HomeMy WebLinkAbout2008-01-15; City Council; 19286 Exhibit 4; Authorizing special bondsEXHIBIT #4
EXHIBIT #4-a
FISCAL AGENT AGREEMENT
by and between the
CITY OF CARLSBAD
and
THE BANK OF NEW YORK TRUST COMPANY, N.A.,
as Fiscal Agent
Dated as of January 1, 2008
Relating to
City of Carlsbad
Community Facilities District No. 3
County of San Diego
State of California
$_
2008 Special Tax Bonds
(Improvement Area 2)
SDPUB\WDIVEN\356989.5
1/9/08
FISCAL AGENT AGREEMENT
THIS AGREEMENT (the "Agreement") is dated as of January 1, 2008, by and
between the City of Carlsbad, a municipal corporation organized and existing under the laws of
the State of California (the "City"), for and on behalf of CITY OF CARLSBAD COMMUNITY
FACILITIES DISTRICT NO. 3, County of San Diego, State of California (the "Community
Facilities District" or "District"), and THE BANK OF NEW YORK TRUST COMPANY, N.A.,
a national banking association duly organized and existing under the laws of the United States, as
fiscal agent (the "Fiscal Agent").
WITNESSETH:
WHEREAS, the City Council (the "City Council") has established the District
and designated two improvement areas therein, Improvement Area 1 and Improvement Area 2,
pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended,
Chapter 2.5 (commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the California
Government Code (the "Act"); and
WHEREAS, the District is authorized to incur bonded indebtedness and issue
bonds in the aggregate principal amount of $21,000,000 for Improvement Area 2 of the District
for the purpose of financing the construction and acquisition of certain public facilities to be
owned by the City as permitted pursuant to Resolution No. 2005-330 and the Act; and
WHEREAS, pursuant to the Resolution (as hereinafter defined) the City Council
has determined to issue the Bonds (as hereinafter defined) for Improvement Area 2 in the
aggregate principal amount not to exceed $20,000,000 for the purpose of providing funds to
acquire and construct authorized public facilities; and
WHEREAS, all things necessary to cause the Bonds, when executed by the City
and authenticated by the Fiscal Agent for the Community Facilities District and issued as in the
Act, the Resolution (as hereinafter defined) and this Agreement provided, to be legal, valid and
binding special obligations of the Community Facilities District in accordance with their terms,
and all things necessary to cause the authorization, execution and delivery of this Agreement and
the authorization, execution, authentication and delivery of the Bonds, subject to the terms
hereof, have in all respects been duly authorized;
NOW, THEREFORE, in consideration of the covenants and provisions herein set
forth and for other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
AUTHORITY AND DEFINITIONS
Section 1.01 Authority for this Agreement. This Agreement is entered into
pursuant to the provisions of the Act and the Resolution.
Section 1.02 Agreement for Benefit of Bondowners. The provisions, covenants
and agreements herein set forth to be performed by or on behalf of the City and/or the
SDPUB\WD1VEN\356989.5
1/9/08 2
Community Facilities District shall be for the equal benefit, protection and security of the
Owners. All of the Bonds, without regard to the time or times of their issuance or maturity, shall
be of equal rank without preference, priority or distinction of any of the Bonds over any other
thereof, except as expressly provided in or permitted by this Agreement. The Fiscal Agent may
become the owner of any of the Bonds with the same rights it would have if it were not Fiscal
Agent.
Section 1.03 Definitions. Unless the context otherwise requires, the terms
defined in this Section 1.03 shall, for all purposes of this Agreement, of any Supplemental
Agreement, and of any certificate, opinion or other document herein mentioned, have the
meanings herein specified. All references herein to "Articles," "Sections" and other subdivisions
are to the corresponding Articles, Sections or subdivisions of this Agreement, and the words
"herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or subdivision hereof.
"Acquisition Agreement" shall mean that certain Acquisition Agreement made
and entered into October 4, 2005 by and among the City, Palomar Forum Associates L.P., a
California limited partnership ("Forum"), Fenton Raceway LLC, a California limited liability
company ("Raceway"), Carlsbad Oaks North Partners, L.P., a California limited partnership
("Oaks North") and Techbilt Construction Corp., a California corporation ("Techbilt").
"Act" means the Mello-Roos Community Facilities Act of 1982, as amended,
Chapter 2.5 (commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the California
Government Code.
"Administrative Expenses" means any or all of the following: the fees and
expenses of the Fiscal Agent (including any fees or expenses of its counsel), the expenses of the
City in carrying out its duties hereunder (including, but not limited to, the levying and collection
of the Special Taxes within Improvement Area 2) including the fees and expenses of its counsel,
an allocable share of the salaries of City staff directly related thereto and a proportionate amount
of City general administrative overhead related thereto, any amounts paid by the City from its
general funds pursuant to Section 6.02 hereof, and all other costs and expenses of the City or the
Fiscal Agent incurred in connection with the discharge of their respective duties hereunder and,
in the case of the City, in any way related to the administration of the Community Facilities
District.
"Administrative Expense Fund" means the fund by that name established by
Section 3.05(A) hereof.
"Affiliate" of another Person means (a) each Person that, directly or indirectly,
owns or controls, whether beneficially or as trustee, guardian, or other fiduciary, 50% or more of
any class of equity securities of such other Person, and (b) each Person that controls, is
controlled by or is under common control with or by such Person or any Affiliate of such Person.
For the purpose of this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
SDPUB\WD1VEN\356989.5
1/9/08
"Agreement" means this Agreement, as it may be amended or supplemented from
time to time by any Supplemental Agreement adopted pursuant to the provisions hereof.
"Allocable" means, for purposes of allocating portions of the principal amount of
Bonds to the Remaining Parcels in order to determine whether moneys may be transferred from
the Escrow Fund pursuant to Section 3.07(B)(iii), as of any date, a portion of the aggregate
principal amount of the Outstanding Bonds, which portion shall be equal to the product of the
aggregate principal amount of Bonds (less the amount of the proceeds of the Escrow Bonds
remaining on deposit in the Escrow Fund assuming that such amount is reduced by virtue of the
transfers from the Escrow Fund on the applicable Escrow Release Date) Outstanding as of such
date, times the quotient of (A) the Annual Maximum Special Tax that could be levied pursuant to
the Ordinance and the Act in the then current Fiscal Year on the Remaining Parcels, divided by
(B) the Annual Maximum Special Tax that could be levied pursuant to the Ordinance and the Act
in the current Fiscal Year on all Taxable Property within Improvement Area 2.
"Annual Debt Service" means, for each Bond Year, the sum of (i) the interest due
on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as
scheduled, and (ii) the principal amount of the Outstanding Bonds scheduled to be paid.
"Annual Maximum Special Tax" shall have the meaning given such term in
Exhibit A to the Ordinance.
"Appraised Value" means the value of all or any portion of the Taxable Property
within Improvement Area 2, as set forth in an Escrow Release Appraisal.
"Appraiser" means Bruce W. Hull & Associates or another MAI appraiser who is
also a state certified appraiser, as defined in California Business and Professions Code Section
11340(c) appointed and retained by the City.
"Auditor" means the Auditor-Controller of the County of San Diego.
"Authorized Officer" means the City Manager, the Finance Director and any other
officer or employee of the City authorized by the City Council or by an Authorized Officer to
undertake the action referenced in this Agreement as required to be undertaken by an Authorized
Officer.
"Bond Counsel" means Best Best & Krieger LLP, or any attorney or firm of
attorneys acceptable to the City and nationally recognized for expertise in rendering opinions as
to the legality and tax-exempt status of securities issued by public entities.
"Bond Fund" means the fund by that name established by Section 4.02(A) hereof.
"Bond Year" means the period beginning on the Closing Date and ending on
September 1, 2008 and thereafter the period beginning on each September 2 and ending on the
following September 1.
SDPUB\WDIVEN\356989.5
1/9/08
"Bonds" means, unless otherwise expressly provided, the City of Carlsbad
Community Facilities District No. 3 2008 Special Tax Bonds (Improvement Area 2) authorized
by and at any time Outstanding pursuant to the Act and this Agreement.
"Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in the State of California or in any state in which the Fiscal Agent
has its Principal Office are authorized or obligated by law or executive order to be closed.
"Capitalized Interest Sub-Account" means the sub-account by that name
established in the Interest Account in the Bond Fund by Section 4.02(A) hereof.
"City" means the City of Carlsbad, a municipal corporation organized under the
laws of the State.
"City Manager" means the City Manager of the City.
"City Council" means the City Council of the City.
"Closing Date" means the date upon which there is an exchange of the Bonds for
the proceeds representing payment of the purchase price of the Bonds by the Original Purchaser.
Code" means the Internal Revenue Code of 1986, as amended:
"Community Facilities District" or "District" means the City of Carlsbad
Community Facilities District No. 3, County of San Diego, State of California.
"Continuing Disclosure Certificate" means the Continuing Disclosure Certificate
executed by the City, dated as of the Closing Date, as originally executed and as it may be
amended from time to time in accordance with the terms thereof.
"Costs of Issuance" means items of expense payable or reimbursable directly or
indirectly by the City and related to the authorization, sale and issuance of the Bonds, which
items of expense shall include, but not be limited to, printing costs, costs of reproducing and
binding documents, including but not limited to the preliminary official statement and official
statement regarding the Bonds, closing costs, filing and recording fees, initial fees and charges of
the Fiscal Agent including its first annual administration fee and the fees of its counsel, expenses
incurred by the City in connection with the issuance of the Bonds and the establishment of the
District, Bond (underwriter's) discount, legal fees and charges, including the fees of Bond
Counsel, Disclosure Counsel and counsel to the Underwriter, Dissemination Agent fees and
charges, charges for authentication, transportation and safekeeping of the Bonds and other costs,
charges and fees in connection with the foregoing.
"Costs of Issuance Fund" means the fund by that name established by
Section 3.06(A) hereof.
"County" means the County of San Diego.
"County Tax Collector" means the Treasurer-Tax Collector of the County.
5
SDPUBYWDIVEN\356989.5
1/9/08
"Debt Service" means the amount of interest and principal payable on the Bonds
scheduled to be paid during the period of computation, excluding amounts payable during such
period which relate to principal of the Bonds which are scheduled to be retired and paid before
the beginning of such period.
"Defeasance Securities" means, for purposes of Section 9.03(C) hereof, the
following:
(i) United States Treasury Certificates, Notes and Bonds (including State and
Local Government Series - "SLGs");
(ii) Direct obligations of the United States Treasury which have been stripped
by the Treasury itself, CATS, TIGRS and similar securities;
(iii) Resolution Funding Corporation (REFCORP) obligations; provided that
only the interest component of REFCORP strips which have been stripped by request of the
Federal Reserve Bank of New York in book-entry form are acceptable;
(iv) Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by
Standard & Poor's; provided, however, that if the issue is only rated by Standard & Poor's (i.e.,
there is no Moody's rating), then the pre-refunded bonds must have been pre-refunded with cash,
direct United States or United States guaranteed obligations, or "AAA" rated pre-refunded"
municipal bonds; and
(v) Obligations issued by the following agencies which are backed by the full
faith and credit of the United States of America:
(a) U.S. Export-Import Bank
Direct obligations or fully guaranteed certificates of beneficial
ownership
(b) Farmers Home Administration
Certificates of beneficial ownership
(c) Federal Financing Bank
(d) General Services Administration
Participation certificates
(e) United States Maritime Administration
Guaranteed Title XI financing
(f) United States Department of Housing and Urban Development
Project notes
Local Authority Bonds
New Communities Debentures - United States government
guaranteed debentures
SDPUB\WDIVEN\356989.5
1/9/08
United States Public Housing Notes and Bonds - United States
government guaranteed public housing notes and bonds.
"Developer" means, collectively, Techbuilt Construction Corporation, a
California corporation, and Carlsbad Oaks North Partners, L.P., a California limited partnership
and any Affiliate of either such entity.
"Dissemination Agent" means The Bank of New York Trust Company, N.A., or
any successor thereto appointed by the City.
"Escrow Bonds" means $ principal amount of the Bonds comprised of
the Escrow Term Bonds and the Escrow Serial Bonds.
"Escrow Fund" means the fund by that name established by Section 3.07(A)
hereof.
"Escrow Redemption Date" means September 1, 2010 or such later date as may
be established pursuant to the provisions of Section 3.07 (D) and which shall be an Interest
Payment Date.
"Escrow Release Appraisal" means an appraisal prepared by an Appraiser. Such
appraisal shall, except as provided belowpbe substantially "basedT up~ofTlhenften applicable^
assumptions of and subject to the then applicable qualifications and limitations contained in the
appraisal prepared by the Appraiser and dated 1, 2007. The Appraiser shall value
the land within all Taxable Property within Improvement Area 2, together with all grading and
off site improvements installed to the date of value. The Appraiser may take the existing market
conditions as of the date of value into consideration in determining the absorption period for the
subject property. The Appraiser shall provide an opinion as to (a) the aggregate appraised value
of all Taxable Property within Improvement Area 2 and (b) the aggregate appraised value of the
Remaining Lots.
"Escrow Release Date" means the date on which funds are released and
transferred from the Escrow Fund pursuant to the provisions of Section 3.07(B)(ii).
"Escrow Release Test" means the conditions precedent to transfers from the
Escrow Fund set forth in Section 3.07(B)(iii) of this Agreement.
"Escrow Serial Bonds" means the Escrow Bonds, other than the Escrow Term
Bonds, maturing annually in the principal amounts as shown in Section 2.02(B) which are
subject to extraordinary mandatory redemption pursuant to Section 2.03(D).
"Escrow Term Bonds" means the Bonds maturing on September 1, 20 ,
September 1, 20 , and September 1, 20 which are subject to extraordinary mandatory
redemption pursuant to Section 2.03(D) and mandatory sinking fund redemption pursuant to
Section 2.03(B).
SDPUB\WDWEN\356989.5
1/9/08
"Federal Securities" means any of the following which at the time of investment
are legal investments under the laws of the State of California for the moneys proposed to be
invested therein:
(i) Cash; and
(ii) Direct general obligations of (including obligations issued or held in book
entry form on the books of the Department of the Treasury of the United States of America and
CATS and TIGRS), or obligations, the payment of principal of and interest on which is
unconditionally guaranteed by, the United States of America.
"Finance Director" means the Finance Director of the City.
"Fiscal Agent" means The Bank of New York Trust Company, N.A., the Fiscal
Agent appointed by the City, acting as an independent fiscal agent with the duties and powers
herein provided, its successors and assigns, and any other corporation or association which may
at any time be substituted in its place, as provided in Section 7.01 hereof.
"Fiscal Year" means the twelve-month period extending from July 1 in a calendar
year to June 30 of the succeeding year, both dates inclusive.
"Improvement Area 2" means Improvement Are~a~2 of the District:
"Improvement B" means the public facility identified as "Improvement B -
Faraday Avenue from Orion Street to Melrose Drive" in Exhibit A to the Resolution of
Formation.
"Improvement C" means the public facility identified as "Improvement C -
Melrose Drive from Palomar Airport Road to Vista City Limits (as shown on Drawing No. 399-
4)" in Exhibit A to the Resolution of Formation.
"Improvement D" means the public facility identified as "Improvement D -
Melrose Drive construction of right turn lane south of Palomar Airport Road" in Exhibit A to the
Resolution of Formation.
"Improvement E" means the public facility identified as "Improvement E - El
Fuerte from northerly terminus to the future extension of Faraday Avenue" in Exhibit A to the
Resolution of Formation.
"Improvement Fund" means the fund by that name established by Section 3.03(A)
hereof.
"Improvements" shall mean Improvement B, Improvement C, Improvement D
and Improvement E constituting the public facilities which are to be financed with the proceeds
of the sale of the Bonds.
SDPUB\WDrVEN\356989.5
1/9/08
"Independent Financial Consultant" means a firm of certified public accountants,
a financial consulting firm, a consulting engineering firm or engineer or the Original Purchaser,
which is not an employee of, or otherwise controlled by, the City.
"Information Services" means Financial Information, Inc.'s "Daily Called Bond
Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor;
Kenny Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, New
York 10006; Moody's Investors Service, Inc.'s "Municipal and Government," 99 Church Street,
8th Floor, New York, New York 10007, Attention: Municipal News Reports; Standard & Poor's
Corporation's "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004;
and, in accordance with then current guidelines of the Securities and Exchange Commission,
such other services providing information with respect to called bonds as the City may designate
in an Officer's Certificate delivered to the Fiscal Agent.
"Interest Payment Dates" means March 1 and September 1 of each year,
commencing March 1, 2008, until the maturity or redemption of all Outstanding Bonds.
"Investment Earnings" means all interest earned and any gains and losses on the
investment of moneys in any fund or account created by this Agreement excluding interest
earned and gains and losses on the investment of moneys in the Rebate Fund.
"Maximum Annual Debt Service" means the largest Annual Debt Service for any
Bond Year after the calculation is made through the final maturity date of any Outstanding
Bonds.
"Moody's" shall mean Moody's Investors Service, Inc., a national rating service
with offices in New York, New York.
"Officer's Certificate" means a written certificate of the City signed by an
Authorized Officer of the City.
"Ordinance" means Ordinance No. NS-77 of the City levying the Special Taxes.
"Original Purchaser" means Stone & Youngberg LLC, as the first purchaser of
the Bonds from the City.
"Other Bonds" means, as of the date of determination, any and all bonds, notes or
other evidence of indebtedness, other than the Bonds, issued under the Act then outstanding and
payable at least partially from special taxes to be levied on parcels of land within Improvement
Area 1.
"Outstanding," when used as of any particular time with reference to the Bonds,
means (subject to the provisions of Section 8.04 hereof) all Bonds except:
(i) Bonds theretofore canceled by the Fiscal Agent or surrendered to the
Fiscal Agent for cancellation;
SDPUB\WDIVEN\356989.5
1/9/08
(ii) Bonds called for redemption which, for the reasons specified in Section
2.03 (F) hereof, are no longer entitled to any benefit under this Agreement other than the right to
receive payment of the redemption price therefor;
(iii) Bonds paid or deemed to have been paid within the meaning of
Section 9.03 hereof; and
(iv) Bonds in lieu of or in substitution for which other Bonds shall have been
authorized, executed, issued and delivered by the City and authenticated by the Fiscal Agent
pursuant to this Agreement or any Supplemental Agreement.
"Owner" means any person who shall be the registered owner of any Outstanding
Bond.
"Permitted Investments" means:
(i) Federal Securities;
(ii) Bonds, debentures, notes or other evidence issued or guaranteed by any of
the following federal agencies and provided such obligations are backed by the full faith and
credit of the United States of America (stripped securities are only permitted if they have been
stripped by the^agency itself)'
(a) U.S. Export-Import Bank
Direct obligations or fully guaranteed certificates of beneficial
ownership
(b) Farmers Home Administration
Certificates of beneficial ownership
(c) Federal Financing Bank
(d) Federal Housing Administration Debentures
(e) General Services Administration
Participation certificates
(f) Government National Mortgage Association (GNMA)
GNMA - guaranteed mortgage-backed bonds
GNMA - guaranteed pass-through obligations
(g) U.S. Maritime Administration
Guaranteed Title XI financing
10
SDPUB\WDIVEN\356989.5
1/9/08
(h) U.S. Department of Housing and Urban Development
Project Notes
Local Authority Bonds
New Communities Debentures - United States government
guaranteed debentures
U.S. Public Housing Notes and Bonds - United States government
guaranteed public housing notes and bonds;
(iii) Bonds, debentures, notes or other evidence of indebtedness issued or
guaranteed by any of the following non-full faith and credit United States government agencies
(stripped securities are only permitted if they have been stripped by the agency itself):
(a) Federal Home Loan Bank System
Senior debt obligations
(b) Federal Home Loan Mortgage Corporation
Participation Certificates
Senior debt obligations
(c) Federal National Mortgage Association
Mortgage-backed securities and senior debt obligations
(d) Student Loan Marketing Association
Senior debt obligations
(e) Resolution Funding Corporation (REFCORP) obligations
(f) Farm Credit System
Consolidated systemwide bonds and notes;
(iv) Money market funds registered under the Federal Investment Company
Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a
rating by Standard & Poor's of AAAm-G, AAA-m or AA-m and, if rated by Moody's, rated
Aaa, Aal or Aa2 by Moody's with a minimum of $500 million in assets under management
including funds for which the Fiscal Agent or its affiliates provide investment or other advisory
services.
(v) Certificates of deposit secured at all times by collateral described in
clauses (i) and/or (ii) above. Such certificates must be issued by commercial banks, savings and
loan associations or mutual savings banks, which may include those of the Fiscal Agent and its
affiliates, of which the short-term obligations are rated A-l or better and PI or better by Moody's
or Standard & Poor's,. The collateral must be held by a third party and the Fiscal Agent on
behalf of the Owners of the Bonds must have a perfected first security interest in the collateral;
(vi) Certificates of deposit, savings accounts, deposit accounts or money
market deposits which are fully insured by FDIC, including BIF and SAIF and which may
include those of the Fiscal Agent and its affiliates;
11
SDPUB\WDIVEN\356989.5
1/9/08
(vii) Investment agreements with domestic or foreign banks, insurance
companies other than a life or property casualty insurance company, or corporations the long-
term debt or claims paying ability of which or, in the case of a guaranteed corporation, the long-
term debt of the guarantor, or, in the case of a monoline financial guaranty insurance company,
claims paying ability or financial strength, of the guarantor is rated in at least the double A
category by Standard & Poor's and Moody's; provided that, by the terms of the investment
agreement:
(a) interest payments are to be made to the Fiscal Agent at times and
in amounts as necessary to pay debt service on the Bonds (if the funds invested pursuant to the
investment agreement are from the Reserve Fund);
(b) the invested funds are available for withdrawal without penalty or
premium, upon not more than seven (7) days' prior notice;
(c) the investment agreement shall provide that it is the unconditional
and general obligation of, and is not subordinated to any other obligation of, the provider thereof;
(d) the City and the Fiscal Agent receive the opinion of domestic
counsel (which opinion shall be addressed to the City) that such investment agreement is legal,
valid, binding and enforceable upon the provider in_accprdance with its terms and pfjbreign
counsel (if applicable) in form and substance acceptable, and addressed to, the City;
(e) the investment agreement shall provide that if during its term
(1) the provider's rating by either Standard & Poor's or
Moody's falls below "AA-" or "Aa3", respectively, the provider shall, at its option,
within ten (10) business days after the provider's receipt of a written request from the
Fiscal Agent to satisfy the foregoing, either (i) collateralize the investment agreement by
delivering or transferring in accordance with the applicable state and federal laws (other
than by means of entries on the provider's books) to the City, the Fiscal Agent or a third
party acting solely as agent therefor (the "Holder of the Collateral") collateral free and
clear of any third-party liens or claims, the market value of which collateral is maintained
at one hundred five percent (105%) of securities identified in clauses (i) and (ii) of this
definition; or (ii) assign the investment agreement and all of its obligations thereunder to,
or enter into a repurchase agreement or such other agreement with, a financial institution
mutually acceptable to the provider and the City which is rated either in the first or
second highest category by Standard & Poor's and Moody's; and
(2) the provider's rating by either Standard & Poor's or
Moody's is withdrawn or suspended or falls below "A-" or "A3", respectively, the
provider must, at the direction of the City or the Fiscal Agent, within ten (10) days of
receipt of such direction, repay the principal of and accrued but unpaid interest on the
invested funds, in either case with no penalty or premium to the City or the Fiscal Agent;
and
(f) the investment agreement shall provide and an opinion of counsel
shall be rendered, in the event collateral is required to be pledged by the provider under the terms
12
SDPUB\WDIVEN\356989.5
1/9/08
of the investment agreement at the time such collateral is delivered, that the Holder of the
Collateral has a perfected first priority security interest in the collateral, any substituted collateral
and all proceeds thereof (in the case of bearer securities, this shall mean the Holder of the
Collateral is in possession of such collateral); and
(g) the investment agreement shall provide that if during its term
(1) the provider shall default in its payment obligations, the
provider's obligations under the investment agreement shall, at the direction of the City
or the Fiscal Agent, be accelerated and amounts invested and accrued but unpaid interest
thereon shall be paid to the City or the Fiscal Agent, as appropriate; and
(2) the provider shall become insolvent, not pay its debts as
they become due, be declared or petition to be declared bankrupt, etc., the provider's
obligations shall automatically be accelerated and amounts invested and accrued but
unpaid interest thereon shall be paid to the City or the Fiscal Agent, as appropriate;
(viii) Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's
and "A-l" or better by Standard & Poor's having original maturity of not more than 180 days
issued by a domestic corporation having assets in excess of $500 million.
(Ix) Bonds or notes issued by any"state"6F~mumc"ipalify~whicrTare rated b)T
Moody's and Standard & Poor's in one of the two highest rating categories assigned by them;
(x) Federal funds or bankers acceptances with a maximum term of 270 days
of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime -
1" or "A3" or better by Moody's and "A-l" or better by Standard & Poor's;
(xi) Repurchase agreements which satisfy the following criteria:
(a) Repurchase agreements must be between the City or the Fiscal
Agent and a dealer bank or securities firm which is:
(1) A primary dealer on the Federal Reserve reporting dealer
list which is rated "A" or better by two of the following Standard & Poor's, Moody's, or
Fitch; or
(2) A domestic bank or a domestic branch of a foreign bank
rated "A" or above by two of the following: Standard & Poor's, Moody's or Fitch; or
(3) Corporations the long-term debt or claims paying ability of
which, or in the case of a guaranteed corporation, the long-term debt of the guarantor, or,
in the case of a monoline financial guaranty insurance company, claims paying ability or
financial strength, is rated in at least the double A category by Standard & Poor's and
Moody's.
13
SDPUB\WDIVEN\356989.5
1/9/08
(b) The written agreement must include the following:
(1) Securities which are acceptable for transfer are:
(A) direct obligations of the United States government,
or
(B) obligations of federal agencies backed by the full
faith and credit of the United States of America (or the Federal National
Mortgage Association (FNMA) or the Federal Home Loan Mortgage
Corporation (FHLMC)), including pass-through certificates,
(2) The collateral must be delivered to the Fiscal Agent (if the
Fiscal Agent is not supplying the collateral) or a third party acting as agent for the Fiscal
Agent (if the Fiscal Agent is supplying the collateral) before or simultaneous with
payment (perfection by possession of certificated securities),
(3) (A) The securities must be valued weekly, marked-to-
market at current market price plus accrued interest, and
(B) The value of the collateral must be at least equal to one
hundred two percent (102%) of Ihe^mounT oTlnoney
Fiscal Agent to the dealer, bank or security firm under the agreement plus
accrued interest. If the value of the securities held as collateral is reduced
below one hundred two percent (102%) of the value of the amount of
money transferred by the Fiscal Agent, then additional acceptable
securities and/or cash must be provided as collateral to bring the value of
the collateral to one hundred two percent (102%); provided, however, that
if the securities used as collateral are those of FNMA or FHLMC, then
the value of the collateral must be at least equal to one hundred three
percent (103%) of the amount of money transferred by the Fiscal Agent;
and
(C) A legal opinion must be delivered to the City and
the Fiscal Agent that the repurchase agreement meets the requirements of
California law with respect to the investment of public funds; and
(D) Should the provider's rating by either Standard &
Poor's or Moody' s be withdrawn or suspended or fall below "A-" or
"A3", respectively, the provider must, at the direction of the City or the
Fiscal Agent, within ten (10) days of receipt of such direction, repay the
principal of and accrued but unpaid interest on the invested funds, in either
case with no penalty or premium to the City or the Fiscal Agent.
(xii) the Local Agency Investment Fund in the State Treasury of the State of
California as permitted by the State Treasurer pursuant to Section 16429.1 of the California
Government Code.
14
SDPUBYWDIVEN\356989.5
1/9/08
(xiii) forward delivery agreements or forward purchase and sale agreements
with a domestic or foreign bank or corporation the long-term debt or claims paying ability of
which, or in the case of a guaranteed corporation, the long-term debt of the guarantor, or, in the
case of a monoline financial guaranty insurance company, claims paying ability or financial
strength, of the guarantor is rated at least in the single A category by Standard & Poor's and
Moody's; provided that, by the terms of the agreement; the underlying investment property
consists of those investments which are listed in (i), (ii), (iii) and (viii) above.
(xiv) the City's pooled investment fund invested pursuant to the City's
investment policy.
"Person" means an individual, a corporation, a partnership, an association, a
limited liability company, a joint stock company, a trust, any unincorporated organization or a
government or political subdivision thereof.-
"Phase III" means CT 97-13-03 of Tentative Tract Map TM 97-13 of the City
including Lots 20 through 27 of such Tentative Tract Map.
"Principal Office" means the principal corporate trust office of the Fiscal Agent in
Los Angeles, California or such other addresses may be specified in writing by the Fiscal Agent
except that with respect to presentation of Bonds for payment or for registration of transfer and
exchange such term shall mean the office or agency of the Fiscal Agent at which, at any
particular time, its corporate trust agency business shall be conducted..
"Priority Administrative Expense Amount" means the amount of $35,000 that
will be deposited in the Administrative Expense Fund for each Fiscal Year pursuant to Section
3.04(B) hereof.
"Proceeds," when used with reference to the Bonds, means the aggregate
principal amount of the Bonds, interest and premium, if any, less original issue discount, if any.
"Rebate Fund" means the fund by that name established by Section 6.02 hereof.
"Record Date" means the fifteenth (15th) day of the month next preceding the
applicable Interest Payment Date whether or not such day is a Business Day.
"Regulations" means the temporary and permanent regulations of the United
States Department of the Treasury promulgated under the Code.
"Remaining Lots" means all of the lots within Tentative Tract Map TM 97-13
with the exception of Lots 4, 5, 7 and 8 within Phase 1 of such map.
"Representation Letter" means the representation letter which the City has
delivered to The Depository Trust Company ("DTC") with respect to the utilization of the book-
entry system maintained by DTC for the issuance and registration of bonds.
"Reserve Fund" means the fund by that name established by Section 4.03(A)
hereof.
15
SDPUB\WDFVEN\356989.5
1/9/08
"Reserve Requirement" means, as of any date of calculation, the lesser of (i) ten
percent (10%) of the outstanding principal amount of the Bonds (excluding the amount, if any,
on deposit in the Escrow Fund as of the date of calculation), (ii) Maximum Annual Debt Service
on the Outstanding Bonds (excluding the amount, if any, on deposit in the Escrow Fund as of the
date of calculation), (iii) 125 percent of average Annual Debt Service on the Outstanding Bonds
(excluding the amount, if any, on deposit in the Escrow Fund as of the date of calculation), as
determined by the City.
"Resolution" means Resolution No. 2008- adopted by the City Council on
, 2008.
"Resolution of Formation" means Resolution No. 2005-329 adopted by the City
Council on November 8, 2005.
"Securities Depositories" means The Depository Trust Company, 55 Water Street,
50th Floor, New York, N.Y. 10041-00099 Attn: Call Notification Department, Fax (212) 855-
7232; and, in accordance with then current guidelines of the Securities and Exchange
Commission, such other securities depositories as the City may designate in an Officer's
Certificate delivered to the Fiscal Agent.
"Special Taxes" or "Special Tax" means_._the_s_pec.iaj__taxes levied by the City
Council on parcels of taxable property within Improvement Area 2 of the District pursuant to the
Act, the Ordinance and this Agreement.
"Special Tax Consultant" means any person or firm possessing demonstrated
experience and expertise in the preparation of special tax formulas and/or the administration of
special taxes levied for community facilities districts. Any such person or firm shall be appointed
and paid by the City and who, or each of whom -
1. is in fact independent and not under domination of the City or the District;
2. does not have any substantial interest, direct or indirect, in the City or the
District; and
3. is not an officer or employee of the City or the District, but who may be
regularly retained by the City to administer the levy of special taxes within community facilities
districts formed by the City.
"Special Tax Fund" means the fund by that name established by Section 3.04(A)
hereof.
"Special Tax Prepayments" means amounts received by the City as prepayments
of all of the Special Tax obligation of a parcel of property in Improvement Area 2 of the District.
"Special Tax Prepayments Account" means the account by that name established
by the Fiscal Agent in the Bond Fund pursuant to Section 4.02(A) hereof.
16
SDPUB\WDIVEN\356989.5
1/9/08
"Special Tax Revenues" means the proceeds of the Special Taxes received by the
City, including any scheduled payments and any prepayments thereof, interest and penalties
thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the
lien of the Special Taxes in the amount of said lien and interest and penalties thereon.
"State" means the State of California.
"Standard & Poor's" shall mean Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc., a national rating service with offices in New York, New
York.
"Supplemental Agreement" means an agreement modifying or amending this
Agreement and entered into pursuant to the provisions of Article VIII hereto.
"Tax Certificate" means the certificate delivered by the City upon the delivery of
the Bonds relating to Section 148 of the Code, or any functionally similar replacement
certificate.
"Taxable Property" shall have the meaning given such term in Exhibit A to the
Ordinance.
"Transferred Escrow Holding Account Amount" means the amount transferred
from the Escrow Holding Account pursuant to Section 3.07(B)(ii) on any Escrow Release Date.
ARTICLE H
THE BONDS
Section 2.01 Principal Amount; Designation. The Bonds in the aggregate
principal amount of Dollars
($ ) are hereby authorized to be issued by the City for the District under and subject
to the terms of the Resolution, this Agreement, the Act and other applicable laws of the State of
California. The Bonds shall be designated the "City of Carlsbad Community Facilities District
No. 3, 2008 Special Tax Bonds (Improvement Area 2)." The Bonds shall be issued in the form
attached hereto as Exhibit A.
Section 2.02 Terms of Bonds.
(A) The Bonds. The Bonds shall be issued as fully registered bonds, without
coupons, in the denominations of $5,000 or any integral multiple thereof. The Bonds shall be
lettered and numbered in a customary manner as determined by the Fiscal Agent. The Bonds
shall be dated the Closing Date.
(B) Maturities. The Bonds, excluding the Escrow Bonds, shall mature and
become payable on September 1 of each year, and shall bear interest at the rates, as follows:
Maturity Dates Principal Interest
(September 1) Amounts Rates
17
SDPUB\WDIVEN\356989.5
1/9/08
The Escrow Bonds shall mature and become payable on September 1 of each year, and
shall bear interest at the rates, as follows:
Maturity Dates Principal Interest
(September 1) Amounts Rates
(C) Interest. The Bonds shall bear interest at the rates set forth in
subsection (B) above payable on the Interest Payment Dates in each year. Interest shall be
calculated on the basis of a 360-day year composed of twelve 30-day months. Each Bond shall
bear interest from the Interest Payment Date next preceding the date of authentication thereof
unless (i) it is authenticated on an Interest Payment Date, in which event it shall bear interest
from such Interest Payment Date, or (ii) it is authenticated prior to an Interest Payment Date and
after the close of business on the Record Date preceding such Interest Payment Date, in which
event it shall bear interest from such Interest Payment Date, or (iii) it is authenticated prior to the
Record Date preceding the first Interest Payment Date, in which event it shall bear interest from
the Closing Date; provided, however, that if at the time of authentication of a Bond, interest is in
default thereon, such Bond shall bear interest from the Interest Payment Date to which interest
18
SDPUB\WDIVEN\356989.5
1/9/08
has previously been paid or made available for payment thereon or from the Closing Date, if no
interest has previously been paid or made available for payment thereon.
(D) Method of Payment. Interest on the Bonds is payable by check of the
Fiscal Agent mailed by first class mail, postage prepaid, on each Interest Payment Date, to the
registered Owner thereof at such registered Owner's address as it appears on the registration
books maintained by the Fiscal Agent at the close of business on the Record Date preceding the
Interest Payment Date. The principal of the Bonds and any premium on the Bonds are payable in
lawful money of the United States of America by check of the Fiscal Agent upon surrender of
such Bonds at the Principal Office of the Fiscal Agent; provided, however, that at the written
request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Bonds
filed with the Fiscal Agent prior to any Record Date, interest on such Bonds shall be paid to such
Owner on each succeeding Interest Payment Date by wire transfer of immediately available
funds to an account in the United States of America designated in such written request. All
Bonds paid by the Fiscal Agent pursuant to this subsection shall be canceled by the Fiscal Agent.
(E) CUSIP Identification Numbers. "CUSIP" identification numbers shall be
imprinted on the Bonds, but such numbers shall not constitute a part of the contract evidenced by
the Bonds. In addition, failure on the part of the City or the Fiscal Agent to use such CUSIP
numbers in any notice to the Owners shall not constitute an event of default or any violation of
the City's contractJwiththeJDwners and shall not impair_the..eJf^tiv£ne^s_oXan^_su^h-^tice^.
Section 2.03 Redemption.
(A) Optional Redemption. The Bonds, including the Escrow Bonds, are
subject to optional call and redemption prior to maturity, as a whole or in part, pro rata among
maturities and by lot within a maturity, on any Interest Payment Date on or after September 1,
20 from funds derived by the Community Facilities District from any source at a redemption
price (expressed as a percentage of the principal amount of the Bonds to be redeemed) as set
forth below, together with accrued interest thereon to the date fixed for redemption:
Redemption Dates Redemption Price
September 1, 20 through March 1, 20 10_%
September 1, 20 through March 1, 20 10_
September 1, 20 through March 1, 20 10_
September 1, 20 and thereafter 100
(B) Mandatory Sinking Fund Redemption. The Outstanding Bonds, other than
the Escrow Bonds, maturing on September 1, 20 are subject to mandatory sinking fund
redemption, in part, on September 1, 20 , and on each September 1 thereafter to maturity, by
lot, at a redemption price equal to the principal amount thereof to be redeemed, together with
accrued interest to the date of redemption, without premium, and from sinking payments as
follows:
Redemption Date Sinking Payment
(September 1)
19
SDPUB\WDIVEN\356989.5
1/9/08
The Outstanding Bonds, other than the Escrow Bonds, maturing on September 1,
20 are subject to mandatory sinking fund redemption, in part, on September 1, 20 , and on
each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal
amount thereof to be redeemed, together with accrued interest to the date of redemption, without
premium, and from sinking payments as follows:
Redemption Date Sinking Payment
(September 1)
The amounts in the foregoing schedules shall be reduced by the City pro rata
among redemption dates, in order to maintain substantially level Debt Service, as a result of any
prior or partial redemption of the Bonds pursuant to subsection (A) above or subsection (C)
below.
The Outstanding Escrow Bonds maturing on September 1, 20 are subject to
mandatory sinking fund redemption, in part, on September 1, 20 , and on each September 1
thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be
redeemed, together with accrued interest to the date of redemption, without premium, and from
sinking payments as follows:
Redemption Date Sinking Payment
(September 1)
The Outstanding Escrow Bonds maturing on September 1, 20 are subject to
mandatory sinking fund redemption, in part, on September 1, 20 , and on each September 1
thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be
20
SDPUBYWDIVEN\356989.5
1/9/08
redeemed, together with accrued interest to the date of redemption, without premium, and from
sinking payments as follows:
Redemption Date Sinking Payment
(September 1)
The amounts in the foregoing schedules pertaining to the Escrow Bonds shall be
reduced by the City pro rata among redemption dates, in order to maintain substantially level
Debt Service, as a result of any prior or partial redemption of the Bonds pursuant to subsections
(A), (C) and (D) below.
(C) Redemption from Special Tax Prepayments. The Bonds, including the
Escrow Bonds following the Escrow Redemption Date, are subject to redemption from Special
Tax Payments and any corresponding transfers from the Reserve Fund on the next Interest
Payment Date for which notice of redemption can timely be given, among maturities so as to
maintain substantially the same debt service profile for the Bonds as in effect prior to such
redemption and by lot within a maturity, at a redemption price (expressed as a percentage of the
principal amount of the Bonds to be redeemed), as set forth below, together with accrued interest
to the date fixed for redemption:
Redemption Dates Redemption Price
March 1, 2008 through March 1, 20_ 10_%
September 1, 20 through March 1, 20 10_
September 1, 20 through March 1, 20 10_
September 1, 20 and thereafter 100
(D) Extraordinary Mandatory Redemption of Escrow Bonds. The Escrow
Bonds are subject to extraordinary mandatory redemption on the Escrow Redemption Date from
funds transferred from the Escrow Fund to the Bond Fund pursuant to the provisions of Section
3.07(B)(iv) at a redemption price equal to of the principal amount thereof, together with
accrued interest thereon to the date of redemption.
(E) Purchase of Bonds. In lieu of payment at maturity or redemption under
this Section 2.03, moneys in the Bond Fund may be used and withdrawn by the Fiscal Agent for
purchase of Outstanding Bonds, upon the filing with the Fiscal Agent of an Officer's Certificate
requesting such purchase, at public or private sale as and when, and at such prices (including
brokerage and other charges) as such Officer's Certificate may provide, but in no event may
Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to
the date of purchase.
21
SDPUB\WDIVEN\356989.5
1/9/08
(F) Notice to Fiscal Agent. An Authorized Officer shall give the Fiscal Agent
written notice of the City's intention to redeem Bonds not less than forty-five (45) days prior to
the applicable redemption date specifying the principal amounts and maturities of the Bonds to
be redeemed.
(G) Redemption Procedure by Fiscal Agent. The Fiscal Agent shall cause
notice of any redemption to be mailed by first class mail, postage prepaid, at least thirty (30)
days but not more than sixty (60) days prior to the date fixed for redemption, to the Securities
Depositories and to one or more Information Services selected by an Authorized Officer, and to
the respective registered Owners of any Bonds designated for redemption, at their addresses
appearing on the Bond registration books maintained by the Fiscal Agent at its Principal Office;
but such mailing shall not be a condition precedent to such redemption and failure to mail or to
receive any such notice, or any defect therein, shall not affect the validity of the proceedings for
the redemption of such Bonds.
Such notice shall state the date of such notice, the date of issue of the Bonds, the
place or places of redemption, the redemption date, the redemption price and, if less than all of
the then Outstanding Bonds are to be called for redemption, shall designate the CUSIP numbers
and Bond numbers of the Bonds to be redeemed, by giving the individual CUSIP number and
Bond number of each Bond to be redeemed, or shall state that all Bonds between two stated
Bond numbers^ both inclusive, are to be redeemed or that all of the Bonds-of one or more-
maturities have been called for redemption, shall state as to any Bond called for redemption in
part the portion of the principal of the Bond to be redeemed, shall require that such Bonds be
then surrendered at the Principal Office of the Fiscal Agent for redemption at the said
redemption price, and shall state that further interest on such Bonds will not accrue from and
after the redemption date. The cost of the mailing of any such redemption notice shall be paid by
the District.
Upon the payment of the redemption price of Bonds being redeemed, each check
or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUSIP
number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such
check or other transfer.
With respect to any notice of optional redemption of Bonds, such notice may state
that such redemption shall be conditional upon the receipt by the Fiscal Agent on or prior to the
date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and
interest due on such Bonds to be redeemed and that, if such moneys shall not have been so
received, said notice shall be of no force and effect and the Fiscal Agent shall not be required to
redeem such Bonds. In the event that such notice of redemption contains such a condition and
such moneys are not received, the redemption shall not be made, and the Fiscal Agent shall
within a reasonable time thereafter give notice, in the manner in which the notice of redemption
was given, that such moneys were not so received.
In the event of an optional redemption pursuant to Section 2.03(A), a mandatory
redemption pursuant to Section 2.03(C) or an extraordinary mandatory redemption pursuant to
Section 2.03(D), the City shall transfer or cause to be transferred to the Fiscal Agent for deposit
22
SDPUB\WDIVEN\356989.5
1/9/08
in the Bond Fund moneys in an amount equal to the redemption price of the Bonds being
redeemed on or before the Interest Payment Date upon which such Bonds are to be redeemed.
If less than all the Bonds Outstanding are to be redeemed, the portion of any Bond
of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000
or a multiple thereof, and, in selecting portions of such Bonds for redemption, the Fiscal Agent
shall treat each such Bond as representing the number of Bonds of $5,000 denomination which is
obtained by dividing the principal amount of such Bond to be redeemed in part by $5,000.
Whenever provision is made in this Agreement for the redemption of less than all
of the Bonds of a maturity or any given portion thereof, the Fiscal Agent shall select the Bonds
of such maturity to be redeemed, from all Bonds of such maturity or such given portion thereof
not previously called for redemption, by lot within a maturity in any manner which the Fiscal
Agent in its sole discretion shall deem appropriate.
Upon surrender of Bonds redeemed in part only, the City shall execute and the
Fiscal Agent shall authenticate and deliver to the Owner, at the expense of the City, a new Bond
or Bonds, of the same maturity, of authorized denominations in aggregate principal amount equal
to the unredeemed portion of the Bond or Bonds.
(H) Effect of Redemption^ From anc^after the date fixed for redemption, if
funds available for the payment of the redemption prices of the Bonds called for redemption
shall have been deposited in the Bond Fund, such Bonds shall cease to be entitled to any benefit
under this Agreement other than the right to receive payment of the redemption price, and
interest shall cease to accrue on the Bonds to be redeemed on the redemption date specified in
the notice of redemption.
All Bonds redeemed and purchased by the Fiscal Agent pursuant to this Section
2.03 shall be canceled by the Fiscal Agent.
Section 2.04 Form of Bonds. The Bonds, including the Fiscal Agent's
certificate of authentication and the assignment to appear thereon, shall be substantially in the
form set forth in Exhibit A attached hereto and by this reference incorporated herein, with
necessary or appropriate variations, omissions and insertions as permitted or required by this
Agreement.
Section 2.05 Execution of Bonds. The Bonds shall be executed on behalf of the
City by the facsimile signatures of the President or Superintendent and Clerk of the City Council,
who are in office on the date of this Agreement or at any time thereafter. If any officer whose
signature appears on any Bond ceases to be such officer before delivery of the Bond to the
Owner, such signature shall nevertheless be as effective as if the officer had remained in office
until the delivery of the Bond to the Owner. Any Bond may be signed and attested on behalf of
the City by such persons as at the actual date of the execution of such Bond shall be the proper
officers of the City although at the nominal date of such Bond any such person shall not have
been such officer of the City.
Only such Bonds as shall bear thereon a certificate of authentication in
substantially the form set forth in Exhibit A hereto or Exhibit B hereto, as appropriate, manually
23
SDPUB\WDIVEN\356989.5
1/9/08
executed and dated by the Fiscal Agent, shall be valid or obligatory for any purpose or entitled to
the benefits of this Agreement, and such certificate of authentication of the Fiscal Agent shall be
conclusive evidence that such Bonds have been duly authenticated, registered and delivered
hereunder, and are entitled to the benefits of this Agreement.
Section 2.06 Transfer of Bonds. Any Bond may, in accordance with its terms,
be transferred, upon the books required to be kept pursuant to the provisions of Section 2.08
hereof, by the person in whose name it is registered, in person or by his duly authorized attorney,
upon surrender of such Bond for cancellation at the Principal Office of the Fiscal Agent,
accompanied by delivery of a duly executed written instrument of transfer in a form acceptable
to the Fiscal Agent. The cost for any services rendered or any expenses incurred by the Fiscal
Agent in connection with any such transfer shall be paid by the City. The Fiscal Agent shall
collect from the Owner requesting transfer of a Bond any tax or other governmental charge
required to be paid with respect to such transfer.
Whenever any Bond or Bonds shall be surrendered for transfer, the City shall
execute and the Fiscal Agent shall authenticate and deliver a new Bond or Bonds of like
aggregate principal amount.
No transfers of Bonds shall be required to be made (i) during the fifteen (15) days
preceding the_dateL established by the Fiscal Agent for selection of Bonds for redemption, or
(ii) with respect to Bonds which have been selected for redemption.
Section 2.07 Exchange of Bonds. Bonds may be exchanged at the Principal
Office of the Fiscal Agent only for a like aggregate principal amount of Bonds of authorized
denominations and of the same maturity and interest rate. The cost for any services rendered or
any expense incurred by the Fiscal Agent in connection with any such exchange shall be paid by
the City. The Fiscal Agent shall collect from the Owner requesting exchange of a Bond any tax
or other governmental charge required to be paid with respect to such exchange.
No exchanges of Bonds shall be required to be made (i) during the fifteen (15)
days preceding the date established by the Fiscal Agent for selection of Bonds for redemption, or
(ii) with respect to Bonds which have been selected for redemption.
Section 2.08 Bond Register. The Fiscal Agent shall keep, or cause to be kept, at
its Principal Office sufficient books for the registration and transfer of the Bonds which books
shall show the series, number, CUSIP identification number, date of issuance, amount, rate of
interest and Owner of each Bond and shall at all times be open to inspection by the City during
regular business hours upon reasonable notice; and, upon presentation for such purpose, the
Fiscal Agent shall, under such reasonable regulations as it may prescribe, register or transfer or
cause to be registered or transferred, on said books, the ownership of the Bonds as hereinbefore
provided.
Section 2.09 Temporary Bonds. The Bonds may be initially issued in
temporary form exchangeable for definitive Bonds when ready for delivery. The temporary
Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be
determined by the City, and may contain such reference to any of the provisions of this
24
SDPUB\WDWEN\356989.5
1/9/08
Agreement as may be appropriate. Every temporary Bond shall be executed by the City upon the
same conditions and in substantially the same manner as the definitive Bonds. If the City issues
temporary Bonds it will execute and furnish definitive Bonds without delay and thereupon the
temporary Bonds shall be surrendered, for cancellation, in exchange for the definitive Bonds at
the Principal Office of the Fiscal Agent or at such other location as the Fiscal Agent shall
designate, and the Fiscal Agent shall authenticate and deliver in exchange for such temporary
Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations.
Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this
Agreement as definitive Bonds authenticated and delivered hereunder.
Section 2.10 Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall
become mutilated, the City, at the expense of the Owner of said Bond, shall execute, and the
Fiscal Agent shall authenticate and deliver, a replacement Bond of like tenor and principal
amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the
Fiscal Agent of the Bond so mutilated. Every mutilated Bond so surrendered to the Fiscal Agent
shall be canceled and destroyed by the Fiscal Agent. If any Bond shall be lost, destroyed or
stolen, evidence of such loss, destruction or theft may be submitted to the Fiscal Agent and, if
such evidence be satisfactory to it and indemnity for the City and the Fiscal Agent satisfactory to
the Fiscal Agent shall be given, the City, at the expense of the Owner, shall execute, and the
Fiscal Agent shall authenticate and deliver, a replacement Bond of like tenor and principal
amount in lieu of and in substitution for the Bond so lost, destroyed^ stolen^-The^ity or Fiscal-
Agent may require payment of a sum not exceeding the actual cost of preparing each
replacement Bond delivered under this Section 2.10 and of the expenses which may be incurred
by the City and the Fiscal Agent for the preparation, execution, authentication and delivery
thereof. Any Bond delivered under the provisions of this Section 2.10 in replacement of any
Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual
obligation of the District whether or not the Bond so alleged to be lost, destroyed or stolen is at
any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits
of this Agreement with all other Bonds issued pursuant to this Agreement.
Section 2.11 Special Obligation. All obligations of the City and the District
under this Agreement and the Bonds shall be special obligations of the City and the District,
payable solely from the Special Tax Revenues and the funds pledged therefor pursuant hereto.
Neither the faith and credit nor the taxing power of the City, the District (except to the limited
extent set forth herein) or the State of California or any political subdivision thereof is pledged to
the payment of the Bonds.
Section 2.12 Issuance of Additional Bonds. The City will not issue any other
obligations payable, principal or interest, from the Special Taxes which have, or purport to have,
any lien upon the Special Tax Revenues superior to or, except as permitted in the following
sentence, on a parity with the lien of the Bonds. Nothing in this Agreement shall prevent the City
from issuing and selling, pursuant to law, bonds or other obligations payable from and having a
first lien upon the Special Tax Revenues on a parity with the Outstanding Bonds for the purpose
of refunding all or a portion of the Bonds.
Section 2.13 Book-Entry. The Bonds shall be initially issued in the form of a
single, fully registered Bond for each maturity (which may be typewritten). Upon initial
25
SDPUB\WDIVEN\356989.5
1/9/08
issuance, the ownership of such Bonds shall be registered in the name of the Nominee identified
below as nominee of The Depository Trust Company, New York, New York and its successors
and assigns (the "Depository" or "DTC"). Except as hereinafter provided, all of the Outstanding
Bonds shall be registered in the name of the nominee of the Depository, which may be the
Depository, as determined from time to time pursuant to this Section 2.13 (the "Nominee").
With respect to the Bonds registered in the name of the Nominee, neither the City
nor the Fiscal Agent shall have any responsibility or obligation to any broker-dealers, banks and
other financial institutions from time to time for which the Depository holds Bonds as securities
depository (the "Participant") or to any person on behalf of which such a Participant holds an
interest in the Bonds. Without limiting the immediately preceding sentence, neither the City nor
the Fiscal Agent shall have any responsibility, liability or obligation whatsoever with respect to
(i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to
any ownership interest in the Bonds, (ii) the delivery to any Participant or any other person, other
than an Owner of a Bond as shown in the registration books maintained by the Fiscal Agent
pursuant to Section 2.08 hereof (the "Registration Books"), of any notice with respect to the
Bonds, including any notice of redemption, (iii) the selection by the Depository and its
Participants of the beneficial interests in the Bonds to be redeemed in the event the City redeems
the Bonds in part, or (iv) the payment to any Participant or any other person, other than an
Owner of a Bond as shown in the Registration Books, of any amount with respect to principal of
or interest on the Bonds, The City and the Fiscal Agent may treat and consider conclusively the
person in whose name each Bond is registered as the holder and absolute Owner of such Bond
for the purpose of payment of principal and interest with respect to such Bond, for the purpose of
giving notices of redemption, if applicable, and other matters with respect to such Bond, for the
purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever.
The City shall pay all principal of and interest on the Bonds only to or upon the order of the
respective Owner of a Bond, as shown in the Registration Books, or his or her attorney duly
authorized in writing, and all such payments shall be valid and effective to fully satisfy and
discharge the City's obligations with respect to payment of principal of and interest on the Bonds
to the extent of the sum or sums so paid. No person other than an Owner of a Bond, as shown in
the Registration Books, shall receive a Bond evidencing the obligation of the City to make
payments of principal and interest pursuant to this Agreement. Upon delivery by the Depository
to the Owners of the Bond, and the City of written notice to the effect that the Depository has
determined to substitute a new nominee in place of the Nominee, and subject to the provisions
herein with respect to Record Dates, the word Nominee in this Agreement shall refer to such
nominee of the Depository.
In the event (i) the Depository determines not to continue to act as securities
depository for the Bonds, or (ii) the Depository shall no longer so act and gives notice to the City
of such determination, then the City will discontinue the book-entry system with the Depository.
If the City determines to replace the Depository with another qualified securities depository, the
City shall prepare or direct the preparation of a new, single, separate, fully registered Bond, per
maturity, registered in the name of such successor or substitute qualified securities depository or
its nominee. If the City fails to identify another qualified securities depository to replace the
Depository, then the Bonds shall no longer be restricted to being registered in the Registration
Books in the name of the Nominee, but shall be registered in whatever name or names Owners of
the Bonds transferring or exchanging Bonds shall designate, in accordance with the provisions of
26
SDPUB\WDIVEN\356989.5
1/9/08
Sections 2.06 and 2.07 hereof, and the City shall prepare and deliver Bonds to the Fiscal Agent
for authentication and delivery to the Owners thereof for such purpose.
In the event of a reduction in aggregate principal amount of Bonds Outstanding or
an advance refunding of part of the Bonds Outstanding, the Depository, in its discretion, (a) may
request the City to prepare and issue a new Bond or (b) may make an appropriate notation on a
Bond indicating the date and amounts of such reduction in principal, but in such event the
Registration Books maintained by the Fiscal Agent shall be conclusive as to what amounts are
Outstanding with respect to the Bond, except in the case of final maturity, in which case the
Bond must be presented to the Fiscal Agent prior to payment.
Notwithstanding any other provision of this Agreement to the contrary, so long as
any Bond is registered in the name of the Nominee, all payments of principal and interest with
respect to such Bond and all notices with respect to such Bond shall be made and given,
respectively, as provided in the Representation Letter or as otherwise instructed by the
Depository and acceptable to the City.
The initial Nominee shall be Cede & Co., as Nominee of DTC.
ARTICLE III
ISSUANCE OF BONDS; APPLICATION OF PROCEEDS; IMPROVEMENT
FUND; SPECIAL TAX FUND; ADMINISTRATIVE EXPENSE FUND;
COSTS OF ISSUANCE FUND; ESCROW FUND
Section 3.01 Issuance and Delivery of Bonds. At any time after the execution
of this Agreement, the City may issue the Bonds for the District in the aggregate principal
amounts set forth in Section 2.01 hereof and deliver the Bonds to the Original Purchaser. The
Authorized Officers of the City are hereby authorized and directed to deliver any and all
documents and instruments necessary to cause the issuance of the Bonds in accordance with the
provisions of the Act, the Resolution and this Agreement, to authorize the payment of Costs of
Issuance by the Fiscal Agent from the proceeds of the Bonds, and to do and cause to be done any
and all acts and things necessary or convenient for delivery of the Bonds to the Original
Purchaser.
