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D-3 Staff Report - 2020 POB POS
SCHEDULED ITEM D-3 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL VIA: SERGIO GONZALEZ, CITY MANAGER FROM: TALIKA M. JOHNSON, DIRECTOR OF ADMINISTRATIVE SERVICES DATE: AUGUST 17, 2020 SUBJECT: ADOPTION OF RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA SUPPLEMENTING A RESOLUTION OF THE CITY COUNCIL ADOPTED DECEMBER 16, 2019, PROVIDING FOR THE ISSUANCE OF ONE OR MORE SERIES OF CITY OF AZUSA TAXABLE PENSION OBLIGATION BONDS, AND RATIFYING ACTION TAKEN ON DECEMBER 16, 2019, APPROVING THE FORMS OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF AN INDENTURE, BOND PURCHASE AGREEMENT AND OFFICIAL STATEMENT AND AUTHORIZING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH BACKGROUND: The City has taken many actions throughout the years to manage pension costs, including issuing the 2008 Pension Obligation Bonds, adding a second safety plan tier to the pension benefit plan (2011), implementing the PEPRA benefit tiers (2013), and having the employees contribute more towards the benefit through negotiations. Since then, there have been many Council discussions on the challenges of managing pension costs, as the unfunded accrued liability (“UAL”) has increased through various circumstances primarily outside of the City’s control. Below is a summary of actions recently taken by City Council related to the issuance of Pension Obligation Bonds (the “POBs”): On December 2, 2019, City Council considered several options for addressing growing pension costs, specifically the UAL. At that time, City Council provided staff with direction to pursue the option of issuing POBs as a measure to address the City’s $80.6 million UAL for miscellaneous and safety employee pensions provided through the California Public Employees Retirement System (“CalPERS”). Additionally, the Council authorized the following: APPROVED CITY COUNCIL 8/17/2020 Approval of documents related to Pension Obligation Bonds, Series 2020 August 17, 2020 Page 2 • Engagement of Urban Futures, Inc. (“UFI”) to provide municipal advisory services; • Engagement of Best Best & Krieger to serve as Bond, Disclosure, and Validation Counsel; and • Authorized staff to solicit proposals for underwriting services related to the issuance of POBs. On December 16, 2019, the City Council authorized the issuance of POBs in a not-to- exceed amount of $82 million, approved documents in connection with issuing the POBs (Trust Agreement, Bond Purchase Agreement and Good Faith Estimates), and authorized the commencement of judicial validation proceedings related to such issuance. On February 3, 2020, the City Council authorized staff to engage services with BofA Securities, Inc. to serve as Underwriter for financing of the City’s proposed POBs. On March 2, 2020, the City Council authorized the City Manager to approve lump sum paym ents of the City’s UAL for pensions to CalPERS from the Electric Utility (Fund 33), Sewer Utility Fund (Fund 34) in a not-to- exceed amounts of $5,400,000 and $1,820,000 respectively. On March 23, 2020, the City Council authorized the City Manager to approve lump sum payments of the City’s UAL for pensions to CalPERS from the Water Utility (Fund 32) in a not-to-exceed amount of $3,500,000. In total, $10,720,000 of cash from the three (3) utilities will be included in the pension funding plan to pay liabilities associated with the three utilities, thereby reducing the need for bonded debt. Shortly after City Council approved the resolution on December 16, 2019, the City filed a validation action with the Los Angeles County Superior Court. The action was not challenged, and a default judgment was entered on July 13, 2020. As a reminder, in California, POBs have generally been designed to be valid without voter approval, pursuant to a judicially created exception to the State Constitutional debt limitation. Unless challenged, the proceedings are largely an administrative matter. A similar process was followed by the City with the issuance of the 2008 POBs. Since completing the judicial validation process, staff and the financing team have been preparing the documents subject to approval this evening and have started dialogue with the rating agency Standard & Poor’s, who will ultimately assign a credit rating to the POBs. Assuming the City Council approves the attached resolution and Preliminary Official Statement, the POBs are expected to be priced and sold to investors in early September 2020. RECOMMENDATIONS: Staff recommends that the City Council take the following actions: 1) Adopt Resolution No. 2020-C44 entitled: “Resolution of the City Council of the City of Azusa Supplementing a Resolution of the City Council Adopted December 16, 2019, Approval of documents related to Pension Obligation Bonds, Series 2020 August 17, 2020 Page 3 Providing For The Issuance of One or More Series of City of Azusa Taxable Pension Obligation Bonds, and Ratifying Action Taken On December 16, 2019, Approving The Forms of and Authorizing the Execution and Delivery of an Indenture, Bond Purchase Agreement and Official Statement and Authorizing Certain Other Actions in Connection Therewith”; and 2) Authorize the Director of Administrative Services to make the necessary budget or accounting adjustments to record the transaction; and 3) Direct Staff to return to Council with a written policy relating to managing of future pension and OPEB liabilities. ANALYSIS: Bond Sizing As of June 30, 2018, the City’s total UAL equals approximately $80.6 million and is comprised of approximately $42 million for miscellaneous plan employees and approximately $38.6 million for safety plan employees. Each of the two plans contains amortization bases (bases) shaped by investment performance during the prior fiscal year. The miscellaneous plan has 20 bases while the safety plan has 18 bases, each of which are amortized over a period of 5 to 30 years. In aggregate, the plans are approximately 72% funded (ratio of plan assets divided by plan liabilities). Generally, a ratio between 80-90% is considered healthy. On December 2, 2019, City Council was presented with not-to-exceed amounts for the POBs. Additionally, the City Council directed staff to come back to the Council with a recommendation to allocate a portion of cash on hand from the City’s utilities to fund all or part of the UAL allocated to the Water, Sewer and Electric Utilities. As discussed above, on March 23, the City Council authorized the allocation of $10,720,000 from the three (3) utility funds. These funds will be included in the financing of the outstanding UAL and will effectively buy down the UAL, thereby reducing the size of the bond financing. Since the City Council’s various approvals and the recent completion of the validation action, the City has made its Fiscal Year 2020-21 UAL payment at the end of July 2020 in the amount of $5,442,025. The allocation to CalPERS was approved in the Fiscal Year 2020-21 Budget and the payment was made to ensure the City was able to secure the 3.5% discount on interest rate costs for the fiscal year’s UAL obligation. As initially scheduled, the financing team anticipated bonds would be issued prior to the end of Fiscal Year 2019-20. Unfortunately, case load impacts to the Los Angeles Superior Court from COVID-19, extended the validation process by several months thereby impacting our original financing schedule and funding plan. City staff and the financing team do not believe the delay will have an adverse impact of the savings objectives and funding directives of the Council. In fact, because bonds will be issued in Fiscal Year 2020-21, the City will have the ability to take into account more current information related to the City’s UAL, factoring in the recent UAL payment made for the current fiscal year as well as the most recent CalPERS pension plan valuations as of June 30, 2019, or if possible, the UAL as of June 30, 2020, as opposed to pension plan valuations as of June 30, 2018 which were the basis of the initial financing plan. Approval of documents related to Pension Obligation Bonds, Series 2020 August 17, 2020 Page 4 With the objective of maximizing UAL savings, City staff and the financial team working with CalPERS will evaluate and determine a cost effective funding strategy incorporating recent payments made, cash on-hand to buy down the UAL and the most recent valuation analysis available ensuring a cost-effective financing. Provided that current UAL information can be obtained by CalPERS in a timely manner, we believe the analysis final bond sizing can be accomplished within a few days of the receipt of the data. Legal Documents The legal documents subject to approval and/or ratification this evening are as follows: • SB 450 Good Faith Estimates (Exhibit A in Attachment 1): In accordance with California Government Code Section 5852.1, good faith estimates with respect to the POBs are set forth in an attachment to the resolution to be adopted. • Preliminary Official Statement (Attachment 2): The Preliminary Official Statement (“POS”) is the offering document with respect to the POBs and contains all material to a prospective investors decision on whether to purchase the POBs. While the financing team has participated in preparing the POS, City Council and staff are ultimately responsible for ensuring the POS is accurate, contains no misleading information and does not omit any information necessary to make the POS not misleading to investors. • Continuing Disclosure Certificate (Included as Appendix F in the POS): Executed for the benefit of bondholders, the Continuing Disclosure Certificate obligates the City to file the most recent audited financial statements of the City. The City is also required to report certain events which are significant to bondholders if and when they occur. • Bond Purchase Agreement (Attachment 3): Previously approved by City Council on December 16, 2019, and attached for ratification by Council tonight. • Bond Indenture (Attachment 4): For Council’s information this is a legal document or contract between the bond issuer and the bondholder that records the obligations of the bond issuer and benefits owed to the bondholder. After Council approves the attached resolution, the POS will be made available to the rating agency and prospective investors and some time over the next week and the POBs will be sold to investors. FISCAL IMPACT: Despite the delays due to COVID-19 on the completion of the validation process and issuance of the bonds, the structure of financing remains unchanged. The not-to-exceed bond financing remains capped at $82.0 million, which when combined with the City’s cash contribution of $10.72 million and Fiscal Year 2020-21 UAL payment made of roughly $5.4 million in July, should be sufficient to refinance 100% of the City’s UAL. Approval of documents related to Pension Obligation Bonds, Series 2020 August 17, 2020 Page 5 Based on current market conditions, and assuming a bond issuance at the capped amount, total savings are estimated to be more than $35 million over the term of the UAL payment schedule (23 years). Assuming the City’s most current UAL has not increased beyond the availability of one-time cash to buy down the UAL, staff and the financing team believe the inclusion of the $10.72 million in utility cash will further increase savings. Costs associated with all the actions surrounding the issuance of POBs will be paid from bond proceeds. Not-to-exceed fees for the financing team have been previously approved by City Council. All costs, except those of Standard & Poor’s (estimated to be $75,000) as the credit rating agency will be contingent upon the successful sale of the bonds. On December 16, 2019, “Good Faith Estimates” (required by SB 450) were provided to City Council assuming the POBs will be issued in the $82 million not-to-exceed amount. City staff and the financing team have reviewed the estimates and believe they remain valid. Note these amounts are still preliminary and are subject to prevailing market conditions at the time of pricing the POBs. While the City expects to refinance 100% of the City’s UAL, it is important to note this action addresses past UALs and does not eliminate future liabilities. UALs may result from changes in market conditions or changes in CalPERS assumptions. In addition to the City’s Retirement Liability Reserve (for pensions and other post-employment benefits/retiree medical), which is currently funded at $2.0 million, City staff will return to the City Council with a pension management policy to address and fund future liabilities. Staff’s presentation of this item will include an updated amount of the City’s UAL as of valuation date June 30, 2019, detailed analysis on the recommended structuring of the bond issuance, and estimated savings to the City resulting from the issuance of POBs. The presentation will be provided to the City Clerk to attach as part of the record of this report. Prepared by: Reviewed and Approved: Talika M. Johnson Sergio Gonzalez Director of Administrative Services City Manager Attachments: 1. Resolution No. 2020-C44, with Good Faith Estimate attached as Exhibit A 2.Preliminary Official Statement 3. 2020 POB Bond Purchase Agreement 4. 2020 POB Indenture 45635.01436\33173224.2 1 RESOLUTION NO. 2020-C44 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA SUPPLEMENTING A RESOLUTION OF THE CITY COUNCIL ADOPTED DECEMBER 16, 2019, PROVIDING FOR THE ISSUANCE OF ONE OR MORE SERIES OF CITY OF AZUSA TAXABLE PENSION OBLIGATION BONDS, AND RATIFYING ACTION TAKEN ON DECEMBER 16, 2019, APPROVING THE FORMS OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF AN INDENTURE, BOND PURCHASE AGREEMENT AND OFFICIAL STATEMENT AND AUTHORIZING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH WHEREAS, the City Council of the City of Azusa (the “City of Azusa” and the “City”, respectively) adopted a retirement plan pursuant to the Public Employees’ Retirement Law, commencing at Section 20000 of the Government Code of the State of California, as amended (the “Retirement Law”); and WHEREAS, among other things, the Retirement Law obligates the City (1) to amortize the unfunded accrued actuarial liability to the California Public Employees’ Retirement System (including any successor system established by the State of California, (the “State Retirement System”), with respect to pension benefits for its employees who are members thereof; and (2) to make annual contributions to the State Retirement System to fund pension benefits for said employees; and WHEREAS, the obligation of the City to pay its unfunded accrued actuarial liability to the State Retirement System and its normal annual contribution to the State Retirement System for its police, fire and miscellaneous pension plans (collectively, the “PERS Obligation”) is evidenced by a contract between the City and the State Retirement System, dated as of December 20, 1948, as amended thereafter from time to time (collectively, the “PERS Contract”); and WHEREAS, as of June 30, 2018, based upon the actuarial report of the State Retirement System, the City will have a PERS Obligation of approximately $38,614,000 for the City’s Safety Plan of the State Retirement System and a PERS Obligation of approximately $41,975,000 for the City’s Miscellaneous Plan pursuant to the Retirement Law; and WHEREAS, the City has made its Fiscal Year 2020-21 payment at the end of July 2020 in the amount of $5,442,025 for the Safety Plan and Miscellaneous Plan; and WHEREAS, under and pursuant to a resolution (the “POB Resolution”) adopted by the City Council on December 16, 2019, the City authorized the issuance of its taxable pension obligation bonds in one or more series (the “Bonds”) in an aggregate principal amount equal to the sum of (a) the principal amount not to exceed the total amount of the PERS Obligation, (b) the costs of issuance of the Bonds (including underwriters’ discount), and (c) the original issue discount (if any) on the Bonds, for the purpose of refunding the PERS Contract and thereby providing funds to the State Retirement System for investment; and Attachment 1 45635.01436\33173224.2 2 WHEREAS, the City, acting pursuant to the provisions of Section 860 et seq. of the California Code of Civil Procedure and Government Code Sections 53511 and 53589.5, filed a complaint in the Superior Court of the State of California for the County of Los Angeles seeking judicial validation of the proceedings and transactions relating to the issuance of the Bonds and any future series of bonds to be issued by the City in connection therewith and the court has entered a default judgment to the effect, among other things, that the Bonds are valid, legal and binding obligations of the City and in conformity with all applicable of law; and WHEREAS, there were presented to the Council at its meeting of December 16, 2019, a form of an Indenture proposed to be entered into by and between the City and Wilmington Trust National Association, as trustee (the “Trustee”), relating to the Bonds (the “Indenture”); and WHEREAS, by action of the Council taken on December 16, 2019, the Council approved the forms of the Indenture, and has determined to now ratify such action taken; and WHEREAS, there is presented to this meeting a form of Official Statement relating to the Bonds and a proposed form of Bond Purchase Agreement (the “Bond Purchase Agreement”) between the City and BofA Securities, Inc. (the “Underwriter”); and WHEREAS, Section 5852.1 of the California Government Code requires that the Council obtain from an underwriter, financial advisor or private lender and disclose, in a meeting open to the public, prior to authorization of the issuance of the Bonds, good faith estimates of (a) the true interest cost of the Bonds, (b) the sum of all fees and charges paid to third parties with respect to the Bonds, (c) the amount of proceeds of the Bonds expected to be received net of the fees and charges paid to third parties and any reserves or capitalized interest paid or funded with proceeds of the Bonds, and (d) the sum total of all debt service payments on the Bonds calculated to the final maturity of the Bonds, plus the fees and charges paid to third parties not paid with the proceeds of the Bonds; and WHEREAS, in compliance with Section 5852.1 of the California Government Code, the Council has obtained from Urban Futures, Incorporated, the City’s municipal advisor (the “Municipal Advisor”), and the Underwriter the required good faith estimates and such estimates are disclosed and set forth in Exhibit A attached hereto; and WHEREAS, all acts, conditions and things required by the laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the refunding of a portion of the City’s unfunded accrued actuarial liability for City employees under the PERS Contract and the Retirement Law authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the City is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such refunding for the purpose, in the manner and upon the terms herein provided; and NOW, THEREFORE, BE IT RESOLVED, DETERMINED AND ORDERED BY THE CITY COUNCIL OF THE CITY OF AZUSA AS FOLLOWS: SECTION 1. Recitals. The foregoing recitals are true and correct and this Council hereby so finds and determines. 45635.01436\33173224.2 3 SECTION 2. Findings. The Council hereby finds and declares that the issuance of the Bonds to refund a portion of the City’s unfunded accrued actuarial liability for City employees under the PERS Contract and the Retirement Law and the other actions contemplated hereby are in the best interests of the City and are expected, based on investment and other assumptions, to result in significant savings to the taxpayers of the City. SECTION 3. Indenture. The Council hereby ratifies its approval at the meeting of December 16, 2019 of the proposed form of Indenture, between the City and the Trustee and the execution thereof by of the Mayor, the Mayor Pro Tem, the City Manager, or the City Manager’s designee (each, an “Authorized Representative”). SECTION 4. Issuance of Bonds and Bond Purchase Agreement. The Council hereby approves the proposed form of Bond Purchase Agreement, between the City and the Underwriter and the execution thereof by the Authorized Representative. The Bonds shall be issued in an amount not exceeding $82,000,000, with an interest rate in each maturity of the bonds not in excess of 4.00%. The minimum net present value savings level shall be 3.00% of the refunded amount of the City’s unfunded accrued actuarial liability. The underwriter’s discount shall not exceed 0.30% of the par amount, exclusive of original issue discount. At the recommendation of the Underwriter, the City may privately place the Bonds so long as the limitations of the preceding sentence have not been exceeded. The obligations of the City under the Bonds, including the obligation to make all payments of interest and principal when due, are obligations of the City imposed by law and are absolute and unconditional, without any right of set-off or counterclaim. The Bonds do not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation. Neither the Bonds nor the obligation of the City to make payments on the Bonds constitutes an indebtedness of the City, the State of California, or any of its political subdivisions in contravention of any constitutional or statutory debt limitation or restriction. SECTION 5. Official Statement. The Council hereby approves of the Official Statement in preliminary form relating to the Bonds (the “Official Statement”), provided with this resolution, with such deletions, additions, or changes therein as shall be approved by an authorized representative and the City hereby authorizes and directs the preparation of a Final Official Statement, for and in the name of the City, substantially in the form of the Preliminary Official Statement, with such changes therein, as such Authorized Representative may approve, such approval to be conclusively evidenced by the execution and delivery of such Final Official Statement. The City has reviewed the substance of all disclosure documentation, has had the opportunity to ask questions and receive answers with respect to the Preliminary Official Statement, has satisfied itself as to the accuracy and completeness of such disclosure. The City and the Underwriter are hereby directed to distribute copies of such Final Official Statement to all actual purchasers of the Bonds. Distribution by the City or the Underwriter of the Preliminary Official Statement relating to the Bonds is hereby approved and any one of the Authorized Representative is hereby authorized and directed, for and in the name and on behalf of the City, to execute a certificate confirming that such Preliminary Official Statement has been "deemed final" by the City for purposes of Securities and Exchange Commission Rule 15c2-12. Additionally, the Council hereby approves the continuing disclosure obligation attached to the Official Statement and hereby directs any Authorized Representative to cause such continuing disclosure obligation to be executed and delivered on behalf of the City pursuant to Rule 15c2- 12. 45635.01436\33173224.2 4 SECTION 6. POB Resolution in Full Force and Effect. Except as otherwise herein specifically supplemented, all terms and provisions of the POB Resolution shall remain in full force and effect, and all authorizations, provisions and terms of the POB Resolution shall apply to this resolution with the same effect as if set forth herein. The officers and agents of the City are, and each of them hereby is, authorized and directed to do any and all things and to execute and deliver any and all documents which they or any of them deem necessary or advisable in order to consummate the transactions contemplated by this resolution, the Indenture, the Bond Purchase Agreement, the Official Statement and the Bonds and otherwise to carry out, give effect to and comply with the terms and intent of this resolution, and all such actions heretofore taken by such officers are hereby ratified, confirmed and approved. SECTION 7. Effective Date. This resolution shall take effect upon adoption and shall remain in effect until January 31, 2021, or if the Bonds are issued prior to said date, until all of the Bonds are paid at or redeemed prior to maturity. PASSED, APPROVED and ADOPTED this 17th day of August, 2020. _________________________________________ Robert Gonzales Mayor ATTEST: ________________________________________ Jeffrey Lawrence Cornejo, Jr. City Clerk 45635.01436\33173224.2 5 STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) ss. CITY OF AZUSA ) I HEREBY CERTIFY that the foregoing Resolution No. 2020-C44 was duly adopted by the City Council of Azusa at a regular meeting thereof, held on the 17th day of August, 2020, by the following vote of Council: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: ______________________________ Robert Gonzales City Clerk APPROVED AS TO FORM: ______________________________ Best Best & Krieger LLP City Attorney 45635.01436\33173224.2 6 EXHIBIT A GOOD FAITH ESTIMATES The good faith estimates set forth herein are provided with respect to the Bonds in accordance with California Government Code Section 5852.1. Such good faith estimates have been provided to the City by the Municipal Advisor and the Underwriter. Principal Amount. The Municipal Advisor and the Underwriter have informed the City that, based on the City’s financing plan and current market conditions, its good faith estimate of the aggregate principal amount of the Bonds to be sold is $81,180,000, (the “Estimated Principal Amount”). True Interest Cost of the Bonds. The Municipal Advisor and the Underwriter have informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, their good faith estimate of the true interest cost of the Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Bonds, is 3.25%. Finance Charge of the Bonds. The Municipal Advisor and the Underwriter have informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, their good faith estimate of the finance charge for the Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the Bonds), is $590,000. Amount of Proceeds to be Received. The Municipal Advisor and the Underwriter have informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, their good faith estimate of the amount of proceeds expected to be received by the City for sale of the Bonds, less the finance charge of the Bonds, as estimated above, and any reserves or capitalized interest paid or funded with proceeds of the Bonds, is $80,590,000. Total Payment Amount. The Municipal Advisor and the Underwriter have informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, their good faith estimate of the total payment amount, which means the sum total of all payments the City will make to pay debt service on the Bonds, plus the finance charge for the Bonds, as described above, not paid with the proceeds of the Bonds, calculated to the final maturity of the Bonds, is $108,906,000, which excludes any reserves or capitalized interest paid or funded with proceeds of the Bonds (which may offset such total payment amount). The foregoing estimates constitute good faith estimates and are based on market conditions prevailing at the time of preparation of such estimates. The actual principal amount of the Bonds issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to (a) the actual date of the sale of the Bonds being different than the date assumed for purposes of such estimates, (b) the actual principal amount of Bonds sold being different from the Estimated Principal Amount, (c) the actual amortization of the Bonds 45635.01436\33173224.2 7 being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates at the time of sale of the Bonds being different than those estimated for purposes of such estimates, (e) other market conditions, or (f) alterations in the City’s financing plan, or a combination of such factors. The actual date of sale of the Bonds and the actual principal amount of the Bonds sold will be determined by the City based on the timing of the need for proceeds of the Bonds and other factors. The actual interest rates borne by the Bonds will depend on market interest rates at the time of sale thereof. The actual amortization of the Bonds will also depend, in part, on market interest rates at the time of sale thereof. Market interest rates are affected by economic, national, international and other factors beyond the control of the City, the Municipal Advisor or the Underwriter. PRELIMINARY OFFICIAL STATEMENT DATED ____________, 2020 In the opinion of Best Best & Krieger LLP, Bond Counsel to the City, under existing laws, regulations, rulings and court decisions, interest on the Series 2020 Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. Bond Counsel is of the opinion that interest on the Series 2020 Bonds is exempt from State of California personal income taxes. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2020 Bonds. See “TAX MATTERS” herein. NEW ISSUE – BOOK-ENTRY ONLY INSURED RATING: S&P: “[____]” Taxable (Federal) UNDERLYING RATING: S&P: “[_____]” Tax -Exempt (State of California) (See “RATINGS” herein) $___________* CITY OF AZUSA TAXABLE PENSION OBLIGATION BONDS, SERIES 2020 Dated: Date of Delivery Due: August 1, as shown on inside cover page The City of Azusa (the “City”) is issuing its Taxable Pension Obligation Bonds, Series 2020 (the “Series 2020 Bonds”) under an Indenture, dated as of September 1, 2020 (the “Indenture”), by and between the City and Wilmington Trust, National Association, as trustee (the “Trustee”), to (i) refund all or a portion of the City’s obligation to pay its unfunded accrued actuarial liability to the California Public Employees’ Retirement System (“PERS” or the “System”) under the PERS Contract (as described herein) for the benefit of the City’s employees and (ii) pay the costs of issuance related to the Series 2020 Bonds. The obligations of the City under the 2020 Series A Bonds, including the obligation to make all payments of interest and principal when due, are obligations of the City imposed by law and are absolute and unconditional, without any right of set-off or counterclaim. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2020 BONDS” herein. The Series 2020 Bonds will be issued as current interest bonds. Interest on the Series 2020 Bonds is payable on August 1, 2021 and thereafter semiannually on February 1 and August 1 of each year until maturity or earlier redemption. The Series 2020 Bonds will be issued to refinance the City’s statutory obligation to appropriate and make payments to PERS for certain amount arising as a result of retirement benefits accruing to member of the System. The obligations of the City under the Series 2020 Bonds, including the obligation to make all payments of principal, premium, if any, and interest on, when due, are obligations of the City imposed by law and are absolute and unconditional, without any right of set-off or counterclaim. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2020 BONDS” herein. The Series 2020 Bonds are being issued in fully registered form, and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”) in the United States. DTC will act as securities depository for the Series 2020 Bonds. Individual purchases of Series 2020 Bonds will be made in book-entry form only in denominations of $5,000 principal amount, or any integral multiple thereof. Purchasers will not receive certificates representing their beneficial ownership interest in the Series 2020 Bonds purchased. See APPENDIX C – “DTC AND THE BOOK-ENTRY SYSTEM.” The Series 2020 Bonds subject to redemption prior to maturity as described herein. See “THE SERIES 2020 BONDS – Redemption” herein. [The City has applied for a municipal bond insurance policy and will decide whether to purchase such policy in connection with the offering of the Series 2020 Bonds]. See “BOND INSURANCE” herein. THE SERIES 2020 BONDS DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE SERIES 2020 BONDS NOR THE OBLIGATION OF THE CITY TO MAKE PAYMENT ON THE SERIES 2020 BONDS CONSTITUTE AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. This cover page contains information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined shall have the meanings set forth herein. The Series 2020 Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their validity by Best Best & Krieger LLP, Riverside, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by Best Best & Krieger LLP, Riverside, California as Disclosure Counsel and by Best Best & Krieger LLP, Ontario, California, as City Attorney. Certain legal matters will be passed upon for the Underwriter by its counsel Orrick, Herrington & Sutcliffe LLP. It is anticipated that the Series 2020 Bonds will be available for delivery through the book-entry facilities of DTC on or about September __, 2020. [INSERT BOFA SECURITIES LOGO] Dated: _____________, 2020 *Preliminary, subject to change.This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Attachment 2 $___________* CITY OF AZUSA TAXABLE PENSION OBLIGATION BONDS, SERIES 2020 MATURITY SCHEDULE Maturity Date (August 1) Principal Amount Interest Rate Yield CUSIP®(1) $___________ ____% Term Bond due August 1, 20__ Yield _____% CUSIP®(1): $___________ ____ % Term Bond due August 1, 20__ Yield _____% CUSIP®(1): (1) CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Global Market Intelligence. Copyright © 2020 CUSIP Global Services. All rights reserved. This data is not intended to create a database and does not serve in any way as a substitute for CGS. CUSIP® numbers are provided for convenience of reference only. None of the City, the Underwriter, they agents or counsel assume responsibility for the accuracy of such numbers. * Preliminary, subject to change. i TABLE OF CONTENTS INTRODUCTION ............................................................... 1 Description of the Series 2020 Bonds.............................. 1 Purpose ............................................................................ 1 Security and Sources of Payment for the Series 2020 Bonds ....................................................... 2 Validation ........................................................................ 2 Redemption ..................................................................... 2 Continuing Disclosure ..................................................... 2 Professionals Involved in the Offering ............................ 2 Summaries Not Definitive ............................................... 3 PLAN OF FINANCING ..................................................... 3 ESTIMATED SOURCES AND USES OF FUNDS ............................................................................ 4 THE SERIES 2020 BONDS ............................................... 4 General ............................................................................ 4 Redemption ..................................................................... 5 Redemption Procedures ................................................... 5 Book-Entry System ......................................................... 6 Transfer and Exchange of Series 2020 Bonds ........................................................................... 6 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2020 BONDS ................................... 7 Sources of Payment ......................................................... 7 No Reserve Fund ............................................................. 8 Additional Bonds ............................................................. 8 DEBT SERVICE SCHEDULE ........................................... 8 BOND INSURANCE .......................................................... 8 COVID-19 OUTBREAK .................................................... 8 RETIREMENT PLANS .................................................... 10 General .......................................................................... 10 PERS Plans .................................................................... 10 PARS Retirement Enhancement Plans .......................... 15 PARS Defined Contribution Plan .................................. 18 Other Post-Employment Benefits .................................. 19 FINANCIAL INFORMATION REGARDING THE CITY ..................................................................... 20 Accounting Policies and Financial Reporting................ 20 Budgetary Process ......................................................... 21 Comparative Change in Fund Balance of the City’s General Fund ................................................... 23 Comparative General Fund Balance Sheets of the City .................................................................. 24 Current Financial Condition of the City ........................ 25 Major Revenue Sources ................................................. 25 Investment of City Funds .............................................. 29 Indebtedness .................................................................. 30 Direct and Overlapping Debt ......................................... 30 Insurance ....................................................................... 32 State Budget Information............................................... 33 RISK FACTORS ............................................................... 37 No Tax Pledge ............................................................... 37 Dependence on State for Certain Revenue Sources to Pay the Series 2020 Bonds ....................... 37 Limitation on Remedies Available; Bankruptcy ................................................................. 37 Changes in Law ............................................................. 38 Natural Disasters ........................................................... 38 Infectious Disease Outbreak .......................................... 39 Hazardous Substances ................................................... 40 Cybersecurity ................................................................. 40 Public Debt Burden on Property .................................... 40 Assessed Value of Taxable Property ............................. 40 Property Tax Allocation by the State ............................. 41 Secondary Market Risk ................................................. 42 Pension Benefit Liability ............................................... 42 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS ..................................................... 43 Article XIIIA of the State Constitution.......................... 43 Legislative Implementing Article XIIIA ....................... 43 Article XIIIB of the State Constitution .......................... 43 Articles XIIIC and XIIID of the State Constitution ............................................................... 44 Proposition 62 ................................................................ 45 Proposition 1A ............................................................... 45 Proposition 22 ................................................................ 46 Proposition 26 ................................................................ 46 Future Limitations ......................................................... 46 ERISA CONSIDERATIONS ............................................ 47 BOND COUNSEL OPINION ........................................... 47 TAX MATTERS ............................................................... 48 U.S. Holders .................................................................. 49 Non-U.S. Holders .......................................................... 50 Foreign Account Tax Compliance Act (“FATCA”)—U.S. Holders and Non-U.S. Holders ...................................................................... 50 VALIDATION .................................................................. 51 CERTAIN LEGAL MATTERS ........................................ 51 CONTINUING DISCLOSURE ........................................ 51 FINANCIAL STATEMENTS .......................................... 52 LITIGATION .................................................................... 52 RATINGS ......................................................................... 52 UNDERWRITING ............................................................ 52 MUNICIPAL ADVISOR .................................................. 53 MISCELLANEOUS.......................................................... 53 APPENDIX A SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA ............... 1 APPENDIX B CITY OF AZUSA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2019 ................................................................ 1 APPENDIX C DTC AND THE BOOK-ENTRY ONLY SYSTEM ............................................................. 1 APPENDIX D SUMMARY OF THE INDENTURE .................................................................. 1 APPENDIX E PROPOSED FORM OF OPINION OF BOND COUNSEL ................................... 1 APPENDIX F CONTINUING DISCLOSURE CERTIFICATE ............................................................... 1 CITY OF AZUSA COUNTY OF LOS ANGELES STATE OF CALIFORNIA CITY COUNCIL Robert Gonzales, Mayor Uriel Edward Macias, Mayor Pro Tem Edward J. Alvarez, Council Member Jesse Avila, Council Member Andrew Mendez, Council Member CITY OFFICIALS Sergio Gonzalez, City Manager Talika M. Johnson, Director of Administrative Services Best Best & Krieger LLP, City Attorney SPECIAL SERVICES Bond and Disclosure Counsel Best Best & Krieger LLP Riverside, California Trustee Wilmington Trust, National Association Costa Mesa, California Municipal Advisor Urban Futures, Inc. Tustin, California This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2020 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement. If given or made, such other information or representations must not be relied upon as having been authorized by the City or the Underwriter. This Official Statement is not to be construed as a contract with the purchasers of the Series 2020 Bonds. Statements contained in this Official Statement which involve estimates, projections, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. Certain of the information set forth herein has been obtained from official sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Underwriter. The information and expressions of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. This Official Statement is submitted with respect to the sale of the Series 2020 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. In connection with the offering of the Series 2020 Bonds, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2020 Bonds to certain dealers, institutional investors and others at prices lower than the public offering prices stated on the cover page hereof and said public offering prices may be changed from time to time by the Underwriter. 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 a 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. Certain statements in this Official Statement, which may be identified by the use of such terms as “plan,” “project,” “expect,” “estimate,” “budget” or other similar words, constitute forward-looking statements. Such forward-looking statements refer to the achievement of certain results or other expectation or performance which involve known and unknown risks, uncertainties and other factors. These risks, uncertainties and other factors may cause actual results, performance or achievements to be materially different from any projected results, performance or achievements described or implied by such forward-looking statements. The City does not plan to issue updates or revisions to such forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based, occur, or if actual results, performance or achievements are materially different from any results, performance or achievements described or implied by such forward-looking statements. The Series 2020 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption from the registration requirements contained in such Act. 1 OFFICIAL STATEMENT $___________* CITY OF AZUSA TAXABLE PENSION OBLIGATION BONDS, SERIES 2020 INTRODUCTION This Introduction is subject in all respects to the more complete information contained elsewhere in this Official Statement, and the offering of the Series 2020 Bonds to potential investors is made only by means of the entire Official Statement. Terms used in this introduction and not otherwise defined shall have the respective meanings assigned to them elsewhere in this Official Statement. Description of the Series 2020 Bonds The Series 2020 Bonds mature on August 1 in the years indicated on the cover page hereof. Individual purchasers of interests in the Series 2020 Bonds will be available to purchasers of the Series 2020 Bonds in the denominations of $5,000 principal amount or maturity value or any integral multiple thereof. Interest on the Series 2020 Bonds accrues from the date of delivery and is payable semiannually on each February 1 and August 1 (each an “Interest Payment Date”), commencing August 1, 2021. Purpose The purpose of this Official Statement, which includes the cover page and appendices hereto, is to set forth certain information concerning the issuance and sale by the City of Azusa (the “City”) of its Taxable Pension Obligation Bonds, Series 2020 in the aggregate principal amount of $___________* (the “Series 2020 Bonds”). The Series 2020 Bonds are being issued pursuant to Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California (the “State”) and an Indenture, dated as of September 1, 2020 (the “Indenture”), by and between the City and Wilmington Trust, National Association, as trustee (the “Trustee”). Pursuant to its contract dated as of December 20, 1948 (as amended to date, and as may further be amended from time to time, the “PERS Contract”) with the Board of Administration of the California Public Employee’s Retirement System (“PERS” or the “System”) and Section 20000 et seq. of the California Government Code (the “Retirement Law”), the City is obligated to make payments to PERS arising as a result of retirement benefits accruing to members of PERS. The City’s statutory obligation includes, among others, the requirement to amortize the unfunded accrued actuarial liability (“UAAL”) and to make annual contributions with respect to such retirement benefits for City employees. The City is issuing the Series 2020 Bonds to (i) refund all or a portion of the City’s obligation to pay its unfunded accrued actuarial liability to PERS under the PERS Contract for the benefit of the City’s employees and (ii) pay the costs of issuance related to the Series 2020 Bonds. The City’s Safety Plan provides retirement benefits for City police and fire employees. See “PLAN OF FINANCING” and “ESTIMATED SOURCES AND USES OF FUNDS” herein. Pursuant to the Retirement Law, the City Council is required to make the appropriations to pay the amounts required to be paid by the City pursuant to the Retirement Law, including the unfunded accrued actuarial liability which is evidenced by the Bonds. See “SECURITY FOR THE BONDS” herein. * Preliminary, subject to change. 