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Home My WebLink About1984-07-17; City Council; 7820 Exhibit 09; OFFICIAL REQUEST TO STATE OF CALIFORNIA FOR MORTGAGE REVENUE BOND ALLOCATION Exhibit 09?k- :.a , 1985 -- ,. ' I+% 75-m PRELIMINARY OFFICIAL STATEMENT DATED RATINGS : Moody I s : Standard & Poors: (see "Ratings" herein) NEW ISSUE In the opinion of Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, assuming continuing compliance with certain requirements of Section 103A of the Internal Revenue Code of 1954, as amended, interest on the Bonds is exempt from present federal income taxation. In the opinion of Bond Counsel, interest on the Bonds is also exempt from present State of California personal income taxation. See "Tax Exemption" herein. $15,000,000* CITY OF CARLSBAD Home Mortgage Revenue Bonds (FGIC Insured), 1985 Series A The Bonds which comprise the issue described herein (the "Bonds") include current interest serial bonds (the "Serial Bonds") in an aggregate principal amount of $ *, current interest term bonds (the "Term Bonds") in an aggregate principal amount of $ * (collectively, the "Current Interest Bonds") and compound interest term bonds (the "Tax Exempt *. The Bonds will be issued only in fully registered form. The Current Interest Bonds are issued in the denomination of $5,000 or any integral multiple thereof, are dated as of 1, 1985, and accrue interest from such date payable on 1, 1985, and semiannually thereafter on respective registered owners thereof. The Tax Exempt Capital Accumulator Bonds are issued in $5,000 maturity amounts or any integral multiple thereof, are dated as of their date of issuance (which is expected to be on or about Capital Accumulator Bonds") in an aggregate principal amount of $ 1 and 1 of each year, by check or draft mailed to the , 1985), and accrue interest from such date compounded on - 1, 1985, and semiannually thereafter on 1 and 1 of each year, payable only at maturity or upon redemption. The compounded amount of the Tax Exempt Capital Accumulator Bonds, and principal (or redemption price) of the Current Interest Bonds, are payable at the principal corporate trust office of , , California, as trustee (the "Trustee"). The Bonds are subject to redemption prior to their respective stated maturities as set forth herein, and it is expected that a substantial portion of the Bonds will be so redeemed. The Bonds are being issued to provide the City of Carlsbad, California (the "City"), with funds to finance the purchase of mortgage loans (the "Home Mortgages") on certain single family residences (including condominium). The Home Mortgages will be originated and serviced by assigned to the Trustee. The Home Mortgages will be insured to the extent de sc r ibe d he rein. (the "Lender") on behalf of the City, and ? r The Bonds are limited obligations of the City payable solely from Bond proceeds, revenues (excluding Nonmortgage Investment Excess, as defined herein) and other amounts derived by the Agency from the Home Mortgages (including certain earnings thereon and certain insurance with respect thereto), and certain reserve funds established in connection therewith. The Bonds do not constitute a debt or liability of the City, the State of California or any political subdivision thereof for which is pledged the faith and credit of the City, the State of California or any political subdivision thereof within the meaning of any constitutional or statutory limitation. The Bonds do not constitute an indebtedness or loan of credit of the City, the State of California or any political subdivision thereof and do not directly or indirectly obligate the City, the State of California or any political subdivision thereof to levy or pledge any form of taxation, or make any appropriation, for the payment of the Bonds. A municipal bond insurance policy issued by FINANCIAL GUARANTY INSURANCE COMPANY (doing business in California as FGIC Insurance Company) will be issued simultaneously with the issuance of the Bonds, and will insure payment of principal for compounded amount) of and interest on, the Bonds, when due, as described herein. MATURITY SCHEDULE $ * Serial Bonds Rate 1 - - -- ___-___ Amount Rate Price Due Amount Due $ * % Term Bonds Due 1, - Price % (Plus Accrued Interest) - $ * Tax Exempt Capital Accumulator Bonds - Yield to Maturity % - Price O 6 1, - Due The Bonds are offered when, as and if issued and received by the - Underwriters, subject to the approval of their legality by Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon by Orrick, Herrington & Sutcliffe, Counsel to the Underwriters. It is expected that the Bonds in definitive form will be available for delivery in , 1985. - , California, on or about PAINE WEBBER INCORPORATED , 1985 - Dated : * Subject to change r ? No dealer, broker, salesman or other person has been authorized by the City or the Underwriters to give any information or to make any representations with respect to the Bonds other than those contained in this Official Statement, and, if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the City and other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the Underwriters. The information and expressions of opinion stated herein are. subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the information or opinions set forth herein, or in the affairs of the City, since the date hereof. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. I t CITY OF CARLSBAD CITY COUNCIL , Mayor City Manager City Attorney Building & Planning Director Finance Director SPECIAL SERVICES I TRUSTEE Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach BOND COUNSEL f ? TABLE OF CONTENTS Introduction .............................................. The Bonds ................................................. Compounded Amounts ................................... General Description .................................. Redemption Provisions ................................ Special Mandatory Redemption .................... Sinking Account Redemption ...................... Risk of Redemption .............................. Manner of Redemption ............................ No Published Notice of Redemption ............... Security for the Bonds ............................... Additional Bonds ..................................... Disposition of Bond Proceeds .............................. Structure Assumptions and Bondholders' Risks .............. Structure Assumptions ................................ Limited Rights in Event of Default ................... Notice of Redemption ................................. Natural Disasters .................................... Tax Exemption ........................................ Special Considerations Relative to the Home Mortgages .......................................... Foreclosure Laws ..................................... The Lender ........................................... Errors and Omissions Insurance Policy and Fidelity Bond .................................. Limited Rights of Registered Owners with Respect to Money Held by the Lender ........................ Bond Insurance ............................................ The Program ............................................... Developer Agreements ................................. Mortgage Sale and Service Agreement ................... Foreclosure Laws ...................................... The Administrator ......................................... Insurance ................................................. Private Mortgage Guaranty Insurance .................. Standard Hazard Insurance, Flood Insurance Mortgage Pool Insurance .............................. and Earthquake Insurance ........................... Special Hazard Insurance ............................. Definitions of Certain Terms .............................. The Indenture ............................................. Pledge and Assignment ................................ Flow of Funds ........................................ Program Fund .................................... Revenue Fund .................................... Reserve Fund .................................... Redemption Fund ................................. Deficiencies in Interest and Principal Funds .... Program Expense Fund ............................ (i) t t Nonmortgage Investment Income Funds Investment of Money in Funds ......................... Particular Covenants ................................. Punctual Payments ............................... Against Encumbrances ............................ Payment of Taxes and Claims ..................... Accounting Records and Financial Statements ..... Tax Covenants ................................... Program Covenants ............................... Events of Default and Remedies ....................... Supplemental Indentures .............................. Defeasance ........................................... The Trustee .......................................... Feasibility Study ......................................... Certain Verifications ..................................... Rating .................................................... Underwriting .............................................. Legality for Investment ................................... Tax Exemption ............................................. Section 103A ......................................... Original Issue Discount .............................. No Litigation ............................................. Additional Information .................................... Appendix A: Description of Developer Reserved Homes ....... Appendix B: The Lender .................................... Appendix C: The City ...................................... Appendix E: Form of Municipal Bond New Issue Approval of Legality ...................................... Appendix D: Summary of Feasibility Study .................. Appendix F: Proposed Form of Legal Opinion ............... Insurance Policy ........................... (ii) I 1 u! a,I. -0 0 @ K .- .- I. LLLp suo WL 2 bc3 .b "Z c- a) 2z v1 .n- C)E K rI.0s roc, La, .- a, 4JmL-U KKL- m- 0 3 EL 0 u c3 CKm a,.- a E 6- mwom a)w LI.C OUOL >.- 0 c.- c, 0- m c '-a,uo @ u .- .- a, 00 - w.- (I) E 0.- o@w0 0 K .- am- OE 0 @a,Lul 0 I)- L K urn- a, 0 .7 a, L.- R-wLCC, 3m 00 u) .- 0 .- U@CU a,- 0m L&- L 3.- a&- a) w I. 06 3 K bT.7 -O00 Ln n- - c, &go .. 25c&5 a, m32 La, Emc w .- i, .- X U4JS c K QCm .- a, .- 0 mc @--&- @i,ln@O C KO ooo--w 0@0W3 wm c I.c,.-- OOCL a,sm @ I. E.70 E @X@ LU m K- 0Q)ClmL bum J ca to a) .- a, - .- om ul 0) 0- w rmoaa) .c @ .-.- a,&-@@ UQL.- c OLL 4~n I. a, c K mv)S OOC E @.- a c Ql Em0 i, u) .- 0) .- mL-CC, ua)a,i,m rnLL 0 r+C6.- -0 Ob m ul .- .- X.- a)- 0 mr- m .--Ei,ms k- mu &- L- o o- XI. cmco A rm iuw c m- a0 c own- .-ma, u E Oa)m --a,CI.L -n m a,@ a, *.cm L i, ul @.- LOE ul CJ-a v) 0-L .- XI. m r m--r 0 FEOu)@ .- .- mas, .- a 52; I 7 $15 , 000 , OOO* CITY OF CARLSBAD Home Mortgage Revenue Bonds (FGIC Insured) 1985 Series A INTRODUCTION This Official Statement of the City of Carlsbad, California (the "City"), including the Appendices hereto, sets forth information in connection with the sale of $15,000,000* aggregate principal amount of the City's Home Mortgage Revenue Bonds (FGIC Insured), 1985 Series A (the "Bonds"), which are being issued pursuant to Chapters 1-5 of Part 5 of Division 31 of the Health and Safety Code of the . State of California, as amended (the "Act"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth herein under "Definitions of Certain Terms. I' The Bonds are being issued pursuant to a Trust Indenture dated as of , 1985 (the "Indenture") between the City and , as trustee (the "Trustee"), for the purpose of providing funds to purchase from (the "Lender" ) home mortgage loans (the "Home Mortgages") made to qualified persons and secured by eligible single family owner-occupied residences (the "Homes") located within the City, all in accordance with the Mortgage Sale and Service Agreement (the "Agreement" ) among the Lender , the Trustee, I as Administrator (the "Administrator") and the City. Funds available to purchase Home Mortgages have been reserved by the developers described in Appendix A hereto (the "Developers") who have developed or who plan to construct or develop and market approximately __ single family Homes (the "Developer Reserved Homes") within a period (which may be extended in accordance with the Indenture), all in accordance with the Developer Agreements (the "Developer Agreements") between the Developers and the City. The object of the City's affordable housing program (the "Program") is to provide affordable housing for average and below average income households. (-) month * Subject to change. 1 5 Under the Program, each Home Mortgage will (i) be made to an eligible mortgagor (the "Mortgagor") to finance up to 95% of the purchase price of the Home; (ii) have a term of not less than 29 nor more than 30 years; (iii) provide for level monthly payments; (iv) be secured by a first mortgage lien (subject to certain permitted encumbrances); (v) be originated substantially in accordance with Federal National Mortgage Association ("FNMA") or Federal Home Loan Mortgage Corporation ("FHLMC") current underwriting practices by the Lender; (vi) be serviced substantially in accordance with FNMA or FHLMC current practices by the Lender; and (vii) be insured by private mortgage guaranty insurance, with advance payments, attorneys' fees limit waiver, due-on-sale exclusion waiver and nonmonetary default endorsements. Hazard insurance (including earthquake coverage and flood coverage, if applicable) and special hazard insurance will be required, and will be maintained if commercially available, to the extent described herein. Each Mortgagor must intend to occupy the Home as his or her principal residence within sixty (60) days after the date of the Home Mortgage and for a minimum of two years and, generally, may not have had a present ownership interest in any principal residence during the three years prior to the execution of the Home Mortgage. A Mortgagor's household income may not exceed -% of Median Household Income in the case of a Mortgagor who will be the first occupant of a new or improved Home and -% of Median Household Income in all other cases[, provided that at least 20% of the aggregate principal amount of Home Mortgages in such other cases shall be made to Mortgagors whose household income does not exceed -% of Median Household Income]. Median Household Income for the City is currently $ The acquisition cost of each Home may not exceed 110% of the applicable Average Area Purchase Price. The Average Area Purchase Price for the City for new Homes is currently $ and for existing Residences is currently $ The Bonds'are limited obligations of the City payable solely from and secured by a pledge of payments made on the Home Mortgages (and any insurance payments made with respect thereto) and all other funds held under the Indenture (except to the extent of any Nonmortgage Investment Excess required to be rebated to the United States pursuant to the Indenture), and are secured by an assignment of all right, title and interest of the City in the Home Mortgages and certain agreements related thereto (as more particularly described in the Indenture). 2 040181-0039-161-4919f 05/01/85 I I The Bonds do not constitute an indebtedness of the City (except as aforesaid) or a loan of credit thereof within the meaning of any constitutional or statutory provisions. Neither the faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof have been pledged to the payment of the Bonds. There follows in this Official Statement brief descriptions of the Bonds, the security for the Bonds, the Program, the Developer Agreements, the Agreement, the Indenture, the Administrator and the insurance required in connection with the Program. A brief description of the City is included in Appendix C, and a summary of the feasibility study prepared by Empire Economics (the "Feasibility Consultant") is included in Appendix D. All references to documents, agreements, and insurance policies are qualified in their entirety by reference thereto, copies of which are available for inspection during the offering period at the offices of Paine Webber Incorporated, San Francisco, California. Certain capitalized terms used herein are defined in "Summary of Certain Provisions of the Indenture." THE BONDS General Description The Bonds include current interest serial bonds *, current interest term bonds (the "Term (the "Serial Bonds") in an aggregate principal amount of Bonds") in an aggregate principal amount of $ (collectively, the "Current Interest Bonds") and compound interest term bonds (the "Tax Exempt Capital Accumulator * $ Bonds") in an aggregate principal amount of $ *. The Current Interest Bonds will be dated as of , 1985, and will bear interest therefrom, payable semiannually on and of each year, commencing , 1985, at the rates, and will mature on the dates and in the amounts set forth on the cover of this Official Statement. The Tax Exempt Capital Accumulator Bonds will bear interest from their date of delivery compounded semiannually on and , commencing the yield to maturity set forth on the cover of this Official Statement. , 1985, payable at maturity or upon redemption at * Sub j ect to change. 