Section 3.02 Application of Proceeds of Sale of Bonds.
The Proceeds of the sale of the Bonds to the Original Purchaser shall be paid to
the Fiscal Agent or the Finance Director, as applicable, who shall forthwith set aside, pay over
and deposit such Proceeds on the Closing Date as follows:
(A) To the Fiscal Agent for deposit in the Reserve Fund the amount of
$ ;
(B) To the Fiscal Agent for deposit in the Capitalized Interest Sub-account in
the Interest Account in the Bond Fund the amount of $ representing capitalized
interest on the Bonds, excluding the Escrow Bonds, through September 1, 2008;
27
SDPUBYWDIVEN\356989.5
1/9/08
(C) To the Fiscal Agent for deposit in the Costs of Issuance Fund the amount
of$ ;
(D) To the Finance Director for deposit in the Improvement Fund the amount
of$ ;
(E) To the Finance Director for deposit to the Administrative Expense Fund
the amount of $ ;
(F) To the Fiscal Agent for deposit in the Escrow Interest Account of the
Escrow Fund the amount of $ ; and
(G) To the Fiscal Agent for deposit in the Escrow Holding Account of the
Escrow Fund the amount of $ .
The Fiscal Agent or the Finance Director may establish a temporary fund or
account in its records to facilitate such deposits and transfers.
Section 3.03 Improvement Fund.
(A) Establishment of Improvement Fund. There is hereby established, as a
separafeTund to be heldHDy the Finance^DirectofTthe"'"City~oT"Carlsr3ad"'Community Facilities
District No. 3, 2008 Special Tax Bonds (Improvement Area 2), Improvement Fund" to the credit
of which deposit shall be made as required by paragraph (D) of Section 3.02 hereof. Moneys in
the Improvement Fund therein shall be held by the Finance Director for the benefit of the
Owners of the Bonds, shall be disbursed, except as otherwise provided in subsection (D) of this
Section 3.03, for the payment or reimbursement of the costs of the design, acquisition and
construction of the Improvements pursuant to the terms and conditions of the Acquisition
Agreement.
Immediately upon the deposit in the Improvement Fund pursuant to Section
3.02(D), the Finance Director shall set aside the following amounts:
(1) $ shall be set aside solely for the payment or
reimbursement of the costs of the design, acquisition and construction of Improvement C;
and
(2) $ shall be set aside solely for the payment or
reimbursement of the costs of the design, acquisition and construction of Improvement
D.
The Finance Director shall not disburse funds set aside for the payment or reimbursement of the
costs of the design, acquisition and construction of any of the foregoing Improvements unless the
Finance Director shall have received an Officer's Certificate declaring that all such costs for a
particular Improvement allocated to Improvement Area 2 pursuant to the Acquisition Agreement
have been paid or reimbursed. Upon receipt of such an Officer's Certificate, the Finance
Director may utilize any remaining funds set aside for such Improvement for the payment or
reimbursement of the costs of the design, acquisition and construction of any other Improvement.
28
SDPUB\WDrVEN\356989.5
1/9/08
(B) Procedure for Disbursement. Disbursements from the Improvement Fund
shall be made by the Finance Director upon receipt of an Officer's Certificate which shall:
(i) set forth the amount required to be disbursed, the purpose for which the
disbursement is to be made and the person to which the disbursement is to be
paid; and
(ii) certify that no portion of the amount then being requested to be disbursed
was set forth in any Officer's Certificate previously filed with the Finance
Director requesting disbursement, and that the amount being requested is an
appropriate disbursement from the Improvement Fund.
(C) Investment. Moneys in the Improvement Fund shall be invested and
deposited in accordance with Section 6.01 hereof. Investment Earnings shall be retained by the
Finance Director in the Improvement Fund to be used for the purposes of such fund. Investment
earnings on amounts set aside pursuant to Section 3.03(A) above shall accrue to such amounts
and shall also be set aside for the payment or reimbursement of the costs of the design,
acquisition and construction of the applicable Improvement for which such funds have been set
aside.
(D) Closing of Fund. Upon the filing of an Officer's Certificate stating that
the construction and acquisition of the Improvements has been completed and that all costs of
the Improvements have been paid or are not required to be paid from the Improvement Fund, and
further stating that moneys on deposit in the Improvement Fund are not needed to complete the
Improvements or reimburse the cost thereof, the Finance Director shall transfer the amount, if
any, remaining in the Improvement Fund to the Fiscal Agent for deposit to the Interest Account
of the Bond Fund to be used to pay the interest on the Bonds.
Section 3.04 Special Tax Fund.
(A) Establishment of Special Tax Fund. There is hereby established, as a
separate account to be held by the Finance Director, the "City of Carlsbad Community Facilities
District No. 3, 2008 Special Tax Bonds (Improvement Area 2), Special Tax Fund." The Finance
Director shall deposit, not later than five (5) Business Days after receipt, all Special Tax
Revenues received by the City, to the Special Tax Fund. Moneys in the Special Tax Fund shall
be held in trust by the Finance Director for the benefit of the City and the Owners of the Bonds,
shall be disbursed as provided below and, pending disbursement, shall be subject to a lien in
favor of the Owners of the Bonds.
Notwithstanding the foregoing, any amounts received by the City which
constitute Special Tax Prepayments shall be transferred by the City not later than the January 15
or July 15 immediately following the receipt thereof to the Fiscal Agent for deposit by the Fiscal
Agent in the Special Tax Prepayments Account established pursuant to Section 4.02(A) hereof.
(B) Disbursements. From time to time as needed to pay the obligations of the
District, but no later than the Business Day before each Interest Payment Date, the Finance
Director shall withdraw from the Special Tax Fund and transfer the following amounts in the
following order of priority (i) to the Administrative Expense Fund in an amount not to exceed the
29
SDPUB\WDIVEN\356989.5
1/9/08
Priority Administrative Expense Amount per Fiscal Year; (ii) to the Fiscal Agent for deposit to
the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund
and any expected transfers from the Improvement Fund, the Reserve Fund and the Special Tax
Prepayments Account to the Bond Fund pursuant to Section 4.02(B), such that the amount in the
Bond Fund equals the principal (including any sinking payment), premium, if any, and interest
due on the Bonds on the next Interest Payment Date, and (iii) to the Fiscal Agent for deposit to
the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund,
such that the amount in the Reserve Fund is equal to the Reserve Requirement. Amounts then in
the Special Tax Fund may, following the disbursements in (ii) and (iii) above, during any Fiscal
Year also be transferred from time to time by the Finance Director to the Administrative Expense
Fund, to pay additional Administrative Expenses in excess of the amount deposited in clause (i)
above, provided that the City agrees that any such transfers shall not exceed, in any Fiscal Year,
the amount included in the Special Tax levy for such Fiscal Year for Administrative Expenses.
At any time following the deposit of Special Taxes in an amount sufficient to
make payment of all of the foregoing deposits for the current Bond Year, any amounts in excess
of such amounts remaining in the Special Tax Fund shall be transferred by the Finance Director
to the District to be used for any lawful purpose under the Act. In the absence of such written
direction, all amounts remaining in the Special Tax Fund on the first day of the succeeding Bond
Year shall be retained in the Special Tax Fund and applied to the succeeding Bond Year's
Annual Debt Service; ——
(C) Investment. Moneys in the Special Tax Fund shall be invested and
deposited in accordance with Section 6.01 hereof. Investment Earnings shall be retained in the
Special Tax Fund to be used for the purposes of such fund.
Section 3.05 Administrative Expense Fund.
(A) Establishment of Administrative Expense Fund. There is hereby
established, as a separate account to be held by the Finance Director, the "City of Carlsbad
Community Facilities District No. 3, 2008 Special Tax Bonds (Improvement Area 2),
Administrative Expense Fund" to the credit of which deposits shall be made as required by
Section 3.02(E) and Section 3.04(B) hereof. Moneys in the Administrative Expense Fund shall
be held in trust by the Finance Director for the benefit of the City, and shall be disbursed as
provided below.
(B) Disbursement. Amounts in the Administrative Expense Fund shall be
withdrawn by the Finance Director and paid to the City or its order upon receipt by the Finance
Director of an Officer's Certificate stating the amount to be withdrawn, that such amount is to be
used to pay an Administrative Expense (or a Cost of Issuance) and the nature of such
Administrative Expense (or Cost of Issuance).
(C) Investment. Moneys in the Administrative Expense Fund shall be
invested and deposited in accordance with Section 6.01 hereof. Investment Earnings shall be
retained by the Finance Director in the Administrative Expense Fund to be used for the purposes
of such fund.
30
SDPUB\WDFVEN\356989.5
1/9/08
Section 3.06 Costs of Issuance Fund.
(A) Establishment of Costs of Issuance Fund. There is hereby established, as a
separate account to be held by the Fiscal Agent, the "City of Carlsbad Community Facilities
District No. 3, 2008 Special Tax Bonds (Improvement Area 2) Costs of Issuance Fund" to the
credit of which a deposit shall be made as required by paragraph (C) of Section 3.02 hereof.
Moneys in the Costs of Issuance Fund shall be held in trust by the Fiscal Agent and shall be
disbursed as provided in subsection (B) of this Section for the payment or reimbursement of
Costs of Issuance.
(B) Disbursement. Amounts in the Costs of Issuance Fund shall be disbursed
to pay Costs of Issuance, as set forth in a requisition containing respective amounts to be paid to
the designated payees, signed by an Authorized Officer and delivered to the Fiscal Agent
concurrently with the delivery of the Bonds. The Fiscal Agent shall pay all Costs of Issuance
upon receipt of an invoice from any such payee which requests payment in an amount which is
less than or equal to the amount set forth with respect to such payee in such requisition, or upon
receipt of an Officer's Certificate requesting payment of a Cost of Issuance not listed on the
initial requisition delivered to the Fiscal Agent on the Closing Date. The Fiscal Agent shall
maintain the Costs of Issuance Fund for a period of ninety (90) days from the Closing Date and
shall then transfer and deposit any moneys remaining therein, including any Investment Earnings
thereon, to the Finance Director for deposit to the Improvement Fund for^the. pujposes_oiIsuch
fund.
(C) Investment. Moneys in the Costs of Issuance Fund shall be invested and
deposited in accordance with Section 6.01 hereof. Investment Earnings shall be retained by the
Fiscal Agent in the Costs of Issuance Fund to be used for the purposes of such fund.
Section 3.07 Escrow Fund.
(A) Establishment of the Escrow Fund. There is hereby established, as a
separate fund to be held by the Fiscal Agent, the "City of Carlsbad Community Facilities District
No. 3, 2008 Special Tax Bonds (Improvement Area 2) Escrow Fund" and within such Fund an
Escrow Interest Account and an Escrow Holding Account to the credit of which deposits shall be
made as required by Section 3.02(F) and (G), respectively. The Fiscal Agent may establish such
temporary funds or accounts on its records as it may deem appropriate to facilitate such deposits
and transfers.
Moneys in the Escrow Fund shall be held in trust by the Fiscal Agent for the
benefit of the Owners and shall be transferred only as provided in subsection (B) of this Section.
(B) Transfers.
(i) Transfers from the Escrow Interest Account and the Escrow
Holding Account to the Interest Account of the Bond Fund Prior to the Escrow
Redemption Date. On the second Business Day immediately preceding each
Interest Payment Date occurring on or prior to the Escrow Redemption Date, the
Fiscal Agent shall make the following transfers:
31
SDPUB\WDIVEN\356989.5
1/9/08
(a) The Fiscal Agent shall transfer from the Escrow Holding
Account to the Interest Account an amount equal to the amount of the
investment earnings on deposit in the Escrow Holding Account and shall
transfer from the Escrow Interest Account to the Interest Account an
amount equal to the amount of the investment earnings on deposit in the
Escrow Interest Account.
(b) The Fiscal Agent shall transfer from the Escrow Interest
Account to the Interest Account an amount that, together with the amounts
transferred pursuant to the preceding subparagraph (a), is equal to the
interest payable on the Escrow Bonds on such Interest Payment Date.
(ii) Transfers on Each Escrow Release Date. On each Escrow Release
Date specified in a Written Certificate of the City provided to the Fiscal Agent
pursuant to subparagraph (a) of the following paragraph (iii), the Fiscal Agent
shall make the following transfers:
(a) The Fiscal Agent shall transfer from the Escrow Interest
Account to the Improvement Fund the amount specified in the certificate
of the Special Tax Consultant delivered with respect to such Escrow
Release Date pursuant to the following paragraph (iii) as the amount to be
so transferred (which amount shall be the amount calculated pursuant to
subparagraph (b)(2) of the following paragraph (iii));
(b) The Fiscal Agent shall transfer from the Escrow Holding
Account to the Reserve Fund the amount, if any, specified in the
certificate of the Special Tax Consultant delivered with respect to such
Escrow Release Date pursuant to the following paragraph (iii) as the
amount to be so transferred (which amount shall be the amount calculated
pursuant to subparagraph (b)(3) of the following paragraph (iii));
(c) The Fiscal Agent shall transfer from the Escrow Holding
Account to the Interest Account the amount, if any, specified in the
certificate of the Special Tax Consultant delivered with respect to such
Escrow Release Date pursuant to the following paragraph (iii) as the
amount to be so transferred (which amount shall be the amount calculated
pursuant to subparagraph (b)(4) of the following paragraph (iii));
(d) The Fiscal Agent shall transfer from the Escrow Holding
Account to the Escrow Interest Account the amount, if any, specified in
the certificate of the Special Tax Consultant delivered with respect to such
Escrow Release Date pursuant to the following paragraph (iii) as the
amount to be so transferred (which amount shall be the amount calculated
pursuant to subparagraph (b)(5) of the following paragraph (iii)); and
(e) The Fiscal Agent shall transfer from the Escrow Holding
Account to the Improvement Fund the amount specified in the certificate
32
SDPUBYWDrVEN\356989.5
1/9/08
of the Special Tax Consultant delivered with respect to such Escrow
Release Date pursuant to the following paragraph (iii) as the amount to be
so transferred (which amount shall be the amount calculated pursuant to
subparagraph (b)(6) of the following paragraph (iii)).
(iii) Conditions Precedent to Transfers on Any Escrow Release Date.
Transfers shall be made on any Escrow Release Date pursuant to the preceding
paragraph (ii) only if, no later than ten Business Days prior to such Escrow
Release Date, the Fiscal Agent shall have received all of the following:
(a) A Written Certificate of the City:
(1) specifying the Escrow Release Date which shall be
a date (aa) no less than 75 days prior to the Escrow Redemption
Date then in effect as of the date of receipt by the Fiscal Agent of
such Written Certificate of the City, and (bb) no less than five
Business Days prior to the Interest Payment Date next occurring
after the date of receipt by the Fiscal Agent of such Written
Certificate of the City;
(2) certifying that, on the basis of the records of the
County Tax Collector available to the City or other information
provided to the City by the County Tax Collector or by the
Developer to the satisfaction of the Finance Director, there are no
current defaults in the payment of any ad valorem real property
taxes or special taxes or special assessments levied on the
Remaining Lots owned by the Developer;
(3) as to the first Escrow Release Date, certifying that
the final subdivision map for Phase III has been recorded in the
office of the County Recorder of the County; and
(4) that the aggregate Appraised Value of the parcels of
Taxable Property within Improvement Area 2, as such Appraised
Value is shown in an Escrow Release Appraisal, is at least four
times the sum of (aa) the aggregate principal amount of all
Outstanding Bonds less the amount of the proceeds of the Escrow
Bonds remaining on deposit in the Escrow Fund (assuming that
such amount is reduced by virtue of the transfers from the Escrow
Fund on such Escrow Release Date), plus (bb) the aggregate
principal amount of all fixed lien special assessments levied on
parcels of Taxable Property within Improvement Area 2, based
upon information from the most recent Fiscal Year for which such
information is available, plus (cc) a portion of the aggregate
principal amount of Other Bonds equal to the aggregate principal
amount of the Other Bonds multiplied by a fraction, the numerator
of which is the amount of special taxes levied for the Other Bonds
33
SDPUB\WDIVEN\356989.5
1/9/08
on parcels of Taxable Property within Improvement Area 2, and
the denominator of which is the total amount of special taxes
levied for the Other Bonds on all parcels of land (such fraction to
be determined based upon the maximum special taxes which
could be levied in the year in which maximum annual debt service
on the Other Bonds occurs), based upon information from the
most recent Fiscal Year for which such information is available;
and
(5) That the aggregate Appraised Value of the
Remaining Lots, as such Appraised Value is shown in an Escrow
Release Appraisal, is at least four times the sum of (aa) the
aggregate principal amount of Outstanding Bonds less the amount
of proceeds of the Escrow Bonds remaining on deposit in the
Escrow Fund (assuming that such amount is reduced by virtue of
the transfers from the Escrow Fund on such Escrow Release Date)
Allocable to the Remaining Lots, plus (bb) the aggregate principal
amount of all fixed lien special assessments levied on the
Remaining Lots, plus (cc) a portion of the aggregate principal
amount of Other Bonds equal to the aggregate principal amount of
the Other Bonds multiplied by a fraction^ the numerator of which-
is the amount of special taxes levied for the Other Bonds on the
Remaining Lots, and the denominator of which is the total amount
of special taxes levied for the Other Bonds on all parcels of land
(such fraction to be determined based upon the maximum special
taxes which could be levied in the year in which maximum annual
debt service on the Other Bonds occurs), based upon information
from the most recent Fiscal Year for which such information is
available; and
(b) A certificate or certificates from one or more Special Tax
Consultants which, when taken together, specify or certify, as applicable:
(1) The Transferred Escrow Holding Account Amount,
which constitutes the amount to be transferred from the Escrow
Holding Account on such Escrow Release Date;
(2) The amount to be transferred from the Escrow
Interest Account to the Improvement Fund on such Escrow
Release Date, which amount shall be equal to the sum of (I) the
product of (aa) a fraction, the numerator of which is equal to the
Transferred Escrow Holding Account Amount and the
denominator of which is equal to the amount on deposit in the
Escrow Holding Fund (excluding any investment earnings
allocable thereto) on the day prior to such Escrow Release Date,
times (bb) the amount on deposit in the Escrow Interest Account
on the day prior to such Escrow Release Date, plus (IT) any
34
SDPUBXWDIVENV356989.5
1/9/08
investment earnings allocable to the amount determined pursuant
to the preceding clause (I);
(3) The portion of the Transferred Escrow Holding
Account Amount that is to be transferred to the Reserve Fund on
the Escrow Release Date, which portion shall be an amount equal
to the remainder of (I) the Reserve Requirement (calculated as if
the principal amount of the Escrow Bonds on deposit in the
Escrow Fund had been reduced by virtue of transfers to be made
on such Escrow Release Date having already been made), less (II)
the Reserve Requirement (calculated based on the principal
amount of the Escrow Bonds on deposit in the Escrow Fund just
prior to such transfers);
(4) The portion, if any, of the Transferred Escrow
Account Amount to be transferred to the Interest Account on such
Escrow Release Date, which portion shall be an amount which is
sufficient to pay interest on the Escrow Bonds in a principal
amount equal to the amount transferred from the Escrow Fund on
such Escrow Release Date on each Interest Payment Date that will
occur before Special Taxes can be levied and collected in_ an
amount sufficient to pay such interest;
(5) The portion, if any, of the Transferred Escrow
Account Amount to be transferred to the Escrow Interest Account
on such Escrow Release Date, which portion shall be an amount
that will cause the amount on deposit in the Escrow Interest
Account on such Escrow Release Date to be the amount, but no
greater than the amount, necessary to be on deposit therein in
order for the Special Tax Consultant to provide the certification
required pursuant to subparagraph (7) below;
(6) The portion of the Transferred Escrow Account
Amount to be transferred to the Improvement Fund which portion
shall be an amount equal to the remainder of (I) the Transferred
Escrow Account Amount, less (II) the sum of (aa) the amount to
be transferred to the Reserve Fund pursuant to the preceding
subparagraph (3), plus (bb) the amount, if any, to be transferred to
the Interest Account pursuant to the preceding subparagraph (4),
plus (cc) the amount, if any, transferred to the Escrow Interest
Account pursuant to the preceding subparagraph (5);
(7) That, after all of such transfers on such Escrow
Release Date, the amount on deposit in the Escrow Interest
Account, together with investment earnings thereon and on the
Escrow Holding Account to be received pursuant to the Permitted
Investments in which such amounts will be invested on such
35
SDPUB\WDIVEN\356989.5
1/9/08
Escrow Release Date (and assuming no reinvestment thereof), will
be sufficient (assuming that no such Permitted Investment is sold
prior to its maturity and that withdrawals are made from such
Permitted Investments only in accordance with their terms) to pay
interest on the principal amount of the Escrow Bonds then on
deposit in the Escrow Fund, as and when the same is due and
payable, to and including the Escrow Redemption Date
(8) That, on the basis of the Taxable Property existing
as of the March 1 preceding such Escrow Release Date, for each
Fiscal Year commencing following such Escrow Release Date
that Bonds will be Outstanding, the sum of the amount of Annual
Maximum Special Taxes that may be levied on all Taxable
Property pursuant to the Act and the Ordinance in such Fiscal
Year, is at least equal to the sum of (aa) 110% of the Annual Debt
Service for the corresponding Bond Year on all Outstanding
Bonds excluding the principal amount Escrow Bonds on deposit
in the Escrow Fund (assuming that the principal amount of the
Escrow Bonds on deposit in the Escrow Fund is reduced by virtue
of the transfers from the Escrow Fund on such Escrow Release
Date), plus (bb) the Priority Administrative Expense Amount fop
such Fiscal Year; provided, however, that, for purposes of such
calculation, there shall be excluded from such Taxable Property
any parcel with respect to which, on the basis of the records of the
County Tax Collector available to the City or information
provided to the City by the County Tax Collector, a default in the
payment of any Special Taxes has occurred and is continuing as of
the date of such certification.
(iv) Transfers on the Business Day Preceding the Escrow Redemption
Date. On the Business Day immediately proceeding Escrow Redemption Date,
the Fiscal Agent shall make the following transfers:
(a) The Fiscal Agent shall transfer from the Escrow Holding
Account to the Interest Account an amount equal to the amount of the
investment earnings on deposit in the Escrow Holding Account and shall
transfer from the Escrow Interest Account to the Interest Account an
amount equal to the amount of the investment earnings on deposit in the
Escrow Interest Account;
(b) The Fiscal Agent shall transfer from the Escrow Interest
Account to the Interest Account an amount that, together with the amounts
transferred pursuant to the preceding subparagraph (a), is equal to the
interest payable on the Escrow Bonds on the Escrow Redemption Date;
(c) The Fiscal Agent shall transfer all funds remaining on
deposit in the Escrow Holding Account to the Principal Account of the
36
SDPUB\WDIVEN\356989.5
1/9/08
Bond Fund for the redemption of Escrow Bonds on the Escrow
Redemption Date in accordance with Section 2.03(D).
(C) Request for Escrow Release. No more often than once in each twelve
month period following the Closing Date, the Developer may, in writing, request the City to take
or cause to be taken such actions as are necessary to determine whether and to what extent the
Escrow Release Tests have been met and, if the Escrow Release Tests have been met, to cause
amounts to be disbursed from the Escrow Fund in accordance with Section 3.07. Each such
request shall be accompanied by a payment sufficient, in the reasonable determination of the
City as set forth in a prior written notice from the City to the Developer, to pay the costs
associated with such determination and disbursement. Upon receipt of such request and
payment, the City shall, without unreasonable delay, take or cause to be taken such actions as are
necessary to determine whether and to what extent the Escrow Release Tests have been met.
(D) Extension of the Escrow Redemption Date^ No earlier than 180 days and
no later than 150 days prior to the Escrow Redemption Date then in effect, the Developer may
request the City to take or cause to be taken such actions as are necessary to determine if the
Escrow Redemption Date may be extended to a later date and, if the conditions precedent to such
extension set forth in this subparagraph (D) have been met, to extend the Escrow Redemption
Date to such later date. Each such request shall be accompanied by a payment of moneys
sufficient, in the reasonable determination of the City (as set forth in a prior-written.noticejfrom__
the City to the Developer), to pay the costs associated with such determination and extension.
Upon receipt of such request and payment, the City shall, without unreasonable delay, take or
cause to be taken such actions to determine, no later than 90 days prior to the Escrow
Redemption Date then in effect, whether and to what extent the conditions precedent to the
extension of the Escrow Redemption Date have been met. The City shall engage an Independent
Consultant or Special Tax Consultant to calculate the amount of money which must be delivered
to the Fiscal Agent for deposit in the Escrow Interest Account in order to allow such Independent
Consultant or Special Tax Consultant to provide the certificate required by (ii) below. The City
shall provide written notification to the Developer of any such amount of any money required to
be delivered to the Fiscal Agent and the Developer shall deliver such money to the Fiscal Agent
no later than 80 days prior to the Escrow Redemption Date then in effect.
The Escrow Redemption Date in effect on any date shall be extended to a later
date upon receipt by the Fiscal Agent of the following, all of which shall be received by the
Fiscal Agent no later than the 75 days prior to the Escrow Redemption Date then in effect:
(i) A Written Certificate of the City specifying such extended Escrow
Redemption Date;
(ii) A certificate from an Independent Consultant or Special Tax
Consultant which certifies that the amount on deposit in the Escrow Interest
Account on the date of such certificate, together with investment earnings thereon
and on the Escrow Holding Account to be received pursuant to the Permitted
Investments in which such amounts are invested as of the date of such certificate
(and assuming no reinvestment thereof), will be sufficient (assuming that no such
Permitted Investment is sold prior to its maturity and that withdrawals are made
37
SDPUB\WDIVEN\356989.5
1/9/08
from such Permitted Investments only in accordance with their terms) to pay
interest on the principal amount of the Escrow Bonds on deposit in the Escrow
Fund, as and when the same is due and payable, to and including the extended
Escrow Redemption Date; and
(iii) An opinion of Bond Counsel substantially to the effect that the
extension of the Escrow Redemption Date and the corresponding extension of the
Escrow Redemption Date, in and of itself, will not adversely affect the exclusion
of interest on the Outstanding Bonds from gross income for federal income tax
purposes.
Promptly following any extension of the Escrow Redemption Date pursuant to
this subsection, the Trustee shall provide notice thereof to the Owners of the Escrow Bonds and
the Original Purchaser, which notice shall specify the Escrow Redemption Date then in effect
and the extended Escrow Redemption Date and shall state that certain of the Escrow Bonds
(which shall be identified in such notice) will be subject to mandatory redemption, in whole or in
part, on the extended Escrow Redemption Date, from and to the extent of any transfers from the
Escrow Fund to the Bond Fund pursuant to Section 2.03(D), at a redemption price equal to
of the principal amount of such Escrow Bonds to be redeemed, together with accrued
interest thereon to the date of redemption.
The City may, in its sole discretion, from time to time, deliver to the Fiscal Agent
money derived from any legally available source for deposit in the Escrow Interest Account;
provided, however, that any such money shall be accompanied by an opinion of counsel licensed
to practice law in the State of California retained by the City, which opinion shall be
substantially to the effect that such money is not subject to recovery upon the commencement of
bankruptcy proceedings with respect to any landowner within the District, or any Affiliate
thereof, or any guarantor of the obligations of any such landowner.
ARTICLE IV
SPECIAL TAX REVENUES; BOND FUND; RESERVE FUND
Section 4.01 Pledge of Special Tax Revenues.
The Bonds shall be secured by a pledge of and lien upon (which shall be effected
in the manner and to the extent herein provided) all of the Special Tax Revenues and all moneys
deposited in the Bond Fund, Reserve Fund and Special Tax Fund. The Bonds shall be equally
secured by a pledge of and lien upon the Special Tax Revenues and such moneys without
priority for number, date of Bond, date of execution or date of delivery. The Special Tax
Revenues and all moneys deposited into such accounts are hereby dedicated in their entirety to
the payment of the principal of the Bonds, and interest and any premium on, the Bonds, as
provided herein and in the Act, until all of the Bonds have been paid and retired or until moneys
or Defeasance Securities have been set aside irrevocably for that purpose in accordance with
Section 9.03 hereof.
Section 4.02 Bond Fund.
38
SDPUB\WDIVEN\356989.5
1/9/08
(A) Establishment of Bond Fund. There is hereby established, as a separate
account to be held by the Fiscal Agent, the "City of Carlsbad Community Facilities District No.
3, 2008 Special Tax Bonds (Improvement Area 2) Bond Fund" to the credit of which deposits
shall be made as required by Section 3.03(D), Section 3.04(B), 3.07(B) and Section 4.03(D)
hereof and any other provision of this Agreement or the Act. There are hereby established in the
Bond Fund, as separate accounts to be held by the Fiscal Agent, the "Interest Account" and the
"Principal Account." There is hereby also established in the Bond Fund, as a separate account to
be held by the Fiscal Agent, the "Special Tax Prepayments Account" to the credit of which
deposits shall be made as required by Section 3.04(A) hereof. There is hereby also established
in the Interest Account, as a separate sub-account to be held by the Fiscal Agent, the "Capitalized
Interest Sub-account" to the credit of which a deposit shall be made as required by paragraph (B)
of Section 3.02 hereof. Moneys in the Bond Fund shall be held in trust by the Fiscal Agent for
the benefit of the Owners of the Bonds, shall be disbursed for the payment of the principal of,
and interest and any premium on, the Bonds as provided below, and, pending such disbursement,
shall be subject to a lien in favor of the Owners of the Bonds.
(B) Disbursements. From funds transferred by the Finance Director from the
Special Tax Fund on or before each Interest Payment Date, the Fiscal Agent shall deposit into
the following respective accounts in the Bond Fund, the following amounts in the following
order of priority, the requirements of each such account (including the making up of any
deficiencies in any such account resulting from lack of Special Tax Revenues sufficient to makeL
any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to
any account subsequent in priority:
(1) Interest Account. On or before each Interest Payment Date, the Fiscal
Agent shall deposit in the Interest Account an amount required to cause the aggregate amount on
deposit in the Interest Account to equal the amount of interest becoming due and payable on the
Bonds on such date (taking into account any expected transfers from the Improvement Fund, the
Reserve Fund and the Capitalized Interest Sub- account for any such date). No deposit need be
made into the Interest Account on any Interest Payment Date if the amount on deposit therein is
at least equal to the interest becoming due and payable on the Bonds on such date. All moneys
in the Interest Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of
paying the interest on the Bonds as it shall become due and payable (including accrued interest
on any Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on the
first day of any Bond Year, to the extent not required to pay any interest then having become due
and payable on the Outstanding Bonds, shall be withdrawn therefrom by the Fiscal Agent and
transferred to the Finance Director for deposit to the Special Tax Fund.
(a) Capitalized Interest Sub-account. On or before the Interest Payment Dates
which occur between the Closing Date and September 1, 2008, the Fiscal Agent
shall withdraw from the Capitalized Interest Sub-account and transfer to the
Interest Account the amount which is necessary to cause the amount on deposit in
the Interest Account to be equal to the amount of Debt Service which is due and
payable on the Outstanding Bonds on such Interest Payment Date. The amount, if
any, on deposit in the Capitalized Interest Sub-account on September 2, 2008
shall be withdrawn by the Fiscal Agent and transferred to the Special Tax Fund
and the Capitalized Interest Sub-account shall be closed.
39
SDPUB\WDIVEN\356989.5
1/9/08
(2) Principal Account. On or before each Interest Payment Date, the Fiscal
Agent shall deposit in the Principal Account an amount required to cause the aggregate amount
on deposit in the Principal Account to equal the principal amount of the Bonds becoming due
and payable on such date pursuant to Section 2.02 hereof, or the redemption price of the Bonds
(consisting of the principal amount thereof and any applicable redemption premium) required to
be redeemed on such date pursuant to any of the provisions of Section 2.03 hereof. All moneys
in the Principal Account shall be used and withdrawn by the Fiscal Agent solely for the purpose
of (i) paying the principal of the Bonds at the maturity thereof, or (ii) paying the principal of and
premium (if any) on any Bonds upon the redemption thereof pursuant to Section 2.03 hereof. All
amounts on deposit in the Principal Account on the first day of any Bond Year, to the extent not
required to pay the principal of any Outstanding Bonds then having become due and payable,
shall be withdrawn therefrom and transferred to the Finance Director for deposit to the Special
Tax Fund.
In the event that moneys on deposit in the Special Tax Fund will be insufficient
on any Interest Payment Date for the Fiscal Agent to deposit the required amounts in the Interest
Account and the Principal Account of the Bond Fund as provided above, the Fiscal Agent shall
deposit the available funds first to the Interest Account up to the full amount required to cause
the aggregate amount on deposit therein to equal the amount of interest becoming due and
payable on the Bonds on the Interest Payment Date, and shall then deposit the remaining
available funds in the Special Tax Fund to the Principal Account up to the-full amount^equired-
to cause the aggregate amount on deposit therein to equal the amount, if any, of principal
becoming due and payable on the Bonds on the Interest Payment Date. If, after making such
deposits to the Interest Account and the Principal Account, and after transferring moneys from
the Reserve Fund to such accounts, as provided in Section 4.03(B) hereof, the amount on deposit
in the Principal Account is insufficient to pay the full amount of the principal of each of the
Bonds which is to be redeemed on the Interest Payment Date, the Fiscal Agent shall make a
prorated payment of the principal of each of such Bonds as specified in an Officer's Certificate
provided to the Fiscal Agent.
(C) Special Tax Prepayments Account Deposits and Disbursements. Not later
than the January 15 or July 15 immediately following receipt of a Special Tax Prepayment the
City shall deliver the amount thereof to the Fiscal Agent, together with an Officer's Certificate
notifying the Fiscal Agent that the amount being delivered is a Special Tax Prepayment which is
to be deposited in the Special Tax Prepayments Account. Upon receiving a Special Tax
Prepayment from the City and such an Officer's Certificate, the Fiscal Agent shall deposit the
amount of the Special Tax Prepayment in the Special Tax Prepayments Account. Such an
Officer's Certificate may be combined with the Officer's Certificate which the City is required to
deliver to the Fiscal Agent pursuant to Section 4.03(F) hereof. Moneys on deposit in the Special
Tax Prepayments Account shall be transferred by the Fiscal Agent to the Principal Account on
the next date for which notice of the redemption of the Bonds can timely be given under Section
2.03(E) hereof and shall be used to redeem the Bonds on the redemption date selected in
accordance with Section 2.03(A) hereof. Pending such transfer, the moneys on deposit in the
Special Tax Prepayments Account shall be invested by the Fiscal Agent as directed pursuant to
an Officer's Certificate in Defeasance Obligations at such yield as Bond Counsel may determine
is necessary to preserve the exclusion of interest on the Bonds from gross income for purposes of
federal income taxation.
40
SDPUBYWDIVEN\356989.5
1/9/08
(D) Investment. Moneys in the Bond Fund, including all accounts therein,
shall be invested and deposited in accordance with Section 6.01 hereof. Investment Earnings
shall be retained in the Bond Fund, except to the extent they are required to be deposited by the
Fiscal Agent in the Rebate Fund in accordance with Section 6.02 hereof.
Section 4.03 Reserve Fund.
(A) Establishment of Reserve Fund. There is hereby established, as a separate
account to be held by the Fiscal Agent, the "City of Carlsbad Community Facilities District No.
3, 2008 Special Tax Bonds (Improvement Area 2), Reserve Fund" to the credit of which a
deposit shall be made as required by paragraph (A) of Section 3.02 hereof, which deposit is equal
to the Reserve Requirement and to which deposits shall be made as provided in Section 3.04(B)
and 3.07(B)(ii) hereof. Moneys in the Reserve Fund shall be held in trust by the Fiscal Agent for
the benefit of the Owners of the Bonds as a reserve for the payment of the principal of and
interest and any premium on the Bonds and shall be subject to a lien in favor of the Owners of
the Bonds.
(B) Use of Fund. Except as otherwise provided in this Section, (i) all amounts
on deposit in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the
purpose of making transfers to the Interest Account and the Principal Account of the Bond Fund
in the event of any deficiency at any time in either of such accounts of the amount then required
for payment of the principal of and interest and any premium on the Bonds or, in accordance
with the provisions of subsection (E) of this Section 4.03, for the purpose of redeeming Bonds.
(C) Transfer Due to Deficiency in Interest and Principal Accounts. Whenever
transfer is made from the Reserve Fund to the Interest Account or the Principal Account due to a
deficiency in either such account, the Fiscal Agent shall provide written notice thereof to the
City.
(D) Transfer of Excess of Reserve Requirement. Whenever, on any
September 2, the amount in the Reserve Fund, less Investment Earnings resulting from the
investment of the funds therein which pursuant to Section 6.02 hereof must be rebated to the
United States, exceeds the Reserve Requirement, the Fiscal Agent shall, subject to the
requirements of Section 6.02 hereof, transfer an amount from the Reserve Fund which will
reduce the amount on deposit therein to an amount equal to the Reserve Requirement to the
Interest Account and the Principal Account, in the priority specified in Section 4.02(B) hereof, to
be used for the payment of the interest on and principal of the Bonds on the next succeeding
Interest Payment Date in accordance with Section 4.02 hereof.
(E) Transfer When Balance Exceeds Outstanding Bonds. Whenever the
balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding
Bonds, including interest accrued to the date of payment or redemption and premium, if any, due
upon redemption, the Fiscal Agent shall, upon receiving written direction from an Authorized
Officer, transfer the amount in the Reserve Fund to the Interest Account and the Principal
Account, in the priority specified in Section 4.02(B) hereof, to be applied, on the next succeeding
Interest Payment Date, to the payment and redemption, in accordance with Section 2.03 and
Section 4.02 hereof of all of the Outstanding Bonds. In the event that the amount available to be
41
SDPUB\WDIVEN\356989.5
1/9/08
so transferred from the Reserve Fund to the Interest Account and the Principal Account exceeds
the amount required to pay and redeem the Outstanding Bonds, the excess after the payment of
all outstanding fees and expenses of the Fiscal Agent shall be transferred to the City to be used
for any lawful purpose of the City.
(F) Transfer Upon Special Tax Prepayment. Whenever Special Taxes are
prepaid and Bonds are to be redeemed with the proceeds of such prepayment pursuant to Section
2.03(A), a proportionate amount in the Reserve Fund as specified in an Officer's Certificate
provided to the Fiscal Agent (determined on the basis of principal amount of Bonds which will
remain outstanding) shall be transferred on the Business Day prior to the redemption date by the
Fiscal Agent to the Bond Fund to be applied to the redemption of the Bonds pursuant to Section
2.03(A).
(G) Investment. Moneys on deposit in the Reserve Fund shall be invested in
Permitted Investments which do not have maturities extending beyond five (5) years; provided,
however, if the Reserve Fund is invested in an investment agreement (as defined in clause (vii)
of the definition of Permitted Investments in Section 1.03 hereof) or a repurchase agreement (as
defined in clause (xi) of such definition) such agreement may have a maturity longer than five
(5) years if the Fiscal Agent is authorized by the provisions of such agreement to draw the full
amount thereof, without penalty, if required for the purposes of the Reserve Fund. The City shall
cause the Permitted Investments, other than such investment agreements, in which moneys OI
deposit in the Reserve Fund are invested to be valued at fair market value and marked-to-market
at least once in each Fiscal Year.
ARTICLE V
OTHER COVENANTS OF THE CITY
Section 5.01 Punctual Payment. The City will punctually pay or cause to be
paid the principal of and interest and any premium on the Bonds when and as due in strict
conformity with the terms of this Agreement and any Supplemental Agreement to the extent that
the Special Tax Revenues are available therefor, and it will faithfully observe and perform all of
the conditions, covenants and requirements of this Agreement and all Supplemental Agreements
and of the Bonds.
Section 5.02 Special Obligation. The Bonds are special obligations of the City
and the Community Facilities District and are payable solely from and secured solely by the
Special Tax Revenues and the amounts in the Bond Fund, the Reserve Fund and the Special Tax
Fund.
Section 5.03 Extension of Time for Payment. In order to prevent any
accumulation of claims for interest after maturity, the City shall not, directly or indirectly, extend
or consent to the extension of the time for the payment of any claim for interest on any of the
Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by
purchasing or funding said claims for interest or in any other manner. In case any such claim for
interest shall be extended or funded, whether or not with the consent of the City, such claim for
interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits
42
SDPUB\WD1VEN\356989.5
1/9/08
of this Agreement, except subject to the prior payment in full of the principal of all of the Bonds
then Outstanding and of all claims for interest which shall not have been so extended or funded.
Section 5.04 Against Encumbrances. The City shall not encumber, pledge or
place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the
Bonds superior to or on a parity with the pledge and lien herein created for the benefit of the
Bonds, except as permitted by this Agreement.
Section 5.05 Books and Accounts. The City shall keep, or cause to be kept,
proper books of record and accounts, separate from all other records and accounts of the City, in
which complete and correct entries shall be made of all transactions relating to the expenditure of
amounts disbursed from the Special Tax Fund, the Improvement Fund and/or the Administrative
Expense Fund. Such books of record and accounts shall at all times during business hours, upon
reasonable notice, be subject to the inspection of the Owners of not less than ten percent (10%)
of the aggregate principal amount of the Bonds then Outstanding, or their representatives duly
authorized in writing.
The Fiscal Agent shall keep proper books of record and accounts, separate from
all other records and accounts of the Fiscal Agent, in which complete and correct entries shall be
made of all transactions relating to the expenditure of amounts disbursed from the Costs of
Issuance Fund, the Bond Fund, the Reserve Fund and/or the Rebate Fund. Such books of record
and accounts shall at all times during business hours, upon reasonable notice, be subject to the
inspection of the Owners of not less than ten percent (10%) of the aggregate principal amount of
the Bonds then Outstanding, or their representatives duly authorized in writing.
Section 5.06 Protection of Security and Rights of Owners. The City will
preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and
defend their rights against all claims and demands of all persons. From and after the delivery of
any of the Bonds by the City, the Bonds shall be incontestable by the City.
Section 5.07 Collection of Special Tax Revenues. The City shall comply with
all requirements of the Act, including the enactment of necessary Ordinances, so as to assure the
timely collection of Special Tax Revenues, including without limitation, the enforcement of the
payment or collection of delinquent Special Taxes.
On or within five (5) business days of May 1 of each year the Fiscal Agent shall
provide an Authorized Officer with a notice stating the amount then on deposit in the Bond Fund
and the Reserve Fund, and informing the City that the Special Taxes may need to be levied
pursuant to the Ordinance as necessary to provide for Annual Debt Service and replenishment (if
necessary) of the Reserve Fund so that the balance therein is equal to the Reserve Requirement.
The receipt of or failure to receive such notice by the Authorized Officer shall in no way affect
the obligations of the Treasurer under the following two paragraphs, and the Fiscal Agent shall
not be responsible for any inability or failure to provide such notice.
The City shall effect the levy of the Special Taxes each Fiscal Year in accordance
with the Act by August 1 of each year (or such later date as may be authorized by the Act or any
amendment thereof) that the Bonds are Outstanding, such that the computation of the levy and
43
SDPUB\WDIVEN\356989.5
1/9/08
transmission of the amounts to the Auditor is complete before the final date on which the Auditor
will accept the transmission of the Special Tax amounts for the parcels within Improvement Area
2 of the District. Notwithstanding the preceding provisions of this paragraph, the City Council
may elect, as permitted by the Act, to collect the Special Taxes to be levied for any Fiscal Year
directly from the owners or lessees of the parcels of taxable property, upon which the Special
Taxes are levied rather than by transmitting the Special Taxes to the Auditor for collection on the
tax roll; provided that, in such event, the City shall otherwise comply with the provisions of this
Section 5.07.
An Authorized Officer of the City shall fix and levy the amount of Special Taxes
within Improvement Area 2 of the District required for the payment of principal and of interest
on any outstanding Bonds becoming due and payable during the ensuing calendar year, including
any necessary replenishment or expenditure of the Reserve Fund and an amount estimated to be
sufficient to pay the Administrative Expenses (including amounts necessary to discharge any
obligation under Section 6.02) during such year, taking into account the balances in such
accounts, any transfer or expected transfer from the Reserve Fund to the Bond Fund pursuant to
Section 4.03, and any balance or expected balance in the Special Tax Fund available for such
purpose. The Special Taxes so levied shall not exceed the authorized amounts as provided in the
proceedings pursuant to the Resolution of Formation.
The Special Taxes shall have the same priority and bear the same proportionate
penalties and interest after delinquency as do the ad valorem taxes on interests in real property.
The City will not, in collecting the Special Taxes or in processing any such
judicial foreclosure proceedings, exercise any authority which it has pursuant to Sections 53340,
53344.1, 53344.2, 53356.1 and 53356.5 of the California Government Code in any manner
which would materially and adversely affect the interests of the Bondowners and, in particular,
will not permit the tender of Bonds in full or partial payment of any Special Taxes except upon
receipt of a certificate of an Independent Financial Consultant that to accept such tender will not
result in the City having insufficient Special Tax Revenues to pay the principal of and interest on
the Bonds Outstanding following such tender.
Section 5.08 Levy of Special Taxes for Administrative Expenses. The City
covenants that, to the extent that it is legally permitted to do so, (a) it will levy the Special Taxes
for the payment of the Administrative Expenses which are expected to be incurred in each Fiscal
Year, and (b) it will not initiate, consent to or conduct proceedings under the Act to reduce the
Maximum Special Tax rates (the "Maximum Rates") on then existing property subject to Special
Taxes below the amounts which are necessary to provide Special Tax Revenues in any Fiscal
Year in an amount equal to one hundred ten percent (110%) of Maximum Annual Debt Service
on the Outstanding Bonds plus a reasonable estimate of Administrative Expenses for such Fiscal
Year.
The City further covenants that in the event an ordinance is adopted by initiative
pursuant to Section 3 of Article XIII C of the California Constitution, which purports to reduce
or otherwise alter the Maximum Rates, it will commence and pursue legal action seeking to
preserve its ability to comply with its covenant contained in the preceding paragraph.
44
SDPUB\WDrVEN\356989.5
1/9/08
Section 5.09 Further Assurances. The City will adopt, make, execute and
deliver any and all such further ordinances, resolutions, instruments and assurances as may be
reasonably necessary or proper to carry out the intention or to facilitate the performance of this
Agreement, and for better assuring and confirming unto the Owners of the Bonds of the rights
and benefits provided in this Agreement.
Section 5.10 Tax Covenants. The City covenants that:
(A) It will not take any action or omit to take any action, which action or
omission, if reasonably expected on the date of the initial issuance and delivery of the Bonds,
would have caused any of the Bonds to be "arbitrage bonds" within the meaning of Section
103(b) and Section 148 of the Code;
(B) It will not take any action or omit to take any action, which action or
omission, if reasonably expected on the date of initial issuance and delivery of the Bonds, would
result in loss of exclusion from gross income for purposes of federal income taxation under
Section 103(a) of the Code of interest paid with respect to the Bonds;
(C) It will not take any action or omit to take any action, which action or
omission, if reasonably expected on the date of initial issuance and delivery of the Bonds, would
have caused any of the Bonds to be "private activity bonds" within the meaning of Section 141
of the Code;
(D) It will comply with the Tax Certificate as a source of guidance for
achieving compliance with the Code; and
(E) In order to maintain the exclusion from gross income for purposes of
federal income taxation of interest paid with respect to the Bonds, it will comply with each
applicable requirement of Section 103 and Sections 141 through 150 of the Code.
The covenants of the City contained in this Section 5.10 shall survive the
payment, redemption or defeasance of Bonds pursuant to Section 9.03 hereof.
Section 5.11 Covenant to Foreclose. Pursuant to Section 53356.1 of the Act, the
City hereby covenants with and for the benefit of the owners of the Bonds that it will order, and
cause to be commenced as hereinafter provided, and thereafter diligently prosecute to judgment
(unless other delinquency is brought current), an action in the superior court to foreclose the lien
of any Special Tax or installment thereof not paid when due as provided in the following
paragraph. An Authorized Officer shall notify the counsel to the City of any such delinquency of
which it is aware, and the Counsel to the City shall commence, or cause to be commenced, such
proceedings.
The City hereby covenants with and for the benefit of the Owners of the Bonds
that it will order, and cause to be commenced, judicial foreclosure proceedings against property
or properties under common ownership with cumulative aggregate delinquent Special Taxes in
excess of $10,000 by the October 1 following the close of the Fiscal Year in which such
delinquent Special Taxes first exceed such amount, and will commence judicial foreclosure
proceedings against all properties with delinquent Special Taxes by the October 1 following the
45
SDPUB\WDIVEN\356989.5
1/9/08
close of each Fiscal Year in which it receives Special Tax Revenues in an amount which is less
than ninety-five percent (95%) of the total Special Tax Revenues which were to be received in
such Fiscal Year and diligently pursue to completion such foreclosure proceedings.
Section 5.12 Prepayment of Special Taxes. The City shall cause all applications
of owners of property in Improvement Area 2 to prepay and satisfy the Special Tax obligation
for their property to be reviewed by an Independent Financial Consultant and shall not accept
any such prepayment unless such consultant certifies in writing that following the acceptance of
the proposed prepayment by the City and the redemption of Bonds with such prepayment, the
ratio of (i) the maximum amount of the Special Taxes that may be levied in Improvement Area 2
following such prepayment to (ii) Maximum Annual Debt Service on the Bonds which will
remain Outstanding following such redemption (e.g., 1.15 to 1.0) will not be less than such ratio
as it existed prior to such prepayment.
Section 5.13 Calculation of Prepayments. The City will not include in any
calculation of the amount necessary to prepay and permanently satisfy the Special Tax obligation
of any parcel of taxable property in Improvement Area 2 a proportionate amount of the amount
then on deposit in the Reserve Fund, if at the time of such calculation the amount on deposit in
the Reserve Fund is less than the Reserve Requirement; provided, however, that in such event
the City may pay to the owner of any such property who prepays and permanently satisfies the
Special Tax obligation for his or her property, under: such circumstances,^siiclLa proportionate^
amount if the amount on deposit in the Reserve Fund is thereafter increased to the Reserve
Requirement.
Section 5.14 Continuing Disclosure and Filing of Reports. The City and the
Dissemination Agent hereby covenant and agree that they will comply with and carry out all of
the provisions of the Continuing Disclosure Agreement which are specifically applicable to each
of them. The City further agrees to comply with and file those reports required under
Sections 50075.1, 50075.3, 53359.5(b), 53410(d), and 53411 of the California Government Code
not later than January 31 of each year commencing January 31, 2007.
ARTICLE VI
INVESTMENTS; DISPOSITION OF INVESTMENT PROCEEDS;
LIABILITY OF THE CITY
Section 6.01 Deposit and Investment of Moneys in Funds. Subject in all
respects to the provisions of Section 6.02 hereof, moneys in any fund or account created or
established by this Agreement and held by the Fiscal Agent or the Finance Director shall be
invested by the Fiscal Agent or Finance Director, as applicable, in Permitted Investments.
Moneys in any fund or account held by the Fiscal Agent shall be invested as
directed pursuant to an Officer's Certificate filed with the Fiscal Agent at least two (2) Business
Days in advance of the making of such investments. In the absence of any such Officer's
Certificate, the Fiscal Agent shall invest any such moneys in Permitted Investments described in
clause (iv) of the definition of Permitted Investments in Section 1.03 hereof. The Fiscal Agent
shall not have any responsibility for determining the legality of any Permitted Investments. The
Fiscal Agent shall have no obligation to pay additional interest or maximize investment income
46
SDPUB\WDIVEN\356989.5
1/9/08
on any funds held by it. Neither the City nor the Owners of the Bonds shall have any claim of
any kind against the Fiscal Agent in connection with investments properly made pursuant to this
Section 6.01. The Fiscal Agent and its affiliates may act as sponsor, advisor, depository,
principal or agent in the holding, acquisition or disposition of any investment. The Fiscal Agent
shall not incur any liability for losses arising from any investments made pursuant to this Section
6.01.
Obligations purchased as an investment of moneys in any fund or account shall be
deemed to be part of such fund or account, subject, however, to the requirements of this
Agreement for transfer of Investment Earnings in funds and accounts.
For purposes of determining the amount on deposit in any fund or account held
hereunder, all Permitted Investments or investments credited to such fund or account shall be
valued at the cost thereof (excluding accrued interest and brokerage commissions, if any).
Subject in all respects to the provisions of Section 6.02 hereof, investments in any
and all funds and accounts held by the Fiscal Agent hereunder may be commingled in a single
fund for purposes of making, holding and disposing of investments, notwithstanding provisions
herein for transfer to or holding in or to the credit of particular funds or accounts of amounts
received or held by the Fiscal Agent hereunder, provided that the Fiscal Agent shall at all times
account for such investments strictly in accordance with the funds and accounts to which they
are credited and otherwise as provided in this Agreement.
The Fiscal Agent shall sell, or present for redemption, any investment security
whenever it shall be necessary to provide moneys to meet any required payment, transfer,
withdrawal or disbursement from the fund or account to which such investment security is
credited, and the Fiscal Agent shall not be liable or responsible for any loss resulting from the
acquisition or disposition of any such investment security in accordance herewith.
Subject in all respects to the provisions of Section 6.02 hereof, investments in any
and all funds and accounts held by the Finance Director hereunder may be commingled in a
single fund for purposes of making, holding and disposing of investments, notwithstanding
provisions herein for transfer to or holding in or to the credit of particular funds or accounts of
amounts received or held by the Finance Director hereunder, provided that the Finance Director
shall at all times account for such investments strictly in accordance with the funds and accounts
to which they are credited and otherwise as provided in this Agreement.
The City acknowledges that to the extent regulations of the Comptroller of the
Currency or other applicable regulatory entity grant the City or the Community Facilities District
the right to receive brokerage confirmations of securities transactions as they occur, the City for
itself and the Community Facilities District specifically waives receipt of such confirmations to
the extent permitted by law. The Fiscal Agent shall furnish the City periodic cash transaction
statements which include detail for all investment transactions made by the Fiscal Agent
hereunder.
Moneys credited to any fund or account held by the Fiscal Agent under this
Agreement which are uninvested pending disbursement or receipt of proper investment
47
SDPUB\WDIVEN\356989.5
1/9/08
directions or as directed herein, may be deposited to and held in a non-interest bearing demand
deposit account established with the commercial banking department of the Fiscal Agent or any
bank affiliated with the Fiscal Agent.
The Fiscal Agent may make any investments hereunder through its own bond or
investment department or trust investment department, or those of its parent or any affiliate.
Section 6.02 Rebate Fund; Rebate to the United States. There is hereby created,
to be held by the Finance Director, as a separate account distinct from all other funds and
accounts held by the Fiscal Agent under this Agreement, the "City of Carlsbad Community
Facilities District No. 3 2008 Special Tax Bonds (Improvement Area 2) Rebate Fund." The
Finance Director shall deposit into the Rebate Fund moneys transferred by the City pursuant to
the Tax Certificate or moneys transferred by the Fiscal Agent from the Reserve Fund pursuant to
Section 4.03(D). The Rebate Fund shall be held either uninvested or invested only in Federal
Securities. Moneys on deposit in the Rebate Fund shall be applied only to payments made to the
United States, to the extent such payments are required by the Tax Certificate.
The Finance Director shall transfer any moneys on deposit in the Rebate Fund in
excess of the amount, if any, required to be maintained or held therein in accordance with the
Tax Certificate.
Section 6.03 Liability of City. The City shall not incur any responsibility in
respect of the Bonds or this Agreement other than in connection with the duties or obligations
explicitly herein or in the Bonds assigned to or imposed upon it. The City shall not be liable in
connection with the performance of its duties hereunder, except for its own negligence or willful
default. The City shall not be bound to ascertain or inquire as to the performance or observance
of any of the terms, conditions, covenants or agreements of the Fiscal Agent herein or of any of
the documents executed by the Fiscal Agent in connection with the Bonds.
In the absence of bad faith, the City may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon certificates or opinions
furnished to the City and conforming to the requirements of this Agreement. The City shall not
be liable for any error of judgment made in good faith unless it shall be proved that it was
negligent in ascertaining the pertinent facts.
No provision of this Agreement shall require the City to expend or risk its own
general funds or otherwise incur any financial liability (other than with respect to the Special Tax
Revenues) in the performance of any of its obligations hereunder, or in the exercise of and of its
rights or powers, if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured to it.
The City may rely and shall be protected in acting or refraining from acting upon
any notice, resolution, request, consent, order, certificate, report, warrant, Bond or other paper or
document believed by it to be genuine and to have been signed or presented by the proper party
or proper parties. The City may consult with counsel, who may be counsel to the City, with
regard to legal questions, and the opinion of such counsel shall be full and complete
48
SDPUB\WDIVEN\356989.5
1/9/08
authorization and protection in respect of any action taken or suffered by it hereunder in good
faith and in accordance therewith.
Whenever in the administration of its duties under this Agreement the City shall
deem it necessary or desirable that a matter be proved or established prior to taking or suffering
any action hereunder, such matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of willful misconduct on the part of the City, be deemed to be
conclusively proved and established by a certificate of the Fiscal Agent, and such certificate shall
be full warranty to the City for any action taken or suffered under the provisions of this
Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the City
may, in lieu thereof, accept other evidence of such matter or may require such additional
evidence as to it may seem reasonable.