2 Security and Sources of Payment for the Series 2020 Bonds The obligation of the City to make payments with respect to the Series 2020 Bonds is an absolute and unconditional obligation of the City, and payment of principal of and interest on the Series 2020 Bonds is not limited to any special source of funds. Pursuant to the Indenture, the City is required to make certain deposits with the Trustee on or before August 1 of each year. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2020 BONDS” herein. THE SERIES 2020 BONDS DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE SERIES 2020 BONDS NOR THE OBLIGATION OF THE CITY TO MAKE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR THE INTEREST ON THE SERIES 2020 BONDS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The assets of PERS will not secure or be available to pay principal of or interest on the Bonds. [The scheduled payment of principal of and interest on the Series 2020 Bonds when due will be guaranteed under a municipal bond insurance policy (the “Policy”) to be issued concurrently with the delivery of the Series 2020 Bonds. See “BOND INSURANCE” herein.] Validation The Series 2020 Bonds, together with any Additional Bonds, were validated pursuant to the Judgment of Validation dated July 13, 2020 in Los Angeles County Superior Court Case No. 20PSCV00061 (the “Validation Judgment”). The Validation Judgment was entered into in connection with an action which was initiated by the City in connection with the issuance of City pension obligation bonds, including the Series 2020 Bonds. See “VALIDATION” herein. Redemption The Series 2020 Bonds are subject to redemption as described herein. See “THE SERIES 2020 BONDS — Redemption” herein. Continuing Disclosure The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board, which is available on the Internet at http://www.emma.msrb.org/, certain annual financial information and operating data. Such information is provided pursuant to Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission (the “Rule”). The City has further agreed to provide, in a timely manner, notice of certain events as set forth in the Rule. The covenants of the City have been made in order to assist the Underwriter in complying with the Rule. See the caption “CONTINUING DISCLOSURE” and Appendix F for a description of the specific nature of the reports to be filed by the City, the notices of enumerated events and a summary description of the terms of the continuing disclosure certificate pursuant to which reports are to be made. Professionals Involved in the Offering Best Best & Krieger LLP, Riverside, California, is acting as Bond Counsel with respect to the Series 2020 Bonds and will receive compensation from the City contingent upon the sale and delivery of the Series 2020 Bonds. Certain legal matters will be passed upon for the City by Best Best & Krieger LLP, Ontario, California, as City Attorney and by Best Best & Krieger LLP, Riverside, California, as Disclosure Counsel. 3 Certain legal matters will be passed upon for the Underwriter by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, as Underwriter’s Counsel. Urban Futures, Inc., Tustin, California, is acting as the Municipal Advisor with respect to the Series 2020 Bonds. Summaries Not Definitive Brief descriptions of the Series 2020 Bonds and the Indenture are included in this Official Statement. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Series 2020 Bonds and the Indenture are qualified in their entirety by reference to the actual documents, or with respect to the Series 2020 Bonds, the forms thereof included in the Indenture, copies of all of which are available for inspection by written request mailed to the City at 213 East Foothill Boulevard, Azusa, California 91702, Attention: Director of Administrative Services. PLAN OF FINANCING In July 2019, PERS notified the City as to the amount of the UAAL for the City’s defined benefits pension plans for its public safety employees (the “Safety Plan”) and miscellaneous employees (the “Miscellaneous Plan”) based on the actuarial reports dated as of June 30, 2018 (the “2018 PERS Reports”), which are the most recent actuarial valuations routinely performed by PERS for the City’s defined benefits pension plans for its public safety employees and miscellaneous employees. As of the date of the 2018 PERS Reports, the City’s aggregate PERS UAAL totaled approximately $80,589,909. According to the 2018 PERS Reports: (i) the Miscellaneous Plan was 73.0% funded as of June 30, 2018 (based on the market value of assets), and the City’s UAAL with respect to the Miscellaneous Plan was approximately $41,975,675 as of June 30, 2018; and (ii) the Safety Plan was 70.7% funded as of June 30, 2018 (based on market value of assets), and the City’s UAAL with respect to the Safety Plan was approximately $38,614,234 as of June 30, 2018. The Series 2020 Bonds are being issued under the Indenture (see the captions “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2020 BONDS” and “VALIDATION” herein) to: (i) refund all or a portion of the City’s obligation to pay its unfunded accrued actuarial liability to PERS under the PERS Contract for the benefit of the City’s employees and (ii) pay the costs of issuance related to the Series 2020 Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” below. Upon the issuance of the Series 2020 Bonds, the City will pay $[_______] to PERS for deposit to the public safety pool and $[_______] for deposit in the miscellaneous pool. On July 13, 2020, the Superior Court of the State of California in and for the County entered a default judgment to the effect, among other things, that the PERS Contract, the Indenture, the Series 2020 Bonds and any Additional Bonds (as defined herein) issued under the Indenture, are valid, legal and binding obligations of the City and that the PERS Contract, the Indenture, the Series 2020 Bonds and any Additional Bonds issued under the Indenture, are valid and in conformity with all applicable provisions of law and all applicable provisions of the Retirement Law and the State Constitution. See the caption “VALIDATION” herein. The City’s obligations under the PERS Contract are, and the City’s obligations with respect to the Series 2020 Bonds upon issuance, including the obligation to make all payments of principal, premium, if any, and interest on, when due, are obligations of the City imposed by law and are absolute and unconditional, without any right of set-off or counterclaim. The Series 2020 Bonds do not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation. Neither the Series 2020 Bonds nor the obligation of the City to make payments on the Series 2020 Bonds constitute an indebtedness of the City, the State, or any of its political subdivisions in contravention of any constitutional or statutory debt limitation or restriction. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS” herein. 4 ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Series 2020 Bonds are set forth below: Sources of Funds Principal Amount of Series 2020 Bonds Net Original Issue Premium/Discount Total Sources $____________ Uses of Funds Refunding of PERS Contract Obligations Cost of Issuance (1) Total Uses $____________ _________________ (1) Includes Underwriter’s discount, legal fees, fees of the municipal advisor, the Trustee, the rating agenc[y/ies], bond insurance premium, printing costs and certain miscellaneous expenses. THE SERIES 2020 BONDS General The Series 2020 Bonds will be dated their date of original delivery issued in fully registered form, without coupons, and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository of the Series 2020 Bonds. Ownership interests in the Series 2020 Bonds may be purchased in book-entry form only. Purchasers will not receive securities certificates representing their interests in the Series 2020 Bonds purchased. Payments of principal of and interest on the Series 2020 Bonds will be paid by the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the Series 2020 Bonds. See APPENDIX C — “DTC AND THE BOOK-ENTRY ONLY SYSTEM” herein. Interest with respect to the Series 2020 Bonds accrues from the date of delivery and is payable semiannually on August 1 and February 1 of each year commencing August 1, 2021. Interest on the Series 2020 Bonds shall be computed on the basis of a 360-day year of twelve 30-day months. Interest payments on any Series 2020 Bond shall be made to the person appearing on the Bond Register as the Owner thereof as the Record Date immediately preceding such payment date, such interest to be paid by check mailed to such Owner on the Bond Payment Date at the address appearing on the Bond Register or at such other address as may be filed with the Bond Registrar for that purpose on or before the close of business on the Record Date. An owner of Series 2020 Bonds in an aggregate principal amount of $1,000,000 or more may request in writing to the Bond Registrar that such owner be paid interest by wire transfer to the bank and account in the United States on file with the Bond Registrar as of the Record Date. The principal, interest and redemption premiums, if any, payable on the Series 2020 Bonds shall be payable upon maturity or redemption upon surrender at the principal office of the Bond Registrar. Each Series 2020 Bond authenticated during the period between any subsequent Record Date and the close of business on its corresponding Bond Payment Date shall bear interest from such Bond Payment Date unless it is authenticated on or before June 15, 2021, in which case it shall bear interest from the date of delivery. Any other Series 2020 Bond shall bear interest from the Bond Payment Date immediately preceding the date of its authentication. If, at the time of authentication of any Series 2020 Bond interest is in default on any outstanding Series 2020 Bonds, such Series 2020 Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the outstanding Series 2020 Bonds. The Series 2020 Bonds are issuable in denominations of $5,000 principal amount or any integral multiple thereof. The Series 2020 Bonds mature on August 1, in the years and amounts set forth on the inside front cover page hereof. For a further description of the Series 2020 Bonds, see “— Redemption” below and “APPENDIX D — SUMMARY OF THE INDENTURE.” 5 Redemption Optional Redemption. The Series 2020 Bonds maturing on or before August 1, 20__ are not subject to optional redemption prior to their respective maturities. The Series 2020 Bonds maturing after August 1, 20_, are subject to optional redemption from any source of available funds of the City, prior to their respective maturities, in whole or in part among maturities as specified by the City, and by lot within a maturity, on any date on or after August 1, 20__, at a redemption price equal to 100% of the principal amount of the Series 2020 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Sinking Fund Redemption. The Series 2020 Bonds maturing August 1, 20__ (the “20__ Term Bonds”), are subject to mandatory redemption from mandatory Sinking Account payments, in part, by lot, on August 1, 20__, and on each August 1 thereafter to and including August 1, 20__, from money on hand in the Sinking Account at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the redemption date, without premium, as set forth below (subject to modification in the event of an option redemption mentioned above): Redemption Date (August 1) Principal Amount The Series 2020 Bonds maturing August 1, 20__ (the “20__ Term Bonds” and together with the 20__ Term Bonds, the “Series 2020 Term Bonds”), are subject to mandatory redemption from mandatory Sinking Account payments, in part, by lot, on August 1, 20__, and on each August 1 thereafter to and including August 1, 20__, from money on hand in the Sinking Account at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the redemption date, without premium, as set forth below (subject to modification in the event of an option redemption mentioned above): Redemption Date (August 1) Principal Amount In lieu of any such redemption, the City may, from lawfully available funds, direct the Trustee to purchase the Series 2020 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest) as may be directed by the City prior to the selection of Series 2020 Bonds for redemption, and such purchased Series 2020 Bonds shall be cancelled. Redemption Procedures Selection of Bonds for Redemption. The Series 2020 Term Bonds shall be redeemed prior to their stated maturity in part on August 1 of each year indicated above, pro rata among the Holders, solely from Sinking Fund Account Payments in the amounts and on the dates set forth above, upon mailed notice as provided below, at a redemption price equal to the sum of the principal amount thereof plus accrued interest thereon to the redemption date, without premium. For the purposes of such selection, the Series 2020 Term Bonds selected for redemption shall be deemed to be composed of $5,000 portions and any such portion may be separately prepaid. The Trustee shall promptly notify the City in writing of the Series 2020 Term Bonds so 6 selected for redemption. So long as there is a securities depository for the Series 2020 Term Bonds, there will only be one Holder and neither the City nor the Trustee will have responsibility for pro rating partial redemptions among Beneficial Owners of Series 2020 Term Bonds Notice of Redemption. Notice of redemption of any Series 2020 Bonds or any portions thereof shall be given by first class mail not less than fifteen (15) days nor more than thirty (30) days before the redemption date of such Series 2020 Bonds or portions thereof to the respective Holders thereof as their names and addresses appear on the registration books maintained by the Trustee pursuant to the Indenture and to the Information Services. Each notice of redemption shall state the date of such notice, the Series 2020 Bonds to be redeemed, the date of issue of such Series 2020 Bonds, the redemption date, the redemption price, the place of redemption (including the name and appropriate address), the CUSIP number (if any) and ISIN number (if any) of the maturity or maturities, and, if less than all of any such maturity are to be redeemed, the distinctive numbers of the Series 2020 Bonds of such maturity to be redeemed and, in the case of Series 2020 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on such redemption date there will become due and payable on each of such Series 2020 Bonds the redemption price thereof or of the specified portion of the principal amount thereof in the case of a Series 2020 Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Series 2020 Bonds be then surrendered at the address of the Trustee specified in the redemption notice; provided, that failure by the Trustee to give notice pursuant to this section to any one or more of the Information Services, or the insufficiency of any such notice or the failure of any Holder to receive any redemption notice mailed to such Holder or any immaterial defect in the notice so mailed shall not affect the sufficiency of the proceedings for the redemption of any Series 2020 Bonds; and provided further, that any such notice of redemption may be cancelled and annulled by a Written Request of the City given to the Trustee prior to the date fixed for redemption, whereupon the Trustee shall forthwith give appropriate notice of such cancellation and annulment to all the recipients of such notice of redemption. Effect of Redemption. From and after the date fixed for redemption of any Series 2020 Bonds or any portions thereof, if notice of such redemption shall have been duly given and funds available for the payment of the redemption price of the Series 2020 Bonds or such portions thereof so called for redemption shall have been duly provided, no interest s hall accrue on such Series 2020 Bonds or such portions thereof from and after the Redemption Date specified in such notice. Book-Entry System DTC will act as securities depository for the Series 2020 Bonds. The Series 2020 Bonds will be issued as fully registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee). One fully registered Series 2020 Bond will be issued for each maturity of the Series 2020 Bonds. See “APPENDIX C — DTC AND THE BOOK-ENTRY ONLY SYSTEM.” The City and the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal or maturity amount of, as applicable, premium, if any, and interest on the Series 2020 Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The City and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to beneficial owner with respect to the Series 2020 Bonds or an error of delay relating thereto. Transfer and Exchange of Series 2020 Bonds Transfer. Any Series 2020 Bond may, in accordance with its terms, be transferred in the books required to be kept pursuant to the provisions of the Indenture by the person in whose name it is registered, in person or by such person’s duly authorized attorney, upon surrender of such Series 2020 Bond for cancellation at the Corporate Trust Office of the Trustee accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee; provided, that the Trustee will require the payment by the Holder requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer as a condition precedent to the exercise of such privilege; and provided further, that the Trustee may refuse to 7 transfer any Series 2020 Bonds during the fifteen (15) day period prior to the date established by the Trustee for the selection of Series 2020 Bonds for redemption, or to transfer any Series 2020 Bonds selected by the Trustee for redemption. Whenever any Series 2020 Bond will be surrendered for transfer, the City will execute and the Trustee will authenticate and deliver to the transferee a new Series 2020 Bond or Series 2020 Bonds of the same series of bonds and maturity of authorized denominations equal to the principal amount (with respect to the Series 2020 Bonds) of the Series 2020 Bond surrendered. The City and the Trustee may deem and treat the Holder of any Series 2020 Bond as the absolute owner of such Series 2020 Bond for the purpose of receiving payment thereof and for all other purposes, whether such Series 2020 Bond will be overdue or not, and neither the City nor the Trustee will be affected by any notice or knowledge to the contrary; and payment of the principal, or redemption price of and the interest due on such Series 2020 Bond will be made only to such Holder, which payments will be valid and effectual to satisfy and discharge liability on such Series 2020 Bond to the extent of the sum or sums so paid. The cost of preparing the Series 2020 Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer of the Series 2020 Bonds shall be paid by the City. Exchange of Bonds. Any Series 2020 Bond may, in accordance with its terms, be exchanged at the Corporate Trust Office of the Trustee for a new Series 2020 Bond or Series 2020 Bonds of the same series of bonds and maturity of authorized denominations equal to the principal amount (with respect to the Series 2020 Bonds) of the Series 2020 Bond surrendered; provided, that the Trustee will require the payment by the Holder requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange as a condition precedent to the exercise of such privilege; and provided, further, that the Trustee may refuse to exchange any Series 2020 Bonds during the 15 day period prior to the date established by the Trustee for the selection of Series 2020 Bonds for redemption, or to exchange any Series 2020 Bonds selected by the Trustee for redemption. The cost of preparing the Series 2020 Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer or exchange of the Series 2020 Bonds will be paid by the City. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2020 BONDS Sources of Payment The obligation of the City to make payments with respect to the Series 2020 Bonds is an absolute and unconditional obligation of the City and payment of principal of and interest on the Series 2020 Bonds is not limited to any special source of funds. The Indenture provides that the City is obligated to deposit with the Trustee on or before August 1 of each Fiscal Year the amount which is sufficient to pay the City’s debt service obligations on the Series 2020 Bonds payable during the then current Bond Year. For more information regarding the Bond Fund and additional funds established under the Indenture, see “APPENDIX D — SUMMARY OF THE INDENTURE.” THE SERIES 2020 BONDS DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE SERIES 2020 BONDS NOR THE OBLIGATION OF THE CITY TO MAKE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR THE INTEREST ON THE SERIES 2020 BONDS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. A portion of the proceeds of the Series 2020 Bonds will be used to fund a portion of the Unfunded Liability of the City to PERS. The assets of PERS will not secure or be available to pay principal or interest on the Series 2020 Bonds. 8 No Reserve Fund The City has not established a debt service reserve fund for the Series 2020 Bonds. Additional Bonds The Indenture provides that the City may from time to time issue additional bonds (“Additional Bonds”) under and in accordance with the Indenture for (i) the purpose of satisfying any obligation of the City to make payments to PERS pursuant to the Retirement Law relating to pension benefits accruing to PERS members, and/or for payment of all costs incidental to or connected with the issuance of Additional Bonds for such purpose (including funded interest), and/or (ii) the purpose of refunding any Bonds then Outstanding, including payment of all costs incidental to or connected with such refunding (including funded interest). Such Additional Bonds may be issued on parity with the Series 2020. For more information regarding the issuance of additional bonds, see “APPENDIX D — SUMMARY OF THE INDENTURE” attached hereto. DEBT SERVICE SCHEDULE The following table sets forth the annual debt service schedule for the Series 2020 Bonds (assuming no optional redemptions). Series 2020 Bonds Date (August 1) Principal Interest Total BOND INSURANCE [The City has applied for a municipal bond insurance policy and will decide whether to purchase any such policy in connection with the offering of the Series 2020 Bonds. Such information will be released prior to offering the Series 2020 Bonds and will be included in the Official Statement.] COVID-19 OUTBREAK The spread of the novel strain of coronavirus called SARS-CoV-2, which causes the disease known as COVID-19 (“COVID-19”), and local, state and federal actions in response to COVID-19, are having a significant impact on the City’s operations and finances. In response to the increasing number of cases of COVID-19 infections and fatalities, health officials and experts have recommended, and some governments have mandated, a variety of responses ranging from travel bans and social distancing practices to complete shut- downs of certain services and facilities. The World Health Organization has declared the COVID-19 outbreak to be a pandemic and on March 4, 2020, as part of the State’s response to address the outbreak, the Governor declared a state of emergency. On March 13, 2020, the President declared a national emergency, freeing up funding for federal assistance to state and local governments. Many school districts across the State have temporarily closed some or all school campuses (including Azusa Unified School District schools within the City) in response to local and State directives or guidance. On March 19, 2020, the Governor issued Executive Order N-33-20, a mandatory Statewide shelter-in-place order applicable to all non-essential services. The current shelter-in-place directives have been extended indefinitely until certain indicators for modifying the 9 stay-at-home order have been met. The County has also declared a state of emergency in response to the COVID-19 outbreak. On March 27, 2020, the President signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Stabilization Act (the “CARES Act”) which provides, among other measures, $150 billion in financial assistance to states, tribal governments and local governments to provide emergency assistance to those most significantly impacted by COVID-19. Under the CARES Act, local governments are eligible for reimbursement of certain costs which are expended to address the impacts of the pandemic, although the City cannot predict what State and/or federal funding or other relief it will ultimately receive. Any funds received by the City under the CARES Act are not available for payment of debt service on the Bonds and cannot be used to backfill City revenue losses related to COVID-19. The effects of the COVID-19 outbreak and governmental actions responsive to it are altering the behavior of businesses and people in a manner that is having significant negative impacts on global and local economies. In addition, financial markets in the United States and globally have seen significant declines and experienced significant volatility attributed to COVID-19 concerns. Volatility in the financial markets has impacted CalPERS’ earnings, which could result in a significant increase in the City’s unfunded pension liability and future pension costs, commencing in Fiscal Year 2023. See the caption “CITY PENSION PLANS.” The outbreak has resulted in increased pressure on State finances, as budgetary resources are directed towards containing the pandemic and tax revenues sharply decline. Identified cases of COVID-19 and deaths attributable to the COVID-19 outbreak are continuing to increase throughout the United States, including the City. The COVID-19 outbreak is expected to result in material declines in major General Fund revenues, including in sales taxes, business license taxes and fees and transient occupancy taxes. In addition, the Governor extended the deadline to file and pay spring 2020 property taxes for residential and certain commercial property owners, and first quarter 2020 sales and use tax returns by 90 days for all but the very largest taxpayers. As a result of the extended deadline to file sales and use tax returns, it is estimated that up to 361,000 California businesses with less than $5 million in taxable annual sales will be allowed to defer up to $50,000 in sales tax and enter into 12-month payment plans at zero interest. These actions will result in delays in the receipt by the City of its portion of the payments. See the captions “FINANCIAL INFORMATION REGARDING THE CITY—Property Taxes” and “FINANCIAL INFORMATION REGARDING THE CITY—Sales Taxes.” Potential impacts to the City associated with the COVID-19 outbreak include, but are not limited to, disruption of the regional and local economy with corresponding decreases in the County’s revenues from property tax, sales tax, transient occupancy tax revenues and investment income, and increased costs of City operations. The City is projecting that the pandemic will cause major impacts on many of its sources of General Fund discretionary revenue in Fiscal Year 2020-21. The pandemic had a negative impact on the City’s discretionary General Fund revenues in the fourth quarter of Fiscal Year 2019-20, to the City projects that higher collections of sales tax, property taxes, franchise fees, other miscellaneous revenues throughout the current Fiscal Year will meet budget projections. In the Fiscal Year 2020-21 the City anticipates a $2.1 million budget deficit due to declined revenues resulting from the pandemic. While the City anticipates reduced general fund revenues from lower property tax collections and general sales taxes, the City’s will use existing reserves and additional sales tax as a result of the passage of a sales tax measure, Measure Z, to meet its obligations and pay for ongoing City services. The City believes that it is well positioned, compared to surrounding cities, and will not need to take any remedial measures, such as employee lay-offs or major service reductions as a result of the nationwide pandemic. See “FINANCIAL INFORMATION REGARDING THE CITY” regarding the City’s budget. 10 The COVID-19 outbreak is ongoing, and the ultimate geographic spread of the virus, the duration and severity of the outbreak, and the ramifications of the economic and other of actions that may be taken by governmental authorities to contain the outbreak or to treat its impact are uncertain. The ultimate impact of COVID-19 on the City’s operations and finances is unknown. As of June 30, 2020, the City estimated that it had incurred costs in an amount of approximately $160,000 related to COVID-19. The City has implemented a COVID-19 Infection Mitigation Plan (“Plan”) to control the spread of the disease in the workplace. The Plan has resulted in a healthy workforce in the City and normal business operations have been able to resume. Costs incurred by the City in connection with COVID-19 are minimal, with expenditures primarily representing additional safety measures within the workplace, acquiring personal protective equipment and installing protective barriers for human to human interaction. Although the City expects to receive reimbursement of certain expenses from the federal government and the State, the amount and timing of such reimbursements is uncertain. The City also has Business Interruption and Loss of Revenue insurance coverage under which losses of revenues at locations listed on its Statement of Values can be reported and assessed for coverage during times of closure or curtailed operations, such as a pandemic. See “RISK FACTORS — Infectious Disease Outbreak” herein. Additionally, PERS has reportedly lost significant value in its investments as a result of declines in the stock market, which could result in a significant increase in the City’s unfunded pension liability and future pension costs starting in Fiscal Year 2022-2023. See “RETIREMENT PLANS” herein. Regardless of the financial challenges caused by COVID-19, the obligations of the City under the Series 2020 Bonds, including the obligation to make all payments of the principal, premium, if any, and interest on, when due, are obligations of the County imposed by law and are absolute and unconditional, without any right of set-off or counterclaim. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2020 BONDS” herein. RETIREMENT PLANS General The City contributes to PERS, an agent multiple-employer public employee defined benefit pension plan for the Miscellaneous Plan and a cost sharing multiple-employer public employee defined benefit pension plan for the Safety Plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State. Benefit provisions and all other requirements are established by State statute and City ordinance. The City also contributes to the Public Agency Retirement System (“PARS”) defined contribution plan and the PARS Retirement Enhancement Plans defined benefit plans (AMMA, Executives, IBEW, and SEIU). These plans are provided and administered by the Public Agency Retirement System Alternate Retirement System Plan. PERS Plans This caption contains certain information relating to PERS. The information is primarily derived from information produced by PERS, its independent accountants and actuaries. The City has not independently verified the information provided by PERS and neither make any representations nor express any opinions as to the accuracy of the information provided by PERS. The comprehensive annual financial reports of PERS are available on its Internet website at www.calpers.ca.gov. The PERS website also contains PERS’ most recent actuarial valuation reports for the City and other information concerning benefits and other matters. Such information is not incorporated by reference herein. The City and the Underwriter cannot guarantee the accuracy of such information. Actuarial assessments are forward looking statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or may be changed in the future. Actuarial assessments will change with the future experience of the pension plans. 11 Plan Descriptions. All qualified permanent and probationary employees are eligible to participate in the Public Agency Cost-Sharing Multiple-Employer Defined Benefit Pension Plan (the “Plan”) administered by PERS.. The Plan consists of individual rate plans (benefit tiers) within a safety risk pool (police and fire) and a miscellaneous risk pool (all other.) Plan assets may be used to pay benefits for any employer rate plan of the safety and miscellaneous risk pools. Accordingly, rate plans within the safety or miscellaneous pools are not separate plans under GASB Statement No. 68 (“GASB 68”). Individual employers may sponsor more than one rate plan in the miscellaneous or safety risk pools. Benefit provisions under the Plan are established by State statute and City ordinance. PERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions, and membership information that can be found on the PERS Internet website. The Miscellaneous Plan consists of two tiers: (i) a 2.5% at 55 Plan for employees hired prior to January 1, 2013; and (ii) a 2.0% at 62 Plan for employees hired January 1, 2013 and after. Participants in the 2.5% at 55 Plan are required to contribute 7.00% of their annual covered salary and participants in the 2.0% at 62 Plan are required to contribute 6.75% of their annual covered salary. As of June 30, 2020 there were 224 employees in the Miscellaneous Plan. The City sponsors three safety rate plans: (i) the Safety Plan, a 3.00% at 50 plan for employees hired prior to October 15, 2012; (ii) a second tier safety plan (the “Second Tier Safety Plan”), a 2.00% at 50 plan for employees hired between October 15, 2012 and December 21, 2013; and (iii) a PEPRA safety plan (the “PEPRA Safety Plan”), a 2.70% at 57 plan for employees hired January 1, 2013 and after. Participants in the Safety Plan and the Second Tier Safety Plan are required to contribute 9.00% of their annual covered salary and participants in the PEPRA Safety Plan are required to contribute 12.25% of their annual covered salary. As of June 30, 2020 there were 30 employees in the Safety Plan, 7 employees in the Second Tier Safety Plan and 19 employees in the PEPRA Safety Plan. Bond proceeds are being used only to make payments with respect to the Miscellaneous Plan and the Safety Plan. Implementation of GASB 68. In June 2012 and November 2013, the Governmental Accounting Standards Board issued GASB 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27 and GASB No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – An Amendment of GASB Statement No. 68, respectively. The primary objective of GASB 68, as amended, is to improve accounting and financial reporting by state and local governments for pensions and improve information provided by state and local governmental employers about financial support for pensions that is provided by other entities. GASB 68, as amended, revised the accounting treatment of defined benefit pension plans, changing the way expenses and liabilities are calculated and how state and local government employers report those expenses and liabilities in their financial statements. Major changes include: (i) the inclusion of unfunded pension liabilities on the government’s balance sheet (previously, such unfunded liabilities were typically included as notes to the government’s financial statements); (ii) pension expense incorporates more rapid recognition of actuarial experience and investment returns and is no longer based on the employer’s actual contribution amounts; (iii) lower actuarial discount rates that are required to be used for underfunded plans in certain cases for purposes of the financial statements; (iv) closed amortization periods for unfunded liabilities that are required to be used for certain purposes of the financial statements; and (v) the difference between expected and actual investment returns to will be recognized over a closed five-year smoothing period. The reporting requirements took effect in Fiscal Year 2014-15. Based on the adoption of the new accounting standards, beginning with the Fiscal Year 2014-15 actuarial valuation, the annual required contribution and the annual pension expense will be different. GASB 68, as amended, changes the reporting and disclosure requirements for financial statement accounting purposes, but it does not change the City’s pension plan funding obligations and, therefore, had no effect on the City’s General Fund. Information shown in this section that has been sourced from a PERS Actuarial Valuation Report has not been prepared in accordance with GASB 68, as amended. For a presentation of additional information that 12 is required by GASB 68, see Note 7 to the financial statements which are attached as Appendix B. The City implemented the provisions of GASB 68 beginning with fiscal year ended June 30, 2015. Benefits Provided. PERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 55 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the California Public Employees’ Retirement Law (“PERL”). The Plan operates under the provisions PERL, the California Public Employees’ Pension Reform Act of 2013 (“PEPRA”), and the regulations, procedures and policies adopted by the PERS Board of Administration (the “PERS Board”). The Plan’s authority to establish and amend the benefit terms are set by PERL and PEPRA, and may be amended by the State legislature and in some cases require approval by the PERS Board. Contributions. Section 20814(c) of PERL requires that the employer contribution rates for all public employers be determined on an actuarial basis, annually and is effective on July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by PERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For governmental activities, the General Fund has typically been used in prior years to liquidate pension liabilities. The table below provides required employer contributions, as determined by the annual actuarial valuation. It does not account for prepayments or benefit changes made during a fiscal year. CITY OF AZUSA PERS CITY CONTRIBUTIONS(1) Miscellaneous Plan Fiscal Year Employer Normal Cost Unfunded Liability Contribution 2017-2018 8.778% $1,761,005 2018-2019 9.035 2,219,396 2019-2020 9.743 2,703,386 2020-2021 10.313 3,021,400 Safety Plan Fiscal Year Employer Normal Cost Unfunded Liability Contribution 2017-2018 23.722% $1,457,900 2018-2019 24.734 1,846,449 2019-2020 26.150 2,276,235 2020-2021 28.188 2,598,806 Second Tier Safety Plan Fiscal Year Employer Normal Cost Unfunded Liability Contribution 2017-2018 21.667% $6 2018-2019 22.643 569 2019-2020 24.087 5,356 2020-2021 26.044 6,124 13 PEPRA Safety Plan Fiscal Year Employer Normal Cost Unfunded Liability Contribution 2017-2018 12.729% $85 2018-2019 12.965 397 2019-2020 13.786 1,190 2020-2021 13.884 2,945 (1) PERS currently produces a combined actuarial report for the Miscellaneous Plan and separate actuarial reports for the Safety Plan, the Second Tier Safety Plan and the PEPRA Safety Plan. Source: PERS Actuarial Reports dated July 2019, as of June 30, 2018. The required employer contributions for Fiscal Year 2020-2021 were determined as part of the June 30, 2018 actuarial valuation using the entry age actuarial cost method. The City’s PERS actuarial reports contain important actuarial information, including a “Projected Employer Contributions” sections that projects the City contributions for the next six years under specified assumptions and “Risk Analysis” sections that model the expected impact of varying investment return scenarios, potential further discount rate changes, the relationship between asset values and contribution rates, and hypothetical termination liability. Funded Status. The table below sets forth the scheduled of funding progress for the Miscellaneous Plan, the Safety Plan, the Second Tier Safety Plan and the PEPRA Safety Plan. CITY OF AZUSA PERS PLANS FUNDED STATUS(1) Miscellaneous Plan Valuation Date Accrued Liability Market Value of Assets Unfunded Liability Funded Ratio Annual Covered Payroll 06/30/2014 $121,141,971 $99,577,008 $21,564,963 82.2% $14,860,116 06/30/2015 126,634,266 99,708,739 26,925,527 78.7 14,626,378 06/30/2016 134,444,677 98,001,788 36,442,889 72.9 14,505,072 06/30/2017 142,411,511 106,549,793 35,861,718 74.8 15,199,521 06/30/2018 155,388,663 113,412,988 41,975,675 73.0 15,429,260 Safety Plan Valuation Date Accrued Liability Shares of Pool’s Market Value of Assets Pool’s Share of Unfunded Liability Funded Ratio Annual Covered Payroll 06/30/2014 $104,810,843 $84,943,083 $19,867,760 81.0% $6,055,741 06/30/2015 109,631,442 84,279,543 25,351,899 76.9 6,006,818 06/30/2016 115,297,554 82,321,255 32,976,299 71.4 5,914,946 06/30/2017 122,479,126 88,900,312 33,578,814 72.6 5,932,229 06/30/2018 131,966,034 93,351,800 38,614,234 70.7 5,304,078 Second Tier Safety Plan Valuation Date Accrued Liability Share of Pool’s Market Value of Assets Pool’s Share of Unfunded Liability Funded Ratio Annual Covered Payroll 06/30/2014 $43,734 $45,925 $(2,191) 105.0% $256,562 06/30/2015 159,391 155,360 4,031 97.5 367,115 06/30/2016 240,319 216,118 24,201 89.9 387,904 06/30/2017 399,343 375,049 24,294 93.9 405,899 06/30/2018 623,672 570,930 52,742 91.5 509,399 14 PERPA Safety Plan Valuation Date Accrued Liability Share of Pool’s Market Value of Assets Pool’s Share of Unfunded Liability Funded Ratio Annual Covered Payroll 06/30/2014 $10,644 $11,096 $(452) 104.2% $64,072 06/30/2015 46,241 43,672 2,569 94.4 156,408 06/30/2016 105,207 94,292 10,915 89.6 356,447 06/30/2017 214,192 202,191 12,001 94.4 850,500 06/30/2018 514,627 472,114 42,513 91.7 1,144,003 (1) PERS currently produces a combined actuarial report for the Miscellaneous Plan and separate actuarial reports for the Safety Plan, the Second Tier Safety Plan and the PEPRA Safety Plan. Source: PERS Actuarial Reports dated July 2019, as of June 30, 2018. For additional information relating to the City’s PERS Plan, see Note 7 to the City’s financial statements set forth in Appendix A. Actions Taken by PERS. At its April 17, 2013, meeting, the PERS Board approved a recommendation to change the PERS amortization and smoothing policies. Prior to this change, PERS employed an amortization and smoothing policy that spread investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-year period. As a result, PERS now employs an amortization and smoothing policy that will pay for all gains and losses over a 20-year period with a five-year ramp-up, and five-year ramp-down, period. The new amortization and smoothing policy was used for the first time in the June 30, 2013 actuarial valuations in setting employer contribution rates for Fiscal Year 2015-16. On February 18, 2014, the PERS Board approved new demographic actuarial assumptions based on a 2013 study of recent experience. The largest impact, applying to all benefit groups, is a new 20-year mortality projection reflecting longer life expectancies and that longevity will continue to increase. Because retirement benefits will be paid out for more years, the cost of those benefits will increase as a result. The PERS Board also assumed earlier retirements for police 3% @ 50, fire 3% @ 55, and miscellaneous 2.7% @ 55 and 3% @ 60, which will increase costs for those groups. As a result of these changes, rates increased beginning in Fiscal Year 2017-18 (based on the June 30, 2014 valuation) with full impact in Fiscal Year 2020-21. On November 18, 2015, the PERS Board adopted a funding risk mitigation policy intended to incrementally lower its discount rate – its assumed rate of investment return – in years of good investment returns, help pay down the pension fund’s unfunded liability, and provide greater predictability and less volatility in contribution rates for employers. The policy establishes a mechanism to reduce the discount rate by a minimum of 0.05 percentage points to a maximum of 0.25 percentage points in years when investment returns outperform the existing discount rate, currently 7.5%, by at least four percentage points. PERS staff modeling anticipates the policy will result in a lowering of the discount rate to 6.5% in about 21 years, improve funding levels gradually over time and cut risk in the pension system by lowering the volatility of investment returns. More information about the funding risk mitigation policy can be accessed through PERS’ website at the following website address: https//www.calpers.ca.gov/page/newsroom/calpers-news/2015/adopts-funding-risk- mitigation-policy. The reference to this Internet website is provided for reference and convenience only. The information contained within the website may not be current, has not been reviewed by the City and is not incorporated in this Official Statement by reference. On December 21, 2016, the PERS Board voted to lower its discount rate from the prior rate of 7.5% to 7.0%, commencing in Fiscal Year 2018-19, according to the following schedule: Fiscal Year Discount Rate 2018-19 7.375% 2019-20 7.250 2020-21 7.000 15 Lowering the discount rate means employers that contract with PERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013, under PEPRA will also see their contribution rates rise. The three-year reduction of the discount rate will result in average employer rate increases of about 1 percent to 3 percent of normal cost as a percent of payroll for most miscellaneous retirement plans, and a 2 percent to 5 percent increase for most safety plans. Additionally, many PERS employers will see a 30 to 40 percent increase in their current unfunded accrued liability payments. These payments are made to amortize unfunded liabilities over 20 years to bring the pension fund to a fully funded status over the long-term. On February 14, 2018, the PERS Board approved modifying the PERS amortization policy for investment gains/losses from 30 years to 20 years and eliminating the 5-year ramp-up/ramp-down policy for all gains/losses except for the ramp-up policy for investment gains/losses. Such policy changes will be reflected in the June 30, 2019 valuation and will be implemented starting with Fiscal Year 2021-22 contributions. Such policy applies only to prospective accumulation of amortization and will not affect current accrued unfunded liabilities. Shortening the amortization period will increase employer contributions and help pay down the pension fund’s unfunded liability faster, which may result in interest cost savings. PARS Retirement Enhancement Plans Plan Descriptions. The plans provide pension benefits to 116 eligible covered positions in International Brotherhood of Electrical Workers (IBEW), Service Employees International Union Local 721 (SEIU), Azusa Middle Management Association (AMMA), and Executive Management. The plans are administered by Phase II Systems, PARS Trust Administration. PARS is a 401(a) tax-qualified agent multiple-employer defined benefit plan made up of State governmental agencies. PARS acts as a common investment and administrative agent for participating public entities within the State. Benefits Provided. The PARS retirement enhancement plans’ provisions and benefits in effect at June 30, 2019 are summarized in the following table: AMMA Executive IBEW SEIU July 1, 2007 July 1, 2006 July 1, 2006 July 1, 2006 Hire date and after and after and after and after Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payment Monthly for life Monthly for life Monthly for life Monthly for life Retirement age 55 55 55 55 Monthly benefits, as a % of annual salary 0.50% 0.50% 0.50% 0.50% Required employee contribution rates 2.50% 0.00% 2.00% 4.00% Required employer contribution rates 9.97% 14.00% 5.44% 3.72% Source: City of Azusa Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019. As of June 30, 2019, the employees were covered by the PARS retirement enhancement plans are show in the following table: AMMA Executive IBEW SEIU Inactive employees or beneficiaries currently receiving benefits 6 5 15 2 Inactive employees entitled to but not yet receiving benefits 7 3 14 6 Active employees 20 4 42 9 Total 33 12 71 17 Source: City of Azusa Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019. 