIIIA limits the maximum ad valorem tax on real property to 1% of "full cash value," and provides that such tax shall be collected by the counties and apportioned according to State statutes. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes levied to pay interest or redemption charges on any (1) indebtedness approved by the voters prior to July 1, 1978, (2) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition and (3) bonded indebtedness incurred by a school district, community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55 percent of the voters voting on the proposition. Section 2 of Article XIIIA defines "full cash value" to mean the county assessor's valuation of real property as shown on the 1975-76 Fiscal Year tax bill, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. See "Litigation Relating to Two Percent Limitation" below. Legislation implementing Article XIIIA provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. Such legislation further provides that each county will levy the maximum tax permitted by Article XIIIA, which is $1.00 per $100 of assessed market value. Since its adoption, Article XIIIA has been amended a number of times. These amendments have created a number of exceptions to the requirement that property be reassessed when it is purchased, newly constructed or undergoes a change in ownership. These exceptions include certain transfers of real property between family members, certain purchases of replacement dwellings for persons over age 55 and by property owners whose original property has been destroyed in a declared disaster, and certain improvements to accommodate disabled persons and for seismic upgrades to property. These amendments have resulted in marginal reductions in the property tax revenues of the City. Both the State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA. Article XIIIB of the State Constitution In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual "appropriations limit" imposed by Article XIIIB which effectively limits the amount of such revenues those entities are permitted to spend. Article XIIIB, approved by the voters in July 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of -17- 7 each government entity applies to "proceeds of taxes," which consist of tax revenues, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by such entity in providing the regulation, product or service." "Proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non -tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government. The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. Proposition 111 requires that each agency's actual appropriations be tested against its limit every two years. If the aggregate "proceeds of taxes" for the preceding two-year period exceeds the aggregate limit, the excess must be returned to the agency's taxpayers through tax rate or fee reductions over the following two years. Proposition 62 On November 4, 1986, California voters adopted Proposition 62, which requires that (i) any local tax for general governmental purposes (a "general tax") must be approved by a majority vote of the electorate; (ii) any local tax for specific purposes (a "special tax") must be approved by a two-thirds vote of the electorate; (iii) any general tax must be proposed for a vote by two-thirds of the legislative body; and (iv) proceeds of any tax imposed in violation of the vote requirements must be deducted from the local agency's property tax allocation. Most of the provisions of Proposition 62, which was a statutory initiative, were affirmed by the 1995 California Supreme Court decision in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a special sales tax for transportation purposes because fewer than two-thirds of the voters voting on the measure had approved the tax. The City believes that none of its general fund revenues are subject to challenge under Proposition 62. Article XIIIC and XIIID of the State Constitution General. On November 5, 1996, the voters of the State approved Proposition 218, known as the "Right to Vote on Taxes Act." Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. -18- On November 2, 2010, California voters approved Proposition 26, entitled the "Supermajority Vote to Pass New Taxes and Fees Act". Section 1 of Proposition 26 declares that Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as "fees." Proposition 26 amended Articles XIIIA and XIIIC of the State Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. The amendments to Article XIIIC define "taxes" that are subject to voter approval as "any levy, charge, or exaction of any kind imposed by a local government," with certain exceptions. Taxes. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City ("general taxes") require a majority vote; taxes for specific purposes ("special taxes"), even if deposited in the City's General Fund, require a two-thirds vote. The voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. Property -Related Fees and Charges. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property -related fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a "special benefit," as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Reduction or Repeal of Taxes, Fees and Charges. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City's General Fund. If such repeal or reduction occurs, the City's ability to pay debt service on the Bonds could be adversely affected. Burden of Proof. Article XIIIC provides that local government "bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity." Similarly, Article XIIID provides that in "any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance" with Article XIIID. Impact on City's General Fund. The approval requirements of Articles XIIIC and XIIID reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase the taxes, fees, charges or taxes in the future that it may need to meet increased expenditure needs. -19- The City does not believe that any material source of General Fund revenue is subject to challenge under Proposition 218 or Proposition 26. Judicial Interpretation. The interpretation and application of Articles XIIIC and XIIID will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination. Proposition IA; Proposition 22; Proposition 26 Proposition IA. Proposition 1A, proposed by the Legislature in connection with the State's fiscal year 2004-05 Budget, approved by the voters in November 2004 and generally effective in fiscal year 2006-07, provided that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibited the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county had to be approved by two-thirds of both houses of the Legislature. Proposition 1A provided, however, that beginning in fiscal year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaimed that the shift is needed due to a severe state financial hardship, the shift was approved by two-thirds of both houses and certain other conditions were met. The State could also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. See the section entitled "RISK FACTORS — Impact of State Budget on City Revenues" for information about the State's fiscal year 2009-10 budget and a shift of local property revenues under Proposition 1A (which must be repaid within three years). The City participated in the Proposition 1A securitization program, and received 100% of the amount of the property tax reduction, so no money is due to the City. Proposition 22. Proposition 22, entitled "The Local Taxpayer, Public Safety and Transportation Protection Act," was approved by the voters of the State in November 2010. Proposition 22 eliminates or reduces the State's authority to (i) temporarily shift property taxes from cities, counties and special districts to schools, (ii) use vehicle license fee revenues to reimburse local governments for State -mandated costs (the State will have to use other revenues to reimburse local governments), (iii) redirect property tax increment from redevelopment agencies to any other local government, (iv) use State fuel tax revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of State fuel tax revenues. The City expects Proposition 22 to result in more stable revenues for the City. Proposition 26. Proposition 26, or the "Supermajority Vote to Pass New Taxes and Fees Act," which was passed by the voters of the State of California on November 2, 2010, requires a two-thirds vote to approve State laws that increase taxes, even if the law does not increase State revenues, and would repeal recent State laws that conflict with the measure, unless subsequently approved by two-thirds of each house of the Legislature. In addition, -20- Proposition 26 categorizes certain fees and charges imposed by government as taxes requiring two-thirds approval at the State level or two-thirds voter approval at the local level. For example, regulatory fees and certain business assessments that are now approved with a majority vote of the local governing body would be considered taxes requiring two-thirds voter approval. The Legislative Analyst's Office ("LAO") states in its analysis of Proposition 26 that Proposition 26 will make it more difficult for the State and local governments to pass new laws to raise revenues and could result in a major decrease in State and local revenues and spending, depending upon future actions of the Legislature, local governing bodies, and local voters. Additionally, in its analysis of Proposition 26, the LAO states that Proposition 26 will not apply to fees imposed by local governments that are in effect as of November 2, 2010, but will apply to future increase or extensions of those fees. The City is reviewing Proposition 26 to determine the potential impact on the City. The interpretation and application of Proposition 26 will ultimately be determined by the courts, and it is not possible at this time to predict with certainty the outcome of such determination. Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization ("Unitary Property"), commencing with the 1988-89 fiscal year, will be allocated as follows: (i) each jurisdiction will receive up to 102% of its prior year State -assessed revenue; and (ii) if county -wide revenues generated from Unitary Property are less than the previous year's revenues or greater than 102% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State -assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID and Proposition 62 were each adopted as measures that qualified for the ballot through California's initiative process. From time to time other initiative measures could be adopted, further affecting the City's revenues. -21- TAX MATTERS Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the [Issuer] comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code") that must be satisfied subsequent to the issuance of the Bonds. The [Issuer] has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded. Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight- line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not -22- deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds. California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Other Tax Considerations. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. Form of Opinion. The proposed form of opinion of Bond Counsel for the Bonds is attached hereto as APPENDIX C. CERTAIN LEGAL MATTERS The legal opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, approving the validity of the Bonds, in substantially the form attached hereto as APPENDIX C, will be made available to purchasers at the time of original delivery of the Bonds. Jones Hall, A Professional Law Corporation, is also serving as Disclosure Counsel to the City. Payment of fees of Bond Counsel and Disclosure Counsel is contingent upon the issuance of the Bonds. ABSENCE OF MATERIAL LITIGATION No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The City is not aware of any litigation pending or threatened questioning the political existence of the City or contesting the City's ability to receive ad valorem taxes or to collect other revenues or contesting the City's ability to issue and retire the Bonds. FINANCIAL ADVISOR Urban Futures, Inc., Orange, California, has served as financial advisor (the "Financial Advisor") to the City with respect to the sale of the Bonds. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. UNDERWRITING The Bonds are being purchased by Estrada Hinojosa & Company, Inc. (the "Underwriter") pursuant to a bond purchase agreement with respect to the Bonds. The Underwriter has agreed to purchase the Bonds from the City at the purchase price of $ representing the par amount of the Bonds, being $ , plus original -23- issue premium of $ , less an underwriter's discount of $ , and less costs of issuance in the amount of $ which the Underwriter has agreed to pay. The Underwriter is committed to purchase all (but not less than all) of the Bonds. RATING Standard & Poor's Credit Market Services, a division of The McGraw Hill Companies, Inc. ("S&P") has assigned its municipal bond rating of "" to the Bonds. The rating reflects only the views of such organization, and an explanation of the significance of such rating may be obtained from S&P. There is no assurance that the rating will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agency, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. CONTINUING DISCLOSURE The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than March 31 after the end of each fiscal year of the City (currently June 30`h), commencing with the report for the 2011-12 fiscal year (the "Annual Report"), and to provide notices of the occurrence of certain listed events. The specific nature of the information to be contained in the Annual Report or the notices of certain events is summarized in "APPENDIX D - FORM OF CONTINUING DISCLOSURE CERTIFICATE," attached to this Official Statement. These covenants have been made in order to assist the Underwriter (as defined below) in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the "Rule"). The City has complied with all of its material obligations under existing continuing disclosure undertakings during the past five years. [CONFIRM] MISCELLANEOUS At the time of delivery and payment for the Bonds, an authorized representative of the City will deliver a certificate stating that to the best of his knowledge this Official Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. Such certificate will also certify that to the best of his knowledge from the date of this Official Statement to the date of such delivery and payment there was no material adverse change in the information set forth herein. City. The execution and delivery of this Official Statement has been duly authorized by the -24- CITY OF NATIONAL CITY By: City Manager APPENDIX A CITY AND COUNTY GENERAL AND ECONOMIC DATA General Description The City. The City of National City (the "City") is situated in the southwestern coastal area of San Diego County, facing the San Diego Bay. The City lies adjacent to the cities of San Diego and Chula Vista. The City's boundaries encompass approximately nine square miles. The County. The County of San Diego (the "County") is the southern -most county in California. The County covers an area of approximately 4,280 square miles, about the size of the state of Connecticut. The County is bordered by the Pacific Ocean to the west, Orange and Riverside Counties to the north, Imperial County to the east, and the State of Baja California, Mexico to the south. The County includes 70 miles of the Pacific Ocean coastline, the Anza- Borrego Desert, which forms the eastern third of the county, the Laguna Mountains, the San Diego Bay, one of the world's largest natural deep -water harbors, and the San Diego International Airport. Population The following table lists population figures for the San Diego County for the last five calendar years. SAN DIEGO COUNTY Population Estimates Calendar Years 2007 through 2011 2007 2008 2009 2010 2011 Carlsbad 101,337 103,406 105,055 