Section 6.04 Employment of Agents by City. In order to perform its duties and
obligations hereunder, the City may employ such persons or entities as it deems necessary or
advisable. The City shall not be liable for any of the acts or omissions of such persons or entities
employed by it in good faith hereunder, and shall be entitled to rely, and shall be fully protected
in doing so, upon the opinions, calculations, determinations and directions of such persons or
entities.
ARTICLE VI!
THE FISCAL AGENT
Section 7.01 Appointment of Fiscal Agent. The Bank of New York Trust
Company, N.A. is hereby appointed Fiscal Agent, registrar and paying agent for the Bonds. The
Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set
forth in this Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Fiscal Agent.
Any company into which the Fiscal Agent may be merged or converted or with
which it may be consolidated or any company resulting from any merger, conversion or
consolidation to which it shall be a party or any company to which the Fiscal Agent may sell or
transfer all or substantially all of its corporate trust business, provided such company shall be
eligible under the following paragraph of this Section 7.01, shall be the successor to the Fiscal
Agent without the execution or filing of any paper or any further act, anything herein to the
contrary notwithstanding.
The City may remove the Fiscal Agent initially appointed, and any successor
thereto, and may appoint a successor or successors thereto, but any such successor shall be a
bank, national banking association or trust company having a combined capital (exclusive of
borrowed capital) and surplus of at least $50,000,000, and subject to supervision or examination
by federal or state authority. If such bank, national banking association or trust company
publishes a report of condition at least annually, pursuant to law or to the requirements of any
supervising or examining authority above referred to, then for the purposes of this Section 7.01,
combined capital and surplus of such bank, national banking association or trust company shall
be deemed to be its combined capital and surplus as set forth in its most recent report of
condition so published.
49
SDPUB\WDIVEN\356989.5
1/9/08
The Fiscal Agent may at any time resign by giving written notice to the City and
by giving to the Owners notice by mail of such resignation. Upon receiving notice of such
resignation, the City shall promptly appoint a successor Fiscal Agent by an instrument in writing.
Any resignation or removal of the Fiscal Agent shall become effective upon acceptance of
appointment by the successor Fiscal Agent.
If no appointment of a successor Fiscal Agent shall be made pursuant to the
foregoing provisions of this Section 7.01 within forty-five (45) days after the Fiscal Agent shall
have given to the City written notice or after a vacancy in the office of the Fiscal Agent shall
have occurred by reason of its inability to act, the Fiscal Agent, at the expense of the City, or any
Owner may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent.
Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a
successor Fiscal Agent.
Section 7.02 Liability of Fiscal Agent. The recitals of facts, covenants and
agreements herein and in the Bonds contained shall be taken as statements, covenants and
agreements of the City and the Community Facilities District, and the Fiscal Agent assumes no
responsibility for the correctness of the same, nor makes any representations as to the validity or
sufficiency of this Agreement or of the Bonds, nor shall the Fiscal Agent incur any responsibility
in respect thereof, other than in connection with the duties or obligations herein or in the Bonds
assigned to or imposed upon Jt The Fiscal Agent shall not be liable in connection^ with the
performance of its duties hereunder, except for its own negligence or wilful misconduct. The
Fiscal Agent assumes no responsibility or liability for any information, statement or recital in
any offering memorandum or other disclosure material prepared or distributed with respect to the
issuance of the Bonds.
In the absence of bad faith, the Fiscal Agent may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Fiscal Agent and conforming to the requirements of this Agreement.
Except as provided above in this paragraph, the Fiscal Agent shall be protected and shall incur
no liability in acting or proceeding, or in not acting or not proceeding, in good faith, reasonably
and in accordance with the terms of this Agreement, upon any resolution, order, notice, request,
consent or waiver, certificate, statement, affidavit, or other paper or document which it shall in
good faith reasonably believe to be genuine and to have been adopted or signed by the proper
person or to have been prepared and furnished pursuant to any provision of this Agreement, and
the Fiscal Agent shall not be under any duty to make any investigation or inquiry as to any
statements contained or matters referred to in any such instrument.
The Fiscal Agent shall not be liable for any error of judgment made in good faith
by the Fiscal Agent unless it shall be proved that the Fiscal Agent was negligent in ascertaining
the pertinent facts.
No provision of this Agreement shall require the Fiscal Agent to expend or risk its
own funds or otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers.
50
SDPUB\WDIVEN\356989.5
1/9/08
The Fiscal Agent shall not be responsible for accounting for, or paying to, any
party to this Agreement, including, but not limited to the City and the Owners, any returns on or
benefit from funds held for payment of unredeemed Bonds or outstanding checks and no
calculation of the same shall affect, or result in any offset against, fees due to the Fiscal Agent
under this Agreement.
The Fiscal Agent shall be under no obligation to exercise any of the rights or
powers vested in it by this Agreement at the request or direction of any of the Owners pursuant
to this Agreement unless such Owners shall have offered to the Fiscal Agent reasonable security
or indemnity against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction.
The Fiscal Agent may become the owner of the Bonds with the same rights it
would have if it were not the Fiscal Agent.
All indemnification and releases from liability granted herein to the Fiscal Agent
shall extend to the directors, officers and employees of the Fiscal Agent.
The Fiscal Agent agrees to accept and act upon instructions or directions pursuant
to this Agreement sent by unsecured facsimile transmission, provided, however, that, the Fiscal
Agent shall have received an incumbency certificate listing persons designated to give such
instructions or directions and containing specimen signatures of such designated persons, which
such incumbency certificate shall be amended and replaced whenever a person is to be added or
deleted from the listing. If the City elects to give the Fiscal Agent facsimile instructions and the
Fiscal Agent in its discretion elects to act upon such instructions, the Fiscal Agent's
understanding of such instructions shall be deemed controlling. The Fiscal Agent shall not be
liable for any losses, costs, or expenses arising directly or indirectly from the Fiscal Agent's
reliance upon and compliance with such instructions notwithstanding such instructions conflict
or are inconsistent with a subsequent written instruction. The City agrees to assume all risks
arising out of the use of facsimile transmission to submit instructions and directions to the Fiscal
Agent, including without limitation the risk of the Fiscal Agent acting on unauthorized
instructions, and the risk of interception and misuse by third parties.
The Fiscal Agent shall not be considered in breach of or in default in its
obligations hereunder or progress in respect thereto in the event of enforced delay ("unavoidable
delay") in the performance of such obligations due to unforeseeable causes beyond its control
and without its fault or negligence, including, but not limited to, Acts of God or of the public
enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics,
quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot,
inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of
energy, material or supplies in the open market, litigation or arbitration involving a party or
others relating to zoning or other governmental action or inaction pertaining to the project,
malicious mischief, condemnation, and unusually severe weather or delays of suppliers or
subcontractors due to such causes or any similar event and/or occurrences beyond the control of
the Fiscal Agent.
51
SDPUB\WDIVEN\356989.5
1/9/08
Section 7.03 Information. The Fiscal Agent shall provide to the City such
information relating to the Bonds and the funds and accounts maintained by the Fiscal Agent
hereunder as the City shall reasonably request, including, but not limited to, quarterly statements
reporting funds held and transactions by the Fiscal Agent.
Section 7.04 Notice to Fiscal Agent. The Fiscal Agent may rely and shall be
protected in acting or refraining from acting upon any notice, resolution, request, consent, order,
certificate, report, warrant, Bond or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or proper parties. The Fiscal Agent may
consult with counsel, who may be counsel to the City, with regard to legal questions, and the
advice or opinion of such counsel shall be full and complete authorization and protection in
respect of any action taken or suffered by the Fiscal Agent hereunder in good faith and in
accordance therewith.
Whenever in the administration of its duties under this Agreement the Fiscal
Agent shall deem it necessary or desirable that a matter be proved or established prior to taking
or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of willful misconduct on the part of the Fiscal
Agent, be deemed to be conclusively proved and established by a certificate of the City, and such
certificate shall be full warranty to the Fiscal Agent for any action taken or suffered under the
provisions of 4his Agreement or any Supplemental Agreement upon the faith thereof, but in its
discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may
require such additional evidence as to it may seem reasonable.
Section 7.05 Compensation and Indemnification. The City shall pay to the
Fiscal Agent from time to time reasonable compensation for all services rendered as Fiscal Agent
under this Agreement, and also all reasonable expenses, charges, fees and other disbursements,
including those of its attorneys, agents and employees, incurred in and about the performance of
its powers and duties under this Agreement, and the Fiscal Agent shall have a first priority lien
therefor on any funds at any time held by it in the Administrative Expense Fund, and the Fiscal
Agent shall pay and reimburse all expenses, charges, fees and other disbursements, including
those of its attorneys, agents and employees, incurred in connection therewith from the funds
held by it in the Administrative Expense Fund.
The City shall indemnify and save the Fiscal Agent, its officers, employees,
directors and Agents harmless from and against all claims, losses, costs, expenses, liability and
damages, including legal fees and expenses, arising out of the Fiscal Agent's exercise or
performance of any of the Fiscal Agents' powers and duties under this Agreement; provided, that
the City shall not be liable for actions caused by the Fiscal Agents' own negligence or willful
misconduct. The Fiscal Agent's right to compensation and indemnification shall survive the
defeasance of the Bonds and the resignation or removal of the Fiscal Agent.
Section 7.06 Books and Accounts. The Fiscal Agent shall keep, or cause to be
kept, proper books of record and accounts, separate from all other records and accounts of the
Fiscal Agent, in which complete and correct entries shall be made of all transactions made by it
to the expenditure of amounts disbursed from the Bond Fund, the Special Tax Fund, the Reserve
Fund and the Costs of Issuance Fund. Such books of record and accounts shall, upon reasonable
52
SDPUB\WDIVEN\356989.5
1/9/08
notice, at all times during business hours be subject to the inspection of the City and the Owners
of not less than ten percent (10%) of the aggregate principal amount of the Bonds then
Outstanding, or their representatives duly authorized in writing.
ARTICLE VIII
MODIFICATION OR AMENDMENT OF THIS AGREEMENT
Section 8.01 Amendments Permitted.
(A) This Agreement and the rights and obligations of the Community
Facilities District and the City and of the Owners of the Bonds may be modified or amended at
any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of the
Owners, or with the written consent, without a meeting, of the Owners of at least sixty
percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds
disqualified as provided in Section 8.04 hereof. No such modification or amendment shall
(i) extend the maturity of any Bond or the time for paying interest thereon, or otherwise alter or
impair the obligation of the City on behalf of the Community Facilities District to pay the
principal of, and the interest and any premium on, any Bond, without the express consent of the
Owner of such Bond, or (ii) permit the creation of any pledge of or lien upon the Special Tax
Revenues, or the moneys on deposit in the Bond Fund, the Reserve Fund, or the Special Tax
Fund, superior to or on a parity jwith the pledge and Hen created for the benefit of the Bonds
(except as otherwise permitted by the Act, the laws of the State of California or this Agreement),
(iii) reduce the percentage of Bonds required for the amendment hereof, or (iv) reduce the
principal amount of or redemption premium on any Bond or reduce the interest rate thereon.
Any such amendment may not modify any of the rights or obligations of the Fiscal Agent
without its written consent. The Fiscal Agent shall be furnished an opinion of counsel that any
such Supplemental Agreement entered into by the City and the Fiscal Agent complies with the
provisions of this Section 8.01 and the Fiscal Agent may conclusively rely on such opinion.
(B) This Agreement and the rights and obligations of the Community
Facilities District and the City and the Owners may also be modified or amended at any time by
a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by
law and only for any one or more of the following purposes:
(1) to add to the covenants and agreements of the City in this Agreement
contained, other covenants and agreements thereafter to be observed, or to limit or surrender any
right or power herein reserved to or conferred upon the City;
(2) to make modifications not adversely affecting any Outstanding series of
Bonds of the Community Facilities District in any material respect;
(3) to make such provisions for the purpose of curing any ambiguity, or of
curing, correcting or supplementing any defective provisions of this Agreement, or in regard to
questions arising under this Agreement, as the City and the Fiscal Agent may deem necessary or
desirable and not inconsistent with this Agreement, and which shall not adversely affect the
rights of the Owners; or
53
SDPUB\WDIVEN\356989.5
1/9/08
(4) to make such additions, deletions or modifications as may be necessary or
desirable to assure compliance with Section 148 of the Code relating to required rebate of
moneys to the United States or otherwise as may be necessary to assure exclusion from gross
income for federal income tax purposes of interest on the Bonds or to conform with the
Regulations.
Section 8.02 Owners' Meetings. The City may at any time call a meeting of the
Owners. In such event, the City is authorized to fix the time and place of any such meeting and
to provide for the giving of notice thereof and to fix and adopt rules and regulations for the
conduct of the meeting.
Section 8.03 Procedure for Amendment with Written Consent of Owners. The
City and the Fiscal Agent may at any time enter into a Supplemental Agreement amending the
provisions of the Bonds or of this Agreement or any Supplemental Agreement, to the extent that
such amendment is permitted by Section 8.01(A) hereof, to take effect when and as provided in
this Section 8.03. A copy of the Supplemental Agreement, together with a request to Owners for
their consent thereto, shall be mailed by first class mail, postage prepaid, by the Fiscal Agent to
each Owner of Bonds Outstanding, but failure to mail copies of the Supplemental Agreement
and request shall not affect the validity of the Supplemental Agreement when assented to as in
this Section provided.
Such a Supplemental Agreement shall not become effective unless there shall be
filed with the Fiscal Agent the written consents of the Owners of at least sixty percent (60%) in
aggregate principal amount of the Bonds then Outstanding (exclusive of Bonds disqualified as
provided in Section 8.04) and a notice shall have been mailed as hereinafter in this Section
provided. Each such consent shall be effective only if accompanied by proof of ownership of the
Bonds for which such consent is given, which proof shall be such as is permitted by Section 9.04
hereof. Any such consent shall be binding upon the Owner of the Bonds giving such consent and
on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless
such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by
filing such revocation with the Fiscal Agent prior to the date when the notice hereinafter in this
Section provided for has been mailed.
After the Owners of the required percentage of Bonds shall have filed their
consents to the Supplemental Agreement, the City shall mail a notice to the Owners in the
manner hereinbefore provided in this Section for the mailing of the Supplemental Agreement,
stating in substance that the Supplemental Agreement has been consented to by the Owners of
the required percentage of Bonds and will be effective as provided in this Section (but failure to
mail copies of said notice shall not affect the validity of the Supplemental Agreement or consents
thereto). Proof of the mailing of such notice shall be filed with the Fiscal Agent. A record,
consisting of the documents required by this Section 8.03 to be filed with the Fiscal Agent, shall
be proof of the matters therein stated until the contrary is proved. The Supplemental Agreement
shall become effective upon the filing with the Fiscal Agent of the proof of mailing of such
notice, and the Supplemental Agreement shall be deemed conclusively binding (except as
otherwise hereinabove specifically provided in this Article VIII) upon the City, the Community
Facilities District and the Owners of all Bonds then Outstanding at the expiration of sixty (60)
days after such filing, except in the event of a final decree of a court of competent jurisdiction
54
SDPUB\WDIVEN\356989.5
1/9/08
setting aside such consent in a legal action or equitable proceeding for such purpose commenced
within such sixty (60)-day period.
Section 8.04 Disqualified Bonds. Bonds owned or held for the account of the
City, excepting any pension or retirement fund, shall not be deemed Outstanding for the purpose
of any vote, consent or other action or any calculation of Outstanding Bonds provided for in this
Article VIII, and shall not be entitled to vote upon, consent to, or participate in any action
provided for in this Article VIII. Upon request of the Fiscal Agent, the City shall specify in a
certificate to the Fiscal Agent those Bonds disqualified pursuant to this Section and the Fiscal
Agent may conclusively rely on such certificate.
Section 8.05 Effect of Supplemental Agreement. From and after the time any
Supplemental Agreement becomes effective pursuant to this Article VIII, this Agreement shall
be deemed to be modified and amended in accordance therewith, and the respective rights, duties
and obligations under this Agreement of the City and all Owners of Bonds Outstanding shall
thereafter be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such Supplemental
Agreement shall be deemed to be part of the terms and conditions of this Agreement for any and
all purposes.
Section 8.06 Endorsement or Replacement of Bonds Issued After Amendments.
The City may determine that Bonds issued and delivered after the effective date of any action
taken as provided in this Article VIII shall bear a notation, by endorsement or otherwise, in form
approved by the City, as to such action. In that case, upon demand of the Owner of any Bond
Outstanding at such effective date and upon presentation of his Bond for that purpose at the
Principal Office of the Fiscal Agent or at such other office as the City may select and designate
for that purpose, a suitable notation shall be made on such Bond. The City may determine that
new Bonds, so modified as in the opinion of the City are necessary to conform to such action,
shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Bonds
then Outstanding, such new Bonds shall be exchanged at the Principal Office of the Fiscal Agent
without cost to any Owner, for like Bonds then Outstanding, upon surrender of such Bonds.
Section 8.07 Amendatory Endorsement of Bonds. The provisions of this
Article VIII shall not prevent any Owner from accepting any amendment as to the particular
Bonds held by him, provided that due notation thereof is made on such Bonds.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Benefits of Agreement Limited to Parties. Nothing in this
Agreement, expressed or implied, is intended to give to any person other than the City, the Fiscal
Agent and the Owners, any right, remedy or claim under or by reason of this Agreement. Any
covenants, stipulations, promises or agreements in this Agreement contained by and on behalf of
the City shall be for the sole and exclusive benefit of the Owners and the Fiscal Agent.
Section 9.02 Successor is Deemed Included in All References to Predecessor.
Whenever in this Agreement or any Supplemental Agreement either the City or the Fiscal Agent
55
SDPUB\WDrVEN\356989.5
1/9/08
is "named or referred to, such reference shall be deemed to include the successors or assigns
thereof, and all the covenants and agreements in this Agreement contained by or on behalf of the
City or the Fiscal Agent shall bind and inure to the benefit of the respective successors and
assigns thereof whether so expressed or not.
Section 9.03 Discharge of Agreement.
If the City shall pay and discharge the entire indebtedness on all Outstanding
Bonds in any one or more of the following ways:
(A) by well and truly paying or causing to be paid the principal of and interest
and any premium on all such Bonds, as and when the same become due and payable;
(B) by depositing with the Fiscal Agent, in trust, at or before maturity, an
amount of money which, together with the amounts then on deposit in the Bond Fund, the
Special Tax Fund and the Reserve Fund, is fully sufficient to pay all such Bonds, including all
principal, interest and redemption premiums, if any; or
(C) by irrevocably depositing with the Fiscal Agent, in trust, cash or non-
callable Defeasance Securities in such amount as the City shall determine, as confirmed by an
Independent Financial Consultant, will, together with the interest to accrue thereon and amounts
then on deposlFinIReTBond Fund, Special Tax Fund and theReserverFund,WMly "sufficient tor
pay and discharge the indebtedness on all such Bonds (including all principal, interest and
redemption premiums) at or before their respective maturity dates;
and if such Bonds are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as in this Agreement provided or provision satisfactory to the
Fiscal Agent shall have been made for the giving of such notice, then, at the election of the City,
and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of
the Special Tax Revenues and other funds provided for in this Agreement and all other
obligations of the City and the Community Facilities District under this Agreement with respect
to such Bonds shall cease and terminate, except the obligation of the City to pay or cause to be
paid to the Owners of such Bonds not so surrendered and paid all sums due thereon, the
obligation of the City to pay all amounts owing to the Fiscal Agent pursuant to Section 7.05
hereof, and the obligations of the City pursuant to the covenants contained in Section 5.10
hereof; and thereafter Special Taxes shall not be payable to the Fiscal Agent. Notice of such
election shall be filed with the Fiscal Agent. The satisfaction and discharge of this Agreement
shall be without prejudice to the rights of the Fiscal Agent to charge and be reimbursed by the
City for the expenses which it shall thereafter incur in connection herewith.
Any funds held by the Fiscal Agent to pay and discharge the indebtedness on such
Bonds, upon payment of all fees and expenses of the Fiscal Agent, which are not required for
such payments and discharge, shall be paid over to the City.
Section 9.04 Execution of Documents and Proof of Ownership by Owners. Any
request, declaration or other instrument which this Agreement may require or permit to be
executed by Owners may be in one or more instruments of similar tenor, and shall be executed
by Owners in person or by their attorneys appointed in writing.
56
SDPUB\WDIVEN\356989.5
1/9/08
Except as otherwise herein expressly provided, the fact and date of the execution
by any Owner or his attorney of such a request, declaration or other instrument, or of a writing
appointing such an attorney, may be proved by the certificate of any notary public or other
officer authorized to take acknowledgments of deeds to be recorded in the state in which he
purports to act, that the person signing such request, declaration or other instrument or writing
acknowledged to him the execution thereof, or by an affidavit of a witness of such execution,
duly sworn to before such a notary public or other officer.
Except as otherwise herein expressly provided, the ownership of registered Bonds
and the amount, maturity, number and date of holding the same shall be proved by the
registration books maintained by the Fiscal Agent pursuant to Section 2.08 hereof.
Any request, declaration or other instrument or writing of the Owner of any Bond
shall bind all future Owners of such Bond in respect of anything done or suffered to be done by
the City or the Fiscal Agent in good faith and in accordance therewith.
Section 9.05 Waiver of Personal Liability. No member, officer, agent or
employee of the City or the Community Facilities District shall be individually or personally
liable for the payment of the principal of, or interest or any premium on, the Bonds; but nothing
herein contained shall relieve any such member, officer, agent or employee from the
^erfQrmancejjfany official.duty provided by law.
Section 9.06 Notices to and Demands on City and Fiscal Agent. Any notice or
demand which by any provision of this Agreement is required or permitted to be given or served
by the Fiscal Agent to or on the City may be given or served by being deposited postage prepaid
(first class, registered or certified) in a post office letter box addressed (until another address is
filed by the City with the Fiscal Agent) as follows:
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
Attention: City Manager
Any notice or demand which by any provision of this Agreement is required or
permitted to be given or served by the City to or on the Fiscal Agent may be given or served by
being deposited postage prepaid (first class, registered or certified) in a post office letter box
addressed (until another address is filed by the Fiscal Agent with the City) as follows:
The B ank of New York Trust Company, N.A.
700 South Flower Street, Suite 500
Los Angeles, California 90017
Attention: Corporate Trust Administration
Section 9.07 Partial Invalidity. If any section, paragraph, sentence, clause or
phrase of this Agreement shall for any reason be held by a court of competent jurisdiction to be
illegal or unenforceable, such holding shall not affect the validity of the remaining portions of
this Agreement. The City hereby declares that it would have executed and delivered this
57
SDPUB\WDFVEN\356989.5
1/9/08
Agreement and each and every other section, paragraph, sentence, clause or phrase hereof and
authorized the issue of the Bonds pursuant thereto irrespective of the fact that any one or more
sections, paragraphs, sentences, clauses or phrases of this Agreement may be held illegal, invalid
or unenforceable.
Section 9.08 Unclaimed Moneys. Anything contained herein to the contrary
notwithstanding, any moneys held by the Fiscal Agent in trust for the payment and discharge of
the principal of, and the interest and any premium on, the Bonds which remains unclaimed for
two (2) years after the date when the payment of such principal, interest and premium have
become payable, if such moneys were held by the Fiscal Agent at such date, shall be paid by the
Fiscal Agent to the City as its absolute property free from any trust, and the Fiscal Agent shall
thereupon be released and discharged with respect thereto and the Owners of such Bonds shall
look only to the City for the payment of the principal of, and interest and any premium on, their
Bonds.
Section 9.09 Applicable Law. This Agreement shall be governed by and
enforced in accordance with the laws of the State of California applicable to contracts made and
performed in the State of California.
Section 9.10 Conflict with Act. In the event of a conflict between any provision
of this Agreement with any provision of the Act as in effect on the Closing Date, the provision of
the Act shall prevail over the conflicting provision of this Agreement.
Section 9.11 Conclusive Evidence of Regularity. Bonds issued pursuant to this
Agreement shall constitute conclusive evidence of the regularity of all proceedings under the Act
relative to their issuance and the levy of the Special Taxes.
Section 9.12 Payment on Business Day. In any case where the date of the
payment of interest or of principal (and premium, if any) of the Bonds or the date fixed for
redemption is other than a Business Day, the payment of interest or principal (and premium, if
any) need not be made on such date but may be made on the next succeeding day which is a
Business Day with the same force and effect as if made on the date required, and no interest shall
accrue for the period from and after such date.
58
SDPUB\WDrVEN\356989.5
1/9/08
Section 9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original.
IN WITNESS WHEREOF, the City has caused this Agreement to be executed in
its name on behalf of the Community Facilities District and attested, and the Fiscal Agent, in
acknowledgment of its acceptance of the trusts created hereunder, has caused this Agreement to
be executed in its name, all as of January 1, 2008.
CITY OF CARLSBAD, for and on behalf of CITY
OF CARLSBAD COMMUNITY FACILITIES
DISTRICT NO. 3, COUNTY OF SAN DIEGO,
STATE OF CALIFORNIA
By:
Acting City Manager
THE BANK OF NEW YORK TRUST
COMPANY, N.A., as Fiscal Agent
By:.
Authorized Officer
S-l
SDPUB\WDIVEN\356989.5
1/9/08
EXHIBIT A
FORM OF BOND
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY (AS DEFINED IN THE FISCAL AGENT AGREEMENT) TO THE FISCAL
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
BOND AUTHENTICATED AND DELIVERED IS REGISTERED IN THE NAME OF CEDE
& CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
No. $
UNITED STATES OF AMERICA
STATE OF CALIFORNIA
COUNTY OFS_AN DIEGO
CltY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 Special Tax Bond
(IMPROVEMENT AREA 2)
INTEREST RATE MATURITY DATE DATED DATE CUSIPNO.
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: DOLLARS
The City of Carlsbad (the "City"), for and on behalf of City of Carlsbad
Community Facilities District No. 3, County of San Diego, State of California (the "Community
Facilities District"), for value received, hereby promises to pay, from the Special Taxes (as
hereinafter defined) to be collected from taxable properties in Improvement Area 2 of the
Community Facilities District or amounts in certain of the funds and accounts held under the
Agreement (as hereinafter defined) to the registered owner named above, or registered assigns,
on the maturity date specified above, the principal amount specified above, and to pay interest on
such principal amount from the Dated Date above, or from the most recent interest payment date
to which interest has been paid or duly provided for, semiannually on March 1 and September 1,
commencing March 1, 2008 ("Interest Payment Dates"), at the interest rate specified above, until
the principal amount hereof is paid or made available for payment. The principal of this Bond is
payable by check to the registered owner hereof in lawful money of the United States of America
upon presentation and surrender of this Bond at the principal office of The Bank of New York
Trust Company, N.A. (the "Fiscal Agent"), or at such other place as designated by the Fiscal
Agent. Interest on this Bond shall be paid by check of the Fiscal Agent mailed by first class
A-l
SDPUB\\VDIVEN\356989.5
1/9/08
mail, postage prepaid, on each Interest Payment Date to the registered owner hereof as of the
close of business on the fifteenth (15th) day of the month preceding the month in which the
Interest Payment Date occurs (the "Record Date") at such registered owner's address as it
appears on the registration books maintained by the Fiscal Agent; except that at the written
request of the owner of at least $1,000,000 in aggregate principal amount of outstanding Bonds
filed with the Fiscal Agent prior to the Record Date preceding any Interest Payment Date,
interest on such Bonds shall be paid to such owner on such Interest Payment Date by wire
transfer of immediately available funds to an account in the United States of America designated
in such written request.
This Bond is one of a duly authorized issue of bonds approved by the qualified
electors of the Community Facilities District pursuant to the Mello-Roos Community Facilities
Act of 1982, as amended, Chapter 2.5 (commencing with Section 53311) of Part 1 of Division 2
of Title 5 of the California Government Code (the "Mello-Roos Act"), for the purpose, among
others, of financing the construction and acquisition of public facilities within and for the
Community Facilities District, and is one of the series of Bonds designated the "City of Carlsbad
Community Facilities District No. 3, 2008 Special Tax Bonds (Improvement Area 2)" (the
"Bonds"), in the aggregate principal amount of $ comprised of $
principal amount of Escrow Bonds (as defined in the Agreement) and $ principal
amount of non-escrow Bonds. This Bond is an non-escrow Bond. The issuance of the Bonds and
the terms and conditions thereof are provided for by a resolution adopted by the City Council of—
the City on January , 2008 (the "Resolution"), and the Fiscal Agent Agreement, dated as
of January 1, 2008, between the City and the Fiscal Agent (the "Agreement") and this reference
incorporates the Resolution and the Agreement herein, and by acceptance hereof the owner of
this Bond assents to the terms and conditions of the Resolution and the Agreement. The
Resolution is adopted under, the Agreement is executed under, this Bond is issued under, and all
are to be construed in accordance with, the laws of the State of California.
Pursuant to the Mello-Roos Act, the Agreement and the Resolution, the principal
of and interest on the Bonds are payable from the annual levy of Special Taxes authorized under
the Mello-Roos Act to be collected from taxable properties in Improvement Area 2 of the
Community Facilities District (the "Special Taxes") and are secured by a pledge of and first lien
upon the revenues derived therefrom (the "Special Tax Revenues") and certain funds held by the
Fiscal Agent pursuant to the Agreement.
Interest on this Bond shall be payable from the Interest Payment Date next
preceding the date of its authentication, unless (i) it is authenticated on an Interest Payment Date,
in which event it shall bear interest from such Interest Payment Date, or (ii) it is authenticated
prior to an Interest Payment Date and after the close of business on the Record Date preceding
such Interest Payment Date, in which event it shall bear interest from such Interest Payment
Date, or (iii) it is authenticated prior to the Record Date preceding the first Interest Payment
Date, in which event it shall bear interest from the Dated Date above; provided, however, that if
at the time of authentication of this Bond, interest is in default hereon, this Bond shall bear
interest from the Interest Payment Date to which interest has previously been paid or made
available for payment hereon, or from the Dated Date above, if no interest has previously been
paid or made available for payment hereon.
A-2
SDPUB\WDIVEN\356989.5
1/9/08
Any tax for the payment hereof shall be limited to the Special Taxes, except to the
extent that provision for payment has been made by the City as may be permitted by law. The
Bonds do not constitute obligations of the City for which the City is obligated to levy or pledge,
or has levied or pledged, general or special taxation other than as described hereinabove.
The City has covenanted for the benefit of the owners of the Bonds that it will
order, and cause to be commenced judicial foreclosure proceedings against properties with
delinquent Special Taxes and diligently pursue to completion such foreclosure proceedings.
The Bonds, including the Escrow Bonds, are subject to optional call and
redemption prior to maturity, as a whole or in part, pro rata among maturities and by lot within a
maturity, on any Interest Payment Date on or after September 1, 20 from funds derived by the
Community Facilities District from any source, [including prepayment of the Special Tax
deposited in the Special Tax Prepayments Account (as defined in the Agreement)] at a
redemption price (expressed as a percentage of the principal amount of the Bonds to be
redeemed) as set forth below, together with accrued interest thereon to the date fixed for
redemption:
Redemption Dates Redemption Price
September 1, 20 through March 1, 20 10_%
September U20_^ through March 1,20^ 1H_
September 1, 20 through March 1, 20 10_
September 1, 20 and thereafter 100
The outstanding Bonds, excluding the Escrow Bonds, maturing on September 1,
20 and 20 are subject to mandatory sinking payment redemption, in part, without premium,
on September 1,20 and September 1, 20 respectively, and on each September 1 thereafter as
provided in the Agreement.
The Bonds, including the Escrow Bonds following the Escrow Redemption Date,
are subject to redemption from Special Tax Prepayments and any corresponding transfers from
the Reserve Fund will be used to redeem Bonds on the next Interest Payment Date for which
notice of redemption can timely be given, among maturities so as to maintain substantially the
same debt service profile for the Bonds as in effect prior to such redemption and by lot within a
maturity, at a redemption price (expressed as a percentage of the principal amount of the Bonds
to be redeemed), as set forth below, together with accrued interest to the date fixed for
redemption:
Redemption Dates Redemption Price
March 1, 2008 through March 1, 20_ 10_%
September 1, 20 through March 1, 20 10_
September 1, 20_ through March 1, 20_ 10_
September 1, 20 and thereafter 100
Notice of redemption with respect to the Bonds to be redeemed shall be given to
the registered owners thereof, in the manner and to the extent provided in the Agreement.
A-3
SDPUB\WDrVEN\356989.5
1/9/08
From and after the date fixed for redemption, if funds available for the payment of
the redemption prices of the Bonds selected for redemption shall have been deposited in the
Bond Fund, such Bonds shall cease to be entitled to any benefit under the Agreement other than
the right to receive payment of the redemption price, and interest shall cease to accrue on the
Bonds to be redeemed on the redemption date specified in the notice of redemption.
This Bond shall be registered in the name of the owner hereof, as to both principal
and interest.
Each registration and transfer of registration of this Bond shall be entered by the
Fiscal Agent in books kept by it for that purpose and authenticated by the manual signature of an
authorized signatory of the Fiscal Agent upon the certificate of authentication endorsed hereon.
No transfer or exchange hereof shall be valid for any purpose unless made by the
registered owner or his duly authorized attorney, by execution of the form of assignment
endorsed hereon, and authenticated as herein provided, and the principal hereof and interest
hereon shall be payable only to the registered owner or to such owner's order.
The Fiscal Agent shall require the registered owner requesting transfer or
exchange hereof to pay any tax or other governmental charge required to be paid with respect to
suck transferor exchange^
The Agreement and the rights and obligations of the City and the Community
Facilities District thereunder may be modified or amended as set forth therein.
This Bond shall not become valid or obligatory for any purpose until the
certificate of authentication hereon endorsed shall have been dated and manually signed on
behalf of the Fiscal Agent.
IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts,
conditions and things required by law to exist, happen and be performed precedent to and in the
issuance of this Bond have existed, happened and been performed in due time, form and manner
as required by law.
A-4
SDPUB\WDIVEN\356989.5
1/9/08
IN WITNESS WHEREOF, the City of Carlsbad, for the City of Carlsbad
Community Facilities District No. 3 thereof, has caused this Bond to be dated as of the Dated
Date above, and to be signed by the facsimile signature of the Mayor of the City of Carlsbad and
countersigned by the facsimile signature of the City Clerk.
CITY OF CARLSBAD for and on behalf of
CITYOF CARLSBAD COMMUNITY
FACILITIES DISTRICT NO. 3 OF CITY OF
CARLSBAD, COUNTY OF SAN DIEGO, STATE
OF CALIFORNIA
ATTEST:
City Clerk Mayor
A-5
SDPUB\WDIVENV556989.5
1/9/08
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds described in the within-defined Agreement.
Dated: , 2008
The Bank of New York Trust Company, N.A.
Fiscal Agent
By:
Authorized Signatory
A-6
SDPUB\WDIVEN\356989.5
1/9/08
ASSIGNMENT
For value received, the undersigned do(es) hereby sell, assign and transfer unto
(Name, Address and Tax Identification or
Social Security Number of Assignee)
the within registered Bond and hereby irrevocably constitute(s) and appoint(s)
attorney, to transfer said Bond on the books of the
Fiscal Agent, with full power of substitution in the premises.
Dated:
NOTE: The signature(s) on this assignment must
correspond with the name(s) as written on the face
of the within Bond in every particular without
alteration or enlargement or any change whatsoever.
Signature Guaranteed:
NOTE: Signature guarantee shall be
made by a guarantor institution
participating in the Securities Transfers
Agents Medallion Program or in such
other guarantee program acceptable to
the Fiscal Agent.
A-7
SDPUB\WDIVEN\356989.5
1/9/08
EXHIBIT B
FORM OF ESCROW BOND
UNLESS THIS ESCROW BOND IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE FISCAL AGENT
AGREEMENT) TO THE FISCAL AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY BOND AUTHENTICATED AND DELIVERED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
THIS IS AN ESCROW BOND AS DEFINED IN THE FISCAL AGENT AGREEMENT AND
IS SUBJECT TO MANDATORY REDEMPTION FROM FUNDS TRANSFERRED FROM
THE ESCROW FUND PURSUANT TO THE PROVISIONS OF THE FISCAL AGENT
AGREEMENT
No.
UNITED STATES OF AMERICA
STATE OF CALIFORNIA
COUNTY OF SAN DIEGO
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 Special Tax Bond
(IMPROVEMENT AREA 2)
INTEREST RATE MATURITY DATE DATED DATE CUSIP NO.
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: DOLLARS
The City of Carlsbad (the "City"), for and on behalf of City of Carlsbad
Community Facilities District No. 3, County of San Diego, State of California (the "Community
Facilities District"), for value received, hereby promises to pay, from the Special Taxes (as
hereinafter defined) to be collected from taxable properties in Improvement Area 2 of the
Community Facilities District or amounts in certain of the funds and accounts held under the
Agreement (as hereinafter defined) to the registered owner named above, or registered assigns,
on the maturity date specified above, the principal amount specified above, and to pay interest on
such principal amount from the Dated Date above, or from the most recent interest payment date
B-l
SDPUB\WDIVEN\356989.5
1/9/08
to which interest has been paid or duly provided for, semiannually on March 1 and September 1,
commencing March 1, 2008 ("Interest Payment Dates"), at the interest rate specified above, until
the principal amount hereof is paid or made available for payment. The principal of this Escrow
Bond is payable by check to the registered owner hereof in lawful money of the United States of
America upon presentation and surrender of this Escrow Bond at the principal office of The
Bank of New York Trust Company, N.A. (the "Fiscal Agent"), or at such other place as
designated by the Fiscal Agent. Interest on this Escrow Bond shall be paid by check of the
Fiscal Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the
registered owner hereof as of the close of business on the fifteenth (15th) day of the month
preceding the month in which the Interest Payment Date occurs (the "Record Date") at such
registered owner's address as it appears on the registration books maintained by the Fiscal
Agent; except that at the written request of the owner of at least $1,000,000 in aggregate
principal amount of outstanding Bonds filed with the Fiscal Agent prior to the Record Date
preceding any Interest Payment Date, interest on such Bonds shall be paid to such owner on such
Interest Payment Date by wire transfer of immediately available funds to an account in the
United States of America designated in such written request.
This Escrow Bond is one of a duly authorized issue of bonds approved by the
qualified electors of the Community Facilities District pursuant to the Mello-Roos Community
Facilities Act of 1982, as amended, Chapter 2.5 (commencing with Section 53311) of Part 1 of
Division^ of Title 5 of the California Government Code (the "Mello-Roos Act"-),- for the^
purpose, among others, of financing the construction and acquisition of public facilities within
and for the Community Facilities District, and is one of the series of Bonds designated the "City
of Carlsbad Community Facilities District No. 3, 2008 Special Tax Bonds (Improvement Area
2)" (the "Bonds"), in the aggregate principal amount of $ comprised of
$ principal amount of Escrow Bonds and $ principal amount of non-
escrow Bonds. The issuance of the Bonds and the terms and conditions thereof are provided for
by a resolution adopted by the City Council of the City on January , 2008 (the
"Resolution"), and the Fiscal Agent Agreement, dated as of January 1, 2008, between the City
and the Fiscal Agent (the "Agreement") and this reference incorporates the Resolution and the
Agreement herein, and by acceptance hereof the owner of this Escrow Bond assents to the terms
and conditions of the Resolution and the Agreement. The Resolution is adopted under, the
Agreement is executed under, this Escrow Bond is issued under, and all are to be construed in
accordance with, the laws of the State of California.
Pursuant to the Mello-Roos Act, the Agreement and the Resolution, the principal
of and interest on the Bonds are payable from the annual levy of Special Taxes authorized under
the Mello-Roos Act to be collected from taxable properties in Improvement Area 2 of the
Community Facilities District (the "Special Taxes") and are secured by a pledge of and first lien
upon the revenues derived therefrom (the "Special Tax Revenues") and certain funds held by the
Fiscal Agent pursuant to the Agreement.
Interest on this Escrow Bond shall be payable from the Interest Payment Date
next preceding the date of its authentication, unless (i) it is authenticated on an Interest Payment
Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is
authenticated prior to an Interest Payment Date and after the close of business on the Record
B-2
SDPUB\WDIVEN\356989.5
1/9/08
Date preceding such Interest Payment Date, in which event it shall bear interest from such
Interest Payment Date, or (iii) it is authenticated prior to the Record Date preceding the first
Interest Payment Date, in which event it shall bear interest from the Dated Date above; provided,
however, that if at the time of authentication of this Escrow Bond, interest is in default hereon,
this Escrow Bond shall bear interest from the Interest Payment Date to which interest has
previously been paid or made available for payment hereon, or from the Dated Date above, if no
interest has previously been paid or made available for payment hereon.
Any tax for the payment hereof shall be limited to the Special Taxes, except to the
extent that provision for payment has been made by the City as may be permitted by law. The
Bonds do not constitute obligations of the City for which the City is obligated to levy or pledge,
or has levied or pledged, general or special taxation other than as described hereinabove.
The City has covenanted for the benefit of the owners of the Bonds that it will
order, and cause to be commenced judicial foreclosure proceedings against properties with
delinquent Special Taxes and diligently pursue to completion such foreclosure proceedings.
The Bonds, including the Escrow Bonds, are subject to optional call and
redemption prior to maturity, as a whole or in part, pro rata among maturities and by lot within a
maturity, on any Interest Payment Date on or after September 1, 20 from funds derived by the
Community Facilities District from any source, [including prepayment of the Special Tax
deposited in the Special Tax Prepayments Account (as defined in the Agreement)] at a
redemption price (expressed as a percentage of the principal amount of the Bonds to be
redeemed) as set forth below, together with accrued interest thereon to the date fixed for
redemption:
Redemption Dates Redemption Price
September 1, 20 through March 1, 20 10_%
September 1, 20 through March 1, 20 10_
September 1, 20 through March 1, 20 10_
September 1, 20 and thereafter 100
The outstanding Escrow Bonds maturing on September 1, 20 and 20 are
subject to mandatory sinking payment redemption, in part, without premium, on September
1,20 and September 1, 20 respectively, and on each September 1 thereafter as provided in
the Agreement.
The Escrow Bonds are subject to extraordinary mandatory redemption on the
Escrow Redemption Date from funds transferred from the Escrow Fund to the Bond Fund
pursuant to the provisions of the Fiscal Agent Agreement at a redemption price equal to of
the principal amount thereof, together with accrued interest thereon to the date of redemption.
The Bonds, including the Escrow Bonds following the Escrow Redemption Date,
are subject to redemption from Special Tax Prepayments and any corresponding transfers from
the Reserve Fund will be used to redeem Bonds on the next Interest Payment Date for which
notice of redemption can timely be given, among maturities so as to maintain substantially the
same debt service profile for the Bonds (and any Parity Bonds) as in effect prior to such
B-3
SDPUB\WDIVEN\356989.5
1/9/08
redemption and by lot within a maturity, at a redemption price (expressed as a percentage of the
principal amount of the Bonds to be redeemed), as set forth below, together with accrued interest
to the date fixed for redemption:
Redemption Dates Redemption Price
March 1, 2008 through March 1, 20_ 10_%
September 1, 20 through March 1, 20 10_
September 1, 20 through March 1, 20 10_
September 1, 20 and thereafter 100
Notice of redemption with respect to the Bonds to be redeemed shall be given to
the registered owners thereof, in the manner and to the extent provided in the Agreement.
From and after the date fixed for redemption, if funds available for the payment of
the redemption prices of the Bonds selected for redemption shall have been deposited in the
Bond Fund, such Bonds shall cease to be entitled to any benefit under the Agreement other than
the right to receive payment of the redemption price, and interest shall cease to accrue on the
Bonds to be redeemed on the redemption date specified in the notice of redemption.
This Escrow Bond shall be registered in the name of the owner hereof, as to both
principal andjnterest.
Each registration and transfer of registration of this Escrow Bond shall be entered
by the Fiscal Agent in books kept by it for that purpose and authenticated by the manual
signature of an authorized signatory of the Fiscal Agent upon the certificate of authentication
endorsed hereon.
No transfer or exchange hereof shall be valid for any purpose unless made by the
registered owner or his duly authorized attorney, by execution of the form of assignment
endorsed hereon, and authenticated as herein provided, and the principal hereof and interest
hereon shall be payable only to the registered owner or to such owner's order.
The Fiscal Agent shall require the registered owner requesting transfer or
exchange hereof to pay any tax or other governmental charge required to be paid with respect to
such transfer or exchange.
The Agreement and the rights and obligations of the City and the Community
Facilities District thereunder may be modified or amended as set forth therein.
This Escrow Bond shall not become valid or obligatory for any purpose until the
certificate of authentication hereon endorsed shall have been dated and manually signed on
behalf of the Fiscal Agent.
IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts,
conditions and things required by law to exist, happen and be performed precedent to and in the
issuance of this Escrow Bond have existed, happened and been performed in due time, form and
manner as required by law.
B-4
SDPUB\WDIVEN\356989.5
1/9/08
IN WITNESS WHEREOF, the City of Carlsbad, for the City of Carlsbad
Community Facilities District No. 3 thereof, has caused this Escrow Bond to be dated as of the
Dated Date above, and to be signed by the facsimile signature of the Mayor of the City of
Carlsbad and countersigned by the facsimile signature of the City Clerk.
CITY OF CARLSBAD for and on behalf of
CITYOF CARLSBAD COMMUNITY
FACILITIES DISTRICT NO. 3 OF CITY OF
CARLSBAD, COUNTY OF SAN DIEGO, STATE
OF CALIFORNIA
ATTEST:
City Clerk Mayor
B-5
SDPUB\WDIVEN\356989.5
1/9/08
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds described in the within-defined Agreement.
Dated: , 2008
The Bank of New York Trust Company, N.A.
Fiscal Agent
By:
Authorized Signatory
B-6
SDPUB\WDIVEN\356989.5
1/9/08
ASSIGNMENT
For value received, the undersigned do(es) hereby sell, assign and transfer unto
(Name, Address and Tax Identification or
Social Security Number of Assignee)
the within registered Bond and hereby irrevocably constitute(s) and appoint(s)
attorney, to transfer said Bond on the books of the
Fiscal Agent, with full power of substitution in the premises.
Dated:
NOTE: The signature(s) on this assignment must
correspond with the name(s) as written on the face
of the within Bond in every particular without
alteration or enlargement or any change whatsoever.
Signature Guaranteed:
NOTE: Signature guarantee shall be
by a guarantor institution participating
in the Securities Transfer Agent
Medallion Program or in such other
guarantee program acceptable to the
Fiscal Agent.
B-7
SDPUB\WDIVEN\356989.5
1/9/08
TABLE OF CONTENTS
Page
ARTICLE I
AUTHORITY AND DEFINITIONS
Section 1.01 Authority for this Agreement 2
Section 1.02 Agreement for Benefit of Bondowners 2
Section 1.03 Definitions 3
ARTICLE II
THE BONDS
Section 2.01 Principal Amount; Designation 15
Section 2.02 Terms of Bonds 15
Section 2.03 Redemption 16
Section 2.04 Form of Bonds 19
Section 2.05 Execution of Bonds 19
Section 2.06 Transfer of Bonds 20
Section 2.07 Exchange of Bonds 20
Section2.0r BoiidRegisre^;.:..:.V7;.v...:^
Section 2.09 Temporary Bonds 20
Section 2.10 Bonds Mutilated, Lost, Destroyed or Stolen 21
Section 2.11 Special Obligation 21
Section 2.12 Issuance of Additional Bonds 21
Section 2.13 Book-Entry 21
ARTICLE HI
ISSUANCE OF BONDS; APPLICATION OF PROCEEDS; IMPROVEMENT FUND;
SPECIAL TAX FUND; ADMINISTRATIVE EXPENSE FUND; COSTS OF ISSUANCE
FUND
Section 3.01 Issuance and Delivery of Bonds 23
Section 3.02 Application of Proceeds of Sale of Bonds 23
Section 3.03 Improvement Fund 24
Section 3.04 Special Tax Fund 25
Section 3.05 Administrative Expense Fund 26
Section 3.06 Costs of Issuance Fund 27
ARTICLE IV
SPECIAL TAX REVENUES; BOND FUND; RESERVE FUND
Section 4.01 Pledge of Special Tax Revenues 27
Section 4.02 Bond Fund 27
Section 4.03 Reserve Fund 30
SDPUB\WDIVEN\356989.5
1/9/08 -1-
TABLE OF CONTENTS
(continued)
Page
ARTICLE V
OTHER COVENANTS OF THE CITY
Section 5.01 Punctual Payment 31
Section 5.02 Special Obligation 31
Section 5.03 Extension of Time for Payment 31
Section 5.04 Against Encumbrances 32
Section 5.05 Books and Accounts 32
Section 5.06 Protection of Security and Rights of Owners 32
Section 5.07 Collection of Special Tax Revenues 32
Section 5.08 Levy of Special Taxes for Administrative Expenses 33
Section 5.09 Further Assurances 33
Section 5.10 Tax Covenants 34
Section 5.11 Covenant to Foreclose 34
Section 5.12 Prepayment of Special Taxes 35
Section 5.13 Calculation of Prepayments 35
Section 5.14 Continuing Disclosure and Filing of Reports 35
ARTICLE VI
INVESTMENTS; DISPOSITION OF INVESTMENT PROCEEDS;
LIABILITY OF THE CITY
Section 6.01 Deposit and Investment of Moneys in Funds 35
Section 6.02 Rebate Fund; Rebate to the United States 37
Section 6.03 Liability of City , 37
Section 6.04 Employment of Agents by City 38
ARTICLE VII
THE FISCAL AGENT
Section 7.01 Appointment of Fiscal Agent 38
Section 7.02 Liability of Fiscal Agent 39
Section 7.03 Information 40
Section 7.04 Notice to Fiscal Agent 40
Section 7.05 Compensation and Indemnification 41
Section 7.06 Books and Accounts 41
ARTICLE VIII
MODIFICATION OR AMENDMENT OF THIS AGREEMENT
Section 8.01 Amendments Permitted 42
Section 8.02 Owners' Meetings 43
Section 8.03 Procedure for Amendment with Written Consent of Owners 43
Section 8.04 Disqualified Bonds 44
SDPUB\WDrVEN\356989.5
1/9/08
-11-
TABLE OF CONTENTS
(continued)
Page
Section 8.05 Effect of Supplemental Agreement 44
Section 8.06 Endorsement or Replacement of Bonds Issued After Amendments 44
Section 8.07 Amendatory Endorsement of Bonds 44
ARTICLE IX
MISCELLANEOUS
Section 9.01 Benefits of Agreement Limited to Parties 44
Section 9.02 Successor is Deemed Included in All References to Predecessor 44
Section 9.03 Discharge of Agreement 45
Section 9.04 Execution of Documents and Proof of Ownership by Owners 45
Section 9.05 Waiver of Personal Liability 46
Section 9.06 Notices to and Demands on City and Fiscal Agent 46
Section 9.07 Partial Invalidity 46
Section 9.08 Unclaimed Moneys 47
Section 9.09 Applicable Law 47
Section 9.10 Conflict with Act 47
Section 9.TIConclusive Evidence of Regul'arityT^7~~~.".7~T7.'.......'..".;~~77..;~~"...7.::::;..... 47
Section 9.12 Payment on Business Day 47
Section 9.13 Counterparts 48
EXHIBIT A - FORM OF BOND A-l
SDPUB\WDIVEN\356989.5
1/9/08
-111-
EXHIBIT #4-b
13061-14 JHrCKLPJN 10/01/07
10/22/07
11/07/07
<u <D 12/04/07
£ -° 12/13/07
2 | 12/19/07
I £ NEW ISSUE NOT RATED
£ ™ In the opinion of Best Best & Krieger LLP, Bond Counsel, based on an analysis of existing laws, regulations, rulings and
.2 " c court decisions, and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from
<u g -|i gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of
g >• =5 California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for
CD -° -c purposes of federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is
•^ S •— included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Bond Counsel expresses
j=! Jj 1j no opinion regarding any other federal or state income tax consequences relating to the ownership or disposition of, or the accrual
o o to or receipt of interest on, the Bonds. See "LEGAL MATTERS - Tax Matters. "
e g°
111 $18,340,000*
|1| CITY OF CARLSBAD
o i COMMUNITY FACILITIES DISTRICT NO. 3
S8 2008 SPECIAL TAX BONDS
o I (IMPROVEMENT AREA 2)
1 EO 01
££ S</) Q) ^£ E cI- = ro
Dated: Date of Delivery Due: September 1 , as shown below
^~* <3) (U- en TOc: o §
|".g o
„ o ro Authority for Issuance. The bonds captioned above (the "Bonds") are being issued under the Mello-Roos
H S E Community Facilities Act of 1982 (the "Act"), the Resolution of Issuance, and a Fiscal Agent Agreement, dated as of
| •§ §. January 1, 2008, by and between the City of Carlsbad (the "City"), for and on behalf of City of Carlsbad Community
« 1 fe Facilities District No. 3, County of San Diego, State of California (the "Community Facilities District" or "District") with
$ o § respect to its Improvement Area 2 and The Bank of New York Trust Company, N.A., as fiscal agent (the "Fiscal
" •£ ''S Agent"). Improvement Area 2 is one of two improvement areas within the Community Facilities District. The City
H | io Council (the "City Council") of the City, acting as the legislative body of the Community Facilities District, and the
g & c? eligible landowner voters in Improvement Area 2, have authorized the issuance of bonds in an aggregate principal
£ in B amount not to exceed $21 million. See "THE BONDS - Authority for Issuance."
£ Is .2E £ a. Security and Sources of Payment. The Bonds are payable from: (i) Special Tax Revenues derived from
£ ° 1 the levy of special taxes (the "Special Taxes") on property within Improvement Area 2 according to the rate and
§ m" j5 method of apportionment of special tax approved by the City Council and the eligible landowner voters in
Jj -| § Improvement Area 2, and (ii) moneys deposited in certain funds held under the Fiscal Agent Agreement. See
g-75 -Q "SECURITY FOR THE BONDS." Revenues derived from the levy of special taxes in Improvement Area 1 of the
0 CL 35 Community Facilities District are not available to pay debt service on the Bonds.
t> = to Additional Obligations Secured by Special Tax Revenues. The Fiscal Agent Agreement authorizes the
s1 •% ™ issuance of additional bonds secured by a pledge of Special Tax Revenues solely for the purpose of refunding all or a
<" $ ° part of the outstanding Bonds.
™ I-l£ $ £ Use of Proceeds. The Bonds are being issued to: (i) finance acquisition and construction of certain public
£ I = capital improvements, (ii) fund a reserve fund for the Bonds, (iii) pay certain administrative expenses of the
^ .i= 2 Community Facilities District, (iv) capitalize interest on the Bonds through September 1, 2008, and (v) pay the costs
.i o |: of issuing the Bonds. See "FINANCING PLAN - Facilities to be Financed with Proceeds of the Bonds" and "-
•p ^ ° Estimated Sources and Uses of Funds."
§111 -1 -g Bond Terms. Interest on the Bonds is payable on March 1, 2008 and semiannually thereafter on each
« E I- March 1 and September 1. The Bonds will be issued in denominations of $5,000 or integral multiples of $5,000. The
5 •£ .c Bonds, when delivered, will be initially registered in the name of Cede & Co., as nominee of The Depository Trust
1 ™ g Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds. See "THE BONDS -
* '"c 1 General Bond Terms" and "APPENDIX F - DTC and the Book-Entry Only System."
™ J5 .=>. Redemption. Prior to their maturities, the Bonds are subject to optional redemption, mandatory sinking fund
1 = i? redemption, and special mandatory redemption from prepaid Special Taxes, and the Escrow Bonds are subject to
extraordinary mandatory redemption in the event the conditions for release of moneys from the Escrow Fund are not
« met. See "THE BONDS - Redemption."
Preliminary, Subject to Change
THE BONDS ARE LIMITED OBLIGATIONS OF THE CITY FOR AND ON BEHALF OF IMPROVEMENT
AREA 2 OF THE COMMUNITY FACILITIES DISTRICT, AND THE PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST, ARE PAYABLE SOLELY FROM, AND SECURED IN ACCORDANCE WITH THEIR TERMS AND THE
PROVISIONS OF THE FISCAL AGENT AGREEMENT SOLELY BY, THE SPECIAL TAX REVENUES AND THE
OTHER AMOUNTS PLEDGED THEREFOR UNDER THE FISCAL AGENT AGREEMENT. NEITHER THE CITY,
THE STATE, NOR ANY POLITICAL SUBDIVISION THEREOF (EXCEPT THE CITY, TO THE LIMITED EXTENT
SET FORTH IN THE FISCAL AGENT AGREEMENT) WILL IN ANY EVENT BE LIABLE FOR THE PAYMENT OF
THE PRINCIPAL OF, OR PREMIUM (IF ANY) OR INTEREST ON THE BONDS OR FOR THE PERFORMANCE OF
ANY PLEDGE, OBLIGATION OR AGREEMENT OF ANY KIND WHATSOEVER, AND NONE OF THE BONDS OR
ANY OF THE CITY'S AGREEMENTS OR OBLIGATIONS WILL BE CONSTRUED TO CONSTITUTE AN
INDEBTEDNESS OF OR A PLEDGE OF THE FAITH AND CREDIT OF OR A LOAN OF THE CREDIT OF THE
CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF (EXCEPT THE CITY, TO THE LIMITED
EXTENT SET FORTH IN THE FISCAL AGENT AGREEMENT) WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY PROVISION WHATSOEVER.