16 Contributions. Section 20814(c) of PERL requires that the employer contribution rates for all public employers be determined on an actuarial basis, annually and is effective on July 1 following notice of a change in the rate. The total plan contributions are determined by an independent pension actuary using information furnished by the City and by PARS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended. For the measurement period ended June 30, 2019 (the measurement date), the employer and employee contributions rates were as follows: AMMA Executive IBEW SEIU Employer contribution rate 9.97% 14.00% 5.44% 3.72% Employee contribution rate 2.50% 0.00% 2.00% 4.00% For governmental activities, the General Fund has typically been used in prior years to liquidate pension liabilities. The City’s net pension liabilities for the PARS retirement enhancement plans are measured as the total pension liability, less the pension plan's fiduciary net position. A summary of principal assumptions and methods used to determine the net pension liability is shown below. AMMA Executive IBEW SEIU Valuation Date June 30, 2017 June 30, 2017 June 30, 2017 June 30, 2017 Measurement Date June 30, 2018 June 30, 2018 June 30, 2018 June 30, 2018 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 6.50% 6.50% 6.50% 6.50% Inflation 2.75% 2.75% 2.75% 2.75% Salary Increases Varies by Entry Age and Service Investment Rate of Return 6.50% 6.50% 6.50% 6.50% Mortality (1) Derived using CalPERS' Membership Data for all Funds Post Retirement Benefit Increase 2.75% 2.75% 2.75% 2.75 Source: City of Azusa Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019. The City’s PERS actuarial reports contain important actuarial information, including a “Projected Employer Contributions” sections that projects the City contributions for the next six years under specified assumptions and “Risk Analysis” sections that model the expected impact of varying investment return scenarios, potential further discount rate changes, the relationship between asset values and contribution rates, and hypothetical termination liability. 17 Net Pension Liability. The changes in the net pension liabilities for the PARS retirement enhancement plans are shown in the following tables. AMMA Plan: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Balance at June 30, 2017 $3,519,223 $2,454,277 $1,064,946 Changes in the year: Service cost 120,352 - 120,352 Interest on the total pension liability 233,644 - 233,644 Changes in assumptions 204,190 - 204,190 Economic/demographic gains or losses (191,660) - (191,660) Contribution - employer - 205,227 (205,227) Contribution - employee - 49,912 (49,912) Net investment income - 182,437 (182,437) Administrative expenses - (8,933) 8,933 Benefit payments , including refunds of employee contributions (91,529) (91,529) - Net changes 274,997 337,114 (62,117) Balance at June 30, 2018 $3,794,220 2,791,391 1,002,829 Source: City of Azusa Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019. Executive Plan: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Balance at June 30, 2017 $3,079,117 $1,042,965 $2,036,152 Changes in the year: Interest on the total pension liability 194,748 - 194,748 Changes in assumptions 177,244 - 177,244 Economic/demographic gains or losses (131,702) (131,702) Contribution - employer - 110,296 (110,296) Net investment income - 75,114 (75,114) Administrative expenses - (5,416) 5,416 Benefit payments , including refunds of employee contributions (168,659) (168,659) - Net changes 71,631 11,335 60,296 Balance at June 30, 2018 $3,150,748 $1,054,300 $2,096,448 Source: City of Azusa Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019. 18 IBEW Plan: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Balance at June 30, 2017 $3,364,706 $2,215,961 $1,148,745 Changes in the year: Service cost 95,631 - 95,631 Interest on the total pension liability 220,449 - 220,449 Changes in assumptions 219,186 - 219,186 Economic/demographic gains or losses (18,551) - (18,551) Contribution - employer - 199,529 (199,529) Contribution - employee - 72,702 (72,702) Net investment income - 163,582 (163,582) Administrative expenses - (8,682) 8,682 Benefit payments , including refunds of employee contributions (139,841) (139,841) - Net changes 376,874 287,290 89,584 Balance at June 30, 2018 $3,741,580 $2,503,251 $1,238,329 Source: City of Azusa Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019. SEIU Plan: Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Balance at June 30, 2017 $610,072 $394,594 $215,478 Changes in the year: Service cost 20,390 - 20,390 Interest on the total pension liability 40,393 - 40,393 Changes in assumptions 34,766 - 34,766 Economic/demographic gains or losses (60,298) - (60,298) Contribution - employer - 26,688 (26,688) Contribution - employee - 28,696 (28,696) Net investment income - 29,408 (29,408) Administrative expenses - (2,193) 2,193 Benefit payments , including refunds of employee contributions (18,354) (18,354) - Net changes 16,897 64,245 (47,348) Balance at June 30, 2018 $626,969 $458,839 $168,130 Source: City of Azusa Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019. For additional information on the PARS retirement enhancement plan, please see Note 7 to the City’s financial statements in Appendix B hereto. PARS Defined Contribution Plan The City contributes to PARS, a defined contribution pension plan provided and administered by the Public Agency Retirement System Alternate Retirement System Plan. Employees of the City not otherwise eligible to participate in PERS or eligible to opt not to participate in PERS, are eligible for participation in this plan. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. Federal legislation requires contribution of at least 7.5% to a retirement plan. The plan is established 19 by City ordinance. For the year ended June 30, 2019, the covered payroll for employees in the plan was $8,519,028. Total payroll for the City was $32,352,877. Under an adoption agreement dated January 1, 1992, both the employer and the employee are required to contribute 3.75% of each participant's compensation. For the year ended June 30, 2019, the employer and the employees each contributed an amount equal to $673,943. Under this plan, normal retirement age is 60 years of age. Plan assets are primarily invested in money market funds. Other Post-Employment Benefits The City administers a single-employer defined-benefit post-employment healthcare plan. Participants are eligible for benefits upon service or disability retirement. Benefits vary by hire date and employment status and benefits continue to surviving spouses. Benefits are dependent on bargaining unit and hire date. Participants may receive up to 100% of the monthly single premium (ACEA, CAPP, SEIU, IBEW, APOA with 20 years of service) or 100% of the monthly dual premium (Executives, APMA with 20 years of service). Participants between 10 to 20 years of service may receive between 50% to 75% of the monthly single premium. Percentages vary by bargaining unit. Participants not meeting the above requirements who remain enrolled in a City retirement plan receive Public Employees’ Medical and Hospital Care Act (“PEMHCA”) coverage. This coverage requires the employee to satisfy the requirements for retirement under CalPERS: either (a) attainment of age 50 (age 52, if a miscellaneous employee new to CalPERS on or after January 1, 2013) with 5 years of State or public agency service or (b) an approved disability retirement. As a PEMHCA employer, the City is obligated to contribute toward the cost of retiree medical coverage for the retiree’s lifetime or until coverage is discontinued. The City maintains a resolution with PERS defining the level of the City’s contribution toward the cost of medical plan premiums for employees and retirees to be the PEMHCA minimum employer contribution (“MEC”). The MEC is $139 per month in 2020. A separate financial report is not prepared for the PEMHCA Plan. As of June 30, 2020, 120 active employees and 29 inactive employees received benefits under the PEMHCA Plan. To mitigate future costs, the City has established a health reimbursement arrangement (“HRA”) for its executive staff and six (6) of seven (7) of the City’s bargaining groups to replace the lifetime medical benefit. The City hast to negotiate with the remaining one (1) bargaining group to implement this medical benefit alternative to all new employees. Implementation of the HRA for most of the groups took effect after Fiscal Year 2018-19. The City is currently in negotiations with the remaining bargaining group which is not on the HRA program, and expects to implement the program with this group by the end of 2020. Funding Policy. The contribution requirements of plan members and the City are established and may be amended by the City, City Council, and/or employee associations. Currently, contributions are not required from plan members. The City pays benefits as they come due. Implementation of GASB Statement No. 75. For the Fiscal Year ended June 30, 2018, the City implemented GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (“GASB 75”), which is effective for periods beginning after June 15, 2017. The primary objective of GASB 75 is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions and improve information provided by state and local governmental employers about financial support for other post-employment benefits (“OPEB”) that is provided by other entities. Net OPEB Liability. The City’s net OPEB liability is measured as the total OPEB liability, less the plan’s fiduciary net position. In accordance with GASB 75, the City is required to measure and report liabilities associated with OPEB. The City’s net OPEB liability was measured as of June 30, 2019 and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation dated June 30, 2018. Actuarial assumptions regarding the City’s OPEB liability are shown in Note 8 of the City’s financial statements attached as Appendix B. 20 The City is currently funding its OPEB liability on a pay-as-you-go basis. As of June 30, 2019, the outstanding balance was $48,507,422. The General Fund will be used to liquidate this liability. The following table provides changes in the net OPEB liability. Total OPEB Liability Balance at June 30, 2018 $41,175,085 Changes in the year: Service cost 1,809,103 Interest on the total OPEB liability 1,485,140 Differences between actual and expected experience 1,960,757 Changes in assumptions 3,180,597 Benefit payments, including refunds of employee contributions (1,103,260) Net changes 7,332,337 Balance at June 30, 2019 $48,507,422 Source: City of Azusa Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019. FINANCIAL INFORMATION REGARDING THE CITY The following selected financial information provides a limited overview of the City’s financial condition. The financial information below has been extracted from the report for fiscal year ended June 30, 2019 and, in some cases, from unaudited information provided by the City. The audited financial statements of the City for the fiscal year ended June 30, 2019, with an unqualified auditor’s opinion, are set forth in Appendix B hereto. See “APPENDIX B – CITY OF AZUSA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2019.” Accounting Policies and Financial Reporting The City maintains its accounting records in accordance with Generally Accepted Accounting Principles (“GAAP”) as promulgated by the Governmental Accounting Standards Board (“GASB”). The City’s accounting records are organized and operated on a “fund” basis, which is the basic fiscal and accounting unit in governmental accounting. The operations of the different funds are accounted for with separate sets of self- balancing accounts showing assets, liabilities, fund balance or equity, and revenues and expenses. The accounts of the City are organized on the basis of funds, including the City’s general fund (the “General Fund”) each of which is considered a separate accounting entity with its own self-balancing set of accounts that comprise its assets, deferred outflows of resources, liabilities, fund equity, revenues and expenditures or expenses. These funds are established for the purpose of carrying out specific activities or certain objectives in accordance with specific regulations, restrictions or limitations. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. All governmental funds are accounted for on a spending or “current financial resources” measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the balance sheets. The Statement of Revenues, Expenditures and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considered revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgements, are recorded only when payment is due. 21 Property taxes, franchise fees, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measureable and available only when cash is received by the government. The City has adopted a comprehensive set of financial policies and/or ordinances. The City requires the adoption of a balanced annual operating budget (i.e., estimated revenues equal to or in excess of appropriations). In addition, budget amendments of $100,000 or more must be approved by City Council; this is the legal level of budgetary control. A five-year capital improvement project program is adopted each budget year and projects are maintained by project life. Therefore, the budget appropriation for these projects may need to be re- budgeted in subsequent accounting periods. Various other policies have been adopted related to debt, interfund loans, internal controls, and fiscal sustainability to guide the City to continued financial health. Budgetary Process The City’s annual budget is an important policy document and serves as an annual financial plan, identifying the spending priorities for the City. The budget is used to balance available resources with community needs, as determined by the City Council and serves as a tool for communicating the City’s financial strategies and ensuring accountability. The operating budget is a plan for one specified fiscal year, which begins on July 1 and ends on June 30. The City’s budget policy requires a balanced budget, meaning expenditures should not exceed revenues. In addition to a budget policy, the City has a general fund reserve policy (the “Reserve Policy”) which is used as a benchmark tool to assess financial performance. In June 2018, the City expanded its 15% reserve policy, by adding three new designated reserve categories to internally restricted funds in order to address some of its long- term financial liabilities and potential areas of financial exposure, such as claims expenses, aging infrastructure, and rising retiree benefits. The City began Fiscal Year 2019-20 with an $18.0 million reserve balance, and therefore, is able to cover the projected $1.9 million projected general fund deficit with its unrestricted reserves. Although the COVID-19 pandemic impacted Fiscal Year 2019-20 fourth quarter revenues, the City anticipates actual year-end results to meet the Revised Budget due to higher than expected revenue collections throughout the year across various revenue categories. Each budget year, the City Council reaffirms or updates the reserve policy given current financial forecasts. For the 2020-21 budget year, the City increased its Fiscal Year 2019-20 $10.6 million designated reserve target to $14.8 million as follows: 1) Budget Stabilization and Catastrophic Event (from 15% to 20% of budget or $9.8 million) 2) Capital and Infrastructure Replacement ($1.5 million) 3) Insurance (from $1.0 million to $1.5 million) 4) Retiree Benefits (from $1.5 million to $2.0 million) The City Council adopted the budget for Fiscal Year 2020-21 on June 15, 2020. Due to anticipated impacts surrounding the COVID-19 pandemic, the General Fund budget for Fiscal Year 2020-21 forecasts a $2.1 million deficit, with projected revenues of $46.7 million being lower than projected expenditures of $48.8 million. The City’s general policy is balance the budget each fiscal year, however the proposed budget assumes reduced revenues resulting from the COVID-19 pandemic and projects Fiscal Year 2019-20 ending reserve levels being above the current General Fund Reserve Policy. The City has budgeted prudently and Azusa residents have supported the City with the adoption of sales tax Measure Z. The City believes that it is well positioned financially, compared to surrounding cities, and will not need to undertake measures to reduce staff or major services, in light of the economic impacts brought on by the nationwide pandemic. Although, it is still early to fully assess the financial impacts to the City resulting from the pandemic, the City adopted the Fiscal Year 2020-21 budget, which reflects normal operations other than the areas impacted by federal, state, and local mandates resulting from the COVID-19 pandemic. 22 The table below sets forth the following with respect to the City’s general fund: (i) the original adopted budget for Fiscal Year 2017-18 through 2020-21, (ii) the audited actuals for Fiscal Year 2017-18 and Fiscal Year 2018-19, and (iii) the Fiscal Year 2019-20 revised budget. TABLE 1 CITY OF AZUSA GENERAL FUND BUDGETS Original Adopted Fiscal Year 2017-18 Budget Fiscal Year 2017-18 Audited Actuals Original Adopted Fiscal Year 2018-19 Budget Fiscal Year 2018-19 Audited Actuals Fiscal Year 2019-20 Revised Budget Fiscal Year 2019-20 Projected Actuals Original Adopted Fiscal Year 2020-21 Budget Revenue: Taxes $31,498,416 $32,657,297 $32,799,705 $34,631,046 $30,477,866 $30,951,816 $32,965,839 Charges for Services 1,631,250 1,875,700 1,727,380 2,208,233 4,565,556 3,370,164 4,498,305 Assessments 1,924,810 2,232,012 2,580,154 2,612,037 2,546,110 2,573,730 2,598,670 Other Revenue 5,626,850 3,879,825 5,914,150 5,479,696 5,533,838 5,003,197 5,041,466 Total Revenue $40,681,326 $40,644,834 $43,021,389 $44,931,012 $43,123,370 $41,898,907 $45,104,280 Expenditures: Operations $33,073,083 $36,336,279 $33,992,109 $33,137,278 $38,325,762 $36,859,058 $39,810,604 Capital Outlay 189,608 882,429 253,912 882,429 1,245,792 1,245,792 1,023,863 Debt Service 1,254,035 1,359,110 609,629 1,359,110 363,696 363,691 868,215 Total Expenditures $34,516,726 $38,577,818 $34,855,650 $35,378,817 $39,935,250 $38,468,541 $41,702,682 Excess/(Deficiency) of Revenues Over (Under) Expenditures 6,164,600 2,067,016 8,165,739 9,552,195 3,188,120 3,430,366 3,401,598 Other Financing Sources/(Uses): Transfers In 1,563,990 1,563,996 1,412,340 1,412,340 1,497,450 1,497,450 1,548,096 Transfers Out 6,272,282 6,272,064 7,567,632 6,061,280 6,602,962 6,602,967 7,048,906 Total Other Financing Sources/(Uses) (5,063,292) (4,708,068) (6,155,292) (4,648,940) (5,105,512) (5,105,517) (5,500,810) Net Change in Fund Balance $1,101,308 $(2,641,052) $2,010,447 $4,903,255 $(1,917,392) $(1,675,151) $(2,099,212) Source: City of Azusa. 23 Comparative Change in Fund Balance of the City’s General Fund The table below presents the City’s audited General Fund Statement of Revenues, Expenditures and Change in Fund Balance for Fiscal Years 2014-15 through 2018-19. TABLE 2 CITY OF AZUSA STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES GENERAL FUND AS OF JUNE 30 2015 2016 2107 2018 2019 Revenues: Taxes $29,245,228 $29,983,620 $32,293,121 $32,657,297 $34,631,046 Assessments 1,299,713 1,875,271 1,941,549 2,232,012 2,612,037 Licenses and permits 1,600,109 1,096,325 1,107,350 1,112,986 1,122,397 Intergovernmental 728,188 496,497 326,990 400,965 485,583 Charges for Services 2,438,210 2,435,877 1,806,403 1,875,700 2,208,233 Use of money and property 291,173 361,500 704,737 (74,878) 1,381,701 Fines and forfeitures 1,343,809 1,328,383 1,068,510 1,124,080 1,447,695 Contributions 10,798,039 19,703 2,936 8,721 4,940 Miscellaneous 293,383 1,641,391 1,507,462 111,024 1,037,380 Total Revenues $48,037,852 $39,238,567 $40,759,058 $39,447,907 $44,931,012 Expenditures: Current: General government $ 6,377,078 $ 7,248,290 $ 9,051,646 $ 9,311,096 $ 8,270,987 Public safety 17,228,141 17,732,585 17,545,591 20,557,725 19,533,543 Community development 1,479,675 1,674,631 1,834,905 1,974,955 2,025,482 Parks and recreation 3,036,100 3,453,112 3,496,630 3,713,960 3,684,498 Public Works 588,268 695,728 807,170 778,547 1,029,763 Capital outlay 109,777 496,083 682,841 882,429 695,997 Debt Service: Principal retirement 11,905,286 965,000 1,065,000 1,214,111 39,393 Interest and fiscal charges 266,247 235,076 183,800 144,999 99,153 Total Expenditures $40,990,572 $32,500,505 $34,667,583 $38,577,822 $35,378,816 Excess (Deficiency of Revenues Over (Under) Expenditures $ 7,047,280 $ 6,738,062 $ 6,091,475 $ 870,085 $ 9,552,196 Other Financing Sources (Uses): Capital lease financing - - - 162,000 - Transfers in 1,604,547 1,413,515 1,530,690 1,563,996 1,412,340 Transfers out (5,245,046) (5,022,435) (5,780,533) (6,272,065) (6,061,280) Proceeds from sale of capital assets - - 4,307 1,034,927 - Debt issued - - - - - Bond premium - - - - - Total Other Financing Sources (Uses) (3,640,499) (3,608,920) (4,245,536) (3,511,142) (4,648,940) Extraordinary Loss (4,113,065) - - - - Net Change in Fund Balances (706,284) 3,129,142 1,845,939 (2,641,057) 4,903,256 Fund Balances, Beginning of Year, as previously reported 20,417,948 19,547,182 - - - Restatements (164,482) 476,855 - - - Fund Balances, Beginning of Year, as restated 20,253,466 20,024,037 23,217,966 25,063,905 22,448,059 Fund Balances, End of Year $19,547,182 $23,153,179 $25,063,905 $22,422,848 $27,351,315 _______________________ Source: City of Azusa; Comprehensive Annual Financial Reports (Fiscal Year 2014-5 through 2018-19). 24 Comparative General Fund Balance Sheets of the City The table below presents the City’s audited General Fund Balance Sheets for Fiscal Years 2014-15 through 2018-19. TABLE 3 CITY OF AZUSA GENERAL FUND BALANCE SHEETS AS OF JUNE 30 2015 2016 2017 2018 2019 ASSETS Pooled cash and investments $ 4,4042,960 $ 6,697,068 $ 12,588,823 $ 9,843,848 $18,946,376 Receivables: Accounts 583,301 408,050 947,720 847,261 458,809 Taxes 1,625,514 2,578,727 2,280,098 2,170,357 2,569,364 Notes and loans 2,154 4,525 7,275 3,267 3,267 Accrued interest 4,458 98,435 67,200 55,968 186,116 Prepaid costs 7,430 37,860 58,313 80,741 111,823 Due from other funds 7,324 16 603,611 794,983 957,127 Inventories 124,568 142,606 145,178 150,316 145,469 Land held for resale 7,384,436 7,384,436 5,226,735 5,226,735 2,002,867 Restricted assets: Cash and investments 2,278,216 2,300,762 - - - Cash and investments with fiscal agents 104,207 72,849 38,239 - - Advances to Successor Agencies 9,276,337 9,750,019 9,201,622 8,786,732 7,079,178 Total Assets $25,440,905 $29,475,353 $31,164,814 $27,960,208 $32,460,396 Liabilities, Deferred Inflows of Resources, and Fund Balances: Liabilities: Accounts payable $ 510,575 $ 565,994 $ 391,523 $ 456,899 $ 624,571 Accrued liabilities 1,195,718 1,535,793 1,510,465 1,431,847 1,386,870 Unearned revenues - 30,000 - 7,987 7,987 Deposits payable - - 10,000 - 7,500 Due to other governments 3 10,573 3,767 3,852 - Due to other funds - - - - - Advances from other funds 4,187,427 4,179,814 4,185,154 3,636,775 3,082,153 Total Liabilities $ 5,893,723 $ 6,322,174 $ 6,100,909 $ 5,537,360 $ 5,109,081 Deferred Inflows of Resources: Unavailable revenues - - - - - Total Deferred Inflows of Resources - - - - - Fund Balances: Nonspendable: Inventories $ 124,568 $ 142,606 $ 145,178 $ 150,316 $ 145,469 Prepaid costs 7,430 37,860 58,313 80,741 111,823 Land held for resale 7,384,436 7,384,436 5,226,735 5,226,735 2,002,867 Notes and loans 2,154 4,525 7,275 3,267 3,267 Advances to Successor Agency 9,276,337 9,750,019 9,201,622 8,786,732 7,079,178 Deposits - - - - - Restricted for: Community development projects - - - - - Public safety - - - - - Capital projects - - - - - Debt services - - - - - Unassigned 2,752,257 5,833,733 10,424,782 8,175,057 18,008,711 Total Fund Balances $19,547,182 $23,153,179 $25,063,905 $22,422,848 $27,351,315 Total Liabilities, Deferred Inflows of Resources, and Fund Balances $25,440,905 $29,475,353 $31,164,814 $27,960,208 $32,460,396 _______________________ Source: City of Azusa; Comprehensive Annual Financial Reports (Fiscal Year 2014-15 through 2018-19). 25 Current Financial Condition of the City In spite of the anticipated revenue shortfalls in Fiscal Year 2020-21 due to the COVID-19 pandemic, the City anticipates surpluses beginning in Fiscal Year 2021-22 even in light of expected PERS cost increases from lower than expected market returns. Below is 5-Year Budget Forecast and Reserves Analysis of the General Fund. TABLE 4 CITY OF AZUSA BUDGET FORECAST AND RESERVES ANALYSIS OF THE GENERAL FUND The City implemented policies of prudent spending, maintaining public services to the Community, implementing contract/franchise agreement changes, and passing Measure Z. As a result the City projects General Fund reserve balances to exceed the recommended reserve targets by $56K to $2.7M annually over the next five years. While the current Fiscal Year 2020-21 budget forecasts a deficit of $2.1 million, current reserve levels are sufficient to cover the projected shortfall, and the sales tax Measure Z approved by the City and the Azusa residents are expected to be sufficient for future year cost increases. Major Revenue Sources General. Taxes received by the City include property taxes, sales taxes, franchise fees, transient occupancy taxes and business licenses taxes. Of such taxes, Property Taxes and Sales Taxes constitute the major sources of revenues. Certain general taxes imposed by the City may be affected by a September 28, 1995, California Supreme Court decision upholding Proposition 62 (the ”Guardian Decision”) or Proposition 218, which was approved by the California voters at the November 1996 General Election. See ”CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Proposition 62 and Proposition 218.” The following table sets forth tax revenues received by the City, by source, for Fiscal Years 2015-16 through 2018-19. Actual FY 18-19 REVISED FY 19-20 ESTIMATED FY 20-21 ESTIMATED FY 21-22 ESTIMATED FY 22-23 ESTIMATED FY 23-24 ESTIMATED FY 24-25 Total Revenues 45,868,488 44,620,820 46,652,376 49,653,801 50,292,839 50,936,393 51,397,007 Total Expenses 40,696,625 46,538,212 48,751,588 47,312,594 49,851,219 50,827,913 51,313,854 Operating Surplus or (Deficit)5,171,863$ (1,917,392)$ (2,099,212)$ 2,341,207$ 441,620$ 108,480$ 83,153$ Revised Operating Surplus or (Deficit)5,171,863$ (1,917,392)$ (2,099,212)$ 2,341,207$ 441,620$ 108,480$ 83,153$ Beginning Available Reserves Balance 9,843,848 18,008,711 16,905,937 14,806,725 17,147,932 17,589,552 17,698,032 Ending Available Reserves Balance 18,008,711 16,905,937 14,806,725 17,147,932 17,589,552 17,698,032 17,781,185 Reserves Target 10,265,725 10,230,732 14,750,318 14,462,519 14,970,244 15,165,583 15,262,771 Above/(Below) Reserves Target 7,742,986$ 6,675,205$ 56,407$ 2,685,413$ 2,619,308$ 2,532,450$ 2,518,415$ 26 TABLE 5 CITY OF AZUSA TAX AND FEE REVENUES BY SOURCE 2015 2016 2017 2018 2019 Taxes and fees: Property taxes, general purpose $8,531,515 $9,134,084 $10,719,463 $11,122,669 $11,722,603 Transient occupancy taxes 261,815 347,965 366,579 719,318 869,899 Sales tax 7,530,257 8,001,941 5,516,848 5,665,876 6,316,359 Franchise fees 7,328,977 7,575,506 6,893,264 6,747,947 7,082,356 Business licenses taxes 2,008,916 1,995,000 2,238,439 2,208,309 2,065,327 Utility users tax 3,594,092 3,266,383 3,329,293 3,032,095 3,255,562 Other taxes and fees 2,058,967 1,851,142 1,702,902 1,602,546 1,556,157 Total Tax Revenue $31,314,539 $32,172,021 $30,766,788 $31,098,760 $32,868,263 Source: City of Azusa. Property Taxes. Property tax receipts of $11,722,603 provided the largest revenue source to the City in Fiscal Year 2018-19, contributing approximately 26.1% of General Fund revenue during Fiscal Year 2018-19. Property in the State which is subject to ad valorem taxes is classified as “secured” or “unsecured.” Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the County becomes a lien on that property sufficient, in the opinion of the County assessor, to secure payment of the taxes. Every tax which becomes a lien on secured property has priority over other liens (except certain federal claims) on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against the taxes on unsecured property, but may become a lien on certain other property owned by the taxpayer. Property taxes on the secured roll are due in two installments, on November 1 and February 1. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. If such taxes remain unpaid as of June 30 of the Fiscal Year in which the taxes are levied, the property securing the taxes may only be redeemed by a payment of the delinquent taxes and the delinquency penalty, plus costs and a redemption penalty of one and one-half percent (1.5%) per month from the original June 30th date to the time of redemption. If taxes are unpaid for a period of five years or more, the tax- defaulted properties are thereafter subject to sale by the county tax collector as provided by law. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent if unpaid by August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of one and one-half percent (1.5%) per month begins to accrue on November 1. A county has four methods of collecting unsecured personal property taxes: (1) filing a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and securing the sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Legislation enacted in 1984 (Section 25 et seq. of the Revenue and Taxation Code of the State), provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new assessment for up to 14 months. Collection of taxes based on supplemental assessments occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated January 1 through May 31, which are calculated on the basis of the remainder of the current fiscal year and the full 12 months of the next fiscal year. 27 Should real property in the City decline in market value, Proposition 8 allows for reassessment procedures under which the County assessor is obligated to review the property and enroll the lesser of the factored based year value or the market value. The factored base year value of real property is the market value as established in 1975 or as established when the property last changed ownership or when the property was newly constructed. The assessed value of property that has been reassessed under Proposition 8 may increase more than the standard 2% maximum allowed for properties assessed under Proposition 13 up to its factored Proposition 13 base year value. See “RISK FACTORS – Assessed Value of Taxable Property” for a discussion on Proposition 8 and its impact on assessed value of property. From time to time legislation has been considered as part of the State budget to shift property tax revenues from cities, counties and certain special districts to school and community college districts. There can be no assurance that the property tax revenues the City currently expects to receive will not be reduced pursuant to State legislation enacted in the future. If the property tax formula is permanently changed in the future, it could have a material adverse effect on the receipt of property tax revenue by the City. See “RISK FACTORS – Property Tax Allocation by the State” herein and “ – State Budget Information” below. Over the past 9 years the City’s assessed valuation has grown steadily, with a 7.8% growth from Fiscal Year 2018-19 to Fiscal Year 2019-20. The table below sets forth the secured and unsecured assessed valuations for property in the City for the ten most recent Fiscal Years. TABLE 6 CITY OF AZUSA ASSESSED VALUATION FISCAL YEAR 2010-11 THROUGH 2019-20 Local Secured Utility Unsecured Total 2010-11 $3,070,216,517 $265,344 $178,200,831 $3,248,682,692 2011-12 3,011,685,790 136,844 186,653,519 3,198,476,153 2012-13 3,049,173,971 136,844 192,937,613 3,242,248,428 2013-14 3,234,499,530 10,525 194,557,569 3,429,067,624 2014-15 3,478,293,798 10,525 201,955,351 3,680,259,674 2015-16 3,751,114,320 15,035 222,371,074 3,973,500,429 2016-17 4,014,665,580 15,035 212,595,088 4,227,275,703 2017-18 4,283,816,622 15,035 227,088,915 4,510,920,572 2018-19 4,592,980,014 15,035 217,643,534 4,810,638,583 2019-20 4,962,714,278 15,035 223,243,068 5,185,972,381 Source: California Municipal Statistics, Inc. 28 The table below sets forth property tax collections and delinquencies in the City as of June 30 for Fiscal Year 2009-10 through Fiscal Year 2018-19. TABLE 7 CITY OF AZUSA PROPERTY TAX LEVIES AND COLLECTIONS FISCAL YEAR 2009-10 THROUGH 2018-19 Fiscal Year Total Tax Levy Tax Collections as of June 30 of Year of Levy Percent of Levy Collected 2010 $3,815,354 $3,622,701 95.0% 2011 3,492,186 3,261,283 93.4 2012 3,447,405 3,192,697 92.6 2013 3,506,941 3,404,604 97.1 2014 3,743,370 3,632,433 97.0 2015 4,006,854 3,891,541 97.1 2016 4,503,235 4,399,245 97.7 2017 4,465,379 4,408,195 98.7 2018 4,980,719 4,900,774 98.4 2019 5,209,129 5,141,739 98.7 Source: City of Azusa. The ten largest property taxpayers in the City, assessed valuation and percentage of the City’s total taxable assessed value is shown in the table below. TABLE 8 CITY OF AZUSA TOP TEN PRINCIPAL PROPERTY TAXPAYERS Property Owner Fiscal Year 2018-19 Assessed Valuation % of Total (1) 1. Northrop Grumman Systems Corporation $101,268,664 2.11% 2. Citrus Crossing Properties Fee 40,587,752 0.84 3. Target Corporation 35,026,562 0.73 4. PPF Industrial 823 8th Street 34,932,271 0.73 5. 10th Street XC LLC 30,189,192 0.63 6. Rainbird Corporation 28,968,455 0.60 7. Azusa Pacific University 22,868,369 0.48 8. Costco Wholesale Corporation 22,588,108 0.47 9. VPM Soldano Senior Village LP 21,690,272 0.45 10. Azusa Land Reclamation Inc. 21,199,321 0.44 (1) Fiscal Year 2018-19 Local Secured Assessed Valuation: $4,592,980,014. Source: City of Azusa. Franchise Fees. . Franchise fees are charged to businesses that are granted franchises to serve the City. Franchise fee collections of $7,082,356 provided the second largest revenue source to the City in Fiscal Year 2018-19, contributing approximately 15.8% of revenue during Fiscal Year 2018-19. Collection of franchise fees is a steady revenue source for the City. The largest portion of franchise fees come from the City’s own Electric and Water utilities, in which per adopted Resolutions the City collects 2% of gross retail sales from both utilities and 8% in payment in lieu of taxes from the Electric Utility. The second largest collection of franchise fees comes from a local landfill. Additional sources are from Cable TV and gas utility sales and a City designated towing company. 29 Sales Taxes. Sales tax receipts of $6,316,359 provided the third largest revenue source to the City in Fiscal Year 2018-19, contributing approximately 14.1% of revenue during Fiscal Year 2018-19. The sales tax is an excise tax imposed on retailers for the privilege of selling or leasing tangible personal property. The Statewide tax rate is 7.25% and through June 30, 2020, the sales tax rate in Azusa was 9.5%. On March 3, 2020, voters within the City approved Measure Z, authorizing a 0.75% increase in the sales tax rate within the City, increasing the total rate to 10.25% in the City. In connection with the Measure Z ballot, the City estimated that Measure Z could generate approximately $4,500,000 annually for the General Fund. Revenues generated through Measure Z are not earmarked for a specific purpose, rather are for unrestricted general revenue purposes, such as police, fire and emergency response, youth and senior programs, programs to address homelessness, and parks and library programs. The tax became operative on July 1, 2020 and will remain in effect until repealed by City voters voting at a subsequent election. Measure Z revenues are accounted for in the City’s Fiscal Year 2020-21 adopted budget. The California Department of Tax and Fee Administration (“CDTFA”) administers collection of the sales and use tax. Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the CDTFA’s quarterly projection. During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter. The CDTFA receives an administrative fee based on the cost of services provided by the Board to the City in administering the City’s sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City. Other Taxes. The City collects a business license tax, which is a general tax on businesses required in order to conduct their operations within the City. Business licenses tax receipts of $2,065,327 contributed approximately 4.6% of revenue during Fiscal Year 2018-19. The City also collects a 10% transient occupancy tax on hotel and motel bills, and short-term vacation rentals. Transient occupancy tax receipts of $869,899 contributed approximately 1.9% of revenue during Fiscal Year 2018-19. Investment of City Funds As a general law city, the City operates its pooled idle cash investments under the Prudent Man Rule (California Civil Code Section 2261, et. seq.), which in essence states that “in investing property for the benefit of another, a trustee shall exercise the judgment and care, under circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs...”. The City’s cash management system is designed to monitor and forecast expenditures and revenues as accurately as possible and to invest funds to the fullest extent possible. The City attempts to obtain the highest available investment yields consistent with the criteria established and outlined in the City’s investment policy (the “Investment Policy”. The Investment Policy is prepared in accordance with Section 53601 of the State Government Code. Some of the instruments in which the City may invest under the Investment Policy are: U.S. Government Securities, Certificates of Deposit, Bankers’ Acceptances, the State of California Local Agency Investment Fund (LAIF), Treasury Bills, Repurchase Agreements, and regular savings and demand deposits. The City’s total investments in Federal Agencies, Corp Bonds, WFB Institutional Trusts and LAIF as of May 31, 2020 are noted in the following table. 30 TABLE 9 CITY OF AZUSA TOTAL INVESTMENTS IN FEDERAL AGENCIES, CORP BONDS, WFB INSTITUTIONAL TRUSTS AND LAIF AS OF MAY 31, 2020 Indebtedness General Obligation Debt. The City currently has no general obligation debt outstanding. Long Term Debt. The following table is a summary of long-term debt transactions including amortization for the year ended June 30, 2020. The table below does not include debt or other obligations which are payable from revenues of business-type activities, bonds of the Successor Agency or debt without City commitment, such as debt secured by special taxes levied within certain community facilities districts of the City. TABLE 10 CITY OF AZUSA LONG TERM DEBT OF THE CITY Balance June 30, 2019 Additions Deductions Unaudited Balance June 30, 2020 2016 TRIP Installment Sale $3,280,000 $ - $(110,000) $3,170,000 APFA 2003 Certificates of Participation 1,160,000 - (315,000) 845,000 Capital Lease 83,496 - (40,943) 42,553 Unamortized Premiums 157,883 - (157,883) - Unamortized Discounts (2,937) 2,937 - - Total 4,212,499 2,937 (623,826) 4,057,853 Note payable – Successor Agency 8,208,833 - - 8,208,833 Total long-term debt $12,887,275 $2,937 $(623,826) $12,266,386 Source: City of Azusa. Short-Term Debt. The City currently has no short-term debt outstanding. Additional Debt. Other than the Series 2020 Bonds, the City currently anticipate incurring any additional indebtedness payable from the General Fund in the next five years. For more information on indebtedness of the City’s, see note 5 in “APPENDIX B – CITY OF AZUSA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2019.” Direct and Overlapping Debt The ability of land owners within the City to pay property tax installments as they come due could be affected by the existence of other taxes and assessments imposed upon the land. Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. and dated as of 31 April 1, 2020. The Debt Report is included for general informational purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. The contents of the Debt Report are as follows: (a) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the boundaries of the City; (b) the second column shows the percentage that the City’s assessed valuation represents of the total assessed valuation of each public agency identified in the first column; and (c) the third column is an apportionment of the dollar amount of each public agency’s outstanding debt to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City’s assessed valuation represented in the second column. 32 TABLE 11 CITY OF AZUSA DIRECT AND OVERLAPPING DEBT 2019-20 Assessed Valuation: $5,185,972,381 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 4/1/20 Metropolitan Water District 0.061% $ 22,753 Citrus Community College District 16.627 14,476,581 Mount San Antonio Community College District 0.038 274,000 Azusa Unified School District 68.381 91,986,367 Covina Valley Unified School District 0.366 727,510 Duarte Unified School District 0.670 458,645 City of Azusa Community Facilities District No. 2002-1 100. 6,250,000 City of Azusa Community Facilities District No. 2005-1 I.A. No. 1 100. 24,425,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $138,620,856 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 0.322% $7,550,194 Los Angeles County Superintendent of Schools Certificates of Participation 0.322 16,687 Los Angeles County Sanitation District No. 22 Authority 11.659 344,074 Los Angeles County Sanitation District No. 18 Authority 0.005 158 Azusa Unified School District Certificates of Participation 68.381 3,364,345 Covina Valley Unified School District Certificates of Participation 0.366 18,300 City of Azusa General Fund Obligations 100. 