3 040181-0039-161-4919f 05/01/85 I I The Current Interest Bonds will be issued only in fully registered form in the denomination of $5,000 or any integral multiple thereof, and the Tax Exempt Capital Accumulator Bonds will be issued only in fully registered form in the denomination of $5,000 payment at maturity or any integral multiple thereof. The Compounded Amount of the Tax Exempt Capital Accumulator Bonds, and principal (or redemption price) and interest payable upon maturity or redemption of the Current Interest Bonds, are payable at the principal corporate trust office of the Trustee in , California, and interest on the Current Interest Bonds is payable by check or draft mailed by the Trustee to the respective persons in whose names the Bonds are registered at the close of business on the fifteenth day of the month preceding the applicable interest payment date. The Bonds may be transferred or exchanged at the aforesaid office of the Trustee. For every exchange or transfer of any Bond, the Trustee shall make a charge sufficient to reimburse it for any tax or governmental charge required to be paid with respect to such exchange or transfer. The Trustee shall not be required to record the exchange or transfer of any Bond during the five days next preceding any date established by the Trustee for the selection of Bonds for redemption; and, if any Bond shall be called for redemption in whole or in part, the Trustee shall not be required to record the exchange or transfer of such Bond after the call for redemption and prior to the redemption date. In case any Bond is mutilated, lost, stolen or destroyed, the Indenture provides that the City shall execute, and the Trustee shall authenticate and deliver, a new Bond of like interest rate, maturity, principal amount, maturity amount and other terms as the Bonds so mutilated, lost, stolen or destroyed. In the case of a lost, stolen or destroyed Bond, the City and the Trustee shall require satisfactory evidence of such loss, theft or destruction, as well as indemnification satisfactory to them and to the Bond Insurer, prior to the City's execution and the Trustee's authentication and delivery of a new Bond. The person requesting the authentication and delivery of a new Bond shall comply with such other reasonable regulations as the City and the Trustee may prescribe, and pay such expenses as the City and the Trustee may incur, in connection with replacing mutilated, lost, stolen or destroyed Bonds. Compounded Amounts The following table sets forth, for an original principal amount of $ , the Compounded Amount for 4 040181-0039-161-4919f 05/01/85 r- i the Tax Exempt Capital Accumulator Bonds at , 1985, and at 1 and 1 of each year thereafter, to yield to maturity set forth on the cover page hereof. The Compounded Amount for any date other than those specified is the Compounded Amount on the interest payment date next preceding such date, plus the portion of the difference between the Compounded Amount on such interest payment date and the next succeeding interest payment date that the number of days from such preceding interest payment date to the date for which the determination is being made (assuming 30-day months) bears to the total number of days from such preceding interest payment date to the next succeeding interest payment date (assuming 30-day months). Date and including / , at the approximate Amount Date Amount Redemption Provisions Special Mandatory Redemption. The Bonds are subject to special mandatory redemption prior to their respective stated maturities upon payment of the principal thereof and interest accrued thereon in the case of the Current Interest Bonds, and the applicable Compounded Amount in the case of the Tax Exempt Capital Accumulator Bonds, to the date fixed for redemption, without premium (a) as a whole or in part (by lot) on or after 1, 1988, from moneys transferred to the Redemption Fund from the Program Fund which have not been applied to the acquisition of Home Mortgages before 1, 1988; provided that the Trustee may delay said transfer if it receives an opinion of nationally recognized bond counsel to the effect that such transfer and use of such moneys are not required to preserve the exemption of federal income taxation and confirmation from the rating agencies that such delay will not materially adversely affect the rating on the Bonds; (b) as a whole or in part (by lot) on any interest payment date from any other moneys deposited in the Redemption Fund; and (c) as a whole on any date for which notice of redemption can be given if amounts held in various funds established under the Indenture (except the Program Fund and the Nonmortgage Investment Excess held in the Nonmortgage Investment Income Fund) are sufficient to pay all outstanding Bonds and required expenses 5 040181-0039-161-4919f 05/01/85 f t Sinking Account Redemption. The Term Bonds are subject to mandatory sinking account redemption prior to their stated maturity, in part (by lot), commencing on thereafter, at the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium, from sinking account payments, as follows: Date Principal Amount Date Principal Amount 1 and 1 , and on each 1, - The Tax Exempt Capital Accumulator Bonds are subject to mandatory sinking account redemption prior to their stated maturity, in part (by lot), commencing on thereafter, at the Compounded Amount thereof to the date fixed for redemption, without premium, from sinking account payments, as follows: 1, - , and on each 1 and 1 Aggregate Aggregate Compounded Principal Compounded Prin Date Amount Amount Date Amount Date Amo Risk of Redemption. Because the Bonds are subject to special mandatory redemption as aforesaid, it is expected that a portion of the Bonds will be redeemed at par prior to their scheduled maturities or sinking account redemption dates. For a description of the uncertainties inherent in predicting the average life of the Home Mortgages (which in turn affects the effective average life of te Bonds), see "Structure Assumptions and Bondholders' Risks" herein. Manner of Redemption. In the event that less than all of the Bonds are to be redeemed, other than from mandatory sinking account payments, the amount of Bonds of each maturity to be redeemed shall be determined as nearly as practicable by multiplying the total amount of funds available for redemption by the ratio which the principal amount or applicable Compounded Amount of Bonds of such maturity then outstanding bears to the aggregate principal amount and applicable Compounded Amount of all Bonds then 6 040181-0039-161-4919f 05/01/85 1 t outstanding to be redeemed; for purposes of the foregoing, Term Bonds and Tax Exempt Capital Accumulator Bonds shall be deemed to mature in the years and in the amounts of the mandatory sinking account payments. In the event that Bonds are to be redeemed in part, other than from unused moneys in the Program Fund, all Current Interest Bonds shall be redeemed prior to the redemption of any Tax Exempt Capital Accumulator Bonds. In all cases of partial redemption, including from mandatory sinking account payments, the Trustee shall assign to each outstanding Bond of greater than $5,000 principal amount or Maturity Amount a distinctive number for each $5,000 of the principal amount or Maturity Amount thereof so as to distinguish each such $5,000 portion from each other portion of the Bonds subject to redemption. For purposes of determining Bonds or portions thereof to be redeemed, the Trustee shall select by lot, using such method of selection as it shall deem proper in its sole discretion, from the numbers of, and the numbers assigned to, such Bonds, as many numbers, at $5,000 for each number, as shall equal the aggregate principal amount or Compounded Amount of such Bonds to be redeemed. The Bonds to be redeemed shall be the Bonds and portions of Bonds bearing numbers, and to which were assigned numbers, so selected; but only so much of the principal amount or Maturity Amount of each such Bond of a principal amount or Maturity Amount of more than $5,000 shall be redeemed as shall equal $5,000 for each number assigned to it and so selected. Notice of Redemption Notice of redemption shall be given by certified mail, postage prepaid, mailed not less than 20 nor more than 30 days prior to the redemption date, to each registered owner of Bonds to be redeemed at his address appearing on the bond registration books of the Trustee. No defect in or failure to give such mailed notice shall affect the validity of the proceedings for the redemption of any Bond. All Bonds so called for redemption shall cease to accrue interest on the specified redemption date, provided funds for their redemption have been duly deposited with the Trustee and, except for the purpose of payment, shall no longer be protected by the Indenture or be deemed to be outstanding under the Indenture. No Published Notice of Redemption. The right of the registered owner of a Bond to receive interest will terminate on the date, if any, on which the Bond is to be redeemed pursuant to a call for redemption, notice of which has been given under the terms of the Indenture. The Indenture contains no provisions requiring the publication of notice of redemption, and it is the obligation of the 7 040181-0039-161-4919f 05/01/85 7 I registered owner of each Bond to maintain a current address on file with the Trustee to receive notice of redemption, which will be sent by certified mail to the address maintained on the bond register. The Indenture requires the Trustee to give a second notice, by certified mail, to registered owners of Bonds called for redemption within 30 days after the scheduled redemption date, where there has been no presentment and surrender. Registered owners of Tax Exempt Capital Accumulator Bonds should note that since there is no periodic payment of interest on such Tax Exempt Capital Accumulator Bonds, a notice of redemption which is not received due to failure to maintain a current address on file with the Trustee, or otherwise, may terminate the accrual of interest on such Tax Exempt Capital Accumulator Bond without the knowledge of the registered owner, and result in the payment due on the Tax Exempt Capital Accumulator Bond, if the Tax Exempt Capital Accumulator Bond is not submitted for payment until its stated maturity, being substantially less than the stated Maturity Amount. Security for the Bonds The Bonds are payable from Revenues, and are secured by a pledge and assignment of said Revenues, the proceeds of the sale of the Bonds and other amounts held in the funds and accounts established pursuant to the Indenture (except to the extent of Nonmortgage Investment Excess), subject only to the provisions of the Indenture permitting the application thereof for or to the purposes, and on the terms and conditions, set forth in the Indenture. The Bonds are also secured by an assignment of all of the right, title and interest of the City in the Home Mortgages and certain agreements relating thereto (as more particularly described in the Indenture). The Bonds are limited obligations of the City and are not a lien or charge upon the funds or property of the City, except to the extent of the aforesaid pledge and assignment. The Bonds shall not be deemed to constitute a debt or liability of the City, the State of California or any political subdivision thereof for which is pledged the faith and credit of the City, the State of California or any political subdivision thereof. The Bonds do not constitute an indebtedness or a loan of credit of the City, the State of California or any political subdivision thereof within the meaning of any constitutional or statutory limitation. The Bonds shall not or directly or indirectly obligate the City, the State of California or any political subdivision thereof to levy or pledge any form of taxation, or make any appropriation, for the payment of the Bonds. 8 040181-0039-161-4919f 05/01/85 7 1 Moneys used for payment of the Bonds will be derived from the payment by individual Mortgagors of principal of and interest on Home Mortgages, income earned on investment of moneys on deposit in the various funds and accounts held by the Trustee, proceeds of foreclosure sales and certain insurance proceeds. The Home Mortgages will represent first lien deeds of trust (subject to Permitted Encumbrances) on the Homes securing the same. The Home Mortgages will be insured by private mortgage guaranty insurance and mortgage pool insurance. Standard hazard insurance, special hazard insurance, earthquake damage insurance and, in certain cases, flood insurance are required to be obtained for the mortgaged property, subject, in the case of renewals of earthquake damage insurance, to the commercial availability thereof. See "Insurance -- Mortgage Guaranty Insurance," "Insurance-Mortgage Pool Insurance" and Insurance -- Standard Hazard Insurance, Flood Insurance and Earthquake Insurance." 11 The Reserve Fund has been established under the Indenture as a reserve for, among other things, the payment of principal of and interest on the Current Interest Bonds, and the Compounded Amount of the Tax Exempt Capital Accumulator Bonds, in the event payments on Home Mortgages prove to be temporarily insufficient for such purpose. Payment when due of the principal (or Compounded Amount, in the case of Tax Exempt Capital Accumulation Bond) of, and interest on the Bonds will be insured by a Bond Insurance Policy to be issued by the Bond Insurer. See "Bond Insurance. I' Additional Bonds The Indenture does not permit the issuance of any additional bonds payable or secured on a parity with the Bonds. 9 040181-0039-161-4919f 05/01/85 r t DISPOSITION OF BOND PROCEEDS* The following table sets forth the anticipated use of Bond proceeds and Developer Commitment Fees: - 1/ Program Fund To Acquire Home Mortgages 2/ ....... $ To Pay Issuance Expenses 27 ........ Short-Term Reserve Account - 4/ ...... Long-Term Reserve Account .......... Underwriter's Discount ............... Reserve Fund ................................ TOTAL $ -------------- -------------- * Subject to change. - 1/ Accrued interest on the Bonds will be deposited in the Interest Fund. - 2/ Upon delivery of the Bonds, the City will have $ $ * will be derived from Bond proceeds and $ from the Developer Commitment Fees. - 3/ Issuance expenses include Bond Counsel fees, printing costs and rating agency fees, initial Trustee fees, an initial special hazard insurance premium, an initial bond insurance premium of $ , market demand study costs and other miscellaneous issuance expenses. - 4/ Includes capitalized interest. * available to acquire Home Mortgages, of which * * Subject to change Moneys deposited in the Program Fund, other than in the Cost of Issuance Account, are to be used by the Trustee to purchase Home Mortgages. As such Home Mortgages are originated and delivered to the Trustee, the Trustee will draw against moneys on deposit in the Program Fund to purchase such Home Mortgages. Any funds in the Program Fund which are not used to purchase Home Mortgages before 1, 1988 (or such later date as may be established in accordance with the Indenture) (the "Delivery Period"), are required to be transferred to the Redemption Fund and 10 040181-0039-161-4919f 05/01/85 7 1 used to redeem Bonds, without premium, pursuant to the special mandatory redemption provisions of the Indenture on in accordance with the Indenture). 1, 1988 (or such later date as may be established STRUCTURE ASSUMPTIONS AND BONDHOLDERS' RISKS Structure Assumptions The City believes that payments on the Home Mortgages, together with amounts held under the Indenture (including the Developer Commitment Fees), as well as earnings thereon (other than the Nonmortgage Investment Excess), will generate sufficient Revenues to pay on a timely basis the principal of, sinking account installments and interest on the Current Interest Bonds, the Compounded Amount of, and sinking account installments on, the Tax Exempt Capital Accumulator Bonds, bond insurance premiums, mortgage pool insurance premiums, special hazard insurance premiums, the Trustee's fees and certain other costs (including issuance expenses and Underwriter's discount), on the basis of the following assumptions: 1. The Lender's servicing fee and premiums for mortgage pool insurance and special hazard insurance will not exceed % per year of the aggregate principal amount of the Home Mortgages. 2. Premiums for bond insurance will not exceed % per year of the aggregate principal amount of the Current Interest Bonds outstanding plus the aggregate Compounded Amount of the Tax Exempt Capital Accumulator Bonds outstanding. 3. An aggregate principal amount of $ * of Home Mortgages bearing interest at the stated rate of City at the times set forth in the Developer Agreements. % will be purchased by the Trustee on behalf of the 4. All Home Mortgages will have scheduled final maturities of not more than 30 nor less than 29 years, will provide for approximately equal monthly installments of principal and interest, and will have a weighted average actual life of not less than years. * Subject to change 11 040181-0039-161-4919f 05/01/85 1 I 5. Moneys deposited in all funds and accounts will be continually invested pursuant to an Investment Agreement between the Trustee and and will honor its obligations thereunder to repay such moneys and interest thereon at the rates and at the times set forth therein. 6. The Trustee's annual fee will not exceed % of the aggregate principal amount and Compounded Amount of Bonds outstanding. 7. Either the Home Mortgages will be paid substantially on a timely basis in accordance with their terms or, in the case of delinquencies and foreclosures, any settlement of insurance claims will be made at such time as, and in an amount and in a form of payment which, together with moneys available in the Reserve Fund, will allow the City to make scheduled payments of debt service on the Bonds. The assumptions set forth above are based on current market conditions and practices, and subsequent events may not correspond to such assumptions. Under such circumstances, revenues from the Home Mortgages, investment earnings and insurance proceeds may not be sufficient to pay the principal of and interest on the Current Interest Bonds, or the Compounded Amount of the Tax Exempt Capital Accumulator Bonds, when due. Limited Rights in Event of Default The remedies available to the registered owners of the Bonds upon an event of default under the Indenture or other documents described herein and policies of insurance referred to herein are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically Title 11 of the United States Code (the "Federal Bankruptcy Law"), the remedies specified by the Federal Bankruptcy Law, the Indenture and the various Program documents and policies of insurance referred to herein 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, as to the enforceability of the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. 