105,432 106,555 Chula Vista 227,723 230,397 234,011 244,269 246,496 Coronado 22,957 23,030 23,158 23,092 23,011 Del Mar 4,548 4,561 4,609 4,168 4,187 El Cajon 97,255 97,555 98,512 99,684 100,116 Encinitas 63,259 63,615 64,393 59,628 59,910 Escondido 141,788 143,259 145,388 144,125 145,196 Imperial Beach 27,709 28,092 28,351 26,367 26,459 La Mesa 56,250 56,445 57,096 57,184 58,041 Lemon Grove 25,451 25,511 25,748 25,370 25,478 National City 61,115 56,144 56,730 58,699 58,785 Oceanside 176,644 178,102 180,376 167,241 168,173 Poway 50,830 50,744 51,322 47,903 48,155 San Diego 1,316,837 1,333,617 1,359,132 1,301,535 1,311,882 San Marcos 79,812 82,419 83,468 83,900 84,734 Santee 55,158 55,850 57,064 53,456 54,183 Solana Beach 13,418 13,447 13,600 12,896 12,945 Vista 94,962 95,400 96,455 94,020 94,431 Total Unincorporated 481.216 489,958 500.994 482.610 490.139 Total County 3,098,269 3,131,552 3,185,462 3,091,579 3,118,876 Source: State Department of Finance estimates (as of January 1). A-1 • Employment The City is included in the San Diego Metropolitan Statistical Area ("MSA"), which includes all of San Diego County. Set forth below is data from calendar years 2007 through 2011, reflecting the County's civilian labor force, employment and unemployment. These figures are county -wide statistics and may not necessarily accurately reflect employment trends in the City. Annual information is not yet available for 2012. SAN DIEGO COUNTY Civilian Labor Force, Employment and Unemployment (Annual Averages) 2007 2008 2009 2010 2011 Civilian Labor Force (1) 1,531,200 1,566,200 1,560,000 1,557,500 1,583,800 Employment 1,461,500 1,472,400 1,435,200 1,393,200 1,426,100 Unemployment 69,700 93,800 124,800 164,300 157,700 Unemployment Rate 4.6% 6.0% 8.0% 10.6% 10.0(1/0 Wage and Salary Employment: I2) Agriculture 1,319,700 1,309,300 1,240,900 10,500 10,000 Mining and Logging 10,900 10,500 9,500 400 400 Construction 400 400 400 55,300 55,200 Manufacturing 87,000 76,100 61,100 92,900 92,800 Wholesale Trade 102,500 102,800 95,300 40,100 40,700 Retail Trade 45,500 44,900 40,600 130,700 132,200 Transportation, Warehousing and Utilities 148,100 142,000 131,600 26,500 26,100 Information 28,800 29,000 27,400 25,100 24,000 Finance and Insurance 31,300 31,400 28,200 41,300 41,600 Real Estate and Rental and Leasing 50,200 46,100 43,300 25,900 25,300 Professional and Business Services 30,100 29,200 26,500 207,700 211,500 Educational and Health Services 223,200 222,300 206,800 145,500 149,100 Leisure and Hospitality 129,500 137,300 144,300 154,800 156,900 Other Services 161,800 164,000 154,800 46,200 47,100 Federal Government 48,300 48,400 46,800 47,000 46,700 State Government 40,900 41,600 43,700 42,500 43,100 Local Government 40,500 41,800 42,000 140,900 138,700 Total, All Industries (3) 1,319,700 1,309,300 1,240,900 1,233,300 1,241,200 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. A-2 The following table lists the major employers in the County as of January 1, 2012. Employer Name Barona Casino Callaway Golf Co Fleet Anti -Submarine Warfare General Dynamics NASSCO Goodrich Aerostructures Group Marine Corps Recruit Depot Merchants Building Maintenance Palomar Medical Ctr Palomar Pomerado Health Rehab San Diego County Sheriff San Diego Naval Medical Center San Diego Zoo Scripps Research Institute Sea World San Diego Sharp Mary Birch Hosp-Women Sharp Memorial Hospital Sharp Rees-Stealy Medical Center Solar Turbines Inc Sycuan Casino Tri-City Medical Center Tri-Union Seafoods US Post Office Viejas Casino & Outlet Center SAN DIEGO COUNTY Major Employers Location Lakeside Carlsbad San Diego San Diego Chula Vista San Diego San Diego Escondido Escondido Santee San Diego San Diego La Jolla San Diego San Diego San Diego San Diego San Diego El Cajon Oceanside San Diego San Diego Alpine Industry Casinos Golf Equipment & Supplies -Wholesale Government Offices -Us Ship Builders & Repairers (Mfrs) Aircraft Components -Manufacturers Military Bases Janitor Service Hospitals Rehabilitation Services Police Departments Military Bases Zoos Schools -Universities & Colleges Academic Amusement & Theme Parks Hospitals Hospitals Hospitals Turbines -Manufacturers Casinos Schools -Universities & Colleges Academic Food Products (Whls) Post Offices Casinos Source: California Employment Development Dept., America's Labor Market Information System (ALMIS) Employer Database, 2012 1' Edition. A-3 Construction Activity The following tables show valuation summaries of building permits issued in the City and the County for the years 2006 through 2010. Permit Valuation: New Single-family New Multi -family Res. Alterations/Additions Total Residential New Commercial New Industrial New Other Corn. Alterations/Additions Total Nonresidential New Dwelling Units: Single Family Multiple Family TOTAL CITY OF NATIONAL CITY Building Permit Valuation (Dollars in Thousands) 2006 2007 2008 2009 2010 $18,194.9 $15,337.5 $5,806.6 $1,974.1 $889.6 8,513.9 0.0 45,640.1 0.0 0.0 5,384.2 9,414.3 2.237.4 591.9 1,201.8 32,093.0 24,751.8 53,684.1 2,566.0 2,091.4 4,892.8 4,526.4 1,080.1 344.0 800.0 0.0 0.0 0.0 0.0 0.0 1,757.7 339.4 6,366.2 62.1 131.4 7.266.9 12,237.1 13,817.8 2,232.9 2,522.5 13,917.4 17,102.9 21,641.1 2,639.0 3,453.9 101 68 29 9 7 97 0 433 0 0 198 68 462 9 7 Source: Construction Industry Research Board, Building Permit Summary. Permit Valuation: New Single-family New Multi -family Res. Alterations/Additions Total Residential New Commercial New Industrial New Other Corn. Alterations/Additions Total Nonresidential New Dwelling Units: Single Family Multiple Family TOTAL SAN DIEGO COUNTY Building Permit Valuation (Dollars in Thousands) 2006 2007 2008 2009 2010 $1,373,554.8 $1,052,192.7 $754,716.8 $550,409.3 $648,573.3 736,965.1 485,049.3 319,304.3 132,230.1 127,847.4 360,168.1 315 137.1 265,223.7 196,061.6 198,064.4 2,470,688.0 1,852,379.1 1,339,244.8 878,701.0 974,485.1 668,762.5 596,981.4 338,667.4 91,590.6 95,031.3 153,474.4 118,401.6 57,119.9 25,699.0 7,863.9 252, 359.3 191,114.0 165,385.3 123,633.3 124, 348.3 547,014.1 510,327.4 500,628.1 343,041.2 431,623.4 $1,621,610.2 1,416,824.4 1,061,800.6 583,964.1 658,867.0 4,753 6, 024 10,777 3,503 33 942 7,445 Source: Construction Industry Research Board, Building Permit Summary. A-4 2,352 2 802 5,154 1786 1204 2990 2,254 1092 3,346 Commercial Activity In 2009, the State Board of Equalization converted the business codes of sales and use tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 and 2010 is not comparable to that of prior years. A summary of historic taxable sales within the City during the past five years in which data is available is shown in the following table. Total taxable sales during calendar year 2010 in the City were reported to be $1.13 billion, a 7.2% increase over the total taxable sales of $1.05 billion reported during calendar year 2009. Figures are not yet available for 2011. CITY OF NATIONAL CITY Number of Permits and Valuation of Taxable Transactions ($000's) Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transactions 2006 1,286 1,330,336 2,118 1,510,206 2007 1,169 1,228,611 1,898 1,394,601 2008 1,159 898,221 2,498 1,095,026 2009 (I) 1,200 892,625 1,679 1,054,258 2010t1I 1,295 958,855 1,762 1,129,833 (1) Not comparable to prior years. "Retail" category now includes "Food Services". Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). During calendar year 2010, total taxable transactions in the County were reported to be $41.6 billion, a 4.8% increase over the total taxable transactions of $39.7 billion that were reported in the County during calendar year 2009. A summary of historic taxable sales within the County during the past five years for which data is available is shown in the following table. Figures are not yet available for 2011. SAN DIEGO COUNTY Number of Permits and Valuation of Taxable Transactions ($000's) Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transactions 2006 42,359 $34,619,067 91,251 $47,835,514 2007 40,011 34,038,545 85,341 47,485,988 2008 41,695 31,715,672 87,050 45,329,136 2009(1) 52,808 27,958,518 80,595 39,728,657 2010 (1) 55,462 29,475,489 83,194 41,623,636 (1) Not comparable to prior years. "Retail" category now includes "Food Services". Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). A-5 Effective Buying Income "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other labor -related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner -occupants of non -farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income." The following table summarizes the total effective buying income for San Diego County, the State and the United States for 2006 through 2010. SAN DIEGO COUNTY Effective Buying Income 2006 through 2010 Year Area Total Effective Buying Income (000's Omitted 2006 City of National City $ 661,505 San Diego County 66,110,993 California 764,120,963 United States 6,107,092,244 2007 City of National City San Diego County California United States 2008 City of National City San Diego County California United States $ 677,558 71,339,303 814,894,438 6,300,794,040 $ 642,998 72,630,155 832,531,445 6,443,994,426 2009 City of National City $ 685,375 San Diego County 74,134,315 California 844,823,319 United States 6,571,536,768 2010 City of National City San Diego County California United States Source: Neilson & Co., Inc. $ 639,270 70,231,474 801,393,028 6,365,020,076 A-6 Median Household Effective Buying Income $31,412 47,368 46,275 41,255 $32,996 50,024 48,203 41,792 $32,979 50,383 48,952 42,303 $33,838 51,733 49,736 43,252 $31,518 48,248 47,177 41,368 Transportation Surface, sea and air transportation facilities serve County residents and businesses. Interstate 5 parallels the coast from Mexico to the Los Angeles Area and points north. Interstate 15 runs inland, leading to Riverside -San Bernardino, Las Vegas, and Salt Lake City. Interstate 8 runs eastward through the southern United States. San Diego's International Airport (Lindbergh Field) is located approximately one mile west of the downtown area at the edge of San Diego Bay. The facilities are owned and maintained by the San Diego Airport Authority and are leased to commercial airlines and other tenants. The airport is California's third most active commercial airport, served by 20 major airlines. In addition to San Diego International Airport, there are several general aviation airports located in the County, including McClellan -Palomar Airport in Imperial Beach. Services The City provides a full range of municipal services, including police and fire protection, sanitation services, the construction and maintenance of streets and public infrastructure, library services, recreational activities and cultural events. MUNICIPAL GOVERNMENT The City is a general law city of the State of California. The City was incorporated on September 17, 1887 and operates under a Council -Manager form of government. The City's political and legislative body is the City Council and is empowered by the general laws of the State of California to formulate citywide policy, including a fiscal program, City services and appointment of City Manager and City Attorney. It approves all ordinances, resolutions and major contracts, modifies and approves the budget. All major changes in direction or emphasis and organizational changes must be approved by the City Council. It sets the policy, and the City Manager and staff enforce the laws and implement the programs and policies. The City Council consists of four members who are elected by popular vote to serve a four-year term, and a mayor elected by a popular vote to serve a four-year term. Elections are held every two years. The City Clerk and The City Treasurer are also elective city administrative positions. The Mayor and current members of the City Council, together with their office and the date their term expires, are listed below: Name Office Term Expires Ron Morrison Mayor December 2014 Alejandra Sotelo-Solis Vice Mayor December 2012 Luis Natividad Councilmember December 2014 Mona Rios Councilmember December 2014 Rosalie Zarate Councilmember December 2012 The City Manager is appointed by the City Council and serves as the Council's pleasure as administrative head of the City. The City Manager is responsible for appointment of all City employees, except the City Attorney, who is appointed by the City Council. A-7 • Leslie Deese is the City Manager. Previously, Ms. Deese served as the Assistant City Manager and prior to that, she was City's Community Services Director. Ms. Deese earned her Masters Degree in Business Administration from National University. Claudia G. Silva, Esq., is the appointed City Attorney. Ms. Silva was appointed in July of 2010. Prior to that appointment, Ms. Silva served as a Senior Assistant City Attorney. Ms. Silva has been in practice for over 18 years. Her career has been in municipal law serving public entities. Tina Norrdin is the Financial Services Officer for the City. She is a certified public accountant and has served the City since . Previously, Ms. Norrdin was employed by . She is a graduate of Budget Process The fiscal year of the City begins on the first day of July of each year and ends on the 30`h day of June of the following year. At such date as the City Manager determines, each department head must furnish to the City Manager an estimate of revenues and expenditures for such department for the ensuing fiscal year, detailed in such manner as may be prescribed by the City Manager. In preparing the proposed budget, the City Manager review the estimates, holds conferences thereon with the respective department heads, and revises the estimates as the City Manager deems advisable. Prior to the beginning of each fiscal year, the City Manager submits to the City Council the proposed budget. After reviewing and making such revisions as it deems advisable, the City Council determines the time for the holding of a public hearing thereon and causes to be published a notice thereof not less than ten days prior to the hearing date. Copies of the proposed budget are available for inspection by the public in the office of the City Clerk at not less than ten days prior to the hearing. At the conclusion of the public hearing, the City Council further considers the proposed budget and makes revisions thereto that it deems advisable. On or before June 30 of each year, it adopts the budget with revisions, if any, by the affirmative vote of at least a majority of the total members of the City Council. From the effective date of the budget, the several amounts stated as proposed expenditures become appropriated to the several departments, offices and agencies for the objects and purposes named, provided that the City Manager may transfer the appropriations of a fund from one object or purpose to another within the same department. All appropriations lapse at the end of the fiscal year to the extent that they have not been expended or lawfully encumbered. At the public meeting after the adoption of the budget, the City Council may amend or supplement the budget by motion adopted by the majority vote of the City Council. The City Council employs, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as specified by the City Council, at least annually, and at such other times as the City Council shall determine, examines the financial statements of the City in accordance with generally accepted auditing standards, including such tests of the accounting records and such other auditing procedures as such accountant considers necessary. As soon as practicable after the end of the final audit and report is submitted by A-8 such accountant to the City Council and a copy of the financial statements as of the close of the fiscal year is published. Budget Overview General. The City's general fund budget figures for the year ended June 30, 2011, the City's audited actual figures for the year ended June 30, 2011, and the City's adopted budget for the year ended June 30, 2012 are set forth in the following table. Table A-9 CITY OF NATIONAL CITY General Fund Budgets For