MATURITY SCHEDULE
(see inside cover)
This cover page contains certain information for quick reference only. It is not a summary of the
issue. Potential investors must read the entire Official Statement to obtain information essential to the
making of an informed investment decision with respect to the Bonds. Investment in the Bonds involves
risks which may not be appropriate for some investors. See "BONDOWNERS" RISKS" for a discussion of
special risk factors that should be considered in evaluating the investment quality of the Bonds.
The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to
their legality by Best Best & Krieger LLP, San Diego, California, Bond Counsel, and subject to certain other
conditions. Jones Hall, A Professional Law Corporation, San Francisco, California, is acting as disclosure counsel to
the City. Certain legal matters will be passed on for the City and the Community Facilities District by the City
Attorney. It is anticipated that the Bonds, in book-entry form, will be available for delivery on or about ,
2008.
The date of this Official Statement is: , 2008.
MATURITY SCHEDULE
(BaseCUSIP:t )
$ Serial Bonds
Maturity
(September 1)
Principal
Amount
Interest
Rate
Price/
Yield cusipt Maturity
(September 11
Principal
Amount
Interest
Rate
Price/
Yield CUSIPT
_% Term Bond due September 1, 20 , Priced to Yield: _
_% Term Bond due September 1, 20_, Priced to Yield: _
_% Term Bond* due September 1, 20 , Priced to Yield:
_% Term Bond* due September 1, 20 , Priced to Yield:.
_% CUSIpt No. _
_% CUSIpt No. _
_% CUSIpt No..
% CUSIpt No.
Copyright 2008, American Bankers Association. CUSIP data herein is provided by Standard & Poor's CUSIP Service
Bureau, a division of The McGraw-Hill Companies, Inc.
Indicates Bonds that are Escrow Bonds.
CITY OF CARLSBAD
CITY COUNCIL
Claude A. "Bud" Lewis, Mayor
Ann J. Kulchin, Mayor Pro Tern, Council Member
Matt Hall, Council Member
Mark Packard, Council Member
Julie Nygaard, Council Member
CITY STAFF
Lisa Hildabrand, Acting City Manager
James F. Elliott, Administrative Services Director/Deputy City Manager
Glenn Pruim, Public Works Director
Harold "Mac" McSherry, City Treasurer
Lisa Irvine, Finance Director
Lorraine Wood, City Clerk
Ronald R. Ball, City Attorney
PROFESSIONAL SERVICES
BOND COUNSEL
Best Best & Krieger LLP
San Diego, California
DISCLOSURE COUNSEL
Jones Hall, A Professional Law Corporation
San Francisco, California
SPECIAL TAX CONSULTANT
Special District Financing and Administration
Escondido, California
FISCAL AGENT
The Bank of New York Trust Company, N.A.
Los Angeles, California
APPRAISER
Bruce W. Hull & Associates, Inc.
Ventura, California
MARKET ABSORPTION ANALYST
Empire Economics
Capistrano Beach, California
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other
person has been authorized by the City or the Underwriter to give any information or to make any representations
with respect to the Bonds other than as contained in this Official Statement, and if given or made, such other
information or representation must not be relied upon as having been authorized by the City or the Underwriter.
Wo Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the
solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation.
Effective Date. This Official Statement speaks only as of its date, and the information and expressions of
opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official
Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no
change in the affairs of the City, the Community Facilities District, or any other parties described in this Official
Statement, or in the condition of property within Improvement Area 2 of the Community Facilities District since the
date of this Official Statement.
Use of this Official Statement This Official Statement is submitted in connection with the sale of the
Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official
Statement is not a contract with the purchasers of the Bonds.
Preparation of this Official Statement. The information contained in this Official Statement has been
obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or
completeness.
The Underwriter has provided the following sentence for inclusion in this Official Statement: The
Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its
responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this
transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
Document References and Summaries. All references to and summaries of the Fiscal Agent Agreement
or other documents contained in this Official Statement are subject to the provisions of those documents and do not
purport to be complete statements of those documents.
Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that
stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open
market. If commenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may
offer and sell the Bonds to certain dealers, dealer banks and banks acting as agent at prices lower than the public
offering prices stated on the cover page of this Official Statement, and those public offering prices may be changed
from time to time by the Underwriter.
Bonds are Exempt from Securities Laws Registration. The issuance and sale of the Bonds have not
been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
in reliance upon exemptions for the issuance and sale of municipal securities provided under Section 3(a)(2) of the
Securities Act of 1933 and Section 3(a)(12) of the Securities Exchange Act of 1934.
Estimates and Projections. Certain statements included or incorporated by reference in this Official
Statement constitute "forward-looking statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and
Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by
the terminology used such as "plan," "expect," "estimate," "budget" or other similar words.
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-
LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY
UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ANY EXPECTATIONS,
OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR.
TABLE OF CONTENTS
Pac
INTRODUCTION 1
Continuing Disclosure 6
FINANCING PLAN 8
Facilities to be Financed with Proceeds
of the Bonds 8
Estimated Sources and Uses of Funds 9
THE BONDS 10
General Bond Terms 10
Authority for Issuance 11
Redemption 12
Registration, Transfer and Exchange 14
Debt Service Schedule 16
SECURITY FOR THE BONDS 17
General 17
Special Taxes 17
Additional Obligations Secured by
Special Taxes 18
Rate and Method 18
Covenant to Foreclose 20
Special Tax Fund 21
Bond Fund 22
Reserve Fund 22
Escrow Fund 22
Limited Obligation 23
No Acceleration 23
THE CITY 23
IMPROVEMENT AREA 2 26
General 26
Entitlements 26
Environmental Conditions 28
Infrastructure Development 34
Direct and Overlapping Governmental
Obligations 35
Market Absorption Study 37
Appraised Property Value 38
Appraised Value to Burden Ratio 40
PROPERTY OWNERSHIP AND
PROPOSED DEVELOPMENT 41
Property Ownership 41
Pac
Proposed Development by Techbilt
Construction 41
Proposed Development by Kilroy 45
BOND OWNERS' RISKS 47
Limited Obligation of the City to Pay
Debt Service 47
Levy and Collection of the Special Tax 47
Payment of Special Tax is not a
Personal Obligation of Property Owners 48
Appraised Values 48
Property Values and Property
Development 48
Water Availability 51
Concentration of Property Ownership 51
Other Possible Claims Upon the Value
of Taxable Property 52
Exempt Properties 53
Depletion of Reserve Fund 53
Bankruptcy and Foreclosure Delays 53
Disclosure to Future Purchasers 55
No Acceleration Provisions 56
Extraordinary Mandatory Redemption of
Escrow Bonds 56
Loss of Tax Exemption 56
Voter Initiatives 56
Limitations on Remedies 57
Factors Relating to Sub-Prime Loans 57
Absence of Secondary Market for the
Bonds 58
LEGAL MATTERS 58
Legal Opinions 58
Tax Matters 58
No Litigation 59
CONCLUDING INFORMATION 60
No Ratings 60
Underwriting 60
Professional Fees 60
APPENDIX A - General Information About the City of Carlsbad and County of San Diego
APPENDIX B - Rate and Method of Apportionment of Special Tax
APPENDIX C - The Appraisal
APPENDIX D - Market Absorption Study Summary and Conclusions
APPENDIX E - Summary of Fiscal Agent Agreement
APPENDIX F - DTC and the Book-Entry Only System
APPENDIX G - Form of Issuer Continuing Disclosure Certificate
APPENDIX H - Form of Property Owner Continuing Disclosure Certificate
APPENDIX I - Form of Opinion of Bond Counsel
APPENDIX J - Boundary Map of Improvement Area 2 and Community Facilities District
[INSERT REGIONAL MAP]
OFFICIAL STATEMENT
$18,340,000*
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 SPECIAL TAX BONDS
(IMPROVEMENT AREA 2)
INTRODUCTION
This introduction is not a summary of this Official Statement. It is only a brief description
of and guide to, and is qualified by, more complete and detailed information contained in the
entire Official Statement, including the cover page and attached appendices, and the
documents summarized or described in this Official Statement. A full review should be made of
the entire Official Statement.
This Official Statement, including the cover page and attached appendices, is provided
to furnish information regarding the bonds captioned above (the "Bonds") to be issued by the
City of Carlsbad (the "City") for and on behalf of the City of Carlsbad Community Facilities
District No. 3, County of San Diego (the "County"), State of California (the "Community
Facilities District") with respect to its Improvement Area 2 ("Improvement Area 2").
Improvement Area 2 is one of two improvement areas within the Community Facilities District.
The City. The City of Carlsbad (the "City") is located approximately 35 miles north of
the City of San Diego on the southern California coast. The City is a general law city
incorporated in 1952. The City covers approximately 42 square miles. The City has a current
estimated population of 95,146. See "APPENDIX A - General Information About The City of
Carlsbad and County of San Diego."
The Community Facilities District and Improvement Area 2. The Community
Facilities District (including Improvement Area 1 and Improvement Area 2 within the Community
Facilities District) was established by the City Council of the City (the "City Council"), acting as
legislative body of the Community Facilities District, under the Mello-Roos Community Facilities
Act of 1982, as amended (the "Act"), pursuant to a resolution adopted on November 8, 2005 by
the City Council following a public hearing, and a landowner election held on November 8, 2005
at which the then-qualified electors of the Community Facilities District authorized the
Community Facilities District to incur bonded indebtedness and approved the levy of special
taxes. See "THE BONDS - Authority for Issuance."
Improvement Area 2 consists of 413.9 gross acres of which 167.13 taxable acres are
designated for development by the property owners with approximately 2,004,800 square feet of
industrial, research and development, office and corporate office buildings on 23 lots. Another 4
lots comprising approximately 220.26 gross acres are set aside for open space and public
utilities. The proposed development is commonly referred to as Carlsbad Oaks North Business
Preliminary, Subject to Change.
Park ("Carlsbad Oaks North"). Improvement Area 2 was formed to finance the acquisition and
construction of certain public capital improvements necessary for development of Carlsbad
Oaks North.
The Bonds are payable from and secured by Special Tax Revenues (defined
below), which are derived from the levy of Special Taxes (defined below) in Improvement
Area 2 only; special taxes that may be levied in Improvement Area 1 of the Community
Facilities District, and proceeds of any foreclosure sales of property in Improvement
Area 1, will not be available to pay debt service on the Bonds. See "Security and
Sources of Payment for the Bonds" below.
Authority for Issuance of the Bonds. The Bonds are issued pursuant to the following
(see "THE BONDS - Authority for Issuance"):
• The Act.
• Certain resolutions adopted by the City Council, acting as the legislative body of the
Community Facilities District, including the Resolution of Issuance adopted on
, 2008 (the "Resolution of Issuance").
• A Fiscal Agent Agreement, dated as of January 1, 2008 (the "Fiscal Agent
Agreement"), by and between the City, for and on behalf of the Community Facilities
District, and The Bank of New York Trust Company, N.A., as fiscal agent (the "Fiscal
Agent").
The City Council, acting as the legislative body of the Community Facilities District and
the eligible landowner voters in Improvement Area 2 have authorized the issuance of not to
exceed $21 million of bonded indebtedness in Improvement Area 2.
Purpose of the Bonds. Proceeds of the Bonds will be used primarily to finance the
acquisition and construction of certain public capital improvements to be owned and operated
by the City that are necessary for the development of Improvement Area 2. Bond proceeds will
also be used to pay for interest on the Bonds through September 1, 2008, fund a reserve fund
for the Bonds, pay certain costs of administering the Bonds, and pay the costs of issuing the
Bonds. See "FINANCING PLAN - Facilities to be Financed with Proceeds of the Bonds" and "-
Estimated Sources and Uses of Funds."
Escrow Bonds. Proceeds of the bonds designated in the Maturity Schedule on the
inside cover of this Official Statement as "Escrow Bonds" (the "Escrow Bonds") will be
deposited into an Escrow Fund to be held by the Fiscal Agent under the Fiscal Agent
Agreement. The Fiscal Agent Agreement provides for the transfer of funds from the Escrow
Fund to the Improvement Fund and the Reserve Fund not more often than once each 12-month
period (each, an "Escrow Release Date"), subject to satisfaction of certain "Escrow Release
Tests." If the Escrow Release Tests have not been met prior to September 1, 2010 or such
later date identified by the City (the "Escrow Redemption Date"), moneys in the Escrow Fund
will be transferred to the Interest Account and the Principal Account for the purpose of
redeeming the Escrow Bonds on the Escrow Redemption Date. See "SECURITY FOR THE
BONDS - Escrow Fund" and "APPENDIX E - Summary of Fiscal Agent Agreement."
Security and Sources of Payment for the Bonds. Pursuant to the Fiscal Agent
Agreement, the Bonds are secured by and payable from the following:
• Funds Established Under the Fiscal Agent Agreement. Moneys in the Bond
Fund, the Reserve Fund and the Special Tax Fund are pledged to the repayment
of the Bonds. Moneys in the Administrative Expense Fund, the Improvement
Fund (including any accounts therein) and the Costs of Issuance Fund are not
pledged to the repayment of the Bonds.
• Special Tax Revenues. The Fiscal Agent Agreement defines "Special Tax
Revenues" as proceeds of the special taxes levied within Improvement Area 2
("Special Taxes"), including any scheduled payments and any prepayments,
related interest and penalties, and proceeds of the redemption or sale of property
sold as a result of foreclosure of the lien of the Special Taxes to the amount of
the Special Tax lien, interest and penalties.
The Special Taxes will be levied within Improvement Area 2 in accordance with the City
of Carlsbad Community Facilities District No. 3 Improvement Area No. 2 Rate and Method of
Apportionment of Special Tax (the "Rate and Method"). See "SECURITY FOR THE BONDS -
Rate and Method." Special Tax Revenues do not include proceeds of special taxes that
may be levied within Improvement Area 1, nor may real property within Improvement
Area 1 be foreclosed upon in the event property owners in Improvement Area 2 are
delinquent in the payment of Special Taxes.
The Facilities (defined in "FINANCING PLAN - Facilities to be Financed with Proceeds of
the Bonds" below) financed with proceeds of the Bonds are not in any way pledged as security
for the Bonds.
The City has covenanted in the Fiscal Agent Agreement to cause foreclosure
proceedings to be commenced and prosecuted against certain parcels with delinquent
installments of the Special Tax. For a more detailed description of the foreclosure covenant,
see "SECURITY FOR THE BONDS - Covenant to Foreclose."
Additional Obligations Payable From Special Tax Revenues. The Fiscal Agent
Agreement authorizes the City to issue bonds secured by a pledge of Special Tax Revenues
solely for the purpose of refunding all or a portion of the outstanding Bonds. See "SECURITY
FOR THE BONDS - Additional Obligations Secured by Special Taxes."
Property Ownership and Proposed Development. The taxable property within
Improvement Area 2 was all initially owned by two related legal entities, namely Techbilt
Construction Corp. ("Techbilt Construction") and Carlsbad Oaks North Partners, L.P.
("CONP"). Techbilt Construction and CONP are both part of the Techbilt Companies and are
owned by the same individuals.
Techbilt Construction's long term plan is a combination of selling finished lots to other
builders, constructing and selling buildings directly to end users, and constructing buildings and
subsequently leasing them to end users. The development is presently proceeding in three
separate phases. Consistent with this plan, on February 16, 2007, Techbilt Construction sold a
portion of the completed lots it owned in Phase 1 (approximately 31.99 taxable acres) to Kilroy
Realty Finance Partnership, L.P. ("Kilroy"; collectively with Techbilt Construction and CONP,
the "Property Owners"). Kilroy is proceeding with development plans to build and lease office
buildings.
Techbilt Construction presently owns the remaining lots in Phase 1 not sold to Kilroy,
and all of Phase 2. Techbilt Construction also has an option to purchase Phase 3 from CONP,
which Techbilt Construction expects to exercise when property in Phase 3 is ready for grading
(estimated September 2008).
The taxable property within Improvement Area 2 is currently owned according to the
following table:
Property Carlsbad Oaks Taxable Net Saleable Potential
Owner
Techbilt Construction
Kilroy
CONP
Lots Owned (1)(2)
1-3,6,13-19
4, 5, 7 and 8
20-27
North Phase
Phases 1 and 2
Phase 1
Phase 3
Acres (3)
81.14
31.99
54.00
Acres (4)
73.9
25.8
49.9
Development (5)
1,02 1,200 square feet
288,000 square feet
695,600 square feet
Totals 23 167.13 149.6 2,004,800 square feet
(1) Final maps for lots 1-19 have been finalized and approved by the City. Techbilt Construction projects the final map for lots
20-27 will record in August 2008.
(2) Does not include Lots 9-12, which were permanently reserved as open space and public utility.
(3) 'Taxable Acres," as that term is used in this Official Statement, is defined as the "Acreage" of 'Taxable Property" as those
terms are defined in the Rate and Method. In general, with respect to property for which a final subdivision map has been
recorded, the Rate and Method defines "Acreage" as the acreage shown on or determined from the applicable final map for
each assessor's parcel. The Rate and Method establishes a minimum of 150.7 Acres of Taxable Property.
(4) The Appraisal values the price per square foot of the "net saleable area" or "net acres," which the Appraisal defines as the
gross area of the property less: (i) any portion of the property dedicated for public infrastructure such as streets, gutters,
sidewalks and curbs, except to the extent that such dedications satisfy code-mandated setback requirements, (ii) areas
within the gross lot represented by recorded easements, CC&R restrictions or rights-of-way that prohibit construction of
improvements thereupon, except to the extent that such dedications satisfy code-mandated setback, and (iii) open-space
lots.
(5) For Techbilt Construction/CONP, listed in total square feet of theoretical building size, based on entitled use, on all lots
owned. For Kilroy based on Kilroy's current development plan. The Market Absorption Study described below assumed an
additional 82,700 square feet might be built on Kilroy's property based on a theoretical building site provided by Techbilt
Construction.
Source: Techbilt Construction and Special District Financing and Administration.
For detailed information about the Property Owners, current land uses and proposed
development plans for the property in Improvement Area 2, see "PROPERTY OWNERSHIP
AND PROPOSED DEVELOPMENT." No assurance can be given that development will occur
as expected by the Property Owners.
Redemption of Bonds Before Maturity. Prior to their maturities, the Bonds are subject
to optional redemption, mandatory sinking fund redemption, and special mandatory redemption
from prepaid Special Taxes, and the Escrow Bonds are subject to extraordinary mandatory
redemption in the event the Escrow Release Tests are not met. See "THE BONDS -
Redemption."
Appraisal. An appraisal of the Taxable Property (as defined in the Rate and Method)
within Improvement Area 2 dated November 19, 2007 (the "Appraisal") was prepared by Bruce
Hull & Associates, Inc., Ventura, California (the "Appraiser") in connection with issuance of the
Bonds. The purpose of the appraisal was to ascertain the market value of the fee simple estate
of the Taxable Property in Improvement Area 2 as of November 10, 2007.
See "IMPROVEMENT AREA 2 - Appraised Property Value" and "APPENDIX C - The
Appraisal" for further information about the Appraisal. The City makes no representation as to
the accuracy or completeness of the Appraisal.
Market Absorption Study. Empire Economics, Inc., Capistrano Beach, California (the
"Market Consultant"), prepared a report entitled "Market Absorption Study," dated September
14, 2007 (the "Market Absorption Study"), to estimate the projected market absorption of the
industrial, research and development and office space proposed to be constructed in
Improvement Area 2. The Market Absorption Study's conclusions are summarized in
"IMPROVEMENT AREA 2 - Market Absorption Study" and in "APPENDIX D - Market Absorption
Study Summary and Conclusions."
The Market Absorption Study reports that the Market Consultant's absorption schedule
anticipates approximately 86% build-out by 2016 while Techbilt Construction projects reaching
full build-out at the end of 2012. The Market Consultant concludes the difference can be
attributed to the Market Consultant (i) forecasting lower economic growth and hence lower
demand for industrial-office buildings and (ii) considering all of the nearby business parks in the
aggregate, as they compete with each other in the marketplace.
The Appraisal considered the conclusions of the Market Absorption Study; however, the
Appraisal values the taxable property in Improvement Area 2 as finished lots, while the Market
Consultant estimated the absorption period to occupancy. See "IMPROVEMENT AREA 2 -
Market Absorption Study" and "APPENDIX D - Market Absorption Study Summary and
Conclusions" for further information about the Market Absorption Study. The City makes no
representation as to the accuracy or completeness of the Market Absorption Study.
Risk Factors Associated with Purchasing the Bonds. Investment in the Bonds
involves risks that may not be appropriate for some investors. See "BOND OWNERS' RISKS"
for a discussion of certain risk factors which should be considered, in addition to the other
matters set forth in this Official Statement, in considering the investment quality of the Bonds.
Professionals Involved in the Offering. The following professionals are participating
in this financing:
• Best Best & Krieger LLP, San Diego, California, is serving as Bond Counsel to
the City.
• Jones Hall, A Professional Law Corporation, San Francisco, California, is acting
as Disclosure Counsel to the City.
• The Bank of New York Trust Company, N.A., Los Angeles, California, will serve
as the paying agent, registrar, authentication and transfer agent for the Bonds
and will perform the functions required of it under the Fiscal Agent Agreement.
• Bruce Hull & Associates, Inc., Ventura, California, prepared the Appraisal.
• Empire Economics, Inc., Capistrano Beach, California, prepared the Market
Absorption Study.
• Special District Financing and Administration, of Escondido, California, acted as
special tax consultant to the City and will act as initial administrator to the City in
connection with annual Special Tax levies, and as dissemination agent for the
City under the Issuer Continuing Disclosure Certificate described below.
Continuing Disclosure
The City, for and on behalf of the Community Facilities District. The City will
covenant, for and on behalf of the Community Facilities District, in a continuing disclosure
certificate, the form of which is set forth in "APPENDIX G - Form of Issuer Disclosure Certificate"
(the "Issuer Continuing Disclosure Certificate"), for the benefit of holders and beneficial
owners of the Bonds, to provide certain financial information and operating data relating to
Improvement Area 2 and the Bonds (the "Issuer Annual Report") by not later than nine months
after the end of the City's Fiscal Year, resulting in a deadline of March 31 of each year,
beginning with an initial deadline of March 31, 2008 (provided the fiscal year 2006-07 report
may consist of the Official Statement and the City's fiscal year 2006-07 audited financial
statements). The Issuer Continuing Disclosure Certificate also requires the City to provide
notices of the occurrence of certain enumerated events, if material. The initial Dissemination
Agent under the Issuer Continuing Disclosure Certificate will be Special District Financing and
Administration.
The covenants of the City in the Issuer Continuing Disclosure Certificate will be made in
order to assist the Underwriter in complying with Securities and Exchange Commission Rule
15c2-12(b)(5) (the "Rule").
A default under the Issuer Continuing Disclosure Certificate will not, in itself, constitute
an Event of Default under the Fiscal Agent Agreement, and the sole remedy under the Issuer
Continuing Disclosure Certificate in the event of any failure of the City or the Dissemination
Agent to comply will be an action to compel specific performance.
The City has never failed to comply, in any material respect, with an undertaking under
the Rule.
Property Owners. Techbilt Construction will covenant on behalf of itself and CONP, in
a continuing disclosure certificate, the form of which is set forth in "APPENDIX H - Form of
Property Owner Continuing Disclosure Certificate" (the "Property Owner Continuing
Disclosure Certificate"), for the benefit of holders and beneficial owners of the Bonds, to
provide certain information relating to itself and the parcels it owns within Improvement Area 2
on a semi-annual basis (each a "Property Owner Semi-Annual Report"), and to provide
notices of the occurrence of certain enumerated events. Techbilt Construction may serve as
dissemination agent under its own Property Owner Continuing Disclosure Certificate, although
Special District Financing and Administration will act as the initial dissemination agent.
In addition, Kilroy will covenant in a separate Property Owner Continuing Disclosure
Certificate for the benefit of holders and beneficial owners of the Bonds, to provide certain
information relating to itself and the parcels it owns within Improvement Area 2 in Property
Owner Semi-Annual Reports, and to provide notice of the occurrence of certain enumerated
events. Kilroy may serve as dissemination agent under its own Property Owner Continuing
Disclosure Certificate, although Special District Financing and Administration will act as the
initial dissemination agent.
The obligations of Techbilt Construction and Kilroy under their respective Property
Owner Continuing Disclosure Certificates will terminate on the earlier of: (i) legal defeasance,
prior redemption or payment in full of all the Bonds; (ii) at such time as property owned by the
Property Owner is no longer responsible for payment of 10% or more of the Special Taxes;
(iii) the date on which the Property Owner prepays in full all of the Special Taxes attributable to
its property in Improvement Area 2; or (iv) the date on which (A) the Property Owner's property
in Improvement Area 2 is responsible for between 10% and 25% of the annual Special Tax levy,
(B) the Property Owner has completed construction of all buildings to be constructed within
property it owns in Improvement Area 2 and (C) each such building constructed by the Property
Owner and intended for lease by the Property Owner has been, since completion of
construction, at least 80% occupied at one time or another.
A default under the Property Owner Continuing Disclosure Certificate will not, in itself,
constitute an Event of Default under the Fiscal Agent Agreement, and the sole remedy under a
Property Owner Continuing Disclosure Certificate in the event of any failure of the respective
Property Owner or the Dissemination Agent to comply will be an action to compel specific
performance. The City has no obligation to enforce the continuing disclosure undertaking of any
Property Owner.
Techbilt Construction has never previously undertaken a continuing disclosure
obligation. [CONFIRM] Kilroy has never previously undertaken a continuing disclosure
obligation.
FINANCING PLAN
Facilities to be Financed with Proceeds of the Bonds
Pursuant to the Resolution of Formation adopted by the City Council of the City, acting
as legislative body for the Community Facilities District, on November 8, 2005, the Community
Facilities District is authorized to finance a variety of public capital improvements (the "Project"),
including the following, all of which will be acquired by the City upon completion of construction:
1. Improvement A: widening of Palomar Airport Road from West of Melrose Drive
Intersection to City of Vista limits (were financed with the proceeds of bonds
issued for Improvement Area 1 only).
2. Improvement B: improvement of Faraday Avenue from Orion Street to Melrose
Drive.
3. Improvement C: improvement of Melrose Drive from Palomar Airport Road to
City of Vista limits.
4. Improvement D: construction of Melrose Drive right turn lane south of Palomar
Airport Road. The City anticipates that approximately one-third of the costs of
Improvement D will be paid from proceeds of the bonds issued for Improvement
Area 2 and from the contribution of Techbilt Construction and CONP. The
remaining costs are being funded with proceeds of bonds issued for
Improvement Area 1.
5. Improvement E: improvement of El Fuerte Street from northerly terminus to the
future extension of Faraday Avenue (to be financed with the proceeds of the
bonds Issued for Improvement Area 2 only (see below)).
6. Improvement F: construction of eastbound right turn lane on Palomar Airport
Road onto Melrose Drive south of Palomar Airport Road (to be financed with the
proceeds of bonds issued for Improvement Area 1 only).
The City expects the Facilities described above as Improvements B, C, D, and E will be
financed, in part, by proceeds of the bonds issued for Improvement Area 2 and, in part, by
proceeds of bonds issued for Improvement Area 1 of the Community Facilities District.
Proceeds of the Improvement Area 2 Bonds will be used to acquire the improvements described
above after they are built by Techbilt Construction. The Facilities described in Improvement A
and F above were financed solely from the proceeds of bonds issued for Improvement Area 1 of
the Community Facilities District.
Estimated Sources and Uses of Funds
The estimated proceeds from the sale of the Bonds, as indicated below, will be
deposited into the following funds established under the Fiscal Agent Agreement, as described
below:
SOURCES
Principal Amount of Bonds
Less: Original Issue Discount
Less: Underwriter's Discount
Total Sources
USES
Deposit into Reserve Fund (1)
Deposit into Costs of Issuance Fund (2)
Deposit into Administrative Expense Fund (3)
Deposit into Improvement Fund
Deposit into Capitalized Interest Sub-account (4)
Deposit into Escrow Interest Account
Deposit into Escrow Holding Account
Total Uses
(1) Equal to the Reserve Requirement with respect to the Bonds as of their date of delivery.
(2) Includes, among other things, the fees and expenses of Bond Counsel and Disclosure Counsel, the cost of printing the
Preliminary and final Official Statements, fees and expenses of the Fiscal Agent, the cost of the Appraisal and the Market
Absorption Study, and the fees of the Special Tax Consultant.
(3) To pay initial costs of administering the Bond program.
(4) Amounts deposited into the Capitalized Interest Sub-account of the Interest Account of the Bond Fund will be used to pay
interest on the Bonds through September 1, 2008.
THE BONDS
General Bond Terms
Dated Date, Maturity and Authorized Denominations. The Bonds will be dated their
date of delivery and will mature in the amounts and on the dates set forth on the inside of the
cover page of this Official Statement. The Bonds will be issued in fully registered, book-entry
only form, in denominations of $5,000 each or any integral multiple of $5,000.
Interest. The Bonds will bear interest at the annual rates set forth on the cover page of
this Official Statement, payable semiannually on each March 1 and September 1, commencing
March 1, 2008 (each, an "Interest Payment Date"). Interest will be calculated on the basis of a
360-day year composed of twelve 30-day months.
DTC and Book-Entry Only System. DTC will act as securities depository for the
Bonds. The Bonds will be issued as fully-registered securities registered initially in the name of
Cede & Co. (DTC's partnership nominee). See "APPENDIX F - DTC and the Book-Entry Only
System." References in this Official Statement to the owners or holders of the Bonds means
DTC, and not the beneficial owners of the Bonds.
Payments of Interest and Principal. For so long as DTC is used as depository for the
Bonds, principal, premium, if any, and interest payments on the Bonds will be made solely to
DTC or its nominee, Cede & Co., as registered owner of the Bonds, for distribution to the
beneficial owners of the Bonds in accordance with the procedures adopted by DTC.
Each Bond will bear interest from the Interest Payment Date next preceding the date of
authentication unless: (i) it is authenticated on an Interest Payment Date, in which event it will
bear interest from the date of authentication; or (ii) it is authenticated prior to an Interest
Payment Date and after the close of business on the Record Date preceding such Interest
Payment Date, in which event it will bear interest from such Interest Payment Date; or (iii) it is
authenticated prior to the Record Date preceding the first Interest Payment Date, in which event
it will bear interest from the Closing Date; provided, however, that if at the time of authentication
of a Bond, interest is in default thereon, such Bond will bear interest from the Interest Payment
Date to which interest has previously been paid or made available for payment thereon.
During any period in which the Bonds are not subject to DTC's book-entry system,
interest on the Bonds (including the final interest payment upon maturity or earlier redemption)
will be payable by check of the Fiscal Agent mailed on the Interest Payment Dates by first class
mail to the registered Owners thereof at the registered Owners' address as they appear on the
registration books maintained by the Fiscal Agent at the close of business on the Record Date
preceding the Interest Payment Date, or by wire transfer to an account within the United States
made on such Interest Payment Date upon written instructions of any Owner of $1,000,000 or
more in aggregate principal amount of Bonds received before the applicable Record Date. The
principal of the Bonds and any premium on the Bonds will be payable by check in lawful money
of the United States of America upon surrender of the Bonds at the principal office of the Fiscal
Agent.
10
Authority for Issuance
Community Facilities District Proceedings. The Bonds are issued pursuant to the
Act, the Resolution of Issuance and the Fiscal Agent Agreement. As required by the Act, the
City Council of the City has taken the following actions with respect to establishing the
Community Facilities District and authorizing issuance of the Bonds:
Resolutions of Intention: On October 4, 2005 the City Council adopted
Resolution No. 2005-301 stating its intention to establish the Community Facilities
District, including Improvement Area 2, and to authorize the levy of a special tax in the
Community Facilities District, including Improvement Area 2 (the "Resolution of
Intention"). On October 4, 2005, the City Council adopted Resolution No. 2005-302
stating its intention to incur bonded indebtedness in the Community Facilities District,
including an amount not to exceed $21 million in Improvement Area 2.
Resolution of Formation: Following a noticed public hearing on November 8,
2005, the City Council, acting as legislative body of the Community Facilities District,
adopted on November 8, 2005 Resolution No. 2005-329 (the "Resolution of
Formation"), which established the Community Facilities District, including Improvement
Area 2, and authorized the levy of a special tax within the Community Facilities District.
Resolution of Necessity: On November 8, 2005, the City Council adopted
Resolution No. 2005-330, declaring the necessity to incur bonded indebtedness in an
aggregate amount not to exceed $21 million within Improvement Area 2.
Landowner Election and Declaration of Results: On November 8, 2005, an
election was held within each improvement area of the Community Facilities District in
which the then-qualified electors within Improvement Area 2 approved a ballot
proposition authorizing the improvement area to incur bonded indebtedness, including
an amount not to exceed $21 million in Improvement Area 2, to finance the acquisition
and construction of the Project, the levy of a special tax and the establishment of an
appropriations limit for the improvement area. On November 8, 2005, the City Council
adopted Resolution No. 2005-331 pursuant to which the City Council, acting as the
legislative body of the Community Facilities District, approved the canvass of the votes
and declared each improvement area to be fully formed with the authority to levy Special
Taxes, to incur bonded indebtedness and to have its respective appropriations limit.
Special Tax Lien and Levy: A Notice of Special Tax Lien encumbering property
in Improvement Area 2 was recorded in the real property records of the County on
November 17, 2005 as Document No. 2005-0998003.
Ordinance Levying Special Taxes: On November 15, 2005, the City Council,
acting as legislative body for the Community Facilities District, adopted Ordinance No.
NS-777 levying the Special Tax within Improvement Area 2 beginning with the 2006-07
Fiscal Year (the "Ordinance").
Resolution Authorizing Issuance of the Bonds: On , 2008, the City
Council, acting as legislative body for the Community Facilities District, adopted
Resolution No. 2008- approving issuance of the Bonds.
11
City's Goals and Policies. As required by the Act, the City adopted a "local goals and
policies" pursuant to Council Policy Statement No. 33 ("Policy Statement 33"), effective
December 17, 2002. The City has determined that issuance of the Bonds conforms with Policy
Statement 33.
Redemption
Optional Redemption. The Bonds, including the Escrow Bonds, are subject to optional
call and redemption prior to maturity, as a whole or in part, pro rata among maturities and by lot
within a maturity, on any Interest Payment Date on or after September 1, 20 from funds
derived by the Community Facilities District from any source at a redemption price (expressed
as a percentage of the principal amount of the Bonds to be redeemed) as set forth below,
together with accrued interest to the redemption date:
Redemption Dates Redemption Prices
September 1, 20 through March 1, 20 10_%
September 1, 20 through March 1, 20 10_
September 1, 20 through March 1, 20 10_
September 1, 20 and any Interest Payment Date thereafter 100
Mandatory Sinking Fund Redemption. The Outstanding Bonds, other than the
Escrow Bonds, maturing on September 1, 20 , are subject to mandatory sinking fund
redemption in part, on September 1, 20 , and on each September 1 thereafter to maturity, by
lot, at a redemption price equal to the principal amount thereof to be redeemed, together with
accrued interest to the date fixed for redemption, without premium, from sinking payments as
follows:
Redemption Date
(September 1) Sinking Payments
The Outstanding Bonds, other than the Escrow Bonds, maturing on September 1, 20 ,
are subject to mandatory sinking fund redemption in part on September 1, 20 , and on each
September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount
thereof to be redeemed, together with accrued interest to the date fixed for redemption, without
premium, from sinking payments as follows:
Redemption Date
(September 1) Sinking Payments
The amounts in the foregoing schedules will be reduced by the City pro rata among
redemption dates, in order to maintain substantially level Debt Service, as a result of any prior
partial redemption of the Bonds as described in "Optional Redemption" above or "Redemption
from Special Tax Prepayments" below.
The Outstanding Escrow Bonds maturing on September 1, 20 are subject to
mandatory sinking fund redemption, in part, on September 1, 20 , and on each September 1
thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be
redeemed, together with accrued interest to the date of redemption, without premium, and from
sinking payments as follows:
12
Redemption Date
(September 1) Sinking Payments
The Outstanding Escrow Bonds maturing on September 1, 20 are subject to
mandatory sinking fund redemption, in part, on September 1, 20 , and on each September 1
thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be
redeemed, together with accrued interest to the date of redemption, without premium, and from
sinking payments as follows:
Redemption Date
(September 1) Sinking Payments
The amounts in the foregoing schedules pertaining to the Escrow Bonds shall be
reduced by the City pro rata among redemption dates, in order to maintain substantially level
Debt Service, as a result of any prior or partial redemption of the Bonds as described in
"Optional Redemption" above and "Redemption from Special Tax Prepayments" below.
Redemption from Special Tax Prepayments. Special Tax Prepayments and any
corresponding transfers from the Reserve Fund will be used to redeem Bonds, including the
Escrow Bonds following the Escrow Redemption Date, on the next Interest Payment Date for
which notice of redemption can timely be given, among maturities so as to maintain
substantially the same debt service profile for the Bonds (and any Parity Bonds) as in effect
prior to such redemption and by lot within a maturity, at a redemption price (expressed as a
percentage of the principal amount of the Bonds to be redeemed), as set forth below, together
with accrued interest to the date fixed for redemption:
Redemption Dates Redemption Prices
March 1, 2008 through March 1, 20_ 10_%
September 1, 20 and March 1, 20 10_
September 1, 20 and March 1, 20 10_
September 1, 20 and any Interest Payment Date thereafter 100
Extraordinary Mandatory Redemption of Escrow Bonds. The Escrow Bonds are
subject to extraordinary mandatory redemption on the Escrow Redemption Date See
"SECURITY FOR THE BONDS - Escrow Fund," from funds transferred from the Escrow Fund to
the Bond Fund pursuant to the Fiscal Agent Agreement at a redemption price equal to [ ]
of the principal amount thereof, together with accrued interest thereon to the date of redemption.
See "SECURITY FOR THE BONDS - Escrow Fund" below and "APPENDIX E - Summary of
Fiscal Agent Agreement" for a discussion of the conditions that would lead to an Extraordinary
Mandatory Redemption of the Escrow Bonds.
Purchase In Lieu of Redemption. In lieu of any redemption as described above, at the
direction of an Authorized Officer, moneys in the Bond Fund may be used and withdrawn by the
Fiscal Agent for purchase of Outstanding Bonds, at public or private sale, but in no event may
Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued
to the date of purchase and any premium which would otherwise be due if such Bonds were to
be redeemed in accordance with the Fiscal Agent Agreement.
Notice of Redemption. The Fiscal Agent will cause notice of any redemption to be
mailed by first class mail, postage prepaid, at least 30 days but not more than 60 days prior to
the date fixed for redemption, to the Securities Depositories, to one or more Information
13
Services, and to the respective registered Owners of any Bonds designated for redemption, at
their addresses appearing on the Bond registration books in the Principal Office of the Fiscal
Agent; however, mailing of the notice by the Fiscal Agent is not a condition precedent to
redemption and failure to mail or to receive any such notice, or any defect in the notice, will not
affect the validity of the proceedings for the redemption of the Bonds.
Effect of Redemption. From and after the date fixed for redemption, if funds available
for the payment of the principal of, and interest and any premium on, the Bonds so called for
redemption are deposited in the Bond Fund, the Bonds called for redemption will cease to be
entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment
of the redemption price, and no interest will accrue thereon on or after the redemption date
specified in the redemption notice.
Registration, Transfer and Exchange
Registration. The Fiscal Agent will keep or cause to be kept, at its Principal Office
sufficient books for the registration and transfer of the Bonds, which books will show the series
number, date, amount, rate of interest and last known Owner of each Bond. The City and the
Fiscal Agent will treat the Owner of any Bond whose name appears on the Bond register as the
absolute Owner of such Bond for any and all purposes, and the City and the Fiscal Agent shall
not be affected by any notice to the contrary. The City and the Fiscal Agent may rely on the
address of the Bondowner as it appears in the Bond register for any and all purposes.
The following provisions regarding the exchange and transfer of the Bonds apply only
during any period in which the Bonds are not subject to DTC's book-entry system. While the
Bonds are subject to DTC's book-entry system, their exchange and transfer will be effected
through DTC and the Participants and will be subject to the procedures, rules and requirements
established by DTC. See "APPENDIX F - DTC and the Book-Entry Only System."
Transfers of Bonds. Any Bond may, in accordance with its terms, be transferred, upon
the Bond register by the person in whose name it is registered, in person or by his duly
authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a
duly written instrument of transfer in a form acceptable to the Fiscal Agent. The cost for any
services rendered or any expenses incurred by the Fiscal Agent in connection with any such
transfer shall be paid by the City. The Fiscal Agent shall collect from the Owner requesting
such transfer any tax or other governmental charge required to be paid with respect to such
transfer.
Whenever any Bond or Bonds is surrendered for transfer, the City will execute and the
Fiscal Agent will authenticate and deliver a new Bond or Bonds, for like aggregate principal
amount of authorized denomination(s).
No transfers of Bonds will be required to be made (i) fifteen days prior to the date
established by the Fiscal Agent for selection of Bonds for redemption; or (ii) with respect to a
Bond after such Bond has been selected for redemption.
Exchange of Bonds. Bonds may be exchanged at the Principal Office of the Fiscal
Agent for a like aggregate principal amount of Bonds of authorized denominations and of the
same series and maturity. The cost for any services rendered or any expenses incurred by the
Fiscal Agent in connection with any such exchange shall be paid by the City. The Fiscal Agent
14
will collect from the Owner requesting such exchange any tax or other governmental charge
required to be paid with respect to such exchange.
No exchanges of Bonds may be required to be made (i) fifteen days preceding the date
established by the Fiscal Agent for selection of Bonds for redemption; or (ii) with respect to a
Bond after such Bond has been selected for redemption.
15
Debt Service Schedule
The following table presents the annual debt service on the Bonds (including sinking
fund redemptions), assuming (i) the release of Escrow Bond proceeds from the Escrow Fund
(see "SECURITY FOR THE BONDS - Escrow Fund") and (ii) no optional redemptions or special
mandatory redemptions from Special Tax prepayments.
Year Ending
September 1
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
Total
Principal
$
Interest
$
Total
Debt Service
$
16
SECURITY FOR THE BONDS
General
The City's obligation to pay the principal of, and interest and any premium on, the Bonds
is secured by a first pledge of the following:
• Funds Established Under the Fiscal Agent Agreement. Moneys in the Bond
Fund (including the Special Tax Prepayments Account), the Reserve Fund and
the Special Tax Fund. Moneys in the Administrative Expense Fund, the
Improvement Fund, the Rebate Fund and the Costs of Issuance Fund are not
pledged to the repayment of the Bonds.
• Special Tax Revenues. The Fiscal Agent Agreement defines "Special Tax
Revenues" as proceeds of the Special Taxes levied within Improvement Area 2
("Special Taxes"), including any scheduled payments and any prepayments
thereof, interest and penalties thereon and proceeds of the redemption or sale of
property sold as a result of foreclosure of the lien of the Special Taxes to the
amount of said lien, interest and penalties thereon.
The Facilities to be financed with the proceeds of the Bonds are not in any way pledged
to pay debt service on the Bonds. Any proceeds of condemnation or destruction of the Facilities
are not pledged to pay debt service on the Bonds and are free and clear of any lien or obligation
imposed under the Fiscal Agent Agreement.
Special Taxes
Levy of Special Taxes. The City has covenanted in the Fiscal Agent Agreement to
comply with all requirements of the Act so as to assure the timely collection of Special Tax
Revenues, including without limitation, the enforcement of the payment or collection of
delinquent Special Taxes.
Under the Fiscal Agent Agreement, the City is obligated to effect the levy of the Special
Taxes each Fiscal Year in accordance with the Ordinance by each August 1 (or a later date
authorized by the Act or any amendment of the Act) that the Bonds are outstanding, such that
the computation of the levy and the transmission of the amounts to the County is complete
before the final date on which the County will accept the transmission of the Special Tax
amounts for the parcels within Improvement Area 2 for inclusion on the next real property tax
roll.
An authorized officer of the City will fix and levy the amount of Special Taxes within
Improvement Area 2 required for the payment of principal of and interest on any outstanding
Bonds becoming due and payable during the ensuing calendar year, including any necessary
replenishment or expenditure of the Reserve Fund for the Bonds and an amount estimated to
be sufficient to pay the Administrative Expenses (including any rebate requirement imposed by
federal tax law) during such year, taking into account the balances in such funds and in the
Special Tax Fund.
Reduction of Special Taxes. The City covenants in the Fiscal Agent Agreement not to
initiate, consent or conduct proceedings to reduce the maximum Special Taxes that may be
levied in Improvement Area 2 below an amount which is necessary to provide Special Tax
17
Revenues in any Fiscal Year in an amount equal to 110 % of the maximum annual debt service
on the Bonds plus a reasonable estimate of Administrative Expenses for such Fiscal Year.
Manner of Collection. The Fiscal Agent Agreement provides that the Special Taxes
may be collected either on the County tax roll or directly from the owners or lessees of the
parcels of taxable property. The City expects to collect the Special Taxes levied in
Improvement Area 2 in fiscal year 2008-09 through the County tax roll.
Because the Special Tax levy is limited to the maximum Special Tax rates set forth in
the Rate and Method, no assurance can be given that, in the event of Special Tax
delinquencies, the receipts of Special Taxes will, in fact, be collected in sufficient amounts in
any given year to pay debt service on the Bonds. See "BOND OWNERS' RISKS," including the
subsection entitled "- Other Possible Claims Upon the Value of Taxable Property," for a
discussion of factors that could impact the amount of Special Taxes collected by the City and
the amount, if any, to be realized by Bond owners as a result of a foreclosure sale in respect of
delinquent Special Taxes.
Additional Obligations Secured by Special Taxes
The Fiscal Agent Agreement authorizes the City to incur additional obligations secured
by Special Tax Revenues so/e/yfor the purpose of refunding the outstanding Bonds.
Rate and Method
General. The Special Tax will be levied and collected according to the Rate and
Method, which provides the means by which the City, or its designee, may annually levy the
Special Taxes within Improvement Area 2, up to the Maximum Special Tax. In addition, the
Rate and Method provides the formula to determine the amount of the Special Tax that will need
to be collected each Fiscal Year from the "Taxable Property" within Improvement Area 2.
The following is a summary of the provisions of the Rate and Method, which should be
read in conjunction with the complete text of the Rate and Method which is attached to this
Official Statement as "APPENDIX B - Rate and Method of Apportionment of Special Tax." The
meaning of the defined terms used in this section are as set forth in APPENDIX B. This section
provides only a summary of the Rate and Method, and is qualified by more complete and
detailed information contained in the entire Rate and Method attached to this Official Statement
as APPENDIX B.
Assignment to Land Use Categories. Prior to the beginning of each Fiscal Year, all
property within Improvement Area 2 will be classified as either Taxable Property or Exempt
Property. Taxable Property shall be further classified as Final Map Property or Developable
Property.
Maximum Special Tax. The Annual Maximum Special Tax per Acre for Fiscal Year
2007-08 for all Taxable Property is $13,367.84.
Each Fiscal Year, the Annual Maximum Special Tax will escalate at the applicable Index,
i.e., the lesser of (a) the annual percentage increase, if any, in the "Construction Cost Index for
ENR 20 Cities" for the City of Los Angeles as published in the "Engineering News Record" for
the twelve-month period ending with the month of March preceding each Fiscal Year or (b) 3%
18
The escalation will cease in the Fiscal Year following the earlier of (1) the completion of
the construction and acquisition of all of the Improvements pursuant to the Acquisition
Agreement or (2) the sale of the final series of Bonds.
Method of Apportionment of the Special Tax. Commencing with Fiscal Year 2008-09
and for each following Fiscal Year, the CFD Administrator will determine the Special Tax
Requirement. No Special Tax will be levied until any property is classified as Final Map
Property. After any property has been classified as Final Map Property, the Special Tax will be
levied on all Taxable Property within Improvement Area 2 as necessary to fund the Special Tax
Requirement as follows:
First: The Special Tax will be levied in equal percentages on each Assessor's
Parcel of Taxable Property, exclusive of Open Space Property and Public Property, up
to 100% of the applicable Annual Maximum Special Tax.
Second: If additional Special Taxes are needed after the first step, the Special
Tax shall be levied in equal percentages on each remaining Assessor's Parcel of
Taxable Property (i.e., Open Space Property and Public Property which is not exempt
from the Special Tax), up to 100% of the applicable Annual Maximum Special Tax.
Exemptions. The CFD Administrator will classify the following as Exempt Property:
(i) Public Property,
(ii) Open Space, and
(iii) Assessor Parcels with public or utility easements making impractical their
utilization for other than the purposes set forth in the easement;
provided, however, that no such classification will reduce the sum of all Taxable Property to less
than 150.57 Acres. Assessor's Parcels which cannot be classified as Exempt Property because
such classification would reduce the Acreage of all Taxable Property to less than the amount
stated above will be classified as Taxable Property and will be taxed.
The Annual Maximum Special Tax obligation for any property which would be classified
as Public Property upon its transfer or dedication to a public agency but which is classified as
Taxable Property pursuant to the preceding paragraph will be prepaid in full by the seller prior to
the transfer/dedication of such property to such public agency. Until the Annual Maximum
Special Tax obligation for any such Public Property is prepaid, the property will continue to be
subject to the levy of the Special Tax as Taxable Property.
If the use of an Assessor's Parcel of previously classified Exempt Property changes so
that such Assessor Parcel is no longer classified as Exempt Property, such Assessor Parcel will
cease to be classified as Exempt Property and will be deemed to be Taxable Property.
Manner of Collection of Special Taxes. The Special Tax will be collected in the same
manner and at the same time as ordinary ad valorem property taxes; provided, however, that
the CFD Administrator may directly bill the Special Tax, or may collect Special Taxes at a
different time or in a different manner if necessary to meet the financial obligation of the
Community Facilities District for Improvement Area 2 or as otherwise determined appropriate by
the CFD Administrator.
19 /6V
Prepayment of Special Taxes. The Rate and Method permits prepayment of Special
Taxes. See "APPENDIX B - Rate and Method of Apportionment of Special Tax" for more
detailed information about the manner in which the amount of Special Tax prepayments will be
calculated.
Duration of the Special Tax Levy. The Special Tax may not be levied (a) longer than
the 10th Fiscal Year following the final maturity of the last series of Bonds or (b) longer than is
needed to pay the cost and incidental expenses of the construction of the Improvements,
whichever is later.
Covenant to Foreclose
Foreclosure Under the Act. Under Section 53356.1 of the Act, if any delinquency
occurs in the payment of the Special Tax, the City may order the institution of a Superior Court
action to foreclose the lien therefor within specified time limits. In such an action, the real
property subject to the delinquent Special Tax levy may be sold at judicial foreclosure sale.
City's Foreclosure Covenant. The City has covenanted in the Fiscal Agent
Agreement, with and for the benefit of the owners of the Bonds, that it will order, and cause to
be commenced as described in the following paragraph, and thereafter diligently prosecute to
judgment (unless the delinquency is brought current), an action in the superior court to foreclose
the lien of any Special Tax or installment thereof not paid when due.
The City covenants to order, cause to be commenced and diligently pursue to
completion, judicial foreclosure proceedings against property or properties under common
ownership with cumulative aggregate delinquent Special Taxes in excess of $10,000 by the
October 1 following the close of the Fiscal Year in which such delinquent Special Taxes first
exceed such amount, and will commence judicial foreclosure proceedings against all properties
with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which
it receives Special Tax Revenues in an amount which is less than 95% of the total Special Tax
Revenues which were to be received in such Fiscal Year.
Sufficiency of Foreclosure Sale Proceeds; Foreclosure Limitations and Delays.
No assurances can be given that the real property subject to a judicial foreclosure sale will be
sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax
installment. The Act does not require the City to purchase or otherwise acquire any lot or parcel
of property foreclosed upon if there is no other purchaser at such sale. See "BOND OWNERS'
RISKS," including the subsection entitled "- Other Possible Claims Upon the Value of Taxable
Property," for a discussion of factors that could impact amounts, if any, to be realized by Bond
owners as a result of a foreclosure sale.
Section 53356.6 of the Act requires that property sold pursuant to foreclosure under the
Act be sold for not less than the amount of judgment in the foreclosure action, plus post-
judgment interest and authorized costs, unless the consent of the owners of 75 percent of the
outstanding Bonds is obtained. However, under Section 53356.6 of the Act, the City, as
judgment creditor, is entitled to purchase any property sold at foreclosure using a "credit bid,"
where the City could submit a bid crediting all or part of the amount required to satisfy the
judgment for the delinquent amount of the Special Tax. If the City becomes the purchaser
under a credit bid, the City must pay the amount of its credit bid into the redemption fund
established for the Bonds, but this payment may be made up to 24 months after the date of the
20
foreclosure sale. The City has no obligation whatsoever to make any credit bid or purchase any
property subject to delinquent Special Taxes and has no intention to do so.
Foreclosure by court action is subject to normal litigation delays, the nature and extent of
which are largely dependent on the nature of the defense, if any, put forth by the debtor and the
Superior Court calendar. In addition, the ability of the City to foreclose the lien of delinquent
unpaid Special Taxes may be substantially delayed by bankruptcy court proceedings, may be
limited in certain other circumstances and may require prior consent of the property owner if the
property is owned by or in receivership of the Federal Deposit Insurance Corporation (the
"FDIC"). See "BOND OWNERS' RISKS - Bankruptcy and Foreclosure Delays."
No Teeter Plan. Because the County has not elected to follow the procedures of the
"Teeter Plan" (which is the County's Alternative Method of Distribution of Tax Levies and
Collections and of Tax Sale Proceeds, as provided for in Section 4701 et seq. of the California
Revenue and Taxation Code) with respect to special taxes, collections of Special Taxes will
reflect actual delinquencies.
Special Tax Fund
Deposits. The Fiscal Agent Agreement obligates the City to (i) not later than January
15 or July 15, deliver all Special Tax prepayments to the Fiscal Agent for deposit in the Special
Tax Prepayments Account of the Bond Fund (moneys in the Special Tax Prepayments Account
will be used to redeem Bonds on the next date for which notice of redemption can be given) and
(ii) deposit all other Special Tax Revenues received by it, within 5 Business Days after receipt,
into the Special Tax Fund held by the City's Finance Director.
Special Tax Fund Held in Trust. Moneys in the Special Tax Fund will be held in trust
by the Finance Director for the benefit of the owners of the Bonds and the City.
Disbursements. From time to time as needed to pay the obligations of the District, but
no later than the Business Day prior to each Interest Payment Date, the Finance Director will
withdraw from the Special Tax Fund and transfer the following amounts in the following order of
priority:
Administrative Expense Fund: To the Administrative Expense Fund in an
amount not to exceed the Priority Administrative Expense Amount ($ ).
Bond Fund: To the Fiscal Agent for deposit in the Bond Fund, an amount, taking
into account any amounts then on deposit in the Bond Fund and any expected transfers
to the Bond Fund from the Improvement Fund, the Reserve Fund, and the Special Tax
Prepayments Account, such that the amount in the Bond Fund equals the principal
(including any sinking payment), premium, if any, and interest due on the Bonds on the
next Interest Payment Date.
Reserve Fund: To the Fiscal Agent for deposit in the Reserve Fund, an amount,
taking into account amounts then on deposit in the Reserve Fund, such that the amount
in the Reserve Fund is equal to the Reserve Requirement.
Additional Administrative Expenses: Amounts then in the Special Tax Fund
remaining after disbursements described above will be transferred from time to time by
the Finance Director to the Administrative Expense Fund, to pay additional
21
Administrative Expenses in excess of the amount deposited above, so long as any such
transfers do not exceed, in any Fiscal Year, the amount included in the Special Tax levy
for such Fiscal Year for Administrative Expenses.
Bond Fund
The Fiscal Agent Agreement establishes the Bond Fund, and within the Bond Fund, an
Interest Account (and a Capitalized Interest Sub-account within the Interest Account), a
Principal Account and a Special Tax Prepayments Account. Moneys in the Bond Fund and the
accounts therein will be held in trust by the Fiscal Agent for the benefit of the Owners of the
Bonds, will be disbursed for the payment of the principal of, and interest and any premium on,
the Bonds, and, pending such disbursement, will be subject to a lien in favor of the Owners of
the Bonds. See APPENDIX E for a summary of the provisions of the Fiscal Agent Agreement
relating to deposits into and disbursements from the Bond Fund.
Reserve Fund
In order to further secure the payment of principal of and interest on the Bonds, certain
proceeds of the Bonds will be deposited into the Reserve Fund in an amount equal to the
Reserve Requirement. See "FINANCING PLAN - Estimated Sources and Uses of Funds."