12 040181-0039-161-4919f 05/01/85 1 4 Natural Disasters The Home Mortgages will be secured by Homes located solely within the Developments, and accordingly there will not be extensive geographical distribution of the Home Mortgages. Such concentration makes the Homes securing the Home Mortgages more susceptible to loss due to fire, earthquake or other hazards, some of which may not be covered by the various insurance policies or may exceed the limits of such policies as described herein under "Insurance -- Standard Hazard Insurance, Flood Insurance and Earthquake Insurance" and "Insurance -- Special Hazard Insurance. " Tax Exemption See "Tax Exemption" herein for a discussion of the conditions under which interest on the Bonds may not be exempt from federal income taxation. Special Considerations Relative to the Home Mortgages The Lender's competition in making real estate loans in the area of the Developments normally comes primarily from savings and loan associations, commercial banks and other mortgage bankers. Because one of the principal factors in competing for real estate loans is the interest rate charged, and because the Home Mortgages are expected to be made at substantially less than currently prevailing market rates, the Lender does not expect significant competition in making the Home Mortgages as long as currently prevailing market rates do not decrease. There are, however, a number of ways in which mortgage loans could become available at rates competitive with those specified for the Home Mortgages, such as through various federal, state or local governmental programs, which include California Housing Finance Agency programs, similar mortgage loan programs financed by tax-exempt bonds, or the Federal Housing Administration Section 245 (Graduated Payments Mortgage) program. In addition, prevailing interest rates for conventional mortgages in the area could decrease. In the event that, prior to all the Home Mortgages being originated, other mortgage loans were to become available in the area at rates competitive with that specified for the Home Mortgages, or the Homes to be built in the Developments are not constructed as anticipated (due to lack of performance by the Developers, natural disasters, strikes, material shortages or other reasons), the City might not be able to purchase Home Mortgages in the anticipated amount. Investment income earned on funds held by the Trustee and Developer Commitment Fees, however, are calculated to be sufficient to recover issuance expenses and Underwriter's 13 040181-0039-161-4919f 05/01/85 I . discount associated with undelivered Home Mortgages. Bond proceeds or other funds deposited in the Program Fund which have not been used to purchase Home Mortgages by the end of the Delivery Period will be used to redeem without premium an appropriate portion of the Bonds pursuant to the special mandatory redemption provisions of the Indenture. The scheduled maturities of the Bonds assume no Any prepayment of Home Mortgages. If prepayments of Home Mortgages occur, an appropriate portion of the Bonds is required to be redeemed pursuant to the special mandatory redemption provisions of the Indenture. The City anticipates that a portion of the Home Mortgages will be partially or completely prepaid or accelerated prior to their respective final maturities as a result of events such as sale of the Homes, default, condemnation or casualty loss, or noncompliance with the Program requirements. Because of the lack of a historical basis with respect to prepayments of mortgage loans of a type similar to the Home Mortgages described herein, and the Program requirement that in the event of assumption the Home Mortgages are to be accelerated when assumors do not qualify under the Program requirements, there is no reliable basis for predicting the actual average life of the Home Mortgages. The City does, however, anticipate prepayment of a number of Home Mortgages and it is probable that a portion of the Bonds will be redeemed earlier than their stated maturities or scheduled sinking account redemption dates. Foreclosure Laws The Home Mortgages will be secured by first lien deeds of trust, the most commonly used real estate property security device in the State of California. Although a deed of trust is similar to a mortgage with a power of sale, the deed of trust formally has three parties: a debtor-trustor (similar to a mortgagor), a third-party grantee called the trustee, and a lender-creditor (similar to a mortgagee) called the beneficiary. The trustor grants the property, irrevocably until the debt is paid, "in trust with a power of sale" to the trustee to secure payment of the obligations. The trustee's authority is governed by law, the express provisions of the deed of trust and the directions of the beneficiary . Upon the default of a Home Mortgage, the Lender is to exercise the City's right under the deed of trust's power of sale, subject to the constraints imposed by the State of California law and by the private mortgage guaranty insurer and the mortgage pool insurer. During the three-month period beginning with the filing of a formal notice of default, the 14 040181-0039-161-4919f 05/01/85 1 1 Mortgagor will be entitled to reinstate the Home Mortgage by making overdue payments. Under standard servicing procedures, the filing of the notice of default does not occur unless at least two full monthly payments are due and unpaid. The power of sale is exercised by posting and publishing a notice of sale for at least 20 days. Such time delays in collections could disrupt the flow of revenues available for the payment of debt service on the Bonds if such defaults occur with respect to a substantial number of Home Mortgages (see "Insurance -- Mortgage Pool Insurance" herein with regard to the advance claims required to be obtained from the mortgage pool insurer). Under State of California antideficiency legislation, there is no personal recourse against a mortgagor where the trustee exercises the power of sale. Limited Rights of Registered Owners with Respect to Moneys Held by the Lender The funds held in the Custodial Account by the Lender for the Trustee under the Agreement will be remitted to the Trustee on the twenty-fifth day of each month, or if not a business day on the next business day thereafter, and whenever else the Lender has accumulated an amount in excess of the amounts which are insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, as appropriate. The claim of registered owners of the Bonds with respect to unremitted funds might, in the event of insolvency of the Lender, rank equally with but not superior to the rights of the Lender's other unsecured general creditors. Furthermore, the Lender will not be required to provide any collateral to secure the rights of the registered owners of the Bonds with respect to such funds. Accordingly, in the event of insolvency of the Lender or of the financial institution at which the Custodial Account is maintained, the registered owners of the Bonds may be treated as general unsecured creditors of the Lender or of the financial institution, and bear the risk of losing the entire amount which may then be held in the Custodial Account BOND INSURANCE Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company (the "Bonds Insurer") will issue its Municipal Bond New Issue Insurance Policy (the "Bond Insurance Policy") for the Bonds. The Bond Insurance Policy unconditionally guarantees the payment of that portion of the principal (or Compounded Amount, in the case of the Tax Exempt Capital Accumulator Bonds) and interest on the Bonds which has become due for payment, but shall be unpaid 15 040181-0039-161-4919f 05/01/85 L by reason of nonpayment by the City. The Bond Insurer will make such payments to Citibank, N.A., or its successor or its agent (the "Fiscal Agent"), on the later of the date on which such principal (or Compounded Amount, in the case of the Tax Exempt Capital Accumulator Bonds) and interest is due or the business day next following the day on which the Bond Insurer shall have received telephonic or telegraphic notice, subsequently confirmed in writing or written notice by registered or certified mail, from an owner of a Bond or the Paying Agent of the nonpayment of such amount by the City. The Fiscal Agent will disburse such amount due on any Insured Bond to its registered owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the registered owner's right to receive payment of the principal (or Compounded Amount, in the case of Tax Exempt Capital Accumulator Bonds) and interest due for payment and evidence, including any appropriate instruments of assignment, that all of such registered owner's right to receive payment of the principal (or Compounded Amount, in the case of Tax Exempt Capital Accumulator Bonds) and interest due for payment and evidence, including any appropriate instruments of assignment, that all of such registered owner's rights to payment of such principal (or Compounded Amount, in the case of Tax Exempt Capital Accumulator Bonds) and interest shall be vested in the Bond Insurer. The term "nonpayment" in respect of a Bond includes any payment of principal (or Compounded Amount, in the case of Tax Exempt Capital Accumulator Bonds) or interest made to a registered owner of such Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The Bond Insurance Policy is non-cancellable. The Bond Insurance Policy covers failure to pay the principal (or Compounded Amount, in the case of Tax Exempt Capital Accumulator Bonds) of Bonds on their maturity date or such other date as Bonds shall be called for mandatory sinking fund redemption, but not on any other date on which such Bonds may have been accelerated, and covers the failure to pay an installment of interest on the stated date for its payment. The Bond Insurer is a wholly-owned subsidiary of FGIC Corporation, a Delaware holding company. FGIC Corporation is owned by the following investors or affiliates thereof: General Electric Credit Corporation, General Re Corporation, Lumbermens Mutual Casualty Company (affiliated with the Kemper Group), Shearson Lehman Brothers Inc., Merrill Lynch & Co., Inc., J.P. Morgan & Co. Incorporated and Gerald L. Friedman. The investors of FGIC Corporation are 16 040181-0039-161-4919f OS/OI/SS * not obligated to pay the debts of, or the claims against the Bond Insurer. The Bond Insurer is domiciled in the State of New York and is subject to regulation by the State of New York Insurance Department. As of December 31, 1984, the total capital and surplus of the Bond Insurer was approximately $96,000,000, as reported to the State of New York Insurance Department. THE PROGRAM The Trustee, on behalf of the City, will purchase Home Mortgages from the Lender using proceeds from the Bonds and the Developer Commitment Fees. The Home Mortgages will be made to finance the acquisition by qualified Mortgagors of Home Mortgages located in the City. Based on current development estimates, Home Mortgages to finance approximately Homes will be purchased. Information concerning the Developer Reserved Homes is set forth in Appendix A, to which reference is hereby made for such information. Each Home Mortgage will be secured by a first mortgage lien (subject to permitted encumbrances) on the Home being financed thereby. To qualify for purchase, each Home Mortgage must be insured to the extent described herein and must meet specific eligibility criteria and guidelines set forth in the documents described below, which include the Developer Agreements, the Agreement, the Indenture and the Rules and Regulations of the City (collectively, the "Program Documents"). The Program is intended to provide affordable housing for persons who intend to occupy a Home as a principal residence and, in general, who have not had a present ownership interest in any principal residence during the three years prior to the execution of the Home Mortgage. A Mortgagor's household income may not exceed -4 O of the applicable Median Household Income in the case of a Mortgagor who will be the first occupant of a new or improved Home and -% of the applicable Median Household Income in all other cases[, provided that at least 20% of the aggregate principal amount of Home Mortgages in such other cases shall be made to Median Household Income]. Mortgagors whose household income does not exceed -% of The Home Mortgages will provide for level payments of principal and interest based on a thirty year amortization. [Each Home Mortgage shall include a provision pursuant to which any amount owing to the City thereunder will be forgiven in its entirety at such time as the 17 040181-0039-161-4919f 05/01/85 I + principal of and interest on the Bonds and any amount payable to the City pursuant to the Indenture shall have been paid in full.] Each Home Mortgage is to have a loan-to-value ratio of 95%. Each Home Mortgage will bear interest at a stated interest rate of %. Except as expressly provided otherwise, Home Mortgages purchased by the Trustee must be qualified pursuant to FNMA or FHLMC underwriting criteria and practice. [Mortgagors may have their monthly loan payments reduced pursuant to a supplement provided by a Developer for a period not to exceed three years. The Lender will be permitted to qualify the Mortgagor at the reduced payment level if an escrow for the supplement is fully funded at the time the Home Mortgage is purchased.] Each Mortgagor will also be charged an origination fee of -% of 1% of the principal amount of the Home Mortgage to be paid to the Lender at the time the Home Mortgage is funded. All Home Mortgages will be serviced by the Lender in accordance with the guidelines set forth in the Agreement. Under the Program, the Mortgagor must be a first time homebuyer who intends to occupy the Home as his or her principal residence and the acquisition cost of the residence may not exceed 110% of the applicable Average Area Purchase Price. In the case of a Residence on leased land, the capitalized value of the ground rent, calculated using a discount rate equal to the yield on the Bonds, is included in the acquisition cost. Based upon a study prepared by Empire Economics, the Average Area Purchase Price for new residences in the Metropolitan Statistical Area, in which the City is located, is determined to be $ , and the Average Area Purchase Price for existing residences in the Mortgage may only be assumed if the new Mortgagor and the Home meet similar eligibility requirements as well as certain income requirements under the Act. MSA as so determined is $ . A Home With respect to each Home Mortgage, the Mortgagor, the Developer and the Lender are required to submit to the Administrator and the Trustee affidavits or certificates, under penalty of perjury, certifying facts and intentions which exhibit the Mortgagor's compliance with the requirements of Section 103A as to the intent to occupy the unit as a principal residence; no ownership interest in a principal residence for the prior three years; acquisition cost limitations on the price of the residence; the nonreplacement of an existing mortgage loan; and restrictions on future assumptions. The Agreement and the Indenture also prescribe various procedures and techniques to be followed by 18 040181-0039-161-4919f 05/01/85 9 t the Lender and the Administrator in reviewing or verifying the affidavits and information provided by the prospective Mortgagor in compliance with certain administrative "safe harbors" set forth in the Temporary Regulations under Section 103A. Developer Agreements Under the Developer Agreements the City will reserve total of approximately $ to make Home Mortgages to finance the purchase of Homes within the Projects. The Developers have constructed or are planning to construct approximately __ Homes. See Appendix A: "Description of Developer Reserved Single Family Homes" herein. Each Developer listed in Appendix A agrees to use its best efforts to construct and make available a sufficient number of Homes to enable the Lender to originate and sell to the Trustee Home Mortgages in the specified amounts by in accordance with the Indenture). The Developer may, with the written consent of the City, transfer a11 or a portion of its reservation to another developer which has previously entered into a Developer Agreement with the City, and the portion of the reservation so transferred may be used pursuant to the transferee's Developer Agreement. Upon a determination by the Trustee that the same will not adversely affect the rating of the Bonds, the Developer may, with the written consent of the City, transfer all or a portion of its reservation to any other developer, who shall then enter into a Developer Agreement with the City, and the portion of the reservation so transferred may be used pursuant to the transferee's developer Agreement. the Trustee that the same will not adversely affect the rating of the Bonds, the Developer may, with the written consent of the City, transfer all or a portion of its reservation to any other developer, who shall then enter into a Developer Agreement with the City. The Developer's request for the City's consent to such transfer shall set forth the terms and conditions of the transfer, a description of the proposed Homes, the proposed transferee and the purpose for the transfer, all of which must conform to all requirements of the Program and otherwise be acceptable to the City. Except as otherwise provided in the Developer Agreement, no reservation or portion thereof may be transferred to a developer who has not entered into a Developer Agreement with the City, except upon the terms and conditions which have been first presented to and rejected by each of the Developers who has entered into such a Developer Agreement. 