Fiscal Years 2010-11 through 2011-12 [please confirm/provide budget figures — budget categories do not correlate to audit categories] Adopted Audited Adopted Budget Actual Budget 2010-11 2010-11 2011-12 Revenues: Taxes $29,819,949 $31,750,265 31,060,129 Licenses & Permits 613,604 767,876 Fines and forfeitures 1,380,168 1,434,437 Interest and rents 374,492 381,692 746,884 Intergovernmental 520,348 684,993 485,000 Charges for services: 992,115 1,011,653 Other revenues 665,724 740,928 Total revenues 34,366,400 36,771,826 36,023,207 Expenditures: Current: General government 4,741,836 3,893,535 Public safety 28,825,500 25,671,368 28,610,717 Transportation 1,423,320 1,212,963 Culture and leisure 2,008,734 1,736,096 Capital outlay 900,202 286,219 Debt service: principal 232,948 227,360 Debt service: interest and fees 59,256 57,831 Total expenditures 38,191,796 33,085,372 28,610,717 Excess (deficiency) of revenues over (under) expenditures (3,825,396) 3,686,454 Other financing sources (uses) Transfers in 3,463,960 1,760,491 Transfers out (3,706,094) (3,712,121) Total other financing sources (uses) (242,134) (1,951,630) Net change in fund balances (4,067,530) 1,734,824 Fund balance, beginning of year 11,826,025 11,826,025 Fund balance, end of year $7,758,495 $13,560,849 Financial Statements The accounting policies of the City conform to generally accepted accounting principles. The Governmental Accounting Standards Board ("GASB") published its Statement No. 34 "Basic Financial Statements — and Management's Discussion and Analysis — for State and Local Governments" on June 30, 1999. Statement No. 34 provides guidelines to auditors, state A-9 • and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management's Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information. Accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. There are three groups of funds- governmental funds (which include the General Fund), proprietary funds (which include enterprise funds and internal service funds) and fiduciary funds (which are used to account for resources held for the benefit of parties outside the City). The City maintains 16 individual governmental funds. Information is presented separately in the governmental statement of revenues, expenditures, and changes in fund balances for the General Fund and the Construction Fund, both of which are considered to be major funds. Data for the 14 other funds are combined into a single aggregated presentation. All governmental funds and fiduciary funds use the modified accrual basis of accounting. The proprietary funds use the accrual basis of accounting. The General Fund is the general operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund. The City's audited financial statements for fiscal year 2010-11 are attached to this Official Statement as Appendix B. The City has not sought nor has it received the consent of the auditor to include the audited financial statements in this Official Statement, and the auditor has not undertaken any post -audit review of the audited financial statements. A-10 Set forth 2008-09 through balances for the year. in the following pages are (i) a general fund balance sheet for fiscal years 2010-11 and (ii) a statement of revenues, expenditures and changes in fund City's general fund for the last three fiscal years and the 2011-12 budgeted Table A-10 CITY OF NATIONAL CITY General Fund Balance Sheet As of June 30 for Fiscal Years 2008-09 through 2010-11 ASSETS: Cash and investments Accounts receivable Interest receivable Due from other funds Due from other governmental entities Total assets Audited 2008-09 $12,255,859 680,983 178,554 4,266,136 2,973,625 $20,355,157 Audited Audited 2009-10 2010-11 $9,024,317 731,539 64,196 1,636,843 2,919,636 $14,376,531 $11,287,422 729,435 58,917 701,701 3,368,938 $16,146,413 LIABILITIES: Accounts payable and accrued liabilities 1,147,113 Salaries payable 361,503 Due to other funds 218,070 Deposits payable 128,537 Deferred revenue 39,246 Advances from other funds Total liabilities Fund Balances: Reserved Unreserved Total fund balances Total liabilities and fund balances Source: City of National City Audited Financial Statements. 849,314 $1,167,720 975,789 766,047 150,120 128,398 13,794 13,794 563,382 509,605 1,914,469 2,552,399 2,585,564 1,164,034 1,126,408 4,829,800 9,333,522 10,699,617 7,059,792 18,440,688 $20,355,157 11,826,025 $14,378,424 13,560,849 $16,146,413 A-11 • Table A-11 CITY OF NATIONAL CITY Statement of General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years 2008-09 through 2010-11 (audited) and 2011-12 (budgeted) [please confirm/provide budget figures — budget categories do not correlate to audit categories] Audited Audited Audited Budget 2008-09 2009-10 2010-11 2011-12 Revenues: Taxes $31,230,431 $29,007,351 $31,750,265 31,060,129 Licenses and permits 723,913 551,517 767,876 Fines and forfeitures 1,137,181 1,219,418 1,434,437 Interest and rents 1,488,925 432,226 381,692 746,884 Intergovernmental 663,436 571,308 684,993 485,000 Charges for services 564,347 482,975 1,011,653 Other revenue 380,627 593,968 740,928 Total revenues 36,188,860 32,858,763 36,771,826 36,023,207 Expenditures: Current: General government 3,931,370 4,578,197 3,893,535 Public safety 26,673,528 28,402,451 25,671,368 28,610,717 Transportation 2,726,801 1,777,073 1,212,963 Community development 26,934 - - Culture and leisure 2,086,779 1,828,785 1,736,096 Capital outlay 1,013,344 301,404 286,219 Debt service: principal 214,837 261,174 227,360 Debt service: interest; fees 57,481 23,962 57,831 Total expenditures 36,731,074 37,173,046 33,085,372 36,910,217 Excess of revenues over (under) expenditures (542,214) (4,314,283) 3,686,454 (887,010) Other financing sources (uses): Transfers in 902,137 3,047,887 1,760,491 Transfers out (1,945,467) (5,348,267) (3,712,121) Total other financing sources (uses) (1,043,330) (2,300,380) (1,951,630) Net change in fund balance (1,585,544) (6,614,663) 1,743,824 Fund balance - July 1* 20,026,232 18,440,688 11,826,025 Fund balance - June 30 $18,440,688 $11,826,025 $13,560,849 Source: City of National City A-12 MAJOR GENERAL FUND REVENUE SOURCES Following is a discussion of the City's principal General Fund revenue sources: sales taxes; property taxes; transient occupancy taxes; other taxes; licenses and permits; fines, forfeitures and penalties; revenue from other agencies; and other charges and revenues. The table below shows a five-year history of the major general fund revenue sources for the City. Table A-12 CITY OF NATIONAL CITY Major General Fund Revenue Sources Fiscal Years 2006-07 through 2010-11 2006-07 2007-08 2008-09 2009-10 2010-11 Taxes 31,375,184 33,638,924 31,230,431 29,007,351 31,750,265 Transient Occupancy Taxes 859,430 799,452 723,913 551,517 767,876 Other Taxes 783,056 1,084,647 1,137,181 1,219,418 1,434,437 Licenses and Permits 2,056,097 2,168,962 1,488,925 432,226 381,692 Fines, Forfeitures and Penalties 1,259,455 802,557 663,436 571,308 684,993 Revenues from Other Agencies 1,318,470 414,298 564,347 482,975 1,011,635 Other Revenues 430,423 152,148 380,627 593,968 740,928 Source: City of National City Taxes The City derives a majority of its revenues from taxes, with sales tax providing the single major revenue source. Sales and Use Taxes. Sales and use taxes represent the largest source of tax revenue to the City (approximately % of general fund tax revenues in fiscal year 2010-11). This section describes the current system for levying, collecting and distributing sales and use tax revenues in the State of California. Sales Tax Rates. The City collects a percentage of taxable sales in the City (minus certain administrative costs imposed by the State Board of Equalization) pursuant to the Bradley -Burns Uniform Local Sales and Use Tax (the "Sales Tax Law"), as shown below. As part of the State's 2003-04 Budget, the State Legislature authorized, and the voters of the State approved, a redirection to the State from local jurisdictions (including the City) of sales revenues in the amount of 0.25% of the basic 1.0% local sales tax rate, starting July 1, 2004. The State of California uses such revenues to pay the State's economic recovery bonds. Under the California Economic Recovery Act, which includes legislation commonly referred to as the "Triple Flip", the State redirected certain property taxes in the Education Augmentation Revenue Fund ("ERAF") to local governments, including the City, to compensate for this redirection of sales taxes on a "dollar for dollar" basis. Under this legislation, along with the guarantees provided by the passage of Proposition 1A in November 2004, the City expects that there will not be any significant fiscal impacts on the City resulting from the "Triple Flip". Currently, taxable transactions in the City are subject to the following sales and use tax, of which the City's share is only a portion. In June 2006, the City's voters within the City approved Proposition D (District Tax), a one -cent increase in local sales tax effective until 2016. The revenues from the one cent district tax have generated between $ million and $ A-13 million annually to the City's General Fund. The State collects and administers the tax, and makes distributions on taxes collected within the City, as follows: Table A-13 CITY OF NATIONAL CITY Sales Tax Rates Fiscal Year 2011-12 State (General Fund) State (Fiscal Recovery Fund) State (Local Revenue Fund) State (Local Public Safety Fund)) Local (City and County Operations) Local (County Transportation Funds) Total Statewide Sales Tax Rate Local Sales Tax 5.000%(1) 0.250 0.500 0.500 0.250 0.750 7.250% 1.500% Total City Sales Tax Rate 8.750% Source: California State Board of Equalization. Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State of California. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State of California where the use will occur within the State of California. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax. Certain transactions are exempt from the State sales tax, including sales of the following products: food products for home consumption; prescription medicine; newspapers and periodicals; edible livestock and their feed; seed and fertilizer used in raising food for human consumption; and gas, electricity and water when delivered to consumers through mains, lines and pipes. This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the State Board of Equalization's June 2005 Publication No. 61 entitled "Sales and Use Taxes: Exemptions and Exclusions," which can be found on the State Board of Equalization's website at http://www.boe.ca.gov/. Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the California State Board of Equalization. According to the State Board of Equalization, it A-14 distributes quarterly tax revenues to cities, counties and special districts using the following method: Using the prior year's like quarterly tax allocation as a starting point, the Authority first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The State Board of Equalization disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter's actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment. Under the Sales and Use Tax Law, all sales and use taxes collected by the State Board of Equalization under a contract with any city, city and county, redevelopment agency, or county are required to be transmitted by the Board of Equalization to such city, city and county, redevelopment agency, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter. Under its procedures, the State Board of Equalization projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the State Board of Equalization's quarterly projection. During the last month of each quarter, the State Board of Equalization adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter. The Board of Equalization receives an administrative fee based on the cost of services provided by the Board to the City in administering the City's sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City. History of Taxable Transactions. In 2009, the State Board of Equalization converted the business codes of sales and use tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 and 2010 is not comparable to that of prior years. A summary of historic taxable sales within the City during the past five years in which data is available is shown in the following table. Total taxable sales during calendar year 2010 in the City were reported to be $1,129,833,000, a 7.2% increase over the total taxable sales of $1,054,258,000 reported during calendar year 2009. Figures are not yet available for 2011. A-15 Table A-14 CITY OF NATIONAL CITY VALUATION OF TAXABLE TRANSACTIONS (in thousands of dollars) Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transactions 2006 1,286 $1,330,336 2,118 $1,510,206 2007 1,169 1,228,611 1,898 1,394,601 2008 1,159 898,221 2,498 1,095,026 2009 (1) 1,200 892,625 1,679 1,054,258 2010 (I) 1,295 958,855 1,762 1,129,833 (1) Not comparable to prior years. "Retail" category now includes "Food Services". Source: California Board of Equalization. Franchise Taxes. The City levies franchise taxes on gas, electricity, refuse and cable television companies, representing the second largest source of tax revenue to the City. Telephone companies, railroads and wharves and piers are exempt from local franchising authority. Franchise taxes totaled approximately $1,602,483 in fiscal year 2010-11, representing approximately 4.7% of General Fund tax revenues in 2010-11, and are projected to total $1,613,126 of General Fund tax revenues in 2011-12. Property Taxes. Property taxes represent the third largest source of tax revenue to the City (approximately % of general fund tax revenues in fiscal year 2010-11). A property tax is imposed on real property (land and permanent improvements) and tangible personal property (furniture, fixtures and equipment). The general tax levy rate is 1% of assessed value, adjusted by an annual inflation factor not to exceed 2%. Property in the City is assessed by County of San Diego Assessor, except for certain public utility property which is assessed by the State Board of Equalization. Cities and other local agencies, such as schools, special districts, and the County of San Diego share in the County -wide property tax pool for purchases made within the County, but not within a specific jurisdiction. ERAF Shift and Triple Flip Legislation. Certain property taxes have been shifted from local government agencies to schools by the State Legislature for deposit in the Education Revenue Augmentation Fund ("ERAF"), a shift that has resulted in diversion of City property taxes since fiscal year 1992-93. See "State Budgets" below. As discussed in "Sales and Use Taxes" below, on March 2, 2004, the State's voters approved a bond initiative known as the "California Economic Recovery Act" which includes provisions known as "Triple Flip" legislation, calling for a diversion of a portion of local governments' share of sales taxes to the State of California, and in return, a redirection of certain property taxes from the ERAF to local government. This has resulted in a cumulative loss of over $10 million over the past 15 years. Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing A-16 State -assessed public utilities property and real property the taxes on which are a lien sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State of California and may be sold at public auction. Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to support prior voted debt, and prescribed how levies on county -wide property values are to be shared with local taxing entities within each county. Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS" in the body of the Official Statement. Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of "base" revenues from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year. Assessed Valuation History. See "PROPERTY TAXATION — Assessed Valuation" in the body of the Official Statement. Major Property Taxpayers. See "PROPERTY TAXATION — Assessed Valuation" in the body of the Official Statement. Impact of Proposition 1A Borrowing. The declaration by the State of California of a fiscal emergency under Proposition 1A and a subsequent take -away of the equivalent of 8% of fiscal year 2008-09 property related tax revenues from cities had an impact of $ million on the City in fiscal year 2009-10. These tax revenues must be paid back by the State with interest A-17 within three years. The City participated in the Proposition 1A Securitization Program to mitigate this loss of revenue. [confirm] Transient Occupancy Taxes. A transient occupancy tax is imposed on occupants of hotels, inns, motels and other lodging facilities for occupancy of 30 days or less. The tax is applied to a customer's lodging bill. Taxes are remitted quarterly for all approved lodging operators in the City. The current hotel tax rate is _%. [describe how it is broken down among the County, City and any other agencies] The other _% is used by the City for general purposes. Hotel tax revenue for fiscal year 2010-11 was $767,876. Projected hotel tax revenue for fiscal year 2011- 12 is $733,091. Intergovernmental In 2010-11, approximately % of General fund revenues came from other governmental agencies, primarily from state shared revenues. Known as subventions, these shared revenues may be in lieu of local taxes, replacement revenue for taxes previously levied by cities or general state assistance for specific purposes. The largest of these revenues are the Motor Vehicle In -Lieu Tax received from the State of California. Vehicle license fees ("VLF") imposed for the operation of vehicles on state highways are collected by the State Department of Motor Vehicles. VLFs were historically assessed in the amount of two percent of a vehicle's depreciated market value for the privilege of operating a vehicle on the State's public highways. Beginning in 1999, the VLF paid by vehicle owners was offset (or reduced) to the effective rate of 0.65 percent. In connection with the offset of the VLF, the State Legislature authorized appropriations from the State General Fund to "backfill" the offset so that local governments, which receive all of the vehicle license fee revenues, would not experience any loss of revenues. The legislation that established the VLF offset program also provided that if there were insufficient State General Fund moneys to fully "backfill" the VLF offset, the percentage offset would be reduced proportionately (i.e., the license fee payable by drivers would be increased) to assure that local governments would not be underfunded. In June 2003, the State Director of Finance ordered the suspension of VLF offsets due to a determination that insufficient State General Fund moneys would be available for this purpose, and, beginning in October 2003, the VLF paid by vehicle owners were restored to the two percent level. However, the offset suspension was rescinded by the Governor on November 17, 2003, and State offset payments to local governments resumed. As part of the 2004 Budget Act negotiations, an agreement was made between the State and local government officials (the "State -local agreement") under which the VLF rate was permanently reduced from two percent to 0.65 percent. In order to protect local governments, the reduction in VLF revenue to cities and counties from this rate change was replaced by an increase in the amount of property tax they receive. Under the State -local agreement, for fiscal years 2004-05 and 2005-06 only, the replacement property taxes that cities and counties receive were reduced by $700 million. Commencing in fiscal year 2004-05, local governments began to receive their full share of replacement property taxes, and those replacement property A-18 taxes now enjoy constitutional protection against certain transfers by the State due to the approval of Proposition 1A at the November 2004 election. Since this revenue represents taxation of vehicles, new auto sales are a critical component to growth of this revenue source. Beginning in fiscal year 2005-06, the VLF Swap amount has been increasing at a similar rate to property taxes, and is based on property assessed value increases in the City. Due to the slowing economy and property reassessments, VLF revenues declined during the past two fiscal years and are expected to continue this trend in fiscal year 2011-12. VLF revenues constituted approximately $4.9 million of General Fund revenues in each of the last three fiscal years. About % of General Fund revenues are expected to come from Intergovernmental revenues in 2011-12. Charges for ServicesThe City imposes charges for various services, including licenses, permits, planning fees and the expense of providing certain services such as police and fire These fees represented about _% of General Fund revenues in 2010-11 and are expected to represent % of General Fund revenues in 2011-12. Fines, Forfeitures and Penalties The City shares with the County all fines collected upon conviction of a misdemeanor or an infraction in any municipal or justice court and bail moneys forfeited following a misdemeanor or infraction charge when such a fine or forfeiture results from a misdemeanor or infraction committed within City boundaries. The City also receives revenues from vehicle code fines, parking citations, and penalties associated with building permits. As part of its budget act a number of years ago, the State diverted 50% of cities' vehicle code fines to State uses. Beginning in fiscal year 1998-99, the State returned these vehicle code fines to cities. In addition, cities for the first time have received revenue derived from those individuals who attend traffic school. As a result of this State action, The City receives approximately $ annually. Vehicle code fines were $ in fiscal year 2010-11 and are budgeted at $ for fiscal year 2011-12. [confirm] A-19 Other Revenues Other miscellaneous charges that contribute revenues to the general fund include recreation fees and . These charges represented % of General Fund revenues ub 2010-11 and are projected to represent % in 2011-12. Impact of State Budget on City Revenues The State of California is experiencing significant financial and budgetary stress. State budgets are affected by national and state economic conditions and other factors over which the City has no control. The State's financial condition and budget policies affect communities and local public agencies throughout California. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget. The State's 2008-09, 2009-10, 2010-11 and 2011-12 budgets contained or contain a number of measures that impact the finances of local agencies. Information on Current State Budget Difficulties. Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State's website, where recent official statements for State bonds are posted. The references to Internet websites shown below are shown for reference and convenience only; the information contained within the websites has not been reviewed by the City and is not incorporated in this Official Statement by reference. The California State Treasurer's Internet home page at www.treasurer.ca.gov, under the heading "Financial Information," posts the State's audited financial statements. In addition, the "Financial Information" section includes the State's Rule 15c2-12 filings for State bond issues. The "Financial Information" section also includes the "Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation" from the State's most current Official Statement, which discusses the State budget and its impact on school districts. The California Department of Finance's Internet home page at www.dof.ca.gov, under the heading "California Budget," includes the text of proposed and adopted State Budgets. The State Legislative Analyst's Office the ("LAO") prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the heading "Products." 2011-12 State Budget Following the veto by the Governor of a 2011-12 Budget proposed by the Legislature on June 15, 2011, the Legislature passed by majority vote a $86 billion general fund State Budget which attempted to close the State's estimated $9.6 billion budget deficit. The 2011-12 Budget was signed by Governor Brown on June 29, 2011. According to a summary of the 2011-12 Budget released by the Department of Finance (the "Department of Finance Report"), the 2011-12 Budget sought to close a $26.6 billion deficit identified in the Governor's May Revise through a combination of measures totaling $27.2 billion. Specifically, the 2011-12 Budget included $15 billion of expenditure reductions, $900 A-20 Jo/ million of targeted revenue increases, $2.9 billion of other measures and a positive adjustment to the State's revenue outlook totaling $8.3 billion. Other budget -related legislation passed in June, 2011 called for the wind-up and dissolution of California redevelopment agencies in order to eliminate the diversion of property taxes from school districts to redevelopment agencies. This legislation was upheld by the California Supreme Court on December 29, 2011, making the terms of such legislation operative February 1, 2012. Related legislation allowing redevelopment agencies to continue under certain circumstances was invalidated by the Court. Other challenges or delays relating to the implementation of these statutes cannot be predicted at this time. The 2011-12 Budget projected an additional $4 billion in revenues during fiscal year 2011-12 and a plan to seek voter approval of a ballot measure, by November of 2012, which would protect public safety realignment and supplement the State's revenues. With the implementation of all measures, the 2011-12 Budget assumed, for fiscal year 2010-11, year-end revenues of $94.8 billion and expenditures of $91.5 billion and a 2010-11 ending budget deficit of $2 billion. Projected revenues for 2011-12 were $88.5 billion and authorized expenditures were $85.9 billion, with projections for an ending $543 million surplus. In the event that during fiscal year 2011-12 revenues did not reach the forecasts included in the 2011-12 Budget, a series of "trigger" reductions that were authorized to be implemented. "Tier 1 Trigger Cuts" would be triggered if, by January 2012, State revenues fell short of projections by $1-2 billion. Tier 1 Trigger Cuts relate to cuts in university, social services and library funding and would total approximately $600 million. "Tier 2 Trigger Cuts" would be triggered if, by January 2012, revenues were projected to fall short by more than $2 billion. Tier 2 Trigger Cuts relate to K-12 revenue limit funding and home -to -school transportation and total approximately $1.9 billion. See "January 1, 2012: Trigger Reductions Commence" below. The 2011-12 Budget also included decreases in Proposition 98 funding to $48.7 billion, including $32.8 billion from the State general fund, which reflected a decrease from the prior year of $1.1 billion. This decrease was a net figure reflective of all budgetary actions taken with respect to the State's share of Proposition 98 funding, including increases in baseline revenues, redirection of certain sales tax revenues related to the realignment of public safety programs, and the rebenching of the Proposition 98 minimum funding guarantee. The 2011-12 Budget also made a significant, one-time modification to State budgeting requirements for school districts, requiring them to project the same level of revenue per student in 2011-12 as in 2010- 11, as well as to maintain staffing and program levels commensurate with such level of funding. A related provision of the 2011-12 Budget provided that school districts would only be required to budget for the current year, and will not be required to demonstrate that they can meet their financial obligations for the subsequent two fiscal years (2012-13 and 2013-14). Other significant measures with respect to K-12 education funding were: Apportionment Deferral. An additional deferral of $1.2 billion in education spending in order to maintain programmatic funding at the fiscal year 2010-11 level. • Part -Day Preschool. A decrease of $62.3 million to reflect a reduction of income eligibility levels to 70% of the State Median Income, and across-the-board reductions to provider contracts. A-21 • Charter Schools. $11 million in supplemental categorical funding to charter schools that begin operations between 2008-09 and 2011-12. • Clean Technology and Renewable Energy Training. $3.2 million of increased funding for clean technology and renewable energy job training, career technical education and the Dropout Prevention Program, each of which was designed to provide at -risk high school students with occupational training in areas such as conservation, renewable energy and pollution reduction. • Child Care and Development. A decrease of $180.4 million to child care and development programs, including reductions to license -exempt provider rates, reductions of income eligibility levels to 70% of the State Median Income, and across- the-board reductions to provider contracts. • CALTIDES. A decrease of $2.1 million to reflect elimination of funding for the California Longitudinal Teacher Integrated Data System (CALTIDES). Although the CALTIDES program was intended to provide a central State information depository regarding the teaching workforce, the 2011-12 Budget indicated the program is not a critical need. • Office of the Secretary of Education. The 2011-12 Budget projected a budget savings of $1.6 million through the elimination of the Office of the Secretary of Education. November 16, 2011 LAO Report. The LAO report entitled "The 2012-13 Budget: California's Fiscal Outlook" estimated that State General Fund revenues and transfers in 2011- 12 would be $3.7 billion less than the levels assumed in the 2011-12 Budget. This revenue shortfall would translate into $2 billion of potential Tier 1 and Tier 2 Trigger Cuts (described above). The LAO estimated that the State would end 2011-12 with a $3 billion deficit, including the effects of the trigger cuts. The LAO forecasted that in 2012-13 the State would face increased costs due to the expiration of a number of temporary budget measures, a significant increase in Proposition 98 school costs under current law, the required repayment of a $2 billion Proposition 1A property tax loan used to help balance the budget in 2009, and other factors. The LAO projected a $10 billion operating shortfall in 2012-13. January 1, 2012: Triqqer Reductions Commence. On December 13, 2011, Governor Jerry Brown announced that $980 million in mid -year trigger cuts would be implemented following the determination by the Department of Finance that the State would fall $2.2 billion short of the revenue forecast contained in the 2011-12 Budget. These include Tier 1 Trigger Cuts and a portion of Tier 2 Trigger Cuts. Effective January 1, 2012, cuts to funding for University of California, California State University, community colleges, developmental services, local libraries and state -subsidized child care and K-12 school bus service funding, among others, became effective. Effective February 1, 2012, a cut to general revenue limit funding for K-12 school districts totaling $79.6 million will be implemented. 