"Reserve Requirement" is defined in the Fiscal Agent Agreement to mean, as of any date of
calculation, an amount equal to the least of the following (excluding the amount, if any, on
deposit in the Escrow Fund as of the date of calculation):
(i) 10% of the outstanding principal amount of the Bonds,
(ii) maximum annual debt service on the outstanding Bonds, or
(iii) 125% of average annual debt service on the outstanding Bonds.
If Special Taxes are prepaid and Bonds are to be redeemed with the proceeds of such
prepayment, a proportionate amount in the Reserve Fund (determined on the basis of the
principal amount of the Bonds to remain outstanding) will be applied to the redemption of the
Bonds.
See "APPENDIX E - Summary of Fiscal Agent Agreement" for a description of the
timing, purpose and manner of disbursements from the Reserve Fund.
Escrow Fund
Establishment of Escrow Fund. The proceeds of the Escrow Bonds will be deposited
into various accounts in an Escrow Fund to be held by the Fiscal Agent under the Fiscal Agent
Agreement. Moneys in the Escrow Fund will be held in trust by the Fiscal Agent for the benefit
of the Bondowners and will be transferred only as provided in the Fiscal Agent Agreement. Set
forth below is a brief summary of the provisions of the Fiscal Agent Agreement relating to the
Escrow Fund. See "APPENDIX E - Summary of Fiscal Agent Agreement" for a more
comprehensive summary of the Escrow Fund provisions.
Transfers on Escrow Release Dates. The Fiscal Agent Agreement provides for the
transfer of funds from the Escrow Fund to the Improvement Fund and the Reserve Fund not
22
more often than once each 12-month period (each, an "Escrow Release Date"), subject to
satisfaction of certain "Escrow Release Tests," including written certification by the City that:
(1) Based on information from the County Tax Collector, there are no current
defaults in the payment of any ad valorem real property taxes, special taxes or assessments
levied on the Remaining Lots owned by either Techbilt Construction or CONP. "Remaining
Lots" is defined as the property in Improvement Area No. 2 that is owned as of the date of this
Official Statement by Techbilt Construction and CONP, or any Affiliate of either such entity. See
"PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT - Property Ownership" below.
(2) The final subdivision map for Phase 3 of Carlsbad Oaks North has been
recorded in the office of the County Recorder.
(3) Two separate 4:1 value-to-lien tests have been met, the first of which is based on
the appraised value of all parcels of Taxable Property in Improvement Area 2 and the second of
which is based on the appraised value of the Remaining Lots.
Extraordinary Mandatory Redemption of Escrow Bonds. On the day immediately
preceding September 1, 2010 or such later date determined by the City (the "Escrow
Redemption Date"), moneys in the Escrow Fund will be transferred to the Interest Account and
the Principal Account for the purpose of redeeming the Escrow Bonds on the Escrow
Redemption Date. See "THE BONDS - Redemption - Extraordinary Mandatory Redemption of
Escrow Bonds."
Limited Obligation
All obligations of the City under the Fiscal Agent Agreement and the Bonds are special
obligations of the City, payable solely from Special Tax Revenues and other moneys identified
in the Fiscal Agent Agreement.
No Acceleration
The principal of the Bonds are not subject to acceleration under the Fiscal Agent
Agreement as a result of a default relating to the Fiscal Agent Agreement or the Bonds.
THE CITY
For general information on the City see "APPENDIX A - General Information About the
City of Carlsbad and County of San Diego."
23
[INSERT AERIAL PHOTO FROM APPRAISAL]
24
[INSERT MAP OF CARLSBAD OAKS NORTH]
25 / :/
i
IMPROVEMENT AREA 2
General
The Community Facilities District. The Community Facilities District includes
Improvement Area 1 and Improvement Area 2. The Bonds are secured by Special Tax
Revenues derived from the levy of Special Taxes in Improvement Area 2 only.
The boundary map showing the boundaries of Improvement Area 2 and the Community
Facilities District is attached as APPENDIX J.
Improvement Area 2. Improvement Area 2 consists of 413.9 gross acres of which
167.13 taxable acres are designated for development by the Property Owners with
approximately 2,004,800 square feet of industrial, research and development, office and
corporate office buildings on 23 lots. Another approximately 220.26 acres are set aside for
open space and public utilities on 4 lots. The proposed development is commonly known as
Carlsbad Oaks North.
Property in Improvement Area 2 is characterized by three different topographic areas:
the north-facing hillside slopes that extend down from the southern portion of the property; the
rocky hills that cover the central and northern portions of the property (characterized by
gradually steepening granite hillsides, including numerous tributary drainages and rock
outcrops); and the intervening east-west canyon drainage.
Entitlements
No assurances can be made that the Property Owners or any other current or future
owner of property within Improvement Area 2 will have the resources, willingness and ability to
successfully complete development activities on the property within Improvement Area 2. No
representation is made by the City as to the ability (financial or otherwise) of the Property
Owners, or any other owner of property within Improvement Area 2 to complete the property
development as currently planned.
Development Agreement. There is no development agreement with respect to the
property in Improvement Area 2.
Entitlement Status. Techbilt Construction reports the following entitlement status:
• Carlsbad Oaks North Specific Plan (SP 211) approved by City Council Ordinance
No. NS-646 adopted October 15, 2002. The Specific Plan authorizes
development of 23 buildable lots ranging in size from 3.0 acres to 20.7 acres,
and allows industrial, research and development, office, auxiliary commercial and
open space use; the remaining 4 lots would be used for a sewer pump station
and passive recreation area (1 lot) and open space (3 lots).
• Approved Tentative Tract Map (TM 97-13) approved by Resolution No. 5249 of
the City's Planning Commission adopted on August 21, 2002. The Tentative
Tract Map divides the 414 acres in Improvement Area 2 into 27 lots in three
phases (97-13-01, 97-13-02, 97-13-03) corresponding to the three proposed
phases of development of Carlsbad Oaks North. The Tentative Tract Map is a
26
phased tentative map; it expires with respect to Phase 3 on January 23, 2010.
Final Maps have been recorded for Phases 1 and 2; as a result thereof, the
Tentative Tract Map expires on January 23, 2010 with respect to Phase 3.
• Recorded Final Map for Phase 1 (Map No. 14926 recorded December 15, 2004).
The Final Map provides that building permits will not be issued until the local
agency providing water and sewer services (the City) certifies that service is
available to the project and will continue to be available until the time of
occupancy. Techbilt Construction reports that water and sewer service pipelines
are complete and Techbilt Construction projects the sewer pump station will be
operable by December 21, 2007. [Confirm prior to print]
• Recorded Final Map for Phase 2 (Map No. 15505 recorded January 23, 2007).
The Final Map provides that building permits will not be issued until the local
agency providing water and sewer services (the City) certifies that service is
available to the project and will continue to be available until the time of
occupancy. Techbilt Construction reports that (1) lot grading is complete, (2)
storm drain and sewer is 90% complete and water lines are 30% complete.
Techbilt Construction projects the remaining site improvements including dry
utilities, curb, gutter, paving and landscaping will be complete by June 2008.
• 404 Permit (No. 200200641-JMB). The U.S. Army Corps of Engineers ("Corps")
permit authorizes impact on 2.70 acres of jurisdictional wetlands and waters of
the United States to construct: (i) a Faraday Avenue extension consisting of two
separate crossings, (ii) a South Agua Hedionda Sewer extension, (iii) a regional
stormwater detention basin and (iv) Carlsbad Oaks North. The permit expires on
October 29, 2009 and requires Techbilt Construction to implement the
conservation measures described in the U.S. Fish and Wildlife Service's final
Biological Opinion dated December 4, 2003 (see "Environmental Conditions"
below). The permit requires not less than 2.7 acres of wetland creation, 6 acres
of wetland enhancement and 6 acres of riparian fringe enhancement. The permit
further requires a pre-construction delineation and functional assessments and
submission to the Corps of final wetland construction plans, specifications and
drawings based on the approved, conceptual mitigation plan. Techbilt
Construction reports that all wetland enhancement and creation measures are
now complete; the subsequent five-year maintenance and monitoring program is
underway and its performance is secured by a bank letter of credit.
• Final Map for Phase 3. Techbilt Construction reports it expects to record the final
map for Phase 3 in November 2008.
Utilities. It is expected that utility services for the property in Improvement Area 2 will
be provided by the entities listed below.
• Water. The City of Carlsbad. The tentative map for Phase 3 and
the final maps for Phase 1 and Phase 2 provide that a building permit will not be
issued until the City determines that water facilities are available. The City does
not authorize water connection until it issues a building permit.
27
• Sanitary sewer. The City of Carlsbad. The tentative map for Phase 3 and
the final maps for Phase 1 and Phase 2 provide that a building permit will not be
issued until the City determines that sewer facilities are available. The City does
not authorize sewer connection until it issues a building permit.
• Stormwater drainage: The City of Carlsbad. The tentative map for Phase 3 and
the final maps for Phase 1 and Phase 2 provide that a building permit will not be
issued until the City determines that stormwater facilities are available. The City
does not determine whether adequate stormwater capacity is available until a
building permit is issued.
• Electricity and Gas: San Diego Gas & Electric.
• Telephone: SBC and Cox Communications.
Environmental Conditions
Set forth in the following paragraphs are summaries of environmental issues applicable
to development of property in Improvement Area 2.
CEQA Review. Pursuant to Resolution No. 5249 adopted on August 21, 2002, the
City's Planning Commission found that the design and improvements of Carlsbad Oaks North
are not likely to cause substantial environmental damage nor substantial and avoidable injury to
fish and wildlife or their habitat because the mitigation required by the Final Program EIR 98-08
will reduce potentially significant environmental impacts to below significant levels except for
specific unavoidable adverse impacts on circulation, air quality and biological resources. The
Planning Commission found that overriding considerations for the unavoidable adverse impacts
were justified based on the project's contribution to the City's revenues, employment
opportunities, open space, habitat management plan, and Citywide road and sewer
infrastructure in accordance with the City's Growth Management Plan. The resolution further
provided that the approvals were granted subject to the certification, adoption and approval of
the Program Environmental Impact Report and Mitigation, Monitoring and Reporting Program,
General Plan Amendment 97-05, Zoning Change 97-05, Carlsbad Oaks North Specific Plan (SP
21-1), Zone 16 Local Facilities Management Plan Amendment (LFMP 89-16(A)), Hillside
Development Permit (HDP 97-10), Planned Industrial Permit (PIP 02-02) and Special Use
Permit (SUP 97-07), and is subject to all conditions contained in Planning Commission
Resolutions 5244, 5245, 5246, 5247, 5248, 5249, 5250, 5251 and 5252.
Pursuant to Resolution No. 2002-298 adopted on October 8, 2002, the City Council of
the City certified Program EIR 98-08 and approved the Mitigation Monitoring and Reporting
Program attached as Exhibit "EIR-B" to Planning Commission Resolution No. 5244 adopted
August 21, 2002. The Mitigation Monitoring and Reporting Program includes the following
mitigation requirements, among others:
• 75-150 foot building setback and 60-foot minimum landscape buffer along the
eastern boundary of the property to reduce impacts to adjacent residential uses
in terms of lighting, noise, air quality and hazardous material.
• Design and construction of improvements to a number of intersections and
construction of certain road extensions. Techbilt Construction reports that all of
28
these improvements have been completed with the exception of: (i) final asphalt
lift and lane striping on El Fuerte Street, and (ii) the Melrose Drive right-turn lane
south of Palomar Airport Road (which is to be constructed by a separate
developer).
100.6 acres of remaining mitigation credit within the Carlsbad Highlands
mitigation bank and 70.4 acres of suitable conservation from other mitigation
lands meeting certain standards. Techbilt Construction reports that this
requirement has been satisfied.
A 2:1 (conserved to impacted) ratio of all coastal sage scrub on the property to
address impacts on gnatcatcher habitat. Techbilt Construction reports that this
mitigation has been satisfied.
Wetland mitigation to produce a no-net-loss of wetlands as required by the
Carlsbad Habitat Management Plan. A wetlands restoration and monitoring plan
has been prepared and approved by all state and federal permitting agencies.
Techbilt Construction reports that all wetland enhancement and creation
measures are now complete; the subsequent 5 year maintenance and monitoring
program is underway, and its performance is secured by a bank letter of credit.
Wildlife undercrossing at Faraday Avenue. Techbilt Construction reports that the
undercrossing has been completed.
The EIR identified the presence of loose porous soils and expansive soils and
required, in mitigation, that grading and construction of property in Improvement
Area 2 must comply with the geotechnical conditions contained in: (i) the
Preliminary Geotechnical investigation for Proposed Carlsbad Oaks East
prepared by Woodward-Clyde Consultants (June 15, 1990) (as updated by
Geocon Inc. January 4, 2000), (ii) Geologic Reconnaissance with Limited
Subsurface Investigation, Proposed South Agua Hedionda Interceptor Alignment,
Carlsbad, California prepared by Leighton and Associates, Inc. (November 30,
2000), and (iii) Geological Reconnaissance, Proposed Faraday Avenue
Extension Orion Street to Brookhaven Pass, Carlsbad, California prepared by
Leighton and Associates, Inc. (March 23, 2001). Techbilt Construction reports
that it is complying with the recommendations of Geocon Incorporated, the
engineer of record for the development, set forth in its report dated October 21,
2004 (see "Geologic Conditions" below), which recommendations fully
incorporate and implement the recommendations contained in the earlier reports.
The EIR identified the risk of landslides (ancient landslide deposits were
identified on the property) and the fact that the property is located in a seismically
active region as potential significant impacts, and, in addition to previously-
described mitigation requirements, required development in compliance with the
Uniform Building Code and State building requirements in effect at the time of
development. Techbilt Construction reports that it will comply with these
requirements in connection with construction of buildings.
The EIR concludes that, in a hillside development, control of groundwater is
essential to reduce the potential for undesirable surface flow, hydrostatic
pressure and the adverse effects of groundwater on slope stability. To reduce
the potential impact of these conditions, the EIR requires an additional
geotechnical investigation prior to grading and construction to identify possible
future seepage areas that could occur during grading. The EIR also requires a
detailed hydrology analysis at the time specific developments are submitted for
review by the City, and that a drainage control system be implemented in
accordance with the recommendations of the hydrology analysis. Techbilt
Construction reports that it commissioned these reports and is developing the
project in accordance with the reports' recommendations.
• To mitigate potential significant impact on specific archaeological sites (relating
to the prehistoric Luseno people), the sites must undergo further testing and data
recovery prior to grading and disturbance. The EIR concludes that mitigation of
impacts can be achieved by exhausting the research potential of the significant
sites through implementation of a plan to recover artifacts and data
representative of the occupation of the sites. Techbilt Construction reports that all
testing, data recover and mitigation measures have been completed.
• Because the proposed project will disturb geological deposits that have a
moderate and high potential for producing potentially significant paleontological
resources, the EIR requires a qualified paleontologist to carry out an appropriate
mitigation program; discovery of significant fossils could delay construction.
Techbilt Construction reports that it is complying with this requirement during
grading of the site and no disruptions have resulted.
• The EIR also noted the measures required of Techbilt Construction pursuant to
the City's Growth Management Program and land uses ordinances, including
growth management Local Facilities Fees of $310 per equivalent dwelling unit
(EDU); payment of amounts required by the Citywide Community Facilities
District No. 1; Traffic Impact Fees; Public Facilities Fees; Drainage Fees; Sewer
Connection Fees per EDU; Water Capacity charges per EDU; preservation of an
estimated 219.5 acres of sensitive habitats under the Regional Multiple Habitat
Conservation Plan, the City's Draft HMP (1999) and 1993 Agreement
Establishing the CNP; construction of the final link of Faraday Avenue, a critical
east/west circulation element road; construction of a link of El Fuerte Street, a
critical north/south circulation element road; and construction of a detention basin
located within the Agua Hedionda Watershed that is part of a larger area
stormwater drainage plan. Techbilt Construction reports that the Faraday
Avenue link, the El Fuerte Street link, and the detention basin have been
completed, with the exception of the final asphalt lift and lane striping on El
Fuerte Street.
Phase I Environmental Site Assessments. Geocon Consultants, Inc. ("Geocon
Consultants") prepared a Phase I Environmental Site Assessment for the Carlsbad Oaks North
property dated November 17, 2004. The Geocon Phase I reported that Geocon Consultants
had not observed any recognized environmental conditions (the presence or likely presence of
any hazardous substances or petroleum products on a property under conditions that indicate
an existing release, a past release, or a material threat of a release of any hazardous
substances or petroleum products into structures on the property or into the ground, ground
water, or surface water of the property) and concluded that no additional onsite environmental
assessment was warranted. However, it did report a potential recognized environmental
30
condition had been identified on the southern portion of the property: pesticides and herbicides
that might be present as a result of historical agricultural crop production. Geocon Consultants
recommended sampling and analysis if the southern portion of the property was disturbed for
grading, road construction, etc. In a letter dated February 27, 2006, Geocon Consultants stated
that because the site has been graded, topsoil that may have contained pesticide residues have
been incorporated into and placed as compacted fill, reducing the potential for exposure to
future occupants of the site, and that any remaining organochlorine pesticide residue in the fill
does not pose a risk to human health or the environment.
Kilroy also had a Phase I Environmental Site Assessment conducted on the property in
conjunction with its purchase of four lots from Techbilt Construction. The Phase I
Environmental Site Assessment was prepared by Ardent Environmental Group, Inc., (Project
No. 100002001) on February 20, 2007. Ardent Environmental Group, Inc. confirmed the prior
Geocon findings and updated the prior Phase I to the current date and new standards.
Geologic Conditions. An Update Geotechnical Investigation by Geocon Incorporated
("Geocon") dated October 21, 2004 concluded that no soil or geologic conditions were
encountered that would preclude the development of the property as presently planned.
However, Geocon made a number of recommendations, including remedial grading, buttresses
and/or stability fills, grading in compliance with recommended specifications, certain actions to
provide slope stability, compliance with specified seismic design parameters and foundation
recommendations, and good drainage to reduce the potential for differential soil movement,
erosion and subsurface seepage, Techbilt Construction reports that the recommendations set
forth in the Geocon report have been followed or will be implemented as further development
occurs. As noted in "CEQA Review" above, the October 21, 2004 report's recommendations
fully incorporate and implement the recommendations from the earlier reports.
In connection with the earlier sale of four lots in Phase 1 to Kilroy, Geocon certified the
Phase 1 grading is in general conformance with the October 21, 2004 report. On September
11, 2007, Geocon again visited the subject site and reported that grading of Phase 2 is
substantially complete. Based on Geocon's observations and test results, it is the opinion of
Geocon that the Phase 2 grading has been performed in general conformance with the
recommendations of Geocon's October 21, 2004 geotechnical report. The City has not verified
Techbilt Construction's compliance with these recommendations.
Wetlands. CONP entered into an Agreement Regarding Proposed Stream or Lake
Alteration (Notification No. R5-2002-0218) with the State of California, Department of Fish and
Game. The Agreement relates to the proposed diversion of two unnamed drainages to Agua
Hedionda Creek: Agua Hedionda Creek and La Mirada Creek to accommodate the construction
of the Faraday Avenue Extension, the El Fuerte Street extension, the Agua Hedionda sewer
interceptor and the Carlsbad Oaks North Business Park; the construction requires filling 2.8
acres of streambed. The Agreement terminates on December 31, 2007 for project construction
(because streambed alteration agreements can only be issued for a maximum five-year period,
it provides that CONP is responsible for extending the agreement) and requires all revegetation
to be installed no later than March 31, 2005. The Agreement limits removal of vegetation
between February 15 and August 30 to avoid impacts on nesting birds, and requires a Final
Revegetation, Mitigation for on-site creation/enhancement and Monitoring Plan. Techbilt
Construction reports that all wetland restoration and creation measures are now complete; the
subsequent 5 year maintenance and monitoring program is underway and its performance is
secured by a bank letter of credit.
31
Biological Resources. The United States Department of the Interior, Fish and Wildlife
Service ("Fish and Wildlife") issued: (i) a biological opinion dated December 4, 2003 (ii) an
amendment dated January 4, 2005 and (iii) an amendment dated August 8, 2005 (collectively,
the "Biological Opinion").
The Biological Opinion focuses on the project's impact on the coastal California
gnatcatcher and its habitat under the Endangered Species Act. The project occurs within the
planning area for the Multiple Habitat Conservation Program (MHCP), a subregional plan that
addresses north coastal San Diego County; the project site occurs within the planning area of
the Carlsbad Habitat Management Plan, which is now an approved subarea plan under the
MHCP. The Biological Opinion reports that habitat of the gnatcatcher encompasses 280.13
acres of proposed critical habitat on-site and the proposed development would reduce available
gnatcatcher habitat by a total of 215.16 acres offsite including the Faraday Avenue extension.
The Biological Opinion concludes the project is not likely to jeopardize the continued existence
of the gnatcatcher or adversely modify designated critical habitat, based upon the project
providing a number of conservation measures, including the following:
• Approximately 219.5 acres of wildlife habitat must be preserved on-site in
perpetuity pursuant to a long-term management plan approved before February
28, 2005. Techbilt Construction reports that this conservation measure has been
satisfied;
• At least 100.6 acres of land must be preserved as wildlife habitat at the Carlsbad
Highlands Conservation Bank. Techbilt Construction reports that this
conservation measure has been satisfied.
• At least 64.95 acres of wildlife habitat must be preserved off-site (immediately
west of the Specific Plan area). Techbilt Construction reports that this
conservation measure has been satisfied.
• Wildlife undercrossing structures must be installed where proposed roads cross
corridors thought to be important to wildlife movement. Techbilt Construction
reports that this undercrossing has been completed.
• Concurrently with or prior to construction, at least 2.8 acres of native riparian
vegetation must be created in areas that are currently non-native grassland. In
addition, 6 acres of wetland and 6 acres of riparian fringe must be enhanced
pursuant to a Wetland Restoration and Monitoring Plan. Techbilt Construction
reports that these conservation measures are now completed; the subsequent 5
year maintenance and monitoring program is underway and its completion is
secured by a bank letter of credit.
• Approximately 20.9 acres suitable for revegetation within the Highland
Conservation Bank must be revegetated with coastal sage scrub. Techbilt
Construction reports that this conservation measure has been completed
• Certain wildlife corridors must be maintained. Techbilt Construction reports that
this conservation measure has been satisfied.
32
• With the exception of a 1.51 acre site, clearing and grubbing must be completed
during the non-breeding season for gnatcatchers (September 1 through February
14). Techbilt Construction reports that it is in compliance with this conservation
measure.
Removal of wildlife habitat must be phased, such that project clearing and grading must
be accomplished in three phases. Phasing maps must be part of the permit. The time between
each phase of wildlife habitat removal shall be approximately 24 months. Lot 24 must not be
significantly impacted by clearing or grading for approximately 24 months from implementation
of restoration activities on Carlsbad Highlands. With respect to the required phasing, Techbilt
Construction interprets the phasing requirement to run from issuance of the 404 permit for
Phase 1 and from commencement of clearing/grading for Phase 2. Consequently, Techbilt
Construction reports that the 24-month period for Phase 1 commenced in January 2005 and
that Phase 1 (buildable lots 1-8) has been completed with lots 4, 5, 7, and 8 delivered to Kilroy
on February 16, 2007. Techbilt Construction reports that it began clearing/grading Phase 2 in
January 2007 and substantially completed Phase 2 grading in September 2007 and projects
finished lots ready for delivery in Spring 2008. Techbilt Construction reports that
clearing/grading Phase 3 will begin in the third calendar quarter of 2008 with delivery of finished
lots beginning in second calendar quarter of 2009. Techbilt Construction reports it is in full
compliance with the Biological Opinion and other permits as substantially all of the natural
habitat was disturbed as part of Phases 1 and 2 grading and all on-site and offsite habitat
mitigation measures have been completed.
Waste Discharge Requirements. Under Section 401 of the Clean Water Act, the
California Regional Water Quality Control Board, San Diego Region, issued an Order for
Technically-conditioned Certification and Waiver of Waste Discharge Requirements dated July
19, 2004 relating to the discharge of dredged and/or fill materials with respect to the Faraday
Avenue Extension and Carlsbad Oaks North. The Section 401 approval is subject to a number
of conditions, and all on-site and off-site habitat mitigation is in place ahead of total impacts
including the following:
• Techbilt Construction must install three permanent water quality basins. Techbilt
Construction reports that the basins have been completed.
• Permanent impacts to 2.7 acres of jurisdictional waters must be mitigated in
accordance with the May 2004 Wetland Mitigation Plan (prepared by Merkel &
Associates), i.e., by creation of 3.5 acres of jurisdictional waters and habitat, and
the enhancement of 6.0 acres of Southern Willow Scrub. Techbilt Construction
reports that these measures are now complete.
• Within 90 days of issuance of the final map, a draft preservation mechanism
providing for protection of all mitigation areas and their buffers in perpetuity must
be submitted. Techbilt Construction reports it has fully completed this
requirement.
• Construction of mitigation must be completed within the same calendar year as
the impact occurs, or at least no later than 9 months following the close of the
calendar year in which impacts first occur. Techbilt Construction reports that it is
in compliance with this requirement.
33
Infrastructure Development
Techbilt Construction will develop the following public infrastructure as part of the
development of Carlsbad Oaks North:
Bond-Financed Infrastructure: As of November 1, 2007, Techbilt Construction
has constructed the following public infrastructure improvements, which will be acquired
by the City with proceeds of the Bonds:
Commencement Estimated
Improvement Tract No. Date Completion Date Cost
Faraday Avenue 97-13-1 January 2005 September 1, 2007 $15,956,550
El Fuerte Street 97-13-1 January 2005 January 21, 2008 (1) 4,055,423
Total $20,011,973
(1) Completion date based on Techbilt Construction's current projections. Techbilt Construction reports that
only the final asphalt lift and lane striping on El Fuerte Street remain.
Pending their acquisition with Bond proceeds, Techbilt Construction has financed
construction of the public infrastructure listed above from the following two sources:
• A line of credit provided by City National Bank. The available amount
under the line of credit is $22,567,000 and the balance outstanding as of
, 200_ was $ . The City National Bank line of
credit is secured by a deed of trust on Techbilt Construction's/CONP's
property in Improvement Area 2.
• To the extent necessary, contributions by the shareholders of Techbilt
Construction (see "PROPERTY OWNERSHIP AND PROPOSED
DEVELOPMENT - Proposed Development by Techbilt Construction" for a
description of the ownership of Techbilt Construction). City National Bank
has confirmed in a letter dated February 21, 2006 that it required, as a
condition of approving the letter of credit, the four shareholders of Techbilt
Construction to provide evidence, on a semi-annual basis, of minimum
liquid assets of $60 million. As of , 200_, City National Bank
confirmed compliance with this condition. [To Come]
No assurance can be given that these sources of financing will be available and,
if available, will be sufficient to complete property development and project construction
as currently anticipated.
Privately-Financed Infrastructure: In addition, as of November 1, 2007, Techbilt
Construction expects to spend a total of approximately $27.5 million on subdivision
improvements, consisting of backbone infrastructure, water and sewer improvements,
grading, and interior streets, as follows:
34
Complete
Begin Finish Infrastructure
Tract No. / Phase Grading Grading Improvement Total Cost (Est.)
97-13-01/Phase 1 1/2005 2/2007 9/2007 $11,639,650
97-13-02/Phase 2 1/2007 9/2007 2nd Qtr/2008 11,587,570
97-13-03/Phase 3 3rd Qtr/2008 2/2009 2nd Qtr/2009 4.221.054
Total $27,448,274
Techbilt Construction expects to finance construction of these subdivision improvements
with the City National Bank letter of credit and shareholder contributions described above.
Infrastructure Development as of November 1, 2007. Techbilt Construction has
completed all of the infrastructure required for development of Phase 1, which includes most of
the backbone infrastructure for all of Improvement Area 2. Techbilt Construction will extend
utilities, grade and construct interior streets as part of Phase 2 and 3 development. Phase 2
grading has been completed and includes most of the Phase 3 grading and all of the Phase 3
circulation roadway improvements. Techbilt Construction expects to be completed with all of
the infrastructure for Phase 2 by the second calendar quarter of 2008 and to complete all Phase
3 infrastructure by the second calendar quarter of 2009. As of November 1, 2007, Techbilt
Construction reported approximately $8,774,778 of infrastructure development remained to be
completed from the overall total of $27,448,274.
Direct and Overlapping Governmental Obligations
Taxes, Charges and Assessments. The base tax rate on property in Improvement
Area 2 for fiscal year 2007-08 is 1% on net assessed value plus 0.04187% on all voter
approved bonds. Voter approved bonds represent the Carlsbad Unified School District 1997
General Obligation Bond Election - Series A Bonds, the 2006 General Obligation Bond Election
- Series A Bonds and the San Diego County Water Authority General Obligation Bonds. In
addition, Improvement Area 2 is also subject, or will be subject, to the following annual charges
and assessments (which will be billed to property owners on a semi-annual basis):
35
Table 1
City of Carlsbad
Community Facilities District No. 3
Improvement Area 2
Overlapping Taxes, Charges and Assessments
(Fiscal Year 2007-08)
SAMPLE ASSESSOR PARCEL:
Assessor Parcel Number: 206-120-01-00
Tract / Lot: CT97-13-01 / Lot 1
Acres: 6.38
FIXED CHARGED ASSESSMENTS:
Lighting and Landscape District No. 2 Zone (1) 1,061.50
Vector Disease Control (2) 94.42
CWA Water Availability (3) 63.80
MWD Water Standby Charge (4) 73.42
Mosquito Surveillance (5) 3.00
Carlsbad CFD No. 1 Maximum Annual Special Tax - Developed Property (6) 6,802.36
Carlsbad CFD No. 3 Maximum Special Tax (7) 85,283.63
TOTAL FIXED CHARGES $93,382.13
(1) The City of Carlsbad Landscape and Lighting District No. 2, Zone 9 charges cover the lighting and median
landscaping. For fiscal year 2007-08 they are equal to $27.73 per EDU at a rate of 6 EDU per acre.
(2) San Diego County charges are equal to one half the residential single family rate of $5.95 per one fifth of an acre
for fiscal year 2007-08.
(3) The County Water Authority charges $10.00 per acre or a portion thereof for fiscal year 2007-08 to cover water
availability.
(4) The Metropolitan Water District charges are $11.51 per acre or a portion thereof for fiscal year 2007-08.
(5) Charges are $3.00 per parcel for the 2007-08 fiscal year.
(6) City of Carlsbad CFD No. 1 Maximum Annual Special Tax - Developed Property assuming a coverage factor of
20% producing 55,582 square feet of building, a permit issuance prior to March 1, 2007, a land use of
Commercial / Industrial Business Park and the decision at the time of permit issuance to pass-thru the special
tax for a period not-to-exceed 25 years. No vacant land tax was levied in CFD No. 1 for fiscal year 2007-08.
(7) City of Carlsbad CFD No. 3 Improvement Area No. 2 Maximum Special Tax.
Source: Special District Financing and Administration
Overlapping Debt. The direct and overlapping debt obligations of local agencies
affecting the property in Improvement Area 2 as of 1, 2007 are shown in the following
table. The table was prepared by California Municipal Statistics, Inc., and is included for
general information purposes only. The City has not reviewed this report for completeness or
accuracy and makes no representation in connection therewith.
Table 2
City of Carlsbad
Community Facilities District No. 3
Improvement Area 2
Direct and Overlapping Governmental Obligations
ITo Cornel
Source: California Municipal Statistics.
36
Market Absorption Study
The following is a summary of certain provisions of the Market Absorption Study, which
should be read in conjunction with the Market Absorption Study Summary and Conclusions
prepared by the Market Consultant attached as APPENDIX D. The City makes no
representation as to the accuracy or completeness of the Market Absorption Study.
Empire Economics, Inc., Capistrano Beach, California (the "Market Consultant"),
prepared a report entitled "Market Absorption Study" dated September 14, 2007 to estimate the
projected market absorption of industrial, research and development and office space proposed
to be constructed in Improvement Area 2 (the "Market Absorption Study").
With respect to Improvement Area 2, the Market Absorption Study summarized the
following characteristics of the parcels, their market orientations, their acreage, expected
development size and anticipated development time schedule (based on information provided
by Techbilt Construction), and reached the following absorption conclusions.
Development Description. Carlsbad Oaks North is composed of 167.13 taxable acres
and is proposed to be developed with industrial, research & development, office and corporate
office use as well as hotel and retail. The Market Absorption Study includes the following
description of Carlsbad Oaks North's market orientation, acreage, expected building size and
anticipated development time schedule:(1)
Improvement Area No. 2
(Carlsbad Oaks North)
Industrial / R&D Products
Developer
Time
Schedule
2009
2009
2009
Lot/
Bldg. #
Bldg. Sq. Ft.
1,315,900
63.0%
120-05
120-07
120-06
129,600
157,500
83,600
Acres
94.4
63.1%
9.3
11.3
6.0
Phaco II---—__ r^ijcioc ii ~ — -— .
2010
2010
2010
2010
2011
13
17
18
19
14
164,500
104,500
68,300
55,800
145,000
11.8
7.5
4.9
4.0
10.4
Phase III
2012
2012
2012
2012
2012
2012
2012
20
21
22
23
25
26
27
32,100
50,200
48,800
61,300
107,300
53,000
54,400
2.3
3.6
3.5
4.4
7.7
3.8
3.9
Office / Corporate / Retail
Developer
Time
Schedule
2009
2009
2009
2010
2011
Lot/
Bldg. #
Pha
120-03
120-04
121-01
120-01
120-02
Bldg. Sq. Ft.
771,600
37.0%
65,600
64,000
81,700
91,500
70,100
Acres
55.2
36.9%
4.3
4.2
7.5
6.0
4.6
Phase II
2010
2010
15
16
55,800
54,400
4.0
3.9
Phase III
2012 24 288,500 20.7
(1) The Market Absorption Study analyzes 2,087,500 square feet of building space based on a theoretical building size
related to existing entitlements provided by Techbilt Construction which may not be the amount actually built in Improvement Area 2.
For example, Kilroy's current development plan contemplates 82,700 square feet less than this theoretical building size.
37
Absorption Conclusions. Subject to the assumptions and conditions set forth in the
Market Absorption Study, the Market Absorption Study outlines the following absorption
conclusions for Improvement Area 2:
Product
Type
Industrial/R&D
Office/hotel/
retail
Absorption
in 2009
(sq. ft.)
100,000
50,000
Absorption
in 2010
(sq. ft.)
125,000
75,000
Absorption
in 2011
(so. ft.)
150,000
100,000
Absorption
in 201 2
(sq. ft.)
175,000
125,000
Absorption
in 201 3
(sq. ft.)
175,000
125,000
Absorption
in 2014
(sq. ft.)
175,000
125,000
Absorption
in 2015
(sq. ft.)
175,000
125,000
Absorption
in 201 6+
(sq. ft.)
240,900
46,600
The Market Consultant's absorption schedule anticipates approximately 86% build-out
by 2016 while Techbilt Construction projects reaching full build-out at the end of 2012. The
Market Consultant concludes the difference can be attributed to the Market Consultant (i)
forecasting lower economic growth and hence lower demand for industrial-office buildings and
(ii) considering all of the nearby business parks in the aggregate, as they compete with each
other in the marketplace.
The Appraisal considered the conclusions of the Market Absorption Study; however, the
Appraisal values the taxable property in Improvement Area 2 as finished lots, while the Market
Consultant estimated the absorption period to occupancy.
Appraised Property Value
The following is a summary of certain provisions of the Appraisal, which should be read
in conjunction with the full text of the Appraisal attached as APPENDIX C. The City makes no
representation as to the accuracy or completeness of the Appraisal.
The Appraisal. An appraisal of the Taxable Property within Improvement Area 2 dated
November 19, 2007 (the "Appraisal"), was prepared by Bruce Hull & Associates, Inc., Ventura,
California (the "Appraiser") in connection with issuance of the Bonds. The purpose of the
Appraisal was to estimate the market value of the fee simple estate of the property within
Improvement Area 2 that is subject to the Special Tax, i.e., the "Taxable Property" as defined in
the Rate and Method, as of November 10, 2007.
Conditions and Assumptions. The Appraisal was based on certain assumptions and
limiting conditions set forth in APPENDIX C, including the following:
1. The Appraisal assumes the property is subject to the lien of the Special Taxes
and easements of record, but is free and clear of any other liens or
encumbrances.
2. Title to the property is assumed to be good and marketable unless otherwise
stated in the Appraisal.
3. The Appraisal assumes all engineering is correct and that there are no hidden or
unapparent conditions of the property, subsoil, or structures that render the
property more or less valuable.
4. The Appraisal assumes that there is full compliance with all applicable federal,
state and local environmental regulations and laws, unless otherwise stated in
the Appraisal. The Appraisal assumes that all required licenses, certificates of
occupancy or other legislative or administrative authority from any local, state, or
national governmental or private organization have been or can be obtained or
38
renewed for any use on which the value estimates contained in the Appraisal are
based.
5. The Appraisal assumes that there is full compliance with all applicable zoning
and use regulations and restrictions, unless non-conformity has been identified in
the Appraisal.
6. The Appraiser assumes there is no hazardous waste or toxic materials on or in
the subject property that would cause a loss in value.
7. The Appraisal assumes that all of the improvements to be funded by the
Community Facilities District are completed and in place.
8. The Appraisal assumes that all conditions for approval are completed in a timely
manner so as not to slow or thwart development.
9. The Appraisal uses cost estimates from Techbilt Construction and assumes they
are complete and accurate.
10. The highest and best use of the subject property is development of the proposed
Carlsbad Oaks North Business Park.
11. The marketing and exposure time for the subject properties would be 12 months
if placed on the open market in today's market conditions at the concluded
market value, assuming the lien of the Special Taxes and assuming a sale in
bulk or one transaction on a property owner-by-property owner basis.
Valuation Methods. The Appraisal determined the price per square foot of the "net
acreage" or "net saleable area" (i.e., the pad area plus the required setback) of the subject
property in a finished lot condition.
The Appraisal incorporates two different methods for estimating the market value of
Taxable Property in Improvement Area 2:
• Sales Comparison Approach: this approach compares the subject property to
similar properties that have recently sold, are currently listed or are under
contract. To the extent the subject property is not in finished lot condition, the
sales comparison approach considers the costs required to develop the property
to finished lot condition and subtracts the total of those costs from the finished lot
value.
• Discounted Cash Flow Analysis: The Appraisal also used a discounted cash flow
analysis. A discounted cash flow analysis considers the finished lot value of the
property (using the sales comparison approach), the costs to develop the
property to finished lot condition, the absorption time needed to sell the property
in a finished lot condition and the administrative and carrying costs over that
period of time, the profit due to the developer, and a discount rate that takes into
account both the time value of money and the risk of the project.
Value Estimate. Subject to the various assumptions and conditions set forth in the
Appraisal, the Appraiser estimated that, as of the November 10, 2007 date of value, the fee
simple interest in the property within Improvement Area 2 owned by the Property Owners had
the following value:
39
Appraised
Property Owner Value (1)
Techbilt Corporation / CONP $47,033,000
Kilroy 16.941.000
Total $63,974,000
(1) Appraised Value numbers have been rounded.
Appraised Value to Burden Ratio
The table below shows the projected value to burden ratio for the property in
Improvement Area 2 based on the appraised values set forth in the Appraisal and the principal
amount of the Bonds.
No assurance can be given that the amounts shown in this table will conform to those
ultimately realized in the event of a foreclosure action following delinquency in the payment of
the Special Taxes. See "BOND HOLDERS' RISKS - Property Values and Property
Development."
Table 3
City of Carlsbad
Community Facilities District No. 3
Improvement Area 2
Aggregate Appraised Values and Value to Burden Ratios on Non-Escrowed Bonds*
Number
Property
Owner
Techbilt/CONP (5)
Kilroy
of
Lots
19
4
Taxable
Acres
135.14
31.99
Maximum Special
Tax Levy
2007-08 '1)
$1,806,462.33
427.621.21
% of Max. Special
Tax Levy
2007-08
80.86%
19.14
Allocable Share
of Bonds* m
$11,757,044
2,782,956
Appraised
Values (3)
$47,033,000
16.941.000
Value to Burden
Ratio* (4)
4.00
6.09
TOTAL 23 167.13 $2,234,083.53 100.00% $14,540,000 $63,974,000 4.40
* Preliminary, Subject to Change.
(1) Source: Rate and Method.
(2) Reflects each Property Owner's share, based on the Maximum Special Taxes, of the maximum authorized indebtedness of
$18,340,000. Does not reflect the release of moneys initially deposited into the Escrow Fund.
(3) Source: Appraisal Report dated November 19, 2007.
(4) Appraised value divided by allocable share of Bonds. Does not include other liens and charges described in "Overlapping
Taxes, Charges and Assessments." Assumes release of moneys from the Escrow Fund to the Improvement Fund.
(5) Although Techbilt Construction and CONP are separate legal entities, their underlying ownership is the same and, accordingly,
their ownership interest has been aggregated for purposes of this table.
Source: Special District Financing and Administration
40
PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT
The information about the Property Owners and their respective properties and
proposed development contained in this Official Statement has been provided by
representatives of the respective entities and has not been independently confirmed or verified
by the Underwriter or the City. Neither the Underwriter nor the City makes any representation
as to the accuracy or adequacy of the information contained in this section. No assurance can
be given that the ownership of such properties will not change or that the proposed
development will occur at all, will occur in a timely manner or will occur as presently anticipated
and described below. There may be material adverse changes in this information after the date
of this Official Statement.
Property Ownership
The table below shows, for Improvement Area 2, a summary of current ownership.
Table 4
City of Carlsbad
Community Facilities District No. 3
improvement Area 2
Property Ownership and
Share of Maximum Special Tax Levy
Property
Owner (1)
Techbilt Construction/CONP
Kilroy
Total
Number of
Lots Owned (2) Lots Owned
1-3,6,13-19,20-27 19
4, 5, 7, and 8 _4
23
Taxable
Acreage
135.14
31.99
167.13
Maximum
Special Tax
Lew 2007-08
$1,806,462.33
427.621.21
$2,234,083.53
% of Max.
Special
Tax Levy
2007-08
80.86%
19.14
100.00%
(1)Although Techbilt Construction and CONP are separate legal entities, their underlying ownership is the same and,
accordingly, their ownership interest has been aggregated for purposes of this table.
(2) Does not include lots 9, 10,11 and 12, which are presently reserved as open space.
Source: Special District Financing & Administration.
Proposed Development by Techbilt Construction
General. Techbilt Construction Corp. is a California corporation owned by four
shareholders: Paul and Rose Tchang Family Trust, Lorna Tchang Alcala Trust, Genevieve
Tchang Trust and Theodore Tchang Trust.
Carlsbad Oaks North Partners LP is a California limited partnership, the general partner
of which is Sun Tech Investments Corp., a California corporation, which is owned by the same
four shareholders as Techbilt Construction.
See "Development Experience" below.
Proposed Development. Techbilt Construction proposes construction of Carlsbad
Oaks North in three phases on 167.13 taxable acres. Carlsbad Oaks North is a master planned
commercial/industrial project totaling 23 buildable lots ranging in size from 2.0 acres to 20.7
acres. The lots are generally planned and zoned P-M, which allows for a wide range of uses,
41
including distribution/warehouse, industrial, manufacturing, office and corporate headquarters.
In addition, lots 1 and 2 are zoned to allow commercial/retail uses.
Techbilt Construction has completed constructing the infrastructure for Phase 1
(buildable lots 1-8) and all grading and infrastructure improvements are now complete except for
final asphalt lift and striping on El Fuerte Street and sewer lift station. On February 16, 2007,
Techbilt Construction delivered finished lots 4, 5, 7 and 8 (totaling 31.99 taxable acres) to Kilroy.
Phase 2 is currently under construction with scheduled completion in the second calendar
quarter of 2008. Phase 3 is planned to begin grading in the third calendar quarter of 2008 with
infrastructure planned to be finished by the second calendar quarter of 2009.
Techbilt Construction, which owns the Phase 1 and 2 properties (not including the lots
already sold to Kilroy as mentioned above) and has an option to acquire Phase 3 from CONP,
which is a related entity, has a development plan that is a combination marketing program of: (i)
sales of finished lots; (ii) construction and sale of product to end users; and (iii) construction of
buildings and leasing to end users for long-term holds.
The current and anticipated construction schedule and product mix for the portion of
Carlsbad Oaks North owned by Techbilt Construction and CONP is set forth below. Because of
the longer absorption period for Phases 2 and 3, the schedules do not reflect the anticipated
construction schedule or a decision as to whether Techbilt Construction will own or lease the
property. No assurance can be given that construction will be carried out on the schedule and
according to the plans outlined below, or that Techbilt Construction's construction and sale
plans will not change after the date of this Official Statement.
Proposed Product Mix and Construction and Sales Schedule
Phase 1
Lot#
1
Current
Owner
Techbilt
Construction
APN#
209-120-01
Proposed Use
Hotel
Net Saleable Taxable
Acres Acres
Techbilt
Construction
Techbilt
Construction
Techbilt
Construction
Total:
209-121-01 Retail
209-120-02 Office/headquarters
209-120-05 Industrial/Flex/R&D
6.0
7.5
4.6
9.3
27.4
6.38
Building
Area
fsg. ft.)
91,500
7.52
5.18
11.55
30.63
81,700
70,100
129.600
372,900
Status
Non-binding letter of
intent from Marriott
International, Inc. for
purchase
In negotiations w/ retail
partner
Presently undecided
Design development
underway; for lease
42
Proposed Product Mix and Construction and Sales Schedule
Phase 2 (1)
Lot# Current Owner
13 Techbilt Construction
Proposed Use
Industrial/Flex/R&D
14 Techbilt Construction Industrial/Flex/R&D
15 Techbilt Construction
16 Techbilt Construction
17 Techbilt Construction
18 Techbilt Construction
19 Techbilt Construction
Total
Office/headquarters
Office/headquarters
Industrial/Flex/R&D
Industrial/Flex/R&D
Industrial/Flex/R&D
Net Saleable
Acres
11.8
10.4
4.0
3.9
7.5
4.9
4.0
46.5
Taxable
Acres
13.28
11.77
4.06
4.09
8.03
5.10
4.18
50.51
Building Area
(so. ft.)
164,500
145,000
55,800
54,400
104,500
68,300
55.800
648,300
Expected Final Lot
Completion Date
Spring 2008; lot/build-
to-suit for sale
Spring 2008; lot/build-
to-suit for sale
Spring 2008
Spring 2008
Spring 2008; lot/build-
to-suit for sale
Spring 2008
Spring 2008
(1) Techbilt Construction completed grading in September 2007, and expects to finish infrastructure improvements by the second
calendar quarter of 2008.
(2) But see "IMPROVEMENT AREA 2 - Market Absorption Study" above for the Market Consultant's differing view on overall timing
and absorption of the project.
Proposed Product Mix and Construction and Sales Schedule
Phase 3 (1)
Lot#
20
21
22
23
24
25
26
27
Total
Current Owner
CONP
CONP
CONP
CONP
CONP
CONP
CONP
CONP
Proposed Use
Industrial/Flex/R&D
Industrial/Flex/R&D
Industrial/Flex/R&D
Industrial/Flex/R&D
Headquarters/R&D
Industrial/Flex/R&D
Industrial/Flex/R&D
Industrial/Flex/R&D
Net Saleable
Acres
2.3
3.6
3.5
4.4
20.7
7.7
3.8
3.9
49.9
Taxable
Acres
2.6
4.3
4.0
4.7
20.8
8.9
4.2
4.5
54.0
Building Area
(SQ. ft.)
32,100
50,200
48,800
61,300
288,500
107,300
53,000
54,400
695,600
Expected Final Lot
Completion Date
Spring 2009
Spring 2009
Spring 2009
Spring 2009
Spring 2009
Spring 2009
Spring 2009
Spring 2009
(1) Techbilt Construction expects to complete grading in February 2008, and expects to finish infrastructure improvements
by the second calendar quarter of 2009.
(2) But see "IMPROVEMENT AREA 2 - Market Absorption Study" above for the Market Consultant's differing view on overall
timing and absorption of the project.
The Market Consultant's absorption schedule anticipates approximately 86% build-out
by 2016 while Techbilt Construction projects reaching full build-out at the end of 2012. The
Market Consultant concludes the difference can be attributed to the Market Consultant (i)
forecasting lower economic growth and hence lower demand for industrial-office buildings and
(ii) considering all of the nearby business parks in the aggregate, as they compete with each
other in the marketplace. See "IMPROVEMENT AREA 2 - Market Absorption Study" above.
Financing Plan. Techbilt Construction expects to finance building construction with a
combination of the line of credit from City National Bank and shareholder contributions, as
described in "Infrastructure Development" above. No assurance can be given that these
sources of financing will continue to be available and, if available, will be sufficient to complete
property development and project construction as currently anticipated.
43
Development Experience. During calendar year 2005, Techbilt Construction
developed 40 acres of land and built 175,000 square feet of buildings in Poway, California. In
calendar year 2006 and through October 2007, Techbilt Construction has developed over
270,000 square feet of new office and industrial buildings in Poway and Carlsbad. In addition to
its commercial and industrial development operations, Techbilt Construction is building
approximately 20-25 homes a year in the Emerald Cove community of the La Jolla Alta master
planned development and is also building approximately 3-4 custom homes per year in the
Rancho Santa Fe area. The price range of its homes is currently $1.3-2.5 million.
Techbilt Construction and CONP are part of the Techbilt Companies family of real estate
businesses owned by the Tchang family. Techbilt Construction was incorporated in 1960, but
the first company of the Techbilt Companies was incorporated in 1957. The Techbilt
Companies have developed and built approximately 10,000 homes throughout Southern
California including the communities of Lomas Santa Fe, the Lomas Santa Fe Country Club,
and La Jolla Alta. In addition the Techbilt Companies have developed the 180-acre Carlsbad
Oaks and Carlsbad Oaks East Business Parks, the 86-acre Poway Corporate Center and
Poway Tech Center business parks, and the 108-acre Tech Business Center business park in
Poway. Corporate occupants of the Techbilt Construction developed business parks include
Costco, Home Depot, Bilstein, Atlas Van Lines, Upper Deck, Pacificare, Disguise, Ferguson
Waterworks, Rollins Co., and Kone Elevator. In addition to their business park land
developments, Techbilt Construction has also built and currently owns 10 light industrial and
office buildings in Poway and Carlsbad and has another 8 buildings totaling approximately
250,000 square feet under planning and construction. The Techbilt Companies currently own
and manage approximately 375,000 square feet of leased office and industrial space.
Techbilt Construction reports that, in its 50 year history of developing land, building
homes, and building industrial buildings, there has never been a valid mechanics' lien or lien
default filed on any Techbilt project or property.
History of Property Tax Payments; Loan Defaults; Bankruptcy. Techbilt
Construction and CONP have represented as follows:
Techbilt Construction and CONP have never defaulted to any material extent in
the payment of special taxes or assessments in connection with the Community Facilities
District or any other community facilities districts or assessment districts in California within the
past five years.
Techbilt Construction and CONP are not currently in default on any loans, lines
of credit or other obligation, the result of which could materially adversely affect the
development of property owned by the Techbilt Construction and CONP in Improvement Area 2.
Techbilt Construction and CONP are solvent and no proceedings are pending or,
to the actual knowledge of Techbilt Construction and CONP, threatened in which Techbilt
Construction or CONP may be adjudicated as bankrupt or become the debtor in a bankruptcy
proceeding, or discharged from all of its respective debts or obligations, or granted an extension
of time to pay its respective debts or a reorganization or readjustment of its respective debts.
44
There is no litigation or administrative proceeding of any nature in which Techbilt
Construction and CONP have been served, or is pending or threatened against Techbilt
Construction and CONP which, if successful, would materially adversely affect the ability of the
Techbilt Construction and CONP to complete the development and sale of its property within
Improvement Area 2, or to pay the Special Taxes or ordinary ad valorem property tax
obligations when due on its property within Improvement Area 2, or which challenges or
questions the validity or enforceability of the Bonds, the Resolution of Issuance, the Fiscal
Agent Agreement, The Property Owner Continuing Disclosure Certificate (for and on behalf of
Techbilt Construction and CONP) or the Bond Purchase Contract.
Proposed Development by Kilroy
General. On February 16, 2007, Techbilt Construction sold a portion of the completed
lots it owned in Phase 1 (approximately 31.99 taxable acres) to Kilroy. The terms of the sale by
Techbilt Construction to Kilroy included a $2 million holdback pending completion of
infrastructure improvements by Techbilt Construction. Fifty percent of the holdback has been
released and the remainder will be released upon completion of the sewer pump station and
opening of El Fuerte Street, which is scheduled to occur in first quarter 2008.
Kilroy Realty Finance Partnership, L.P., is a limited partnership organized in the state of
Delaware. Kilroy Realty Finance, Inc., a Delaware corporation, is its general partner and Kilroy
Realty, L.P., a Delaware limited partnership, is its limited partner. Kilroy Realty Finance, Inc. is
a wholly-owned subsidiary of Kilroy Realty Corporation, a Delaware Corporation. (See
"Development Experience" below").
Proposed Development. Kilroy purchased Lots 4, 5, 7 and 8 from Techbilt
Construction for the purposes of constructing office buildings for lease to end-users. Kilroy
anticipates beginning construction on Lots 4 and 5 prior to the end of 2010, with construction to
be completed within two years thereafter. Kilroy presently plans on beginning construction on
Lots 7 and 8 following completion and lease up of buildings on Lots 4 and 5. The size of the
proposed buildings has not yet been determined, but Kilroy presently anticipates they will
contain approximately 288,000 square feet in the aggregate.
Proposed Product Mix and Construction and Sales Schedule
Current Net Saleable Taxable
Lot#
4
5
7
8
Total
Owner
Kilroy
Kilroy
Kilroy
Kilroy
APN#
209-120-03
209-120-04
209-120-06
209-120-07
Proposed Use
Office/headquarters
Office/headquarters
Office/headquarters
Office/headquarters
Acres
4.3
4.2
6.0
11.3
25.8
Acres
5.98
5.24
7.57
13.20
31.99
Status (1)
Design development underway
Design development underway
Design development underway
Design development underway
(1) See "IMPROVEMENT AREA 2 - Market Absorption Study" above for the Market Consultant's view on overall timing and
absorption of the project.
Financing Plan. Kilroy purchased its 31.99 Taxable Acres with cash and the property
presently remains unencumbered by any outstanding liens. Kilroy is currently in the process of
planning its improvements and estimating site and building construction costs. Kilroy expects to
finance such costs with an existing $550 million credit facility, which is led by JP Morgan. This
45
credit facility is a corporate, unsecured line of credit in the name of Kilroy Realty, L.P., but Kilroy
expects the credit facility will be available to it for development in Improvement Area 2. . No
assurance can be given that these sources of financing will continue to be available and, if
available, will be sufficient to complete property development and project construction as
currently anticipated.
Development Experience. Kilroy Realty Finance, L.P. and Kilroy Realty Finance, Inc.
are related entities to Kilroy Realty Corporation which is the successor in interest to Kilroy
Industries. Kilroy Industries and its related entities have for over 60 years owned, operated,
developed, and acquired Class A suburban office and industrial real estate, primarily in
Southern California. Kilroy Realty Corporation was founded in 1947 by John Kilroy, Sr., the
company's chairman, and today focuses its operations in several of southern California's
suburban submarkets, where local economies, an attractive quality of life, and strong barriers to
entry provide strategic advantages to long-term real estate investment.
Since January 1997, Kilroy Realty Corporation has operated as a publicly traded, self-
administered and self-managed real estate investment trust. The company's stabilized portfolio
of operating properties as of September 30, 2007 totaled 89 office buildings and 43 industrial
buildings, encompassing in the aggregate approximately 8.6 million and 3.9 million rentable
square feet, respectively. Kilroy Realty Corporation conceived and developed the majority of
the properties in its current portfolio and maintains an active development program.
History of Property Tax Payments; Loan Defaults; Bankruptcy. Kilroy has
represented as follows:
Kilroy has not defaulted to any material extent in the payment of special taxes or
assessments in connection with the Community Facilities District or any other community
facilities districts or assessment districts in California within the past five years.
Kilroy is not currently in default on any loans, lines of credit or other obligation,
the result of which could materially adversely affect the development of property owned by
Kilroy in Improvement Area 2.
Kilroy is solvent and no proceedings are pending or, to the actual knowledge of
Kilroy, threatened in which Kilroy may be adjudicated as bankrupt or become the debtor in a
bankruptcy proceeding, or discharged from all of its respective debts or obligations, or granted
an extension of time to pay its respective debts or a reorganization or readjustment of its
respective debts.
There is no litigation or administrative proceeding of any nature in which Kilroy
has been served, or is pending or threatened against Kilroy which, if successful, would
materially adversely affect the ability of Kilroy to complete the development and sale of its
property within Improvement Area 2, or to pay the Special Taxes or ordinary ad valorem
property tax obligations when due on its property within Improvement Area 2, or which
challenges or questions the validity or enforceability of the Bonds, the Resolution of Issuance,
the Fiscal Agent Agreement, Kilroy's Property Owner Continuing Disclosure Certificate or the
Bond Purchase Contract.