1, 1988 (or such later date as may be established Upon a determination by 19 040181-0039-161-4919f 05/01/85 * [Additionally, a Developer may direct that an amount not exceeding -% of the money he has reserved for Home Mortgages be used for Homes which are not Developer Reserved Homes but which otherwise comply with the requirements of the Program.] At the time the Developer Agreement is executed each Developer is to pay to the Trustee [in cash] a commitment fee of approximately -% of the funds reserved for that Developer. After the Bonds are delivered the commitment fees will be held by the Trustee in the Program Fund. Under the Developer Agreements each Developer is required to represent with respect to the Home it constructs and sells under the Program that: (i) to the best knowledge of the Developer, such is to be occupied by a mortgagor who is a first time homebuyer as such mortgagor's principal place of residence within 60 days after making of the Home Mortgage, and the related Home Mortgage is made for the purpose of purchasing the Home and not for the purpose of acquiring or replacing any existing mortgage; (ii) to the best knowledge of such Developer, the household income of the mortgagor does not exceed that percentage of Median Household Income applicable under the Program for the particular category of affordability of the Home being sold; (iii) the Acquisition Cost of the Home does not exceed the 110% of the Average Area Purchase Price; (iv) the Home financed by such Home Mortgage will be free of material damage, constructed in a good and workmanlike manner and will be in general good repair on the closing date of such Home Mortgage and at the time the Home is offered for sale it will be free of any and all mechanics' liens; (v) the Home was offered for sale to qualifying homebuyers on a first-come-first-served basis or on the basis of a random drawing without regard to race, color, religion, age, sex, marital status or national origin (except to the extent that some other basis is required by law, as in the case of a condominium conversion); and (vi) it has no knowledge of any fact, circumstance or condition with respect to the mortgagor or the Home Mortgage which would lead it to believe that the 20 040181-0039-161-4919f 05/01/85 1( r certifications required to be made by the mortgagor to the City are not true. Ten percent of the Mortgage Loans, in dollar amount, at any given time, may be originated to Mortgagors who are not first time homebuyers. If, after the Trustee has purchased a Mortgage Loan, it is determined by the City that the acquisition cost exceeded 110% of the Average Area Purchase Price, the Developer is required immediately to purchase the Mortgage Loan from the Trustee at a price equal to the unpaid principal balance thereof together with interest accrued thereon. Mortgage Sale and Service Agreement Pursuant to the Agreement, the Lender agrees to use its best efforts to originate and sell without recourse to the Trustee on behalf of the City by 1, 1988 (or such later date as may be established in accordance with the Indenture), Mortgage Loans in an aggregate principal amount of $ . Information regarding the Lender's experience in origination and servicing of residential mortgage loans is set forth in Appendix B. The Administrator will administer the origination and servicing of the Mortgage Loans and will undertake certain duties, including approval of the Mortgage Loans and supervision of performance of the Lending Institution as servicer. The Administrator may establish and, from time to time, revise reasonable written standards detailing uniform procedures to be used and complied with by the Lender. The Lender agrees to comply with such reasonable standards, and to submit such reports, provide such documents and permit such access to information as the Administrator may reasonably request. At the closing of a Home Mortgage, the Lender may charge the Mortgagor a fee of not more than - of 1% of the original principal amount of the Home Mortgage to be retained by the Lender for its own account. The Lender may also collect from the Mortgagor charges for certain customary costs paid or incurred by the Lender in connection with the making of a Home Mortgage. The Lender will represent, among other things, with respect to each Home Mortgage originated by it for purchase by the Trustee that; 21 040181-0039-161-4919f 05/01/85 I I (1) The Mortgagor has certified by affidavit that (a) such Home Mortgage is secured by a Home; (b) the Mortgagor intends to occupy the Home as the Mortgagor's principal residence within 60 days from the date of closing of the Loan and to maintain it as the Mortgagor's principal residence (and not as an investment property or a recreational home) for a minimum of two years after executing the Home Mortgage; (c) the Mortgagor's household income does not exceed the maximum percentage of Median Household Income permitted under the Program; (d) the acquisition cost of the Home does not exceed 110% of the Average Area Purchase Price; (e) the Mortgagor had no present ownership interest in a principal residence at any time during the 3-year period prior to the date of execution of the Home Mortgage*: and (f) the Home Mortgage is not being used to replace an existing loan of the Mortgagor. (2) The Developer has made the certification required under the Developer Agreement. (3) For other than 10% of the Home Mortgages with respect to Homes which are originated to Mortgagors who are not first time homebuyers, the Lender has examined (a) copies of executed income tax returns which were filed with the Internal Revenue Service and which were provided by the Mortgagor which indicate that during the preceding 3 years the Mortgagor did not claim deductions for taxes or interest or indebtedness with respect to real property constituting his principal residence or (b) an affidavit to the effect that the Mortgagor was not required to file such a return in one of or all such years. (4) The Lender has no knowledge of any circumstance or condition with respect to the Home Mortgage or the Mortgagor which (a) could reasonably be expected to cause the Lender to regard the Home Mortgage as an unacceptable investment for its own portfolio, cause the Home Mortgage to become delinquent, or adversely affect the value or marketability of the Home Mortgage, except that the interest rate on the Home Mortgage may be below a market interest rate and the * Up to ten percent (10%) of the Home Mortgages, in dollar amount, at any given time, may be made to Mortgagors who have had a present ownership interest in a principal residence within the 3-year period prior to the date of execution of the Home Mortgage. 22 05/01/85 040181-0039-161-4919f 7 I loan-to-value ratio may be greater than that which is otherwise acceptable to private lenders; or (b) would lead it to believe that the certifications required to be made by the Mortgagor and the Developer are not true and correct. (5) The Mortgage Loan has been finally endorsed (or a firm commitment received) for private mortgage insurance described under "Insurance -- Private Mortgage Insurance" herein. (6) The Lender has obstained a current ALTA or equivalent title insurance policy (or firm commitment therefor) that insures that title to the mortgaged property is vested in the mortgagor subject only to the lien of the deed of trust and to permitted encumbrances. (7) Based on an inspection conducted by the Lender, construction of the property securing the Home Mortgage is complete and free of any apparent material damage and is in general good repair. (8) The Home is covered by a fire insurance policy with extended coverage and an earthquake endorsement (or a commitment therefor) assigned in favor of the Lender, the Trustee and the City as their interests may appear, in the amount specified under "Insurance-Standard Hazard Insurance". In connection with assumptions of Home Mortgages, the Lender will represent to, among other things, the matters summarized in items (l), (3) and 4(b) above. If at any time any document or documents submitted by the Lender in connection with a Home Mortgage are, in the opinion of the Administrator, defective or inaccurate in any material respect, the Lender is required to cure the defect or inaccuracy within 60 days from the time the Administrator notifies it of the existence of the defect or inaccuracy. Under the Agreement, the Lender agrees that, if any such material defect cannot be cured within such 60-day period, it will, not later than 90 days after the Administrator's notice to it respecting such defect or inaccuracy, repurchase the related Home Mortgage from the City at a price equal to (i) 100% of the principal remaining unpaid on such Home Mortgage plus (ii) unpaid accrued interest thereon to the date of the repurchase. Notwithstanding anything set forth in the preceding paragraph, in any case in which the Lender is required to repurchase a Home Mortgage by reason of a defect, inaccuracy 23 040181-0039-161-4919f 05/01/85 t 8 or misrepresentation in a Mortgagor's affidavit, the Lender need not repurchase the Home Mortgage so long as (i) such defect, inaccuracy or misrepresentation constitutes a default under the Home Mortgage with respect to which private mortgage guaranty insurance provides coverage, and (ii) the Lender diligently proceeds on behalf of the City to declare all sums the payment of which is secured thereby to be immediately due and payable and to take all steps necessary to collect benefits pursuant to the private mortgage guaranty insurance. Moreover, in any case in which the Lender is required to repurchase a Home Mortgage because a Developer incorrectly indicated in an affidavit submitted to the Lender that the acquisition cost of a Home did not exceed 110% of the Average Area Purchase Price, the Lender may exercise the right of the City pursuant to the Developer Agreements to require the Developer to purchase such Home Mortgage from the City. The Lender shall service the Home Mortgages it originates and shall generally have full power and authority, acting alone, to do any and all things in connection with the such servicing which it may deem necessary or desirable. The Lender shall service the Home Mortgages in accordance with the standards set forth in the FHLMC Servicer's Guide. As compensation for its activities under the Agreement and in consideration for servicing the Home Mortgages it originated, the Lender shall retain from each Mortgagor's monthly payment allocable to interest an amount equal to of . - of 1% of the unpaid principal amount of the Home Mortgage. In addition, the Lender shall be entitled to servicing compensation out of insurance proceeds or liquidation proceeds to the extent permitted in the Agreement. Additional servicing compensation in the form of assumption fees, late payment charges or otherwise, if any, may be retained by the Lender to the extent not required to be deposited in the Receipts Account (hereafter mentioned) it maintains or required to be paid to the Private Mortgage Insurer. The Lender shall be required to pay all expenses incurred by it in connection with its servicing activities and shall not be entitled to reimbursement therefor, except as specifically provided in the Agreement and in the Indenture. The Lender is to establish and maintain, in the name of the City, a separate account (the "Receipts Account"), into which all payments and collections received by it with respect to the Home Mortgages (including proceeds of insurance and foreclosures, but excluding the servicing fees and certain other amounts) are to be deposited on a daily basis. On the twenty-fifth day of each month, the 24 040181-0039-161-4919f 05/01/85 Lender is to remit to the Trustee for deposit the sum of: (i) the scheduled payments of principal of and interest on the Home Mortgages received by it on or before the twentieth day of the month and not previously remitted to the Trustee, (ii) Home Mortgage Principal Prepayments received by it on or before the twentieth day of the month, and (iii) an amount equal to all scheduled payments of principal of and interest on the Home Mortgages which (a) are then delinquent, (b) have not been previously remitted to the Trustee, and (c) are not yet payable by the Private Mortgage Insurer, less (iv) the service fee, escrow payments and any other amounts permitted to be retained by the Lender pursuant to the Agreement. Notwithstanding the foregoing, the Lender is also required to remit immediately to the Trustee any portion of the Receipts Account which is in excess of the lesser of $100,000 or the amount insured by FDIC or FSLIC, whichever is applicable. The requirement of the Lender to remit by the twenty-fifth day of each month amounts equal to principal and interest due on each Loan regardless of the receipt thereof from the Mortgagor, as set forth in (iii) above, will be covered by an endorsement to the private mortgage insurance policy issued by the Private Mortgage Insurer requiring advances by the twenty-fifth day of the month upon notice from the Trustee in the event the Lender does not remit amounts required in (iii) above by the twenty-fifth day. the payments set forth in clause (iii) above by the twenty-fifth day of the month, the Lender will, pursuant to the terms of the Agreement, so notify the Trustee by the eighteenth day of such month. The Trustee will then notify the private mortgage insurer of the inability of the Lender to make such payments on the next business day in order to provide the private mortgage insurer sufficient time to make the payments required under its mortgage guaranty insurance policy on the twenty-fifth day of such month (See "Insurance-Private Mortgage Guaranty Insurance"). In the event that the Lender will be unable to make On the twenty-fifth day of each month, the Lender is to furnish to the Administrator a statement setting forth the status of the Receipts account it maintains, as of the close of business on the twentieth day of such month and showing, for the period covered by such statement, the account. Such statement shall begin in a form prescribed by the Administrator and shall also include (i) information as to the principal balances of Home Mortgages outstanding at the close of business on the twentieth day of such month, (ii) information as to Home Mortgage upon which a combined total of two required monthly payments of principal and . aggregate of deposits into and withdrawals from such Receipts 25 040181-0039-161-4919f 05/01/85 interest are delinquent, as of the close of business on the last day of the preceding calendar month, and (iii) the unpaid outstanding principal amount of Home Mortgages and the estimated fair market value of any real estate acquired through foreclosure or grant of a deed in lieu of foreclosure. Within 120 days after the close of the Lender's , fiscal year, the Lender shall furnish to the Administrator an auditor's report relating to the Lender's financial statements and mortgage loan operations. The Lender shall also deliver to the Trustee and the Administrator a certificate stating that (i) a review of the activities of the Lender during the preceding year and of its performance under the Agreement has been made, and (ii) based on the review, there is, as of such date, no default by the Lender in the fulfillment of any of its obligations under the Agreement, or if there is any such default, specifying each such default and the nature and status thereof. The Lender's servicing duties may be terminated by the Administrator for cause. Upon such termination, the Administrator is obligated to succeed to all rights and obligations of the terminated Lender concerning services of Home Mortgages and shall be entitled to receive compensation therefor. As soon as practicable thereafter, the Administrator is to enter a servicing agreement with another qualified lender, or shall itself assume such servicing. The Administrator may, if it shall be unable to so act, appoint or petition a court of competent jurisdiction to appoint a successor servicer. Foreclosure Laws The Home Mortgages will be secured by first lien deeds of trust, the most commonly used real property security device in California. Although a deed of trust is similar to a mortgage with power of sale, the deed of trust formally has three parties -- the debtor trustor (similar to a mortgagor), the third party grantee called the trustee, and the lender-creditor (similar to a mortgagee) called the beneficiary. The trustor grants the property, irrevocably until the debt is paid, "in trust, with the power of sale" to the trustee to secure payment of the obligations. The trustee's authority is governed by law, the excess provisions of the deed of trust and the directions of the beneficiary. Upon the default of a Home Mortgage, the Lender servicing the Home Mortgage is to exercise the City's rights under the deed of trust's power of sale, subject to the constraints imposed by California law for the transfer of title to property by private sale. During the three-month 26 040181-0039-161-4919f 05/01/85 * period beginning with the filing of a formal notice of default, the Mortgagor will be entitled to reinstate the Home Mortgage by making overdue payments. Under standard servicing procedures, the filing of the notice of default does not occur unless at least two full monthly payments are due and unpaid. the power of sale is exercised by posting and publishing a notice of sale for at least 20 days after the expiration of the three month reinstatement period. Therefore, the effective period for foreclosing upon a Home Mortgage could be in excess of six months after the initial default. Such time delays in collections could disrupt the flow of revenues available for the payment of debt service on the Bonds if such defaults occur with respect to a substantial number of Loans. Under California anti-deficiency legislation, there is no personal recourse against a mortgagor where the trustee exercises the power of sale. The Lender The City has entered into an Agreement with principal amount of Home Mortgages to the Trustee for purchase on behalf of the City during the delivery period which terminates on 1, 1988 (or such later date as may be established in accordance with the Indenture). In consideration for the efforts associated with originating Home Mortgages, each Mortgagor will pay an origination fee of of 1% of the principal amount of each Home Mortgage (plus the cost of appraisal and credit reports and other customary closing expenses) to the Lender. to originate and provide $ Certain other information concerning the Lender is set forth in Appendix B hereto. Residential real estate loans originated by the Lender are subject to a thorough underwriting process in order to assess the prospective borrower's ability to repay and the adequacy of the home as collateral for the loan requested. California is an "anti-deficiency" state, which means that, in general, lenders providing credit on single family properties must look solely to the property for repayment in the event of default. Accordingly, loan underwriting policies require that loan officers be satisfied that the value of the property being financed currently supports, and will support in the future, the outstanding loan balance with sufficient excess value to mitigate against adverse shifts in real estate values. The appreciation in value of California real estate in the past has tended to limit loss and foreclosure experience on their portfolios of single family home mortgages. Since it is anticipated that 27 040181-0039-161-4919f 05/01/85 I some Home Mortgages under the City's Program may be made on the basis of a ninety-five percent (95%) loan-to-value ratio, and since no prediction can be made as to future prices of housing, the prior experience of the Lender described in Appendix B may not necessarily be useful in predicting the delinquency and loss rates to be experienced on the Loans. Errors and Omissions Insurance Policy and Fidelity Bond The Lender is required to maintain and keep (and pay the premiums for) an errors and omissions insurance policy and a fidelity bond. Both the errors and omissions insurance policy and fidelity bond must be in the form and substance required by FHLMC. Such policy and bond are subject to certain limitations as to amounts of coverage, deductible amounts, conditions, exclusions and exceptions. Accordingly, the errors and omissions insurance policy and fidelity bond, respectively, will not provide coverage against all losses which may be sustained as a result of errors, omissions or misappropriations. If either the errors and omissions insurance policy or fidelity bond shall cease to be in effect, or the issuer thereof shall cease to be acceptable to the Trustee, the Lender is required to exercise its best efforts to obtain from another insurer acceptable to the Trustee a replacement policy therefor. THE ADMINISTRATOR ( If- ") will act as Administrator under the Agreement. /a corporation, is a wholly owned subsidiary of December 31, 1984, ___ reported assets of approximately $ , produced revenues of approximately $ and after tax earnings of approximately $ 'I), of . As of # ( ''- is acting as Administrator for - separate single family home mortgage revenue bond issues financed under the Mortgage Subsidy Tax Bond Act of 1980 and amendments. In addition to the City of Carlsbad's Home Mortgage Revenue Bonds (FGIC Insured), 1985 Series A, serves as Administrator for . These issues comprise a total amount of approximately $ .. 