2012-13 State Budget. On January 5, 2012, Governor Brown submitted his 2012-13 Proposed Budget to the Legislature. The 2012-13 Proposed Budget acknowledged a $9.2 billion budget deficit, consisting of an $4.1 billion deficit that would remain at the end of Fiscal Year 2012-13 (absent budgetary action), and a $5.1 billion shortfall between current -law revenues and expenditures in 2012-13, with a proposed reserve of $1.1 billion. The 2012-13 Proposed Budget relies on a plan to submit to the voters at a regular election in November 2012 a $6.9 billion tax increase, A-22 including a higher rate for personal income over $250,000 and a half -cent sales tax hike. If the voters do not approve such revenue -raising measures, the 2012-13 Proposed Budget specifies $5.4 billion in additional trigger cuts affecting funding for each of: schools and community colleges ($4.8 billion cut, likely eliminating three weeks of instruction from the school year), the University of California and California State University ($200 million cut), State courts ($125 million cut, equivalent to court closures of three days per month), Parks and Recreation and Fish and Game (number of safety officers and lifeguards decreased), Forestry and Fire Prevention (substantial reduction in firefighting capability and emergency air response program, closure of fire stations), Department of Water (flood control programs cut) and Department of Justice (law enforcement programs reduced). The 2012-13 Proposed Budget includes additional expense reducing measures as follows: Changes to CalWORKs and subsidized child care to, among other things, reduce assistance to families not meeting work requirements. ($1.4 billion reduction), merging service delivery for those who are eligible for both MediCal and Medicare ($842 million reduction), eliminating InuHome Supportive Services in shared living arrangements. ($164 million reduction), eliminating supplemental funding for schools associated with the elimination of the sales tax on gasoline ($544 million reduction), reducing grants for students of private institutions ($302 million reduction), suspending state mandates on local governments ($828 million reduction) and expanding the alternative custody program for female prison inmates (millions of dollars reduced in future years). The 2012-13 also includes continuation of the use of weight fees to offset future State general fund costs connected with transportation expenses ($350 million savings) and a one-time shift of monies from the State's Unemployment Compensation Disability Fund to pay the federal government for interest costs on the State's outstanding Unemployment Insurance loan. Additionally, concurrently with the 2012-13 Proposed Budget, the Governor has proposed a constitutional amendment, to be submitted to the voters at the November 2012 general election, to secure funding for local governments so they can provide public services recently shifted to them under the State's "realignment" plan. Voter approval of such an amendment might give the State less budget flexibility, but could also strengthen local support for current and additional realignment. January 11, 2012 LAO Report. An LAO report dated January 11, 2011 stated that the 2012-13 Proposed Budget were reasonable, and either of (i) the proposed multiyear tax increases and significant reductions in social services and subsidized child care programs or (ii) larger cuts, aimed largely at schools, move the State budget much closer to balance over the next several years. However, the LAO noted that its revenue estimates —including estimates of state revenue gains from the Governor's proposed tax raising initiatives —are lower than the Governor's and that if LAO estimates are correct, the Legislature will have to pursue billions of dollars more in budget -balancing solutions. The LAO was supportive of major restructuring of the school finance system, community college categorical funding, and education mandates, but suggested that alternatives to reforms in the CaIWORKs program should be considered. The LAO further encouraged caution in setting the size of the trigger cuts, determining the specific education reductions to impose, and designing tools to help schools, community colleges, and universities respond to the trigger cuts. February 27, 2012 LAO Report. In its Economic and Revenue Update dated February 27, 2012, the LAO stated that despite promising job growth news in the past few months, California's unemployment levels remain high and the housing market remains troubled. However, corporate profits and technology companies are likely to generate additional state tax A-23 • revenues in the coming few years. The LAO provided an updated revenue forecast of $6.5 billion lower than the Governor's in 2011-12 and 2012-13 combined (in November 2011, the LAO forecasted $6.8 billion lower revenues), meaning that if the LAO's revenue forecast proves to be more accurate than the administration's, the Legislature and the Governor will have to identify additional budgetary solutions to bring the 2012-13 state spending plan into balance. May Revision. On May 14, 2012, Governor Brown issued his proposed May Revision of the 2012-13 State Budget. The May Revision estimated that the State budget deficit had increased from $9.2 billion to $15.7 billion, and predicted that, absent actions to eliminate the State's structural deficit, the State would face an approximately $8 billion budget shortfall each year. The increase in the amount of the State budget deficit was attributed to an overly optimistic forecast of revenue to be received by April 2012 (which is tied to an ongoing modest economic recovery), year -over -year increases in Proposition 98 funding for K-14 education, and the U.S. Federal Government and certain courts rejecting certain cuts proposed in the Governor's initial State Budget. The May Revision proposed $16.7 billion in aggregate budget balancing measures and to build a $1 billion reserve. Under the May Revision, forthcoming budgets would be balanced on an ongoing basis, thereby enabling the State to pay down $33 billion in outstanding borrowing that has accumulated since 2002. The May Revision suggests that the State's outstanding debt could be reduced to $6.6 billion by the end of fiscal year 2015- 16. To bridge the State budget gap, the Governor proposed an additional $4.1 billion in spending reductions, including (i) shifting of the source of payment for local trial courts, (ii) implementing various reductions to hospital, nursing home and in home care funding, (iii) establishing standards for participation in the Cal Grant Program, (iv) reducing the cost of state employee compensation by 5% through a reduced workweek or a commensurate reduction in work hours and pay, (v) transferring cash assets previously held by redevelopment agencies to cities, counties and special districts to fund core public services, (vi) using proceeds from the National Mortgage Settlement to offset existing State general fund costs, and (vii) making various other adjustments. The May Revision also assumes passage of the Governor's proposed revenue - generating initiatives at the November 2012 election. The Governor's measures increase the personal income tax on the State's highest income generating taxpayers for seven years and increase the State sales tax by .25% for four years, guaranteeing the revenue generated thereby will be allocated to schools. If the Governor's measures were to fail, the May Revision provides for an additional $6.1 billion in trigger cuts, effective January 1, 2013, which are to include, a $5.5 billion reduction in funding for schools and community colleges (equivalent to the cost of three weeks instruction), $250 million reductions to each of the University of California and California State University, and reductions to numerous public safety programs. The May Revision also notes that, even assuming passage of the Governor's measures, the State may face long-term cost increases that could take future budgets out of balance, including, but not limited to, costs associated with actions to reduce the Federal deficit, Federal government and court decisions, the pace of economic recovery, an aging population and rising health care costs. Uncertainty Regarding Future State Budgets. The City cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State's current or future budget deficits. Future State budgets will be affected by national and state economic conditions and other factors over which the City has no control. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make A-24 adjustments to its budget. Decreases in such revenues may have an adverse impact on the City's ability to pay Base Rental payments. Current Investment Portfolio The City's investments are limited to those allowable under state statutes as incorporated into the City's Investment Policy that is even more conservative than that allowed by the state statue. Investment of debt proceeds held by fiscal agent are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy. The risks associated with the City's cash and investments are interest rate risk, credit risk and custodial risk. Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment and custodial credit risk is for deposits is the risk that, in the event of the failure of a depository financial institution, a depositor will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The City's cash and investments at June 30, 2011 are as follows: Table A-15 CITY OF NATIONAL CITY Investment Portfolio as of June 30, 2011 Total U.S. Agency Securities $13,212,247 Certificates of Deposit-CDARS 2,000,000 Local Agency Investment Fund 51,108,733 Commercial Paper 510,320 Cash with Fiscal Agent: Treasury Coupon Securities 1,094,028 Money Market 5,967,159 Guaranteed Investment Contracts 305,907 Commercial Paper 2,344,000 Money Market Mutual Funds 34,058,588 Total Cash and Investments $110,600,982 Source: City of National City The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated. Retirement and Pension Systems A-25 Plan Description. The City contributes to the California Public Employees' Retirement System ("PERS"), an agent multiple -employer public employee retirement system. PERS provides retirement, disability and death benefits. The miscellaneous employees of the City and the safety employees are part of a single -employer defined benefit pension plan. PERS provides retirement and disability benefits, annual cost of living adjustment, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of PERS' annual financial report may be obtained from its executive office at 400 "P" Street, Sacramento, California 95814. Miscellaneous and safety participants are required to contribute 8% and 9%, respectively, of their annual covered salary. The City makes the contributions required of City employees on their behalf and for their account. Benefit provisions and all other requirements are established by state statute and City contract with employee bargaining groups. Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution (ARC) plus an adjustment for the cumulative difference between the APC and the employer's actual plan contributions for the year. The cumulative difference is called the net pension obligation (NPO). The ARC for the period July 1,2010 to June 30, 2011 has been determined by an actuarial valuation of the plan as of June 30, 2008. The contribution rate indicated for the period is 29.383% of payroll for the safety plan and 16.656% of payroll for the miscellaneous plan. In order to calculate the dollar value of the ARC for inclusion in the financial statements prepared as of June 30, 2011, the contribution rate is multiplied by the payroll of covered employees that were paid during the period from July 1, 2010 to June 30, 2011. Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a rolling 30-year period, which results in an amortization of 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 year amortization period. Following is three-year trend information of Annual Pension Cost (Employer Contribution). Pension Cost APC Pension Miscellaneous employees (APC) Contributed Obligation 06/30/09 $3,199,780 100% 06/30/10 3,461,800 100% 06/30/11 3,277,155 100% Safety employees 06/30/09 $1,901,577 100% 06/30/10 1,871,038 100% 06/30/11 1,683,420 100% Other Post Employment Benefits Plan Description. The City provides a fixed dollar monthly contribution equal to $5 ($10 for management and executive employees) times the number of years of service. Safety A-26 employees may receive the contribution towards non -City health insurance, if evidence of coverage is provided. The City's contribution is payable to age 65 or Medicare eligibility, if earlier. Management and executive employees are eligible for the City's contribution during their lifetime. Eligibility. Employees are eligible for retiree health benefits if they retire from the City on or after age 50 with at least 20 years of service (10 years for management and executive employees). Membership of the plan consisted of the following at June 30, 2011, the date of the latest actuarial valuation: Retirees and beneficiaries receiving benefits 46 Active plan members 280 Total 326 Funding Policy. The contribution requirements of plan members and the City are established and may be amended by City Council. The contribution required to be made under City Council and labor agreement requirements is based on a pay-as-you-go basis (i.e., as medical insurance premiums become due). For fiscal year 2010-11, the City contributed $75,020 to the plan for current premiums. Annual OPEB Cost and Net OPEB Obligation. The City's annual other postemployment benefit ("OBEB") cost is calculated based on the annual required contribution of the employer ("ARC"), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45 The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City's net OPEB obligation for these benefits: Annual Required Contribution $126,454 Increase in net OPEB obligation 2,690 Adjustments to ARC (2,690) Annual OPEB cost (expense) 126,454 Contributions made (including premiums paid) (75,020) Increase in net OPEB obligation 51,434 Net OPEB obligation, beginning of year 53.795 Net OPEB obligation, beginning of year $105,229 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the last 3 fiscal years were as follows: Fiscal Year Annual % of Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/2009 $110,954 68% $34,624 6/30/2010 $110,954 83% $53,795 6/30/2011 $126,454 59% 105,229 Funded Status and Funding Progress. The funded status of the plan as of June 30, 2011 was as follows: Actuarial accrued liability (AAL) $1,370,805 A-27 • Actuarial value of plan assets Unfunded actuarial accrued liability (UAAL) Funded ratio (actuarial value of plan assets/AAL) Covered payroll (active plan members) UAAL as percentage of covered payroll $1.370.805 0.0% 18,322,000 7.5% See "APPENDIX B — Comprehensive Audited Financial Report for the Year Ended June 30, 2011 — Note 9" for a description of actuarial methods and assumptions relating to the plan. Risk Management The City is a member of the San Diego Pooled Insurance Program Authority (the "Program Authority"), a joint powers authority established to provide insurance and insurance - related services to its members. The Program Authority's governing board consists of one member from each participating city and is responsible for the selection of management as well as budgeting and finance. Insurance activities are financed by charges to member cities. Each participating city has its own self -insured retention level. The City is insured for general liability with a self -insured retention of $150,000. Losses between the self -insured retention level and $2,000,000 are shared by the participant cities. Excess liability insurance coverage is provided by the Program Authority for losses greater than $2,000,000 up to $35,000,000. Losses in excess of $35,000,000 are not covered and are self -funded by the City. The City is completely self -insured for unemployment claims. The City is also a member of CSAC Excess Insurance Authority ("CSAC"), a joint powers authority, for workers compensation claims. The City is self -insured for workers compensation claims and losses up to $500,000 per occurrence. Losses between the self - insured retention level and $5,000,000 are shared by the participant cities. Losses in excess of $5,000,000 up to $200,000,000 are reinsured by a commercial insurance carrier. The City is completely self -insured for unemployment claims. During fiscal year 2010-11, there were no significant reductions in insurance coverage from the prior year. For each of the past three fiscal years, the settlements have not exceeded the City's insurance coverage. A-28 Long -Term Debt The City generally incurs long-term debt to finance projects or purchase assets which will have useful lives equal to or greater than the related debt. The City's long-term debt for the fiscal year ended June 30, 2011 is as follows: Type of Indebtedness Table A-16 CITY OF NATIONAL CITY Long -Term Debt Final Amount Outstanding Maturity Issued 6/30/2011 General Obligation Bonds: Election of 2002, Series A* 2028 $6,000,000 $5,120,000 Lease Revenue Refunding Bonds 2018 3,115,000 3,115,000 Claims Payable 6,114,000 Compensated Absences 2,815,341 OPEB 105,229 Capitalized Lease Obligations 2,416,722 Note Payable 2,276,885 * To be refunded with Bond proceeds. Source: City of National City A-29 !