845,000(1) TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $12,138,758 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): 100.% $41,180,000 COMBINED TOTAL DEBT $191,939,614(2) (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue bonds and non-bonded capital lease obligations. Ratios to 2019-20 Assessed Valuation: Total Overlapping Tax and Assessment Debt ................ 2.67% Combined Direct Debt ($845,000) .............................. 0.02% Combined Total Debt ..................................................... 3.70% Ratios to Redevelopment Successor Agency Incremental Valuation ($1,225,396,586): Total Overlapping Tax Increment Debt .......................... 3.36% Source: California Municipal Statistics, Inc. Insurance The City is exposed to various risks of losses related to torts, theft of, damage to and destruction of assets, errors and omissions, injuries to employees and natural disasters. The City has not had claims settlements exceeding insurance coverage for each of the past three fiscal years. The City became a member of the California Joint Powers Insurance Authority (the “Authority”) during Fiscal Year 2018-19. The Authority is composed of approximately 116 State public entities and is organized under a joint powers agreement pursuant to State Government Code Section 6500 et seq. The purpose of the Authority is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group purchased insurance for property and other lines of coverage. Each member pays an annual contribution to cover estimated losses for the coverage period. The total funding requirement for self-insurance programs is estimated using actuarial models and pre-funded through the annual contribution. Costs are allocated to individual agencies based on exposure (payroll) and experience (claims) 33 relative to other members of the risk-sharing pool. Additional information regarding the cost allocation methodology is provided below. In the liability program, claims are pooled separately between police and general government exposures. The payroll of each member is evaluated relative to the payroll of other members and a variable credibility factor is determined for each member, which establishes the weight applied to payroll and the weight applied to losses within the formula. The first layer of losses includes incurred costs up to $30,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the first layer. The second layer of losses includes incurred costs from $30,000 to $750,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the second layer. Incurred costs from $750,000 to $50 million, are distributed based on the outcome of cost allocation within the first and second loss layers. The overall coverage limit for each member, including all layers of coverage, is $50 million per occurrence. Costs of covered claim for subsidence losses have a sub-limit of $30 million per occurrence. The City also participates in the workers’ compensation pool administered by the Authority. In the workers’ compensation program, claims are pooled separately between public safety (police and fire) and general government exposures. The payroll of each member is evaluated relative to the payroll of other members and a variable credibility factor is determined for each member, which establishes the weight applied to payroll and the weight applied to losses within the formula. The first layer of losses includes incurred costs up to $50,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the first layer. The second of losses includes incurred costs from $50,000 to $100,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the second layer. Incurred costs in excess from $100,000 to statutory limits are distributed based on the outcome of cost allocation within the first and second loss layers. Employer’s liability losses are pooled among members to $2 million. Coverage from $2 million to $5 million is purchased as part of a reinsurance policy, and employer’s liability losses from $5 million to $10 million are pooled among members. For more information on the City’s insurance and risk management, see note 9 in “APPENDIX B – CITY OF AZUSA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2019” hereto. State Budget Information The following information concerning the State’s budgets has been obtained from publicly available information which the City believes to be reliable; however, the City does not guarantee the accuracy or completeness of this information and has not independently verified such information. Furthermore, it should not be inferred from the inclusion of this information in this Official Statement that the interest or principal due on the Series 2020 Bonds is payable from any funds of the State. Particularly in periods of economic recessions, the State budget can have significant impacts on the finances of cities within the State. The following information concerning the State’s budgets has been obtained from publicly available information which the City believes to be reliable. However, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information. Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on cities in the State, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, and the City can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. State Budget for Fiscal Year 2019-20. On June 27, 2019, the Governor signed the State budget for Fiscal Year 2019-20 (the “2019-20 State Budget”), which estimated Fiscal Year 2018-19 general fund total 34 resources of approximately $149.5 billion (which includes a prior year balance of $11.4 billion), total expenditures of approximately $142.7 billion and a year-end surplus of approximately $6.8 billion, of which approximately $1.4 billion would be reserved for the liquidation of encumbrances and approximately $5.4 billion would be deposited in a reserve for economic uncertainties. The 2019-20 State Budget estimated a total balance of approximately $14.4 billion in the budget stabilization account, also referred to as the “Rainy Day Fund” and a total balance of $900 million in the safety net reserve (the “Safety Net Reserve”) at the end of Fiscal Year 2018-19. The 2019-20 State Budget projects Fiscal Year 2019-20 general fund total resources of approximately $150.6 billion (which includes a prior year balance of $6.8 billion), total expenditures of approximately $147.8 billion and a year-end surplus of approximately $2.8 billion, of which approximately $1.4 billion would be reserved for the liquidation of encumbrances and approximately $1.4 billion would be deposited in a reserve for economic uncertainties. The 2019-20 State Budget also projects a total balance of approximately $16.5 billion in the Rainy Day Fund, a total balance of approximately $900 million in the Safety Net Reserve and a total balance of approximately $377 in the public school system stabilization account at the end of Fiscal Year 2019-20. The 2019-20 State Budget notes several potential risks to the State’s economy, including the impact of a slowing global economy, projected slower economic and wage growth in the United States, and growing federal deficits constraining the federal government’s options to address the economic slowdown. The complete 2019-20 State Budget can be viewed at www.ebudget.ca.gov or www.dof.ca.gov and an impartial analysis of the 2019-20 State Budget by the Office of the Legislative Analyst can be viewed at www.lao.ca.gov. The City does not take responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.State Budget for State Fiscal Year 2020-21 On January 10, 2020, prior to the COVID- 19 outbreak, the Governor released his proposed State budget for State fiscal year 2020-21. On May 14, 2020, the Governor released the May Revision to the Proposed 2020-21 State Budget (the “May Revision”). The May Revision noted that the COVID-19 pandemic and resulting recession has changed the State’s fiscal landscape dramatically. Unemployment claims have surged, with increased unemployment claims of 4.4 million from mid-March to May 9, 2020. Job losses have occurred in nearly every sector of the economy and personal income is projected to decline by 9% in 2020. Following record economic expansion, the United States economy entered into a recession in March 2020, causing an immediate negative impact on State revenues, with all three of the State’s major revenue sources showing significant declines relative to the Governor’s original budget forecast. From fiscal years 2018-19 through 2020-21, the May Revision baseline revenue estimate decreased by over $43 billion, before accounting for transfers. The changes in the three largest State tax sources are: • Personal income tax revenues, which were revised downward by $32.6 billion (including $6.9 billion less in State fiscal year 2019-20 and $26.3 billion less in State fiscal year 2020-21) due to a decline in all income sources, but particularly wages, proprietorship income and capital gains; • Sales and use tax receipts, which were revised downward by almost $10 billion ($2.2 billion less in State fiscal year 2019-20 and $7.7 billion less in State fiscal year 2020-21) due mainly to lower consumption and investment by business; and • Corporate tax revenues, which were revised downward by over $5 billion based on a significant drop in corporate profits. On June 29, 2020, the Governor signed into law the State budget for State fiscal year 2020-21 (the “2020-21 Budget”). The following information is drawn from summaries of the 2020-21 Budget prepared by the DOF and the LAO. The 2020-21 Budget acknowledges that the rapid onset of COVID-19 has had an immediate and severe impact on the State’s economy. The ensuing recession has caused significant job losses, precipitous drops in family and business income and has exacerbated income inequality. The May Revision forecast included a peak 35 unemployment rate of 24.5% in the second quarter of 2020 and a decline in personal income of nearly 9%. The 2020-21 Budget reports that the official unemployment rate exceeded 16% in both April and May 2020. The 2020-21 Budget includes a number of measures intended to address a projected deficit of $54.3 billion and occasioned principally by declines in the State’s three main tax revenues (personal income, sales and use and corporate, as discussed above). The measures included in the 2020-21 Budget, and described below, are intended to close this deficit and set aside $2.6 billion in the State’s traditional general fund reserve, including $716 million for the State to respond to the changing conditions of the COVID-19 pandemic: • Drawdown of Reserves – The 2020-21 Budget draws down $8.8 billion in total State reserves, including $7.8 billion from the BSA, $450 million from the Safety Net Reserve and all money in the Public School System Stabilization Account. • Triggers – The 2020-21 Budget includes $11.1 billion in reductions and deferrals that would be restored if at least $14 billion in federal funds are received by October 15, 2020. If the State receives less than this amount, reductions and deferrals would be partially restored. The triggers include $6.6 billion in deferred spending on education, $970 million in funding for the California State University and University of California systems, $2.8 billion in State employee compensation and $150 million for courts, as well as funding for various other State programs. The triggers would also fund an additional $250 million for county programs to backfill revenue losses. • Federal Funds – The 2020-21 Budget relies on $10.1 billion in federal funds, $8.1 billion of which has already been received. This relief includes recent Congressional approval for a temporary increase in the federal government’s share of Medicaid costs, a portion of the State’s Coronavirus Relief Fund allocation pursuant to the CARES Act and federal funds provided for childcare programs. • Borrowing/Transfers/Deferrals – The 2020-21 Budget relies on $9.3 billion in special fund borrowing and transfers, as well as deferrals to K-14 education spending. Approximately $900 million of special fund borrowing is associated with reductions to State employee compensation and is subject to the triggers discussed above. • Increased Revenues – The 2020-21 Budget temporarily suspends for three years net operating loss tax deductions for medium and large businesses and limits business tax credits, with an estimated increase in tax revenues of $4.3 billion in State fiscal year 2020-21. • Cancelled Expansions, Updated Assumptions and Other Measures – The 2020-21 Budget includes an additional $10.6 billion of measures, including cancelling multiple programmatic expansions, anticipated governmental efficiencies, higher ongoing revenues above the forecast included in the May Revision and lower health and human services caseload costs than assumed by the May Revision. For State fiscal year 2019-20, the 2020-21 Budget projects total State general fund revenues and transfers of $137.6 billion and authorizes expenditures of $146.9 billion. The State is projected to end State fiscal year 2019-20 with total available general fund reserves of $17 billion, including $16.1 billion in the BSA and $900 million in the Safety Net Reserve Fund. For State fiscal year 2020-21, the 2020-21 Budget projects total State general fund revenues and transfers of $137.7 billion and authorizes expenditures of $133.9 billion. The State is projected to end State fiscal year 2020-21 with total available general fund reserves of $11.4 billion, including $2.6 billion in the traditional State general fund reserve (of which $716 million is earmarked for COVID-19-related responses), $8.3 billion in the BSA and $450 million in the Safety Net Reserve Fund. As a result of the projected reduction of State revenues occasioned by the COVID-19 pandemic, the 2020-21 Budget estimates that the Proposition 98 minimum funding guarantee for fiscal year 2020-21 is $70.1 36 billion, approximately $10 billion below the revised prior-year funding level. For K-12 school districts, this results in per-pupil spending in fiscal year 2020-21 of $10,654, a reduction of $1,339 from the prior year. The 2020-21 Budget proposes several measures intended to ameliorate the immediate impact of State revenue declines, and avoid a permanent decline in education funding: • Local Control Funding Formula – The 2020-21 Budget provides for $1.9 billion in Local Control Funding Formula apportionment deferrals for State fiscal year 2019-20. The deferrals increase to $11 billion in State fiscal year 2020-21, which results in Local Control Funding Formula funding remaining at 2019-20 levels in both years. The 2020-21 Budget also suspends the statutory cost of living adjustment in State fiscal year 2020-21. Of the total deferrals, $5.8 billion will be cancelled in State fiscal year 2020-21 if sufficient federal funding for this purpose is received. • CalSTRS/CalPERS – The 2020-21 Budget redirects $2.3 billion in funds that were previously appropriated for prefunding California State Teachers Retirement System (“CalSTRS”) and CalPERS liabilities, instead applying them to further reduce local educational agency contribution rates for such programs in State fiscal years 2020-21 and 2021-22. This reduces CalSTRS employer rates to 16.15% in fiscal year 2020-21 and 16.02% in fiscal year 2021-22. CalPERS employer rates are reduced to 20.7% in fiscal year 2020-21 and 22.84% in fiscal year 2021-22. • Federal Funds – In addition to the CARES Act funding previously discussed, the 2020-21 Budget appropriates $1.6 billion in federal Elementary and Secondary School Emergency Relief funds recently awarded to the State. Of this amount, approximately $1.5 billion will be allocated to local educational agencies in proportion to the amount of federal Title I-A funding such agencies receive, to be used for COVID-19 related costs. The remaining amount will be allocated to state-level activities. • Temporary Revenue Increases – As discussed above, as part of closing the State’s projected deficit, the 2020-21 Budget provides for a temporary revenue increase of approximately $4.3 billion in fiscal year 2020-21, of which approximately $1.6 billion counts towards the Proposition 98 funding guarantee. For additional information regarding the 2020-21 Budget, see the DOF and LAO websites. The information presented on such websites is not incorporated herein by reference. None of the websites or webpages that are referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. The City makes no representation whatsoever as to the accuracy or completeness of any of the information on such websites. There can be no assurance that additional legislation will not be enacted in the future to implement provisions relating to the State budget, address the COVID-19 outbreak or otherwise that may affect the City or its General Fund revenues. Future State Budgets. No prediction can be made by the City as to whether the State will encounter budgetary problems in future fiscal years, and if it were to do so, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on City finances and operations or what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures. In addition, the State extended person income tax return filing deadlines in response to COVID-19. With some income tax receipts delayed into the next fiscal year, or for other reasons, the State might adopt significant budget adjustments during Fiscal Year 2020-21. There can be no assurance that actions taken by the State to address its financial condition will not materially adversely affect the financial condition of the City. Current and future State budgets will be affected by national and State economic conditions and other factors over which the City has no control. 37 RISK FACTORS The following information should be considered by potential investors in evaluating the Series 2020 Bonds. However, it does not purport to be an exhaustive list of the risks or other considerations which may be relevant to an investment in the Series 2020 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. No Tax Pledge The Series 2020 Bonds do not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Series 2020 Bonds nor the obligation of the City to make payment of the principal or redemption price of or the interest on the Series 2020 Bonds constitutes an indebtedness of the City, the State of California or any of its political subdivisions in contravention of any constitutional or statutory debt limitation or restriction. Dependence on State for Certain Revenue Sources to Pay the Series 2020 Bonds A number of the City’s revenues are collected and dispersed by the State (such as sales tax and motor- vehicle license fees) or allocated in accordance with State law (most importantly, property taxes). Therefore, State budget decisions can have an impact on City finances. In the event of a material economic downturn in that States, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties. See “CITY FINANCIAL INFORMATION – State Budget Information.” Limitation on Remedies Available; Bankruptcy The enforceability of the rights and remedies of the Owners and the obligations of the City may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equitable principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of servicing a significant and legitimate public purpose. In addition to the limitation on remedies contained in the Indenture, the rights and remedies provided in the Indenture may be limited by and are subject to the provisions of federal bankruptcy laws. The City is a governmental unit and therefore cannot be the subject of an involuntary case under the United States Bankruptcy Code (the “Bankruptcy Code”). However, the City is a municipality and therefore may seek voluntary protection from its creditors pursuant to Chapter 9 of the Bankruptcy Code for purposes of adjusting its debts. If the City were to become a debtor under the Bankruptcy Code, the County would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 case. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City and could prevent the Trustee from making payments from funds in its possession; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or secured debt which may have priority of payment superior to that of the Owners of the Series 2020 Bonds; and (iv) the possibility of the adoption of a plan (the “Plan”) for the adjustment of the City’s debt without the consent of the Trustee or all of the Owners of the Series 2020 Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable and in the best interests of creditors. 38 Recent bankruptcies in the City of Stockton, the City of San Bernardino and the City of Detroit have brought scrutiny to municipal securities. Specifically, in the San Bernardino bankruptcy, the Court held that in the event of a municipal bankruptcy, payments on pension obligation bonds, such as the Series 2020 Bonds, were unsecured obligations and not entitled to the same priority of payments made to the related pension system. A variety of events including, but not limited to, additional rulings adverse to the interests of bond owners in the Stockton, San Bernardino and Detroit bankruptcy cases or additional municipal bankruptcies, could prevent or materially adversely affect the rights of Owners to receive payments on the Series 2020 Bonds in the event the City files for bankruptcy. Accordingly, in the event of bankruptcy, it is likely that Owners may not recover their principal, as applicable, and interest. The opinion of counsel, including Bond Counsel, delivered in connection with the issuance and delivery of the Series 2020 Bonds will be so qualified. Bankruptcy proceedings, or the exercising of powers by the federal or state government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights. Changes in Law There can be no assurance that the State Legislature will not at some future time enact legislation that will amend or create laws resulting in a reduction of moneys securing or available to pay the Series 2020 Bonds. Similarly, the State electorate could adopt initiatives or the State Legislature could adopt legislation with the approval of the electorate amending the State Constitution which could have the effect of reducing moneys securing or available to pay the Series 2020 Bonds. Natural Disasters The City, like most of the State, may be subject to unpredictable seismic activity, fires, floods, high winds, drought, landslides or other natural disasters. Southern California is a seismically active area. Seismic activity represents a potential risk for damage to buildings, roads, bridges and property within the City in the event of an earthquake. There is significant potential for destructive ground-shaking during the occurrence of a major seismic event. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such an event. The City is proximate to the Sierra Madre Fault Zone and two other faults. In recent years, wildfires have caused extensive damage throughout the State. Certain of these fires have burned thousands of acres and destroyed hundreds and in some cases thousands of homes. In some instances entire neighborhoods have been destroyed. Several fires which occurred in 2018 damaged or destroyed property in areas that were not previously considered to be at risk for such events. Major wildfires have occurred in portions of the City in 2016, 2014 and 2003. In 2016, the Fish Fire burned away from the City and burned approximately 4,000 acres, should a wind shift have occurred, the City would have been threatened. In 2014, the Colby Fire started in Angeles National Forest and quickly threatened the City and the City of Glendora, in the fire area footprint, 1860 structures were saved, 15 structures were destroyed and 8 structures were damages. In 2003, over 80,000 acres and over 500 homes were destroyed in wildfires in the San Gabriel and San Bernardino Mountains near the City. The majority of structures destroyed were in San Bernardino County. In addition, some land within the City is located within a designated flood hazard zone. If a flood were to occur, the flooding would be channeled away from the structures to mitigate the impact of the flooding to the structures within the City. In the event of a severe earthquake, fire, flood, high wind event, drought, landslide or other natural disaster, there may be significant damage to both property and infrastructure in the City. As a result, property owners may be unable or unwilling to pay the property taxes when due. In addition, the assessed value of property in the City could be diminished in the aftermath of such a natural disaster, reducing property taxes. On October 21, 2019, the City adopted a Local Hazard Mitigation Plan (LHMP), which covers natural disasters. The City prepared the LHMP to help guide hazard mitigation planning and better protect the people and property of the City from the effects of hazardous events. This LHMP demonstrates the City’s commitment 39 to reducing risks from hazards and serves as a tool to help decision makers direct mitigation activities and resources. This LHMP was also developed so the City can be eligible for certain federal disaster assistance, specifically, the Federal Emergency Management Agency’s (FEMA) Hazard Mitigation Grant Program (HMGP), Pre-Disaster Mitigation (PDM) program, and the Flood Mitigation Assistance (FMA) program. Hazard mitigation is defined by FEMA as “any sustained action taken to reduce or eliminate long-term risk to human life and property from a hazardous event.” The results of a three-year congressionally mandated independent study to assess future savings from mitigation activities provides evidence that mitigation plans are highly cost-effective. On average, each dollar spent on mitigation saves society an average of $6 in avoided future losses in addition to saving lives and preventing injuries (National Institute of Building Science Natural Hazard Mitigation Saves 2017 Interim Report). Hazard mitigation planning is the process through which hazards that threaten communities are identified, likely impacts determined, mitigation goals set, and appropriate mitigation strategies determined, prioritized, and implemented. This LHMP documents the City’s hazard mitigation planning process and identifies relevant hazards, vulnerabilities, and mitigation strategies the City will use to decrease vulnerability and increase resiliency and sustainability in the community. The City’s LHMP is a single jurisdictional plan that geographically covers the entire area within the City’s jurisdictional boundaries. This LHMP was prepared pursuant to the requirements of the Disaster Mitigation Act of 2000 (Public Law 106-390) and the implementing regulations set forth by the Interim Final Rule published in the Federal Register on February 26, 2002, (44 CFR §201.6) and finalized on October 31, 2007. (Hereafter, these requirements and regulations will be referred to collectively as the Disaster Mitigation Act (DMA) or DMA 2000.) This planning effort also follows FEMA’s most current Plan Preparation and Review Guidance. The DMA 2000 emphasized the need for mitigation plans and more coordinated mitigation planning and implementation efforts. Pursuant to the DMA, the City established the City of Azusa 1-2 Local Hazard Mitigation Plan of October 2018. This LHMP by the City satisfies the requirements that local hazard mitigation plans must meet in order for a local jurisdiction to be eligible for certain federal disaster assistance and hazard mitigation funding under the Robert T. Stafford Disaster Relief and Emergency Act (Public Law 93- 288). Because the City is subject to many kinds of hazards, access to these programs and funding is vital. Infectious Disease Outbreak The City’s operations and financial results could be harmed by a national or localized outbreak of a highly contagious or epidemic disease, such as the current COVID-19 pandemic. The City cannot predict any costs associated with the potential treatment of an infectious disease outbreak or preparation for such treatment. There can be no assurances that the spread of COVID-19 will not materially impact the local, State and national economies and, accordingly, materially adversely impact the General Fund. The COVID-19 public health emergency is altering the behavior of businesses and people in a manner that will have negative impacts on global and local economies, including the economy of the City, the County and the State. Under the 2019-20 State Budget, approximately 70% of the State’s general fund revenue is projected to be derived from personal income tax receipts and 10% is projected to be derived from capital gains tax receipts. California’s Legislative Analyst’s Office published a report on March 18, 2020 which anticipates that the economic uncertainty caused by the outbreak will significantly affect the State’s near-term fiscal outlook, including lower capital gains- related tax revenue due to the volatility in the financial markets, and the likelihood that a recession is forthcoming due to pullback in activity across wide swaths of the economy. See “FINANCIAL INFORMATION REGARDING THE CITY – State Budget Information.” In addition, the City is incurring increased costs related to COVID-19 and is projecting significant negative economic impacts leading to decreases in General Fund revenues. See “COVID-19 OUTBREAK” herein. The ultimate impact of COVID- 19 on the City’s operations and finances is unknown, but expected to be lessened due to the July 1, 2020 implementation of the of the passage of Measure Z, a $0.75 sales tax addition that will be a direct allocation to the City, which is normal circumstances is expected to generate $4.5 million in additional revenues annually. 40 Hazardous Substances The discovery of hazardous substances on parcels of property within the City may limit the beneficial use of taxable property within the City and may result in the reduction in the assessed value of such property. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances 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 property within the City be affected by a hazardous substance, could be to reduce the marketability and value of the property by the costs of remedying the condition. Reduction in the value of property in the City could reduce property tax revenues received by the City and deposited in the General Fund, which could significantly and adversely affect the ability of the City to make payments on the Series 2020 Bonds. Cybersecurity As a recipient and provider of personal, private and sensitive information, the City and its departments face multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computers and other sensitive digital networks and systems. The City has been the target of multiple attempts to breach the City’s digital estate. In October 2018, the City’s police department, which operates on a separate IT system, was hit by malware. The cyberattack was specific to the Police Department IT and did not affect other City operations. Following the incident, law enforcement industry standards were implemented, the entire network was re-engineered and the security package was updated. In response to the incident, the City has heightened its internal control procedures, provided additional employee training and placed more stringent requirements for third-party vendors it works with. No assurances can be given that the City’s security and operational control measures will be successful in guarding against any and each cyber threat and attack. The results of any attack on the City’s computer and information technology systems could impact its operations and damage the City’s digital networks and systems, and the costs of remedying any such damage could be substantial. The City has cyber liability insurance coverage with its insurance provider, California Joint Powers Insurance Authority, for up to $1,000,000 per occurrence and a total of $1,000,000 per coverage year, with a $50,000 deductible per occurrence; this coverage was utilized for 2018 cyberattack and helps the City to mitigate its financial exposure to such attacks. Public Debt Burden on Property The ability of land owners within the City to pay property tax installments as they come due could be affected by the existence of other taxes and assessments, imposed upon the land. In addition, other public agencies whose boundaries overlap those of the City could, without consent of the City, and in certain cases without the consent of the owners of the land within the City, impose additional taxes or assessment liens on the property within the City to finance public improvements to be located inside of or outside of the City. See “CITY FINANCIAL INFORMATION – Overlapping Debt” hereto for a statement of direct and overlapping debt on property within the City. Assessed Value of Taxable Property Property taxes account for a significant portion of General Fund revenues. Natural and economic forces can affect the assessed value of taxable property within the City. The City is located in a seismically active region, and damage from an earthquake in or near the area could cause moderate to extensive damage to taxable property. In addition to seismic, topographic and climatic conditions, other natural or manmade disasters, such as flood, fire, ongoing drought, toxic dumping or acts of terrorism, could cause a reduction in the assessed value of taxable property within the City. Economic and market forces, such as a downturn in the regional economy generally, can also affect assessed values, particularly as these forces might reverberate in the residential housing and commercial property markets. In addition, the total assessed value can be reduced through the reclassification of taxable property to a class exempt from taxation, whether by ownership or use (such as 41 exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes). Reductions in the market values of taxable property may cause property owners to appeal assessed values and may also be associated with an increase in delinquency rates for taxes. Section 2(b) of Article XIII A of the State Constitution and Section 51 of the Revenue and Taxation Code, which follow from “Proposition 8,” require the County assessor to annually enroll either a property’s adjusted base year value (its “Proposition 13 Value”) or its current market value, whichever is less. When the current market value replaces the higher Proposition 13 Value on the assessor's roll, that lower value is referred to as its “Proposition 8 Value.” Although the annual increase for a Proposition 13 Value is limited to no more than 2%, the same restriction does not apply to a Proposition 8 Value. The Proposition 8 Value of a property is reviewed annually as of January 1; the current market value must be enrolled as long as the Proposition 8 Value falls below the Proposition 13 Value. Thus, any subsequent increase or decrease in market value is enrolled regardless of any percentage increase or decrease. Only when a current Proposition 8 Value exceeds its Proposition 13 Value attributable to a piece of property (adjusted for inflation), does the County assessor reinstates the Proposition 13 Value. Decreases in the aggregate value of taxable property within the City resulting from natural disaster or other calamity, reclassification by ownership or use, or as a result of the operation of Proposition 8 all may have an adverse impact on the General Fund revenues available to make debt service payments on the Series 2020 Bonds. In addition, failure by large property owners to pay property taxes when due may also cause a decrease in General Fund revenues available to make debt service payments on the Series 2020 Bonds. See “ – Natural Disasters” and “FINANCIAL INFORMATION REGARDING THE CITY – Major Revenue Sources.” Property Tax Allocation by the State The responsibility for allocating general property taxes was assigned to the State by Proposition 13, which stated that property taxes were to be allocated “according to law.” The formula for such allocation was contained in Assembly Bill 8 (“AB 8”), adopted in 1978, which allocates property taxes among cities, counties, and school districts. The formulas contained in AB 8 were designed to allocate property taxes in proportion to the share of property taxes received by a local entity prior to Proposition 13. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Limitations on Revenues.” Additionally, there are general means by which assessed values can be reassessed or appealed. Appeals may be based on Proposition 8 of November 1978, which requires that for each January 1 lien date, the taxable value of real property must be the lesser of its base year value, annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution, or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. Under State law, property owners may apply for a Proposition 8 reduction of their property tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the County board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which application is made and during which the written application was filed. These reductions are subject to yearly reappraisals and are adjusted back to their original values, adjusted for inflation, when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. 42 A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. Proposition 8 reductions may also be unilaterally applied by the county assessor. The City cannot predict the changes in assessed values that might result from pending or future appeals by taxpayers or by reductions initiated by the county assessor. No assurance can be given that property tax appeals in the future will not significantly reduce the assessed valuation of property within the City. Beginning in Fiscal Year 1992-93, in response to its own budgetary shortfalls, the State began to permanently redirect billions of dollars of property taxes Statewide from cities, counties, and certain special districts to schools and community college districts. These redirected funds reduced the State's funding obligation for K-14 school districts by a commensurate amount. In response, Proposition 1A of 2004, approved by State voters in November 2004 and generally effective in Fiscal Year 2006-07, provided that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain limitations. However, pursuant to Proposition 1A and beginning in Fiscal Year 2008-09, the State could, upon gubernatorial proclamation of fiscal hardship and following approval of two-thirds of both houses of the legislature, and it did, shift to schools and community colleges up to 8% of local government ad valorem property tax revenues, which amount must be repaid, with interest, within three years. The State could also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. In November 2010, State voters approved Proposition 22, which amends the State’s constitution to eliminate the State’s authority to temporarily shift additional ad valorem property taxes from cities, counties and special districts to schools, among other things. No assurance can be given that the State, the County’s or the City electorate will not at some future time adopt initiatives, or that the State Legislature will not enact legislation that will amend the laws of the State in a manner that could result in a reduction of the City’s property tax allocations or its other revenues and therefore a reduction of the funds legally available to the City to make debt service payments on the Series 2020 Bonds. See, for example, “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Article XIIIC and Article XIIID of the State Constitution.” Secondary Market Risk There can be no guarantee that there will be a secondary market for the Series 2020 Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of 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. Pension Benefit Liability Many factors influence the amount of the City’s pension benefit liability, including, without limitation, inflationary factors, changes in statutory provisions of applicable retirement system laws, changes in the levels of benefits provided or in the contribution rates of the City, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods, and differences between actual and anticipated investment experience of the City’s pension system. Any of these factors could give rise to additional liability of the City to its pension system as a result of which the City would be obligated to make additional payments to its pension system over the amortization schedule for full funding of its obligation to its pension system. See “RETIREMENT PLANS” above and “APPENDIX A” hereto. 43 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the State Constitution On June 6, 1978, State voters approved Proposition 13, which added Article XIIIA to the State Constitution. Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service: (i) on indebtedness approved by the voters prior to December 1, 1978; (ii) on bonded indebtedness approved by a two- thirds vote on or after December 1, 1978, for the acquisition or improvement of real property; or (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters voting on the proposition, but only if certain accountability measures are included in the proposition. Article XIIIA defines full cash value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under ‘full cash value,’ or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment” subject to exemptions in certain circumstances of property transfer or reconstruction. The full cash value is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, including a general economic downturn, to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster, and in other minor or technical ways. Legislative Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter- approved indebtedness). The 1% property tax is automatically levied by counties and distributed according to a formula among taxing agencies. Increases in assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years. All taxable property is shown at full cash value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100 percent of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Article XIIIB of the State Constitution In addition to the limits that Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual “appropriations limit” imposed by Article XIIIB which effectively limits the amount of such revenues that such entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of each government entity applies to “proceeds of taxes,” which consist of tax revenues and the investment proceeds thereof, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed “the cost reasonably borne by such entity in providing the regulation, product or service.” “Proceeds of taxes” excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not “proceeds of taxes,” such as reasonable user charges or fees, and certain other non-tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized as of October 1, 1979, or subsequently authorized by the voters, appropriations 44 required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government. The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. Proposition 111 requires that each local government’s actual appropriations be tested against its limit every two years. If the aggregate “proceeds of taxes” for the preceding two-year period exceeds the aggregate limit, the excess must be returned to the agency’s taxpayers through tax rate or fee reductions over the following two years. The City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB. Articles XIIIC and XIIID of the State Constitution On November 5, 1996, State voters approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the State Constitution and contains a number of interrelated provisions affecting the ability of local agencies (including the City) to levy and collect both existing and future taxes, assessments and property-related fees and charges. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City’s General Fund, require a two-thirds vote. The voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property-related fees, charges, and assessments for municipal services and programs, such as hearings and stricter and more individualized benefit requirements and findings. These provisions include, among other things: (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel; (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIIID, over and above any general benefits conferred; (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party; and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. If the City is unable to continue to collect these revenues, the services and programs funded with these revenues would have to be curtailed and/or the City’s General Fund might have to be used to support them. The City is unable to predict whether or not in the future it will be able to continue all existing services and programs funded by the fees, charges and assessments in light of Proposition 218 or, if these services and programs are continued, which amounts (if any) would be used from the City’s General Fund to continue to support such activities. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction 45 in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. Proposition 62 Proposition 62 was adopted by the voters at the November 4, 1986, general election and: (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the County be approved by a two-thirds vote of the governmental entity’s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax; (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax; (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed; (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA; (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities; and (f) requires a reduction of ad valorem property taxes allocable to the jurisdiction imposing a tax not in compliance with its provisions equal to one dollar for each dollar of revenue attributable to the invalid tax, for each year that the tax is collected. Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. For example, in City of Woodlake v. Logan, 230 Cal.App.3d 1058 (1991) (the “Woodlake Case”), the Court of Appeal held portions of Proposition 62 unconstitutional as a referendum on taxes prohibited by the State Constitution. In reliance on the Woodlake Case, numerous taxes were imposed or increased after the adoption of Proposition 62 without satisfying the voter approval requirements of Proposition 62. On September 28, 1995, the California Supreme Court, in Santa Clara County Local Transportation Authority v. Guardino, 11 Cal. 4th 220 (1995) (the “Santa Clara Case”), upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or district to impose a special tax, and, by implication, upheld a parallel provision requiring a majority vote in order for a local government or district to impose any general tax. In deciding the Santa Clara Case on Proposition 62 grounds, the Court disapproved the decision in the Woodlake Case. The decision in the Santa Clara Case did not address the question of whether it should be applied retroactively. On June 4, 2001, the California Supreme Court released Howard Jarvis Taxpayers Association v. City of La Habra, et al., 74 Cal.App.4th 707 (1999) (the “La Habra” case). In this decision, the court held that a public agency’s continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. No such challenge against the City is currently pending, or to the knowledge of the City, proposed. Proposition 1A Proposition 1A, proposed by the State Legislature in connection with the State’s fiscal year 2004-05 budget, approved by the voters in November 2004 and generally effective in State fiscal year 2007-08, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be 46 approved by two-thirds of both houses of the Legislature. Proposition 1A provides, however, that beginning in State fiscal year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. The State also will not be able to borrow from local property tax revenues for more than two fiscal years within a period of ten fiscal years. In addition, the State cannot reduce the local sales tax rate or restrict the authority of local governments to impose or change the distribution of the State-wide local sales tax. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also provides that if the State reduces the motor vehicle license fee rate currently in effect, 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition 1A requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. Proposition 1A may result in increased and more stable City revenues. The magnitude of such increase and stability is unknown and would depend on future actions by the State. However, Proposition 1A could also result in decreased resources being available for State programs. This reduction, in turn, could affect actions taken by the State to resolve budget difficulties. Such actions could include increasing State taxes, decreasing spending on other State programs or other action, some of which could be adverse to the City. Proposition 22 Proposition 22, approved by California voters in November 2010, prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment or local government projects and services and prohibits fuel tax revenues from being loaned for cash-flow or budget balancing purposes to the State General Fund or any other State fund. In addition, Proposition 22 generally eliminates the State’s authority to temporarily shift property taxes from cities, counties and special districts to schools, temporarily increase a school and community college districts’ share of property tax revenues, prohibits the State from borrowing or redirecting redevelopment property tax revenues or requiring increases in pass-through payments thereof, and prohibits the State from reallocating vehicle license fee revenues to pay for State-imposed mandates. In addition, Proposition 22 requires a two-thirds vote of each house of the State legislature and a public hearing process to be conducted in order to change the amount of fuel excise tax revenues shared with cities and counties. Proposition 22 prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies. While Proposition 22 will not change overall State and local government costs or revenues by the express terms thereof, it will cause the State to adopt alternative actions to address its fiscal and policy objectives. Proposition 26 On November 2, 2010, the voters passed Proposition 26, which amends the State Constitution to require that certain state and local fees be approved by two-thirds of each house of the Legislature instead of a simple majority, or by local voters. The change in law affects regulatory fees and charges such as oil recycling fees, hazardous materials fees and fees on alcohol containers. Proposition 26 provides that the local government bears the burden of proving by a preponderance of evidence that a levy, charge or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the government activity, and that the manner in which those costs are allocated to a payor bear a reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. The City does not believe that Proposition 26 will adversely affect its General Fund revenues. Future Limitations Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 218, 111, 62, 1A, 22 and 26 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time 47 other initiative measures could be adopted which, if constitutional, could further affect the revenues of the City or its ability to expend such revenues. The nature and impact of these measures cannot be anticipated by the City. ERISA CONSIDERATIONS Section 406 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and Section 4975 of the Internal Revenue Code, as amended (the “Code”), prohibit employee benefit plans as well as individual retirement accounts and some types of Keogh plans (“Plans”) subject to ERISA or Section 4975 of the Code from engaging in certain transactions involving “plan assets” with persons that are “parties in interest” under ERISA or “disqualified persons” under the Code (collectively, “Parties in Interest”) with respect to the Plan. ERISA also imposes certain duties on persons who are fiduciaries of Plans subject to ERISA. Under ERISA, any person who exercises any authority or control respecting the management or disposition of the assets of a Plan is considered to be a fiduciary of such Plan (subject to certain exceptions not relevant here). A violation of these “prohibited transaction” rules may generate excise tax and other liabilities under ERISA and the Code for fiduciaries and Parties in Interest. The Underwriter, as a result of its own activities or because of the activities of their respective affiliate, may be considered Parties in Interest, with respect to certain Plans. Prohibited transactions may arise under Section 406 of ERISA and Section 4975 of the Code if Series 2020 Bonds are acquired by a Plan with respect to which the Underwriter or any of their respective affiliates are Parties in Interest. Certain exemptions from the prohibited transaction rules could be applicable, however, depending in part upon the type of Plan fiduciary making the decision to acquire a Series 2020 Bond and the circumstances under which such decision is made. Included among these exemptions are those transactions regarding securities purchased during the existence of an underwriting, investments by insurance company pooled separate accounts, investments by insurance company general accounts, investments by bank collective investment funds, transactions effected by “qualified professional asset managers,” and transactions affected by certain “in-house asset managers.” Even if the conditions specified in one or more of these exemptions are met, the scope of the relief provided by these exemptions might or might not cover all acts which might be construed as prohibited transactions. In order to ensure that no prohibited transaction under ERISA or Section 4975 of the Code will take place in connection with the acquisition of a Series 2020 Bond by or on behalf of a Plan, each prospective purchaser of a Series 2020 Bond that is a Plan or is acquiring on behalf of a Plan will be required to represent that either (i) no prohibited transactions under ERISA or Section 4975 of the Code will occur in connection with the acquisition of such Series 2020 Bond or (ii) the acquisition of such Series 2020 Bond is subject to a statutory or administrative exemption. Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA and some church plans (as defined in Section 3(33) of ERISA) are not subject to ERISA requirements nor to Section 4975 of the Code. However, governmental plans and church plans that are “qualified” under Section 401(a) of the Code are subject to restrictions with respect to prohibited transactions under Section 503(a)(1)(B) of the Code, the sanction for violation being the loss of “qualified” status. Governmental plans may also be subject to state and local laws imposing restrictions on investments. Any Plan fiduciary who proposes to cause a Plan to purchase Series 2020 Bonds should (i) consult with its counsel with respect to the potential applicability of ERISA and the Code to such investments and whether any exemption would be applicable and (ii) determine on its own whether all conditions have been satisfied. Moreover, each Plan fiduciary should determine whether, under the general fiduciary standards of investment prudence and diversification, an investment in the Series 2020 Bonds is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan’s investment portfolio, and whether such investment is authorized by the terms of such Plan. BOND COUNSEL OPINION Interest on the Series 2020 Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”). In the opinion of Best Best & Krieger 48 LLP, Bond Counsel, interest on the Series 2020 Bonds is exempt from State personal income taxes. Bond Counsel expresses no opinion regarding any other federal or state tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2020 Bonds. The proposed form of opinion of Bond Counsel is contained in Appendix E — “PROPOSED FORM OF OPINION OF BOND COUNSEL.” TAX MATTERS In the opinion of Best Best & Krieger LLP, Bond Counsel to the City, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Series 2020 Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”). Bond Counsel is of the opinion that interest on the Series 2020 Bonds is exempt from State personal income taxes. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the amount, accrual, or receipt of interest on, the Series 2020 Bonds. The proposed form of opinion of Bond Counsel is contained in Appendix E hereto. The following discussion summarizes certain U.S. federal tax considerations generally applicable to holders of the Series 2020 Bonds that acquire their Series 2020 Bonds in the initial offering. The discussion below is based upon laws, regulations, rulings, and decisions in effect and available on the date hereof, all of which are subject to change, possibly with retroactive effect. Prospective investors should note that no rulings have been or are expected to be sought from the U.S. Internal Revenue Service (the “IRS”) with respect to any of the U.S. federal tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. Further, the following discussion does not deal with U.S. tax consequences applicable to any given investor, nor does it address the U.S. tax considerations applicable to all categories of investors, some of which may be subject to special taxing rules (regardless of whether or not such investors constitute U.S. Holders), such as certain U.S. expatriates, banks, REITs, RICs, insurance companies, tax-exempt organizations, dealers or traders in securities or currencies, partnerships, S corporations, estates and trusts, investors that hold their Series 2020 Bonds as part of a hedge, straddle or an integrated or conversion transaction, or investors whose “functional currency” is not the U.S. dollar. Furthermore, it does not address (i) alternative minimum tax consequences, (ii) the net investment income tax imposed under Section 1411 of the Code, or (iii) the indirect effects on persons who hold equity interests in a holder. This summary also does not consider the taxation of the Series 2020 Bonds under state, local or non-U.S. tax laws. In addition, this summary generally is limited to U.S. tax considerations applicable to investors that acquire their Series 2020 Bonds pursuant to this offering for the issue price that is applicable to such Series 2020 Bonds (i.e., the price at which a substantial amount of the Series 2020 Bonds are sold to the public) and who will hold their Series 2020 Bonds as “capital assets” within the meaning of Section 1221 of the Code. As used herein, “U.S. Holder” means a beneficial owner of a Series 2020 Bond that for U.S. federal income tax purposes is an individual citizen or resident of the United States, a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any state thereof (including the District of Columbia), an estate the income of which is subject to U.S. federal income taxation regardless of its source or a trust where a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code) have the authority to control all substantial decisions of the trust (or a trust that has made a valid election under U.S. Treasury Regulations to be treated as a domestic trust). As used herein, “Non-U.S. Holder” generally means a beneficial owner of a Series 2020 Bond (other than a partnership) that is not a U.S. Holder. If a partnership holds Series 2020 Bonds, the tax treatment of such partnership or a partner in such partnership generally will depend upon the status of the partner and upon the activities of the partnership. Partnerships holding Series 2020 Bonds, and partners in such partnerships, should consult their own tax advisors regarding the tax consequences of an investment in the Series 2020 Bonds (including their status as U.S. Holders or Non-U.S. Holders). Notwithstanding the rules described below, it should be noted that, under newly enacted law that is effective for tax years beginning after December 31, 2017 (or, in the case of original issue discount, for tax years beginning after December 31, 2018), certain taxpayers that are required to prepare certified financial statements or file financial statements with certain regulatory or governmental agencies may be required to recognize 49 income, gain and loss with respect to the Series 2020 Bonds at the time that such income, gain or loss is recognized on such financial statements instead of under the rules described below. Prospective investors should consult their own tax advisors in determining the U.S. federal, state, local or non-U.S. tax consequences to them from the purchase, ownership and disposition of the Series 2020 Bonds in light of their particular circumstances. U.S. Holders Interest. Interest on the Series 2020 Bonds generally will be taxable to a U.S. Holder as ordinary interest income at the time such amounts are accrued or received, in accordance with the U.S. Holder’s method of accounting for U.S. federal income tax purposes. To the extent that the issue price of any maturity of the Series 2020 Bonds is less than the amount to be paid at maturity of such Series 2020 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2020 Bonds) by more than a de minimis amount, the difference may constitute original issue discount (“OID”). U.S. Holders of Series 2020 Bonds will be required to include OID in income for U.S. federal income tax purposes as it accrues, in accordance with a constant yield method based on a compounding of interest (which may be before the receipt of cash payments attributable to such income). Under this method, U.S. Holders generally will be required to include in income increasingly greater amounts of OID in successive accrual periods. Series 2020 Bonds purchased for an amount in excess of the principal amount payable at maturity (or, in some cases, at their earlier call date) will be treated as issued at a premium. A U.S. Holder of a Series 2020 Bond issued at a premium may make an election, applicable to all debt securities purchased at a premium by such U.S. Holder, to amortize such premium, using a constant yield method over the term of such Series 2020 Bond. Sale or Other Taxable Disposition of the Series 2020 Bonds. Unless a nonrecognition provision of the Code applies, the sale, exchange, redemption, retirement (including pursuant to an offer by the City) or other disposition of a Series 2020 Bond will be a taxable event for U.S. federal income tax purposes. In such event, in general, a U.S. Holder of a Series 2020 Bond will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of property received (except to the extent attributable to accrued but unpaid interest on the Series 2020 Bond, which will be taxed in the manner described above) and (ii) the U.S. Holder’s adjusted U.S. federal income tax basis in the Series 2020 Bond (generally, the purchase price paid by the U.S. Holder for the Series 2020 Bond, decreased by any amortized premium, and increased by the amount of any OID previously included in income by such U.S. Holder with respect to such Series 2020 Bond). Any such gain or loss generally will be capital gain or loss. In the case of a non-corporate U.S. Holder of the Series 2020 Bonds, the maximum marginal U.S. federal income tax rate applicable to any such gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income if such U.S. holder’s holding period for the Series 2020 Bonds exceeds one year. The deductibility of capital losses is subject to limitations. Defeasance of the Series 2020 Bonds. If the City defeases any Series 2020 Bond, the Series 2020 Bond may be deemed to be retired for U.S. federal income tax purposes as a result of the defeasance. In that event, in general, a holder will recognize taxable gain or loss equal to the difference between (i) the amount realized from the deemed sale, exchange or retirement (less any accrued qualified stated interest which will be taxable as such) and (ii) the holder’s adjusted tax basis in the Series 2020 Bond. Information Reporting and Backup Withholding. Payments on the Series 2020 Bonds generally will be subject to U.S. information reporting and possibly to “backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate U.S. Holder of the Series 2020 Bonds may be subject to backup withholding at the current rate of 24% with respect to “reportable payments,” which include interest paid on the Series 2020 Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Series 2020 Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number (“TIN”) to the payor in 50 the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against the U.S. Holder’s federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Certain U.S. holders (including among others, corporations and certain tax-exempt organizations) are not subject to backup withholding. A holder’s failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS. Non-U.S. Holders Interest. Subject to the discussions below under the headings “Information Reporting and Backup Withholding” and “Foreign Account Tax Compliance Act,” payments of principal of, and interest on, any Series 2020 Bond to a Non-U.S. Holder, other than (1) a controlled foreign corporation, a such term is defined in the Code, which is related to the City through stock ownership and (2) a bank which acquires such Series 2020 Bond in consideration of an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business, will not be subject to any U.S. federal withholding tax provided that the beneficial owner of the Series 2020 Bond provides a certification completed in compliance with applicable statutory and regulatory requirements, which requirements are discussed below under the heading “Information Reporting and Backup Withholding,” or an exemption is otherwise established. Disposition of the Series 2020 Bonds. Subject to the discussions below under the headings “Information Reporting and Backup Withholding” and “FATCA,” any gain realized by a Non-U.S. Holder upon the sale, exchange, redemption, retirement (including pursuant to an offer by the City or a deemed retirement due to defeasance of the Series 2020 Bond) or other disposition of a Series 2020 Bond generally will not be subject to U.S. federal income tax, unless (i) such gain is effectively connected with the conduct by such Non- U.S. Holder of a trade or business within the United States; or (ii) in the case of any gain realized by an individual Non-U.S. Holder, such holder is present in the United States for 183 days or more in the taxable year of such sale, exchange, redemption, retirement (including pursuant to an offer by the City) or other disposition and certain other conditions are met. U.S. Federal Estate Tax. A Series 2020 Bond that is held by an individual who at the time of death is not a citizen or resident of the United States will not be subject to U.S. federal estate tax as a result of such individual’s death, provided that, at the time of such individual’s death, payments of interest with respect to such Series 2020 Bond would not have been effectively connected with the conduct by such individual of a trade or business within the United States. Information Reporting and Backup Withholding. Subject to the discussion below under the heading “FATCA,” under current U.S. Treasury Regulations, payments of principal and interest on any Series 2020 Bonds to a holder that is not a United States person will not be subject to any backup withholding tax requirements if the beneficial owner of the Series 2020 Bond or a financial institution holding the Series 2020 Bond on behalf of the beneficial owner in the ordinary course of its trade or business provides an appropriate certification to the payor and the payor does not have actual knowledge that the certification is false. If a beneficial owner provides the certification, the certification must give the name and address of such owner, state that such owner is not a United States person, or, in the case of an individual, that such owner is neither a citizen nor a resident of the United States, and the owner must sign the certificate under penalties of perjury. The current backup withholding tax rate is 24%. Foreign Account Tax Compliance Act (“FATCA”)—U.S. Holders and Non-U.S. Holders Sections 1471 through 1474 of the Code impose a 30% withholding tax on certain types of payments made to foreign financial institutions, unless the foreign financial institution enters into an agreement with the U.S. Treasury to, among other things, undertake to identify accounts held by certain U.S. persons or U.S.-owned entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these and other reporting requirements, or unless the 51 foreign financial institution is otherwise exempt from those requirements. In addition, FATCA imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners or the entity furnishes identifying information regarding each substantial U.S. owner. Under current guidance, failure to comply with the additional certification, information reporting and other specified requirements imposed under FATCA could result in the 30% withholding tax being imposed on payments of interest on the Series 2020 Bonds. In general, withholding under FATCA currently applies to payments of U.S. source interest (including OID) and, under current guidance, will apply to certain “passthru” payments no earlier than the date that is two years after publication of final U.S. Treasury Regulations defining the term “foreign passthru payments.” Prospective investors should consult their own tax advisors regarding FATCA and its effect on them. The foregoing summary is included herein for general information only and does not discuss all aspects of U.S. federal taxation that may be relevant to a particular holder of Series 2020 Bonds in light of the holder’s particular circumstances and income tax situation. Prospective investors are urged to consult their own tax advisors as to any tax consequences to them from the purchase, ownership and disposition of Series 2020 Bonds, including the application and effect of state, local, non-U.S., and other tax laws. VALIDATION On January 23, 2020, the City, acting pursuant to the provisions of Section 860 et seq. of the California Code of Civil Procedure Section 53511 et seq. of the California Government Code, filed a complaint in the Superior Court of the County of Los Angeles seeking judicial validation of the Series 2020 Bonds and all Additional Bonds and certain other matters, including the Indenture. On July 13, 2020, for Los Angeles County Superior Court Case No. 20PSCV00061 the court entered a default judgment to the effect, among other things, that the Series 2020 Bonds and all Additional Bonds are valid, legal and binding obligations of the City not subject to the debt limitation provided in Article XVI, Section 18 of the State Constitution and that the Series 2020 Bonds and all Additional Bonds are valid and in conformity with all applicable provisions of law. The Indenture was also the subject of the default judgement. The time period for the filing of appeals with respect to the judgment expired on August 12, 2020. No appeals were filed and therefore, the judgment is final. In issuing its opinion as to the validity of the Series 2020 Bonds, Bond Counsel has relied upon the entry of the foregoing default judgment. CERTAIN LEGAL MATTERS Legal matters incident to the authorization, issuance, sale and delivery by the City of the Series 2020 Bonds are subject to the approving opinion of Best Best & Krieger LLP, Los Angeles, California, as Bond Counsel. A copy of the proposed form of Bond Counsel opinion is contained in Appendix E hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Best Best & Krieger LLP, Riverside, California, is acting as Disclosure Counsel for the City. Certain legal matters will be passed upon for the Underwriters by their counsel, Orrick, Herrington & Sutcliffe LLP, Los Angeles, California. CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Certificate (the “Disclosure Certificate”), the City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system certain annual financial information and operating data concerning the District (the “Annual Report”), and notice of the occurrence of certain listed events. The Annual Report is to be filed not later than nine (9) months after the end of the City’s fiscal year (currently March 31 based on the City’s fiscal year end of June 30), beginning March 31, 2021, and is to include audited financial statements of the City. The specific nature of the information to be contained in the Annual Report and the notices of listed events is summarized in “APPENDIX F—FORM OF CONTINUING DISCLOSURE CERTIFICATE.” The City and its related entities have previously entered into continuing disclosure undertakings under the Rule in connection with the issuance of municipal obligations. A review of compliance with continuing 52 disclosure undertakings for filings required by the City within the last five years indicates that the City may not have fully complied with its prior continuing disclosure undertakings under the Rule. Identification of the below described events does not constitute a representation by the City that the late filings were material. In the past five years, the City did not timely file annual reports for its prior continuing disclosure undertakings, such filings were made between 1 and 406 days late. Further, the City is aware that not all of the required information was included in certain years with respect to the continuing disclosure undertaking entered into in connection with the issuance of its 2003 Lease Revenue Refunding Certificates of Participation. The City has made supplemental filings and believes that it is currently in compliance with its continuing disclosure undertakings. In order to promote compliance by the City and its related entities with their respective continuing disclosure undertakings, the City has retained Urban Futures, Inc. to assist with their responsibilities under the Disclosure Certificate. FINANCIAL STATEMENTS The City’s financial statements for the fiscal year ended June 30, 2019, included in Appendix B hereto, have been audited by Badawi and Associates, Berkeley, California, independent auditors, as stated in their report appearing in Appendix B hereto. Badawi and Associates has not consented to the inclusion of its report as Appendix B and has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Badawi and Associates with respect to any event subsequent to its report dated December 31, 2019. LITIGATION To the best knowledge of the City, there is no action, suit or proceeding pending or threatened either restraining or enjoining the execution or delivery of the Series 2020 Bonds or the Indenture, or in any way contesting or affecting the validity of the foregoing or any proceedings of the City taken with respect to any of the foregoing. Although the City may, from time to time, be involved in legal or administrative proceedings arising in the ordinary course of its affairs, it is the opinion of the City that any currently-pending or known threatened proceedings will not materially affect the City’s finances or impair its ability to meet its obligations with respect to the Series 2020 Bonds. RATINGS S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC (“S&P”) has assigned the Series 2020 Bonds a rating of “[____].” Such rating reflects only the views of S&P, and does not constitute a recommendation to buy, sell or hold the Series 2020 Bonds. Explanation of the significance of such rating may be obtained only from the respective organizations at the following address, which is current as of the date of this Official Statement: S&P Global Ratings, 55 Water Street, New York, New York 10041. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by S&P, if in the judgment of S&P, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Series 2020 Bonds. UNDERWRITING The Series 2020 Bonds are being purchased by BofA Securities, Inc. (the “Underwriter”). The Underwriter has agreed, subject to certain conditions, to purchase the Series 2020 Bonds at a price of $_____________ (which consists of the aggregate principal amount of the Series 2020 Bonds of $_____________, plus/less a net original issue premium/discount of $____________ and less Underwriter’s 53 discount of $____________). The Bond Purchase Agreement relating to the Series 2020 Bonds (the “Purchase Agreement”) provides that the Underwriter will purchase all of the Series 2020 Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The initial offering prices stated on the inside front cover page of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Series 2020 Bonds to certain dealers (including dealers depositing Series 2020 Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices. MUNICIPAL ADVISOR The City has retained Urban Futures, Inc., Tustin, California, as municipal advisor (the “Municipal Advisor”) in connection with the sale of the Series 2020 Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information that is contained in this Official Statement. The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. MISCELLANEOUS Included herein are brief summaries of certain documents and, reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Series 2020 Bonds. The execution and delivery of this Official Statement has been duly authorized by the City. CITY OF AZUSA By: Sergio Gonzalez, City Manager A-1 APPENDIX A SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA The following information is presented as general background data. The Bonds are payable solely from the sources as described in the Official Statement. The taxing power of the City of Azusa, the County of Los Angeles, the State of California or any political subdivision thereof is not pledged to the payment of the Bonds. General The City of Azusa (the “City”) was incorporated as a general law city in 1898, and is administered by a Council-Manager form of government. The four City Council members are elected at-large for four-year terms. Elections are staggered at two-year intervals. The office of mayor is elected at-large for a two-year term. The election coincides with those of the Council members. The City Council appoints the City Manager to manage the City’s staff and implement the policies established by the Council. The City is full-service except for its Fire Department which is contracted with Los Angeles County Fire Department. The City owns and operates an electric public utility for its citizens providing electric services to customers within the City limits. The City also owns and operates a water system whose service territory includes the City and adjoining portions of neighboring cities and unincorporated areas of the County of Los Angeles. The City is strategically located off the 210 Freeway within a 30 minute drive to Pasadena, Orange County, Inland Empire, and the Ontario International Airport. In addition to its convenient freeway access, Azusa offers several major traffic corridors, including the renowned U.S. Route 66 (Foothill Boulevard) which runs east to west through the community. The California State Route 39 runs north to the newly designated San Gabriel Mountains National Monument and south to the beach. The City covers approximately 10 square miles and boasts a diverse population of nearly 50,000. The estimated median household income is over $57,000. The City is proud of its mix of small businesses, support services, manufacturers, and large institutional employers such as Azusa Pacific University. The City is home to two Metro Gold Line Light Rail Stations as part of the Foothill Gold Line from Pasadena to Azusa. The stations are located in the heart of downtown, Azusa Downtown Station, and adjacent to Azusa Pacific University and Citrus College, APU/Citrus College Station. Population The following table offers population figures for the City, the County and the State of California (the “State”) as of January 1, 2015 through January 1, 2019. CITY OF AZUSA, COUNTY OF LOS ANGELES-LONG BEACH-GLENDALE METROPOLITAN AREA AND STATE OF CALIFORNIA POPULATION 2015-2019 1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019 City of Azusa 49,398 49,691 49,992 50,237 51,313 County of Los Angeles 10,155,753 10,185,851 10,226,920 10,254,658 10,253,716 State of California 38,952,462 39,214,803 39,504,609 39,740,508 39,927,315 ______________________ Source: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties, and the State, 2011- 2019, with 2010 Benchmark. A-2 Construction Activity The following table shows building permit valuations and new housing units in the City for calendar years 2014 through 2019. CITY OF AZUSA NEW HOUSING UNITS AND BUILDING PERMIT VALUATIONS 2014 THROUGH 2018 2014 2015 2016 2017 2018 2019 Valuation $101,964,571 $50,241,607 $48,114,099 $53,977,842 $44,422,626 $23,743,172 Total New Housing Units 298 112 110 158 189 182 ______________________ Source: City of Azusa. Major Industries in the County The following table lists the municipal industries located in the County as of June 30, 2019. COUNTY OF LOS ANGELES TEN LARGEST INDUSTRIES JUNE 30, 2019 Industry Number of Employees Percentage of Total Trade, Transportation and Utilities 844,200 17.44% Educational & Health Services 840,300 17.36 Professional & Business Services 627,300 12.96 Government 603,900 12.48 Leisure & Hospitality 555,400 11.47 Manufacturing 344,400 7.11 Financial Activities 219,900 4.54 Information 210,100 4.34 Other Services 164,600 3.40 Construction 157,900 3.26 Ten largest industries 4,568,000 94.36 All other industries 272,800 5.64 Total industries $4,840,800 100.00% ______________________ Note: Employment by industry is presented because the County has been unable to obtain employment numbers for individual employers. Source: County of Los Angeles Comprehensive Financial Report for Fiscal Year Ended June 30, 2019. A-3 Major Employers in the City The following table lists the ten largest employers located in the City. CITY OF AZUSA LARGEST TEN EMPLOYERS AS OF JUNE 30, 2019 2018-2019 Employer Number of Employees Rank Percentage of Total City Employment Azusa Pacific University 2,297 1 9.19% Azusa Unified School District* 1,586 2 6.34 Northrop Grumman 921 3 3.68 City of Azusa 370 4 1.48 Costco Wholesale Corporation 319 5 1.28 Hanson Distribution Company 292 6 1.17 S&S Foods LLC 275 7 1.10 Buena Vista Food Products 206 8 0.82 OJ Insulation 176 9 0.70 Alliance Environmental Group 164 10 0.66 Total Number of Employees of Largest Ten Employers 6,606 26.42% Total Number of Employees in City 25,000(1) ______________________ (1) Total City labor force provided by Employment Development Department Labor Force Data. Source: Comprehensive Annual Financial Report of the City of Azusa, California for the Fiscal Year ended June 30, 2019. A-4 Employment and Industry Employment data by industry is not separately reported on an annual basis for the City, but is compiled for the County. The following table represents the Annual Average Labor Force and Industry Employment for the County of Los Angeles Metropolitan Statistical Area for calendar years 2015 through 2018 and preliminary information through August 2019. COUNTY OF LOS ANGELES-LONG BEACH-GLENDALE METROPOLITAN AREA INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE 2014-2019 2015 2016 2017 2018 2019* Civilian Labor Force 4,989,800 5,041,400 5,096,500 5,136,300 5,194,800 Civilian Employment 4,659,700 4,776,700 4,853,800 4,896,500 4,986,700 Civilian Unemployment 330,100 264,800 242,700 239,800 208,000 Civilian Unemployment Rate 6.6% 5.3% 4.8% 4.7% 4.0% Total Farm 5,000 5,300 5,700 4,800 5,100 Total Nonfarm 4,285,800 4,394,600 4,448,300 4,510,100 4,651,000 Total Private 3,717,300 3,817,900 3,862,200 3,920,500 4,048,500 Goods Producing 497,300 497,100 490,300 491,600 504,000 Mining, Logging and Construction 129,000 136,300 140,400 147,900 161,100 Mining and Logging 2,900 2,400 2,000 1,900 1,900 Construction 126,100 133,900 138,400 146,000 159,200 Manufacturing 368,200 360,800 349,900 343,700 342,900 Service Providing 3,788,500 3,897,400 3,958,000 4,018,500 4,147,000 Trade, Transportation & Utilities 822,200 835,600 845,700 850,900 884,800 Wholesale Trade 222,400 222,100 221,500 222,800 223,000 Retail Trade 422,200 424,600 426,100 425,300 443,100 Transportation, Warehousing & Utilities 177,600 188,900 198,200 202,800 218,700 Utilities 12,100 11,900 11,500 11,600 11,600 Information 207,600 229,400 214,900 217,400 213,800 Financial Activities 215,600 219,800 221,600 223,000 224,600 Professional & Business Services 591,000 600,100 608,800 620,000 639,500 Educational & Health Services 745,900 772,700 800,600 823,600 873,100 Leisure & Hospitality 486,600 510,000 524,600 534,300 545,500 Other Services 151,000 153,300 155,700 159,700 163,200 Government 568,500 576,700 586,100 589,600 602,500 Total, All Industries 4,290,700 4,399,900 4,454,000 4,514,900 4,656,100 ______________________ Note: Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households and persons involved in labor-management trade disputes. Employment reported by place of work. Items may not add to total due to independent rounding. The “Total, All Industries” data is not directly comparable to the employment data found in this Appendix F. * Preliminary through December 2019 Source: State of California Employment Development Department. A-5 The following table summarizes the labor force, employment and unemployment figures over the past five years and preliminary figures through August 2019 for the City, the County, the State and the United States as a whole. CITY OF AZUSA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA AND UNITED STATES AVERAGE ANNUAL CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT Year and Area Labor Force Employment(1) Unemployment(2) Unemployment Rate (%) 2014 City of Azusa 23,600 22,200 1,500 6.2% Los Angeles County 4,992,600 4,580,300 412,300 8.3 California 18,714,700 17,310,900 1,403,800 7.5 United States 155,922,000 146,305,000 9,617,000 6.2 2015 City of Azusa 24,000 22,800 1,200 5.0% Los Angeles County 4,989,800 4,659,700 330,100 6.6 California 18,851,100 17,681,800 1,169,200 6.2 United States 157,130,000 148,834,000 8,296,000 5.3 2016 City of Azusa 24,700 23,500 1,300 3.9% (3) Los Angeles County 5,041,400 4,776,700 264,800 5.3 California 19,044,500 18,002,800 1,041,700 5.5 United States 159,187,000 151,436,000 7,751,000 4.9 2017 City of Azusa 25,100 23,900 1,200 4.3% (3) Los Angeles County 5,096,500 4,853,800 242,700 4.8 California 19,205,300 18,285,500 919,800 4.8 United States 160,320,000 153,337,000 6,982,000 4.4 2018 City of Azusa 25,200 24,100 1,100 4.5%(3) Los Angeles County 5,136,300 4,896,500 239,800 4.7 California 19,398,200 18,582,800 815,400 4.2 United States 162,075,000 155,761,000 6,314,000 3.9 2019 (4) City of Azusa 25,500 24,500 1,000 3.8% Los Angeles County 5,194,800 4,986,700 208,000 4.0 California 19,588,400 18,869,300 719,100 3.7 United States 164,364,000 158,510,000 5,855,000 3.6 ______________________ (1) Data may not add due to rounding. The unemployment rate is calculated using unrounded data. (2) Labor force data for all geographic areas for 1990 to 2018 now reflect the March 2018 annual revision (or benchmark) and Census 2014 population controls at the state level. (3) Data from Table 21 in City’s Comprehensive Annual Financial Report for Fiscal Year ending June 30, 2018. (4) December 2019 (Preliminary). Source: California Employment Development Department and U.S. Department of Labor, Bureau of Labor Statistics, December 2019, March 2018 Benchmark; Comprehensive Annual Financial Report of the City of Azusa, California for the Fiscal Year ended June 30, 2018. A-6 Retail Sales The table below presents the City’s retail permits and transactions for calendar years 2011 through 2017. CITY OF AZUSA TAXABLE TRANSACTIONS (IN THOUSANDS) 2011-2017 Year Retail Permits Retail Stores Taxable Transactions Total Permits Total Taxable Transactions 2011 567 $331,797 941 $416,943 2012 580 358,371 950 444,314 2013 553 369,992 911 462,152 2014 567 376,369 916 477,260 2015 602 338,455 1,011 447,264 2016 N/A 340,457 N/A 437,554 2017(1) N/A 360,220 N/A 453,643 ______________________ (1) Last year data is available. Source: “Taxable Sales in California (Sales & Use Tax),” California State Board of Equalization. Income The following table summarizes personal income for the County for 2008 through 2018. PERSONAL INCOME LOS ANGELES COUNTY 2008-2018 (DOLLARS IN THOUSANDS) Year Los Angeles County Annual Percentage Change 2008 $422,753,721 2.7% 2009 409,725,253 (3.1) 2010 428,230,025 4.5 2011 458,957,708 7.2 2012 492,050,220 7.2 2013 491,228,472 (0.2) 2014 524,856,923 6.8 2015 560,086,671 6.7 2016 578,154,382 3.2 2017 597,597,564 3.4 2018 628,808,732 5.2 ______________________ Source: U.S. Department of Commerce, Bureau of Economic Analysis The following table summarizes per capita personal income for the County, California and the United States for 2008-2018. This measure of income is calculated as the personal income of the residents of the area divided by the resident population of the area. A-7 PER CAPITA PERSONAL INCOME LOS ANGELES COUNTY, STATE OF CALIFORNIA AND THE UNITED STATES 2008-2018 Year Los Angeles County California United States 2008 $43,426 $43,890 $40,904 2009 41,863 42,044 39,284 2010 43,597 43,634 40,546 2011 46,469 46,170 42,735 2012 49,510 48,798 44,599 2013 49,132 49,277 44,851 2014 52,233 52,324 47,058 2015 55,470 55,758 48,978 2016 57,127 57,739 49,870 2017 59,058 60,156 51,885 2018 62,224 63,557 54,446 __________________________ Source: U.S. Department of Commerce, Bureau of Economic Analysis B-1 APPENDIX B CITY OF AZUSA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2019 C-1 APPENDIX C DTC AND THE BOOK-ENTRY ONLY SYSTEM The information in this Appendix concerning DTC and DTC’s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. The City gives no assurances that (i) DTC, the Direct and Indirect Participants or others will distribute payments of principal, premium (if any) or interest with respect to the Series 2020 Bonds paid to DTC or its nominee as, the registered owner, to the Beneficial Owners, (ii) such entities will distribute redemption notices or other notices, to the Beneficial Owners, or (iii) an error or delay relating thereto will not occur. The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Series 2020 Bonds. The Series 2020 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 certificate will be issued for the each maturity of the Series 2020 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. 