28 040181-0039-161-4919f 05/01/85 INSURANCE The Homes securing each of the Home Mortgages purchased by the Trustee must be covered by a standard hazard insurance policy and a special hazard insurance policy. In addition, each Home Mortgage must be insured by a mortgage guaranty insurance policy. Private Mortgage Guaranty Insurance To qualify for purchase by the Trustee on behalf of the Program, a Home Mortgage must be insured under a private mortgage insurance policy. / a(n) corporation (the "Private Mortgage Insurer") , will provide mortgage guaranty insurance for the Home Mortgages under its standard policy form, which shall also include certain endorsements (collectively referred to as the "Policy"). The Trustee will be a named insured under the Policy, as its interests may appear (the "Insured"). The minimum level of coverage required will be determined on the basis of the following schedule: Initial Required Ratio Coverage Loan-to-Value Insurance .................... 90.1%-95% 40% 85.1%-90 .................... 35 80.1%-85 .................... 30 70.1%-80 .................... 25 60.1%-70 .................... 20 .................... 60 or less 15 No claim may be filed under the Policy until the Insured has acquired merchantable title to the property and possession to the property. Unless otherwise agreed to by the Private Mortgage Insurer, a claim under the Policy must be filed within 60 days after the occurrence of one of the above events. As conditions precedent to the filing and/or payment of a claim under the Policy, the Insured must: (i) have accomplished all construction, additions and improvements necessary to complete the mortgaged property as contemplated by the Policy, (ii) in the event of any physical loss or damage to the mortgaged property, have restored and repaired the mortgaged property to at least as good condition as existed at the effective date of the Policy and as contemplated by the Policy, ordinary wear and tear excepted, and (iii) pending the filing and settlement of a claim, advance or discharge (a) hazard insurance premiums, (b) as necessary and approved in advance by the Private Mortgage Insurer, (1) real estate property taxes, (2) expenses to 29 040181-0039-161-4919f 05/01/85 z preserve, repair and prevent waste to the mortgaged property, (3) sales expenses, (4) any outstanding liens on the mortgaged property, and (5) foreclosure costs, including court costs and reasonable attorneys' fees. Other provisions and conditions of the Policy provide that: (i) no change shall be made in the terms of a Home Mortgage without the consent of the Private Mortgage Insurer; (ii) the Insured shall commence and diligently pursue foreclosure or appropriate proceedings to acquire title to and possession of the mortgaged property when the mortgagor becomes delinquent in four or more monthly payments on the Home Mortgage, shall notify the Private Mortgage Insurer of the institution of such proceedings and provide it with copies of documents relating thereto, shall notify the Private Mortgage Insurer of the unpaid principal balance of the Home Mortgage and accrued and unpaid interest thereon at least 15 days prior to the sale of the mortgaged property by foreclosure, and shall bid such amount unless the Private Mortgage Insurer specifies a lower or higher amount, and (iii) the Insured may accept a deed in lieu of foreclosure only if the ability of the Insured to assign specified rights to the Private Mortgage Insurer are not thereby impaired. At any time after notice as described above and before commencement of foreclosure proceedings, the Private Mortgage Insurer has the right to purchase the Home Mortgage from the Insured for a price equal to the sum of (i) the unpaid principal balance of the Home Mortgage, together with any unpaid interest accrued thereon and (ii) unreimbursed amounts expended by the Insured for payment of real estate taxes and hazard insurance premiums for a period not exceeding twelve months. The amount of a claim for benefits consists of (i) the unpaid principal amount of the Home Mortgage and accrued and unpaid interest thereon and (ii) the amount of advances made by the Insured in accordance with the Policy less (a) all rents or other payments collected or received by the Insured (other than the proceeds of hazard insurance) which are derived from the mortgaged property, the mortgagor, an insurance company or any other person, (b) hazard insurance proceeds in excess of the amount required to restore the mortgaged property, (c) amounts expended by the Insured which have not been approved by the Private Mortgage Insurer, and (d) unpaid premiums. In no event, however, will the Private Mortgage Insurer be required to pay an amount which exceeds the coverage provided under the Policy. Such coverage limitations are set forth above. 30 040181-0039-161-4919f 05/01/85 z The Private Mortgage Insurer has the option of either paying the claim in full (in which case the Insured must convey the Home to the Private Mortgage Insurer) or paying a percentage of the claim (based upon the amount of coverage provided under the Policy) and allowing the Insured to retain title to the home. Information concerning the Private Mortgage Insurer's assets, capital and surplus, statutory and contingency reserves, total insurance in force, and other financial and statistical matters are contained in its annual statement filed with and available from the insurance departments of the various states in which it does business. Mortgage Pool Insurance The Trustee is required to maintain a mortgage pool' insurance policy covering all Home Mortgages purchased by it. This policy will also be issued by the It will provide insurance coverage for the full amount of any loss realized as a result of default in payments by a Mortgagor and subsequent Home Mortgage foreclosure proceedings, to the extent such loss is not covered by the private mortgage guaranty insurance policy described above, subject to a limitation on the aggregate amount of claims of 5% of the aggregate original principal amount of all Home Mortgages. Claims for losses must be paid within 30 days after the filing thereof. Upon the payment of claims, the insurer will receive title to the subject Home and will be responsible for its resale, unless it approves the sale thereof by the Insured prior to paying the claim, in which case the amount to be paid will be reduced by the net proceeds from such sale. In accordance with the Indenture, the Trustee will pay the annual premiums on the mortgage pool insurance with moneys in the Revenue Fund, except that the first annual premium will be paid from proceeds of the Bonds. [Description of Advance Claims Endorsement to come] Standard Hazard Insurance, Flood Insurance and Earthquake Insurance If a Home is a condominium, the condominium development in which the Home is located must be covered by a master or blanket policy of hazard insurance issued by a Qualified Insurer providing fire and extended coverage equal 31 040181-0039-161-4919f 05/01/85 x . to 100% of the current replacement cost of the entire condominium development (including all buildings, mechanical and service equipment in the condominium development, and any fixtures or equipment within the Home), with (i) an agreed amount endorsement, and (ii) to the extent a separate earthquake damage insurance policy for the Home is not provided, an earthquake damage endorsement (having a deductible not in excess of 5%) and which shall be maintained, if commercially available, or, if not commercially available, the maximum protection against earthquake loss then reasonably available and acceptable to the Lender. If a Home is located in a designated flood hazard zone, flood insurance shall be required to be maintained. The premiums on all of the foregoing insurance shall be required to be maintained. The premiums on all of the foregoing insurance (other than on individual earthquake insurance, which premiums are to be paid by the individual Mortgagors) are to be paid by the homeowners association established for the condominium development. Each homeowners association must have fidelity coverage as well as comprehensive public liability insurance with a severability of interest endorsement and other commonly require coverage. Special Hazard Insurance The Trustee will obtain special hazard insurance to insure against losses resulting from flood (under circumstances where the properties subject to Home Mortgages are not located in designated flood hazard zones), mudslide or earthquakes, and losses resulting from the application of a co-insurance clause in the standard hazard insurance or earthquake insurance. In the event a Mortgagor has defaulted and foreclosure procedures have commenced, the special hazard insurance will cover the uninsured risk in the event of a loss resulting from such an insured risk occurring before or after default. The insurer will have the option of paying (1) the cost of repair, less the net proceeds received from the standard hazard insurance or flood insurance, or (2) the sum of (i) the unpaid principal balance of the Home Mortgage at the time the property is sold, (ii) advances made by the Lender, and (iii) accumulated interest on the total of the unpaid principal balance of the Home Mortgage and on advances made, less the net proceeds received from the standard hazard insurance, flood insurance or earthquake insurance. A claim under the special hazard insurance may be made as soon as practicable after the date of discovery of such loss, damage or occurrence. 32 040181-0039-161-4919f 05/01/85 < The maximum amount payable under the special hazard insurance will be 1% of the initial amount available to finance the acquisition of Home Mortgages or twice the original principal amount of the largest Home Mortgage, whichever is greater. The residual coverage under such insurance will reduce as claims are paid and, if aggregate claims exceed the policy limit, no further payments will be made by the insurer, and any loses resulting thereafter may be borne by the registered owners of the Bonds. In accordance with the Indenture, the Trustee will pay the annual premiums on the special hazard insurance with moneys in the Revenue Fund, except that the first annual premium will be paid from proceeds of the Bonds. DEFINITION OF CERTAIN TERMS The following is a summary of certain definitions contained in the Agreement, the Indenture, the Developer Agreements and the Rules and Regulations. This summary does not purport to be comprehensive or definitive, and is subject to all the terms and provisions of such documents, to which reference is hereby made, and copies of which are available from the Agency and the Trustee. "Acquisition Cost" means the cost of acquiring a Home from the seller as a completed residential unit. "Annual Debt Service" means, for any given Bond Year, the sum (on the first day of such Bond Year) of (1) the interest scheduled to be due on then outstanding Current Interest Bonds (assuming that all then outstanding Serial Bonds are retired on their respective maturity dates, and that all then outstanding Term Bonds are retired at the times of, and in amounts provided for by, the mandatory sinking account payments applicable to such outstanding Term Bonds) in such Bond Year, (2) the principal amount of then outstanding Serial Bonds and Term Bonds, and the Compounded Amount of then outstanding Tax Exempt Capital Accumulator Bonds, scheduled to be due in such Bond Year, and (3) the amount of the mandatory sinking account payments required in such Bond Year. Average Area Purchase Price" means the average 11 purchase price of single-family (one-unit) residences, determined separately with respect to residences which have not been previously occupied and residences which have been previously occupied, in the Los Angeles-Long Beach Primary Metropolitan Statistical Area for the most recent 12-month 33 040181-0039-161-4919f 05/01/85 L * period for which statistical information is available. Such prices shall be those amounts specified by the United States Department of the Treasury as "safe harbor limitations," unless, in the opinion of nationally recognized bond counsel or pursuant to a ruling of the Internal Revenue Service, other amounts specified by the City meet the requirements of Section 103A of the Code. "Bond Insurance" means Municipal Bond New Issue Insurance Policy No. of the Bond Insurer. "Bond Insurer" means Financial Guaranty Insurance Company, doing business in California as FGIC Insurance Company and its successors and assigns. "Bond Year'' means the 12-month period ending on 1 in any year in which Bonds are or will be outstanding. "Closing Date'' means the date on which a Home Mortgage is originated and made by the Lender to a Mortgagor. "Code" means the Internal Revenue Code of 1954, as amended, and all regulations promulgated thereunder. "Compounded Amount" means with respect to each $5,000 maturity amount of Tax Exempt Capital Accumulator Bonds (a) as of any Interest Payment Date, the amount set forth in the table of Compounded Amounts appearing on the Tax Exempt Capital Accumulator Bonds; and (b) as of any other date, the Compounded Amount on the Interest Payment Date next preceding such date, plus the portion of the difference between the Compounded Amount on such prior Interest Payment Date and the Compounded Amount on the next succeeding Interest Payment Date that the number of days from such prior Interest Payment Date to date for which the determination is being made (assuming 30-day months) bears to the total number of days from such prior Interest Payment Date to such succeeding Interest Payment Date (assuming 30-day months). "Developer Allocation" means the aggregate principal amount of Homes Mortgages to be purchased with respect to the Developer Reserved Homes which are the subject of a given Developer Agreement. "Developer Commitment Fee" means the commitment fee paid by a Developer, or on behalf of a Developer by the City, pursuant to a Developer Agreement. "Developer Reserved Homes" means the Homes constructed or rehabilitated, or to be constructed or 34 040181-0039-161-4919f 05/01/85 P rehabilitated, by a Developer and intended to be financed from a Developer Allocation. "Errors and Omissions Insurance Policy" means a standard form errors and omissions insurance policy, in form and substance as required FHLMC. "FHLMC" means the Federal Home Loan Mortgage Corporation, and its successors and assigns. "Fidelity Bond" means a standard form fidelity bond, in form and substance as required by FHLMC. "Home" means a condominium unit and proportionate share of common facilities. "Home Mortgage" means a loan with respect to a Home, evidenced by a Note and secured by a Mortgage, purchased by the City from the Lender under the Program. "Household Income" means the adjusted gross income for the current calendar year (as calculated for federal income tax purposes) of a Mortgagor, together with the aggregate adjusted gross incomes similarly calculated of all other adult persons who intend to reside permanently with the Mortgagor in the Home. "Impound Account" means an account maintained by the Lender into which Impound Payments are deposited. "Impound Payments" means all deposits made by a Mortgagor in order to obtain or maintain, or assure maintenance of, insurance, and deposits required to be made with respect to taxes and other governmental charges or similar charges customarily required to be deposited in advance by a mortgagor and impounded pending their payment for the item or items for which the deposits were impounded. "Insurance Proceeds" means payments under any insurance policy required to be maintained by the Indenture or the Agreement. "Interest Payment Date" means either 1 or 1. "Investment Securities" means (1) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America); (2) obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the 35 040181-0039-161-4919f 05/01/85 4 following: Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Bank System, Export-Import Bank of the United States, Federal Financing Bank, Federal Land Banks, Federal National Mortgage Association, Government National Mortgage Association, Farmer's Home Administration, or Federal Home Loan Mortgage Corporation; (3) interest- bearing demand on time deposits (including certificates of deposit) in banks (including the Trustee) and savings and loan associations, secured at all times, in the manner and to the extent provided by law, by collateral security described in clause (1) of this definition, and of a market value of no less than 103% of the amount of moneys so invested (unless such bank or savings and loan association is rated in one of the two highest rating categories by , in which case such market value shall be no less than 100% of the amount of moneys so invested), but in no event shall the . amount of such deposits exceed 25% of the amount of the capital and undivided surplus or reserves of the bank or savings and loan association; (4) repurchase agreements with banks (including the Trustee) or savings and loan associations, the underlying securities of which are obligations described in clause (1) of this definition, provided that, unless such seller is rated in one of the two highest rating categories by , the underlying securities are required to be continuously maintained at a market value (valued at least weekly) not less than 103% of the amount of the repurchase price from time to time payable with respect thereof, and are to be held in a separate, segregated account by or in the name of the Trustee; (5) investment agreements with banks (including the Trustee) or savings and loan associations whose holding companies have a rating in one of the two highest rating categories by ; (6) until 1, 1989, investment agreements continuously secured by obligations described in clause (1) of this definition which have a market value (valued at least weekly) not less than 103% of the amounts so invested; and (7) an Investment Agreement, dated as of 1, 1985, between the Trustee and "Liquidation Proceeds" means amounts (other than Insurance Proceeds) recovered in connection with the liquidation of any defaulted Home Mortgage, whether through a trustee's sale, foreclosure or otherwise. "Long-Term Reserve Account Requirement" means, as of any date of calculation, an amount equal to % of the aggregate principal amount and Compounded Amount of the outstanding Bonds, plus interest accrued and unpaid, as of the Interest Payment Date on or immediately prior to the date on which such calculation is being made; provided, however, 36 040181-0039-161-4919f 05/01/85 t q that if any funds in the Long-Term Reserve Account are invested at a rate in excess of the yield on the Bonds, the fund so invested, when added to any fund in the Short-Term Reserve Account