46
BOND OWNERS' RISKS
The purchase of the Bonds described in this Official Statement involves a degree of risk
that may not be appropriate for some investors. The following includes a discussion of some of
the risks, in no particular order of importance, which should be considered before making an
investment decision.
Limited Obligation of the City to Pay Debt Service
The City has no obligation to pay principal of and interest on the Bonds if Special Tax
collections are insufficient for that purpose, other than from amounts, if any, on deposit in the
Reserve Fund. The City is not obligated to advance its own funds to pay debt service on the
Bonds.
Levy and Collection of the Special Tax
The principal source of payment of principal of and interest on the Bonds is the proceeds
of the annual levy and collection of the Special Tax against property within Improvement Area 2.
The annual levy of the Special Tax is subject to the Maximum Annual Special Tax rate
authorized in the Rate and Method. The levy cannot be made at a higher rate even if the failure
to do so means that the estimated proceeds of the levy and collection of the Special Tax,
together with other available funds, will not be sufficient to pay debt service on the Bonds.
Because the Special Tax formula set forth in the Rate and Method is not based on
property value, the levy of the Special Tax will rarely, if ever, result in a uniform relationship
between the value of particular parcels of Taxable Property and the amount of the levy of the
Special Tax against those parcels. Thus, there will rarely, if ever, be a uniform relationship
between the value of the parcels of Taxable Property and their proportionate share of debt
service on the Bonds, and certainly not a direct relationship.
The following are some of the factors that might cause the levy of the Special Tax on
any particular parcel of Taxable Property to vary from the Special Tax that might otherwise be
expected:
Reduction in the number of parcels of Taxable Property for such reasons as
acquisition of Taxable Property by a governmental entity and failure of the government to pay
the Special Tax based upon a claim of exemption or, in the case of the federal government or
federal agency, immunity from taxation, thereby resulting in an increased tax burden on the
remaining taxed parcels.
Failure of the owners of Taxable Property to pay the Special Tax and delays in
the collection of or inability to collect the Special Tax by tax sale or foreclosure and sale of the
delinquent parcels, thereby resulting in an increased tax burden on the remaining parcels.
Development of other parcels of Taxable Property less rapidly than expected,
thereby resulting in delay in application of development factors in the Special Tax formula to the
other parcels of Taxable Property and resulting in an increased tax burden on the parcel of
Taxable Property.
Except as set forth above under "SECURITY FOR THE BONDS - Special Taxes" and " -
Rate and Method," the Fiscal Agent Agreement provides that the Special Tax is to be collected
47
in the same manner as ordinary ad valorem property taxes are collected and, except as
provided in the special covenant for foreclosure described in "SECURITY FOR THE BONDS -
Covenant to Foreclose" and in the Act, is subject to the same penalties and the same
procedure, sale and lien priority in case of delinquency as is provided for ordinary ad valorem
property taxes. Under these procedures, if taxes are unpaid for a period of five years or more,
the property is subject to sale by the County.
If sales or foreclosures of property are necessary, there could be a delay in payments to
owners of the Bonds pending such sales or the prosecution of foreclosure proceedings and
receipt by the City of the proceeds of sale if the Reserve Fund is depleted. See "SECURITY
FOR THE BONDS - Covenant to Foreclose."
Payment of Special Tax is not a Personal Obligation of Property Owners
An owner of Taxable Property is not personally obligated to pay the Special Tax.
Rather, the Special Tax is an obligation only against the parcels of Taxable Property. If, after a
default in the payment of the Special Tax and a foreclosure sale by the City, the resulting
proceeds are insufficient to pay the delinquent Special Taxes, taking into account other
obligations also constituting a lien against the parcels of Taxable Property, the City has no
recourse against the owner.
Appraised Values
The Appraisal attached in APPENDIX C estimates the market value of the taxable
property within Improvement Area 2. This market value is merely the present opinion of the
Appraiser, and is subject to the assumptions and limiting conditions stated in the Appraisal. The
City has not sought the present opinion of any other appraiser of the value of the taxed parcels.
A different present opinion of value might be rendered by a different appraiser.
The opinion of value relates to sale by a willing seller to a willing buyer, each having
similar information and neither being forced by other circumstances to sell or to buy.
Consequently, the opinion is of limited use in predicting the selling price at a foreclosure sale,
because the sale is forced and the buyer may not have the benefit of full information.
In addition, the opinion is a present opinion, based upon present facts and
circumstances. Differing facts and circumstances may lead to differing opinions of value. The
appraised value is not evidence of future value because future facts and circumstances may
differ significantly from the present.
No assurance can be given that any of the Taxable Property in Improvement Area 2
could be sold for the estimated market value contained in the Appraisal if that property should
become delinquent in the payment of Special Taxes and be foreclosed upon.
Property Values and Property Development
The value of Taxable Property within Improvement Area 2 is a critical factor in
determining the investment quality of the Bonds. If a property owner defaults in the payment of
the Special Tax, the City's only remedy is to foreclose on the delinquent property in an attempt
to obtain funds with which to pay the delinquent Special Tax. Land development and land
values could be adversely affected by economic and other factors beyond the City's control,
such as a general economic downturn, adverse judgments in future litigation that could affect
48
the scope, timing or viability of development, relocation of employers out of the area, stricter
land use regulations, shortages of water, electricity, natural gas or other utilities, destruction of
property caused by earthquake, flood or other natural disasters, environmental pollution or
contamination, or unfavorable economic conditions.
The City has not evaluated development risks. Since these are largely business risks of
the type that property owners customarily evaluate individually, and inasmuch as changes in
land ownership may well mean changes in the evaluation with respect to any particular parcel,
the City is issuing the Bonds without regard to any such evaluation. Thus, the creation of
Improvement Area 2 and the issuance of the Bonds in no way implies that the City has
evaluated these risks or the reasonableness of these risks.
The following is a discussion of specific risk factors that could affect the timing or scope
of property development in Improvement Area 2 or the value of property in Improvement Area 2.
Land Development. Land values are influenced by the level of development in the area
in many respects.
First, undeveloped or partially developed land is generally less valuable than developed
land and provides less security to the owners of the Bonds should it be necessary for the City to
foreclose on undeveloped or partially developed property due to the nonpayment of Special
Taxes.
Second, failure to complete development on a timely basis could adversely affect the
land values of those parcels that have been completed. Lower land values would result in less
security for the payment of principal of and interest on the Bonds and lower proceeds from any
foreclosure sale necessitated by delinquencies in the payment of the Special Tax. See
"IMPROVEMENT AREA 2 - Appraised Value to Burden Ratios." No assurance can be given
that the proposed development within Improvement Area 2 will be completed, and in assessing
the investment quality of the Bonds, prospective purchasers should evaluate the risks of
noncompletion.
Risks of Real Estate Investment Generally. Continuing development of land within
Improvement Area 2 may be adversely affected by changes in general or local economic
conditions, fluctuations in or a deterioration of the real estate market, increased construction
costs, development, financing and marketing capabilities of individual property owners, water or
electricity shortages, and other similar factors. Development in Improvement Area 2 may also
be affected by development in surrounding areas, which may compete with Improvement Area
2. In addition, land development operations are subject to comprehensive federal, state and
local regulations, including environmental, land use, zoning and building requirements. There
can be no assurance that proposed land development operations within Improvement Area 2
will not be adversely affected by future government policies, including, but not limited to,
governmental policies to restrict or control development, or future growth control initiatives.
There can be no assurance that land development operations within Improvement Area 2 will
not be adversely affected by these risks.
Disasters. The value of the Taxable Property in the future can be adversely affected by
a variety of natural occurrences, particularly those that may affect infrastructure and other public
improvements and private improvements on the Taxable Property and the continued habitability
and enjoyment of such private improvements. For example, areas in and surrounding
49
Improvement Area 2, like those in much of California, may be subject to unpredictable seismic
activity and periodic wildfires. See "IMPROVEMENT AREA 2 - Environmental Conditions."
Other natural disasters could include, without limitation, landslides, floods, droughts or
tornadoes. One or more natural disasters could occur and could result in damage to
improvements of varying seriousness. The damage may entail significant repair or replacement
costs and that repair or replacement may never occur either because of the cost, or because
repair or replacement will not facilitate habitability or other use, or because other considerations
preclude such repair or replacement. Under any of these circumstances there could be
significant delinquencies in the payment of Special Taxes, and the value of the Taxable
Property may well depreciate or disappear.
Improvement Area 2 is located near the eastern end of the McClellan-Palomar Airport
Runway and is subject to periodic overflight. An airplane accident could result in damage to
improvements, reduce occupancy rates and adversely impact the value of Taxable Property.
Legal Requirements. Other events that may affect the value of Taxable Property
include changes in the law or application of the law. Such changes may include, without
limitation, local growth control initiatives, and similar changes to land use laws and regulations
applicable to the Taxable Propertylocal utility connection moratoriums and local application of
statewide tax and governmental spending limitation measures.
Hazardous Substances. One of the most serious risks in terms of the potential
reduction in the value of Taxable Property is a claim with regard to a hazardous substance. In
general, the owners and operators of Taxable Property may be required by law to remedy
conditions of the parcel relating to releases or threatened releases of hazardous substances.
The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980,
sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely
applicable of these laws, but California laws with regard to hazardous substances are also
stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a
hazardous substance condition of property whether or not the owner or operator has anything to
do with creating or handling the hazardous substance. The effect, therefore, should any of the
Taxable Property be affected by a hazardous substance, is to reduce the marketability and
value of the parcel by the costs of remedying the condition, because the purchaser, upon
becoming owner, will become obligated to remedy the condition just as is the seller.
As described in "IMPROVEMENT AREA 2 - Appraised Property Value," the Appraisal
assumes that no toxic waste or groundwater contamination problems exist on the property.
Accordingly, the Appraisal does not take into account the possible reduction in marketability and
value of any of the Taxable Property by reason of the possible liability of the owner or operator
for the remedy of a hazardous substance condition of the parcel. Although the City is not aware
that the owner or operator of any of the Taxable Property has such a current liability with
respect to any of the Taxable Property, it is possible that such liabilities do currently exist and
that the City is not aware of them.
Further, it is possible that liabilities may arise in the future with respect to any of the
Taxable Property resulting from the existence, currently, on the parcel of a substance presently
classified as hazardous but that has not been released or the release of which is not presently
threatened, or may arise in the future resulting from the existence, currently on the parcel of a
substance not presently classified as hazardous but that may in the future be so classified.
Further, such liabilities may arise not simply from the existence of a hazardous substance but
50
from the method of handling it. All of these possibilities could significantly affect the value of
Taxable Property that is realizable upon a delinquency. See "IMPROVEMENT AREA 2 -
Environmental Conditions."
Endangered and Threatened Species. It is illegal to harm or disturb any plants or
animals in their habitat that have been listed as endangered species by the United States Fish &
Wildlife Service under the Federal Endangered Species Act or by the California Fish & Game
Commission under the California Endangered Species Act without a permit. Although the
Property Owners believe that no federally listed endangered or threatened species would be
affected by the proposed development within Improvement Area 2 without a permit, the
discovery of an endangered plant or animal could delay development of vacant property in
Improvement Area 2 or reduce the value of undeveloped property. See "IMPROVEMENT
AREA 2 - Environmental Conditions."
Water Availability
The development of the land within Improvement Area 2 is dependent upon the
availability of water. Improvement Area 2 will receive its water from the Carlsbad Municipal
Water District who in turn purchases 100% of its water from the San Diego County Water
Authority. The San Diego County Water Authority partly obtains its water from the Colorado
River and partly from the State Water Project, which imports water to Southern California from
Northern California rivers.
There is currently a case pending in Federal District Court in Fresno, California, in which
environmental groups are alleging violations of environmental laws and that the alleged
violations may jeopardize the Sacramento Delta smelt's survival and recovery or adversely
affect the smelt's critical Sacramento Delta habitat. In connection with the foregoing, on August
31, 2007, the Federal Court ordered the following: (1) year-round monitoring actions that fully
implement all current surveys that are being conducted for the Delta smelt; (2) increase in the
frequency of sampling for entrained fish at certain protective facilities; (3) modifications of
project operations; (4) prohibition on the installation of tidal operations of three South Delta
agricultural barriers from late winter to early summer; (5) prohibition on the installation of the
Head of Old River Barrier from late winter to early summer; (6) modification in the seven-day
running average of upstream Old and Middle River flows; and (7) implementation of the Vernalis
Adaptive Management Plan. This decision may adversely impact the ability of the State Water
Project to supply Northern California river water to Southern California cities, which would limit
availability of the water supply to the District. Shortage of water could negatively affect the
economy of Southern California and the City and could adversely impact development in
Improvement Area 2.
Concentration of Property Ownership
As of the date of issuance of the Bonds, three entities own all of the Taxable Property in
Improvement Area 2. Because Techbilt Construction and CONP share common ownership
interests, the Appraisal aggregates their property for valuation purposes.
Failure of these Property Owners to pay installments of the Special Tax when due could
result in the depletion of the Reserve Fund prior to reimbursement from the resale of foreclosed
property or payment of the delinquent Special Tax and, consequently, an insufficiency of
Special Tax proceeds to meet obligations under the Fiscal Agent Agreement. In that event,
there could be a delay or failure in payments of the principal of and interest on the Bonds.
51
Failure of the Property Owners to complete development as proposed on their property in
Improvement Area 2 for any reason could increase the chances that they would not pay
installments of Special Taxes when due see "- Property Values and Property Development"
above.
Other Possible Claims Upon the Value of Taxable Property
While the Special Taxes are secured by the Taxable Property, the security only extends
to the value of such Taxable Property that is not subject to priority and parity liens and similar
claims.
The table in the section entitled "IMPROVEMENT AREA 2 - Direct and Overlapping
Governmental Obligations" shows the presently outstanding amount of governmental
obligations (with stated exclusions), the tax or assessment for which it is or may become an
obligation of one or more of the parcels of Taxable Property. The table also states the
additional amount of general obligation bonds the tax for which, if and when issued, may
become an obligation of one or more of the parcels of Taxable Property. The table does not
specifically identify which of the governmental obligations are secured by liens on one or more
of the parcels of Taxable Property.
In addition, other governmental obligations may be authorized and undertaken or issued
in the future, the tax, assessment or charge for which may become an obligation of one or more
of the parcels of Taxable Property and may be secured by a lien on a parity with the lien of the
Special Tax securing the Bonds.
In general, as long as the Special Tax is collected on the County tax roll, the Special Tax
and all other taxes, assessments and charges also collected on the tax roll are on a parity, that
is, are of equal priority. Questions of priority become significant when collection of one or more
of the taxes, assessments or charges is sought by some other procedure, such as foreclosure
and sale. In the event of proceedings to foreclose for delinquency of Special Taxes securing
the Bonds, the Special Tax will be subordinate only to existing prior governmental liens, if any.
Otherwise, in the event of such foreclosure proceedings, the Special Taxes will generally be on
a parity with the other taxes, assessments and charges, and will share the proceeds of such
foreclosure proceedings on a pro-rata basis. Although the Special Taxes will generally have
priority over non-governmental liens on a parcel of Taxable Property, regardless of whether the
non-governmental liens were in existence at the time of the levy of the Special Tax or not, this
result may not apply in the case of bankruptcy. See "- Bankruptcy and Foreclosure Delays"
below.
Special Tax Revenues include proceeds of a foreclosure sale and, therefore, if amounts
held under the Fiscal Agent Agreement are not sufficient to pay debt service on the Bonds and
delinquencies in Special Tax payments by property owners have occurred, owners of the Bonds
will be paid following foreclosure of the lien in respect of the delinquent Special Taxes from
Special Tax Revenues, if any, collected in any such foreclosure action.
52
•J
Exempt Properties
Certain properties are exempt from the Special Tax in accordance with the Rate and
Method and the Act, which provides that properties or entities of the state, federal or local
government are exempt from the Special Tax; provided, however, that property within
Improvement Area 2 acquired by a public entity through a negotiated transaction or by gift or
devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the
Special Tax. See "SECURITY FOR THE BONDS - Rate and Method." In addition, although the
Act provides that if property subject to the Special Tax is acquired by a public entity through
eminent domain proceedings, the obligation to pay the Special Tax with respect to that property
is to be treated as if it were a special assessment, the constitutionality and operation of these
provisions of the Act have not been tested, meaning that such property could become exempt
from the Special Tax.
The Act further provides that no other properties or entities are exempt from the Special
Tax unless the properties or entities are expressly exempted in a resolution of consideration to
levy a new special tax or to alter the rate or method of apportionment of an existing special tax.
Depletion of Reserve Fund
The Reserve Fund is to be maintained at an amount equal to the Reserve Requirement.
See "SECURITY FOR THE BONDS - Reserve Fund." Funds in the Reserve Fund may be used
to pay principal of and interest on the Bonds if insufficient funds are available from the proceeds
of the levy and collection of the Special Tax against property within Improvement Area 2. If
funds in the Reserve Fund for the Bonds are depleted, the funds can be replenished from the
proceeds of the levy and collection of the Special Tax that are in excess of the amount required
to pay all amounts to be paid to the Bond holders pursuant to the Fiscal Agent Agreement.
However, no replenishment from the proceeds of a Special Tax levy can occur as long as the
proceeds that are collected from the levy of the Special Tax against property within
Improvement Area 2 at the maximum Special Tax rates, together with other available funds,
remains insufficient to pay all such amounts. Thus it is possible that the Reserve Fund will be
depleted and not be replenished by the levy of the Special Tax.
Bankruptcy and Foreclosure Delays
Bankruptcy. The payment of the Special Tax and the ability of the City to foreclose the
lien of a delinquent unpaid tax, as discussed in "SECURITY FOR THE BONDS," may be limited
by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the
State of California relating to judicial foreclosure. The various legal opinions to be delivered
concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion)
will be qualified as to the enforceability of the various legal instruments by bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting creditors' rights, by the
application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the Special Taxes to become
extinguished, bankruptcy of a property owner or any other person claiming an interest in
property subject to the Special Taxes could result in a delay in superior court foreclosure
proceedings and could result in the possibility of Special Tax installments not being paid in part
or in full. Such a delay would increase the likelihood of a delay or default in payment of the
principal of and interest on the Bonds. To the extent that property in Improvement Area 2
continues to be owned by a limited number of property owners, the chances are increased that
53
the Reserve Fund established for the Bonds could be fully depleted during any such delay in
obtaining payment of delinquent Special Taxes. As a result, sufficient moneys would not be
available in the Reserve Fund for transfer to the Bond Fund to make up shortfalls resulting from
delinquent payments of the Special Tax and thereby to pay principal of and interest on the
Bonds on a timely basis.
Property Owned by FDIC. In addition, the ability of the City to foreclose upon the lien
on property for delinquent Special Taxes may be limited for properties in which the Federal
Deposit Insurance Corporation (the "FDIC") has an interest. On November 26, 1996, the FDIC
adopted a Statement of Policy Regarding the Payment of State and Local Property Taxes (the
"Policy Statement") (which superseded a prior statement issued by the FDIC and the
Resolution Trust Corporation in 1991). The Policy Statement applies to the FDIC when it is
liquidating assets in its corporate and receivership capacities. The Policy Statement provides,
in part, that real property of the FDIC is subject to state and local real property taxes if those
taxes are assessed according to the property's value, and that the FDIC is immune from ad
valorem real property taxes assessed on other bases. The Policy Statement also provides that
the FDIC will pay its proper tax obligations when they become due and will pay claims for
delinquencies as promptly as is consistent with sound business practice and the orderly
administration of the institution's affairs, unless abandonment of the FDIC interest in the
property is appropriate. It further provides that the FDIC will pay claims for interest on
delinquent property taxes owned at the rate provided under state law, but only to the extent the
interest payment obligation is secured by a valid lien. The FDIC will not pay for any fines or
penalties and will not pay nor recognize liens for such amounts. The Policy Statement also
provides that if any property taxes (including interest) on FDIC-owned property are secured by a
valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those
claims. No property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale
without the FDIC's consent. In addition, a lien for taxes and interest may attach, but the FDIC
will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without
the FDIC's consent.
With respect to challenges to assessments, the Policy Statement provides: "The (FDIC)
is only liable for state and local taxes which are based on the value of the property during the
period for which the tax is imposed, notwithstanding the failure of any person, including prior
record owners, to challenge an assessment under the procedures available under state law. In
the exercise of its business judgment, the (FDIC) may challenge assessments which do not
conform with the statutory provisions, and during the challenge may pay tax claims based on
the assessment level deemed appropriate, provided such payment will not prejudice the
challenge. The (FDIC) will generally limit challenges to the current and immediately preceding
taxable year and to the pursuit of previously filed tax protests. However, the (FDIC) may, in the
exercise of its business judgment, challenge any prior taxes and assessments provided that (1)
the (FDIC's) records (including appraisals, offers or bids received for the purchase of the
property, etc.) indicate that the assessed value is clearly excessive, (2) a successful challenge
will result in a substantial savings to the (FDIC), (3) the challenge will not unduly delay the sale
of the property, and (4) there is a reasonable likelihood of a successful challenge."
The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes,
including special assessments, on property in which it has a fee simple interest unless the
amount of tax is fixed at the time the FDIC acquires its fee simple interest in the property, nor
will the FDIC recognize the validity of any lien to the extent it purports to secure the payment of
any such amounts. Because the Special Taxes are neither ad valorem taxes nor special
assessments, and because they are levied under a special tax formula under which the amount
54
of the Special Tax is determined each year, the Special Taxes appear to fall within the category
of taxes the FDIC generally will not pay under the Policy Statement.
Following the County of Orange bankruptcy proceedings filed in December 1994, the
FDIC filed claims against the County of Orange in the U.S. Bankruptcy Court and the Federal
District Court which challenged special taxes that Orange County had levied on FDIC-owned
property (and which the FDIC had paid) under the Act. The FDIC took a position similar to that
outlined in the Policy Statement, to the effect that the FDIC, as a governmental entity, is exempt
from special taxes under the Act. The Bankruptcy Court agreed, finding that the FDIC was not
liable for post-receivership Mello-Roos taxes, and the Bankruptcy Appellate Panel affirmed. On
appeal, the U.S. Court of Appeals for the Ninth Circuit, while not specifically asked to decide on
the issue, stated in its decision filed on August 28, 2001, that "the FDIC, as a federal agency, is
exempt from the Mello-Roos tax," and quoted Section 53340(c) of the Act in stating that
"'properties or entities' of the federal government are exempt from the tax."
The City is unable to predict what effect the application of the Policy Statement, or the
ultimate outcome of the County of Orange case, would have in case of a Special Tax
delinquency on a parcel in which the FDIC has an interest. However, prohibiting the judicial
foreclosure sale of a FDIC-owned parcel would likely reduce the number of or eliminate the
persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume
that the City will be unable to foreclose on parcels of land in Improvement Area 2 owned by the
FDIC. Such an outcome would cause a draw on the Reserve Fund and perhaps, ultimately, a
default in payment of the Bonds.
Disclosure to Future Purchasers
The City has recorded a notice of the Special Tax lien in the Office of the County
Recorder. While title companies normally refer to such notices in title reports, there can be no
guarantee that such reference will be made or, if made, that a prospective purchaser or lender
will consider such special tax obligation in the purchase of a parcel of land or a home in
Improvement Area 2 or the lending of money secured by property in Improvement Area 2. The
Act and the Goals and Policies require the subdivider of a subdivision (or its agent or
representative) to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit
subject to a Mello-Roos special tax of the existence and maximum amount of such special tax
using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the
case of transfers other than those covered by the above requirement, the seller must at least
make a good faith effort to notify the prospective purchaser of the special tax lien in a format
prescribed by statute. Failure by an owner of the property to comply with these requirements, or
failure by a purchaser or lessor to consider or understand the nature and existence of the
Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay
the Special Tax when due.
55 n
No Acceleration Provisions
The Bonds do not contain a provision allowing for the acceleration of the Bonds in the
event of a payment default or other default under the terms of the Bonds or the Fiscal Agent
Agreement. Under the Fiscal Agent Agreement, a Bond holder is given the right for the equal
benefit and protection of all Bond holders similarly situated to pursue certain remedies. See
"APPENDIX E - Summary of Fiscal Agent Agreement." So long as the Bonds are in book-entry
form, DTC will be the sole Bond holder and will be entitled to exercise all rights and remedies of
Bond holders.
Extraordinary Mandatory Redemption of Escrow Bonds
As set forth in "SECURITY FOR THE BONDS - Escrow Fund" and "APPENDIX E -
Summary of Fiscal Agent Agreement," proceeds of the Escrow Bonds will be deposited into an
Escrow Fund to be held by the Fiscal Agent under the Fiscal Agent Agreement. The Fiscal
Agent Agreement provides for the transfer of funds from the Escrow Fund to the Improvement
Fund and the Reserve Fund not more often than once each 12-month period, subject to
satisfaction of certain Escrow Release Tests. If the Escrow Release Tests have not been met
prior to the Escrow Redemption Date, moneys in the Escrow Fund will be transferred to the
Interest Account and the Principal Account for the purpose of redeeming the Escrow Bonds on
the Escrow Redemption Date.
Satisfaction of the Escrow Release Tests is dependent upon development and
occupancy of property in Improvement Area 2. Failure of the Property Owners to develop, sell or
lease their property as currently proposed (see "PROPERTY OWNERSHIP AND PROPOSED
DEVELOPMENT") may result in an ability to meet the Escrow Release Tests and lead to an
extraordinary mandatory redemption of the Escrow Bonds prior to their maturity. See "THE
BONDS - Redemption - Extraordinary Mandatory Redemption of Escrow Bonds."
Loss of Tax Exemption
As discussed under the caption "LEGAL MATTERS - Tax Matters," interest on the
Bonds might become includable in gross income for purposes of federal income taxation
retroactive to the date the Bonds were issued as a result of future acts or omissions of the City
in violation of its covenants in the Fiscal Agent Agreement. The Fiscal Agent Agreement does
not contain a special redemption feature triggered by the occurrence of an event of taxability.
As a result, if interest on the Bonds were to be includable in gross income for purposes of
federal income taxation, the Bonds would continue to remain outstanding until maturity unless
earlier redeemed pursuant to optional or mandatory redemption or redemption upon
prepayment of the Special Tax. See "THE BONDS - Redemption."
Voter Initiatives
Under the California Constitution, the power of initiative is reserved to the voters for the
purpose of enacting statutes and constitutional amendments. Since 1978, the voters have
exercised this power through the adoption of Proposition 13 and similar measures, the most
recent of which was approved as Proposition 218 in the general election held on November 5,
1996.
Any such initiative may affect the collection of fees, taxes and other types of revenue by
local agencies such as the Community Facilities District. Subject to overriding federal
56
constitutional principles, such collection may be materially and adversely affected by voter-
approved initiatives, possibly to the extent of creating cash-flow problems in the payment of
outstanding obligations such as the Bonds.
Proposition 218—Voter Approval for Local Government Taxes—Limitation on Fees,
Assessments, and Charges—Initiative Constitutional Amendment, added Articles XIIIC and
XIIID to the California Constitution, imposing certain vote requirements and other limitations on
the imposition of new or increased taxes, assessments and property-related fees and charges.
The Special Taxes and the Bonds were each authorized by not less than a two-thirds
vote of the landowners within Improvement Area 2 who constituted the qualified electors of
Improvement Area 2 at the time of such voted authorization. The City believes, therefore, that
issuance of the Bonds does not require the conduct of further proceedings under the Act or
Proposition 218.
Like its antecedents, Proposition 218 is likely to undergo both judicial and legislative
scrutiny before its impact on Improvement Area 2 and the City's related obligations can be
determined. Certain provisions of Proposition 218 may be examined by the courts for their
constitutionality under both State and federal constitutional law, the outcome of which cannot be
predicted.
Limitations on Remedies
Remedies available to the owners of the Bonds may be limited by a variety of factors
and may be inadequate to assure the timely payment of principal of and interest on the Bonds
or to preserve the tax-exempt status of the Bonds.
Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the
Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws
affecting generally the enforcement of creditors' rights, by equitable principles and by the
exercise of judicial discretion. The lack of availability of certain remedies or the limitation of
remedies may entail risks of delay, limitation or modification of the rights of the owners of the
Bonds.
Factors Relating to Sub-Prime Loans
Since the end of 2002, many homeowners have financed the purchase of their new
homes using loans with little or no down-payment and with adjustable interest rates that are
subject to being reset at higher rates on a specified date or on the occurrence of specified
conditions. Homeowners who purchased their homes with "sub-prime loans" have begun to
experience difficulty in making their loan payments due to automatic rate increases on their
adjustable loans and rising interest rates in the market.
As a result of increasing defaults on "sub-prime loans" in recent months, credit has
become more difficult and more expensive to obtain, not only in the residential market, but also
in the commercial and industrial sectors. Unavailability of loans for the purchase and
development of real property in Improvement Area 2 may adversely impact assessed values
and development timelines of property in Improvement Area 2 and, as a result, adversely impact
Special Tax Revenues available to pay debt service on the Bonds.
57
Absence of Secondary Market for the Bonds
There can be no guarantee that there will be a secondary market for the Bonds or, if a
secondary market exists, that any Bonds can be sold for any particular price. Prices of bond
issues for which a market is being made will depend upon then-prevailing circumstances. Such
prices could be substantially different from the original purchase price. No assurance can be
given that the market price for the Bonds will not be affected by the introduction or enactment of
any future legislation (including without limitation amendments to the Internal Revenue Code),
or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue
Service, including but not limited to the publication of proposed or final regulations, the issuance
of rulings, the selection of the Bonds for audit examination, or the course or result of any
Internal Revenue Service audit or examination of the Bonds or obligations that present similar
tax issues as the Bonds.
On May 21, 2007, the U.S. Supreme Court agreed to review Davis v. Kentucky Dep't of
Revenue of the Finance and Admin. Cabinet, 197 S.W.Sd 557 (2006), a decision holding that
state statutes providing more favorable state income tax treatment to holders of debt issued by
in-state government bodies than for debt issued by out-of-state government bodies violate the
U.S. Constitution. If the decision is upheld, the marketability and market price for the Bonds
may be affected.
LEGAL MATTERS
Legal Opinions
The legal opinion of Best Best & Krieger LLP, San Diego, California, Bond Counsel,
approving the validity of the Bonds will be made available to purchasers at the time of original
delivery and is attached as APPENDIX I.
Jones Hall, A Professional Law Corporation, San Francisco, California is serving as
Disclosure Counsel to the City.
Tax Matters
In the opinion of Best Best & Krieger LLP, based upon analysis of existing laws,
regulations, rulings and court decisions, and assuming, among other matters, compliance with
certain covenants, interest on the Bonds is excluded from gross income for federal income tax
purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt
from State of California personal income taxes. Bond Counsel is of the further opinion that
interest on the bonds is not a specific preference item for purposes of the federal individual or
corporate alternative minimum taxes, although Bond Counsel observes that such interest is
included in adjusted current earnings when calculating federal corporate alternative minimum
taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth
in APPENDIX H hereto.
The Code imposes various restrictions, conditions and requirements relating to the
exclusion from gross income for federal income tax purposes of interest on obligations such as
the Bonds. The District has covenanted to comply with certain restrictions designed to insure
that interest on the Bonds will not be included in federal gross income. Failure to comply with
58
these covenants may result in interest on the Bonds being included in federal gross income,
possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes
compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform
any person) whether any actions taken (or not taken) or events occurring (or not occurring) after
the date of issuance of the bonds may adversely affect the value of, or the tax status of interest
on, the Bonds. Prospective Bondholders are urged to consult their own tax advisors with
respect to proposals to restructure the federal income tax.
Certain requirements and procedures contained or referred to in the Indenture, the Tax
Certificate, and other relevant documents may be changed and certain actions (including,
without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances
and subject to the terms and conditions set forth in such documents. Bond Counsel expresses
no opinion as to any bond or the interest thereon if any such changes occurs or action is taken
or omitted upon the advice or approval of counsel other than Best Best & Krieger LLP.
Although Bond Counsel is of the opinion that interest on the bonds is excluded from
gross income for federal income tax purposes and is exempt from State of California personal
income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds
may otherwise affect a Bondholder's federal or state tax liability. The nature and extent of these
other tax consequences will depend upon the particular tax status of the Bondholder or the
Bondholder's other items of income or deduction, and Bond Counsel expresses no opinion
regarding any such other tax consequences.
No Litigation
[Confirm] At the time of delivery of the Bonds, the City will certify that there is no action,
suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public
agency or body, pending with respect to which the City has been served with process or known
to be threatened, which:
in any way questions the powers of the City Council or the Community
Facilities District; or
in any way questions the validity of any proceeding taken by the City
Council in connection with the issuance of the Bonds; or
• if there is an unfavorable decision, ruling or finding, could materially
adversely affect the transactions contemplated by the Bond Purchase Contract; or
in any way, could adversely affect the validity or enforceability of the
resolutions of the City Council adopted in connection with the formation of the
Community Facilities District or the issuance of the Bonds, the Bonds, the Fiscal Agent
Agreement, the Issuer Continuing Disclosure Certificate or the Bond Purchase Contract;
or
in any way questions the exclusion from gross income of the recipients
thereof of the interest on the Bonds for federal income tax purposes; or
in any other way questions the status of the Bonds under State tax laws
or regulations.
0,1
CONCLUDING INFORMATION
No Ratings
The Bonds have not been rated by any securities rating agency.
Underwriting
The Bonds are being purchased by the Stone & Youngberg LLC (the "Underwriter") at a
purchase price of $ (which represents the aggregate principal amount of the
Bonds ($ ), less an original issue discount of $ , and less an
Underwriter discount of $ ).
The purchase agreement relating to the Bonds provides that the Underwriter will
purchase all of the Bonds, if any are purchased, the obligation to make such purchase being
subject to certain terms and conditions set forth in such purchase agreement.
The Underwriter may offer and sell Bonds to certain dealers and others at prices lower
than the offering price stated on the cover page hereof. The offering prices may be changed
from time to time by the Underwriter.
Professional Fees
In connection with the issuance of the Bonds, fees or compensation payable to certain
professionals are contingent upon the issuance and delivery of the Bonds. Those professionals
include:
• Best Best & Krieger LLP, as Bond Counsel;
• Jones Hall, A Professional Law Corporation, as Disclosure Counsel; and
• Stone & Youngberg LLC, the Underwriter.
Execution
The execution and delivery of the Official Statement by the City has been duly
authorized by the City Council, acting as the legislative body of Improvement Area 2.
CITY OF CARLSBAD, for and on behalf of the City
of Carlsbad Community Facilities District No. 3,
County of San Diego, State of California
By:
City Manager
60
APPENDIX A
GENERAL INFORMATION ABOUT THE CITY OF CARLSBAD
AND COUNTY OF SAN DIEGO
The information regarding the City set forth in this APPENDIX A is for background
informational purposes only. The City is not in any way obligated to pay debt service on the
Bonds from its own funds.
The City is located on the coast of Southern California in San Diego County about 35
miles north of San Diego and 86 miles south of Los Angeles. It is bordered by two lagoons,
Buena Vista and Batiquitos, on the north and south respectively. City limits cover approximately
42 square miles and the City's estimated population was 101,337 as of January 1, 2007.
Municipal Government
The City, a general law city with the council-manager form of government, was
incorporated July 16, 1952. A five-member City Council is elected at large for four-year
alternating terms at elections held every two years. The mayor is the presiding officer of the
council and also is elected to serve a four-year term. The city manager, appointed by the
council for an indeterminate term, acts as chief executive officer in carrying out council policies.
The City provides the full range of services normally associated with a municipality including
police, fire, parks and recreation, library, planning and zoning, building and engineering, various
maintenance services and administration. The City provides water and sewer services through
the Carlsbad Municipal Water District, a subsidiary district of the City. Solid waste collection is
provided through a franchise arrangement with a local refuse collection service.
The City operates a redevelopment agency that encompasses two areas: the Village
Redevelopment area, which includes the downtown and historic district of the City, and the
South Carlsbad Coastal Redevelopment area, which includes Ponto Beach and the Encina
Power Plant. The City also operates a housing authority that provides low and moderate
income families with housing assistance.
Climate and Topography
The City has mild summers with a mean temperature for the month of July of 73 degrees
and moderate winters with an average winter temperature of 58 degrees. The relative humidity
is low. Average rainfall, which occurs generally in the period between October and February, is
less than 9 inches.
The City is located on the Pacific Ocean, 35 miles north of San Diego at an altitude of
sea level to 585 feet above sea level.
A-1
Population
Population figures for the City, San Diego County and the State of California for the prior
four census evaluations and the last five years are shown in the following table.
CITY OF CARLSBAD
Population Estimates
Calendar Years 2003 through 2007
Calendar City of County State of
Year Carlsbad San Diego California
1970 14,944 1,357,854 19,953,134
1980 35,490 1,861,846 23,667,902
1990 63,292 2,498,016 29,758,213
2000 78,306 2,813,833 33,873,086
2003 90,686 2,972,932 35,691,472
2004 92,674 3,011,244 36,245,016
2005 94,776 3,039,277 36,728,196
2006 98,641 3,064,113 37,195,240
2007 101,337 3,098,269 37,662,518
Source: State Department of Finance estimates (as of January 1).
Commercial Activity
Total taxable sales during the first three quarters of calendar year 2006 in the City were
reported to be $1,767,068,000, a 0.5% increase over the total taxable sales of $1,757,458,000
reported during the first three quarters of calendar year 2005. The number of establishments
selling merchandise subject to sales tax and the valuation of taxable transactions in the City is
presented in the following table. Annual figures for 2006 are not yet available.
CITY OF CARLSBAD
Taxable Retail Sales
Number of Permits and Valuation of Taxable Transactions
($000's)
Retail Stores Total All Outlets
Number Taxable Percent Number of Taxable Percent
of Permits Transactions Change Permits Transactions Change
2001 1,248 $1,483,053 -- 3,327 $1,868,939
2002 1,328 1,534,421 3.5% 3,512 1,930,892 3.3%
2003 1,423 1,677,796 9.3 3,708 2,097,128 8.6
2004 1,532 1,853,897 10.5 3,868 2,282,355 8.8
2005 1,547 1,918,846 3.5 3,963 2,381,346 4.3
Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).
A-2 - -•* \.
2002
1,447,500
1,373,100
74,400
5.1%
2003
1 ,467,400
1,391,100
76,300
5.2%
2004
1,490,300
1,420,000
70,300
4.7%
2005
1,507,100
1 ,442,400
64,700
4.3%
2006
1,518,000
1,457,500
60,500
4.0%
Employment and Industry
The City is included in the San Diego Metropolitan Statistical Area, which includes all of
San Diego County. The unemployment rate in the San Diego MSA was 4.8% in September
2007. This compares with an unadjusted unemployment rate of 5.4% for California and 4.7% for
the nation during the same period. Set forth below is data from 2002 to 2006, reflecting San
Diego County's civilian labor force, employment and unemployment.
Metropolitan Statistical Area (San Diego County)
Civilian Labor Force, Employment and Unemployment
(Annual Averages)
Civilian Labor Force (1)
Employment
Unemployment
Unemployment Rate
Wage and Salary Employment:(2>
Agriculture
Natural Resources and Mining
Construction
Manufacturing
Wholesale Trade
Retail Trade
Transportation, Warehousing and
Utilities
Information
Finance and Insurance
Real Estate and Rental and Leasing
Professional and Business Services
Educational and Health Services
Leisure and Hospitality
Other Services
Federal Government
State Government
Local Government
Total, All Industries (3)
11,000
300
76,400
112,300
41,300
138,000
29,300
37,700
47,300
27,700
201,700
119,700
133,800
45,600
40,100
37,700
141,800
11,200
300
80,200
105,300
41,600
140,800
27,300
36,900
51,200
28,800
201,200
121,800
140,700
46,800
40,100
38,100
139,000
11,100
400
87,700
104,300
41,900
144,900
28,400
36,600
52,800
29,100
204,500
121,700
145,700
47,900
39,700
38,000
136,600
10,700
400
90,800
104,500
43,600
147,400
28,400
37,400
53,500
29,700
210,400
122,500
149,600
48,800
39,700
38,200
137,300
1 1 ,000
500
92,600
103,600
45,100
147,600
28,300
37,200
53,300
30,400
213,800
124,700
156,200
48,900
40,300
39,100
138,300
1,241,700 1,251,300 1,271,500 1,292,800 1,310,900
(1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers,
household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers,
household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.
Source: State of California Employment Development Department.
A-3
Major Employers
The largest manufacturing and non-manufacturing employers as of January 2007 in the
County are shown below.
Employer Name
SAN DIEGO COUNTY
Largest Employers
Location Industry
32nd St Naval Station San Diego
Barona Valley Ranch & Casino Lakeside
Goodrich Aerospace Chula Vista
Grossmont College El Cajon
Kaiser Permanente San Diego
Kyocera Wireless Corp San Diego
National Steel & Shipbuilding San Diego
North Island Naval Air Station Not Available
Palomar Medical Ctr Escondido
Palomar Pomerado Outpatient Escondido
SAIC Inc San Diego
San Diego Community College San Diego
San Diego Me Recruit Depot San Diego
San Diego Naval Medical Ctr San Diego
Scripps Research Institute La Jolla
Sea World San Diego
Sharp Grossmont Hospital La Mesa
Sharp Mary Birch Hospital San Diego
Sharp Memorial Hospital San Diego
Solar Turbines Inc San Diego
Sycuan Casino El Cajon
Sycuan Poker Room El Cajon
Tri-City Medical Ctr Oceanside
Tyco Health Care San Diego
UCSD Medical Ctr San Diego
Source: State Board of Equalization.
Federal Government-National Security
Casino
Electronic Equipment & Supplies-Mfrs
Schools-Universities & Colleges Academic
Clinics
Cellular Telephones (Services)
Diamonds-Industrial (Wholesale)
Federal Government-National Security
Hospitals
Physical Therapists
Contractors
Schools-Universities & Colleges Academic
Recruiting-Us Armed Forces
Medical Centers
Research Service
Amusement Places
Hospitals
Hospitals
Hospitals
Turbines-Manufacturers
Casino
Race Tracks
Hospitals
Manufacturer
Hospitals
A-4
The following tables list the major employers within the City and their estimated number
of employees as of June 30, 2007. The major manufacturing employers located within Carlsbad
are summarized in the table below.
CITY OF CARLSBAD
Principal Manufacturing Employers
(as of June 30, 2007)
Employer Product/Service Employees
% of Total
City
Employment
Callaway Golf
Invitrogen
Taylor Made Golf - Adidas Golf Company
Acushnet Golf
Zimmer Dental
Hoehn Motors
The Upper Deck
Modern Postcard
Beckman Coulter
Syntron Bioresearch Inc.
Schumacher
Golf Equipment
Research Supplies
Golf Equipment
Golf Equipment
Dental Implants
Auto Dealerships
Sports Memorabilia
Direct Marketing Services
Biomedical Testing
Medical Device Manufacturer
Manufacturer
2,000
900
727
535
391
300
300
270
260
250
250
3.60%
1.62
1.31
0.96
0.70
0.54
0.54
0.49
0.47
0.45
0.45
Source: Carlsbad Business License Data (2007)
A list of major non-manufacturing employees as of June 30, 2007 in the City is set forth
in the table below.
CITY OF CARLSBAD
Principal Non-Manufacturing Employers
(as of June 30, 2006)
Employer Product/Service Employees
% of Total
City
Employment
Four Seasons Resort - Aviara
Carlsbad Unified School District
City of Carlsbad
ViaSat, Inc.
Gemological Institute of America
La Costa Resort & Spa
24-Hour Fitness, USA
San Diego Gas & Electric
LEGOLAND, California
FedEx Express
Jenny Craig
Resort 1,000 1.80%
Education 950 1.71
Municipal Government 834 1.50
Wireless Communications Provider 811 1.46
Gemological School 660 1.19
Hotel/Health Spa 501 0.90
Health Club 330 0.63
Public Utility 325 0.59
Family Theme Park 251 0.45
Package Delivery 250 0.45
Weight Loss Program Provider 250 0.45
Source: Carlsbad Business License Data (2007)
A-5
Building Activity
The table below summarizes building activity in the City for the past five years:
CITY OF CARLSBAD
Building Activity and Valuation
Fiscal Years 2002-2006
(Dollars in thousands)
2003 2004 2005 2006 2007
Permit Valuation
New Residential $175,072 $260,385 $434,670 $251,208 $287,166
New Commercial/Industrial $45,806 $13,642 $46,684 $65,701 $96,047
New Dwelling Units
Single Family 421 634 1194 552 250
Multi Family 520 628 551 396 231
Source: City of Carlsbad.
Effective Buying Income
"Effective Buying Income" is defined as personal income less personal tax and nontax
payments, a number often referred to as "disposable" or "after-tax" income. Personal income is
the aggregate of wages and salaries, other labor-related income (such as employer
contributions to private pension funds), proprietor's income, rental income (which includes
imputed rental income of owner-occupants of non-farm dwellings), dividends paid by
corporations, interest income from all sources, and transfer payments (such as pensions and
welfare assistance). Deducted from this total are personal taxes (federal, state and local),
nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance.
According to U.S. government definitions, the resultant figure is commonly known as
"disposable personal income."
The following table summarizes the total effective buying income for the City of
Carlsbad, County of San Diego, the State and the United States for 2002 through 2006.
A-6
CITY OF CARLSBAD
COUNTY OF SAN DIEGO
Effective Buying Income
2002 through 2006
Year Area
2002 City of Carlsbad
San Diego County
California
United States
2003 City of Carlsbad
San Diego County
California
United States
2004 City of Carlsbad
San Diego County
California
United States
2005 City of Carlsbad
San Diego County
California
United States
2006 City of Carlsbad
San Diego County
California
United States
Total Effective
Buying Income
(OOP's Omitted)
$
$
$
$
$
2,426,533
54,831,958
647,879,427
5,340,682,818
2,809,885
57,680,880
674,721,020
5,466,880,008
2,896,963
60,578,879
705,108,410
5,692,909,567
2,986,230
61,891,933
720,798,106
5,894,663,364
3,266,520
66,110,993
764,120,963
6,107,092,244
Median Household
Effective
Buying Income
$55,753
42,315
42,484
38,035
$56,291
43,346
42,924
38,201
$57,659
44,506
43,915
39,324
$59,148
45,571
44,681
40,529
$63,139
47,368
46,275
41,255
Source: Sales & Marketing Management Survey of Buying Power for 2002 through 2004;
Claritas Demographics for 2005 & 2006.
Transportation
Surface, sea and air transportation facilities serve County residents and businesses.
Interstate 5 parallels the coast from Mexico to the Los Angeles Area and points north. Interstate
15 runs inland, leading to Riverside-San Bernardino, Las Vegas, and Salt Lake City. Interstate
8 runs eastward through the southern United States.
San Diego's International Airport (Lindbergh Field) is located approximately one mile
west of the downtown area at the edge of San Diego Bay. The facilities are owned and
maintained by the San Diego Airport Authority and are leased to commercial airlines and other
tenants. The airport is California's third most active commercial airport, served by 20 major
airlines. In addition to San Diego International Airport, there are several general aviation
airports located in the County, including McClellan-Palomar Airport in Carlsbad.
Public transit in the metropolitan area is provided by the Metropolitan Transit
Development Board and the North County Transit District ("NCTD"). The San Diego Trolley,
A-7
developed by the Metropolitan Transit Development Board beginning in 1979, has been
expanded. A total of 17.6 miles were added to the original 108 miles; construction was
completed in 1990. Buses operated by NCTD carry passengers in the north San Diego County
region, which includes the area south to and including Del Mar, east to Escondido, north to the
Orange County and Riverside County lines, and includes Camp Pendleton. NCTD has 165
vehicles in its bus fleet. NCTD's bus fleet carries more than 11 million passengers every year.
San Diego is the terminus of the Santa Fe Railway's main line from Los Angeles.
Amtrak passenger service is available at San Diego, with stops at Solana Beach and Oceanside
in the North County.
San Diego's harbor is one of the world's largest natural harbors. The Port of San Diego
is administered by the San Diego Unified Port District, which includes the cities of San Diego,
National City, Chula Vista, Imperial Beach and Coronado.
A-8
J
APPENDIX B
RATE AND METHOD OF APPORTIONMENT
OF SPECIAL TAX
B-1
APPENDIX C
THE APPRAISAL
C-1
APPENDIX D
MARKET ABSORPTION STUDY SUMMARY AND CONCLUSIONS
D-1
APPENDIX E
SUMMARY OF FISCAL AGENT AGREEMENT
E-1
APPENDIX F
DTC AND THE BOOK-ENTRY ONLY SYSTEM
The following description of the Depository Trust Company ("DTC"), the procedures and
record keeping with respect to beneficial ownership interests in the Bonds, payment of principal,
interest and other payments on the Bonds to DTC Participants or Beneficial Owners,
confirmation and transfer of beneficial ownership interest in the Bonds and other related
transactions by and between DTC, the DTC Participants and the Beneficial Owners is based
solely on information provided by DTC. Accordingly, no representations can be made by the
City concerning these matters and neither the DTC Participants nor the Beneficial Owners
should rely on the foregoing information with respect to such matters, but should instead confirm
the same with DTC or the DTC Participants, as the case may be.
Neither the issuer of the Bonds (the "Issuer") nor the trustee, fiscal agent or paying
agent appointed with respect to the Bonds (the "Agent") take any responsibility for the
information contained in this Appendix.
No assurances can be given that DTC, DTC Participants or Indirect Participants will
distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with
respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or
ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co.,
its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or
that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this
Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange
Commission and the current "Procedures" of DTC to be followed in dealing with DTC
Participants are on file with DTC.
1. The Depository Trust Company ("DTC"), New York, NY, will act as securities
depository for the securities (the "Bonds"). The Bonds will be issued as fully-registered
securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other
name as may be requested by an authorized representative of DTC. One fully-registered Bond
certificate will be issued for the Bonds, in the aggregate principal amount of such issue, and will
be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500
million, one certificate will be issued with respect to each $500 million of principal amount and
an additional certificate will be issued with respect to any remaining principal amount of such
issue.
2. DTC, the world's largest depository, is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate
and municipal debt issues, and money market instrument from over 100 countries that DTC's
participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade
settlement among Direct Participants of sales and other securities transactions in deposited
securities through electronic computerized book-entry transfers and pledges between Direct
Participants' accounts. This eliminates the need for physical movement of securities certificates.
Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
F-1
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned
subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned
by a number of Direct Participants of DTC and Members of the National Securities Clearing
Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation
(NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock
Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-
U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that
clear through or maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC
Rules applicable to its Participants are on file with the Securities and Exchange Commission.
More information about DTC can be found at www.dtcc.com and www.dtc.org.
3. Purchases of Bonds under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest
of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase. Beneficial Owners are, however, expected to receive written
confirmations providing details of the transaction, as well as periodic statements of their
holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into
the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries
made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership interests in Bonds,
except in the event that use of the book-entry system for the Bonds is discontinued.
4. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC
are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as
may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and
their registration in the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds;
DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds
are credited, which may or may not be the Beneficial Owners. The Direct and Indirect
Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by
Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may
wish to take certain steps to augment transmission to them of notices of significant events with
respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the
security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the
nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to
Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and
addresses to the registrar and request that copies of the notices be provided directly to them.
6. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue
are being redeemed, DTC's practice is to determine by lot the amount of the interest of each
Direct Participant in such issue to be redeemed.
F-2
7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with
respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's
Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting
rights to those Direct Participants to whose accounts the Bonds are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and interest payments on the Bonds will be made
to Cede & Co., or such other nominee as may be requested by an authorized representative of
DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and
corresponding detail information from Issuer or Agent on payable date in accordance with their
respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC nor its nominee, Agent, or Issuer, subject to
any statutory or regulatory requirements as may be in effect from time to time. Payment of
redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other
nominee as may be requested by an authorized representative of DTC) is the responsibility of
Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility
of Direct and Indirect Participants.
9. DTC may discontinue providing its services as securities depository with respect to
the Bonds at any time by giving reasonable notice to Issuer or Agent. Under such
circumstances, in the event that a successor securities depository is not obtained, Bond
certificates are required to be printed and delivered.
10. Issuer may decide to discontinue use of the system of book-entry-only transfers
through DTC (or a successor securities depository). In that event, Bond certificates will be
printed and delivered to DTC.
11. The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility
for the accuracy thereof.
F-3
APPENDIX G
FORM OF ISSUER CONTINUING DISCLOSURE CERTIFICATE
CONTINUING DISCLOSURE CERTIFICATE
(City of Carlsbad)
$
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 SPECIAL TAX BONDS
(IMPROVEMENT AREA 2)
This Continuing Disclosure Certificate (this "Disclosure Certificate") is executed and
delivered by the City of Carlsbad (the "City"), for and on behalf of the City of Carlsbad
Community Facilities District No. 3 (Improvement Area 2), County of San Diego, State of
California (the "Improvement Area 2") in connection with the issuance of the bonds captioned
above (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated
as of January 1 , 2008 (the "Fiscal Agent Agreement"), by and between the City, for and on
behalf of Improvement Area 2, and The Bank of New York Trust Company, N.A., as fiscal agent
(the "Fiscal Agent"). The City hereby covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being
executed and delivered by the City for the benefit of the holders and beneficial owners of the
Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-
Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal
Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless
otherwise defined in this Section, the following capitalized terms shall have the following
meanings:
"Annual Report' means any Annual Report provided by the City pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
"Annual Report Date" means the date that is nine months after the end of the City's
fiscal year (currently March 31 based on the City's fiscal year end of June 30).
"CPO" means the Internet-based filing system currently located at
www.DisclosureUSA.org, or such other similar filing system approved by the Securities and
Exchange Commission.
"Dissemination Agent' means Special District Financing and Administration or any
successor Dissemination Agent designated in writing by the City and which has filed with the
City a written acceptance of such designation.
"Listed Events" means any of the events listed in Section 5(a) of this Disclosure
Certificate.
G-1
"National Repository means any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule. Information on the National Repositories as of
a particular date is available on the Securities and Exchange Commission's Internet site at
www.sec.gov.
"Official Statement' means the final official statement executed by the City in
connection with the issuance of the Bonds.
"Participating Underwriter" means Stone & Youngberg LLC, the original Underwriter of
the Bonds required to comply with the Rule in connection with offering of the Bonds.
"Repository" means each National Repository and each State Repository, if any.
"Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"State Repository" means any public or private repository or entity designated by the
State of California as a state repository for the purpose of the Rule and recognized as such by
the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is
no State Repository.
Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the
Annual Report Date, commencing March 31, 2008 with the report for the 2006-07 fiscal year
(provided the fiscal year 2006-07 report may consist of the Official Statement and the City's
fiscal year 2006-07 audited financial statements), provide to the Participating Underwriter and to
each Repository an Annual Report that is consistent with the requirements of Section 4 of this
Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the
City shall provide the Annual Report to the Dissemination Agent (if other than the City). The
Annual Report may be submitted as a single document or as separate documents comprising a
package, and may include by reference other information as provided in Section 4 of this
Disclosure Certificate; provided that the audited financial statements of the City may be
submitted separately from the balance of the Annual Report, and later than the date required
above for the filing of the Annual Report if not available by that date. The audited financial
statements of the City may be included within or constitute a portion of the audited financial
statements. If the City's fiscal year changes, it shall give notice of such change in the same
manner as for a Listed Event under Section 5(c).
(b) If the City does not provide, or cause the Dissemination Agent to provide, an
Annual Report to the Repositories by the Annual Report Date as required in subsection (a)
above, the Dissemination Agent shall send a notice to (i) either the National Repositories or the
Municipal Securities Rulemaking Board and (ii) the appropriate State Repository, if any, in
substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if different
than the Dissemination Agent) and the Participating Underwriter. In lieu of filing the notice with
each Repository, the City or the Dissemination Agent may file such notice with the CPO.
(c) With respect to the Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the name and
address of each National Repository and each State Repository, if any; and
G-2
(ii) if the Dissemination Agent is other than the City, file a report with the City
and the Participating Underwriter certifying that the Annual Report has been provided
pursuant to this Disclosure Certificate, stating the date it was provided and listing all the
Repositories to which it was provided.
(d) In lieu of filing the Annual Report with each Repository in accordance with the
preceding paragraph (c), the City or the Dissemination Agent may file such Annual Report solely
with the CPO.
Section 4. Content of Annual Reports. The City's Annual Report shall contain or
incorporate by reference the following documents and information:
(a) The City's audited financial statements for the most recently completed fiscal
year, together with the following statement:
THE CITY'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY
WITH THE SECURITIES EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE
15C2-12. NO FUNDS OR ASSETS OF THE CITY ARE REQUIRED TO BE USED TO PAY
DEBT SERVICE ON THE BONDS, AND THE CITY IS NOT OBLIGATED TO ADVANCE
AVAILABLE FUNDS TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY
ON THE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD
OR SELL THE BONDS.