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 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, 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. Purchases of Series 2020 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2020 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 Series 2020 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 the Series 2020 Bonds, except in the event that use of the book-entry system for the Series 2020 Bonds is discontinued. To facilitate subsequent transfers, all Series 2020 Bonds deposited by Direct Participants with DTC are registered in the name of DTCs partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2020 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2020 Bonds: DTC’s records reflect only the identity of C-2 the Direct Participants to whose accounts such Series 2020 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. 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. Redemption notices shall be sent to DTC. If less than all of the Series 2020 Bonds within a maturity 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. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2020 Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2020 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium (if any) and interest payments on the Series 2020 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the City or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal, premium (if any) and interest payments with respect to the Series 2020 Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, 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. DTC may discontinue providing its services as depository with respect to the Series 2020 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series 2020 Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2020 Bond certificates will be printed and delivered in accordance with the provisions of the Indenture. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. D-1 APPENDIX D SUMMARY OF THE INDENTURE The following is a brief summary of certain provisions of the Indenture, dated as of _________ 1, 2020, authorizing the issuance of the Series 2020 Bonds. The summary does not purport to be comprehensive or definitive and is qualified in its entirety by reference to the full terms of the Indenture, and all capitalized terms not otherwise defined herein have the meanings specified in the Indenture. E-1 APPENDIX E PROPOSED FORM OF OPINION OF BOND COUNSEL [Date of Delivery] City of Azusa Azusa, California Re: $___________ City of Azusa Taxable Pension Obligation Bonds, Series 2020 Ladies and Gentlemen: We have acted as bond counsel to the City of Azusa (the “City”) in connection with the issuance by the City of $__________ aggregate principal amount of its City of Azusa Taxable Pension Obligation Bonds, Series 2020 (the “Bonds”) pursuant to Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (the “Act”) and an Indenture, dated as of September 1, 2020 (the “Indenture”), by and between the City and Wilmington Trust, National Association, as trustee (the “Trustee”). All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, opinions of counsel to the City and the Trustee, certificates of the City and the Trustee and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Indenture 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, and no opinion is expressed herein as to any Bond if any such change occurs or action is taken or omitted upon the advice or approval of any counsel other than ourselves. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof, and we have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validly against, any parties other than the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture. In addition, we call attention to the fact that the rights and obligations under the Indenture and the Bonds and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against cities in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, waiver or severability provisions contained in the foregoing documents. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and the default judgment rendered on July 13, 2020, by the Superior Court of the County of Los Angeles in the action entitled City of Azusa v. All Persons Interested, etc. (Case No. 20PSCV00061), and in reliance thereon, as of the date hereof, we are of the following opinions: E-2 1. The Bonds constitute valid and binding obligations of the City. 2. The Indenture has been duly executed and delivered by the City and constitutes a valid and binding obligation of the City. 3. Interest on the Bonds is not excluded from gross income for federal income taxes purposes under Section 103 of the Internal Revenue Code of 1986, but is exempt from State of California personal income taxes. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Respectfully submitted, F-1 APPENDIX F CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Azusa (the “Issuer”) in connection with the issuance of $___________ City of Azusa Taxable Pension Obligation Bonds, Series 2020 (the “Bonds”). The Bonds are being issued pursuant to an Indenture dated as of September 1, 2020 (the “Indenture”) between the Issuer and Wilmington Trust, National Association, as trustee. The Issuer covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the Owners and Beneficial Owners (as defined below) of the Bonds and in order to assist the Participating Underwriter (as defined below) in complying with the Rule (as defined below). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Report” shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Annual Report Date” shall mean the date that is [nine (9) months after the end of the Issuer’s fiscal year (currently March 31 based on the Issuer’s fiscal year end of June 30)]. “Beneficial Owner” shall mean any person which: (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries); or (b) is treated as the owner of any Bonds for federal income purposes. “Disclosure Representative” shall mean the City Manager or the Director of Administrative Services of the Issuer, or their designee, or such other officer or employee as the Issuer shall designate in writing from time to time. “Dissemination Agent” shall mean, initially, the Issuer, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Issuer and which has filed with the then current Dissemination Agent a written acceptance of such designation. “Financial Obligation” shall mean (a) a debt obligation; (b) a derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (c) guarantee of (a) or (b). The term “Financial Obligation” does not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule. “Fiscal Year” shall mean the period from July 1 to June 30, or any other period selected by the Issuer as its fiscal year. “Listed Events” shall mean any of the events listed in Section 5 of this Disclosure Certificate. “MSRB” shall mean the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future “Official Statement” shall mean the Official Statement dated _________, 2020 relating to the Bonds. “Participating Underwriter” shall mean the original Underwriter of the Bonds that are required to comply with the Rule in connection with offering of the Bonds. F-2 “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. “State” shall mean the State of California. SECTION 3. Provision of Annual Reports. (a) The Issuer shall or shall cause the Dissemination Agent (if other than the Issuer) to, not later than the Annual Report Date, commencing with the report due on [March 31, 2021], provide to the MSRB an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Issuer may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report; and provided further that the first Annual Report shall consist solely of the Official Statement. An Annual Report shall be provided at least annually notwithstanding any Fiscal Year longer than 12 calendar months. The Issuer’s Fiscal Year is currently effective from July 1 to the immediately succeeding June 30 of the following year. The Issuer will promptly notify the MSRB and the Trustee of a change in its Fiscal Year. (b) Not later than fifteen (15) business days prior to each Annual Report Date, the Issuer shall provide the Annual Report to the Dissemination Agent (if other than the Issuer). If the Issuer is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the Issuer shall send a notice to the MSRB in a timely manner in the manner prescribed by the MSRB. (c) The Dissemination Agent shall: (i) determine each year prior to March 1 the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (b) if the Dissemination Agent is other than the Issuer, certify to the Issuer that the Annual Report has been filed with the MSRB pursuant to this Disclosure Certificate, and stating, to the extent that it can confirm such filing of the Annual Report, the date that it was filed. SECTION 4. Content of Annual Report. The Issuer’s Annual Report shall contain or include by reference: (a) The audited financial statements of the Issuer for the most recent Fiscal Year of the Issuer then ended. If the Issuer prepares audited financial statements and if the audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain any unaudited financial statements of the Issuer in a format similar to the financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. Audited financial statements of the Issuer shall be audited by such auditor as shall then be required or permitted by State law. Audited financial statements, if prepared by the Issuer, shall be prepared in accordance with generally accepted accounting principles as prescribed for governmental units by the Governmental Accounting Standards Board; provided, however, that the Issuer may from time to time, if required by federal or State legal requirements, modify the basis upon which its financial statements are prepared. In the event that the Issuer shall modify the basis upon which its financial statements are prepared, the Issuer shall provide the information referenced in Section 8(d) below. (i) The principal amount of the Bonds outstanding; (ii) The Issuer’s adopted general fund budget for the fiscal year then ended; (iii) Total property assessed values within the Issuer; (iv) Property tax charges and delinquencies; and The contents, presentation and format of the Annual Reports may be modified from time to time as determined in the judgment of the Issuer to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the Issuer or to reflect changes in the business, F-3 structure, operations, legal form of the Issuer or any mergers, consolidations, acquisitions or dispositions made by or affecting the Issuer; provided that any such modifications shall comply with the requirements of the Rule. The Issuer has not undertaken in this Disclosure Certificate to update all information an investor may want to have in making decisions to hold, sell or buy the Bonds but only to provide the specific information listed above. (b) Any or all of the items listed in subsections (a) or (b) above may be included by specific reference to other documents, including official statements of debt issues of the Issuer or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Issuer shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Issuershall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB); 6. tender offers; 7. defeasances; 8. ratings changes; 9. bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person; and 10. default, event of acceleration, termination event, modification of terms or other similar events under the terms of a Financial Obligation of the Issuer, any of which reflect financial difficulties. (b) Pursuant to the provisions of this Section 5, the Issuer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not more than ten (10) Business Days after occurrence: 1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds; 2. modifications to the rights of Bond holders; F-4 3. optional, unscheduled or contingent Bond redemptions; 4. release, substitution or sale of property securing repayment of the Bonds; 5. non-payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the Issuer or the sale of all or substantially all of the assets of the Issuer, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; 7. appointment of a successor or additional trustee or the change of the name of a trustee; and 8. incurrence of a Financial Obligation of the Issuer, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the Issuer, any of which affect security holders, if material. SECTION 6. Termination of Reporting Obligation. The obligation of the Issuer 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 Issuer shall give notice of such termination in the same manner as for a Listed Event under Section 5. SECTION 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the form or content of any notice or report prepared by the Issuer pursuant to this Disclosure Certificate. The Dissemination Agent may resign by providing 30 days’ written notice to the Issuer and the Fiscal Agent. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the Issuer and shall have no duty to review any information provided to it by the Issuer. The Dissemination Agent shall have no duty to prepare any information report, nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Issuer in a timely manner and in a form suitable for filing. SECTION 8. Amendment. (a) This Disclosure Certificate may be amended, without the consent of the Owners, if all of the following conditions are satisfied: (i) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the Issuer or the type of business conducted thereby; (ii) this Disclosure Certificate as so amended would have complied with the requirements of the Rule as of the date of this Disclosure Certificate, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (iii) the Issuer shall have obtained an opinion of a nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Issuer, to the same effect as set forth in clause (ii) above and to the effect that the amendment does not materially impair the interests of the Owners or Beneficial Owners. (b) This Disclosure Certificate may be amended upon obtaining consent of Owners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of the Owners of the Bonds, provided that the conditions set forth in Section 8(a)(i), (ii) and (iii) have been satisfied. (c) To the extent any amendment to this Disclosure Certificate results in a change in the type of financial information or operating data provided pursuant to this Disclosure Certificate, the first Annual Report provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change. (d) If an amendment is made to the basis on which financial statements are prepared, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information F-5 prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a quantitative and, to the extent reasonably feasible, 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. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Issuer 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 Issuer 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 Issuer shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice if occurrence of a Listed Event. The Issuer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and the Rule, may apply to the Issuer, and that under some circumstances compliance with this Disclosure Certificate, without additional disclosures or other action, may not fully discharge all duties and obligations of the Issuer under such laws. SECTION 10. Default. In the event of a failure of the Issuer to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer 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 Issuer or the Fiscal Agent to comply with this Disclosure Certificate shall be an action to compel performance. No Owner or Beneficial Owner may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the Issuer satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the Issuer shall have refused to comply therewith within a reasonable time. SECTION 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Issuer, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Issuer agrees, to the extent permitted by law, 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 attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Issuer for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Owners, or any other party. The obligations of the Issuer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 13. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing. Disclosure Representative: Director of Administrative Services City of Azusa 213 E. Foothill Blvd. Azusa, California 91702 F-6 Fiscal Agent: Wilmington Trust, National Association 650 Town Center Drive, Suite 600 Costa Mesa, California 92626 Participating Underwriter: BofA Securities, Inc. 555 California Street, Suite 1160 San Francisco, CA 94104 CITY OF AZUSA By:______________________________________ Director of Administrative Services OH&S 8/10/20 Draft 4148-6830-2113.2 $__________ CITY OF AZUSA TAXABLE PENSION OBLIGATION BONDS SERIES 2020 BOND PURCHASE AGREEMENT _______ ___, 2020 City of Azusa 213 East Foothill Boulevard Azusa, California Ladies and Gentlemen: BofA Securities, Inc. (the “Underwriter”) hereby offers to enter into this Bond Purchase Agreement (the “Purchase Agreement”) with the City of Azusa, a duly organized, validly existing and operating local agency (as defined in Section 53570 of the California Government Code) under the laws of the State of California (the “City”), whereby the [Underwriter] will purchase [and provide its professional services and its facilities as placement agent to place] and the City will sell all (but not less than all) of $__________ City of Azusa Taxable Pension Obligation Bonds, Series 2020 (the “Bonds”) subject to the conditions set forth herein. The Underwriter is making this offer subject to the acceptance by the City at or before 5:00 P.M., California time, on the date hereof. If the City accepts this Purchase Agreement, this Purchase Agreement shall be in full force and effect in accordance with its terms and shall bind both the City and the Underwriter. The Underwriter may withdraw this Purchase Agreement upon written notice delivered by the Underwriter to an Authorized Representative (as defined in the Resolution) of the City at any time before the City accepts this Purchase Agreement. Terms used but not defined in this Purchase Agreement are defined in the Indenture (as defined below). 1.The Bonds shall be issued pursuant to that certain Indenture, dated as of ______ 1, 2020 (the “Indenture”), by and between the City and Wilmington Trust, National Association, as trustee (the “Trustee”). The issuance of the Bonds shall be authorized pursuant to a resolution adopted by the City Council on December 16, 2019 and a supplemental resolution adopted by the City Council on _____ __, 2020 (together, the “Resolution”). The Bonds are being issued to fund certain pension obligations of the City as more fully described in the hereinafter mentioned Official Statement. The City Council of the City will be obligated to make appropriations to pay the Bonds from any source of legally available funds of the City. The City Council will be obligated in each fiscal year to appropriate all amounts from such funds as may be required to pay the aggregate amount of the principal of and interest on the Bonds coming due and payable in such fiscal year. The Bonds shall be issued and secured pursuant to Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the “Refunding Law”) and the Indenture. The Bonds shall be payable and shall be subject to redemption as provided in the Indenture and shall be as described in an Official Statement relating to the Bonds, dated the date hereof, as described herein. Capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture. Attachment 3 2 4148-6830-2113.2 The City is a member of the California Public Employees’ Retirement System (“PERS”), and as such, is obligated by the Public Employees’ Retirement Law, constituting Part 3 of Division 5 of Title 2 of the California Government Code (the “Retirement Law”), and the contract between the Board of Administration of PERS and the City Council of the City, effective December 20, 1948, as amended to date (the “PERS Contract”), to make contributions to PERS to (a) fund pension benefits for City employees who are members of PERS, (b) amortize the unfunded accrued actuarial liability with respect to such pension benefits, and (c) appropriate funds for the purposes described in (a) and (b). The Bonds are being issued to (i) fund the [a portion of] City’s unfunded accrued actuarial liability to PERS for the benefit of the City’s employees in an amount equal to $__________ (the “Unfunded Liability”), and (ii) pay certain costs related to the issuance of the Bonds. The Bonds shall be payable and shall be subject to redemption as provided in the Indenture and shall be as described in the Preliminary Official Statement and the Official Statement (each as defined herein). Payment of the principal of and interest on the Bonds will be insured by [__________] (the “Bond Insurer”), which will issue its municipal bond insurance policy (the “Insurance Policy”) guaranteeing such payment. The Bonds shall be initially issued in denominations of $5,000 or in any integral multiple thereof as may be requested by the Underwriter. All Bonds shall be issued in registered form in accordance with instructions to be determined by the Underwriter prior to closing. The Bonds shall be dated the date of issuance and delivered on _______ __, 2020, or such other date as mutually agreed upon by the City and the Underwriter (the “Closing Date”). 2. The purchase price for the Bonds shall be $__________ (representing the par amount of the Bonds, [plus original issue premium/less original issue discount] of $__________, and less an underwriter’s discount of $__________ and shall be paid in full upon delivery to the [Underwriter][Original Purchaser] of the Bonds. Payment for the Bonds shall be by immediately available funds. [The Underwriter intends to make an initial bona fide public offering of the Bonds at a price or prices described in Exhibit A hereto; provided, however, the Underwriter reserves the right to change such initial public offering prices as the Underwriter deems necessary or desirable, in its sole discretion, in connection with the marketing of the Bonds (but in all cases subject to the requirements of Section 5 hereof), and may offer and sell the Bonds to certain dealers, unit investment trusts and money market funds, certain of which may be sponsored or managed by the Underwriter at prices lower than the public offering prices or yields greater than the yields set forth therein (but in all cases subject to the requirements of Section 5 hereof).] 3. The City will undertake pursuant to the Indenture and a Continuing Disclosure Certificate, dated _______ __, 2020 (the “Continuing Disclosure Certificate”), and executed by the City, to provide certain annual information and notices of the occurrence of certain events, if material. A description of the undertaking is set forth in the Preliminary Official Statement (as defined below) and will also be set forth in the Official Statement (as defined below). 4. The City hereby ratifies the use by the Underwriter of the Preliminary Official Statement, dated _______ __, 2020 relating to the Bonds (together with the cover page, inside cover page, and all appendices attached thereto and any amendments or supplements and statements incorporated by reference therein or attached thereto, the “Preliminary Official Statement”), and authorizes the Underwriter to use and distribute the Preliminary Official Statement, the Official Statement (as defined below), the Indenture, and all information contained therein, and all other documents, certificates and statements furnished by the City to the Underwriter in connection with the offer and sale of the Bonds by the Underwriter. The City has heretofore “deemed final” the Preliminary Official Statement within the meaning of Rule 15c2 12. 3 4148-6830-2113.2 Within seven (7) business days from the date hereof, and in any event not later than two (2) business days before the Closing Date, the City shall deliver to the Underwriter a final Official Statement relating to the Bonds dated the date hereof (such Official Statement, including the cover page, inside cover page, and all appendices attached thereto, together with all information previously permitted to have been omitted by Rule 15c2-12 and any amendments or supplements and statements incorporated by reference therein or attached thereto, as have been approved by the City, Bond Counsel, Disclosure Counsel and the Underwriter, is referred to herein as the “Official Statement”) and such additional conformed copies thereof as the Underwriter may reasonably request in sufficient quantities to comply with Rule 15c2-12, rules of the MSRB and to meet potential customer requests for copies of the Official Statement. The Underwriter agrees to file a copy of the Official Statement, including any amendments or supplements thereto prepared by the City, with the MSRB on its Electronic Municipal Markets Access (“EMMA”) system. The Official Statement shall be executed by and on behalf of the City by an authorized officer of the City. The Official Statement shall be in substantially the same form as the Preliminary Official Statement and, other than information previously permitted to have been omitted by Rule 15c12-2, the City shall only make such other additions, deletions and revisions in the Official Statement which are approved by the Underwriter. The City hereby agrees to deliver to the Underwriter an electronic copy of the Official Statement in a form that permits the Underwriter to satisfy their obligations under the rules and regulations of the MSRB and the U.S. Securities and Exchange Commission (“SEC”) including in a word-searchable pdf format including any amendments thereto. The City hereby ratifies, confirms and consents to and approves the use and distribution by the Underwriter before the date hereof of the Preliminary Official Statement and hereby authorizes and consents to the use by the Underwriter of the Official Statement and the Indenture in connection with the public offering and sale of the Bonds. The City will undertake pursuant to the Continuing Disclosure Certificate to provide certain annual financial and operating information and notices of the occurrence of certain events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the final Official Statement. This undertaking will be entered into in order to assist the Underwriter in complying with the Rule. 5. The Underwriter agrees to offer all the Bonds to the public initially at the prices (or yields) set forth on the inside cover page of the Official Statement. Subsequent to the initial public offering of the Bonds, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds. Except as otherwise set forth in Exhibit A attached hereto, the City will treat the first price at which ten percent of each maturity of the Bonds (the “ten percent test”) is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the ten percent test). At or promptly after the execution of this Purchase Agreement, the Underwriter shall report to the City the price or prices at which it has sold to the public each maturity of the Bonds. If at that time the ten percent test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the City the prices at which it sells the unsold Bonds of that maturity to the public. The Underwriter confirms that it will offer the Bonds to the public on or before the date of this Purchase Agreement at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields set forth in Exhibit A attached hereto, except as otherwise set forth therein. Exhibit A also will set forth, as of the date of this Purchase Agreement, the maturities, if any, of the Bonds for which the ten percent test has not been satisfied and for which the City and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the City to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold- the-offering-price rule”). So long as the hold-the-offering-price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a 4 4148-6830-2113.2 price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier to occur of (i) the close of the fifth business day after the sale date; or (ii) the date on which the Underwriter has sold at least ten percent of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. The Underwriter acknowledges that sales of any Bonds to any person that is a related party to the Underwriter shall not constitute sales to the public for purposes of this subsection. A “related party” shall be defined as set forth in 26 CFR 1.150-1(b). 6. The City represents and warrants to the Underwriter that: (a) The City is a municipal corporation and general law city duly organized and existing pursuant to the Constitution and laws of the State of California and has all necessary power and authority to enter into and perform its duties under the Bonds, the Trust Agreement, the PERS Contract evidencing the City’s unfunded accrued actuarial liability as of the date of the Bonds, the Trust Agreement, the Disclosure Certificate and this Purchase Agreement (collectively, the “City Documents”), and, when executed and delivered by the respective parties thereto, the City Documents will constitute legally valid and binding obligations of the City, enforceable in accordance with their respective terms. (b) By all necessary official action, the City has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained in, the City Documents, and has approved the use by the Underwriter of the Preliminary Official Statement and the Official Statement (as such terms are defined herein) and, as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. (c) The execution and delivery of the City Documents, and compliance with the various provisions thereof, will not conflict with, or constitute a breach of or default under, the City’s duties under said documents or any material law, administrative regulation, court decree, resolution, charter, bylaws or other agreement to which the City is subject or by which it is bound. (d) Except as may be required under the securities or blue sky laws of any state, there is no consent, approval, authorization or other order of, filing with, or certification required by, any regulatory authority having jurisdiction over the City for the consummation by the City of the transactions contemplated by the Resolution and the City Documents (e) To the best of the City’s knowledge and belief, other than as disclosed in the Official Statement, there is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending, or threatened, against the City, nor to the best knowledge and belief of the City is there any basis therefor, to restrain or enjoin the payment of the Bonds as described in the Official Statement as security for the Bonds, or in any way contesting or affecting the validity of any of the City Documents, or contesting the powers of the City to enter into or perform its obligations under any of the foregoing. (f) The City agrees to cooperate with the Underwriter in endeavoring to qualify the Bonds for offering and sale under the securities or blue sky laws of such jurisdictions of the United States as the Underwriter may request; provided, however, that in no event shall the City be required to take any action which would subject it to general or unlimited service of process in any jurisdiction in which it is not now so subject. 5 4148-6830-2113.2 (g) The information with respect to the City and the Bonds contained in the Official Statement is, and at all times subsequent to the date of the Official Statement up to and including the Closing Date will be, true and correct in all material respects, and such information does not and will 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 the light of the circumstances under which they were made, not misleading. (h) The City will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The City will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (i) As of the date thereof and at all times subsequent thereto to and including the date which is 25 days following the End of the Underwriting Period (as such term is hereinafter defined) for the Bonds, the Official Statement (excluding information concerning DTC and the book-entry system as to which no representation is made) did not and will 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. If between the date hereof and the date which is 25 days after the End of the Underwriting Period for the Bonds, an event occurs which might or would cause the information contained in the Official Statement (other than information concerning DTC or the book-entry system), as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein, in light of the circumstances under which it was presented, not misleading, the City will notify the Underwriter, and, if in the opinion of the City, the Underwriter or their respective counsel, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will forthwith prepare and furnish to the Underwriter (at the expense of the City) a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to the Underwriter) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to prospective purchasers, not misleading. For the purposes of this subsection, between the date hereof and the date which is 25 days after the End of the Underwriting Period for the Bonds, the City will furnish such information with respect to itself as the Underwriter may from time to time reasonably request. As used herein and for the purposes of the foregoing, the term “End of the Underwriting Period” for the Bonds shall mean the earlier of (i) the Closing Date unless the City shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date, or (ii) the date on which the End of the Underwriting Period for the Bonds has occurred under Rule 15c2-12; provided, however, that the City may treat as the End of the Underwriting Period for the Bonds the date specified as such in a notice from the Underwriter stating the date which is the End of the Underwriting Period. (j) The City will deliver all opinions, certificates, letters and other instruments and documents reasonably required by the Underwriter and this Purchase Agreement. (k) Any certificate of the City delivered to the Underwriter shall be deemed a representation and warranty by the City to the Underwriter as to the statements made therein. 6 4148-6830-2113.2 (l) Since June 30, 2019, no material and adverse change has occurred in the financial condition, assets, properties or results of operation of the City that is not described in the Preliminary Official Statement and the Official Statement. (m) Since June 30, 2019, the City has not offered or issued any bonds, notes or other obligations for borrowed money or incurred any material liabilities, direct or contingent, other than in the ordinary course of business, which are not described in or contemplated by the Preliminary Official Statement and the Official Statement. (n) Between the date of this Purchase Agreement and the date of Closing, the City will not, without the prior written consent of the Underwriter, and except as disclosed in the Official Statement, offer or issue any bonds, notes or other obligations for borrowed money, or incur any material liabilities, direct or contingent payable from the funds pledged under the Indenture. (o) The City is not presently and as a result of the execution of the City Documents and the sale of the Bonds will not be in violation of any debt limitation, appropriation limitation or any other provision of the California Constitution or statutes or any additional debt or similar provision of any bond, note, contract or other evidence of indebtedness to which the City is a party or to which the City is bound. (p) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the City Documents. (q) Based on a review of its previous undertakings, the City has not, in the last five years, failed to comply in any material respect in its obligations under any continuing disclosure undertaking entered into pursuant to Rule 15c2 12 except as disclosed in the Official Statement. The City will undertake, pursuant to the Continuing Disclosure Certificate to provide annual reports and notices of certain events in accordance with the requirements of Rule 15c2 12. A form of the Continuing Disclosure Certificate is set forth as Appendix F to the Official Statement. 7. The Underwriter has entered into this Purchase Agreement in reliance upon the representations, warranties and agreements of the City contained herein, and the opinions of Bond Counsel, Counsel to the Trustee, and City Attorney required hereby. The Underwriter’s obligations under this Purchase Agreement are and shall be subject to the conditions set forth in Sections 8 and 9 and elsewhere herein. 8. The City will deliver or cause to be delivered to the Underwriter on or before the Closing Date in forms acceptable to the Underwriter: (a) The legal opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel in the form attached to the Official Statement, dated the Closing Date and addressed to the City, and a reliance letter addressed to the Underwriter. (b) A supplemental opinion of Bond Counsel, dated the Closing Date and addressed to the Underwriter, substantially to the effect that (i) the Purchase Agreement and the Continuing Disclosure Certificate have been duly executed and delivered by the City and are valid and binding upon the City, subject to laws relating to bankruptcy, insolvency, reorganization or creditors’ rights generally and to the application of equitable principles; (ii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the 7 4148-6830-2113.2 Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended, and (iii) the statements contained in the Official Statement under the captions “THE SERIES 2020 BONDS,” “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2020 BONDS,” “TAX MATTERS,” and “VALIDATION” and in “APPENDIX D – SUMMARY OF THE INDENTURE” and “APPENDIX D – PROPOSED FORM OF BOND COUNSEL OPINION” (insofar as such statements purport to summarize certain provisions of the Resolution, the validation action, the Bonds, the Indenture, the PERS Contract and the tax status of the Bonds) are accurate in all material respects. (c) A no-litigation certificate of the City, dated the Closing Date, to the effect that, other than as disclosed in the Official Statement, there is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending, or threatened, against the City, nor to the best knowledge and belief of the City is there any basis therefor, to restrain or enjoin the application by the City of its funds as described in the Official Statement as security for the Bonds, or in any way contesting or affecting the validity of any of the City Documents, or contesting the powers of the City to enter into or perform its obligations under any of the foregoing. (d) A negative assurance letter, dated the Closing Date and addressed to the City and the Underwriter of Best Best & Krieger LLP, as Disclosure Counsel with respect to the Preliminary Official Statement and the Official Statement. (e) An opinion of Best Best & Krieger LLP, as City Attorney, dated the Closing Date and addressed to the Underwriter, to the effect that: (i) the City is a municipal corporation and general law city duly organized and validly existing under the Constitution and laws of the State of California; (ii) the Resolution approving the City Documents and the Preliminary Official Statement and final Official Statement was fully adopted at one or more meetings of the City Council, which were called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout; (iii) to the best of such counsel’s knowledge and belief, other than as disclosed in the Preliminary Official Statement and final Official Statement, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body, pending or threatened against or affecting the City, to restrain or enjoin the application of the City’s funds as described in the Preliminary Official Statement and final Official Statement or in any way contesting or affecting the validity of any of the City Documents wherein an unfavorable decision, ruling or finding would adversely affect the validity and enforceability of the City’s obligations hereunder or under any of the other City Documents; and (iv) the representations and warranties of the City as set forth in the City Documents are, as to all matters of law and after reasonable investigation, true and accurate on and as of the Closing Date as though made on such date, and such representation and warranties are, as to all other matters, true and accurate to the best knowledge and belief of such counsel on and as of the Closing Date as though made on such date, except that the City Attorney shall not be required to render any opinion regarding the financial condition of the City. (f) An opinion of counsel to the Underwriter in a form acceptable to the Underwriter. (g) A certificate of the Authorized Officer or other designated official of the City, dated the Closing Date, to the effect that: (A) the representations and warranties made by the City in this Purchase Agreement and the other City Documents are true and correct as of the Closing Date with the same effect as if made on the Closing Date; and (B) nothing has come to such officer’s attention which would lead such officer to believe that, the information with 8 4148-6830-2113.2 respect to the City and the Bonds contained in the Preliminary Official Statement and in the final Official Statement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, said certificate otherwise being in form and substance acceptable to Bond Counsel and to the Underwriter. (h) An opinion of counsel to the Trustee, dated the Closing Date and addressed to the Underwriter, to the effect that: (i) the Trustee is a national banking association duly organized and validly existing under the laws of the United States of America, having full power and being qualified to enter into and to perform its duties as Trustee under the Indenture; and (ii) the Indenture has been duly authorized, executed and delivered by the Trustee and assuming due authorization, execution and delivery by the other party thereto, constitutes the legal, valid and binding obligation of the Trustee enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws or equitable principles relating to or limiting creditors’ rights generally. (i) A certificate of the Trustee dated the Closing Date, signed by a duly authorized officer of the Trustee, in form and substance satisfactory to the Underwriter, to the effect that: (i) the Trustee is a national banking association duly organized and in good standing under the laws of the United States of America and has all necessary power and authority to enter into and perform its duties under the Indenture; (ii) the Trustee is duly authorized to enter into the Indenture and to authenticate and deliver the Bonds to the purchaser or purchasers thereof pursuant to the terms of the Indenture; (iii) the Bonds have been duly authenticated and delivered by the Trustee to the purchaser or purchasers thereof pursuant to the Indenture; (iv) the Trustee is not in breach of or default under any law or administrative rule or regulation of the State of California or the United States of America, or of any department, division, agency or instrumentality thereof, or any applicable court or administrative decree or order, or any other instrument to which the Trustee is a party or is otherwise subject or bound and which would materially impair the ability of the Trustee to perform its obligations under the Indenture; (v) the execution and delivery of the Indenture and authentication and delivery of the Bonds will not conflict with or constitute a breach of or default under the Trustee’s duties under such documents, or any law, administrative regulation, court decree, resolution, charter, bylaws or other agreement to which the Trustee is subject or by which it is bound; (vi) the representations and agreements of the Trustee in the Indenture are true and correct in all material respects as of the Closing Date; and (vii) there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, served on, or, to the best knowledge of such officer, threatened against, the Trustee, affecting the existence of the Trustee or the titles of its officers to their respective offices, or in any way contesting or affecting the validity or enforceability of the Indenture against the Trustee, or contesting the power of the Trustee or its authority to enter into, adopt or perform its obligations under the Indenture, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Indenture against the Trustee or the authentication and delivery of the Bonds. (j) A copy of the Insurance Policy issued by the Bond Insurer, which policy guarantees the payment when due of the principal and interest on the [Insured Bonds], as described in the Official Statement. (k) An opinion of counsel to the Bond Insurer addressed to the City and the Underwriter, dated the Closing Date to the effect that (a) the Insurance Policy described in the Official Statement is a legal, valid and binding obligation of the Bond Insurer enforceable in 9 4148-6830-2113.2 accordance with its terms, and (b) the statements in the Official Statement under the caption “BOND INSURANCE” accurately reflect and fairly present the information purported to be shown therein. (l) A certificate of the Bond Insurer dated the Closing Date, signed by a duly authorized officer of the Bond Insurer, in form and substance satisfactory to the Underwriter and its counsel. (m) Evidence satisfactory to the Underwriter that the Bonds have been assigned a long-term rating of “___” by both Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., based on the issuance of the Insurance Policy by the