so invested, shall not at any time exceed 150% of the annual debt service for the then current Bond Year. "Maturity Amount" means the Compounded Amount of a Tax Exempt Capital Accumulator Bond payable at its stated maturity . "Median Household Income" means the highest of (i) state-wide median household income, (ii) county-wide median household income, or (iii) median family income for the Metropolitan Statistical Area as determined by the United States Department of Housing and Urban Development. Mortgage" means a deed of trust, mortgage or other 11 similar instrument creating a lien on a Home. "Mortgage Documents" means the documents pertaining to a particular Home Mortgage as specified in the Agreement. "Mortgage Pool Insurance" means the mortgage pool insurance policy, and advance claims payment endorsement, maintained by the Trustee as provided in the Agreement and the Indenture, or any replacement policy and endorsement of a similar nature and purpose, providing insurance against loss upon the occurrence of any default under a Home Mortgage, subject to a limitation on the aggregate amount of claims equal to 5% of the initial amount available to finance the acquisition of Home Mortgages. Mortgage Pool Insurer" means any Qualified II Insurer, satisfactory to the City and the Bond Insurer (provided that if the Bond Insurer is in default under the Bond Insurance, the Qualified Insurer need be acceptable only to the City), licensed to insure mortgages in the State of California pursuant to the Mortgage Pool Insurance, and qualified to provide insurance on mortgages purchased by FHLMC . "Mortgage Submission Voucher" means a mortgage submission voucher in the form specified by the Agreement. "Mortgagor" means the maker (other than a guarantor or co-signor who will not be a permanent occupant of the Home) of a Note in connection with the acquisition of a Home through the borrowing of money pursuant to a Home Mortgage, and includes, where appropriate, a subsequent purchaser of 37 040181-0039-161-4919f 05/01/85 t I such Home who purchases such Home subject to the related Home Mortgage or who assumes such Note. "Nonmortgage Investment Excess" means, for any given period, (1) the aggregate amount of interest, profits and other income earned in such period from the investment of amounts in funds and accounts established pursuant to the Indenture (other than amounts invested in Home Mortgages), less (2) the sum of (a) the aggregate amount which would have been earned in such period if such investment had been at the Bond yield, compounded semiannually, and (b) the aggregate net amount of losses, if any, realized in such period upon the foreclosure of Home Mortgages or upon the assignment of Home Mortgages for the purpose of collecting mortgage insurance thereon; but only to the extent that the aggregate of such amounts for the current Bond Year, and all prior Bond Years, exceeds $ . The amount described in clause (1) of this definition shall take into account any gain or loss realized on the disposition of Investment Securities credited to any fund or account; and on the date of retirement of the last Bond remaining unpaid, shall include any gain or loss that would result if all Investment Securities credited to any such fund or account were sold at market value on such date. "Note" means the promissory note or other document or documents evidencing the obligation of a Mortgagor to repay a Home Mortgage. "Permitted Encumbrances" means those encumbrances with respect to a Home permitted by (i) FHLMC guidelines, or, if less restrictive, (ii) the Private Mortgage Insurer and the Mortgage Pool Insurer, in each case to the extent that such encumbrances do not impair the security for the Home Mortgages, are matters of public record as of the date the related Home Mortgage is recorded, and are taken into account and reflected in the appraisal submitted to the Trustee in connection with the purchase of the related Home Mortgage. "Policy of Title Insurance" means a current American Land Title Association standard form lender's policy of title insurance, with California Land Title Association endorsements Nos. 100 and either 116 or 116.2, in the amount of the original principal amount of a Home Mortgage, payable to the Trustee as its interest may appear, issued by a Qualified Title Insurance Company, insuring title to a Home as being vested in the Mortgagor, subject only to the lien of the Home Mortgage and to Permitted Encumbrances. "Program Expense Fund Requirement" means, as of any date of calculation, such amount as may at any time and from 38 040181-0039-161-4919f 05/01/85 I time to time be fixed or determined by the Trustee as necessary to be accumulated in the Program Expense Fund as a reserve for the uses to which amounts in such fund may be applied pursuant to the Indenture. "Private Mortgage Guaranty Insurance" means a policy of private mortgage guaranty insurance issued by a Private Mortgage Insurer, which provides at least the following coverage for the entire term of the Home Mortgage: Loan-to-Value Ratio % of Home Mortgage Insured 90.01 - 95% 40% 85.01 - 90 35 80.01 - 85 30 70.01 - 80 25 60.01 - 70 20 60 or less 15 "Private Mortgage Insurer'' means any Qualified Insurer, satisfactory to the City and the Bond Insurer (provided that if the Bond Insurer shall be in default under the Bond Insurance, the Qualified Insurer need be satisfactory only to the City), licensed to insure mortgages in the State of California pursuant to the Private Mortgage Guaranty Insurance, and qualified to provide insurance on mortgages purchased by FHLMC. "Program Documents" means, collectively, the Indenture, the Agreement, the Developer Agreements, the Rules and Regulations, and all affidavits and certificates required thereby. "Qualified Insurer" means any insurance company satisfactory to the City and the Bond Insurer (provided that if the Bond Insurer shall be in default under the Bond Insurance, the insurance company need be satisfactory only to the City), licensed to engage in the insurance business in the State of California, and approved by FHLMC to provide insurance in connection with mortgages purchased by FHLMC. "Qualified Program Expenses" means (1) the fees and expenses of the Trustee, (2) insurance premiums with respect to the Special Hazard Insurance and Mortgage Pool Insurance required to be maintained by the Trustee on or with respect to any one or more Home Mortgages pursuant to the Indenture; (3) premiums with respect to the Bond Insurance; and (4) a semiannual administrative fee payable to the City on each Interest Payment Date in the amount of % of the aggregate principal amount of outstanding Home Mortgages. 39 040181-0039-161-4919f 05/01/85 1 "Qualified Title Insurance Company" means a title insurance company constituting a Qualified Insurer. Revenues" means all amounts received by the City or the Trustee from or with respect to the Home Mortgages, the Agreement, the Developer Agreements and any policies of insurance on or with respect to the Bonds or the Home Mortgages, including, without limiting the generality of the foregoing, scheduled payments of principal and interest required pursuant to any Home Mortgage and paid from any source (including both timely and delinquent payments), Home Mortgage principal prepayments, Developer Commitment Fees and all interest, profit or other income derived from the investment of amounts in any fund or account established pursuant to the Indenture, but not including (1) Impound Payments, and (2) any amounts retained by the Lender as a servicing fee or other compensation. ll "Rules and Regulations'' means the Rules and Regulations relating to the financing of the acquisition of the Home Mortgages under the Indenture. "Section 103A" means Section 103A of the Code. "Short-Term Reserve Account Requirement" means, as of any date of calculation, an amount equal to % of the aggregate principal amount and Compounded Amount of the outstanding Bonds, plus interest accrued and unpaid on the outstanding Current Interest Bonds, as of the Interest Payment Date on or immediately prior to the date when such calculation is being made; however, that if any funds in the Short-Term Reserve Account are invested at a rate in excess of the yield on the Bonds, the funds so invested, when added to if any funds in the Long-Term Reserve Account so invested, shall not at any time exceed 150% of the amount of Annual Debt Service for the then current Bond Year. THE INDENTURE The following is a summary of certain provisions of the Indenture. This summary does not purport to be comprehensive or definitive, and is subject to all of the terms and provisions of the Indenture, to which reference is hereby made, and copies of which are available from the Agency and the Trustee. 40 040181-0039-161-4919f 05/01/85 I I Pledge and Assignment Subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Revenues, all of the proceeds of the Bonds and any other amounts held in any fund or account established pursuant to the Indenture (except the Nonmortgage Investment Income Fund to the extent of the Nonmortgage Investment Excess) are pledged and assigned to the Trustee to secure the payment of the principal of and interest on the Current Interest Bonds, and the Compounded Amount of the Tax Exempt Capital Accumulator Bonds, in accordance with the terms and provisions of the Indenture. Said pledge shall constitute a lien on and a security interest in such assets. Under the Indenture, the City transfers in trust, grants a security interest in and assigns to the Trustee, for the benefit of the registered owners of the Bonds, all of the Revenues and other moneys pledged as aforesaid, and all of the right, title and interest of the City in each Home Mortgage, the Agreement and the Developer Agreements (including all agreements entered into thereunder). Flow of Funds The Indenture establishes the following funds and accounts to be held by the Trustee: (i) a Program Fund, and therein a separate account designated as the Cost of Issuance Account, into which moneys are deposited for the purchase of Home Mortgages and for the payment of the costs of issuing the Bonds, (ii) a Revenue Fund, (iii) an Interest Fund, (iv) a Principal Fund, including therein a Sinking Account, (v) a Redemption Fund, (vi) a Reserve Fund, including therein a Long-Term Reserve Account and a Short-Term Reserve Account, (vii) a Program Expense Fund, and (viii) a Nonmortgage Investment Income Fund. In addition, the Trustee shall, at the written request of the City, establish, maintain and hold in trust such additional accounts within the Program Fund for the Developments and the Substitute Projects as the City shall specify. The application of moneys in certain of these funds and accounts is described below: Program Fund. The Indenture creates the Program Fund into which the proceeds from the sale of the Bonds and the Developer Commitment Fees will be deposited (exclusive of amounts deposited in the Interest Fund and the Reserve Fund). Except as otherwise provided in the Indenture, moneys in the Program Fund shall be used and withdrawn solely for the (1) acquisition of Home Mortgages, (2) payment of costs of issuance of the Bonds, and (3) transfer to the Redemption Fund, all as provided in the Indenture. 41 040181-0039-161-4919f 05/01/85 r( i Revenue Fund. All Revenues (except for Bond proceeds, Developer Commitment Fees and amounts required to be deposited in the Nonmortgage Investment Income Fund) will be deposited in the Revenue Fund upon receipt thereof, and will be: (i) withdrawn from the Revenue Fund when and to the extent necessary to pay Qualified Program Expenses, accrued interest on Home Mortgages being purchased by the Trustee on behalf of the City, and accrued interest on Bonds purchased by the Trustee pursuant to the Indenture; and (ii) transferred from the Revenue Fund to the following respective separate funds on each Interest Payment Date in the following amounts and in the following order of priority: (1) to the Program Expense Fund, the amount, if any, needed to increase the amount in the Program Expense Fund to the Program Expense Fund to the Program Expense Fund Requirement; provided, however, that the portion of the Program Expense Fund Requirement which is attributable to the City's semiannual administrative fee shall not be so deposited if, and to the extent that, the transfers required in (2) through (5), inclusive, will not be made in full; (2) to the Interest Fund, the amount, if any, needed to increase the amount in the Interest Fund to the aggregate amount of interest becoming due and payable on such Interest Payment Date upon all Current Interest Bonds then outstanding; (3) to the Principal Fund, the amount, if any, needed to increase the amount in the Principal Fund to (i) the aggregate amount of principal becoming due and payable on the outstanding Serial Bonds and Term Bonds, and the aggregate Compounded Amount becoming due and payable on the outstanding Tax Exempt Capital Accumulator Bonds, plus (ii) the aggregate amount of sinking account installments required to be paid into the Sinking Account for the outstanding Term Bonds and Tax Exempt Capital Accumulator Bonds, in each case as of such Interest Payment Date; (4) to the Reserve Fund, the amount, if any, needed to increase the amount in the Long-Term Reserve Account to the Reserve Account Requirement; (5) to the Reserve Fund, the amount, if any, needed to increase the amount in the Short-Term Reserve Account to the Short-Term Reserve Account Requirement; and 42 040181-0039-161-4919f 05/01/85 u (6) to the Redemption Fund, the balance, if any, remaining after making the foregoing deposits. Reserve Fund. The Reserve Fund contains the Long-Term Reserve Account and the Short-Term Reserve Account. The Long-Term Reserve Account is to be funded and maintained at the Long-Term Reserve Account Requirement, and the Short-Term Reserve Account is to be funded and maintained at the Short-Term Reserve Account Requirement. All amounts in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of (1) remedying any deficiency in the Nonmortgage Investment Income Fund, Interest Fund or Principal Fund in the manner provided in the Indenture and as described herein (see "Deficiencies in Interest and Principal Funds"), (2) paying accrued interest on Home Mortgages acquired by the Trustee on behalf of the City to the extent of any deficiency therefor in the Revenue Fund, or (3) paying taxes, assessments and other governmental charges remaining unpaid with respect to the property subject to any Home Mortgage, or fees and expenses incurred in connection with condemnation proceedings on property subject to any Home Mortgage or in connection with the foreclosure, sale under deed of trust, or other proceedings taken in the event of default of any Home Mortgage. Amounts in the Short-Term Reserve Account shall be used and withdrawn by the Trustee prior to the use and withdrawal of amounts in the Long-Term Reserve Account. If, at any time during any Bond Year, the amount on deposit in the Reserve Fund invested at a rate in excess of the yield on the Bonds exceeds 150% of the amount of Annual Debt Service for such Bond Year, the Trustee is required to transfer the excess, first from the Short-Term Reserve Account and then from the Long-Term Reserve Account, to the Revenue Fund. On each 1 and 1 on or after 1, 1988 (or such later date as may be established in accordance with the Indenture), any amount in the Short-Term Reserve Account in excess of the Short-Term Reserve Account Requirement, or any amount in the Long-Term Reserve Account in excess of the Long-Term Reserve Account Requirement, shall be transferred to the Revenue Fund and applied in accordance with the Indenture. Redemption Fund. The Trustee will apply all amounts deposited in the Redemption Fund to the purchase or redemption of Bonds in the manner and upon the terms and conditions provided in the Indenture and as more fully described herein (see "The Bonds -- Redemption Provisions"). All Bonds so purchased or redeemed will be cancelled and destroyed by the Trustee. 43 040181-0039-161-4919f 05/01/85 , Deficiencies in Interest and Principal Funds. In the event that the amount in the Interest Fund is insufficient to pay interest on the Current Interest Bonds when due, the Trustee will transfer to the Interest Fund the amount of such deficiency by withdrawing said amount from the following funds or accounts to the extent moneys are available for withdrawal therefrom in the following order or priority: (1) the Revenue Fund (to the extent notice of redemption with respect to amounts to be transferred to the Redemption Fund from the Revenue Fund has not yet been given); (2) the Reserve Fund (and within the Reserve Fund from the Short-Term Reserve Account prior to the Long-Term Reserve Account); or (3) any other fund or account established pursuant to the Indenture, except the Nonmortgage Investment Income Fund to the extent of the Nonmortgage Investment Excess, but from the Redemption Fund and the Principal Fund, in that order, only after all such other funds and accounts have been exhausted (and then only to the extent notice of redemption with respect to amounts on deposit in the Redemption Fund and the Principal Fund has not yet been given). In the event that the amount in the Principal Fund is insufficient to pay the principal or Compounded Amount of the Bonds, or the sinking account installments, when due, the Trustee will transfer to the Principal Fund the amount of such deficiency by withdrawing said amount from the following funds or accounts to the extent moneys are available for withdrawal therefrom in the following order or priority: (1) the Revenue Fund (to the extent notice of redemption with respect to amounts to be transferred to the Redemption Fund from the Revenue Fund has not yet been given); (2) the Reserve Fund (and within the reserve Fund from the Short-Term Reserve Account prior to the Long-Term Reserve Account); or (3) any other fund or account established pursuant to the Indenture, except the Interest Fund and the Nonmortgage Investment Income Fund to the extent of the Nonmortgage Investment Excess, but from the Redemption Fund only after all other funds and accounts have been exhausted (and then only to the extent notice of redemption with respect to amounts on deposit in the Redemption Fund has not yet been given). Program Expense Fund. The Trustee will apply all amounts deposited in the Program Expense Fund to pay Qualified Program Expenses. Nonmortgage Investment Income Fund. Pursuant to the requirements of Section 103A and the Indenture, the City must divest itself of any Nonmortgage Investment Excess by 44 040181-0039-161-4919f 05/01/05 I L paying such amount annually to the United States Department of the Treasury. In compliance with Section 103A, the Trustee will establish, maintain and hold in trust a separate fund designated as the Nonmortgage Investment Income Fund. The Trustee will deposit, when received, all interest, profits and other income derived from investments (other than the Home Mortgages) of all moneys in any fund or account established under the Indenture into the Nonmortgage Investment Income Fund. On each 1 and remaining unpaid, the Trustee shall calculate the amount of Nonmortgage Investment Excess. The calculation of Nonmortgage Investment Excess made on each 1 shall not take into account the aggregate net amount of any losses realized upon the foreclosure of Home Mortgages or upon the assignment of Home Mortgages for the purpose of collecting Private Mortgage Guaranty Insurance thereon or Mortgage Pool Insurance thereon. On each Interest Payment Date, the Trustee will transfer all amounts in the Nonmortgage Investment Income Fund, less the amount of Nonmortgage Investment Excess calculated as of such date, to the Revenue Fund to be applied in the manner provided in the Indenture. If the amount of Nonmortgage Investment Excess calculated on any 1 or on the date of retirement of the last Bond remaining unpaid is positive, the Trustee shall pay such amount to the United States Department of the Treasury. The Nonmortgage Investment Excess will not be subject to the claim of any party, including the registered owner of any Bond, and will not be paid to any party other than the United States Department of the Treasury. 