(b) For each parcel, total assessed value (per the San Diego County Assessor's
records) of all parcels currently subject to the Special Tax within Improvement Area 2, showing
the total assessed valuation for all land and the total assessed valuation for all improvements
within the Improvement Area 2 and distinguishing between the assessed value of improved and
unimproved parcels. Parcels are considered improved if there is an assessed value for the
improvements in the Assessor's records.
(c) The total dollar amount of delinquencies in Improvement Area 2 as of August 1 of
any year and, in the event that the total delinquencies within Improvement Area 2 as of August 1
in any year exceed 5% of the Special Tax for the previous year, delinquency information for
each parcel, including the amounts of delinquencies, length of delinquency and status of any
foreclosure of each such parcel.
(d) The amount of prepayments of the Special Tax with respect to Improvement
Area 2 for the prior Fiscal Year.
(e) A land ownership summary listing property owners responsible for more than 5%
of the annual Special Tax levy, as shown on the San Diego County Assessor's last equalized
tax roll prior to the September next preceding the Annual Report Date.
(f) The principal amount of the Bonds outstanding and the balance in the Reserve
Fund (along with a statement of the Reserve Requirement) as of the September 30 next
preceding the Annual Report Date.
(g) An updated table in substantially the form of the table in the Official Statement
entitled "Appraised Values and Value to Burden Ratios" based upon the most recent information
available, provided that assessed values shown on the San Diego County assessor's most
G-3
recent equalized tax roll prior to the September next preceding the Annual Report Date may be
substituted for appraised values.
(h) Any changes to the Rate and Method of Apportionment for Improvement Area 2
set forth in APPENDIX B to the Official Statement.
(i) A copy of the annual information required to be filed by the City with the
California Debt and Investment Advisory Commission pursuant to the Act and relating generally
to outstanding Improvement Area 2 bond amounts, fund balances, assessed values, special tax
delinquencies and foreclosure information.
(j) In addition to any of the information expressly required to be provided under
paragraphs (a) through (i) of this Section, the City shall provide such further information, if any,
as may be necessary to make the specifically required statements, in the light of the
circumstances under which they are made, not misleading.
Any or all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues of the City or related public entities,
which have been submitted to each of the Repositories or the Securities and Exchange
Commission. If the document included by reference is a final official statement, it must be
available from the Municipal Securities Rulemaking Board. The City shall clearly identify each
such other document so included by reference.
Section 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the
following events with respect to the Bonds, if material:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial difficulties.
(5) Substitution of credit or liquidity providers, or their failure to perform.
(6) Adverse tax opinions or events affecting the tax-exempt status of the security.
(7) Modifications to rights of security holders.
(8) Contingent or unscheduled bond calls.
(9) Defeasances.
(10) Release, substitution, or sale of property securing repayment of the securities.
(11) Rating changes.
G-4
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the
City shall as soon as possible determine if such event would be material under applicable
Federal securities law.
(c) If the City determines that knowledge of the occurrence of a Listed Event would
be material under applicable Federal securities law, the City shall, or shall cause the
Dissemination Agent to, promptly file a notice of such occurrence with (i) each National
Repository or the Municipal Securities Rulemaking Board and (ii) the appropriate State
Repository, if any, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and
the Participating Underwriter. Notwithstanding the foregoing, notice of Listed Events described
in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice
(if any) of the underlying event is given to holders of affected Bonds pursuant to the Fiscal
Agent Agreement.
In lieu of filing the notice of Listed Event with each Repository in accordance with the
preceding paragraph, the City or the Dissemination Agent may file such notice of a Listed Event
with the CPO.
Section 6. Termination of Reporting Obligation. The City's obligations under this
Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in
full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the
City shall give notice of such termination in the same manner as for a Listed Event under
Section 5(c).
Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate,
and may discharge any such Agent, with or without appointing a successor Dissemination
Agent. The initial Dissemination Agent will be Special District Financing and Administration.
Section 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure
Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it
may only be made in connection with a change in circumstances that arises from a change in
legal requirements, change in law, or change in the identity, nature, or status of an obligated
person with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the
opinion of nationally recognized bond counsel, have complied with the reguirements of the Rule
at the time of the primary offering of the Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds
in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent
Agreement with the consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or
nationally recognized bond counsel, materially impair the interests of the holders or beneficial
owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report
is amended pursuant to the provisions hereof, the first annual financial information filed
G-5
pursuant hereto containing the amended operating data or financial information shall explain, in
narrative form, the reasons for the amendment and the impact of the change in the type of
operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be
followed in preparing financial statements, the annual financial information for the year in which
the change is made shall present a comparison between the financial statements or information
prepared on the basis of the new accounting principles and those prepared on the basis of the
former accounting principles. The comparison shall include a qualitative discussion of the
differences in the accounting principles and the impact of the change in the accounting
principles on the presentation of the financial information, in order to provide information to
investors to enable them to evaluate the ability of the City to meet its obligations. To the extent
reasonably feasible, the comparison shall be quantitative. A notice of the change in the
accounting principles shall be sent to the Repositories in the same manner as for a Listed Event
under Section 5(c).
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed
to prevent the City from disseminating any other information, using the means of dissemination
set forth in this Disclosure Certificate or any other means of communication, or including any
other information in any Annual Report or notice of occurrence of a Listed Event, in addition to
that which is required by this Disclosure Certificate. If the City chooses to include any
information in any Annual Report or notice of occurrence of a Listed Event in addition to that
which is specifically required by this Disclosure Certificate, the City shall have no obligation
under this Disclosure Certificate to update such information or include it in any future Annual
Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the City to comply with any provision of
this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the
Bonds may take such actions as may be necessary and appropriate, including seeking mandate
or specific performance by court order, to cause the City to comply with its obligations under this
Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event
of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure
Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall
be an action to compel performance.
Section 11. Duties. Immunities and Liabilities of Dissemination Agent. The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers,
directors, employees and agents, harmless against any loss, expense and liabilities which it
may incur arising out of or in the exercise or performance of its powers and duties hereunder,
including the costs and expenses (including attorneys fees) of defending against any claim of
liability, but excluding liabilities due to the Dissemination Agent's negligence or willful
misconduct. The Dissemination Agent shall have no duty or obligation to review any information
provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the
City, the Property Owner, the Fiscal Agent, the Bond owners or any other party. The obligations
of the City under this Section shall survive resignation or removal of the Dissemination Agent
and payment of the Bonds.
G-6
To the Fiscal Agent:
To the Dissemination Agent:
Section 12. Notices. Any notice or communications to be among any of the parties to
this Disclosure Certificate may be given as follows:
To the Issuer: City of Carlsbad
1635 Faraday Avenue
Carlsbad, CA 92008
Attention: Administrative Services Director
Fax: (760)602-8553
The Bank of New York Trust Company, N.A.
700 S. Flower Street, Ste. 500
Los Angeles, CA90017
Fax: (213)630-6215
Special District Financing and Administration
437 West Grand Avenue
Escondido, CA 92025
Fax: 760.233.2631
Stone & Youngberg LLC
One Ferry Building
San Francisco, California 94111
Attention: Municipal Research Department
Fax: (415)445-2395
Any person may, by written notice to the other persons listed above, designate a
different address or telephone number(s) to which subsequent notices or communications
should be sent.
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of
the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders
and beneficial owners from time to time of the Bonds, and shall create no rights in any other
person or entity.
To the Participating Underwriter:
G-7
Section 14. Counterparts. This Disclosure Certificate may be executed in several
counterparts, each of which shall be regarded as an original, and all of which shall constitute
one and the same instrument.
Date: , 2008
CITY OF CARLSBAD, for and on behalf of City of
Carlsbad Community Facilities District No. 3,
(Improvement Area 2) County of San Diego, State
of California
By:
Assistant City Manager
AGREED AND ACCEPTED:
Special District Financing and Administration, as Dissemination Agent
By: _
Name:
Title:
G-8
EXHIBIT A
NOTICE OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Carlsbad for and on behalf of City of Carlsbad Community
Facilities District No. 3 (Improvement Area 2), County of San Diego,
State of California (the "City")
Name of Bond Issue: City of Carlsbad Community Facilities District No. 3 2008 Special Tax
Bonds (Improvement Area 2)
Date of Issuance: , 2008
NOTICE IS HEREBY GIVEN to [(i) each National Repository or the Municipal Securities
Rulemaking Board and (ii) each appropriate State Repository] [the CPO and the Municipal
Securities Rulemaking Board] that the City has not provided an Annual Report with respect to
the above-named Bonds as required by the Continuing Disclosure Certificate dated
, 2008 executed by the City and countersigned by Special District Financing and
Administration, as dissemination agent. The City anticipates that the Annual Report will be filed
by -
Dated:
DISSEMINATION AGENT:
Special District Financing and Administration
By:
Its:
G-9
APPENDIX H
FORM OF PROPERTY OWNER CONTINUING DISCLOSURE CERTIFICATE
CONTINUING DISCLOSURE CERTIFICATE
(Property Owner)
$
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 SPECIAL TAX BONDS
(IMPROVEMENT AREA 2)
This Continuing Disclosure Certificate (Property Owner) (this "Disclosure Certificate")
is executed and delivered by (the "Property Owner"), in
connection with the issuance by the City of Carlsbad (the "City") of the bonds captioned above
(the "Bonds") for and on behalf of City of Carlsbad Community Facilities District No. 3
(Improvement Area 2), County of San Diego, State of California (the "District"). The Bonds are
being issued pursuant to a Fiscal Agent Agreement dated as of January 1, 2008 (the "Fiscal
Agent Agreement"), by and between the City, for and on behalf of the District, and The Bank of
New York Trust Company, N.A., as fiscal agent (the "Fiscal Agent").
The Property Owner covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being
executed and delivered by the Property Owner for the benefit of the holders and beneficial
owners of the Bonds.
Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal
Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless
otherwise defined in this Section, the following capitalized terms shall have the following
meanings:
"Affiliate" of another Person means (a) a Person directly or indirectly owning,
controlling, or holding with power to vote, 5% or more of the outstanding voting securities of
such other Person, (b) any Person, 5% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c)
any Person directly or indirectly controlling, controlled by, or under common control with, such
other Person. For purposes hereof, control means the power to exercise a controlling influence
over the management or policies of a Person, unless such power is solely the result of an
official position with such Person.
"Assumption Agreement" means an undertaking of a Major Owner, or an Affiliate
thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms
substantially similar to this Disclosure Certificate (as modified for such Major Owner's
development and financing plans with respect to Improvement Area 2 of the District), whereby
such Major Owner or Affiliate agrees to provide periodic reports and notices of significant
events, setting forth the information described in sections 4 and 5 hereof, respectively, with
respect to the portion of the property in Improvement Area 2 of the District owned by such Major
H-1
Owner and its Affiliates and, at the option of the Property Owner or such Major Owner, agrees
to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of
Section 11 hereof.
"CPO" means the Internet-based filing system currently located at
www.DisclosureUSA.org, or such other similar filing system approved by the Securities and
Exchange Commission.
"Dissemination Agent' means the Property Owner or Special District Financing and
Administration, or any successor Dissemination Agent designated in writing by the Property
Owner, and which has filed with the Property Owner, the City and the Fiscal Agent a written
acceptance of such designation, and which is experienced in providing dissemination agent
services such as those required under this Disclosure Certificate.
"Improvement Area" means Improvement Area 2 of the District.
"Listed Events" means any of the events listed in Section 5(a) of this Disclosure
Certificate.
"Major Owner" means, as of any Report Date, an owner of land in the Improvement
Area which is responsible in the aggregate for 10% or more of the Special Taxes in the
Improvement Area anticipated to be levied at any time during the then-current fiscal year.
"National Repository" means any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule. Information on the National Repositories as of
a particular date is available on the Securities and Exchange Commission's Internet site at
www.sec.gov.
"Official Statement' means the final official statement executed by the City, for and on
behalf of the District, in connection with the issuance of the Bonds.
"Participating Underwriter" means Stone & Youngberg LLC, the original Underwriter of
the Bonds required to comply with the Rule in connection with offering of the Bonds.
"Periodic Report' means any Periodic Report provided by the Property Owner pursuant
to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
"Person" means an individual, a corporation, a partnership, a limited liability company,
an association, a joint stock company, a trust, any unincorporated organization or a government
or political subdivision thereof.
"Property" means the property owned by the Property Owner in the Improvement Area.
"Report Date" means March 31 and September 30 of any fiscal year; provided,
however, that the Report Date shall be only March 31 at such time as the Property Owner has
completed construction of all buildings to be constructed within property it owns in the
Improvement Area and each such building constructed by the Property Owner and intended for
lease by the Property Owner has been, since completion of construction, at least 80% occupied
at one time or another.
"Repository" means each National Repository and each State Repository, if any.
H-2
"Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"Special Taxes" means the special taxes of the District levied on taxable property within
the Improvement Area.
"State Repository means any public or private repository or entity designated by the
State of California as a state repository for the purpose of the Rule and recognized as such by
the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is
no State Repository.
Section 3. Provision of Periodic Reports.
(a) The Property Owner shall, or, upon written direction of the Property Owner the
Dissemination Agent shall, not later than the Report Date, commencing March 31, 2008, provide
to each Repository a Periodic Report which is consistent with the requirements of Section 4 of
this Disclosure Certificate with a copy to the Fiscal Agent (if different from the Dissemination
Agent), the Participating Underwriter and the City. Not later than 15 calendar days prior to the
Report Date, the Property Owner shall provide the Periodic Report to the Dissemination Agent
(if different from the Property Owner). The Property Owner shall provide a written certification
with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if
different from the Property Owner), the Fiscal Agent (if different from the Dissemination Agent),
the Participating Underwriter and the City to the effect that such Periodic Report constitutes the
Periodic Report required to be furnished by it under this Disclosure Certificate, The
Dissemination Agent, the Fiscal Agent, the Participating Underwriter and the City may
conclusively rely upon such certification of the Property Owner and shall have no duty or
obligation to review the Periodic Report. The Periodic Report may be submitted as a single
document or as separate documents comprising a package, and may incorporate by reference
other information as provided in Section 4 of this Disclosure Certificate.
(b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar
days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the
Property Owner that the Periodic Report has not been provided as required under Section 3(a)
above. The reminder notice shall instruct the Property Owner to determine whether its
obligations under this Disclosure Certificate have terminated (pursuant to Section 6 below) and,
if so, to provide the Dissemination Agent with a notice of such termination in the same manner
as for a Listed Event (pursuant to Section 5 below). If the Property Owner does not provide, or
cause the Dissemination Agent to provide, a Periodic Report to the Repositories by the Report
Date as required in subsection (a) above, the Dissemination Agent shall send a notice to (i)
each National Repository or the Municipal Securities Rulemaking Board and (ii) the appropriate
State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the
Fiscal Agent (if other than the Dissemination Agent), the City and the Participating Underwriter.
In lieu of filing the notice with each Repository, the Property Owner or the Dissemination Agent
may file such notice with the CPO.
(c) With respect to the Periodic Report, the Dissemination Agent shall:
(i) determine prior to each Report Date the name and address of each National
Repository and each State Repository, if any;
H-3
(ii) to the extent the Periodic Report has been furnished to it, file the Periodic Report
with the Repositories and file a report with the Property Owner (if the Dissemination Agent is
other than the Property Owner), the City and the Participating Underwriter certifying that the
Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was
provided and listing all the Repositories to which it was provided.
(d) In lieu of filing the Periodic Report with each Repository in accordance with the
preceding paragraph (c), the Property Owner or the Dissemination Agent may file such Periodic
Report solely with the CPO.
Section 4. Content of Periodic Reports. The Property Owner's Periodic Report shall
contain or incorporate by reference the information set forth in Exhibit B, any or all of which may
be included by specific reference to other documents, including official statements of debt
issues of the Property Owner or related public entities, which have been submitted to each of
the Repositories or the Securities and Exchange Commission. If the document included by
reference is a final official statement, it must be available from the Municipal Securities
Rulemaking Board. The Property Owner shall clearly identify each such other document so
included by reference.
In addition to any of the information expressly required to be provided in Exhibit B, the
Property Owner's Periodic Report shall include such further information, if any, as may be
necessary to make the specifically required statements, in the light of the circumstances under
which they are made, not misleading.
Section 5. Reporting of Significant Events.
(a) The Property Owner shall give, or cause to be given, notice of the occurrence of
any of the following Listed Events with respect to itself or the Property, if material:
(i) bankruptcy or insolvency proceedings commenced by or against the
Property Owner and, if known, any bankruptcy or insolvency proceedings commenced
by or against any Affiliate of the Property Owner which is reasonably likely to have a
significant impact on the Property Owner's ability to pay Special Taxes or to sell or
develop the Property;
(ii) failure to pay any taxes, special taxes (including the Special Taxes) or
assessments due with respect to the Property prior to the delinquency date;
(iii) filing of a lawsuit of which the Property Owner is aware against the
Property Owner or an Affiliate of the Property Owner seeking damages which is
reasonably likely to have a significant impact on the Property Owner's ability to pay
Special Taxes or to sell or develop the Property;
(iv) material damage to or destruction of any of the improvements on the
Property; and
(v) any payment default or other material default by the Property Owner on
any loan with respect to the construction of improvements on the Property.
H-4
(b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed
Event, the Property Owner shall as soon as possible determine if such event would be material
under applicable Federal securities law.
(c) If the Property Owner determines that knowledge of the occurrence of a Listed
Event would be material under applicable Federal securities law, the Property Owner shall, or
shall cause the Dissemination Agent to, promptly file a notice of such occurrence with (i) each
National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate
State Repository, if any, with a copy to the Fiscal Agent, the City and the Participating
Underwriter.
In lieu of filing the notice of Listed Event with each Repository in accordance with the
preceding paragraph, the Property Owner or the Dissemination Agent may file such notice of a
Listed Event with the CPO.
Section 6. Duration of Reporting Obligation.
(a) All of the Property Owner's obligations hereunder shall commence on the date
hereof and shall terminate (except as provided in Section 11) on the earliest to occur of the
following:
(i) upon the legal defeasance, prior redemption or payment in full of all the
Bonds, or
(ii) at such time as property owned by the Property Owner is no longer
responsible for payment of 10% or more of the Special Taxes, or
(iii) the date on which the Property Owner prepays in full all of the Special Taxes
attributable to the Property, or
(iv) the date on which (A) the Property Owner's property in Improvement Area 2
is responsible for between 10% and 25% of the annual Special Tax levy, (B) the
Property Owner has completed construction of all buildings to be constructed within
property it owns in Improvement Area 2 and (C) each such building constructed by the
Property Owner and intended for lease by the Property Owner has been, since
completion of construction, at least 80% occupied at one time or another.
The Property Owner shall give notice of the termination of its obligations under this
Disclosure Certificate in the same manner as for a Listed Event under Section 5.
(b) If a portion of the Property owned by the Property Owner, or any Affiliate of the
Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major Owner,
the obligations of the Property Owner hereunder with respect to the property in the Improvement
Area owned by such Major Owner and its Affiliates may be assumed by such Major Owner or by
an Affiliate thereof and the Property Owner's obligations hereunder with respect to such
property will be terminated. In order to effect such assumption, such Major Owner or Affiliate
shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the
City and the Participating Underwriter.
H-5
Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or
engage a Dissemination Agent to assist the Property Owner in carrying out its obligations under
this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without
appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Special
District Financing and Administration. The Dissemination Agent may resign by providing thirty
days' written notice to the City, the Property Owner and the Fiscal Agent.
Section 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the Property Owner may amend this Disclosure Certificate, and any provision of this
Disclosure Certificate may be waived, provided that the following conditions are satisfied
(provided, however, that the Dissemination Agent shall not be obligated under any such
amendment that modifies or increases its duties or obligations hereunder without its written
consent thereto):
(a) if the amendment or waiver relates to the provisions of sections 3(a), 4 or 5(a), it
may only be made in connection with a change in circumstances that arises from a change in
legal requirements, change in law, or change in the identity, nature, or status of an obligated
person with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the
opinion of nationally recognized bond counsel, have complied with the requirements of the Rule
at the time of the primary offering of the Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds
in the manner provided in the Fiscal Agent Agreement with the consent of holders, or (ii) does
not, in the opinion of nationally recognized bond counsel, materially impair the interests of the
holders or beneficial owners of the Bonds.
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed
to prevent the Property Owner from disseminating any other information, using the means of
dissemination set forth in this Disclosure Certificate or any other means of communication, or
including any other information in any Periodic Report or notice of occurrence of a Listed Event,
in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses
to include any information in any Periodic Report or notice of occurrence of a Listed Event in
addition to that which is specifically required by this Disclosure Certificate, the Property Owner
shall have no obligation under this Disclosure Certificate to update such information or include it
in any future Periodic Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the Property Owner to comply with any
provision of this Disclosure Certificate, the Fiscal Agent shall (upon written direction and only to
the extent indemnified to its satisfaction from any liability, cost or expense, including fees and
expenses of its attorneys), and the Participating Underwriter and any holder or beneficial owner
of the Bonds may, take such actions as may be necessary and appropriate, including seeking
mandate or specific performance by court order, to cause the Property Owner to comply with its
obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not
be deemed an Event of Default under the Fiscal Agent Agreement, and the sole and exclusive
remedy under this Disclosure Certificate in the event of any failure of the Property Owner to
comply with this Disclosure Certificate shall be an action to compel performance. Neither the
Property Owner nor the Dissemination Agent shall have any liability to the holders and
H-6
beneficial owners of the Bonds or any other party for monetary damages or financial liability of
any kind whatsoever relating to or arising from this Disclosure Certificate.
Section 11. Duties. Immunities and Liabilities of Dissemination Agent. The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Certificate, and the Property Owner agrees to indemnify and save the Dissemination Agent, its
officers, directors, employees and agents (each, an "Indemnified Party"), harmless against any
loss, expense and liabilities which it may incur arising out of or in the exercise or performance of
its powers and duties hereunder, including the reasonable costs and expenses (including
attorneys' fees) of defending against any claim of liability, but excluding loss, liabilities, costs
and expenses due to an Indemnified Party's negligence or willful misconduct or failure to
perform its duties hereunder. The Dissemination Agent shall be paid compensation for its
services provided hereunder in accordance with its schedule of fees as amended from time to
time, which schedule, as amended, shall be reasonably acceptable, and all reasonable
expenses, reasonable legal fees and advances made or incurred by the Dissemination Agent in
the performance of its duties hereunder. The Dissemination Agent shall have no duty or
obligation to review any information provided to it hereunder and shall not be deemed to be
acting in any fiduciary capacity for the City, the Property Owner, the Fiscal Agent, the Bond
owners, or any other party. The obligations of the Property Owner under this Section shall
survive resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 12. Notices. Any notice or communications to be among any of the parties to
this Disclosure Certificate may be given as follows:
To the Issuer: City of Carlsbad
1635 Faraday Avenue
Carlsbad, CA 92008
Attention: Administrative Services Director
Fax: (760)602-8553
To the Fiscal Agent: The Bank of New York Trust Company, N.A.
700 S. Flower Street, Ste. 500
Los Angeles, CA90017
Fax: (213)630-6215
To the Dissemination Agent: Special District Financing and Administration
437 West Grand Avenue
Escondido, CA 92025
Fax: 760.233.2631
To the Participating Underwriter: Stone & Youngberg LLC
One Ferry Building
San Francisco, California 94111
Attention: Municipal Research Department
Fax: (415)445-2395
To the Property Owner: [to come]
Any person may, by written notice to the other persons listed above, designate a
different address or telephone number(s) to which subsequent notices or communications
should be sent.
H-7
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of
the City, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination
Agent, the Participating Underwriter and holders and beneficial owners from time to time of the
Bonds, and shall create no rights in any other person or entity. All obligations of the Property
Owner hereunder shall be assumed by any legal successor to the obligations of the Property
Owner as a result of a sale, merger, consolidation or other reorganization.
Section 14. Counterparts. This Disclosure Certificate may be executed in several
counterparts, each of which shall be regarded as an original, and all of which shall constitute
one and the same instrument.
Date: ,2008
[NAME OF PROPERTY OWNER], a
By:
Its:
AGREED AND ACCEPTED:
Special District Financing and Administration,
as Dissemination Agent
By: _
Title:
H-8
EXHIBIT A
NOTICE OF FAILURE TO FILE PERIODIC REPORT
Name of Issuer: City of Carlsbad, for and on behalf of City of Carlsbad Community
Facilities District No. 3 (Improvement Area 2), County of San Diego,
State of California
Name of Bond Issue: City of Carlsbad Community Facilities District No. 3, 2008 Special Tax
Bonds (Improvement Area 2)
Date of Issuance: , 2008
NOTICE IS HEREBY GIVEN to [(i) each National Repository or the Municipal Securities
Rulemaking Board and (ii) each appropriate State Repository] [the CPO and the Municipal
Securities Rulemaking Board] that (the "Major Owner") has not provided a
Periodic Report with respect to the above-named bonds as required by that certain Continuing
Disclosure Certificate (Property Owner), dated 2008. The Major Owner
anticipates that the Periodic Report will be filed by .
Dated:
Special District Financing and Administration,
as Dissemination Agent
By:
Its:
H-9
EXHIBIT B
PERIODIC REPORT
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 SPECIAL TAX BONDS
(IMPROVEMENT AREA 2)
This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure
Certificate (the "Disclosure Certificate") dated , 2008 executed by the
undersigned (the "Property Owner") in connection with the issuance of the above-captioned
bonds by the City of Carlsbad (the "City"), for and on behalf of City of Carlsbad Community
Facilities District No. 3, County of San Diego, State of California (the "District").
Capitalized terms used in this Periodic Report but not otherwise defined have the
meanings given to them in the Disclosure Certificate.
I. Property Ownership and Development
The information in this section is provided as of (this date must
be not more than 60 days before the date of this Periodic Report). [Include if applicable:
Because all of the property owned by Property Owner in Improvement Area 2 is built-out and
owned and leased by Property Owner, Property Owner is only completing IA, IE, IF, II and V
below.]
A. Property currently owned by the Property Owner in Improvement Area 2 of the
District (the "Property"):
Development name:
Number of lots (acreage):
B. Status of land development or construction activities:
C. Status of building permits and any significant amendments to land use or development
entitlements:
H-10
D. Aggregate property sold, optioned or leased by the Property Owner to end users
or merchant builders:
Since the Date of Issuance Since the Last Periodic
of the Bonds Report
Acres* Acres*
Lots Lots
Bldg. Sq. Ft. Bldg. Sq. Ft.
* For bulk land sales only (excluding sales of finished lots or completed buildings).
E. Status of any land purchase contracts with regard to the Property, whether
acquisition of land in Improvement Area 2 of the District by the Property Owner or sales of land
in Improvement Area 2 of the District to other property owners, distinguishing between (i) end
users (e.g., condominiums), (ii) developers, and (iii) merchant builders.
F. With respect to occupied buildings owned and leased by Property Owner, (i)
occupancy percentage and (ii) a rent roll consisting solely of (A) term of lease and (B) number of
square feet subject to the lease.
II. Legal and Financial Status of Property Owner
Unless such information has previously been included or incorporated by reference in a
Periodic Report, describe any change in the legal structure of the Property Owner or the
financial condition and financing plan of the Property Owner that would materially and adversely
interfere with its ability to complete its development plan described in the Official Statement.
III. Change in Development or Financing Plans
Unless such information has previously been included or incorporated by reference in a
Periodic Report, describe any development plans or financing plans relating to the Property that
are materially different from the proposed development and financing plan described in the
Official Statement.
IV. Official Statement Updates
H-11
06
Unless such information has previously been included or incorporated by reference in a
Periodic Report, describe any other significant changes in the information relating to the
Property Owner or the Property contained in the Official Statement under the heading
"PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT" that would materially and
adversely interfere with the Property Owner's ability to develop and sell the Property as
described in the Official Statement.
V. Other Material Information
In addition to any of the information expressly required above, provide such further
information, if any, as may be necessary to make the specifically required statements, in the
light of the circumstances under which they are made, not misleading.
Certification
The undersigned Property Owner hereby certifies that this Periodic Report constitutes
the Periodic Report required to be furnished by the Property Owner under the Disclosure
Certificate.
ANY OTHER STATEMENTS REGARDING THE PROPERTY OWNER, THE
DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER'S FINANCING PLAN OR
FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE
PROPERTY OWNER IN AN OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL
SECURITIES RULEMAKING BOARD OR A NATIONALLY RECOGNIZED MUNICIPAL
SECURITIES INFORMATION REPOSITORY, ARE NOT AUTHORIZED BY THE PROPERTY
OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY,
COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS.
THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS PERIODIC
REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE.
Dated:
[NAME OF PROPERTY OWNER], a.
By:
Its:
H-12
Ot
APPENDIX I
FORM OF OPINION OF BOND COUNSEL
1-1
APPENDIX J
BOUNDARY MAP OF
IMPROVEMENT AREA 2 AND
COMMUNITY FACILITIES DISTRICT
J-1
D(
EXHIBIT #4-c
13061-12 JH:CKL 12-20-07
PURCHASE CONTRACT
$
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS
(IMPROVEMENT AREA 2)
,2007
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
Attention: City Manager
Ladies and Gentlemen:
Stone & Youngberg LLC (the "Underwriter") offers to enter into this Purchase Contract
(this "Purchase Contract") with the City of Carlsbad (the "Issuer"), for and on behalf of the City
of Carlsbad Community Facilities District No. 3, County of San Diego, State of California (the
"District") with respect to its Improvement Area 2 ("Improvement Area 2"), which, upon your
acceptance of this offer, will be binding upon the Issuer and the Underwriter. Terms not
otherwise defined herein shall have the same meanings as set forth in the Fiscal Agent
Agreement described below.
This offer is made subject to the acceptance by the Issuer of this Purchase Contract on
or before 5:00 p.m. on the date set forth above.
1. Upon the terms and conditions and in reliance upon the respective
representations, warranties and covenants herein, the Underwriter hereby agrees to purchase
from the Issuer, and the Issuer hereby agrees to sell to the Underwriter, all (but not less than
all) of $ aggregate principal amount of the above-captioned bonds (the
"Bonds") at a purchase price (the "Purchase Price") of $ (equal to the par amount of
the Bonds ($ .00) plus original issue premium of $ , less an Underwriter's
discount of $ ).
The Bonds will be issued by the Issuer for and on behalf of the District pursuant to the
Mello-Roos Community Facilities Act of 1982 (constituting Section 53311 et seq. of the
California Government Code) (the "Act") and Resolution No. adopted on , 2007
(the "Bond Resolution") by the City Council of the City (the "City Council") acting as the
legislative body of the District. The Special Taxes to provide a source of payment for the Bonds
(the "Special Taxes") will be levied pursuant to Resolution No. 2005-329 adopted by the City
Council on November 8, 2005 which established the District and Improvement Area 2 and
authorized the levy of a special tax within Improvement Area 2 (the "Resolution of Formation")
and a two-thirds vote of the qualified electors at an election held in Improvement Area 2 on
November 8, 2005.
/
The Bonds will be issued pursuant to the terms of a Fiscal Agent Agreement (the
"Fiscal Agent"), dated as of December 1, 2007 between the Issuer, for and on behalf of
Improvement Area 2, and The Bank of New York Trust Company, N.A., Los Angeles, California,
as fiscal agent (the "Fiscal Agent"). The proceeds of the sale of the Bonds will be used by the
Issuer to finance the design, acquisition and construction of certain public facilities (the
"Facilities"). Proceeds of the Bonds will be applied in accordance with the Fiscal Agent
Agreement.
2. The Bonds will mature on the dates and in the principal amounts, and will bear
interest at the rates, as set forth in Exhibit C hereto. The Underwriter agrees to make a bona
fide public offering of all of the Bonds at the offering prices set forth on the cover of the Final
Official Statement described below.
3. (a) The Issuer agrees to deliver to the Underwriter as many copies of the Official
Statement dated the date hereof, relating to the Bonds (as supplemented and amended from
time to time, the "Final Official Statement") as the Underwriter shall reasonably request as
necessary to comply with paragraph (b)(4) of Rule 15c2-12 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (the "Rule"). The Issuer agrees to
deliver such Final Official Statements within seven (7) business days after the execution hereof.
The Underwriter agrees to deposit the Final Official Statement with a qualified national
registered municipal securities information repository on or as soon as practicable after the
Closing Date (defined below). The Underwriter agrees to deliver a copy of the Final Official
Statement to each of its customers purchasing Bonds no later than the settlement date of the
transaction.
(b) The Issuer has authorized and approved the Preliminary Official Statement dated
, 2007 (the "Preliminary Official Statement") and the Final Official Statement and
consents to their distribution and use by the Underwriter and the execution and approval of the
Final Official Statement by a duly authorized officer of the Issuer. The Issuer deems such
Preliminary Official Statement final as of its date for purposes of the Rule, except for
information allowed by the Rule to be omitted, and has executed a certificate to that effect in
the form of Exhibit D. In connection with the printing and distribution of the Preliminary Official
Statement, the Property Owners and CONP (as defined below) each executed a certificate in
the applicable form attached hereto as Exhibit F.
In connection with issuance of the Bonds, and in order to assist the Underwriter in
complying with the Rule, the Issuer will execute a Continuing Disclosure Certificate (Issuer)
dated the date of issuance of the Bonds (the "Issuer Continuing Disclosure Certificate").
Concurrently, (i) Techbilt Construction Corp. ("Techbilt"), for and on behalf of itself and
Carlsbad Oaks North Partners, L.P. ("CONP") and (ii) Kilroy Realty Finance Partnership, L.P.
("Kilroy," and together with Techbilt, the "Property Owners"), also in order to assist the
Underwriter in complying with the Rule, will each execute a Continuing Disclosure Certificate
(Property Owner) (each, a "Property Owner Continuing Disclosure Certificate") dated the
date of issuance of the Bonds.
Pursuant to the Property Owner Continuing Disclosure Certificates, the Property Owners
will undertake to provide certain data regarding the activities of the Property Owners and
CONP, as applicable, in Improvement Area 2 for a limited period. The forms of the Issuer
Continuing Disclosure Certificate and the Property Owner Continuing Disclosure Certificates
are attached as Appendices G and H, respectively, to the Final Official Statement.
4. The Issuer represents and warrants to the Underwriter that:
(a) The Issuer is duly organized and validly existing under the laws of the
State of California (the "State"), with the power to act as the legislative body of the
District, and has the full legal right, power and authority, among other things, (i) upon
satisfaction of the conditions in this Purchase Contract and the Fiscal Agent Agreement,
to issue the Bonds for the District with respect to Improvement Area 2 for the purpose of
financing the design, acquisition and construction of the Facilities, and (ii) to secure the
Bonds in the manner contemplated in the Fiscal Agent Agreement.
(b) The City Council has the full legal right, power and authority to adopt the
Bond Resolution and the Resolution of Formation, and the Issuer has the full legal right,
power and authority for and on behalf of the District with respect to Improvement Area 2
(i) to enter into this Purchase Contract, the Fiscal Agent Agreement and the Issuer
Continuing Disclosure Certificate, (ii) to issue, sell and deliver the Bonds to the
Underwriter as provided herein, and (iii) to carry out and consummate all other
transactions on its part contemplated by each of the aforesaid documents (such
documents together with the Final Official Statement are collectively referred to herein
as the "Issuer Documents"), and the Issuer and the City Council have complied with all
provisions of applicable law, including the Act, in all matters relating to such
transactions.
(c) The Issuer has duly authorized (i) the execution and delivery by the
Issuer for and on behalf of the District of the Bonds and the execution, delivery and due
performance by the Issuer of its obligations under the Issuer Documents, (ii) the
distribution and use of the Preliminary Official Statement and execution, delivery and
distribution of the Final Official Statement, and (iii) the taking of any and all such action
as may be required on the part of the Issuer to carry out, give effect to and consummate
the transactions on its part contemplated by such instruments. All consents or
approvals necessary to be obtained by the Issuer in connection with the foregoing have
been received, and the consents or approvals so received are still in full force and
effect.
(d) The Bond Resolution and the Resolution of Formation have been duly
adopted by the City Council and are in full force and effect; and the Fiscal Agent
Agreement, when executed and delivered by the Issuer and the other party thereto, will
constitute a legal, valid and binding obligation of the Issuer for and on behalf of the
District enforceable against the Issuer in accordance with its terms, except as
enforceability thereof may be limited by bankruptcy, insolvency or other laws affecting
creditors' rights generally.
(e) When delivered to the Underwriter, the Bonds will have been duly
authorized by the City Council and duly executed, issued and delivered by the Issuer
and will constitute legal, valid and binding obligations of the Issuer for and on behalf of
the District enforceable against the Issuer in accordance with their respective terms,
except as enforceability thereof may be limited by bankruptcy, insolvency or other laws
affecting creditors' rights generally, and will be entitled to the benefit and security of the
Fiscal Agent Agreement.
(f) The information relating to the Issuer, the District and Improvement Area
2 (excluding information relating to the Property Owners and CONP and their property
and activities in Improvement Area 2) contained in the Preliminary Official Statement is,
and as of the Closing Date such information in the Final Official Statement will be true
and correct in all material respects, and the Preliminary Official Statement does not as
of its date and the Final Official Statement will not as of the Closing Date contain any
untrue or misleading statement of a material fact relating to the Issuer, the District or
Improvement Area 2 (excluding information relating to the Property Owners and CONP
and their property and activities in Improvement Area 2) or omit to state any material
fact relating to the Issuer, the District and Improvement Area 2 (excluding information
relating to the Property Owners and CONP and their property and activities in
Improvement Area 2) necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(g) If, at any time prior to the earlier of (i) receipt of notice from the
Underwriter that Final Official Statement is no longer required to be delivered under the
Rule or (ii) the Closing (as described in Section 6 below), any event known to the
officers of the Issuer participating in the issuance of the Bonds occurs with respect to
the Issuer, the District or Improvement Area 2 as a result of which the Final Official
Statement as then amended or supplemented might include an untrue statement of a
material fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not misleading, the
Issuer shall promptly notify the Underwriter in writing of such event. Any information
supplied by the Issuer for inclusion in any amendments or supplements to the Final
Official Statement will not contain any untrue or misleading statement of a material fact
relating to the Issuer, the District or Improvement Area 2 or omit to state any material
fact relating to the Issuer, the District or Improvement Area 2 necessary to make the
statements therein, in the light of the circumstances under which they were made, not
misleading.
(h) Neither the adoption of the Bond Resolution or the Resolution of
Formation, the execution and delivery of the Issuer Documents, nor the consummation
of the transactions on the part of the Issuer contemplated herein or therein or the
compliance by the Issuer with the provisions hereof or thereof will conflict with, or
constitute on the part of the Issuer, a violation of, or a breach of or default under, (i) any
material indenture, mortgage, commitment, note or other agreement or instrument to
which the Issuer is a party or by which it is bound, (ii) any provision of the State
Constitution or (iii) any existing law, rule, regulation, ordinance, judgment, order or
decree to which the Issuer (or the members of the City Council or any of its officers in
their respective capacities as such) is subject, that would have a material adverse affect
on the ability of the Issuer to perform its obligations under the Issuer Documents.
(i) The Issuer has never been in default at any time, as to principal of or
interest on any obligation which it has issued, including those which it has issued as a
conduit for another entity, which default may have an adverse effect on the ability of the
Issuer to consummate the transactions on its part under the Issuer Documents, except
as specifically disclosed in the Final Official Statement; and other than the Fiscal Agent
Agreement, the Issuer has not entered into any contract or arrangement of any kind
which might give rise to any lien or encumbrance on the Special Taxes.
(j) Except as is specifically disclosed in the Final Official Statement, to the
best knowledge of the Issuer, there is no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public board or body, pending
with respect to which the Issuer or the District has been served with process or
threatened, which in any way questions the powers of the City Council or the Issuer
referred to in paragraph (b) above, or the validity of any proceeding taken by the City
Council in connection with the issuance of the Bonds, or wherein an unfavorable
decision, ruling or finding could materially adversely affect the transactions
contemplated by this Purchase Contract, or of any other Issuer Document, or which, in
any way, could adversely affect the validity or enforceability of the Bond Resolution, the
Resolution of Formation, the Fiscal Agent Agreement, the Bonds or this Purchase
Contract or, to the knowledge of the Issuer, which in any way questions the exclusion
from gross income of the recipients thereof of the interest on the Bonds for federal
income tax purposes or in any other way questions the status of the Bonds under State
tax laws or regulations.
(k) Any certificate signed by an official of the Issuer authorized to execute
such certificate and delivered to the Underwriter in connection with the transactions
contemplated by the Issuer Documents shall be deemed a representation and warranty
by the Issuer to the Underwriter as to the truth of the statements therein contained.
(I) The Issuer has not been notified of any listing or proposed listing by the
Internal Revenue Service to the effect that it is a bond issuer whose arbitrage
certifications may not be relied upon.
(m) The Bonds will be paid from Special Tax Revenues (as defined in the
Fiscal Agent Agreement) received by the Issuer and moneys held in certain funds and
accounts established under the Fiscal Agent Agreement.
(n) The Special Taxes may lawfully be levied in accordance with the Rate
and Method of Apportionment of Special Taxes relating to Improvement Area 2 (the
"Rate and Method"), and, when levied, will be secured by a lien on the property on
which they are levied.
(o) The Fiscal Agent Agreement creates a valid pledge of, and first lien upon
the Special Tax Revenues deposited thereunder, and the moneys in certain funds and
accounts established pursuant to the Fiscal Agent Agreement, subject in all cases to the
provisions of the Fiscal Agent Agreement permitting the application thereof for the
purposes and on the terms and conditions set forth therein.
(p) The Issuer has not failed to comply with any undertaking of the Issuer
under Rule 15c2-12(b)(5) of the Securities and Exchange Commission.
5. The Issuer covenants with the Underwriter that the Issuer will cooperate with the
Underwriter (at the cost of the Underwriter), in qualifying the Bonds for offer and sale under the
securities or Blue Sky laws of such jurisdictions of the United States as the Underwriter may
reasonably request; provided, however, that the Issuer shall not be required to consent to suit
or to service of process, or to qualify to do business, in any jurisdiction. The Issuer consents to
the use by the Underwriter of the Issuer Documents in the course of its compliance with the
securities or Blue Sky laws of the various jurisdictions.
6. At 9:00 a.m. on December , 2007 (the "Closing Date") or at such other time
and/or date as shall have been mutually agreed upon by the Issuer and the Underwriter, the
Issuer will deliver or cause to be delivered to the Underwriter the Bonds in definitive form duly
executed and authenticated by the Fiscal Agent together with the other documents mentioned
in Section 8 hereof; and the Underwriter will accept such delivery and pay the Purchase Price of
the Bonds by delivering to the Fiscal Agent for the account of the Issuer a check payable in
federal funds or making a wire transfer in federal funds payable to the order of the Fiscal Agent.
The activities relating to the final execution and delivery of the Bonds and the Fiscal
Agent Agreement and the payment therefor and the delivery of the certificates, opinions and
other instruments as described in Section 8 of this Purchase Contract shall occur at the offices
of Best Best & Krieger LLP, San Diego, California ("Bond Counsel"). The payment for the
Bonds and simultaneous delivery of the Bonds to the Underwriter is herein referred to as the
"Closing." The Bonds will be delivered as fully registered Bonds initially in denominations of
$5,000 each and any integral multiple thereof. The Bonds will be registered in the name of
Cede & Co., as nominee of The Depository Trust Company, and will be made available for
checking by the Underwriter at such place as the Underwriter and the Fiscal Agent shall agree
not less than 24 hours prior to the Closing.
7. The Underwriter shall have the right to cancel its obligations to purchase the
Bonds if between the date hereof and the date of Closing:
(a) the House of Representatives or the Senate of the Congress of the
United States, or a committee of either, shall have pending before it, or shall have
passed or recommended favorably, legislation introduced previous to the date hereof,
which legislation, if enacted in its form as introduced or as amended, would have the
purpose or effect of imposing federal income taxation upon revenues or other income of
the general character to be derived by the Issuer or by any similar body under the Fiscal
Agent Agreement or upon interest received on obligations of the general character of
the Bonds, or of causing interest on obligations of the general character of the Bonds, to
be includable in gross income for purposes of federal income taxation, and such
legislation, in the Underwriter's opinion, materially adversely affects the market price of
the Bonds; or
(b) a tentative decision with respect to legislation shall be reached by a
committee of the House of Representatives or the Senate of the Congress of the United
States, or legislation shall be favorably reported or re-reported by such a committee or
be introduced, by amendment or otherwise, in or be passed by the House of
Representatives or the Senate, or recommended to the Congress of the United States
for passage by the President of the United States, or be enacted or a decision by a
federal court of the United States or the United States Tax Court shall have been
rendered, or a ruling, release, order, circular, regulation or official statement by or on
behalf of the United States Treasury Department, the Internal Revenue Service or other
governmental agency shall have been made or proposed to be made having the
purpose or effect, or any other action or event shall have occurred which has the
purpose or effect, directly or indirectly, of adversely affecting the federal income tax
consequences of owning the Bonds, including causing interest on the Bonds to be
included in gross income for purposes of federal income taxation, or imposing federal
income taxation upon revenues or other income of the general character to be derived
by the Issuer under the Fiscal Agent Agreement or upon interest received on obligations
of the general character of the Bonds, or the Bonds and also including adversely
affecting the tax-exempt status of the Issuer under the Code, which, in the opinion of the
Underwriter, materially adversely affects the market price of or market for the Bonds; or
(c) legislation shall have been enacted, or actively considered for enactment
with an effective date prior to the Closing, or a decision by a court of the United States
shall have been rendered, the effect of which is that the Bonds, including any underlying
obligations, or the Fiscal Agent Agreement, as the case may be, is not exempt from the
registration, qualification or other requirements of the Securities Act of 1933, as
amended and as then in effect, the Securities Exchange Act of 1934, as amended and
as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect;
or
(d) a stop order, ruling, regulation or official statement by the Securities and
Exchange Commission or any other governmental agency having jurisdiction of the
subject matter shall have been issued or made or any other event occurs, the effect of
which is that the issuance, offering or sale of the Bonds, including any underlying
obligations, or the execution and delivery of the Fiscal Agent Agreement as
contemplated hereby or by the Final Official Statement, is or would be in violation of any
provision of the federal securities laws, including the Securities Act of 1933, as
amended and as then in effect, the Securities Exchange Act of 1934, as amended and
as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect;
or
(e) any event shall have occurred or any information shall have become
known to the Underwriter which causes the Underwriter to reasonably believe that the
Final Official Statement as then amended or supplemented includes an untrue
statement of a material fact, or omits to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made, not
misleading, and the Issuer fails to amend or supplement such Final Official Statement to
cure such omission or misstatement pursuant to Section 4(g);or
(f) there shall have occurred any outbreak of hostilities or any national or
international calamity or crisis, including a financial crisis, the effect of which on the
financial markets of the United States is such as, in the reasonable judgment of the
Underwriter, would materially adversely affect the market for or market price of the
Bonds; or
(g) there shall be in force a general suspension of trading on the New York
Stock Exchange, the effect of which on the financial markets of the United States is
such as, in the reasonable judgment of the Underwriter, would materially adversely
affect the market for or market price of the Bonds; or
(h) a general banking moratorium shall have been declared by federal, New
York or State authorities; or
(i) any proceeding shall be pending or threatened by the Securities and
Exchange Commission against the Issuer or the District; or
(j) additional material restrictions not in force as of the date hereof shall
have been imposed upon trading in securities generally by any governmental authority
or by any national securities exchange which adversely affects the Underwriter's ability
to sell the Bonds;
(k) the New York Stock Exchange or other national securities exchange, or
any governmental authority, shall impose, as to the Bonds or obligations of the general
character of the Bonds, any material restrictions not now in force, or increase materially
those now in force, with respect to the extension of credit by, or the charge to the net
capital requirements of, the Underwriter;
(I) an amendment to the federal or State constitution shall be enacted or
action taken by any federal or State court, legislative body, regulatory body or other
authority materially adversely affecting the tax status of the Issuer, its property, income
or securities (or interest thereon), the validity or enforceability of the Special Tax or the
ability of the Issuer to issue the Bonds and levy the Special Tax as contemplated by the
Fiscal Agent Agreement, the Rate and Method and the Final Official Statement; or
(m) the entry of any order by a court of competent jurisdiction which enjoins
or restrains the Issuer from issuing permits, licenses or entitlements within Improvement
Area 2 or which order, in the reasonable opinion of the Underwriter, otherwise materially
and adversely affects development of the real property located in Improvement Area 2.
8. The obligation of the Underwriter to purchase the Bonds shall be subject (a) to
the performance by the Issuer of its obligations to be performed by it hereunder at and prior to
the Closing, (b) to the accuracy as of the date hereof and as of the time of the Closing of the
representations and warranties of the Issuer herein, and (c) to the following conditions,
including the delivery by the Issuer of such documents as are enumerated herein in form and
substance satisfactory to the Underwriter:
(a) At the time of Closing, (i) the Official Statement, this Purchase Contract,
the Issuer Continuing Disclosure Certificate, the Property Owner Continuing Disclosure
Certificates, and the Fiscal Agent Agreement shall be in full force and effect and shall
not have been amended, modified or supplemented except as may have been agreed to
by the Underwriter, and (ii) the Issuer shall have duly adopted and there shall be in full
force and effect such resolutions (including, but not limited to, the Bond Resolution and
the Resolution of Formation) as, in the opinion of Bond Counsel, shall be necessary in
connection with the transactions contemplated hereby.
(b) Receipt of the Bonds, executed by the Issuer and authenticated by the
Fiscal Agent, at or prior to the Closing. The terms of the Bonds, when delivered, shall in
all instances be as described in Final Official Statement.
(c) At or prior to the Closing, the Underwriter shall receive the following
documents in such number of counterparts as shall be mutually agreeable to the
Underwriter and the Issuer:
(i) A final approving opinion of Bond Counsel dated the date of
Closing in the form attached to the Final Official Statement as Appendix I.
(ii) A letter or letters of Bond Counsel addressed to the Underwriter,
which includes a statement to the effect that Bond Counsel's final approving
opinion may be relied upon by the Underwriter to the same extent as if such
opinion were addressed to the Underwriter, and further provides:
(A) the statements contained in the Official Statement on the
cover page and under the captions "INTRODUCTION," "THE BONDS"
(other than information relating to DTC and its book-entry only system, as
to which no opinion need be expressed), "SECURITY FOR THE
BONDS," and "LEGAL MATTERS - Tax Matters," and in Appendices E
and I thereto, are accurate insofar as such statements expressly
summarize certain provisions of the Bonds, the Fiscal Agent Agreement
and Bond Counsel's opinion concerning certain federal tax matters
relating to the Bonds;
(B) the District and Improvement Area 2 are duly established
and validly existing under the laws of the State, including the Act;
(C) the Issuer, on behalf of the District, has duly and validly
executed and delivered this Purchase Contract, and this Purchase
Contract constitutes the legal, valid and binding obligation of the Issuer
enforceable against the Issuer in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws
affecting enforcement of creditors' rights in general and to the application
of equitable principles if equitable remedies are sought; and
(D) the Bonds are not subject to the registration requirements
of the Securities Act of 1933, as amended, and the Fiscal Agent
Agreement is exempt from qualification pursuant to the Trust Indenture
Act of 1939, as amended.
(iii) An opinion of Jones Hall, A Professional Law Corporation,
addressed to the Issuer ("Disclosure Counsel"), to the effect that:
(A) during the course of serving as Disclosure Counsel in
connection with the issuance of the Bonds and without having undertaken
to determine independently or assuming any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Final Official Statement, no information came to the attention of the
attorneys in such firm rendering legal services in connection with the
issuance of the Bonds that would lead them to believe that the Final
Official Statement (excluding therefrom the financial statements, any
financial or statistical data, or forecasts, charts, numbers, estimates,
projections, assumptions or expressions of opinion included in the Official
Statement, information regarding DTC, and the appendices to the Official
Statement, as to which no opinion need be expressed), as of the date
thereof or the Closing Date, contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(B) the Bonds are exempt from registration pursuant to the
Securities Act of 1933, as amended;
(iv) The Final Official Statement executed on behalf of the Issuer by a
duly authorized officer.
(v) Certified copies of the Bond Resolution, Resolution No. 2005-301
of the Issuer (the "Resolution of Intention"), the Resolution of Formation,
Resolution No. 2005-331 ("Election Resolution") and Ordinance No. NS-777
("Ordinance Levying Special Tax").
(vi) Evidence of recordation in the real property records of the County
of San Diego of a Notice of Special Tax Lien in the form required by the Act.
(vii) A certificate of Bruce W. Hull & Associates, Inc., Ventura,
California (the "Appraiser"), in the form attached hereto as Exhibit E, along with
a copy of its appraisal report in the form attached to the Final Official Statement
as Appendix C.
(viii) A certificate of Empire Economics, Capistrano Beach, California
(the "Market Absorption Analyst"), in the form attached hereto as Exhibit J,
along with the "Market Absorption Study" (the "Market Absorption Study")
attached as an Appendix to the Official Statement.
(ix) A certificate, in form and substance as set forth in Exhibit A
hereto, of the Issuer, dated as of the Closing Date.
(x) A certificate in form and substance as set forth in Exhibit B hereto,
of Special District Finance and Administration, Escondido, California ("Special
Tax Consultant"), dated as of the Closing Date.
(xi) Evidence that Federal Form 8038 has been executed by the
Issuer and will be filed with the Internal Revenue Service.
(xii) Executed copies of the Fiscal Agent Agreement and the Issuer
Continuing Disclosure Certificate.
(xiii) A non-arbitrage certificate executed by the Issuer in form and
substance satisfactory to Bond Counsel.
(xiv) An opinion, dated the Closing Date and addressed to the
Underwriter, of the City Attorney, to the effect that:
(A) the Issuer is duly organized and validly existing as a municipal
corporation under and by virtue of the Constitution and laws of the State,
with full legal right, power and authority to adopt the Bond Resolution and
the Resolution of Formation;
(B) the Bond Resolution and the Resolution of Formation were duly
adopted at a meeting of the City Council, acting as legislative body of the
District which was called and held pursuant to law and with all public
notice required by law and at which a quorum was present and acting
throughout, and the Bond Resolution and the Resolution of Formation are
in full force and effect and have not been amended or repealed;
(C) no action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, regulatory agency, public board or body is
pending with respect to which the Issuer has been served with process or
to the knowledge of the City Attorney, threatened, in any way affecting
the existence of the Issuer or the titles of the Issuer's officials to their
respective offices, or seeking to restrain or to enjoin the issuance, sale or
delivery of the Bonds or the application of the proceeds thereof in
accordance with the Fiscal Agent Agreement, or the collection or
application of the Special Taxes to pay the principal of and interest on the
Bonds, or in any way contesting or affecting the validity or enforceability
10
of the Bonds, the Issuer Documents or any action of the Issuer
contemplated by any of said documents, or in any way contesting the
completeness or accuracy of the Official Statement or the powers of the
Issuer or its authority with respect to the Bonds, the Issuer Documents or
any action on the part of the Issuer contemplated by any of said
documents, wherein an unfavorable decision, ruling, or finding could
materially adversely affect the validity or enforceability of the Bonds or
the Issuer Documents;
(D) the execution and delivery of the Bonds and the Issuer
Documents, and compliance with the provisions of each, will not conflict
with or constitute a breach of or default under any loan agreement, note,
ordinance, resolution, indenture, contract, agreement or other instrument
of which the Issuer is a party or is otherwise subject or bound, a
consequence of which could be to materially and adversely affect the
ability of the Issuer to perform its obligations under the Bonds or the
Issuer Documents;
(E) all approvals, consents, authorization, elections and orders of or
filings or registrations with any governmental authority, board, agency or
commission having jurisdiction which would constitute a condition
precedent to, or the absence of which would materially adversely affect,
the ability of the Issuer, to perform its obligations under the Bonds or the
Issuer Documents, have been obtained or made, as the case may be,
and are in full force and effect; and
(F) based upon the information made available to the City Attorney in
the course of his participation in the transaction and without having
undertaken to determine independently or assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Final Official Statement, nothing has come to the attention of the City
Attorney which has led the City Attorney to believe that the Final Official
Statement (excluding therefrom the financial and statistical data included
in the Final Official Statement and any information relating to the Property
Owners and CONP and their property in Improvement Area 2, as to
which no opinion need be expressed) contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading in any
material respect;
(xv) In connection with printing and distribution of the Preliminary
Official Statement, an executed certificate of the Issuer in the form attached
hereto as Exhibit D; and
(xvi) An executed copy of the Property Owner Continuing Disclosure
Certificates.
(xvii) A 10b-5 certificate of each of the Property Owners and CONP in
the form attached hereto as Exhibit F.
11
(xviii) An opinion (or opinions) of counsel to each of the Property
Owners in the form attached hereto as Exhibit H.
(xix) A closing certificate of each of the Property Owners and CONP
dated as of the Closing Date in form and substance as set forth in Exhibit G
hereto.
(xx) A certificate in form and substance as set forth in Exhibit I hereto
of the Fiscal Agent and an opinion of its counsel in form and substance
satisfactory to the Underwriter.