/i APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR 2010-11 B-1 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL City Council City of National City 1243 National City Boulevard National City, California 91950-4301 , 2012 OPINION: $ City of National City 2012 General Obligation Refunding Bonds Members of the City Council: We have acted as bond counsel in connection with the issuance by the City of National City (the "City") of its $ aggregate principal amount of City of National City 2012 General Obligation Refunding Bonds, dated , 2012 (the "Bonds"). The Bonds have been issued by the City pursuant to the Constitution and laws of the State of California, a resolution adopted by the City Council of the City on , 2012 (the "Resolution") and a Paying Agent Agreement dated as of July 1, 2012 (the "Paying Agent Agreement") between the City and Union Bank, N.A. as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Paying Agent Agreement and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The City is duly organized and validly existing as a general law city and municipal corporation under the Constitution and laws of the State of California, with the power to adopt the Resolution, to execute and deliver the Paying Agent Agreement and to perform the agreements on its part contained therein, and to issue the Bonds. 2. The Bonds are valid and binding general obligations of the City. 3. The City has the power, is obligated, and in the Paying Agent Agreement has covenanted, to levy ad valorem taxes upon all property within the City which is subject to taxation by the City, without limitation of rate or amount, for the payment of the Bonds and the interest thereon. 4. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose C-1 of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code"), and, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction is allowed for 80 percent of that portion of such financial institutions' interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding sentences are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes and that the Bonds be, or continue to be, qualified tax-exempt obligations. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 5. The interest on the Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Bonds and the enforceability of the Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. Respectfully submitted, A Professional Law Corporation C-2 lb APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of National City (the "City") in connection with the issuance by the City of its $ 2012 General Obligation Refunding Bonds (the "Bonds"). The Bonds are being issued pursuant to a resolution adopted by the City Council of the City on , 2012 and a Paying Agent Agreement (the "Paying Agent Agreement"), dated as of July 1, 2012, by and between the City and Union Bank, N.A., as paying agent (the "Paying Agent"). Pursuant to Section 5.06 of the Paying Agent Agreement, the City covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Paying Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Annual Report Date" means January 1 of each year for so long as the Bonds remain outstanding. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Dissemination Agent" shall mean the City or an entity selected and retained by the City, or any successor thereto selected by the City. The initial Dissemination Agent shall be Urban Futures, Inc. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate and any other event legally required to be reported pursuant to the Rule. "MSRB" means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. "Participating Underwriter" shall mean Estrada Hinojosa & Company, Inc. and any other original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. D-1 • "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. Section 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than each Annual Reporting Date, commencing January 1, 2013 for the report for the 2011-12 fiscal year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate. If the Dissemination Agent is not the City, not later than fifteen (15) Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent. The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder. The Dissemination Agent may conclusively rely upon such certification of the City. (b) If by fifteen (15) Business Days prior to the date specified in subsection (a) for filing the Annual Report with the MSRB, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with subsection (a). (c) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (d) With respect to each Annual Report, the Dissemination Agent shall: (I) determine each year prior to the Annual Report Date the then -applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) Audited Financial Statements of the City for the most recently completed fiscal year prepared in accordance with GAAP, as in effect from time to time, as such principles are modified by GASB (or, if Audited Financial Statements are not available, unaudited Financial Statements will be provided, if available, and Audited Financial Statements will be provided as soon as available); (b) The approved budget of the City for the current fiscal year; D-2 (c) Changes, if any, in the operation of the County of San Diego's Teeter Plan affecting the City; (d) Any change the County of San Diego's investment pool which would affect the City's access to property tax collections used to pay debt service on the Bonds; (e) Assessed value of taxable property within the jurisdiction of the City; (f) Property tax collection delinquencies for the prior fiscal year for the City if the City is no longer a participant in the County of San Diego's Teeter Plan; (g) Amount of all general obligation debt of the City outstanding, and total scheduled debt service on such general obligation debt; and (g) The Top ten real property tax assessees of the City for the current fiscal year, as measured by secured assessed valuation and percentage of total secured assessed value. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the City is an "obligated person" (as defined by the Rule), which are available to the public on the MSRB's Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds: 1. principal and interest payment delinquencies; 2. non-payment related defaults, if material; 3. modifications to rights of Bondowners, if material; 4. Bond calls, if material, and tender offers; 5. defeasances; 6. rating changes; 7. adverse tax opinions or events affecting the tax-exempt status of the Bonds, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax-exempt status of the Bonds; D-3 8. unscheduled draws on the debt service reserves, if any, reflecting financial difficulties; 9. unscheduled draws on credit enhancements reflecting financial difficulties; 10. substitution of credit or liquidity providers, or their failure to perform; 11. release, substitution, or sale of property securing repayment of the Bonds, if material; 12. Bankruptcy, insolvency, receivership or similar event of the obligated person; 13. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Resolution. (c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier "if material." The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the City determines the event's occurrence is material for purposes of U.S. federal securities law. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City. D-4 Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The City's and the Dissemination Agent's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(f) hereof. Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign at any time by providing at least 60 days' notice in writing to the City and the Paying Agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first Annual Report filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to this Disclosure Certificate modifying the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. D-5 • A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5(c). Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner of the Bonds may take such actions, as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Paying Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City or the Dissemination Agent (if not the City) to comply with this Disclosure Certificate shall be an action to compel performance. The City hereby represents and warrants that it is currently not in default under any other continuing disclosure arrangement entered into in connection with the Rule. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their respective powers and duties hereunder, including the costs and expenses (including attorneys' fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Bondowners, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and the payment of the Bonds. Section 13. Notices. Any notices or communications to be given to the City pursuant to this Disclosure Certificate may be given as follows: City of National City 1243 National City Boulevard National City, California 91950-4301 Attn: Finance Manager Any person may, by written notice to the other persons listed above, designate a different address to which subsequent notices or communications should be sent. D-6 Section 14. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Paying Agent, the Participating Underwriters and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: , 2012 D-7 CITY OF NATIONAL CITY By City Manager EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of National City Name of Bond Issue: $ 2012 General Obligation Refunding Bonds Date of Issuance: , 2012 NOTICE IS HEREBY GIVEN that the City of National City (the "City") has not provided an Annual Report with respect to the above -named Bonds as required by that certain Paying Agent Agreement, dated as of July 1, 2012, by and between the City and Union Bank, N.A., as paying agent. The City anticipates that the Annual Report will be filed by Dated: cc: City of National City D-8 [Dissemination Agent] By: Its: APPENDIX E DTC AND THE BOOK -ENTRY ONLY SYSTEM The following description of the Depository Trust Company ("DTC'), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the City nor the Paying Agent take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. The Depository Trust Company, New York, NY, will act as securities depository for the securities (the "Bonds"). The Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Bond certificate will be issued for the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing E-1 Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information contained on this Internet site is not incorporated herein by reference. 3. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. 4. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's E-2 Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. 10. The City may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. E-3 $ CITY OF NATIONAL CITY 2012 GENERAL OBLIGATION REFUNDING BONDS BOND PURCHASE AGREEMENT City of National City 1243 National City Boulevard National City, California 91950-4301 Ladies and Gentlemen: ,2012 Estrada Hinojosa & Co., Inc. (the "Underwriter") offers to enter into this Bond Purchase Agreement (this "Purchase Agreement") with the City of National City (the "City"), which, upon your acceptance hereof, will be binding upon the City and the Underwriter. This offer is made subject to (i) the written acceptance of this Purchase Agreement by the City and (ii) withdrawal by the Underwriter upon written notice (by telecopy or otherwise) delivered to the City at any time prior to the acceptance of this Purchase Agreement by the City. The City acknowledges and agrees that: (i) the purchase and sale of the Bonds (as defined below) pursuant to this Purchase Agreement is an arm's length commercial transaction between the City and the Underwriter; (ii) in connection with such transaction, the Underwriter is acting solely as a principal and not as an agent or a fiduciary of the City; (iii) the Underwriter has not assumed (individually or collectively) a fiduciary responsibility in favor of the City with respect to: (x) the offering of the Bonds or the process leading thereto (whether or not any Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the City on other matters); or (y) any other obligation to the City except the obligations expressly set forth in this Purchase Agreement; and (iv) the City has consulted with its own advisors to the extent it has deemed appropriate in connection with the Bonds. 1. Purchase and Sale of the Bonds. Upon the terms and conditions and in reliance upon the representations, warranties and agreements herein set forth, the Underwriter hereby agrees to purchase from the City for reoffering to the public, and the City hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of $ in aggregate principal amount of the City's 2012 General Obligation Refunding Bonds (the "Bonds"). The Bonds shall bear interest at the rates and shall mature in the years shown in Appendix A hereto, which is incorporated herein by this reference. The purchase price of the Bonds shall be $ , consisting of the $ principal amount of the Bonds, plus $ net original issue premium, less an underwriter's discount of $ 2. The Bonds; Purpose of the Issue. The Bonds shall be dated the date of their original delivery. The Bonds shall mature on August 1 in the years shown in Appendix A hereto, except as provided herein, and shall otherwise be as described in, and shall be issued and secured under the provisions of the Resolution of the City Council adopted on , 2012 (the "Bond Resolution"), and Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing with Section 53550 of said Code (the "Bond Law") and other applicable provisions of law. The Bonds shall be executed and delivered under and in accordance with the provisions of the Paying Agent Agreement, dated as of July 1 2012 (the "Paying Agent Agreement") between the City and Union Bank, N.A., as paying agent (the "Paying Agent"). The Bonds shall be issued for the purpose of refunding the City of National City General Obligation Bonds, Election of 2002, Series A (the "Prior Bonds"), in accordance with Irrevocable Refunding Instructions (the "Refunding Instructions") to be given by the City to Union Bank of California, N.A., as paying agent for the Prior Bonds (the "Prior Bonds Paying Agent"). 3. Use of Documents. The City hereby authorizes the Underwriter to use, in connection with the offer and sale of the Bonds, this Purchase Agreement, the Preliminary Official Statement (defined below), the Official Statement (defined below), the Continuing Disclosure Certificate (defined below), the Paying Agent Agreement, the Refunding Instructions and all information contained herein and therein and all of the documents, certificates or statements furnished by the City to the Underwriter in connection with the transactions contemplated by this Purchase Agreement (except as such documents otherwise provided). To assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) ("Rule 15c2-12"), the City will execute a Continuing Disclosure Certificate (the "Continuing Disclosure Certificate") pursuant to which it will agree to provide annual reports and notices of certain events. 