1, and on the date of retirement of the last Bond In the event that the amount in the Nonmortgage Investment Income Fund is for any reason insufficient to pay to the United States Department of the Treasury the amounts due as calculated in the Indenture, the Trustee will transfer to the Nonmortgage Investment Income Fund the amount of such deficiency by withdrawing said amount from the following funds and accounts in the following order of priority, regardless of any other claim on such funds and accounts established pursuant to the Indenture: (1) the Revenue Fund; (2) the Short-Term Reserve Account; (3) the Long-Term Reserve Account; (4) the Redemption Fund; or (5) any other fund or account established pursuant to the Indenture. Investment of Moneys in Funds All moneys in any of the funds and accounts established pursuant to the Indenture shall be invested in Investment Securities to maximize income, with proper regard 45 040181-0039-161-4919f 05/01/85 I for the preservation of principal, subject to any request of the City, which has been approved by the Bond Insurer, as to such investment. All interest, profits and other income derived from the investment (other than in Home Mortgages) of all moneys in any fund or account established under the Indenture shall be deposited when received in the Nonmortgage Investment Income Fund. Particular Covenants Punctual Payment. The City shall punctually pay or cause to be paid the principal of and interest on the Current Interest Bonds, and the Compounded Amount of the Tax Exempt Capital Accumulator Bonds, and shall punctually pay or cause to be paid all sinking account installments, in strict conformity with the terms of the Bonds and the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture. Against Encumbrances. The City shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues or other assets pledged or assigned under the Indenture while any of the Bonds are outstanding, except the pledge, lien and assignment created by the Indenture. Subject to this limitation, the City expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Act, and reserves the right to issue other obligations for such purposes. Payment of Taxes and Claims. The City shall, from time to time, duly pay and discharge, or cause to be paid and discharged, any property taxes, assessments or other governmental charges that may be lawfully imposed upon the Revenues or other assets pledged or assigned under the Indenture, as well as any lawful claim which, if unpaid, might by law become a lien or charge on the Revenues or such other assets, or which might impair the security of the Bonds, but only out of Revenues available therefor as provided in the Indenture. Accounting Records and Financial Statements. The Trustee shall at all times keep proper books of record and account in which complete and accurate entries shall be made of all transactions relating to the proceeds of Bonds, the Revenues, the Home Mortgages and all funds and accounts established pursuant to the Indenture. Such books of record and account shall be available for inspection by the City, the Bond Insurer and the registered owners of not less than 10% in aggregate principal amount and Compounded Amount of 46 040181-0039-161-4919f OS/OI/SS f Bonds then outstanding, or by the agents or representatives thereof duly authorized in writing, at reasonable times and under reasonable circumstances. The registered owners of the Bonds are not permitted to inspect the books which are kept by the Trustee for the registration and transfer of the Bonds. To the extent requested in writing by a registered owner of the Bonds, the Trustee shall furnish to such registered owner, at the expense of the City, within 120 days after the closing of each Bond Year, complete financial statements with respect to the Program. Tax Covenants. The City and the Trustee shall not use or permit the use of any proceeds of Bonds or any funds of the City, directly or indirectly, to acquire any securities or obligations, and shall not use or permit the use of any amounts received by the City or the Trustee with respect to the Home Mortgages in any manner, and shall not take or permit to be taken any other action or actions, which would cause any Bond to be an "arbitrage bond" within the meaning of Section 103(c) of the Code. The City shall require that any person (or any "related person" as defined in Section 103(b)(6)(C) of the Code) from whom it may acquire Home Mortgages shall not, pursuant to any arrangement, formal or informal, purchase Bonds in an amount related to the amount of Home Mortgages to be acquired from such person. The City and the Trustee shall not use or permit the use of any proceeds of Bonds or any other funds of the City, directly or indirectly, in any manner, and shall not take or permit to be taken any other action or actions, which would result in the Bonds being treated as obligations that are "federally guaranteed" within the meaning of Section 103(h) of the Code, or obligations not described in Section 103(a) of the Code by reason of classification as "industrial development bonds" within the meaning of Section 103(b) of the Code. The City and the Trustee shall in good faith attempt to meet all of the applicable requirements contained in Sections 103A(d), (e), (f) and (j) of the Code before each Home Mortgage is executed or assumed. The City shall establish reasonable procedures to ensure compliance with such requirements. Such procedures shall include reasonable investigations by the City and the Lender to determine that the Home Mortgages satisfy such requirements. The City and the Trustee shall prohibit the assumption of Home Mortgages absent satisfaction of the conditions for assumption set forth in said provisions of the Code are satisfied. Any failure of a Home Mortgage, the related Home or the related Mortgagor to meet such requirements shall be corrected within 47 040181-0039-161-4919f 05/01/85 l a reasonable period after such failure is discovered. The City shall in good faith attempt to meet, and shall take all reasonable steps to assure compliance with, the requirements of Section 103A(g), (h) and (i) of the Code. The City shall file or cause to be filed on its behalf in a timely fashion all statements and reports required to be filed pursuant to Section 103A(j)(3) of the Code. Program Covenants. The Trustee shall from time to time, with all practical dispatch and in a sound and economical manner consistent in all respects with Section 103A, the Act, the Indenture, the Rules and Regulations, the Agreement (collectively, the "Program Documents") and all other applicable laws and regulations, and with sound banking practices and principles, use and apply the amounts held in the Program Fund to acquire Home Mortgages and pay costs of issuance, and shall do all such acts and things necessary to produce Revenues sufficient to pay when due the principal of and interest on the Current Interest Bonds, and the Compounded Amount of the Tax Exempt Capital Accumulator Bonds, and shall take all steps, actions and proceedings reasonably necessary in the judgment of the Trustee to enforce the terms, covenants and conditions of the Home Mortgages, the Agreement, the Developer Agreements and the Indenture, and to cause to be maintained and enforced all policies of insurance required to be maintained on or with respect to any one or more Home Mortgages. Subject to the tax covenants set forth above, amounts in the Program Fund (not used to pay costs of issuing the Bonds) shall be used to acquire only Home Mortgages which (a) are in compliance with the Program Documents, and (b) in the aggregate have scheduled payments of principal and interest at least sufficient, together with other expected Revenues, to pay when due the principal of and interest on the Current Interest Bonds, the Compounded Amount of the Tax Exempt Capital Accumulator Bonds, and all Qualified Program Expenses. No Home Mortgage shall be sold, assigned or otherwise disposed of by the City or the Trustee except under certain circumstances enumerated in the Indenture. Subject to these provisions, if any Home Mortgage is sold, assigned or otherwise disposed of, such Home Mortgage shall be released from the assignment made by the Indenture, and the City and the Trustee shall take all necessary action, and execute and deliver all necessary instruments, to confirm any such sale, assignment or disposition, and vest title to the Home Mortgage in the purchaser, assignee or other recipient thereof. 48 040181-0039-161-4919f 05/01/85 L The City and the Trustee shall not consent to the modification of, or modify, any Home Mortgage or any policy of insurance thereon or with respect thereto in any manner which would result in the failure of such Home Mortgage to satisfy the conditions set forth in the second paragraph of this section, or which would materially impair the security of the Bonds. From and after the first date when the entire indebtedness on all Bonds outstanding has been paid and discharged, and after the City shall receive all amounts due and owing to it, the City and the Trustee shall cease to collect or cause to be collected, and shall waive all rights with respect to, all principal and interest payments on outstanding Home Mortgages scheduled to be paid on or after such date. If the Lender has transferred to the Trustee payments that need not have been made by the Mortgagors after such date, the Trustee is required to immediately return such payments to the Lender for the return to the Mortgagors. Events of Default and Remedies The following events constitute events of default under the Indenture: (A) default in the due and punctual payment of the principal of any Current Interest Bond, or the Compounded Amount of any Tax Exempt Capital Accumulator Bond, when and as the same becomes due and payable, whether at maturity, by proceedings for redemption, by declaration or otherwise (including any redemption from sinking account installments); (B) default in the due and punctual payment of any installment of interest on any Current Interest Bond when and as the same shall become due and payable; and (C) default by the City in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained if such default shall have continued for a period of 60 days after written notice thereof specifying such default and requiring the same to be remedied shall have been given to the City by the Trustee, or to the City and the Trustee by the registered owners of not less than 25% in aggregate principal amount and Compounded Amount of the Bonds at the time outstanding. Upon (i) the happening and continuance of any event of default specified in paragraph (A) or (B) above, the Trustee shall proceed, and (ii) the happening and continuance 49 040181-0039-161-4919f 05/01/85 t of an event of default specified in paragraph (C) above, the Trustee may proceed, and, following the written request of the registered owners of not less than 25% in aggregate principal amount and Compounded Amount of the outstanding Bonds, the Trustee shall proceed, in its own name, to protect and enforce the rights of the registered owners of the Bonds by such of the following remedies as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights, but subject in all events to the prior written consent of the Bond Insurer should there not then be subsisting an event of default under the Bond Insurance: (1) by mandamus or other suit, action or proceeding at law or in equity, to enforce all rights of the registered owners of the Bonds, (2) by bringing suit upon the Bonds, (3) by action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the registered owners of the Bonds, (4) by declaring all Bonds due and payable, and if all defaults shall be cured, then, with the written consent of the registered owners of not less than a majority in aggregate principal amount and Compounded Amount of the outstanding Bonds and the Bond Insurer, by annulling such declaration and its consequences, or (5) in the event that all outstanding Bonds are declared due and payable, by selling, assigning or otherwise disposing of a11 of the Revenues and assets pledged under the Indenture free and clear of the lien of the Indenture. In the event of any Event of Default under the Indenture, upon the written request of the Bond Insurer (provided that no event of default under the Bond Insurance then subsists), the Trustee shall exercise such of the remedies available to the Trustee as the Bond Insurer shall so request. Without limiting the generality of the foregoing, should the Bond Insurer request the Trustee to declare all Bonds due and payable, the Trustee shall make such declaration, but only upon receipt from the Bond Insurer of the amount necessary to pay the principal and Compounded Amount of, and interest on, the Bonds so declared to be due and payable. In the event that, upon the happening and continuance of any Event of Default, moneys held by the Trustee shall be insufficient for the payment of the Bonds, such moneys (other than moneys held in the Nonmortgage Investment Income Fund to the extent of the Nonmortgage Investment Excess, and moneys held for the payment or redemption of particular Bonds which have theretofore become due at maturity or by call for redemption) and any other amounts received or collected by the Trustee acting pursuant to the Act and the Indenture, after making provision for the 50 040181-0039-161-4919f 05/01/85 $ & payment of expenses, charges, liabilities and advances, are required to be applied as follows: (1) Unless the principal and Compounded Amount of all of the Bonds shall have become or have been declared due and payable: FIRST: To the payment to the persons entitled thereto of all installments of interest on the Current Interest Bonds then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment, then to the payment thereof ratably to the persons entitled thereto, without any discrimination or preference; and SECOND: To the payment to the persons entitled thereto of the unpaid principal and Compounded Amount of any Bonds which shall have become due, whether at maturity or by call for redemption, in the order of their due dates, and, if the amount available shall not be sufficient to pay in full all Bonds due on any date, then to the payment thereof ratably to the persons entitled thereto, without any discrimination or preference. (2) If the principal and Compounded Amounts of all of the Bonds shall have become or been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Current Interest Bonds, and the Compounded Amounts then due and unpaid upon the Tax Exempt Capital Accumulator Bonds, without preference or priority of principal over interest, of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably to the persons entitled thereto, without any discrimination or preference, except as to any difference in the respective rates of interest specified in the Bonds. Payments of Nonmortgage Investment Excess required to be made to the United States Department of the Treasury shall continue even if an event of default shall have occurred and be continuing. Supplemental Indentures A supplemental indenture may be entered into, without the consent of the Bondowners, but with the consent of the Bond Insurer, (a) to add to the covenants and agreements of the City other covenants and agreements to be observed by the City which are not contrary to or 51 040181-0039-161-4919f 05/01/85 , k inconsistent with the Indenture as theretofore in effect; (b) to add to the limitations and restrictions other limitations and restrictions to be observed by the City which are not contrary to or inconsistent with the Indenture as theretofore in effect; (c) to surrender any right or privilege reserved to or conferred upon the City, but only if the surrender of such right, power or privilege is not contrary to or inconsistent with the covenants and agreements of the City contained in the Indenture as theretofore in effect; (d) to confirm, as further assurance, any pledge under, and the subjection to any lien or pledge created or to be created by, the Indenture, additional revenues or assets; (e) to cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in the Indenture; (f) to insert such provisions clarifying matters or questions arising under the Indenture as are necessary or desirable, and not contrary to or inconsistent with the Indenture as theretofore in effect; (9) to provide for additional duties of the Trustee, or to change or modify any provision of the Indenture so as to harmonize, to the maximum extent practicable, the provisions of the Indenture with the requirements of the Bond Insurer; or (h) to modify, amend or supplement the Indenture in such manner as shall be necessary to prevent failure of the Bonds to be classified as "qualified mortgage bonds," within the meaning of Section 103A of the Code. Any other modification or amendment of the Indenture, and of the rights and obligations of the City and of the registered owners of the Bonds, in any particular, may be made by a supplemental indenture, which must be adopted with the written consent of the Bond Insurer and the registered owners of at least 66-2/3% in aggregate principal amount and Compounded Amount of the outstanding Bonds at the time such consent is given. No such supplemental indenture shall permit a change in the terms of redemption or maturity of any outstanding Bond or of any installment of interest thereon, or a reduction in the principal amount, Compounded Amount, Maturity Amount or the redemption price thereof, or in the rate of interest thereon, without the consent of the registered owner of such Bond, or reduce the percentages or otherwise affect the classes of Bonds, the consent of the registered owners of which is required to effect any such supplemental indenture. No supplemental indenture may change or modify any of the rights or obligations of the City, the Trustee, the Bond Insurer, the Lender or any Developer, without its written consent thereto. 