Bond Insurer, and an underlying rating of “__.” (n) Fully executed copies of the City Documents, and a certified copy of the Resolution. (o) Complete and accurate information regarding the City, including information concerning any current or pending litigation in any way affecting the City, for inclusion in the Official Statement. (p) A certificate of the City, dated the date of the Preliminary Official Statement, signed by a duly authorized representative of the City, to the effect that: (i) the Preliminary Official Statement distributed in connection with the Bonds is “deemed final” within the meaning of Securities and Exchange Commission Rule 15c2-12, as amended (“Rule 15c2-12”); (ii) the City will cooperate with the Underwriter in transforming the Preliminary Official Statement into a final Official Statement; and (iii) the City will cause a sufficient quantity of final Official Statements to be delivered to the Underwriter within seven (7) business days after the execution of this Purchase Agreement so as to allow the Underwriter to comply with its continuing obligations under said Rule 15c2-12. (q) A letter of PERS’ actuary with the estimated unfunded accrued actuarial liability of the City with respect to the contributions to PERS to fund pension benefits for certain City employees. (r) A letter or certificate of PERS acknowledging payment of the Unfunded Liability. (s) At least one copy of the Official Statement manually executed on behalf of the City by a duly authorized officer of the City, and such reasonable number of certified or conformed copies of the foregoing as the Underwriter may request. (t) A certified copy of the Default Judgment entered by the Superior Court of the County of Los Angeles in connection with the validity of the Bonds and related matters. (u) Such additional legal opinions, certificates, instruments and other documents as the Underwriter or Bond Counsel may reasonably request to evidence compliance by the City 10 4148-6830-2113.2 with legal requirements, the truth and accuracy, as of the Closing Date, of the representations of the City herein and in the Official Statement and the due performance or satisfaction by the City on or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the City. 9. The Underwriter hereby enters into this Purchase Agreement in reliance upon the representations and warranties of the City contained herein and in reliance upon the representations and warranties contained in the documents and instruments to be delivered on the Closing Date and upon the performance by the City of its obligations hereunder, both on the date hereof and as of the Closing Date. Accordingly, the Underwriter’s obligations under this Purchase Agreement to [purchase, to accept delivery of and to pay] for the Bonds shall be conditioned upon the performance by the City of its obligations to be performed hereunder and under such documents and instruments on or prior to the Closing Date, and shall also be subject, at the option of the Underwriter, to the following additional conditions: (a) The representations and warranties of the City contained herein shall be true, complete and correct on the Closing Date, as if made on and as of the Closing Date. (b) On the Closing Date, the City Documents shall have been executed and delivered, shall be in full force and effect and shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Underwriter; and there shall be in full force and effect such resolutions as, in the opinion of Bond Counsel, shall be necessary in connection with the transactions contemplated hereby. (c) Between the date hereof and the Closing Date, the market price or marketability of the Bonds at the initial offering prices shall not have been materially adversely affected in the judgment of the Underwriter (evidenced by a written notice to the City terminating the obligations of the Underwriter to accept delivery of and pay of the Bonds) by reason of any of the following: (1) Legislation enacted (or resolution passed) by the Congress of the United States of America, or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds or the Insurance Policy, or the Bonds or the Insurance Policy, including any or all underlying arrangements, are not exempt from registration under other requirements of the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character of the Bonds, or of the Bonds, including any or all underwriting arrangements or the issuance of the Insurance Policy, as contemplated hereby or by the Official Statement or otherwise, is or would be in violation of the federal securities laws as amended and then in effect. (2) The withdrawal or downgrading of any rating of any General Fund obligation of the City or any rating of the financial strength of the Bond Insurer by a national municipal bond rating agency. (3) Any amendment to the United States or California Constitution or action by any United States or California court, legislative body, regulatory body or other 11 4148-6830-2113.2 authority materially adversely affecting the tax status of the City, its property, income securities (or interest thereon), the validity or enforceability of the Indenture or the Continuing Disclosure Certificate, the State personal income tax exemption of interest on the Bonds or the ability of the City to issue Bonds as contemplated by the Indenture and the Official Statement. (4) Any event occurring, or information becoming known which, in the reasonable judgment of the Underwriter makes untrue or misleading in any material respect any statement or information contained in the Official Statement concerning the City. (5) Any outbreak or escalation of hostilities or other national or international calamity or crisis, the effect of such outbreak, escalation, calamity or crisis on the financial markets of the United States being such as in the reasonable judgment of the Underwriter, would make it impracticable for the Underwriter to market or enforce contracts for the sale of the Bonds, or (i) there shall be in force a general suspension of trading on the New York Stock Exchange or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on the New York Stock Exchange, whether by virtue of a determination by that Exchange or by order of the Securities and Exchange Commission or any other governmental authority having appropriate jurisdiction, or (ii) a general banking moratorium shall have been declared by either federal, California or New York authorities having jurisdiction, or (iii) there shall be established any new restriction on transactions in securities materially affecting the free market for securities (including the imposition of any limitation on interest rates) or the extension of credit by, or the charge to the net capital requirements of, underwriters established by the New York Stock Exchange, the Securities and Exchange Commission, any other federal agency of the Congress of the United States, or by Executive Order, or any agency of the State of California having appropriate jurisdiction. (6) The occurrence of a major financial crisis, a material disruption in commercial banking or securities settlement or clearance services, or a material disruption or deterioration in the fixed income or municipal securities market. (7) Additional material restrictions not in force or being enforced as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange. (8) Any adverse event affecting the City or the Bond Insurer occurs which, in the reasonable judgment of the Underwriter, requires or has required a supplement or amendment to the Official Statement. 10. The Underwriter shall be under no obligation to pay, and the City shall pay or cause to be paid out of the proceeds of the Bonds, expenses and costs of the City incident to the performance of its obligations in connection with the authorization, issuance and sale of the Bonds to the Underwriter, including the costs of printing or reproduction of the Bonds, the City Documents and the Official Statement in reasonable quantities, [the premiums with respect to the Policy and the Surety], fees and expenses of any consultants, accountants, actuaries, financial advisors or other experts the City has retained in connection with the Bonds, fees of rating agencies, advertising expenses, fees and expenses of the Trustee and its counsel and fees and expenses of counsel to the City, Bond Counsel and Disclosure Counsel, shall be paid by the City from the proceeds of the Bonds or other revenues of the City. The City 12 4148-6830-2113.2 shall be solely responsible for and shall pay for any expenses incurred by the Underwriter on behalf of the City's employees and representatives which are incidental to implementing this Purchase Agreement, including, but not limited to, meals, transportation, lodging, and entertainment of those employees and representatives. Except as indicated above, all out-of-pocket expenses of the Underwriter, including traveling and expenses of selling the Bonds, California Debt and Investment Advisory Commission fees, any fees charged by the MSRB, Blue Sky fees and the fees and expenses of counsel to the Underwriter, shall be paid by the Underwriter (which may be included as an expense component of the underwriter’s discount). Notwithstanding that the California Debt and Investment Advisory Commission fees are solely the legal obligation of the Underwriter, the City agrees to reimburse the Underwriter for such fees as an expense component of the underwriter’s discount. The City acknowledges that it has had an opportunity, in consultation with such advisors as it may deem appropriate, if any, to evaluate and consider the fees and expenses being incurred as part of the issuance of the Bonds. 11. Any notice or other communication to be given to the Underwriter may be given by delivering the same to BofA Securities, Inc., 555 California Street, Suite 1160, San Francisco, CA 94104, Attention: Holly Vocal, Director, phone: (415) 913-2327, e-mail: holly.vocal@bofa.com. Any notice or other communication to be given to the City may be given by delivering the same to addresses initially provided herein, Attention: City Manager with respect to the City. The approval of the Underwriter when required hereunder or the determination of satisfaction as to any document referred to herein shall be in writing signed by the Underwriter and delivered to you. 12. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which such counterparts shall together constitute but one and the same instrument. 13. This Purchase Agreement is made solely for the benefit of the City and the Underwriter (including the successors or assigns of the Underwriter) and no other persons, partnership, association or corporation shall acquire or have any right hereunder or by virtue hereof. All covenants and representations of the City in this Purchase Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter and shall survive the delivery of and payment for the Bonds. 14. This Purchase Agreement shall be governed by the laws of the State of California applicable to contracts made and performed in such State. 15. The City acknowledges and agrees that: (i) the Underwriter is not acting as a municipal advisor within the meaning of Section 15B of the Securities Exchange Act, as amended; (ii) the primary role of the Underwriter, as underwriter, is to purchase securities, for resale to investors, in an arm’s length commercial transaction between the City and the Underwriter and the Underwriter has financial and other interests that differ from those of the City; (iii) the Underwriter is acting solely as principals and are not acting as municipal advisors, financial advisors or fiduciaries to the City and has not assumed any advisory or fiduciary responsibility to the City with respect to the transaction contemplated hereby and the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the City on other matters); (iv) the only obligations the Underwriter has to the City with respect to the transaction contemplated hereby expressly are set forth in this Purchase Agreement; and (v) the City has consulted its own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent it has deemed appropriate. The City hereby further acknowledges and agrees that the Underwriter and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, 13 4148-6830-2113.2 hedging, financing and brokerage activities. The Underwriter and its affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the City, for which it received or will receive customary fees and expenses. In the ordinary course of its various business activities, the Underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for its own account and for the accounts of its customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the City. 16. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the City and the Underwriter and shall be valid and enforceable as of the time of such acceptance. 17. The City hereby irrevocably waives to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Purchase Agreement or the transactions contemplated hereby. 18. This Purchase Agreement shall be governed by the laws of the State of California. This Purchase Agreement shall not be assigned by either party hereto. 14 4148-6830-2113.2 19. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understandings between the parties hereto in relation to the sale of Bonds by the City and represents the entire agreement of the parties as to the subject matter herein. Respectfully submitted, BOFA SECURITIES, INC. By: Title: Approved and accepted by the CITY OF AZUSA By: [City Manager] A-1 4148-6830-2113.2 EXHIBIT A $__________ City of Azusa Taxable Pension Obligation Bonds Series 2020 Maturity Date (January 1) Principal Amount Interest Rate Yield [10% Maturity Sold] $___________ ____% Term Bond due January 1, 20__ Yield _____% $___________ ____ % Term Bond due January 1, 20__ Yield _____% Optional and Mandatory Redemption Optional Redemption. The Series 2020 Bonds maturing on or before January 1, 20__ are not subject to optional redemption prior to their respective maturities. The Series 2020 Bonds maturing after January 1, 20_, are subject to optional redemption from any source of available funds of the City, prior to their respective maturities, in whole or in part among maturities as specified by the City, and by lot within a maturity, on any date on or after January 1, 20__, at a redemption price equal to 100% of the principal amount of the Series 2020 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Sinking Fund Redemption. The Series 2020 Bonds maturing January 1, 20__ (the “20__ Term Bonds”), are subject to mandatory redemption from mandatory Sinking Account payments, in part, by lot, on January 1, 20__, and on each January 1 thereafter to and including January 1, 20__, from money on hand in the Sinking Account at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the redemption date, without premium, as set forth below (subject to modification in the event of an option redemption mentioned above): Redemption Date (January 1) Principal Amount The Series 2020 Bonds maturing January 1, 20__ (the “20__ Term Bonds” and together with the 20__ Term Bonds, the “Series 2020 Term Bonds”), are subject to mandatory redemption from mandatory Sinking Account payments, in part, by lot, on January 1, 20__, and on each January 1 thereafter to and including January 1, 20__, from money on hand in the Sinking Account at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the redemption date, without premium, as set forth below (subject to modification in the event of an option redemption mentioned above): A-2 4148-6830-2113.2 Redemption Date (January 1) Principal Amount [Revise Schedules following Optional Redemption] In lieu of any such redemption, the City may, from lawfully available funds, direct the Trustee to purchase the Series 2020 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest) as may be directed by the City prior to the selection of Series 2020 Bonds for redemption, and such purchased Series 2020 Bonds shall be cancelled. Selection of Bonds for Redemption. [The Series 2020 Term Bonds shall be subject to redemption pro rata among the Holders_______________________.] The Series 2020 Term Bonds shall be redeemed prior to their stated maturity in part on January 1 of each year indicated above, pro rata among the Holders, solely from Sinking Fund Account Payments in the amounts and on the dates set forth above, upon mailed notice as provided below, at a redemption price equal to the sum of the principal amount thereof plus accrued interest thereon to the redemption date, without premium. For the purposes of such selection, the Series 2020 Term Bonds selected for redemption shall be deemed to be composed of $5,000 portions and any such portion may be separately prepaid. The Trustee shall promptly notify the City in writing of the Series 2020 Term Bonds so selected for redemption. So long as there is a securities depository for the Series 2020 Term Bonds, there will only be one Holder and neither the City nor the Trustee will have responsibility for pro rating partial redemptions among Beneficial Owners of Series 2020 Term Bonds 45635.01436\32560729.2 ______________________________________________________________________________ INDENTURE by and between WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee, and the CITY OF AZUSA for the CITY OF AZUSA TAXABLE PENSION FUNDING BONDS, SERIES 2020 Executed and Entered Into as of September 1, 2020 ______________________________________________________________________________ Attachment 4 TABLE OF CONTENTS Page 45635.01436\32560729.2 -i- ARTICLE I DEFINITIONS; EQUAL SECURITY ................................................................ 2 Section 1.01 Definitions.................................................................................................. 2 Section 1.02 Equal Security .......................................................................................... 16 ARTICLE II ISSUANCE OF THE SERIES 2020 BONDS; GENERAL BOND PROVISIONS .................................................................................................... 16 Section 2.01 Authorization and Purpose of and Obligation Under the Series 2020 Bonds .............................................................................................. 16 Section 2.02 Assignment and Pledge for the Series 2020 Bonds ................................. 17 Section 2.03 Terms of the Series 2020 Bonds .............................................................. 17 Section 2.04 Redemption of the Series 2020 Bonds ..................................................... 18 Section 2.05 Procedure for the Issuance of the Series 2020 Bonds; Application of Proceeds of the Series 2020 Bonds...................................................... 20 Section 2.06 Form of the Series 2020 Bonds ................................................................ 20 Section 2.07 Execution of the Bonds ............................................................................ 21 Section 2.08 Transfer and Payment of the Bonds; Transfer Restrictions ..................... 21 Section 2.09 Exchange of the Bonds ............................................................................ 21 Section 2.10 Bond Registration Books ......................................................................... 22 Section 2.11 Mutilated, Destroyed, Stolen or Lost Bonds ............................................ 22 Section 2.12 Temporary Bonds..................................................................................... 22 Section 2.13 Validity of the Bonds ............................................................................... 23 Section 2.14 Book-Entry System for the Series 2020 Bonds ....................................... 23 Section 2.15 Bond Insurer Provisions. [To Come] ....................................................... 24 Section 2.16 [Bond Insurer as Third Party Beneficiary] ............................................... 25 ARTICLE III ISSUANCE OF ADDITIONAL BONDS ......................................................... 25 Section 3.01 Conditions for the Issuance of Additional Bonds .................................... 25 Section 3.02 Procedure for the Issuance of Additional Bonds ..................................... 26 ARTICLE IV FUNDS AND ACCOUNTS .............................................................................. 26 Section 4.01 Deposits to Bond Fund............................................................................. 26 Section 4.02 Allocation of Money in the Bond Fund ................................................... 27 Section 4.03 Deposit and Investments of Money in Accounts and Funds ................... 28 Section 4.04 Establishment of Deposit Fund and Transfers Therefrom ....................... 29 TABLE OF CONTENTS (continued) Page 45635.01436\32560729.2 -ii- ARTICLE V COVENANTS OF THE CITY .......................................................................... 29 Section 5.01 Punctual Payment and Performance ........................................................ 29 Section 5.02 Extension of Payment of the Bonds ......................................................... 29 Section 5.03 Accounting Records and Reports............................................................. 30 Section 5.04 Prosecution and Defense of Suits ............................................................ 30 Section 5.05 Continuing Disclosure ............................................................................. 30 Section 5.06 Waiver of Laws ........................................................................................ 30 Section 5.07 Further Assurances................................................................................... 30 Section 5.08 Reporting Requirements .......................................................................... 30 ARTICLE VI THE TRUSTEE ................................................................................................. 31 Section 6.01 The Trustee .............................................................................................. 31 Section 6.02 Liability of the Trustee............................................................................. 32 Section 6.03 Compensation and Indemnification of the Trustee .................................. 35 ARTICLE VII AMENDMENT OF THE INDENTURE .......................................................... 35 Section 7.01 Amendment of the Indenture ................................................................... 35 Section 7.02 Disqualified Bonds................................................................................... 37 Section 7.03 Endorsement or Replacement of Bonds After Amendment .................... 37 Section 7.04 Amendment by Mutual Consent .............................................................. 37 Section 7.05 [Bond Insurer Notice and Consent ........................................................... 37 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF HOLDERS .......................... 38 Section 8.01 Events of Default ..................................................................................... 38 Section 8.02 Remedies for Events of Default ............................................................... 38 Section 8.03 Application of Funds Upon Acceleration ................................................ 39 Section 8.04 Institution of Legal Proceedings by the Trustee ...................................... 39 Section 8.05 Non Waiver .............................................................................................. 39 Section 8.06 Actions by the Trustee as Attorney in Fact .............................................. 40 Section 8.07 Remedies Not Exclusive .......................................................................... 40 Section 8.08 Limitation on Holders’ Right to Sue ........................................................ 40 Section 8.09 Absolute Obligation of the City ............................................................... 41 Section 8.10 [Rights of the Bond Insurer] .................................................................... 41 ARTICLE IX DEFEASANCE ................................................................................................. 41 Section 9.01 Discharge of the Bonds ............................................................................ 41 TABLE OF CONTENTS (continued) Page 45635.01436\32560729.2 -iii- Section 9.02 Unclaimed Money .................................................................................... 42 ARTICLE X MISCELLANEOUS .......................................................................................... 43 Section 10.01 Benefits of the Indenture Limited to Parties ............................................ 43 Section 10.02 Successor Is Deemed Included In All References To Predecessor .......... 43 Section 10.03 Execution of Documents by Holders ....................................................... 43 Section 10.04 Waiver of Personal Liability .................................................................... 43 Section 10.05 Acquisition of Bonds by the City............................................................. 43 Section 10.06 Notice to Holders ..................................................................................... 44 Section 10.07 Content of Certificates ............................................................................. 44 Section 10.08 Accounts and Funds; Business Days ....................................................... 44 Section 10.09 Addresses of Notice Parties ..................................................................... 44 Section 10.10 Article and Section Headings, Singular and Plural Forms, Gender and References ......................................................................................... 45 Section 10.11 Partial Invalidity....................................................................................... 45 Section 10.12 Execution in Counterparts........................................................................ 45 Section 10.13 Governing Law ........................................................................................ 46 APPENDIX A FORM OF STANDARD BOND .................................................................. A-1 APPENDIX B FORM OF CAPITAL APPRECIATION BOND ..........................................B-1 APPENDIX C FORM OF CONVERTIBLE CAPITAL APPRECIATION BOND .............C-1 APPENDIX D INTEREST RATE AND PAYMENT DATES, PRINCIPAL PAYMENT DATES, MANDATORY AND OPTIONAL REDEMPTION PROVISIONS FOR 2020 BONDS .............................................................. D-1 45635.01436\32560729.2 1 INDENTURE The Indenture (the “Indenture”), executed and entered into as of September 1, 2020, by and between WILMINGTON TRUST, NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America, as Trustee (the “Trustee”), and the CITY OF AZUSA, California, a municipal corporation organized and validly existing under the Constitution and laws of the State of California (the “City”); W I T N E S S E T H: WHEREAS, the City is obligated by Sections 20000 et seq. of the California Government Code (the “PERS Retirement Law”), to make payments to the California Public Employees’ Retirement System, or any successor system established by the State (“PERS”) relating to pension benefits accruing to City employees who are PERS members; WHEREAS, the City has entered into a contract with PERS dated December 20, 1948, as heretofore and hereafter amended from time to time (the “PERS Contract”), evidencing the City’s obligation to pay PERS the City’s unfunded accrued actuarial liability and its normal annual contribution to PERS; and WHEREAS, the City’s obligation to PERS as evidenced by the PERS Contract is a debt obligation of the City imposed by law; and WHEREAS, the City is authorized pursuant to Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California (the “Act”) to issue refunding bonds for the purpose of refunding any evidence of indebtedness of the City; and WHEREAS, for the purpose of refunding the City’s obligations to PERS evidenced by the PERS Contract, the City has determined to issue its City of Azusa Taxable Pension Funding Bonds, Series 2020, in the aggregate principal amount of $__________ (the “Series 2020 Bonds” and, together with Additional Bonds, the “Bonds”) under the Act in the form and manner provided herein; and WHEREAS, the Series 2020 Bonds, together with any Additional Bonds, were validated pursuant to the Judgment of Validation dated July 13, 2020 in Los Angeles County Superior Court Case No. 20PSCV00061; and WHEREAS, in order to provide for the execution, authentication and delivery of the Bonds and to establish and declare the conditions and terms under which the Bonds will be issued and to secure the payment of the principal, Accreted Value or redemption price of and the interest on the Bonds, the City has authorized the execution and delivery of the Indenture; and WHEREAS, the City has determined that all acts and proceedings required by law necessary to make the Bonds, when executed by the City and authenticated and delivered by the Trustee hereunder, the legal, valid and binding obligations of the City payable in accordance with their terms, and to constitute the Indenture a valid and binding agreement of the parties 45635.01436\32560729.2 2 hereto for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of the Indenture has been in all respects duly authorized; NOW, THEREFORE, THE INDENTURE WITNESSETH, that in order to secure the payment of the principal, Accreted Value or redemption price of and the interest on all Bonds at any time issued and outstanding hereunder according to their tenor, and to secure the performance and observance of all agreements and covenants contained herein and therein, and to declare the conditions and terms upon and subject to which the Bonds will be issued, delivered and received, and in consideration of the premises and of the mutual covenants contained herein and of the purchase and acceptance of the Bonds by the respective registered holders thereof, and for other valuable consideration, the receipt of which is hereby acknowledged, the City hereby agrees and covenants with the Trustee, for the benefit of the respective registered holders from time to time of the Bonds, as follows: ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01 Definitions. Unless the context otherwise requires, the terms defined in this section shall for all purposes hereof and of any supplemental indenture and of any certificate, opinion, request or other document mentioned herein or therein have the meanings defined herein: Accreted Value The term “Accreted Value” means with respect to any Capital Appreciation Bond or Convertible Capital Appreciation Bond, as of any date of calculation, the sum of the Principal Amount thereof and the interest accrued thereon to such date of calculation, compounded from the date of initial issuance at, (i) in the case of Capital Appreciation Bonds, the stated yield to maturity thereof, and (ii) in the case of Convertible Capital Appreciation Bonds, the stated yield to the Conversion Date thereof, assuming in any such semiannual period that such Accreted Value increases in equal daily amounts on the basis of a 360-day year comprised of twelve 30- day months. Act The term “Act” means Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State. Actuary’s Report The term “Actuary’s Report” means a report signed by an Independent Actuary. Administrative Expense Account The term “Administrative Expense Account” means the account by that name established pursuant to Section 4.02. 45635.01436\32560729.2 3 Authorized Denominations The term “Authorized Denominations” means (a) as to Bonds issued as Fixed Rate Bonds, $5,000 principal amount or any integral multiple thereof; (b) as to Bonds issued as Capital Appreciation Bonds, $5,000 Maturity Amount or any integral multiple thereof; (c) as to Bonds issued as Convertible Capital Appreciation Bonds, $5,000 Conversion Date Amount or any integral multiple thereof; and (d) any other principal amount or integral multiple thereof as provided in a Supplemental Indenture. Beneficial Owner The term “Beneficial Owner” means, Cede & Co., as the beneficial owner of each such Bond, determined under the rules of DTC. Bond Counsel The term “Bond Counsel” means Best Best & Krieger LLP or another attorney or firm of attorneys of recognized national standing in the field of law relating to municipal securities selected by the City. Bond Fund The term “Bond Fund” means the Bond Fund established in Section 4.02. Bond Insurer The term “Bond Insurer” means the issuer, if any, of the Insurance Policy on the Bonds, but only so long as the Insurance Policy is then in effect. Bonds, Series 2020 Bonds, Additional Bonds, Serial Bonds, Term Bonds The term “Bonds” means the Series 2020 Bonds and all Additional Bonds. The term “Series 2020 Bonds” means the Bonds designated the “City of Azusa Taxable Pension Funding Bonds, Series 2020” authorized to be issued pursuant hereto and at any time Outstanding hereunder that are executed, authenticated, issued and delivered in accordance with Article II. The term “Additional Bonds” means all Bonds of the City authorized to be issued pursuant hereto and at any time Outstanding hereunder that are executed, authenticated, issued and delivered in accordance with Article III. The term “Serial Bonds” means Bonds for which no Sinking Fund Account Payments are provided. The term “Term Bonds” means Bonds which are payable on or before their specified maturity date or dates from Sinking Fund Account Payments established for that purpose and calculated to retire such Bonds on or before their specified maturity dates. 45635.01436\32560729.2 4 Bond Year The term “Bond Year” means the twelve-month period ending on August 1 of each year to which reference is made. The first Bond Year shall commence on the date the Series 2020 Bonds are originally delivered and shall end on August 1, 2021. Business Day The term “Business Day” means any day other than (i) a Saturday or a Sunday, (ii) a day on which banking institutions in the city in which the Corporate Trust Office of the Trustee is located or banking institutions in New York, New York, are authorized or required by law to be closed, or (iii) a day on which the New York Stock Exchange is closed. Capital Appreciation Bonds The term “Capital Appreciation Bonds” means those Bonds issued in Maturity Amounts of $5,000 or any integral multiple thereof, which by their terms accrete interest on a compounded basis payable, together with their Principal Amount, solely at maturity or on a Redemption Date, if any. Certificate of the City The term “Certificate of the City” means an instrument in writing signed by a City Representative. City The term “City” means the City of Azusa, a municipal corporation organized and validly existing under the Constitution and laws of the State of California. City Manager The term “City Manager” shall mean the person who is the duly appointed and acting City Manager of the City. City Representative The term “City Representative” means the Mayor, the Mayor Pro Tem, the City Manager, the Director of Administrative Services, or any other person authorized by the City in a written order or resolution to perform an act or sign a document on behalf of the City for the purposes hereof. Closing Date The term “Closing Date” means the date on which the Bonds are initially delivered to the Purchaser against payment by the Purchaser to the Trustee of the purchase price thereof. 45635.01436\32560729.2 5 Conversion Date The term “Conversion Date” means the date set (a) in Appendix D hereto, with respect to the Series 2020 Bonds, if any, that are Convertible Capital Appreciation Bonds, and (b) in the corresponding exhibit of any Supplemental Indenture pursuant to which Convertible Capital Appreciation Bonds are subsequently issued Conversion Date Amount The term “Conversion Date Amount” means the Accreted Value of any Convertible Capital Appreciation Bond on its Convertible Conversion Date. Convertible Capital Appreciation Bonds The term “Convertible Capital Appreciation Bonds” means those Bonds constituting convertible capital appreciation bonds issued as serial and term bonds with Accreted Values at the Conversion Date for such Bonds in integral multiples of $5,000. Corporate Trust Office The term “Corporate Trust Office” means the principal corporate trust office of the Trustee in Los Angeles, California; provided, that the Trustee may designate in writing to the City and the Holders such other office or agency from time to time for purposes of registration, transfer, exchange, payment or redemption of any of the Bonds. Costs of Issuance The Term “Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the City and related to each Series of Bonds, including, but not limited to, costs of preparation and reproduction of documents, costs of rating agencies and costs to provide information required by rating agencies, filing and recording fees, initial fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, fees and expenses of the underwriter, fees and charges for preparation, execution and safekeeping of the related Series of Bonds, and any other cost, charge or fee in connection with the original issuance of the related Series of Bonds. Director of Administrative Services The term “Director of Administrative Services” means the Director of Administrative Services of the City. DTC The term “DTC” means The Depository Trust Company and any successor to it or any nominee of it. 45635.01436\32560729.2 6 Event of Bankruptcy The term “Event of Bankruptcy” means the filing of a petition in bankruptcy or the commencement of a proceeding under the United States Bankruptcy Code or any other applicable law concerning insolvency, reorganization or bankruptcy by or against the City. Event of Default The term “Event of Default” means an event described as such in Section 8.01. Federal Securities The term “Federal Securities” means (1) Cash (insured at all times by the Federal Deposit Insurance Corporation), (2) Obligations of, or obligations guaranteed as to principal and interest by, the U.S. or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the U.S. If a Federal Security is used for defeasance of the Bonds, it must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the Bonds (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date). Fiscal Year The term “Fiscal Year” means the twelve month period terminating on June 30 of each year, or any other annual accounting period hereafter designated by the City as its Fiscal Year under applicable law. Fitch The term “Fitch” means Fitch, Inc., a corporation duly organized and existing under the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the services of a municipal securities rating agency, then the term “Fitch” shall be deemed to refer to any other nationally recognized municipal securities rating agency selected by the City and satisfactory to and approved by the Bond Insurer. Fixed Rate The term “Fixed Rate” means a rate of interest that does not change during a specific term, without adjustment, resetting or variation due to the effects of marketing, remarketing or indices. 45635.01436\32560729.2 7 Fixed Rate Bonds The term “Fixed Rate Bonds” means those Bonds which, by their terms, have been issued in denominations of $5,000 Principal Amount or any integral multiple thereof, bear interest at Fixed Rates, payable semiannually (except that the first interest period with respect thereto may be less than six months but not more than twelve months following their Closing Date), and shall include Standard Bonds. Holder The term “Holder” means any person who shall be the registered owner of any Outstanding Bond, as shown on the registration books maintained by the Trustee under Section 2.10. Indenture The term “Indenture” means the Indenture executed and entered into under the Act as of September 1, 2020, by and between the Trustee and the City, as originally executed and as it may from time to time be amended or supplemented by all Supplemental Indentures executed under the provisions hereof. Independent Actuary The term “Independent Actuary” means a representative of PERS or any firm of actuaries duly licensed and entitled to practice and practicing as such under the laws of the State, appointed and paid by the City, and each of whom – (1) is in fact independent and not under the domination of the City; (2) does not have a substantial financial interest, direct or indirect, in the operations of the City; and (3) is not connected with the City as a director, officer or employee of the City, but may be regularly retained to audit the accounting records of and make reports thereon to the City. Independent Certified Public Accountant The term “Independent Certified Public Accountant” means any individual or firm of certified public accountants duly licensed and entitled to practice and practicing as such under the laws of the State, appointed and paid by the City, and who or each of whom -- (1) is in fact independent and not under the domination of the City; (2) does not have a substantial financial interest, direct or indirect, in the operations of the City; and 45635.01436\32560729.2 8 (3) is not connected with the City as a member of the City Council, officer or employee of the City, but which individual or firm may be regularly retained to audit the accounting records of and make reports thereon to the City. Information Services The term “Information Services” means the Electronic Municipal Market Access System (referred to as “EMMA”), a facility of the Municipal Securities Rulemaking Board (at http://emma.msrb.org) or, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other national information services providing information with respect to called bonds as the City may designate to the Trustee. Insurance Policy The term “Insurance Policy” means the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on a series of the Bonds as provided therein. Interest Account The term “Interest Account” means the account by that name established pursuant to Section 4.02. Interest Accrual Date The term “Interest Accrual Date” means each date established for the accrual and compounding of interest on Capital Appreciation Bonds and Convertible Capital Appreciation Bonds as may be set forth in a Supplemental Indenture. Interest Payment Date The term “Interest Payment Date” means each date upon which interest is due on the Bonds (excepting Capital Appreciation Bonds and Convertible Capital Appreciation Bonds, prior to the Conversion Date), as initially set forth in Appendix D hereto. Maturity Amount The term “Maturity Amount” means (i) the Accreted Value of any Capital Appreciation Bond on its maturity date and (ii) the Conversion Date Amount. Mode The term “Mode” means the Principal Amount, Authorized Denomination, interest rate and payment structure, including any methodology for the reset thereof, for any Series of Bonds. The Indenture authorizes the issuance of Bonds in the following Modes: Fixed Rate Bonds, Capital Appreciation Bonds, Convertible Capital Appreciation Bonds, and any other fixed or variable rate Mode as set forth in a Supplemental Indenture. 