(xxi) Such additional legal opinions, certificates, proceedings,
instruments and other documents as the Underwriter or Bond Counsel may
reasonably request to evidence compliance by the Issuer with legal
requirements, the truth and accuracy, as of the time of Closing, of the respective
representations of the Issuer herein contained and the due performance or
satisfaction by the Issuer at or prior to such time of all agreements then to be
performed and all conditions then to be satisfied.
If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriter
contained in this Purchase Contract, or if the obligations of the Underwriter to purchase and
accept delivery of the Bonds shall be terminated for any reason permitted by this Purchase
Contract, this Purchase Contract shall terminate and neither the Underwriter nor the Issuer shall
be under further obligation hereunder; except that the respective obligations to pay expenses,
as provided in Section 11 hereof shall continue in full force and effect.
9. The obligations of the Issuer to issue and deliver the Bonds on the Closing Date
shall be subject, at the option of the Issuer, to the performance by the Underwriter of its
obligations to be performed hereunder at or prior to the Closing Date.
10. All representations, warranties and agreements of the Issuer hereunder shall
remain operative and in full force and effect, regardless of any investigations made by or on
behalf of the Underwriter, the Issuer or the District and shall survive the Closing.
11. The Issuer shall pay or cause to be paid all reasonable expenses incident to the
performance of its obligations under this Purchase Contract, including, but not limited to,
delivery of the Bonds, costs of printing the Bonds, the Preliminary Official Statement and the
Final Official Statement, any amendment or supplement to the Preliminary Official Statement or
Final Official Statement and this Purchase Contract, fees and disbursements of Bond Counsel
and Disclosure Counsel, any financial advisor and other consultants engaged by the Issuer,
including the fees and expenses of the special tax consultant, the California Debt Investment
and Advisory Commission fee, fees of the Fiscal Agent and fees and disbursements in
connection with the qualification of the Bonds for sale under the securities or "Blue Sky" laws of
the various jurisdictions and the preparation of "Blue Sky" memoranda.
The Underwriter shall pay all advertising expenses in connection with the public offering
of the Bonds, and all other expenses incurred by it in connection with its public offering and
distribution of the Bonds, including fees and expenses of its counsel, if any.
12. Any notice or other communication to be given to the Issuer under this Purchase
Contract may be given by delivering the same in writing at its address set forth above, and any
notice or other communication to be given to the Underwriter under this Purchase Contract may
12
be given by delivering the same in writing to the following: Stone & Youngberg LLC, One Ferry
Building, San Francisco, CA 94111, Attn: Jim Cervantes.
13. This Purchase Contract is made solely for the benefit of the Issuer and the
Underwriter (including the successors or assigns of the Underwriter) and no other person,
including any purchaser of the Bonds, shall acquire or have any right hereunder or by virtue
hereof.
14. This Purchase Contract shall be governed by and construed in accordance with
the laws of the State of California.
13
Issuer.
15. This Purchase Contract shall become effective upon acceptance hereof by the
STONE & YOUNGBERG LLC
By:
Authorized Representative
Accepted and agreed to as of
the date first above written:
CITY OF CARLSBAD, for and on behalf of
City of Carlsbad Community Facilities
District No. 3, County of San Diego, State of
California
By:
Acting City Manager
14
EXHIBIT A
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
ISSUER CLOSING CERTIFICATE
I, the undersigned, hereby certify that I am the City Manager of the City of Carlsbad, the
City Council of which is the legislative body for City of Carlsbad Community Facilities District
No. 3, County of San Diego, State of California (the "Community Facilities District"), a
community facilities district duly organized and existing under the laws of the State of California
(the "State") and that as such, I am authorized to execute this Certificate on behalf of the Issuer
in connection with the issuance of the above-referenced Special Tax Bonds (the "Bonds").
I hereby further certify on behalf of the Issuer that:
(A) to my best knowledge, after reasonable inquiry, no litigation is pending
with respect to which the Issuer has been served with process or threatened (1) to
restrain or enjoin the issuance of any of the Bonds or the collection of Special Tax
Revenues pledged under the Fiscal Agent Agreement; (2) in any way contesting or
affecting the authority for the issuance of the Bonds or the validity or enforceability of
the Bonds, the Fiscal Agent Agreement, the Issuer Continuing Disclosure Certificate or
the Purchase Contract; or (3) in any way contesting the existence or powers of the
Issuer;
(B) the representations and warranties made by the Issuer in the Issuer
Documents are true and correct in all material respects on the Closing Date, with the
same effect as if made on the Closing Date; and
(C) no event affecting the Issuer has occurred since the date of the Official
Statement that, as of the Closing Date, would cause any statement or information
contained in the Final Official Statement under the captions "THE CITY" and "LEGAL
MATTERS - No Litigation" to be incorrect or incomplete in any material respect or would
cause the information contained under the captions "THE CITY" and "LEGAL MATTERS
- No Litigation" in the Final Official Statement to contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make such statements
therein, in the light of the circumstances under which they were made, not misleading.
Capitalized terms not defined herein shall have the same meaning set forth in the
Purchase Contract dated , 2007, between the Issuer and Stone & Youngberg LLC.
A-1
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date
hereinbelow set forth.
Dated: [Closing Date]
CITY OF CARLSBAD, for and on behalf of the City
of Carlsbad Community Facilities District No. 3,
County of San Diego, State of California
By:
Acting City Manager
A-2
EXHIBIT B
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
CERTIFICATE OF SPECIAL TAX CONSULTANT
Special District Finance and Administration ("Special Tax Consultant"), Escondido,
California was retained as Special Tax Consultant and assisted in the preparation of and has
reviewed the Rate and Method of Apportionment of Special Tax (the "Rate and Method") set
forth in Appendix B to the Official Statement dated , 2006 (the "Official Statement")
relating to the above-referenced bonds (the "Bonds"). Based upon the Special Tax
Consultant's review of the Official Statement and such other documents as it deems relevant in
the circumstances, the Special Tax Consultant hereby certifies that the Special Tax, if collected
in the maximum amounts permitted pursuant to the Rate and Method, would generate at least
% of the gross annual debt service on the Bonds, provided that the annual debt service
figures on the attached debt service schedule, which were relied upon by Special Tax
Consultant, are substantially true and correct.
Although the Special Tax if collected in the maximum amounts pursuant to the Rate and
Method will generate at least % of the gross annual debt service payable with respect
to the Bonds each year, no representation is made herein as to actual amounts that will be
collected in future years.
All information with respect to the Rate and Method in the Official Statement is true and
correct as of the date of the Official Statement and as of the date hereof, and a true and correct
copy of the Rate and Method is attached to the Official Statement as Appendix B.
The Special Tax Consultant has reviewed the Summary Appraisal Report attached as
Exhibit C to the Official Statement and is of the opinion that information contained therein with
respect to taxes and tax rates applicable, and projected to be applicable, to the property in
Improvement Area 2 is consistent with such information provided by the Special Tax Consultant
to the Appraiser, which information so provided was based on information obtained by the
Special Tax Consultant from the City and the County.
Capitalized terms not defined herein shall have the same meaning set forth in the
Purchase Contract dated , 2007, between the Issuer and Stone & Youngberg LLC.
Dated: [Closing Date]
SPECIAL DISTRICT FINANCE AND
ADMINISTRATION
By:
B-1
EXHIBIT C
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
Maturity Principal Interest
(September 1) Amount Rate Yield
Total
C-1
EXHIBIT D
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
The undersigned hereby certifies and represents that he is the duly appointed and
acting City Manager of the City of Carlsbad (the "Issuer"), the City Council of which is the
legislative body of the City of Carlsbad Community Facilities District No. 3, County of San
Diego, State of California (the "District"), and is duly authorized to execute and deliver this
Certificate and further hereby certifies on behalf of the Issuer as follows:
(1) This Certificate is delivered in connection with the offering and sale of the
above-referenced bonds (the "Bonds") in order to enable the underwriter of the Bonds
to comply with Securities and Exchange Commission Rule 15c2-12 under the Securities
Exchange Act of 1934 (the "Rule").
(2) In connection with the offering and sale of the Bonds, there has been
prepared a Preliminary Official Statement, setting forth information concerning the
Bonds, the Issuer and the District (the "Preliminary Official Statement").
(3) As used herein, "Permitted Omissions" shall mean the offering price(s),
interest rate(s), selling compensation, aggregate principal amount, principal amount per
maturity, delivery dates, ratings and other terms of the Bonds depending on such
matters, all with respect to the Bonds.
(4) The Preliminary Official Statement is, except for the Permitted
Omissions, deemed final within the meaning of Rule 15c2-12.
IN WITNESS WHEREOF, I have hereunto set my hand as of , 2007.
CITY OF CARLSBAD, for and on behalf of
the City of Carlsbad Community Facilities
District No. 3, County of San Diego, State of
California
By:
Acting City Manager
D-1
EXHIBIT E
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
CERTIFICATE OF APPRAISER
The undersigned, on behalf of Bruce W. Hull & Associates, Inc., Ventura, California (the
"Appraiser"), has prepared a "Summary Appraisal Report" dated October 12 2007 (the
"Appraisal Report") regarding the value of certain real property and improvements
within Improvement Area 2 of the City of Carlsbad Community Facilities District No. 3,
County of San Diego, State of California ("Improvement Area 2"), and certifies that:
1. The assumptions made in the Appraisal Report are reasonable.
2. The Appraiser is not aware of any event or act which occurred since the date of the
Appraisal Report which, in its opinion, would materially and adversely affect the
conclusions as to the market value of the appraised property in Improvement Area 2.
3. The Appraiser consents to the reproduction of the Appraisal Report as Appendix C to
the Preliminary Official Statement dated , 2007 (the "Preliminary Official
Statement"), and the Official Statement dated , 2007 (the "Official
Statement"), each with respect to the above-referenced bonds, and to the references to
the Appraiser and the Appraisal Report made in the Preliminary Official Statement and
the Official Statement.
4. The Appraiser has reviewed the Preliminary Official Statement and the Official
Statement, and the statements concerning the Appraisal Report and the value of the
property in Improvement Area 2 contained in the Preliminary Official Statement and the
Official Statement are true, correct and complete in all material respects and do not
contain any untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5. A true and correct copy of the Appraisal Report is attached as Appendix C to the
Preliminary Official Statement and the Official Statement.
Dated: [closing date] BRUCE W. HULL & ASSOCIATES,
INC.
By:.
Its:
E-1
EXHIBIT F
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
10b-5 CERTIFICATE OF PROPERTY OWNER
The undersigned (the "Property Owner"), in connection with the issuance, sale and
delivery by the City of Carlsbad (the "Issuer") of the bonds captioned above (the "Bonds"),
hereby certifies as follows as of the date hereof:
(1) The undersigned is duly authorized to execute this Certificate on behalf of
the Property Owner.
(2) This Certificate is delivered in connection with the offering and sale of the
bonds captioned above (the "Bonds").
(3) In connection with the offering and sale of the Bonds, there has been
prepared a Preliminary Official Statement (the "Preliminary Official Statement"),
setting forth certain information concerning, among other things, the Bonds, the
Property Owner, the Property Owner's organization, activities, properties and financial
condition, and the Property Owner's development within Improvement Area 2
("Improvement Area 2") of the City of Carlsbad Community Facilities District No. 3,
County of San Diego, State of California (the "District").
(4) The sections of the Preliminary Official Statement entitled
"IMPROVEMENT AREA 2" (except for the information under the captions "- Direct and
Overlapping Governmental Obligations," " - Market Absorption Study," "- Appraised
Property Value" and "-Appraised Value to Burden Ratio" for which no certification is
made) and "PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT - Proposed
Development by [to come]," to the extent they describe or relate to the Property Owner,
[for Kilroy: Kilroy Realty Finance, Inc. and Kilroy Realty Corporation], the Property
Owner's property in Improvement Area 2, the development proposed by the Property
Owner within Improvement Area 2 or representations made by the Property Owner,
contain no untrue statement of a material fact and do not omit any material fact
necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(5) The Property Owner [for Kilroy: Kilroy Realty Finance, Inc. and Kilroy
Realty Corporation] has never failed in any material respect to comply with previous
undertakings to provide periodic continuing disclosure reports or notices of material
events with respect to community facilities districts or assessment districts in California
within the past five years.
(6) The Property Owner [for Kilroy: Kilroy Realty Finance, Inc. and Kilroy
Realty Corporation] has never defaulted to any material extent in the payment of special
taxes or assessments in connection with the District or any other community facilities
districts or assessment districts in California within the past five years.
F-1
(7) The Property Owner [for Kilroy: Kilroy Realty Finance, Inc. and Kilroy
Realty Corporation] is not currently in default on any loans, lines of credit or other
obligation, the result of which could materially adversely affect the development of the
property owned by the Property Owner in Improvement Area 2.
(8) The Property Owner [for Kilroy: Kilroy Realty Finance, Inc. and Kilroy
Realty Corporation] is solvent and no proceedings are pending or threatened in which it
may be adjudicated as bankrupt or become the debtor in a bankruptcy proceeding, or
discharged from all of its debts or obligations, or granted an extension of time to pay its
debts or a reorganization or readjustment of its debts.
(9) There is no litigation or administrative proceeding of any nature in which
the Property Owner [for Kilroy: Kilroy Realty Finance, Inc. or Kilroy Realty Corporation]
has been served, or is pending or threatened which, if successful, would materially
adversely affect the Property Owner's ability to complete the development and sale of its
property within Improvement Area 2, or to pay the Special Taxes, the special benefit
assessments or ordinary ad valorem property tax obligations when due on its property
within Improvement Area 2, or which challenges or questions the validity or
enforceability of the Bonds, the Resolution of Issuance, the Fiscal Agent Agreement, the
Property Owner Continuing Disclosure Certificate executed by the Property Owner or
the Bond Purchase Contract relating to the Bonds.
Dated: , 2007 [SIGNATURE BLOCK OF PROPERTY
OWNER]
F-2
<" V
EXHIBIT G
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
CLOSING CERTIFICATE OF PROPERTY OWNER
The undersigned (the "Property Owner"), in connection with the issuance, sale and
delivery by the City of Carlsbad (the "Issuer") of the bonds captioned above (the "Bonds"),
hereby certifies as follows as of the date hereof:
(1) The undersigned is duly authorized to execute this Certificate on behalf of
the Property Owner.
(2) The Property Owner is duly authorized to execute, deliver and perform its
Property Owner Continuing Disclosure Certificate.
(3) The Property Owner has duly executed and delivered the Property Owner
Continuing Disclosure Certificate.
(4) The Property Owner has full power and authority to own its property
located within Improvement Area 2 and to carry on its business as presently conducted
and as described in the Final Official Statement.
(5) Except as disclosed in the Final Official Statement, no event has
occurred since the date of the Preliminary Official Statement which has materially and
adversely affected or is reasonably expected to materially and adversely affect the
business, properties, operations or financial condition of the Property Owner [for Kilroy:
Kilroy Realty Finance, Inc. and Kilroy Realty Corporation].
(6) Except as disclosed in the Final Official Statement, the Property Owner
has not submitted an application for, nor received actual notice of, (i) the formation or
authorization of any assessment district or community facilities district that would include
any portion of the Property Owner's land within Improvement Area 2, or (ii) the
authorization or issuance of any debt secured by a special tax to be levied on any
portion of the Property Owner's land within Improvement Area 2, other than the Special
Tax.
(7) The representations and warranties made by the Property Owner in the
10b-5 Certificate of Property Owner are true and correct in all material respects on the
Closing Date, with the same effect as if made on the Closing Date. If at any time
subsequent hereto and within 25 days after the date hereof any such statements in the
Official Statement become untrue, the Property Owner agrees to notify the City and the
Underwriter immediately.
(8) The Property Owner covenants that, while the Bonds are outstanding, the
Property Owner will not bring any action, suit, proceeding, inquiry or investigation at law
or in equity, before any court, regulatory agency, public board or body which in any way
G-1
seeks to challenge or overturn Improvement Area 2, the levy of the Special Tax in
accordance with the rate and method of apportionment contained in the Notice of
Special Tax Lien recorded in the real property records of the County of San Diego (the
"Rate and Method") or the validity of the Bonds or the proceedings leading up to their
issuance. The foregoing covenant shall not prevent the Property Owner from bringing
an action or suit contending that the Special Tax has not been levied in accordance with
the methodology contained in the Rate and Method, so long as any such action or suit
does not seek to interfere, or have the effect of interfering, with the levy and collection of
the Special Tax in amounts and at times sufficient to pay the principal of and interest on
the Bonds when due.
Capitalized terms not defined herein have the same meaning as is set forth in the
Purchase Contract between Stone & Youngberg LLC and the City for and on behalf of the City
of Carlsbad Community Facilities District No. 3, County of San Diego, State of California.
Dated: [closing date]
[signature block to come]
G-2
EXHIBIT H
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
FORM OF OPINION OF COUNSEL TO PROPERTY OWNER
One or more letters of counsel to , a (the "Property Owner")
which, taken together, contain the following opinions:
(1) To the actual knowledge of such counsel, based upon the procedures
taken by counsel and described in the opinion letter, there are no legal or governmental
actions, proceedings, inquiries or investigations pending or threatened by governmental
authorities or to which the property owned by [Property Owner] in Improvement Area 2
of the City of Carlsbad Community Facilities District No. 3, County of San Diego, State
of California (the "Property") is subject, which, if determined adversely to the [Property
Owner] [for Techbilt: and CONP] [for Kilroy: Kilroy Realty Finance, Inc. and Kilroy Realty
Corporation], would individually or in the aggregate (a) have a material adverse effect on
the financial position or results of operations of the [Property Owner] [for Kilroy: Kilroy
Realty Finance, Inc. and Kilroy Realty Corporation] [for Techbilt: and CONP], considered
as a whole, or (b) materially and adversely affect the ability of the [Property Owner] to
complete the proposed development of the Property.
(2) the [Property Owner] has duly and validly executed and delivered its
Property Owner Continuing Disclosure Certificate, and its Property Owner Continuing
Disclosure Certificate constitutes the legal, valid and binding obligation of the [Property
Owner].
(e) Based upon (i) such counsel's experience as counsel to the [Property
Owner] in connection with issuance of the above-captioned bonds (the "Bonds"), and
(ii) such counsel's review of the Official Statement, and without having undertaken to
determine independently the accuracy, completeness or fairness of the statements
contained in the Official Statement, to our actual knowledge, no facts came to our
attention that would lead us to believe that the information in the section of the Official
Statement entitled "CONTINUING DISCLOSURE - Property Owner", "IMPROVEMENT
AREA 2" (except for the information under the captions "- Direct and Overlapping
Governmental Obligations," " - Market Absorption Study," "- Appraised Property Value"
and "-Appraised Value to Burden Ratio" for which no certification is made), and
"PROPERTY OWNERHIP AND PROPOSED DEVELOPMENT - Proposed
Development by " as it relates to the [Property Owner] [for Kilroy: Kilroy
Realty Finance, Inc. and Kilroy Realty Corporation] [for Techbilt: and CONP] and its
organizations, activities, properties and financial condition, and their proposed
development of the Property (except for any financial statements and other financial,
statistical, or engineering data or forecasts, numbers, charts, estimates, projections,
appraisals, absorption data, or environmental matters (except for information relating to
environmental permitting) included therein, for which no opinion need be expressed),
contains any untrue statement of a material fact or omits any material fact necessary in
order to make the statements therein, in the light of the circumstances under which they
were made, not misleading.
H-1
EXHIBIT I
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
CERTIFICATE OF FISCAL AGENT
The undersigned hereby states and certifies that the undersigned is an authorized
officer of The Bank of New York Trust Company, N.A., as fiscal agent (the "Fiscal Agent")
under that certain Fiscal Agent Agreement, dated as of December 1, 2007 (the "Fiscal Agent
Agreement"), by and between the City of Carlsbad, for and on behalf of the City of Carlsbad
Community Facilities District No. 3, County of San Diego, State of California (the "Issuer") and
the Fiscal Agent, relating to the captioned bonds (the "Bonds") and as such, is familiar with the
following facts and is authorized and qualified to certify the following facts on behalf of the
Fiscal Agent:
(1) The Fiscal Agent is duly organized and existing as a national banking
association under the laws of the United States of America, having the full power and
authority to enter into and perform its duties under the Fiscal Agent Agreement.
(2) The Fiscal Agent Agreement has been duly authorized, executed and
delivered by the Fiscal Agent and the Bonds have been authenticated by a duly
authorized representative of the Fiscal Agent in accordance with the Fiscal Agent
Agreement.
(3) To the best knowledge of the Fiscal Agent, after due inquiry, there is no
action, suit, proceeding or investigation, at law or in equity, before or by any court or
governmental agency, public board or body pending against the Fiscal Agent or
threatened against the Fiscal Agent which in the reasonable judgment of the Fiscal
Agent would affect the existence of the Fiscal Agent or in any way contesting or
affecting the validity or enforceability of the Fiscal Agent Agreement or contesting the
powers of the Fiscal Agent or its authority to enter into and perform its obligation under
the Fiscal Agent Agreement.
Dated: [closing date] THE BANK OF NEW YORK TRUST
COMPANY, N.A.,
as Fiscal Agent
By.
Authorized Officer
1-1
EXHIBIT J
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2007 SPECIAL TAX BONDS (IMPROVEMENT AREA 2)
CERTIFICATE OF MARKET ABSORPTION ANALYST
The undersigned, on behalf of Empire Economics, Capistrano Beach, California (the
"Market Absorption Consultant"), has prepared a report entitled "Market Absorption
Study (the "Market Absorption Study") dated September 14, 2007, regarding proposed
development within Improvement Area 2 of the City of Carlsbad Community Facilities
District No. 3, County of San Diego, State of California (the "District"), and certifies that:
1. The assumptions made in the Market Absorption Study are reasonable.
2. The Market Absorption Consultant is not aware of any event or act which
occurred since the date of the Market Absorption Study which, in its
opinion, would materially and adversely affect the conclusions set forth in
the Market Absorption Study.
3. The Market Absorption Consultant consents to the reproduction of the
Summary as Appendix D to the Preliminary Official Statement dated
, 2007 (the "Preliminary Official Statement"), and the Official
Statement dated , 2007 (the "Official Statement"), and to the
references to the Market Absorption Consultant and the Absorption Study
made in the Preliminary Official Statement and the Official Statement.
4. The Market Absorption Study attached to the Preliminary Official
Statement and the Official Statement is a true and correct copy of the
Market Absorption Study.
J-1
6. The Market Absorption Consultant has reviewed the Preliminary Official
Statement and the Official Statement, and the statements concerning the
Market Absorption Study and proposed development in the District
contained in the Preliminary Official Statement and the Official Statement
are true, correct and complete in all material respects and do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Dated: [closing date] EMPIRE ECONOMICS
By:.
Its:
J-2
EXHIBIT #4-d
APPENDIX G
FORM OF ISSUER CONTINUING DISCLOSURE CERTIFICATE
CONTINUING DISCLOSURE CERTIFICATE
(City of Carlsbad)
$
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 SPECIAL TAX BONDS
(IMPROVEMENT AREA 2)
This Continuing Disclosure Certificate (this "Disclosure Certificate") is executed and
delivered by the City of Carlsbad (the "City"), for and on behalf of the City of Carlsbad
Community Facilities District No. 3 (Improvement Area 2), County of San Diego, State of
California (the "Improvement Area 2") in connection with the issuance of the bonds captioned
above (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated
as of January 1 , 2008 (the "Fiscal Agent Agreement"), by and between the City, for and on
behalf of Improvement Area 2, and The Bank of New York Trust Company, N.A., as fiscal agent
(the "Fiscal Agent"). The City hereby covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being
executed and delivered by the City for the benefit of the holders and beneficial owners of the
Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-
Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal
Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless
otherwise defined in this Section, the following capitalized terms shall have the following
meanings:
"Annual Report' means any Annual Report provided by the City pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
"Annual Report Date" means the date that is nine months after the end of the City's
fiscal year (currently March 31 based on the City's fiscal year end of June 30).
"CPO" means the Internet-based filing system currently located at
www.DisclosureUSA.org, or such other similar filing system approved by the Securities and
Exchange Commission.
"Dissemination Agent' means Special District Financing and Administration or any
successor Dissemination Agent designated in writing by the City and which has filed with the
City a written acceptance of such designation.
"Listed Events" means any of the events listed in Section 5(a) of this Disclosure
Certificate.
G-1
"National Repository means any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule. Information on the National Repositories as of
a particular date is available on the Securities and Exchange Commission's Internet site at
www.sec.gov.
"Official Statement' means the final official statement executed by the City in
connection with the issuance of the Bonds.
"Participating Underwriter" means Stone & Youngberg LLC, the original Underwriter of
the Bonds required to comply with the Rule in connection with offering of the Bonds.
"Repository" means each National Repository and each State Repository, if any.
"Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"State Repository" means any public or private repository or entity designated by the
State of California as a state repository for the purpose of the Rule and recognized as such by
the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is
no State Repository.
Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the
Annual Report Date, commencing March 31, 2008 with the report for the 2006-07 fiscal year
(provided the fiscal year 2006-07 report may consist of the Official Statement and the City's
fiscal year 2006-07 audited financial statements), provide to the Participating Underwriter and to
each Repository an Annual Report that is consistent with the requirements of Section 4 of this
Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the
City shall provide the Annual Report to the Dissemination Agent (if other than the City). The
Annual Report may be submitted as a single document or as separate documents comprising a
package, and may include by reference other information as provided in Section 4 of this
Disclosure Certificate; provided that the audited financial statements of the City may be
submitted separately from the balance of the Annual Report, and later than the date required
above for the filing of the Annual Report if not available by that date. The audited financial
statements of the City may be included within or constitute a portion of the audited financial
statements. If the City's fiscal year changes, it shall give notice of such change in the same
manner as for a Listed Event under Section 5(c).
(b) If the City does not provide, or cause the Dissemination Agent to provide, an
Annual Report to the Repositories by the Annual Report Date as required in subsection (a)
above, the Dissemination Agent shall send a notice to (i) either the National Repositories or the
Municipal Securities Rulemaking Board and (ii) the appropriate State Repository, if any, in
substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if different
than the Dissemination Agent) and the Participating Underwriter. In lieu of filing the notice with
each Repository, the City or the Dissemination Agent may file such notice with the CPO.
(c) With respect to the Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the name and
address of each National Repository and each State Repository, if any; and
G-2
(ii) if the Dissemination Agent is other than the City, file a report with the City
and the Participating Underwriter certifying that the Annual Report has been provided
pursuant to this Disclosure Certificate, stating the date it was provided and listing all the
Repositories to which it was provided.
(d) In lieu of filing the Annual Report with each Repository in accordance with the
preceding paragraph (c), the City or the Dissemination Agent may file such Annual Report solely
with the CPO.
Section 4. Content of Annual Reports. The City's Annual Report shall contain or
incorporate by reference the following documents and information:
(a) The City's audited financial statements for the most recently completed fiscal
year, together with the following statement:
THE CITY'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY
WITH THE SECURITIES EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE
15C2-12. NO FUNDS OR ASSETS OF THE CITY ARE REQUIRED TO BE USED TO PAY
DEBT SERVICE ON THE BONDS, AND THE CITY IS NOT OBLIGATED TO ADVANCE
AVAILABLE FUNDS TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY
ON THE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD
OR SELL THE BONDS.
(b) For each parcel, total assessed value (per the San Diego County Assessor's
records) of all parcels currently subject to the Special Tax within Improvement Area 2, showing
the total assessed valuation for all land and the total assessed valuation for all improvements
within the Improvement Area 2 and distinguishing between the assessed value of improved and
unimproved parcels. Parcels are considered improved if there is an assessed value for the
improvements in the Assessor's records.
(c) The total dollar amount of delinquencies in Improvement Area 2 as of August 1 of
any year and, in the event that the total delinquencies within Improvement Area 2 as of August 1
in any year exceed 5% of the Special Tax for the previous year, delinquency information for
each parcel, including the amounts of delinquencies, length of delinquency and status of any
foreclosure of each such parcel.
(d) The amount of prepayments of the Special Tax with respect to Improvement
Area 2 for the prior Fiscal Year.
(e) A land ownership summary listing property owners responsible for more than 5%
of the annual Special Tax levy, as shown on the San Diego County Assessor's last equalized
tax roll prior to the September next preceding the Annual Report Date.
(f) The principal amount of the Bonds outstanding and the balance in the Reserve
Fund (along with a statement of the Reserve Requirement) as of the September 30 next
preceding the Annual Report Date.
(g) An updated table in substantially the form of the table in the Official Statement
entitled "Appraised Values and Value to Burden Ratios" based upon the most recent information
available, provided that assessed values shown on the San Diego County assessor's most
G-3
recent equalized tax roll prior to the September next preceding the Annual Report Date may be
substituted for appraised values.
(h) Any changes to the Rate and Method of Apportionment for Improvement Area 2
set forth in APPENDIX B to the Official Statement.
(i) A copy of the annual information required to be filed by the City with the
California Debt and Investment Advisory Commission pursuant to the Act and relating generally
to outstanding Improvement Area 2 bond amounts, fund balances, assessed values, special tax
delinquencies and foreclosure information.
(j) In addition to any of the information expressly required to be provided under
paragraphs (a) through (i) of this Section, the City shall provide such further information, if any,
as may be necessary to make the specifically required statements, in the light of the
circumstances under which they are made, not misleading.
Any or all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues of the City or related public entities,
which have been submitted to each of the Repositories or the Securities and Exchange
Commission. If the document included by reference is a final official statement, it must be
available from the Municipal Securities Rulemaking Board. The City shall clearly identify each
such other document so included by reference.
Section 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the
following events with respect to the Bonds, if material:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial difficulties.
(5) Substitution of credit or liquidity providers, or their failure to perform.
(6) Adverse tax opinions or events affecting the tax-exempt status of the security.
(7) Modifications to rights of security holders.
(8) Contingent or unscheduled bond calls.
(9) Defeasances.
(10) Release, substitution, or sale of property securing repayment of the securities.
(11) Rating changes.
G-4
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the
City shall as soon as possible determine if such event would be material under applicable
Federal securities law.
(c) If the City determines that knowledge of the occurrence of a Listed Event would
be material under applicable Federal securities law, the City shall, or shall cause the
Dissemination Agent to, promptly file a notice of such occurrence with (i) each National
Repository or the Municipal Securities Rulemaking Board and (ii) the appropriate State
Repository, if any, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and
the Participating Underwriter. Notwithstanding the foregoing, notice of Listed Events described
in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice
(if any) of the underlying event is given to holders of affected Bonds pursuant to the Fiscal
Agent Agreement.
In lieu of filing the notice of Listed Event with each Repository in accordance with the
preceding paragraph, the City or the Dissemination Agent may file such notice of a Listed Event
with the CPO.
Section 6. Termination of Reporting Obligation. The City's obligations under this
Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in
full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the
City shall give notice of such termination in the same manner as for a Listed Event under
Section 5(c).
Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate,
and may discharge any such Agent, with or without appointing a successor Dissemination
Agent. The initial Dissemination Agent will be Special District Financing and Administration.
Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure
Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it
may only be made in connection with a change in circumstances that arises from a change in
legal requirements, change in law, or change in the identity, nature, or status of an obligated
person with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the
opinion of nationally recognized bond counsel, have complied with the requirements of the Rule
at the time of the primary offering of the Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds
in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent
Agreement with the consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or
nationally recognized bond counsel, materially impair the interests of the holders or beneficial
owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report
is amended pursuant to the provisions hereof, the first annual financial information filed
G-5
pursuant hereto containing the amended operating data or financial information shall explain, in
narrative form, the reasons for the amendment and the impact of the change in the type of
operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be
followed in preparing financial statements, the annual financial information for the year in which
the change is made shall present a comparison between the financial statements or information
prepared on the basis of the new accounting principles and those prepared on the basis of the
former accounting principles. The comparison shall include a qualitative discussion of the
differences in the accounting principles and the impact of the change in the accounting
principles on the presentation of the financial information, in order to provide information to
investors to enable them to evaluate the ability of the City to meet its obligations. To the extent
reasonably feasible, the comparison shall be quantitative. A notice of the change in the
accounting principles shall be sent to the Repositories in the same manner as for a Listed Event
under Section 5(c).
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed
to prevent the City from disseminating any other information, using the means of dissemination
set forth in this Disclosure Certificate or any other means of communication, or including any
other information in any Annual Report or notice of occurrence of a Listed Event, in addition to
that which is required by this Disclosure Certificate. If the City chooses to include any
information in any Annual Report or notice of occurrence of a Listed Event in addition to that
which is specifically required by this Disclosure Certificate, the City shall have no obligation
under this Disclosure Certificate to update such information or include it in any future Annual
Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the City to comply with any provision of
this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the
Bonds may take such actions as may be necessary and appropriate, including seeking mandate
or specific performance by court order, to cause the City to comply with its obligations under this
Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event
of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure
Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall
be an action to compel performance.
Section 11. Duties. Immunities and Liabilities of Dissemination Agent. The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers,
directors, employees and agents, harmless against any loss, expense and liabilities which it
may incur arising out of or in the exercise or performance of its powers and duties hereunder,
including the costs and expenses (including attorneys fees) of defending against any claim of
liability, but excluding liabilities due to the Dissemination Agent's negligence or willful
misconduct. The Dissemination Agent shall have no duty or obligation to review any information
provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the
City, the Property Owner, the Fiscal Agent, the Bond owners or any other party. The obligations
of the City under this Section shall survive resignation or removal of the Dissemination Agent
and payment of the Bonds.
G-6
To the Fiscal Agent:
To the Dissemination Agent:
Section 12. Notices. Any notice or communications to be among any of the parties to
this Disclosure Certificate may be given as follows:
To the Issuer: City of Carlsbad
1635 Faraday Avenue
Carlsbad, CA 92008
Attention: Administrative Services Director
Fax: (760)602-8553
The Bank of New York Trust Company, N.A.
700 S. Flower Street, Ste. 500
Los Angeles, CA90017
Fax: (213)630-6215
Special District Financing and Administration
437 West Grand Avenue
Escondido, CA 92025
Fax: 760.233.2631
Stone & Youngberg LLC
One Ferry Building
San Francisco, California 94111
Attention: Municipal Research Department
Fax: (415)445-2395
Any person may, by written notice to the other persons listed above, designate a
different address or telephone number(s) to which subsequent notices or communications
should be sent.
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of
the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders
and beneficial owners from time to time of the Bonds, and shall create no rights in any other
person or entity.
To the Participating Underwriter:
G-7
Section 14. Counterparts. This Disclosure Certificate may be executed in several
counterparts, each of which shall be regarded as an original, and all of which shall constitute
one and the same instrument.
Date: , 2008
CITY OF CARLSBAD, for and on behalf of City of
Carlsbad Community Facilities District No. 3,
(Improvement Area 2) County of San Diego, State
of California
By:
Acting City Manager
AGREED AND ACCEPTED:
Special District Financing and Administration, as Dissemination Agent
By: _
Name:
Title:
G-8
EXHIBIT A
NOTICE OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Carlsbad for and on behalf of City of Carlsbad Community
Facilities District No. 3 (Improvement Area 2), County of San Diego,
State of California (the "City")
Name of Bond Issue: City of Carlsbad Community Facilities District No. 3 2008 Special Tax
Bonds (Improvement Area 2)
Date of Issuance: , 2008
NOTICE IS HEREBY GIVEN to [(i) each National Repository or the Municipal Securities
Rulemaking Board and (ii) each appropriate State Repository] [the CPO and the Municipal
Securities Rulemaking Board] that the City has not provided an Annual Report with respect to
the above-named Bonds as required by the Continuing Disclosure Certificate dated
, 2008 executed by the City and countersigned by Special District Financing and
Administration, as dissemination agent. The City anticipates that the Annual Report will be filed
by -
Dated:
DISSEMINATION AGENT:
Special District Financing and Administration
By:
Its:
G-9
EXHIBIT #4-e
APPENDIX H
FORM OF PROPERTY OWNER CONTINUING DISCLOSURE CERTIFICATE
CONTINUING DISCLOSURE CERTIFICATE
(Property Owner)
$
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 SPECIAL TAX BONDS
(IMPROVEMENT AREA 2)
This Continuing Disclosure Certificate (Property Owner) (this "Disclosure Certificate")
is executed and delivered by (the "Property Owner"), in
connection with the issuance by the City of Carlsbad (the "City") of the bonds captioned above
(the "Bonds") for and on behalf of City of Carlsbad Community Facilities District No. 3
(Improvement Area 2), County of San Diego, State of California (the "District"). The Bonds are
being issued pursuant to a Fiscal Agent Agreement dated as of January 1, 2008 (the "Fiscal
Agent Agreement"), by and between the City, for and on behalf of the District, and The Bank of
New York Trust Company, N.A., as fiscal agent (the "Fiscal Agent").
The Property Owner covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being
executed and delivered by the Property Owner for the benefit of the holders and beneficial
owners of the Bonds.
Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal
Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless
otherwise defined in this Section, the following capitalized terms shall have the following
meanings:
"Affiliate" of another Person means (a) a Person directly or indirectly owning,
controlling, or holding with power to vote, 5% or more of the outstanding voting securities of
such other Person, (b) any Person, 5% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c)
any Person directly or indirectly controlling, controlled by, or under common control with, such
other Person. For purposes hereof, control means the power to exercise a controlling influence
over the management or policies of a Person, unless such power is solely the result of an
official position with such Person.
"Assumption Agreement" means an undertaking of a Major Owner, or an Affiliate
thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms
substantially similar to this Disclosure Certificate (as modified for such Major Owner's
development and financing plans with respect to Improvement Area 2 of the District), whereby
such Major Owner or Affiliate agrees to provide periodic reports and notices of significant
events, setting forth the information described in sections 4 and 5 hereof, respectively, with
respect to the portion of the property in Improvement Area 2 of the District owned by such Major
H-1
Owner and its Affiliates and, at the option of the Property Owner or such Major Owner, agrees
to indemnify the Dissemination Agent (if any) pursuant to a provision substantially in the form of
Section 11 hereof.
"CPO" means the Internet-based filing system currently located at
www.DisclosureUSA.org, or such other similar filing system approved by the Securities and
Exchange Commission.
"Dissemination Agent' means the Property Owner or Special District Financing and
Administration, or any successor Dissemination Agent designated in writing by the Property
Owner, and which has filed with the Property Owner, the City and the Fiscal Agent a written
acceptance of such designation, and which is experienced in providing dissemination agent
services such as those required under this Disclosure Certificate.
"Improvement Area" means Improvement Area 2 of the District.
"Listed Events" means any of the events listed in Section 5(a) of this Disclosure
Certificate.
"Major Owner" means, as of any Report Date, an owner of land in the Improvement
Area which is responsible in the aggregate for 10% or more of the Special Taxes in the
Improvement Area anticipated to be levied at any time during the then-current fiscal year.
"National Repository" means any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule. Information on the National Repositories as of
a particular date is available on the Securities and Exchange Commission's Internet site at
www.sec.gov.
"Official Statement' means the final official statement executed by the City, for and on
behalf of the District, in connection with the issuance of the Bonds.
"Participating Underwriter" means Stone & Youngberg LLC, the original Underwriter of
the Bonds required to comply with the Rule in connection with offering of the Bonds.
"Periodic Report' means any Periodic Report provided by the Property Owner pursuant
to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
"Person" means an individual, a corporation, a partnership, a limited liability company,
an association, a joint stock company, a trust, any unincorporated organization or a government
or political subdivision thereof.
"Property" means the property owned by the Property Owner in the Improvement Area.
"Report Date" means March 31 and September 30 of any fiscal year; provided,
however, that the Report Date shall be only March 31 at such time as the Property Owner has
completed construction of all buildings to be constructed within property it owns in the
Improvement Area and each such building constructed by the Property Owner and intended for
lease by the Property Owner has been, since completion of construction, at least 80% occupied
at one time or another.
"Repository" means each National Repository and each State Repository, if any.
H-2
"Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"Special Taxes" means the special taxes of the District levied on taxable property within
the Improvement Area.
"State Repository" means any public or private repository or entity designated by the
State of California as a state repository for the purpose of the Rule and recognized as such by
the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is
no State Repository.
Section 3. Provision of Periodic Reports.
(a) The Property Owner shall, or, upon written direction of the Property Owner the
Dissemination Agent shall, not later than the Report Date, commencing March 31, 2008, provide
to each Repository a Periodic Report which is consistent with the requirements of Section 4 of
this Disclosure Certificate with a copy to the Fiscal Agent (if different from the Dissemination
Agent), the Participating Underwriter and the City. Not later than 15 calendar days prior to the
Report Date, the Property Owner shall provide the Periodic Report to the Dissemination Agent
(if different from the Property Owner). The Property Owner shall provide a written certification
with (or included as a part of) each Periodic Report furnished to the Dissemination Agent (if
different from the Property Owner), the Fiscal Agent (if different from the Dissemination Agent),
the Participating Underwriter and the City to the effect that such Periodic Report constitutes the
Periodic Report required to be furnished by it under this Disclosure Certificate. The
Dissemination Agent, the Fiscal Agent, the Participating Underwriter and the City may
conclusively rely upon such certification of the Property Owner and shall have no duty or
obligation to review the Periodic Report. The Periodic Report may be submitted as a single
document or as separate documents comprising a package, and may incorporate by reference
other information as provided in Section 4 of this Disclosure Certificate.
(b) If the Dissemination Agent does not receive a Periodic Report by 15 calendar
days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the
Property Owner that the Periodic Report has not been provided as required under Section 3(a)
above. The reminder notice shall instruct the Property Owner to determine whether its
obligations under this Disclosure Certificate have terminated (pursuant to Section 6 below) and,
if so, to provide the Dissemination Agent with a notice of such termination in the same manner
as for a Listed Event (pursuant to Section 5 below). If the Property Owner does not provide, or
cause the Dissemination Agent to provide, a Periodic Report to the Repositories by the Report
Date as required in subsection (a) above, the Dissemination Agent shall send a notice to (i)
each National Repository or the Municipal Securities Rulemaking Board and (ii) the appropriate
State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the
Fiscal Agent (if other than the Dissemination Agent), the City and the Participating Underwriter.
In lieu of filing the notice with each Repository, the Property Owner or the Dissemination Agent
may file such notice with the CPO.
(c) With respect to the Periodic Report, the Dissemination Agent shall:
(i) determine prior to each Report Date the name and address of each National
Repository and each State Repository, if any;
H-3
(ii) to the extent the Periodic Report has been furnished to it, file the Periodic Report
with the Repositories and file a report with the Property Owner (if the Dissemination Agent is
other than the Property Owner), the City and the Participating Underwriter certifying that the
Periodic Report has been provided pursuant to this Disclosure Certificate, stating the date it was
provided and listing all the Repositories to which it was provided.
(d) In lieu of filing the Periodic Report with each Repository in accordance with the
preceding paragraph (c), the Property Owner or the Dissemination Agent may file such Periodic
Report solely with the CPO.
Section 4. Content of Periodic Reports. The Property Owner's Periodic Report shall
contain or incorporate by reference the information set forth in Exhibit B, any or all of which may
be included by specific reference to other documents, including official statements of debt
issues of the Property Owner or related public entities, which have been submitted to each of
the Repositories or the Securities and Exchange Commission. If the document included by
reference is a final official statement, it must be available from the Municipal Securities
Rulemaking Board. The Property Owner shall clearly identify each such other document so
included by reference.
In addition to any of the information expressly required to be provided in Exhibit B, the
Property Owner's Periodic Report shall include such further information, if any, as may be
necessary to make the specifically required statements, in the light of the circumstances under
which they are made, not misleading.
Section 5. Reporting of Significant Events.
(a) The Property Owner shall give, or cause to be given, notice of the occurrence of
any of the following Listed Events with respect to itself or the Property, if material:
(i) bankruptcy or insolvency proceedings commenced by or against the
Property Owner and, if known, any bankruptcy or insolvency proceedings commenced
by or against any Affiliate of the Property Owner which is reasonably likely to have a
significant impact on the Property Owner's ability to pay Special Taxes or to sell or
develop the Property;
(ii) failure to pay any taxes, special taxes (including the Special Taxes) or
assessments due with respect to the Property prior to the delinquency date;
(iii) filing of a lawsuit of which the Property Owner is aware against the
Property Owner or an Affiliate of the Property Owner seeking damages which is
reasonably likely to have a significant impact on the Property Owner's ability to pay
Special Taxes or to sell or develop the Property;
(iv) material damage to or destruction of any of the improvements on the
Property; and
(v) any payment default or other material default by the Property Owner on
any loan with respect to the construction of improvements on the Property.
(b) Whenever the Property Owner obtains knowledge of the occurrence of a Listed
Event, the Property Owner shall as soon as possible determine if such event would be material
under applicable Federal securities law.
(c) If the Property Owner determines that knowledge of the occurrence of a Listed
Event would be material under applicable Federal securities law, the Property Owner shall, or
shall cause the Dissemination Agent to, promptly file a notice of such occurrence with (i) each
National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate
State Repository, if any, with a copy to the Fiscal Agent, the City and the Participating
Underwriter.
In lieu of filing the notice of Listed Event with each Repository in accordance with the
preceding paragraph, the Property Owner or the Dissemination Agent may file such notice of a
Listed Event with the CPO.
Section 6. Duration of Reporting Obligation.
(a) All of the Property Owner's obligations hereunder shall commence on the date
hereof and shall terminate (except as provided in Section 11) on the earliest to occur of the
following:
(i) upon the legal defeasance, prior redemption or payment in full of all the
Bonds, or
(ii) at such time as property owned by the Property Owner is no longer
responsible for payment of 10% or more of the Special Taxes, or
(iii) the date on which the Property Owner prepays in full all of the Special Taxes
attributable to the Property, or
(iv) the date on which (A) the Property Owner's property in Improvement Area 2
is responsible for between 10% and 25% of the annual Special Tax levy, (B) the
Property Owner has completed construction of all buildings to be constructed within
property it owns in Improvement Area 2 and (C) each such building constructed by the
Property Owner and intended for lease by the Property Owner has been, since
completion of construction, at least 80% occupied at one time or another.
The Property Owner shall give notice of the termination of its obligations under this
Disclosure Certificate in the same manner as for a Listed Event under Section 5.
(b) If a portion of the Property owned by the Property Owner, or any Affiliate of the
Property Owner, is conveyed to a Person that, upon such conveyance, will be a Major Owner,
the obligations of the Property Owner hereunder with respect to the property in the Improvement
Area owned by such Major Owner and its Affiliates may be assumed by such Major Owner or by
an Affiliate thereof and the Property Owner's obligations hereunder with respect to such
property will be terminated. In order to effect such assumption, such Major Owner or Affiliate
shall enter into an Assumption Agreement in form and substance reasonably satisfactory to the
City and the Participating Underwriter.
H-5
Section 7. Dissemination Agent. The Property Owner may, from time to time, appoint or
engage a Dissemination Agent to assist the Property Owner in carrying out its obligations under
this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without
appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Special
District Financing and Administration. The Dissemination Agent may resign by providing thirty
days' written notice to the City, the Property Owner and the Fiscal Agent.
Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the Property Owner may amend this Disclosure Certificate, and any provision of this
Disclosure Certificate may be waived, provided that the following conditions are satisfied
(provided, however, that the Dissemination Agent shall not be obligated under any such
amendment that modifies or increases its duties or obligations hereunder without its written
consent thereto):
(a) if the amendment or waiver relates to the provisions of sections 3(a), 4 or 5(a), it
may only be made in connection with a change in circumstances that arises from a change in
legal requirements, change in law, or change in the identity, nature, or status of an obligated
person with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the
opinion of nationally recognized bond counsel, have complied with the requirements of the Rule
at the time of the primary offering of the Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds
in the manner provided in the Fiscal Agent Agreement with the consent of holders, or (ii) does
not, in the opinion of nationally recognized bond counsel, materially impair the interests of the
holders or beneficial owners of the Bonds.
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed
to prevent the Property Owner from disseminating any other information, using the means of
dissemination set forth in this Disclosure Certificate or any other means of communication, or
including any other information in any Periodic Report or notice of occurrence of a Listed Event,
in addition to that which is required by this Disclosure Certificate. If the Property Owner chooses
to include any information in any Periodic Report or notice of occurrence of a Listed Event in
addition to that which is specifically required by this Disclosure Certificate, the Property Owner
shall have no obligation under this Disclosure Certificate to update such information or include it
in any future Periodic Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the Property Owner to comply with any
provision of this Disclosure Certificate, the Fiscal Agent shall (upon written direction and only to
the extent indemnified to its satisfaction from any liability, cost or expense, including fees and
expenses of its attorneys), and the Participating Underwriter and any holder or beneficial owner
of the Bonds may, take such actions as may be necessary and appropriate, including seeking
mandate or specific performance by court order, to cause the Property Owner to comply with its
obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not
be deemed an Event of Default under the Fiscal Agent Agreement, and the sole and exclusive
remedy under this Disclosure Certificate in the event of any failure of the Property Owner to
comply with this Disclosure Certificate shall be an action to compel performance. Neither the
Property Owner nor the Dissemination Agent shall have any liability to the holders and
H-6
£11
beneficial owners of the Bonds or any other party for monetary damages or financial liability of
any kind whatsoever relating to or arising from this Disclosure Certificate.
Section 11. Duties. Immunities and Liabilities of Dissemination Agent. The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Certificate, and the Property Owner agrees to indemnify and save the Dissemination Agent, its
officers, directors, employees and agents (each, an "Indemnified Party"), harmless against any
loss, expense and liabilities which it may incur arising out of or in the exercise or performance of
its powers and duties hereunder, including the reasonable costs and expenses (including
attorneys' fees) of defending against any claim of liability, but excluding loss, liabilities, costs
and expenses due to an Indemnified Party's negligence or willful misconduct or failure to
perform its duties hereunder. The Dissemination Agent shall be paid compensation for its
services provided hereunder in accordance with its schedule of fees as amended from time to
time, which schedule, as amended, shall be reasonably acceptable, and all reasonable
expenses, reasonable legal fees and advances made or incurred by the Dissemination Agent in
the performance of its duties hereunder. The Dissemination Agent shall have no duty or
obligation to review any information provided to it hereunder and shall not be deemed to be
acting in any fiduciary capacity for the City, the Property Owner, the Fiscal Agent, the Bond
owners, or any other party. The obligations of the Property Owner under this Section shall
survive resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 12. Notices. Any notice or communications to be among any of the parties to
this Disclosure Certificate may be given as follows:
To the Issuer: City of Carlsbad
1635 Faraday Avenue
Carlsbad, CA 92008
Attention: Administrative Services Director
Fax: (760)602-8553
To the Fiscal Agent: The Bank of New York Trust Company, N.A.
700 S. Flower Street, Ste. 500
Los Angeles, CA90017
Fax: (213)630-6215
To the Dissemination Agent: Special District Financing and Administration
437 West Grand Avenue
Escondido, CA 92025
Fax: 760.233.2631
To the Participating Underwriter: Stone & Youngberg LLC
One Ferry Building
San Francisco, California 94111
Attention: Municipal Research Department
Fax: (415)445-2395
To the Property Owner: [to come]
Any person may, by written notice to the other persons listed above, designate a
different address or telephone number(s) to which subsequent notices or communications
should be sent.
H-7
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of
the City, the Property Owner (its successors and assigns), the Fiscal Agent, the Dissemination
Agent, the Participating Underwriter and holders and beneficial owners from time to time of the
Bonds, and shall create no rights in any other person or entity. All obligations of the Property
Owner hereunder shall be assumed by any legal successor to the obligations of the Property
Owner as a result of a sale, merger, consolidation or other reorganization.
Section 14. Counterparts. This Disclosure Certificate may be executed in several
counterparts, each of which shall be regarded as an original, and all of which shall constitute
one and the same instrument.
Date: ,2008
[NAME OF PROPERTY OWNER], a
By:
Its:
AGREED AND ACCEPTED:
Special District Financing and Administration,
as Dissemination Agent
By: _
Title:
H-8
EXHIBIT A
NOTICE OF FAILURE TO FILE PERIODIC REPORT
Name of Issuer: City of Carlsbad, for and on behalf of City of Carlsbad Community
Facilities District No. 3 (Improvement Area 2), County of San Diego,
State of California
Name of Bond Issue: City of Carlsbad Community Facilities District No. 3, 2008 Special Tax
Bonds (Improvement Area 2)
Date of Issuance: , 2008
NOTICE IS HEREBY GIVEN to [(i) each National Repository or the Municipal Securities
Rulemaking Board and (ii) each appropriate State Repository] [the CPO and the Municipal
Securities Rulemaking Board] that (the "Major Owner") has not provided a
Periodic Report with respect to the above-named bonds as required by that certain Continuing
Disclosure Certificate (Property Owner), dated 2008. The Major Owner
anticipates that the Periodic Report will be filed by .
Dated:
Special District Financing and Administration,
as Dissemination Agent
By:
Its:
H-9
EXHIBIT B
PERIODIC REPORT
CITY OF CARLSBAD
COMMUNITY FACILITIES DISTRICT NO. 3
2008 SPECIAL TAX BONDS
(IMPROVEMENT AREA 2)
This Periodic Report is hereby submitted under Section 4 of the Continuing Disclosure
Certificate (the "Disclosure Certificate") dated , 2008 executed by the
undersigned (the "Property Owner") in connection with the issuance of the above-captioned
bonds by the City of Carlsbad (the "City"), for and on behalf of City of Carlsbad Community
Facilities District No. 3, County of San Diego, State of California (the "District").
Capitalized terms used in this Periodic Report but not otherwise defined have the
meanings given to them in the Disclosure Certificate.
I. Property Ownership and Development
The information in this section is provided as of (this date must
be not more than 60 days before the date of this Periodic Report). [Include if applicable:
Because all of the property owned by Property Owner in Improvement Area 2 is built-out and
owned and leased by Property Owner, Property Owner is only completing IA, IE, IF, II and V
below.]
A. Property currently owned by the Property Owner in Improvement Area 2 of the
District (the "Property"):
Development name:
Number of lots (acreage):
B. Status of land development or construction activities:
C. Status of building permits and any significant amendments to land use or development
entitlements:
H-10
D. Aggregate property sold, optioned or leased by the Property Owner to end users
or merchant builders:
Since the Date of Issuance Since the Last Periodic
of the Bonds Report
Acres* Acres*
Lots Lots
Bldg. Sq. Ft. Bldg. Sq. Ft.
* For bulk land sales only (excluding sales of finished lots or completed buildings).
E. Status of any land purchase contracts with regard to the Property, whether
acquisition of land in Improvement Area 2 of the District by the Property Owner or sales of land
in Improvement Area 2 of the District to other property owners, distinguishing between (i) end
users (e.g., condominiums), (ii) developers, and (iii) merchant builders.
F. With respect to occupied buildings owned and leased by Property Owner, (i)
occupancy percentage and (ii) a rent roll consisting solely of (A) term of lease and (B) number of
square feet subject to the lease.
II. Legal and Financial Status of Property Owner
Unless such information has previously been included or incorporated by reference in a
Periodic Report, describe any change in the legal structure of the Property Owner or the
financial condition and financing plan of the Property Owner that would materially and adversely
interfere with its ability to complete its development plan described in the Official Statement.
III. Change in Development or Financing Plans
Unless such information has previously been included or incorporated by reference in a
Periodic Report, describe any development plans or financing plans relating to the Property that
are materially different from the proposed development and financing plan described in the
Official Statement.
IV. Official Statement Updates
H-11
Unless such information has previously been included or incorporated by reference in a
Periodic Report, describe any other significant changes in the information relating to the
Property Owner or the Property contained in the Official Statement under the heading
"PROPERTY OWNERSHIP AND PROPOSED DEVELOPMENT" that would materially and
adversely interfere with the Property Owner's ability to develop and sell the Property as
described in the Official Statement.
V. Other Material Information
In addition to any of the information expressly required above, provide such further
information, if any, as may be necessary to make the specifically required statements, in the
light of the circumstances under which they are made, not misleading.
Certification
The undersigned Property Owner hereby certifies that this Periodic Report constitutes
the Periodic Report required to be furnished by the Property Owner under the Disclosure
Certificate.
ANY OTHER STATEMENTS REGARDING THE PROPERTY OWNER, THE
DEVELOPMENT OF THE PROPERTY, THE PROPERTY OWNER'S FINANCING PLAN OR
FINANCIAL CONDITION, OR THE BONDS, OTHER THAN STATEMENTS MADE BY THE
PROPERTY OWNER IN AN OFFICIAL RELEASE, OR FILED WITH THE MUNICIPAL
SECURITIES RULEMAKING BOARD OR A NATIONALLY RECOGNIZED MUNICIPAL
SECURITIES INFORMATION REPOSITORY, ARE NOT AUTHORIZED BY THE PROPERTY
OWNER. THE PROPERTY OWNER IS NOT RESPONSIBLE FOR THE ACCURACY,
COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENTS.
THE PROPERTY OWNER HAS NO OBLIGATION TO UPDATE THIS PERIODIC
REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE CERTIFICATE.
Dated:
[NAME OF PROPERTY OWNER], a
By:
Its:
H-12