52 040181-0039-161-4919f 05/01/85 r Defeasance If the City shall pay and discharge, or cause to be paid and discharged, the entire indebtedness on all Bonds outstanding in any one or more of the following ways, and if the City shall also pay or cause to be paid all other sums payable under the Indenture by the City, then the Indenture and the pledge of the Revenues and assets made under the Indenture, and all covenants, agreements and other obligations of the City under the Indenture, shall cease, terminate, become void and be completely discharged and satisfied: (1) by paying or causing to be paid the principal or Compounded Amount of, and interest on, all outstanding Bonds, as and when the same become due and payable; (2) by depositing with the Trustee, in trust, at or before maturity (a) lawful money of the United States of America in an amount equal to the aggregate principal amount or Compounded Amount of such Bonds, and all unpaid interest thereon, to maturity or the redemption date, as the case may be, on the Bonds to be paid or redeemed, or (b) Investment Securities described in clause (1) of the definition thereof, the principal of and interest on which when due will provide moneys, together with the moneys, if any, deposited with the Trustee at the same time, sufficient to pay the principal or Compounded Amount of, and all unpaid interest, to maturity or the redemption date, as the case may be, on the Bonds to be paid or redeemed; provided in each case that the Trustee shall have been irrevocably instructed to apply such money to the payment of such principal or Compounded Amount, and interest, with respect to such Bonds; or (3) by delivering to the Trustee, for cancellation by it, all outstanding Bonds. The Trustee The Trustee is not liable in connection with the performance of its duties under the Indenture except for its own negligence or default. The Trustee may become the registered owner of any of the Bonds with the same rights it would have if it were not the Trustee. The City may remove the Trustee at any time unless an event of default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so in writing by the registered owners of a majority in aggregate principal amount 53 040181-0039-161-4919f 05/01/85 . .) and Compounded Amount of the Bonds then outstanding or for certain other causes set forth in the Indenture. The Trustee also may resign at any time upon giving written notice to the City, the Lender, the Bond Insurer, the Developers and the registered owners of the Bonds. Upon removal or resignation of the Trustee, the City shall promptly appoint a successor Trustee and give written notice thereof to the Developers, the Bond Insurer, the Lender and the registered owners of the Bonds. Among other things, each successor to the Trustee must be approved in writing by the Bond Insurer, and be a trust company or bank having the powers of a trust company within or outside the State of California, having a combined capital, surplus and undivided profits of at least $-, 000,000, and subject to supervision or examination by federal or State of California authorities. FEASIBILITY STUDY A market feasibility study with respect to the Developments has been prepared by Empire Economics, , California, a firm specializing in, among other things, feasibility studies and related matters. A summary of the study is included herein as Appendix D. entire study are on file with the City, the Trustee and, during the term of this offering, the Underwriters, and reference is made to such study for a full and complete statement of its text. Copies of the CERTAIN VERIFICATIONS , a firm of independent certified public accountants, has verified the mathematical accuracy of the computations relating to the sufficiency of projected cash flow receipts and disbursements on the Home Mortgages and reserve funds to pay the principal of and interest on the Current Interest Bonds, and the Compounded Amount of the Tax Exempt Capital Accumulator Bonds, and has prepared the computations relating to the actuarial yield on the Home Mortgages and the Bonds supporting the conclusion of Bond Counsel that interest on the Bonds is exempt from present federal income taxation. expresses no opinion on the attainability of the assumptions upon which such calculations are based, or on the attainability of the resultant projections. 54 040181-0039-161-4919f 05/01/85 * RATING Moody's Investors Service, Inc., has agreed to assign the Bonds a rating of 'I- ,'I Corporation is expected to assign the Bonds a rating of I' I' upon the issuance by the Bond Insurer, at the time of the delivery of the Bonds, of the Bond Insurance Policy. Such ratings reflect only the views of the respective rating agencies, and an explanation of the significance of such ratings may be obtained therefrom. There is no assurance that either or both such ratings will continue for any given period of time, or that they will not be revised downward or withdrawn entirely by the respective rating agencies, the judgment of such rating agencies circumstances so warrant. Any downward revision or withdrawal of either rating may have an adverse effect on the market price of the Bonds. and Standard & Poor's -1 if in UNDERWRITING The Underwriter has agreed, subject to certain conditions, to purchase the Bonds from the City at a purchase price equal to % of the aggregate principal amount thereof. conditions precedent, and the Underwriter will be obligated to purchase all of the Bonds if any are purchased. may be offered and sold to certain dealers, banks and others (including underwriters and other dealers depositing such Bonds into investment trusts) at prices lower than the initial offering prices, and such initial offering prices may be changed from time to time by the Underwriter. The Underwriter's obligation is subject to certain The Bonds LEGALITY FOR INVESTMENT The Act provides that the Bonds shall be legal investments under California law for all trust funds, insurance companies, savings and loan associations, investment companies and banks, both savings and commercial, and shall be legal investments for executors, administrators, guardians, conservators, trustees and all other fiduciaries. The Act also provides that the Bonds shall be legal investments under California law for California school funds and for any funds which may be invested in county, municipal or school district bonds; and the Bonds shall be deemed to be securities which may properly and legally be deposited with, and received by, any California or municipal officer or by any agency or political subdivision of California for any purpose for which the deposit of bonds or obligations of 55 040181-0039-161-4919f 05/01/85 < P California is now, or may hereafter be, authorized by law, including deposits to secure public funds. APPROVAL OF LEGALITY All legal matters in connection with the issuance of the Bonds are subject to the approval of Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, and certain legal matters will be passed upon by Orrick, Herrington & Sutcliffe, San Francisco, California, Counsel to the Underwriter. A copy of Bond Counsel's opinion will be printed on the Bonds. Counsel's fee is contingent upon sale and delivery of the Bonds. Bond TAX EXEMPTION In the opinion of Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, assuming continuing compliance with certain requirements of Section 103A of the Code, interest on the Bonds is exempt from present federal income taxation. Counsel, interest on the Bonds is also exempt from present State of California personal income taxation. Section 103A In the opinion of Bond Section 103A and the regulations promulgated thereunder provide that interest on the Bonds will be tax-exempt if certain requirements are met, including, among other things, that (1) all of the proceeds of the Bonds (net of costs of issuance and reserves) are used to finance Homes each of which is, or which at the time the Mortgage is executed can reasonably be expected by the City within a reasonable time to become, the principal residence of the Mortgagor, and each of which is located in the jurisdiction of the City; (2) the Acquisition Cost of each Home does not exceed 120% of the Average Area Purchase Price; (3) each Mortgagor did not have a mortgage (whether or not paid off) on the Home at any time prior to execution of the Mortgage financed with Bond proceeds, and no Bond proceeds are used to acquire or replace existing mortgages (other than bridge loans or similar temporary initial financing); and (4) the Mortgages and the Program Documents permit assumptions only if requirements set forth are met with respect to such assumptions. Interest on the Bonds will be taxable if the foregoing requirements are not met, unless (2) the City in 56 040181-0039-161-4919f 05/01/85 e c good faith has attempted to meet all such requirements before the Mortgages were executed (i.e., by causing the Program Documents to contain restrictions that permit the financing of Mortgages only in accordance with such requirements, and by establishing reasonable procedures to ensure compliance with such requirements, including reasonable investigations by the City or its agent); (b) 95% of Bond proceeds devoted to owner financing are devoted to Homes with respect to which, at the time of execution, all such requirements were met (for which purpose the City may rely on certain affidavits to be obtained and examinations to be made); and (c) Mortgages failing to meet such requirements at the time of execution or assumption are corrected within a reasonable period after such failure is discovered. The City believes that covenants contained in the Program Documents, together with the procedures established in the Program Documents to be followed by the City, the Trustee and the Lender, satisfy the conditions described in (a) and (b) above, and that the Program Documents contain adequate measures for implementing (c) above. Section 103A also imposes limitations on the aggregate amount of qualified mortgage bonds which may be issued during any calendar year, requires a portion of the Mortgages to be placed in targeted areas within the jurisdiction of the City, limits the amount and uses of arbitrage and investment gain with respect to investments, and requires the City to file certain reports. Failure to meet any of these requirements will result in interest on the Bonds being taxable, unless any such failure to comply is due to inadvertent (e-g., mathematical) error after the City has taken all reasonable steps to ensure compliance. The City believes that it has taken all such reasonable steps and is in compliance with these requirements. Original Issue Discount In the opinion of Bond Counsel, on the basis of existing statues, regulations, rulings and judicial decisions, assuming continuing compliance with certain requirements of Section 103A of the Code, the difference between the amount payable at maturity of the Tax Exempt Capital Accumulator Bonds and the initial offering price at which a substantial amount of Tax Exempt Capital Accumulator Bonds is sold to the public (the "Offering Price"), to the extent properly allocable to each registered owner of Tax Exempt Capital Accumulator Bonds, constitutes interest on such Tax Exempt Capital Accumulator Bonds and is exempt from present federal and State of California-income taxation with respect to such registered owner. Any excess over such 57 040181-0039-161-4919f 05/01/85 I L amount is treated as taxable gain upon the sale or exchange of such Tax Exempt Capital Accumulator Bonds. With respect to federal income taxation, Section 1288 of the Code provides that for purposes of determining the adjusted basis of a registered owner in the Tax Exempt Capital Accumulator Bonds, interest on the Tax Exempt Capital Accumulator Bonds is treated as compounding semiannually, on 1985, at a rate sufficient to produce the yield to maturity of the Tax Exempt Capital Accumulator Bonds based on the Offering Price thereof, and on a daily, ratable basis for any day between such dates. The adjusted basis is used to determine taxable gain or loss upon disposition (including redemption or payment at maturity) of the Tax Exempt Capital Accumulator Bonds. each 1 and 1, commencing 1, Except as expressed above, Bond Counsel expresses no opinion with respect to the income tax treatment of Tax Exempt Capital Accumulator Bonds under the laws of any state (including the State of California), or with respect to the recognition of gain or loss by a registered owner of Tax Exempt Capital Accumulator Bonds upon the disposition of such Bonds under federal law or the laws of any state (including the State of California). The method of determining the adjusted basis of a registered owner in the Tax Exempt Capital Accumulator Bonds for purposes of State of California personal income taxation may differ from the method described in the preceding paragraph. Registered owners of Tax Exempt Capital Accumulator Bonds should consult with their tax advisors with regard to such matters. NO LITIGATION Concurrently with the delivery of the Bonds, the City will deliver a certificate to the effect that there is no controversy or litigation of any nature pending or, to the best knowledge of the City, threatened seeking to restrain or enjoin the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds or any proceedings of the City taken with respect to the issuance, sale, execution or delivery of the Bonds, the pledge or application of any moneys or securities provided for the payment of the Bonds, the existence or powers of the City, or the title of any officers of the City to their respective offices. 58 040181-0039-161-4919f 05/01/85 ADDITIONAL INFORMATION The information contained above is subject to change without notice, and no implication is to be derived therefrom or from the sale of the Bonds that there has been no change in the affairs of the City from the date hereof. Any statements in this Official Statement is not to be construed as a contract or agreement between the City and the purchasers or registered owners of any of the Bonds. The execution and delivery of this Official Statement has been authorized by the City. CITY OF CARLSBAD BY Mayor 59 040181-0039-161-4919f 05/01/85 i? h APPENDIX A DESCRIPTION OF DEVELOPER RESERVED HOMES Est ima t e d Bond Funds Project Price Area Unit -- Deve:.oper Res e rved Name Range - Size Type $ TOTAI, : +- 4 APPENDIX B THE LENDER General The following is a summary of the Lender's experienc in originating and servicing residential family mortgage loans The information regarding the Lender was provided by the Lende and neither the City nor the Underwriter has independently verified the accuracy of such information. In addition, there can be no assurance that the past pattern of appreciation in value of California real estate will continue or that the loss experience with respect to the Home Mortgages securing the Bon will be as favorable as the loss experience shown for the Lend described below. In particular, if the California residential real estate market should experience an overall decline in property values, the actual rates of delinquencies, foreclosur and losses could be significantly higher than those previously experienced by the Lender. Y u APPENDIX C THE CITY The following information concerning the City is included only for the purpose of supplying general information regarding the City. Neither the faith and credit nor the taxi power of the City, the State of California or any political subdivision thereof is pledged to the payment of the Bonds, an the Bonds are limited obligations of the City payable solely f and secured by the revenues and assets pledged therefor. Named for the famous European spa, Karsbad Bohemia, Carlsbad consists of 37-1/2 square miles situated on the Pacif coast. The City is located approximately 35 miles north of Sa Diego and 90 miles south of Los Angeles. Incorporated in 1952 the City is governed by a mayor, city council and city manager The City provides its own police, fire and emergency services. The Carlsbad climate is Mediterranean, with an avera temperature of 59.2 degrees during the year. Annual rainfall limited to an average of 9.45 inches. Over 300 acres of beautiful recreation areas, parks, picnic and play areas dot t City, with one community swimming pool and two in the planning stages. Carlsbad enjoys 30 tennis courts, numerous golf cours 226 campsites and four miles of public beach. Agua Hedio da Lagoon, nationally known for its water sports, offers two boat landings, fishing, swimming, sailing, and water skiing. The internationally known La Costa Resort Hotel and Spa in Carlsbac annually hosts several golf and tennis tournaments. The City has experienced considerable population groi during the past two decades. Since 1960 the City's population has increased fourfold. the population has increased from a level of 9,200 in 1960 to 35,500 in 1980. With easy access to major freeways (Interstate 5 and Highway 78) Carlsbad is only a short ride from neighboring Nor. County communities, downtown San Diego, or the International Border with Mexico. The Santa Fe Rail Company provides excel11 freight service to major American cities. An Amtrak terminal Oceanside serves passengers boarding the seven regularly scheduled commuter runs on the San Diego-Los Angeles Line. The North County Transit District provides efficient local bus service; Greyhound Lines offers state and interstate bus travel from a station in Oceanside; and more than 160 trucking servicc serve Carlsbad. The McClellan-Palomar Airport is located withj the city, and the San Diego International Airport is just 35 miles away. +bo 4 The City's major employers are as follows: Number of Employment Entity Employees Manufacturing Hughes Aircraft 1,100 Sierracin-Magnedyne, Inc. 220 Oak Systems Communications 750 Burroughs Corporation 500 Eaton-Leonard Corp. 180 Non-Manufacturing 1,000 La Costa Resort Hotel & Spa Carlsbad Unified School District 350 Car County Auto Dealers 460 Lopez Farms 300 Sanchez Farms 300 The City also has a substantial amount of industrial property that is slated for future development, including the acre Carlsbad Research Center, the Palomar Airport Business Pa located near the Palomar Airport and the Palomar Oaks Industri Park. C-2 04/30, 040181-0039-1651-4919f