4. Public Offering of the Bonds. The Underwriter agrees to make a bona fide public offering of all the Bonds at the initial public offering prices or yields to be set forth on the cover page of the Official Statement and Appendix A hereto. Subsequent to such initial public offering, the Underwriter reserves the right to change such initial public offering prices or yields as it deems necessary in connection with the marketing of the Bonds. 5. Review of Official Statement. The Underwriter hereby represents that it has received and reviewed the Preliminary Official Statement with respect to the Bonds, dated , 2012 (the Preliminary Official Statement"). The City represents that it deemed the Preliminary Official Statement to be final as of its date, except for either revision or addition of the offering price(s), yield(s) to maturity, selling compensation, aggregate principal amount and maturity value, denominational amount and maturity value per maturity, delivery date, rating(s) and other terms of the Bonds which depend upon the foregoing as provided in and under Rule 15c2-12. -2- The Underwriter agrees that prior to the time the final Official Statement (the "Official Statement") relating to the Bonds is available, the Underwriter will send to any potential purchaser of the Bonds, upon the request of such potential purchaser, a copy of the most recent Preliminary Official Statement. Such Preliminary Official Statement shall be sent by first class mail (or other equally prompt means) not later than the first business day following the date upon which each such request is received. The Underwriter hereby represents that it will provide, consistent with the requirements of Municipal Securities Rulemaking Board ("MSRB") Rule G-32, for the delivery of a copy of the Official Statement to each customer who purchases any Bonds during the underwriting period (as such term is defined in MSRB Rule G-11), and deliver a copy of the Official Statement to a national repository on or before the Closing Date, and that it will otherwise comply with all applicable statutes and regulations in connection with the offering and sale of the Bonds, including, without limitation, MSRB Rule G-32 and Rule 15c2-12. References herein to the Preliminary Official Statement and the final Official Statement include the cover page and all appendices, exhibits, maps, reports and statements included therein or attached thereto. 6. Closing. At 9:00 A.M., California time, on , 2012, or at such other time or on such other date as shall have been mutually agreed upon by the City and Underwriter, (the "Closing Date"), the City will deliver to the Underwriter at the offices of The Depository Trust Company ("DTC") in New York, New York, or at such other place as the City and the Underwriter may mutually agree upon, the Bonds in fully registered book -entry form, duly executed and registered in the name of Cede & Co., as nominee of DTC, and in San Francisco, California, the other documents hereinafter mentioned; and the Underwriter will accept such delivery and pay the purchase price thereof in immediately available funds by wire transfer to (i) the escrow account established by the Prior Bonds Paying Agent and (ii) to the Paying Agent, to pay the costs of issuing the Bonds. 7. Representations, Warranties and Agreements of the City. The City hereby represents, warrants and agrees with the Underwriter that: (a) Due Organization. The City is a general law city and municipal corporation duly organized and validly existing under the Constitution and laws of the State of California, with the power to issue the Bonds under the Bond Law; (b) Due Authorization. (i) On or before the Closing Date, the City will have taken all action required to be taken by it to authorize the issuance and delivery of the Bonds; (ii) the City has full legal right, power and authority to enter into the Paying Agent Agreement, this Purchase Agreement, the Refunding Instructions and the Continuing Disclosure Certificate, and to perform its obligations under the Paying Agent Agreement, the Refunding Instructions and the Continuing Disclosure Certificate; and (iii) this Purchase Agreement constitutes, and when executed, the Paying Agent Agreement, the Refunding Instructions and the Continuing Disclosure Certificate, will constitute the valid and legally binding obligation of the City; -3- 1 3 (c) Consents. Except for the action of parties hereto, no consent, approval, authorization, order, filing, registration, qualification, election or referendum of or by any court or governmental agency or public body whatsoever is required in connection with the issuance, delivery or sale of the Bonds or the consummation of the other transactions contemplated herein or hereby, except for such actions as may be necessary to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and jurisdictions of the United States as the Underwriter may reasonably request, or which have not been taken or obtained; (d) Internal Revenue Code. The City has covenanted to comply with the Internal Revenue Code of 1986, as amended, with respect to the Bonds; (e) No Conflicts. To the best knowledge of the City, the issuance of the Bonds, and the execution, delivery and performance of this Purchase Agreement, the Paying Agent Agreement, the Refunding Instructions, the Continuing Disclosure Certificate and the Bonds, and the compliance with the provisions hereof do not conflict with or constitute on the part of the City a violation of or default under, the Constitution of the State of California or any existing law, charter, ordinance, regulation, decree, order or resolution, and do not conflict with or result in a violation or breach of, or constitute a default under, any agreement, indenture, mortgage, lease or other instrument to which the City is a party or by which it is bound or to which it is subject; (f) Litigation. No action, suit, proceeding, hearing or investigation is pending or, based on reasonable inquiry, threatened against the City: (i) in any way affecting the existence of the City or in any way challenging the respective powers of the several officers of the City required to execute any documents or certificates in connection with the delivery of the Bonds or of the titles of the officials of the City to such offices; or (ii) seeking to restrain or enjoin the sale, issuance or delivery of any of the Bonds, the application of the proceeds of the sale of the Bonds, or the collection of taxes of the City pledged or to be pledged or available to pay the principal of and interest on the Bonds, or the pledge thereof, or, the levy of any taxes contemplated by the Bond Resolution, or in any way contesting or affecting the validity or enforceability of the Bonds, the Paying Agent Agreement, the Refunding Instructions, the Continuing Disclosure Certificate or this Purchase Agreement or contesting the powers of the City or its authority with respect to the Bonds, the Paying Agent Agreement, the Refunding Instructions, the Continuing Disclosure Certificate, or this Purchase Agreement; or (iii) in which a final adverse decision could (a) materially adversely affect the operations of the City or the consummation of the transactions contemplated by this Purchase Agreement or the Paying Agent Agreement„ (b) declare this Purchase Agreement to be invalid or unenforceable in whole or in material part, or (c) adversely affect the exclusion of the interest -4- /3/ (g) paid on the Bonds from gross income for federal income tax purposes and the exemption of such interest from California personal income taxation; No Other Debt. Between the date hereof and the Closing Date, without the prior written consent of the Underwriter, neither the City directly, nor any other governmental agency or other body on behalf of the City, will have issued in the name and on behalf of the City any bonds, notes or other obligations for borrowed money except for such borrowings as may be described in or contemplated by the Official Statement; (h) Arbitrage Certificate. The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that the City is a bond issuer whose arbitrage certificates may not be relied upon; (i) Continuing Disclosure. Except as disclosed in the Official Statement, the City has not failed to comply in all material respects with any previous continuing disclosure undertaking under Rule 15c2-12 during the past five years; and (j) Certificates. Any certificates signed by any officer of the City and delivered to the Underwriter shall be deemed a representation by the City to the Underwriter, but not by the person signing the same, as to the statements made therein. 8. Representations, Warranties and Agreements of the Underwriter. The Underwriter represents to and agrees with the City that, as of the date hereof and as of the Closing Date: (a) The Underwriter is duly authorized to execute this Purchase Agreement and to take any action under this Purchase Agreement required to be taken by it. (b) The Underwriter is in compliance with MSRB Rule G-37 with respect to the City, and is not prohibited thereby from acting as underwriter with respect to securities of the City. (c) The Underwriter has, and has had, no financial advisory relationship with the City with respect to the Bonds, and no investment firm controlling, controlled by or under common control with the Underwriter has or has had any such financial advisory relationship. (d) The Underwriter has reasonably determined that the City's obligations under the Continuing Disclosure Certificate are sufficient to effect compliance with Rule 15c2-12. 9. Covenants of the City. The City covenants and agrees with the Underwriter that: -5- (a) Securities Laws. The City will furnish such information, execute such instruments, and take such other action in cooperation with the Underwriter if and as the Underwriter may reasonably request in order to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and jurisdictions, provided, however, that the City shall not be required to consent to service of process in any jurisdiction in which they are not so subject as of the date hereof; (b) Application of Proceeds. The City will apply the proceeds from the sale of the Bonds for the purposes for which the Bonds were authorized; (c) Official Statement. The City hereby agrees to deliver or cause to be delivered to the Underwriter, not later than the 7th business day following the date this Purchase Agreement is signed, copies of a final Official Statement substantially in the form of the Preliminary Official Statement, with only such changes therein as shall have been accepted by the Underwriter and the City (such Official Statement with such changes, if any, and including the cover page and all appendices, exhibits, maps, reports and statements included therein or attached thereto being herein called the "Official Statement") in such quantities (including a representative number of originally executed copies) as may be requested by the Underwriter in order to permit the Underwriter to comply with paragraph (b)(4) of Rule 15c2-12 and with the rules of the Municipal Securities Rulemaking Board; (d) Subsequent Events. The City hereby agrees to notify the Underwriter of any event or occurrence that may affect in any material respect the accuracy or completeness of any information set forth in the Official Statement relating to the City, until the date which is 90 days following the Closing Date or until such time (if earlier) as the Underwriter shall no longer hold any of the Bonds for sale; (e) Amendments to Official Statement. For a period of 90 days after the Closing Date or until such time (if earlier) as the Underwriter shall no longer hold any of the Bonds for sale, the City will not adopt any amendment of or supplement to the Official Statement to which, after having been furnished with a copy, the Underwriter shall object in writing or which shall be disapproved by the Underwriter (the Underwriter's approval of such amendment or supplement shall not be unreasonably withheld); and if any event relating to or affecting the City shall occur as a result of which it is necessary, in the opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in light of the circumstances existing at the time it is delivered to a purchaser, the City shall forthwith prepare and furnish (at the expense of the City) a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to the Underwriter) which will amend or -6- supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time such supplemental Official Statement is delivered to a purchaser, not misleading. 10. Conditions to Closing. The Underwriter has entered into this Purchase Agreement in reliance upon the representations and warranties of the City contained herein and the performance by the City of its obligations hereunder, both as of the date hereof and as of the date of Closing. The Underwriter's obligations under this Purchase Agreement are and shall be subject at the option of the Underwriter, to the following further conditions at the Closing Date: (a) Representations True. The representations and warranties of the City contained herein shall be true, complete and correct in all material respects at the date hereof and at and as of the Closing Date as if made on and as of the Closing Date, and the statements made in all certificates and other documents delivered to the Underwriter on the Closing Date pursuant hereto shall be true, complete and correct in all material respects on the Closing Date; and each of the City shall be in compliance with each of the agreements made by it in this Purchase Agreement; (b) Obligations Performed. On the Closing Date, (i) the Paying Agent Agreement, the Official Statement, this Purchase Agreement, the Continuing Disclosure Certificate and the Refunding Instructions shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Underwriter; and (ii) all actions under the Bond Law which, in the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California ("Bond Counsel"), shall be necessary in connection with the transactions contemplated hereby shall have been duly taken and shall be in full force and effect. (c) Adverse Rulings. No decision, ruling or finding shall have been entered by any court or governmental authority since the date of this Purchase Agreement (and not reversed on appeal or otherwise set aside), or to the best knowledge of the City, pending or threatened which has any of the effects described in Section 7(f) or contesting in any way the completeness or accuracy of the Official Statement; (d) Marketability. Between the date hereof and the Closing Date, the market price or marketability or the ability of the Underwriter to enforce contracts for the sale of the Bonds, at the initial offering prices set forth in the Official Statement, of the Bonds shall not have been materially adversely affected by reason of any of the following: (1) legislation enacted or introduced in the Congress or recommended for passage by the President of the United States, or a decision rendered by a court established under Article III of the Constitution of the United States or by the -7- United States Tax Court, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made: (i) by or on behalf of the United States Treasury Department, or by or on behalf of the Internal Revenue Service, with the purpose or effect, directly or indirectly, of causing inclusion in gross income for purposes of federal income taxation of the interest received by the owners of the Bonds; or (ii) by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction over the subject matter thereof, to the effect that the Bonds, or obligations of the general character of the Bonds, including any and all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended; (2) legislation enacted by the legislature of the State of California (the "State"), or a decision rendered by a court of the State, or a ruling, order, or regulation (final or temporary) made by State authority, which would have the effect of changing, directly or indirectly, the State tax consequences of interest on obligations of the general character of the Bonds in the hands of the holders thereof; (3) the declaration of war or engagement in major military hostilities by the United States or the occurrence of any other national emergency or calamity relating to the effective operation of the government or the financial community in the United States; (4) the declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange; (5) the imposition by the New York Stock Exchange, other national securities exchange, or any governmental authority, of any material restrictions not now in force with respect to the Bonds, or obligations of the general character of the Bonds, or securities generally, or the material increase of any such restrictions now in force; (6) an order, decree or injunction of any court of competent jurisdiction, or order, filing, regulation or official statement by the Securities and Exchange Commission, or any other governmental agency having jurisdiction over the subject matter thereof, issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, as contemplated hereby or by the Official Statement, is or would -8- • be in violation of the federal securities laws, as amended and then in effect; (7) the withdrawal or downgrading of any rating of the City's outstanding indebtedness by a national rating agency; or (8) any event occurring, or information becoming known which, in the reasonable judgment of the Underwriter, makes untrue in any material adverse respect any statement or information contained in the Official Statement, or has the effect that the Official Statement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading, and which the City fails or is unwilling to correct by the submission of supplemental information. (e) Delivery of Documents. On or before the Closing Date, the City shall deliver (or cause to be delivered) sufficient copies of the following documents, in each case dated as of the Closing Date and satisfactory in form and substance to the Underwriter: (1) Paying Agent Agreement. The Paying Agent Agreement, fully executed by the City and the Paying Agent. (2) Refunding Instructions. Refunding Instructions, fully executed by the City and the Prior Bonds Paying Agent. Bond Counsel Opinion. An approving opinion of Bond Counsel, as to the validity and tax-exempt status of the Bonds, dated the Closing Date, addressed to the City, in substantially the form attached as an appendix to the Official Statement, together with a reliance letter from Bond Counsel to the effect that the Underwriter can rely upon such approving opinion. (4) Bond Counsel Supplemental Opinion. The supplemental opinion of Bond Counsel to the effect that: (3) (i) The statements contained in the Official Statement pertaining to the Bonds under the captions "INTRODUCTION," "THE BONDS," "SECURITY FOR THE BONDS," and "TAX MATTERS," excluding any material that may be treated as included under such captions by cross-reference, insofar as such statements expressly summarize certain provisions of the Bonds, the Paying Agent Agreement and its final opinion, are accurate in all material respects; and (ii) the Bonds are exempt from registration under the Securities Act of 1933, as amended. -9- (5) Disclosure Counsel 10b-5 Opinion. The opinion of Bond Counsel, acting as disclosure counsel to the City ("Disclosure Counsel"), in form and substance satisfactory to the Underwriter, addressed to the Underwriter and the City, dated the Closing Date, to the effect that during the course of serving as Disclosure Counsel in connection with the issuance of the Bonds and without having undertaken to determine independently or assuming any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement, no information came to the attention of the attorneys in such firm rendering legal services in connection with the issuance of the Bonds that would lead them to believe that the Official Statement (excluding therefrom the financial statements, any financial or statistical data, or forecasts, charts, numbers, estimates, projections, assumptions or expressions of opinion included in the Official Statement and the appendices to the Official Statement as to which no opinion need be expressed), as of the date thereof or the Closing Date, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (6) City Attorney Opinion. The opinion of the City Attorney, in form and substance satisfactory to the Underwriter, addressed to the Underwriter and the City, dated the Closing Date, to the effect that: (i) The Bond Resolution has been duly adopted and is in full force and effect and has not been amended or rescinded in whole or in part; (ii) The Paying Agent Agreement, the Purchase Contract and the Continuing Disclosure Certificate have been duly authorized, executed and delivered by the City and constitute the valid, legal and binding agreements of the City enforceable in accordance with their terms. (iii) The City is a general law city and municipal corporation duly organized and validly existing under the Constitution and laws of the State of California; (iv) The statements contained in the Official Statement under the caption "ABSENCE OF MATERIAL LITIGATION" fairly and accurately summarize the information presented therein; provided that the City Attorney need not express any opinion with respect to any financial or statistical information contained therein; and (v) Except as otherwise disclosed in the Official Statement and to the best knowledge of such counsel after due -10- (7) inquiry, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental agency of body, pending or threatened against the City, challenging the creation, organization or existence of the City, or the validity of the Bond Resolution or seeking to restrain or enjoin the repayment of the Bonds or in any way contesting or affecting the validity of the Bond Resolution. Certificate of the City. A certificate signed by appropriate officials of the City to the effect that (i) such officials are authorized to execute the Paying Agent Agreement, the Refunding Instructions, the Continuing Disclosure Certificate and this Purchase Agreement; (ii) the representations, agreements and warranties of the City herein are true and correct in all material respects as of the date of Closing; (iii) the City has complied with all the terms of the Bond Resolution, the Paying Agent Agreement, the Refunding Instructions and this Purchase Agreement that are necessary to be complied with prior to or before the Closing Date and such documents and the Continuing Disclosure Certificate are in full force and effect; and (iv) the City has reviewed the Official Statement and on such basis certifies that the Official Statement does not contain any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, excepting therefrom those sections of the Official Statement describing the Depository Trust Company and its Book -Entry -Only System, any bond insurance and the provider of such bond insurance. (8) Arbitrage. A non -arbitrage certificate of the City in a form satisfactory to Bond Counsel. (9) Ratings. Evidence satisfactory to the Underwriter that the Bonds shall have been rated " " by Standard & Poor's Ratings Service and that such ratings have not been revoked or downgraded. (10) Bond Resolution. A certificate, together with fully executed copies of the Bond Resolution, of the City Clerk to the effect that: (i) such copies are true and correct copies of the Bond Resolution; and (ii) that the Bond Resolution was duly adopted and has not been modified, amended, rescinded or revoked and is in full force and effect on the Closing Date. -11- (11) Continuing Disclosure Certificate. A Continuing Disclosure Certificate of the City in substantially the form set forth in the Preliminary Official Statement. (10) Underwriter's Certifications. At or before Closing, and contemporaneously with the acceptance of delivery of the Bonds and the payment of the purchase price thereof, the Underwriter will provide (or cause to be provided) to the City: (i) the receipt of the Underwriter, in form satisfactory to the City and signed by an authorized officer of the Underwriter, confirming delivery of the Bonds to the Underwriter, receipt of all documents required by the Underwriter, and the satisfaction of all conditions and terms of this Purchase Agreement by the City, and confirming to the City that as of the Closing Date all of the representations of the Underwriter contained in this Purchase Agreement are true, complete and correct in all material respects. (ii) a certificate of the Underwriter regarding the initial reoffering price of the Bonds to the public, in form and substances acceptable to the Underwriter and Bond Counsel. (11) Certificate of Paving Agent and Prior Bonds Paying Agent. A certificate of each of the Paying Agent and the Prior Bonds Paying Agent, dated the date of Closing, addressed to the City and the Underwriter, to the following effect: (i) The Paying Agent is duly organized and existing as a national banking association under the laws of the United States of America, having the full power and authority to perform the duties of the Paying Agent and the Prior Bonds Paying Agent set forth in the Paying Agent Agreement and the Refunding Instructions, respectively. (ii) To the best knowledge of the Paying Agent, after due inquiry, there is no action, suit, proceeding or investigation, at law or in equity, before or by any court or governmental agency, public board or body that has been served on the Paying Agent or threatened against the Paying Agent which in the reasonable judgment of the Paying Agent would affect the existence of the Paying Agent or in any way contesting the powers of the Paying Agent or its authority to perform its obligation under the Paying Agent Agreement or the Refunding Instructions (in its role as Prior Bonds Paying Agent). (iii) To the best knowledge of the Paying Agent, the acceptance by the Paying Agent of its duties and obligations under the Paying Agent Agreement and the -12- • 13 �7 (f) Refunding Instructions (in its role as Prior Bonds Paying Agent) and compliance with the provisions thereof will not conflict with or constitute a breach of or default under any law, administrative regulation, consent decree or any agreement or other instrument to which the Paying Agent is subject or by which the Paying Agent is bound. (12) Other Documents. Such additional legal opinions, certificates, proceedings, instruments and other documents as the Underwriter or Bond Counsel may reasonably request to evidence (i) compliance by the City with legal requirements, (ii) the truth and accuracy, as of the time of Closing, of the representations of the City herein contained, and (iii) the due performance or satisfaction by the City at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the City. Termination. Notwithstanding anything to the contrary herein contained, if for any reason whatsoever the Bonds shall not have been delivered by the City to the Underwriter prior to the close of business, California time, on , 2012, then the obligation to purchase Bonds hereunder shall terminate and be of no further force or effect except with respect to the obligations of the City and the Underwriter under Section 12. If the City is unable to satisfy the conditions to the Underwriter's obligations contained in this Purchase Agreement or if the Underwriter's obligations shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement may be canceled by the Underwriter at, or at any time prior to, the time of Closing. Notice of such cancellation shall be given to the City in writing, or by telephone or telegraph, confirmed in writing. Notwithstanding any provision herein to the contrary, the performance of any and all obligations of the City hereunder and the performance of any and all conditions contained herein for the benefit of the Underwriter may be waived by the Underwriter in writing at its sole discretion. 11. Conditions to Obligations of the City. The performance by the City of its obligations is conditioned upon (i) the performance by the Underwriter of their obligations hereunder; and (ii) receipt by the City and the Underwriter of opinions and certificates being delivered on the Closing Date by persons and entities other than the City. 12. Expenses. The Underwriter shall be under no obligation to pay and the City shall pay or cause to be paid the expenses incident to the performance of the obligations of the City hereunder including but not limited to: (i) the fees and expenses of the City and City Attorney; (ii) the fees and expenses of Bond Counsel; (iii) the fees and expenses of any accountant, consultant or other expert retained by the City; (iv) all costs and expenses incurred in connection with the preparation and printing of the Bonds; (v) all expenses in connection with the preparation, printing, distribution and delivery of the Preliminary Official Statement, the Official Statement and any amendment or supplement thereto; (vi) fees and expenses of Standard & Poor's Ratings Service in connection with the rating of the Bonds; and (vii) fees of the verification agent; and (vii) the fees and expenses of the paying agent for the Bonds and the Prior Bonds Paying Agent. -13- The Underwriter shall pay (from its underwriter's discount or otherwise), and the City shall be under no obligation to pay, all expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds, including but not limited to CDIAC, DTC, and CUSIP Bureau, if any, and all advertising expenses in connection with the public offering of the Bonds. 13. Notices. Any notice or other communication to be given under this Purchase Agreement may be given by delivering the same in writing: To the City: To the Underwriter: The City of National City 1243 National City Boulevard National City, California 91950-4301 Attention: City Manager Estrada Hinojosa & Co., Inc. 437 J Street, Suite 212 San Diego, California 92101 Attention: Ruben Mendoza 14. Parties in Interest; Survival of Representations and Warranties. This Purchase Agreement when accepted by the City in writing as heretofore specified shall constitute the entire agreement between the City and the Underwriter. This Purchase Agreement is made solely for the benefit of the City and the Underwriter (including the successors or assigns of the Underwriter). No person shall acquire or have any rights hereunder or by virtue hereof. All representations, warranties and agreements of the City in this Purchase Agreement shall survive regardless of (a) any investigation or any statement in respect thereof made by or on behalf of the Underwriter, and (b) delivery of and payment by the Underwriter for the Bonds hereunder. 15. Severability. In the event any provision of this Purchase Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision thereof. 16. Non -assignment. Notwithstanding anything stated to the contrary herein, neither party hereto may assign or transfer its interest herein, or delegate or transfer any of its obligations hereunder, without the prior consent of the other party hereto. 17. Entire Agreement. This Purchase Agreement, when executed by the parties hereto, shall constitute the entire agreement of the parties hereto, including their permitted successors and assigns, respectively. 18. Execution in Counterparts. This Purchase Agreement may be executed in several counterparts each of which shall be regarded as an original and all of which shall constitute but one and the same document. -14- • 19. Applicable Law. This Purchase Agreement shall be interpreted, governed and enforced in accordance with the law of the State of California applicable to contracts made and performed in such State. Very truly yours, ESTRADA HINOJOSA & CO., INC. By: Authorized Officer The foregoing is hereby agreed to and accepted as of the date first above written: CITY OF NATIONAL CITY By: City Manager -15- y $ APPENDIX A MATURITY SCHEDULE Serial Bonds Maturity Date Principal (August 1) Amount Interest Yield Price 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Exhibit A-1