45635.01436\32560729.2 9 Moody’s The term “Moody’s” means Moody’s Investors Service, a corporation duly organized and existing under the laws of the State of Delaware, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the services of a municipal securities rating agency, then the term “Moody’s” shall be deemed to refer to any other nationally recognized municipal securities rating agency selected by the City and satisfactory to and approved by the Bond Insurer. Municipal Advisor The term “Municipal Advisor” means Urban Futures, Inc. or any other entity designated by the City in writing. Opinion of Counsel The term “Opinion of Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the City and satisfactory to and approved by the Bond Insurer (who shall be under no liability by reason of such approval). Outstanding The term “Outstanding,” when used as of any particular time with reference to any Bonds, means (subject to the provisions of Section 7.02) all Bonds executed by the City and authenticated by the Trustee hereunder except: (1) Bonds theretofore cancelled and destroyed by the Trustee or surrendered to the Trustee for cancellation and destruction under Section 10.05; (2) Bonds paid or deemed to have been paid under Section 9.01; and (3) Bonds in lieu of or in substitution for which other Bonds shall have been executed by the City and authenticated and delivered by the Trustee under Section 2.11. Participant The term “Participant” or “DTC Participant” has the meaning given to that term in Section 2.14(b). Payment Date The term “Payment Date” means any Interest Payment Date, any Principal Payment Date or any Redemption Date. Permitted Investments The term “Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be 45635.01436\32560729.2 10 invested therein, but only to the extent that the same are acquired at Fair Market Value (provided the Trustee may rely upon any investment direction from the Agency as a certification to it that such investment constitutes a Permitted Investment and the Trustee shall not be responsible to determine Fair Market Value): (a) Federal Securities; (b) bonds, debentures, notes or other evidence of indebtedness 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): (i) direct obligations or fully guaranteed certificates of beneficial ownership of the U.S. Export-Import Bank; (ii) certificates of beneficial ownership of the Farmers Home Administration; (iii) obligations of the Federal Financing Bank; (iv) debentures of the Federal Housing Administration; (v) participation certificates of the General Services Administration; (vi) guaranteed mortgage-backed bonds or guaranteed pass-through obligations of the Government National Mortgage Association; (vii) guaranteed Title XI financings of the U.S. Maritime Administration; (viii) project notes, local authority bonds, new communities debentures and U.S. public housing notes and bonds of the U.S. Department of Housing and Urban Development; (c) bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): (i) senior debt obligations of the Federal Home Loan Bank System; (ii) participation certificates and senior debt obligations of the Federal Home Loan Mortgage Corporation; (iii) mortgaged-backed securities and senior debt obligations of the Federal National Mortgage Association (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal); (iv) senior debt obligations of the Student Loan Marketing Association; (v) obligations (but only the interest component of stripped obligations) of the Resolution Funding Corporation; and (vi) consolidated system wide bonds and notes of the Farm Credit System; (d) money market funds (including funds of the Trustee or its affiliates) 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 S&P of “AAAm-G”, “AAAm”, or, if rated by Moody’s, rated Aaa, Aa1 or Aa2, including funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services; (e) certificates of deposit secured at all times by collateral described in (a) or (b) above, which have a maturity of one year or less, which are issued by commercial banks, including affiliates of the Trustee, savings and loan associations or mutual savings banks, and such collateral must be held by a third party, and the Trustee on behalf of the Bond Owners must have a perfected first security interest in such collateral; 45635.01436\32560729.2 11 (f) certificates of deposit, savings accounts, deposit accounts or money market deposits (including those of the Trustee and its affiliates) which are fully insured by the Federal Deposit Insurance Corporation; (g) investment agreements, including guaranteed investment contracts, approved by the Bond Insurer and which are general obligations of an entity whose long term debt obligations, or claims paying ability, respectively, or which are collateralized so as to be is rated in one of the two highest rating categories by Moody's or S&P or which are collateralized so as to be rated in one of the two highest rating categories by Moody's or S&P;; (h) commercial paper rated, at the time of purchase, “Prime-1” by Moody's and “A-1” or better by S&P; (i) bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies; (j) federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of “Prime-1” or “A3” or better by Moody's and “A-1” or “A” or better by S&P; (k) repurchase agreements approved by the Bond Insurer and which are 30 days or less or, if longer, which provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee in exchange for the securities at a specified date, which satisfy the following criteria: (i) repurchase agreements must be between the Trustee and (A) a primary dealer on the Federal Reserve reporting dealer list which falls under the jurisdiction of the Securities Investors Protection Corporation and which are rated “A” or better by Moody's and S&P, or (B) a bank rated “A” or better by Moody's and S&P; (ii) the written repurchase agreement contract must include the following: (A) securities acceptable for transfer, which may be direct U.S. government obligations, or federal agency obligations backed by the full faith and credit of the U.S. government; (B) the term of the repurchase agreement may be up to 30 days; (C) the collateral must be delivered to the Trustee or a third party acting as agent for the Trustee simultaneous with payment (perfection by possession of certificated securities); (D) the Trustee must have a perfected first priority security interest in the collateral; (E) the collateral must be free and clear of third-party liens and, in the case of a broker which falls under the jurisdiction of the Securities Investors Protection Corporation, are not subject to a repurchase agreement or a reverse repurchase agreement; (F) failure to maintain the requisite collateral percentage, after a two day restoration period, will require the Trustee to liquidate the collateral; (G) the securities must be valued weekly, marked-to- 45635.01436\32560729.2 12 market at current market price plus accrued interest and the value of collateral must be equal to 104% of the amount of cash transferred by the Trustee to the dealer bank or securities firm under the repurchase agreement plus accrued interest (unless the securities used as collateral are obligations of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, in which case the collateral must be equal to 105% of the amount of cash transferred by the Trustee to the dealer bank or securities firm under the repurchase agreement plus accrued interest). If the value of securities held as collateral falls below 104% of the value of the cash transferred by the Trustee, then additional cash and/or acceptable securities must be transferred; and (iii) a legal opinion must be delivered to the Trustee to the effect that the repurchase agreement meets guidelines under state law for legal investment of public funds; (l) pre-refunded municipal bonds rated “Aaa” by Moody's and “AAA” by S&P; provided, however, pre-refunded municipal bonds rated by S&P only (i.e., no Moody's rating) are acceptable if such pre-refunded municipal bonds were pre-refunded with cash, direct U.S. or U.S. guaranteed obligations or AAA rated pre-refunded municipal bonds; and (m) the Local Agency Investment Fund of the State of California, created pursuant to Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to deposit and withdraw from such investment directly in its own name; and PERS The term “PERS” means the California Public Employees’ Retirement System, or any successor retirement system established by the State. PERS Contract The term “PERS Contract” means the contract dated December 20, 1948, between the City and PERS, as heretofore and hereafter amended from time to time. PERS Retirement Law The term “PERS Retirement Law” means Section 20000 et seq. of the California Government Code. Principal Account The term “Principal Account” means the account by that name established pursuant to Section 4.02. 45635.01436\32560729.2 13 Principal Amount The term “Principal Amount” means (a) as to any Fixed Rate Bond, the principal amount thereof; or (b) as to any Capital Appreciation Bond or Convertible Capital Appreciation Bond, the Maturity Amount thereof. Principal Payment Date The term “Principal Payment Date” means a date on which principal is due on the Bonds as set forth in Appendix E attached hereto. Purchaser The term “Purchaser” means the underwriter named in the bond purchase contract for the Bonds, as original purchaser of the Bonds. Qualified Swap Agreement The term “Qualified Swap Agreement” or “Swap Agreement” means (i) any ISDA Master Swap Agreement, by and between the City and a Qualified Swap Provider, which includes Schedule A thereto and the applicable Commitment, (a) which is entered into by the City with an entity that is a Qualified Swap Provider at the time the arrangement is entered into; (b) which provides that the City shall pay to such entity an amount based on the interest accruing at a Fixed Rate on an amount equal to the Principal Amount of Outstanding Bonds covered by such Swap Agreement, if any, and that such entity shall pay to the City an amount based on the interest accruing on a principal amount equal to the then-Outstanding Principal Amount of the affected Bonds, at a variable rate of interest computed according to a formula set forth in the Swap Agreement or that one shall pay to the other any net amount due under such arrangement; and (c) which has been designated in writing to the Trustee in a Certificate of the City as a Qualified Swap Agreement with respect to the affected Bonds; provided, that any Qualified Swap Agreement shall be subject to the prior written approval of the Bond Insurer; and provided further, that the City shall have notified each Rating Agency of the proposed Swap Agreement and shall have determined that the execution of the Swap Agreement would not cause the reduction or withdrawal of the current rating from such Rating Agencies on the Bonds. Qualified Swap Provider The term “Qualified Swap Provider” means with respect to the counterparty under any other Swap Agreement meeting the requirements of the definition thereof, a financial institution approved by the City and the Bond Insurer, (A) the long-term, unsecured and unsubordinated obligations of which are rated at the time of execution of the related Qualified Swap Agreement by at least two Rating Agencies as: (i) at least “A3” by Moody’s, “A-” by S&P or “A-” by Fitch; or (B) the obligations of which under the particular Qualified Swap Agreement and any Swap Policy related thereto are unconditionally guaranteed by a bank or non-bank financial institution, the long-term, unsecured and unsubordinated obligations of which are rated at the time of execution of the Qualified Swap Agreement by at least two Rating Agencies as: (i) at least “A3” by Moody’s, “A-” by S&P or “A-” by Fitch. 45635.01436\32560729.2 14 Rating Agencies The term “Rating Agencies” means Fitch, Moody’s and Standard & Poor’s, but in each case only to the extent that any of them is then rating the Bonds at the request of the City. Record Date The term “Record Date” means, with respect to (a) Fixed Rate Bonds, the fifteenth day (whether or not such day is a Business Day) of the month immediately preceding each Interest Payment Date, (b) Capital Appreciation Bonds, the first day (whether or not such day is a Business Day) of the month immediately preceding the maturity thereof, (c) Convertible Capital Appreciation Bonds, the first day (whether or not such day is a Business Day) of the month immediately preceding the Conversion Date, and after such Conversion Date, the first day (whether or not such day is a Business Day) of the month immediately preceding each Interest Payment Date. Redemption Date The term “Redemption Date” means a date on which any of the Bonds is called for redemption prior to the Principal Payment Date of such Bonds. Refunding Fund The term “Refunding Fund” means the City of Azusa 2020 Pension Obligation Refunding Fund established and maintained by the Trustee under Section 2.05(a). Reported Rate The term “Reported Rate” means the rate that appears on Telerate Page 3750 or a successor reporter of such rates, selected by the Calculation Agent and acceptable to the City. Representation Letter The term “Representation Letter” means the letter of representation to The Depository Trust Company from the City and the Trustee relating to the Bonds. Securities Depository The term “Securities Depository” means, initially, DTC, and its successors and assigns, and any replacement securities depository appointed under the Indenture. Series The term “Series” means all of the Bonds designated as being within a certain series, as indicated on the inside cover hereof, regardless of variations in maturity date, interest rate (but within the same Mode), redemption and other provisions, and any Bonds thereafter issued in transfer or exchange for such Bonds pursuant to the Indenture. 45635.01436\32560729.2 15 Sinking Fund Account, Series 2020 Sinking Fund Account The term “Sinking Fund Account” means any subaccount established for the Term Bonds of any Series and maturity within the Principal Account, as more particularly designated as provided in Section 4.02. The term “Series 2020 Sinking Fund Account” means the Sinking Fund Account established for the Series 2020 Bonds pursuant to Section 2.03. Sinking Fund Account Payment The term “Sinking Fund Account Payment” means the amount of money required hereby or by any Supplemental Indenture to be deposited by the Trustee in any Sinking Fund Account on any Sinking Fund Account Payment Date for the redemption of the Term Bonds of any Series and maturity. Sinking Fund Account Payment Date The term “Sinking Fund Account Payment Date” means any date on which any Sinking Fund Account Payments for the Term Bonds of any Series and maturity are required to be deposited in the Sinking Fund Account for the Bonds of such Series and maturity. Standard Bonds The term “Standard Bonds” means those Fixed Rate Bonds issued in Authorized Denominations of $5,000 and any integral multiple thereof. Standard & Poor’s or “S&P” “Standard & Poor’s” or “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation duly organized and existing under the laws of the State of New York, and its successors or assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a municipal securities rating agency, then the term “Standard & Poor’s” shall be deemed to refer to any other nationally recognized municipal securities rating agency selected by the City and satisfactory to and approved by the Bond Insurer. State The term “State” means the State of California. Supplemental Indenture The term “Supplemental Indenture” means any indenture then in full force and effect which has been duly executed and delivered by the Trustee and the City amendatory hereof or supplemental hereto, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. 45635.01436\32560729.2 16 Swap Payments The term “Swap Payments” means any of the periodic payments due from the City pursuant to the terms of a Qualified Swap Agreement. Tranche The term “Tranche” means the designated portion of a Series of Bonds sharing a particular Mode, and other characteristics, designated as such on the inside cover hereof. Each Tranche of Bonds within a Series of Bonds must be within the same Mode. Trustee The term “Trustee” means Wilmington Trust, National Association, a national banking association duly organized and existing under the laws of the United States of America, or any other bank with trust powers or trust company which may at any time be substituted in its place as provided in Section 6.01. Written Request of the City The term “Written Request of the City” means an instrument in writing signed by a City Representative. Section 1.02 Equal Security. In consideration of the acceptance of the Bonds by the Holders thereof, the Indenture shall be deemed to be and shall constitute a contract by and among the City, the Trustee and the Holders from time to time of all Bonds authorized, executed, authenticated and delivered hereunder and then Outstanding to provide for the payment of the principal, Accreted Value or redemption price of and the interest on all Bonds which may from time to time be authorized, executed, authenticated and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein required to be performed by or on behalf of the City shall be for the equal and proportionate benefit, protection and security of all Holders of the Bonds without distinction, preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, execution, authentication or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. ARTICLE II ISSUANCE OF THE SERIES 2020 BONDS; GENERAL BOND PROVISIONS Section 2.01 Authorization and Purpose of and Obligation Under the Series 2020 Bonds. The City has reviewed all proceedings heretofore taken relative to the authorization of the Series 2020 Bonds and has found, as a result of such review, and hereby finds and determines that all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to the issuance of the Series 2020 Bonds do exist, have happened and have been performed in due time, form and manner as required by law, that the City is duly authorized, pursuant to each and every requirement of the Act, to execute and enter into the Indenture and to issue the Series 2020 Bonds in the form and manner and for the purpose provided herein, that the Series 2020 Bonds shall be entitled to the benefit, protection and 45635.01436\32560729.2 17 security of the provisions hereof, that the Series 2020 Bonds will be legal, valid and binding obligations of the City payable in accordance with their terms, that the City is obligated to satisfy its obligations under the Series 2020 Bonds from any lawfully available funds of the City. The Series 2020 Bonds do not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation, and neither the Series 2020 Bonds nor the obligation of the City to make payment of the principal, Accreted Value or redemption price of or the interest on the Bonds constitutes an indebtedness of the City, the State or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. Section 2.02 Assignment and Pledge for the Series 2020 Bonds. The City hereby irrevocably assigns and pledges to the Trustee, in trust for the security of the Holders upon the terms hereof, all the City’s rights, title and interest in and to all money and securities for deposit in, or deposited in, the Bond Fund, and all investment earnings thereon, and all collateral security for, and all proceeds of, any of the foregoing. The Trustee shall hold all such rights, title and interest received by it under this section and all money and securities (exclusive of money to which the Trustee is entitled in its own right as a fee, indemnity, reimbursement or otherwise) received from the City or derived from the exercise of the City’s powers hereunder in trust for the security of the Holders in accordance with the provisions hereof, and the City shall from time to time execute, deliver, file and record such instruments as the Trustee may reasonably require to confirm or maintain the security created hereby and the assignment and pledge hereby of the rights, title and interest assigned and pledged by the City to the Trustee hereunder. Section 2.03 Terms of the Series 2020 Bonds. The Series 2020 Bonds shall be designated the “City of Azusa Taxable Pension Funding Bonds, Series 2020” and shall be further designated as set forth in the definitions hereof, in the Modes, Series and Tranches and with the maturities set forth thereon. Sinking Fund Account Payments are hereby established for the mandatory redemption and payment of the Series 2020 Bonds (the “Series 2020 Term Bonds”), which payments shall become due prior to maturity for each Tranche of Bonds, during the years ending on the dates and in the amounts set forth (a) in Appendix D, with respect to the Series 2020 Bonds (except that if any Series 2020 Term Bonds have been optionally redeemed pursuant to Section 2.04, the amounts of such Sinking Fund Account Payments shall be reduced proportionately by the Principal Amount of all such Series 2020 Term Bonds so optionally redeemed as provided therein), and (b) in the corresponding exhibit of any Supplemental Indenture pursuant to which Additional Bonds are subsequently issued. All such Sinking Fund Account Payments shall be deposited in a subaccount in the Redemption Account to be known as the “Series 2020 Sinking Fund Account,” which is hereby created and which the Trustee hereby agrees and covenants to cause to be maintained so long as any Series 2020 Term Bonds are Outstanding. All money in the Series 2020 Sinking Fund Account on August 1 of each year indicated in Appendix D hereto, commencing on August 1, 2021, shall be used and withdrawn by the Trustee on such August 1 for the mandatory redemption or payment of the Series 2020 Term Bonds; and the Trustee hereby agrees and covenants with the Holders of the Series 2020 Term Bonds to call and redeem in accordance herewith or pay such Series 2020 Term Bonds from such Sinking Fund Account Payments 45635.01436\32560729.2 18 deposited in the Series 2020 Sinking Fund Account pursuant to this section whenever on August 1 of each year indicated in Appendix D hereto, there is money in the Series 2020 Sinking Fund Account available for such purpose. The Principal Amount of the Series 2020 Bonds shall be payable in lawful money of the United States of America at the Corporate Trust Office of the Trustee. Payment of the principal, Accreted Value or redemption price of the Series 2020 Bonds shall be made upon the surrender thereof at maturity or on redemption prior to maturity at the Corporate Trust Office of the Trustee. The Series 2020 Bonds shall mature on the dates and in the Principal Amounts and bear or accrete interest at the rates (based on a 360-day calendar year of twelve 30-day months), payable on Interest Payment Dates as set forth in Appendix D. The Series 2020 Bonds shall bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless such date of authentication is an Interest Payment Date or during the period from the Record Date preceding an Interest Payment Date to such Interest Payment Date, in which event they shall bear interest from such Interest Payment Date, or unless such date of authentication is prior to the first Record Date, in which event they shall bear interest from the date of original delivery; provided, that if at the time of authentication of any Series 2020 Bond interest is then in default on the Outstanding Series 2020 Bonds, such Series 2020 Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the Outstanding Series 2020 Bonds. Payment of interest on the Series 2020 Bonds due on or before the maturity or prior redemption thereof shall be made to the person whose name appears in the Series 2020 Bonds registration books kept by the Trustee pursuant to Section 2.10 as the registered owner thereof as of the close of business on the Record Date for each Interest Payment Date, such interest to be paid by check mailed by first class mail to such registered owner at the address as it appears in such books; provided, that upon the written request of a Holder of one million dollars ($1,000,000) or more in aggregate principal amount of Series 2020 Bonds received by the Trustee prior to the applicable Record Date, interest shall be paid by wire transfer in immediately available funds. Section 2.04 Redemption of the Series 2020 Bonds. The Series 2020 Bonds are subject to optional redemption by the City prior to their respective stated maturities as set forth in Appendix D hereto. Notice of optional redemption shall be given by the City to the Trustee not less than 45 days prior to any optional redemption date (unless such notice is waived by the Trustee). Any Series 2020 Term Bonds subject to mandatory redemption by the City as set forth in Appendix D hereto shall be redeemed prior to their stated maturity in part on August 1 of each year indicated in Appendix D hereto, pro rata among the Holders, solely from Sinking Fund Account Payments in the amounts and on the dates set forth in Appendix D, upon mailed notice as hereinafter provided, at a redemption price equal to the sum of the Principal Amount thereof plus accrued interest thereon to the redemption date, without premium. For the purposes of such selection, the Series 2020 Bonds selected for redemption shall be deemed to be composed of $5,000 portions and any such portion may be separately prepaid. The Trustee shall promptly notify the City in writing of the Series 2020 Bonds so selected for redemption. So long as there is a securities depository for the Series 2020 Bonds, there will only be one Holder and neither the 45635.01436\32560729.2 19 City nor the Trustee will have responsibility for pro rating partial redemptions among Beneficial Owners of Series 2020 Bonds. Notice of redemption of any Series 2020 Bonds or any portions thereof shall be given by first class mail not less than fifteen (15) days nor more than thirty (30) days before the redemption date of such Series 2020 Bonds or portions thereof to the respective Holders thereof as their names and addresses appear on the registration books maintained by the Trustee pursuant to Section 2.10 and to the Information Services. Each notice of redemption shall state the date of such notice, the Series 2020 Bonds to be redeemed, the date of issue of such Series 2020 Bonds, the redemption date, the redemption price, the place of redemption (including the name and appropriate address), the CUSIP number (if any) and ISIN number (if any) of the maturity or maturities, and, if less than all of any such maturity are to be redeemed, the distinctive numbers of the Series 2020 Bonds of such maturity to be redeemed and, in the case of Series 2020 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on such redemption date there will become due and payable on each of such Series 2020 Bonds the redemption price thereof or of the specified portion of the principal amount thereof in the case of a Series 2020 Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Series 2020 Bonds be then surrendered at the address of the Trustee specified in the redemption notice; provided, that failure by the Trustee to give notice pursuant to this section to any one or more of the Information Services, or the insufficiency of any such notice or the failure of any Holder to receive any redemption notice mailed to such Holder or any immaterial defect in the notice so mailed shall not affect the sufficiency of the proceedings for the redemption of any Series 2020 Bonds; and provided further, that any such notice of redemption may be cancelled and annulled by a Written Request of the City given to the Trustee prior to the date fixed for redemption, whereupon the Trustee shall forthwith give appropriate notice of such cancellation and annulment to all the recipients of such notice of redemption. In lieu of any such redemption, the City may, from lawfully available funds, direct the Trustee to purchase the Series 2020 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest) as may be directed by the City prior to the selection of Series 2020 Bonds for redemption, and such purchased Series 2020 Bonds shall be cancelled. Upon surrender of any Series 2020 Bond redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the City, a new Series 2020 Bond or Bonds of Authorized Denominations equal to the aggregate Principal Amount, of the unredeemed portion of the Series 2020 Bond surrendered and of the same maturity. From and after the date fixed for redemption of any Series 2020 Bonds or any portions thereof, if notice of such redemption shall have been duly given and funds available for the payment of such redemption price of the Series 2020 Bonds or such portions thereof so called for redemption shall have been duly provided, no interest shall accrue on such Series 2020 Bonds or such portions thereof from and after the redemption date specified in such notice. 45635.01436\32560729.2 20 All Series 2020 Bonds redeemed or purchased pursuant to the provisions of this section shall be destroyed by the Trustee and the Trustee shall deliver a certificate of destruction to the City. Section 2.05 Procedure for the Issuance of the Series 2020 Bonds; Application of Proceeds of the Series 2020 Bonds. At any time after the sale of the Series 2020 Bonds in accordance with the Act, the City shall execute the Series 2020 Bonds for issuance hereunder, in accordance with the provisions as to Mode, Series and other provisions as set forth on the inside front cover hereof and in Appendix D hereto, and shall deliver them to the Trustee, and thereupon the Series 2020 Bonds shall be authenticated and delivered by the Trustee to the Purchaser thereof upon the Written Request of the City and upon receipt of the net purchase price of the Bonds from the Purchaser thereof as provided in such Written Request; and upon receipt of payment of the net purchase price of the Bonds from the Purchaser thereof, the Trustee shall set aside and deposit the net proceeds received from such sale (which includes the original issue premium of $__________, and excludes the Purchaser’s discount of $__________, and excludes the amount of $__________ wired by the Purchaser to the Bond Insurer) in the following order of priority: (a) The Trustee shall deposit the amount of $__________ in the Refunding Fund, designated the “City of Azusa 2020 Pension Obligation Refunding Fund,” which fund the Trustee hereby agrees to establish and maintain until the PERS Contract has been refunded as provided herein, which sum shall be used for refunding the PERS Contract in accordance with and subject to the terms thereof. (b) The Trustee shall deposit $__________ in the 2020 Costs of Issuance Fund, which fund is hereby created and which fund the City hereby agrees to maintain with the Trustee until __________ [six months from the date of delivery of the Series 2020 Bonds]. All money in the Costs of Issuance Fund shall be used and withdrawn by the City to pay the Costs of Issuance of the Series 2020 Bonds upon receipt of a Written Request of the City filed with the Trustee, each of which shall be sequentially numbered and shall state the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. On __________ or upon the earlier Written Request of the City, any remaining balance in the 2020 Costs of Issuance Fund shall be transferred to the City. (c) The Trustee shall transfer from amounts on deposit in the 2020 Refunding Fund as follows: (i) an amount equal to $__________ to PERS for the public safety plan. Section 2.06 Form of the Series 2020 Bonds. The Series 2020 Bonds and the certificate of authentication and the form of assignment and other details to appear thereon shall be substantially in one or more of the forms set forth in Appendix A, Appendix B, or Appendix C hereto attached and by this reference incorporated herein. 45635.01436\32560729.2 21 Section 2.07 Execution of the Bonds. Any of the Mayor, Mayor Pro Tem or the City Manager are hereby authorized and directed to execute each of the Bonds on behalf of the City by his or her manual or facsimile signature and the City Clerk is hereby authorized and directed to countersign each of the Bonds on behalf of the City by his or her manual or facsimile signature; provided, that in case any officer whose signature appears on the Bonds shall cease to be such officer before the delivery of the Bonds to the Purchaser thereof, such signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in office until the delivery of the Bonds. Only those Bonds bearing thereon a certificate of authentication in the form hereinabove recited, executed manually and dated by the Trustee, shall be entitled to any benefit, protection or security hereunder or be valid or obligatory for any purpose, and the execution of such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authorized, executed and delivered hereunder and are entitled to the benefit, protection and security hereof. Section 2.08 Transfer and Payment of the Bonds; Transfer Restrictions. Any Bond may, in accordance with its terms, be transferred in the books required to be kept pursuant to the provisions of Section 2.10 by the person in whose name it is registered, in person or by such person’s duly authorized attorney, upon surrender of such Bond for cancellation at the Corporate Trust Office of the Trustee accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee; provided, that the Trustee shall require the payment by the Holder requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer as a condition precedent to the exercise of such privilege; and provided further, that the Trustee may refuse to transfer any Bonds during the fifteen (15) day period prior to the date established by the Trustee for the selection of Bonds for redemption, or to transfer any Bonds selected by the Trustee for redemption. Whenever any Bond shall be surrendered for transfer, the City shall execute and the Trustee shall authenticate and deliver to the transferee a new Bond or Bonds of the same Series of Bonds and maturity of Authorized Denominations equal to the Principal Amount or, with respect to Capital Appreciation Bonds, the Accreted Value and with respect to Convertible Capital Appreciation Bonds prior to the Conversion, the Conversion Date Amount of the Bond surrendered. The City and the Trustee may deem and treat the Holder of any Bond as the absolute owner of such Bond for the purpose of receiving payment thereof and for all other purposes, whether such Bond shall be overdue or not, and neither the City nor the Trustee shall be affected by any notice or knowledge to the contrary, and payment of the principal, Accreted Value or redemption price of and the interest due on such Bond shall be made only to such Holder, which payments shall be valid and effectual to satisfy and discharge liability on such Bond to the extent of the sum or sums so paid. The cost of preparing the Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer of the Bonds shall be paid by the City. Section 2.09 Exchange of the Bonds. Any Bond may, in accordance with its terms, be exchanged at the Corporate Trust Office of the Trustee for a new Bond or Bonds of the same Series of Bonds and maturity of Authorized Denominations equal to the Principal Amount or, 45635.01436\32560729.2 22 with respect to Capital Appreciation Bonds, the Accreted Value of the Bond surrendered; provided, that the Trustee shall require the payment by the Holder requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange as a condition precedent to the exercise of such privilege; and provided further, that the Trustee may refuse to exchange any Bonds during the fifteen (15) day period prior to the date established by the Trustee for the selection of Bonds for redemption, or to exchange any Bonds selected by the Trustee for redemption. The cost of preparing the Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the City. Section 2.10 Bond Registration Books. The Trustee will keep at its Corporate Trust Office sufficient books for the registration and transfer of the Bonds which shall during normal business hours with reasonable notice be open to inspection by the City, and upon presentation for such purpose the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer the Bonds in such books as hereinabove provided. Section 2.11 Mutilated, Destroyed, Stolen or Lost Bonds. If any Bond shall become mutilated, the Trustee, at the expense of the Holder, shall thereupon authenticate and deliver a new Bond or Bonds of the same Series of Bonds and maturity of Authorized Denominations equal in aggregate Principal Amount or, with respect to Capital Appreciation Bonds, Accreted Value and with respect to Convertible Capital Appreciation Bonds prior to the Conversion Date, the Conversion Date Amount to the Bond so mutilated in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated, and every mutilated Bond so surrendered to the Trustee shall be cancelled. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given, the Trustee, at the expense of the Holder, shall thereupon authenticate and deliver a new Bond of the same Series of Bonds and maturity of authorized denominations equal in aggregate Principal Amount or, with respect to Capital Appreciation Bonds, Accreted Value to the Bond so lost, destroyed or stolen in lieu of and in substitution for the Bond so lost, destroyed or stolen. The Trustee may require payment of a reasonable sum for each new Bond delivered under this section and of the expenses which may be incurred by the City and the Trustee in the premises. Any Bond delivered under the provisions of this section in lieu of any Bond alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits hereof with all other Bonds secured hereby, and neither the City nor the Trustee shall be required to treat both the original Bond and any replacement Bond as being Outstanding for the purpose of determining the principal amount of Bonds which may be issued hereunder or for the purpose of determining any percentage of Bonds Outstanding hereunder, but both the original and replacement Bond shall be treated as one and the same. Section 2.12 Temporary Bonds. The Bonds issued hereunder may be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery, which temporary Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be 45635.01436\32560729.2 23 determined by the City, shall be in fully registered form and may contain such reference to any of the provisions hereof as may be appropriate. Every temporary Bond shall be executed and authenticated as authorized by the City in accordance with the terms hereof. If the City issues temporary Bonds it will execute and furnish definitive Bonds without delay and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Corporate Trust Office of the Trustee, and the Trustee shall deliver in exchange for such temporary Bonds definitive Bonds. Until so exchanged, the temporary Bonds shall be entitled to the same benefits hereunder as definitive Bonds delivered hereunder. Section 2.13 Validity of the Bonds. The recital contained in the Bonds that the same are issued pursuant to the Act and pursuant hereto shall be conclusive evidence of their validity and of the regularity of their issuance, and all Bonds shall be incontestable from and after the definitive Bonds (or any temporary Bonds exchangeable therefor) shall have been delivered to the Purchaser and the proceeds of sale thereof received by the Trustee as provided herein. Section 2.14 Book-Entry System for the Series 2020 Bonds. (a) Except as otherwise provided in subsections (b) and (c) of this section, the Series 2020 Bonds shall initially be issued in the form of a single authenticated fully registered bond for each Principal Payment Date of the Series 2020 Bonds, and shall be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), or such other nominee as DTC shall request pursuant to the Representation Letter. Payment of the interest on any Series 2020 Bond registered in the name of Cede & Co. shall be made on each Interest Payment Date for such Series 2020 Bonds to the account, in the manner and at the address indicated in or pursuant to the Representation Letter. (b) The Trustee and the City may treat DTC (or its nominee) as the sole and exclusive owner of the Series 2020 Bonds registered in its name for the purposes of payment of the principal, Accreted Value or redemption price of and the interest on such Series 2020 Bonds, selecting the Series 2020 Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Holders hereunder, registering the transfer of the Series 2020 Bonds, obtaining any consent or other action to be taken by Holders of the Series 2020 Bonds and for all other purposes whatsoever, and neither the Trustee nor the City shall be affected by any notice to the contrary. Neither the Trustee nor the City shall have any responsibility or obligation to any Participant (which shall mean, for purposes of this section, securities brokers and dealers, banks, trust companies, clearing corporations and other entities, some of whom directly or indirectly own DTC), any person claiming a beneficial ownership interest in the Series 2020 Bonds under or through DTC or any Participant, or any other person which is not shown on the registration records as being a Holder, with respect to (i) the accuracy of any records maintained by DTC or any Participant, (ii) the payment by DTC or any Participant of any amount in respect of the principal, Accreted Value or redemption price of or the interest on any of the Series 2020 Bonds, (iii) any notice which is permitted or required to be given to Holders of Series 2020 Bonds hereunder, or (iv) any consent given or other action taken by DTC as Holder of Series 2020 Bonds. The Trustee shall pay the principal, Accreted Value or redemption price of and the interest on the Series 2020 Bonds only at the times, to the accounts, at the addresses and otherwise in accordance with the Representation Letter, and all such payments shall be valid and effective to satisfy fully and discharge the City’s obligations with respect to the Series 2020 45635.01436\32560729.2 24 Bonds to the extent of the sum or sums so paid. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of its then existing nominee, the Series 2020 Bonds will be transferable to such new nominee in accordance with subsection (f) of this section. (c) In the event that the City determines that it is in the best interests of the Beneficial Owners of the Series 2020 Bonds that they be able to obtain definitive Series 2020 Bonds, the Trustee shall, upon receipt of a Written Request of the City, so notify DTC, whereupon DTC shall notify the Participants of the availability through DTC of definitive Series 2020 Bonds, and in such event the Series 2020 Bonds shall be transferable in accordance with subsection (f) of this section. DTC may determine to discontinue providing its services with respect to the Series 2020 Bonds at any time by giving written notice of such discontinuance to the Trustee or the City and discharging its responsibilities with respect thereto under applicable law, and in such event the Series 2020 Bonds shall be transferable in accordance with subsection (f) of this section. Whenever DTC requests the Trustee or the City to do so, the Trustee and the City will cooperate with DTC in taking appropriate action after reasonable notice to arrange for another securities depository to maintain custody of all certificates evidencing the Series 2020 Bonds then Outstanding, and in such event the Series 2020 Bonds shall be transferable to such securities depository in accordance with subsection (f) of this section, and thereafter, all references in the Indenture to DTC or its nominee shall be deemed to refer to such successor securities depository and its nominee, as appropriate. (d) Notwithstanding any other provision hereof to the contrary, so long as all Series 2020 Bonds Outstanding are registered in the name of any nominee of DTC, all payments with respect to the principal, Accreted Value or redemption price of and the interest on each such Series 2020 Bond and all notices with respect to each such Series 2020 Bond shall be made and given, respectively, to DTC as provided in the Representation Letter. (e) The Trustee and the City are each hereby authorized and requested to execute and deliver the Representation Letter and, in connection with any successor nominee for DTC or any successor depository, enter into comparable arrangements, and shall have the same rights with respect to its actions thereunder as it has with respect to its actions hereunder. (f) In the event that any transfer or exchange of Series 2020 Bonds is authorized under subsection (b) or (c) of this section, such transfer or exchange shall be accomplished upon receipt by the Trustee from the registered owner thereof of the Series 2020 Bonds to be transferred or exchanged and appropriate instruments of transfer to the permitted transferee, all in accordance with the applicable provisions of Sections 2.08 and 2.09. In the event that definitive Series 2020 Bonds are issued to Holders other than Cede & Co., its successor as nominee for DTC as Holder of all the Series 2020 Bonds, another securities depository as holder of all the Series 2020 Bonds, or the nominee of such successor securities depository, the provisions of Sections 2.08 and 2.09 shall also apply to, among other things, the registration, exchange and transfer of the Series 2020 Bonds and the method of payment of the principal, Accreted Value or redemption price of and the interest on the Series 2020 Bonds. Section 2.15 Bond Insurer Provisions. [To Come] 45635.01436\32560729.2 25 Section 2.16 [Bond Insurer as Third Party Beneficiary]. [To the extent this Indenture confers upon or gives or grants to the Bond Insurer any right, remedy or claim under or by reason of this Indenture, the Bond Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder.] ARTICLE III ISSUANCE OF ADDITIONAL BONDS Section 3.01 Conditions for the Issuance of Additional Bonds. The City may at any time issue Additional Bonds on a parity with the Series 2020 Bonds, but only subject to the following specific conditions, which are hereby made conditions precedent to the issuance of any such Additional Bonds: (a) The City shall be in compliance with all agreements and covenants contained herein. (b) The issuance of such Additional Bonds shall have been authorized pursuant to the Act, have the appropriate judicial validation, and shall have been provided for by a Supplemental Indenture which shall specify the following: (i) The purpose for which such Additional Bonds are to be issued; provided, that such Additional Bonds shall be applied solely for (A) the purpose of satisfying any obligation to make payments to PERS pursuant to the PERS Retirement Law relating to pension benefits accruing to PERS members and their beneficiaries, and/or for payment of all costs incidental to or connected with the issuance of Additional Bonds for such purpose (including funded interest and/or (B) the purpose of refunding any Bonds then Outstanding, including payment of all costs incidental to or connected with such refunding (including funded interest); (ii) The authorized principal amount and designation of such Additional Bonds; (iii) The interest payment dates and principal payment dates for such Additional Bonds; (iv) Whether such Additional Bonds are fixed rate bonds, variable rate bonds, indexed notes, current interest bonds, deferred interest bonds, capital appreciation bonds, convertible capital appreciation bonds, embedded cap bonds, equity participation bonds or synthetic or hedged fixed rate bonds or such other Mode as may be set forth in a Supplemental Indenture; (v) The denomination or denominations of and method of numbering such Additional Bonds; (vi) The redemption premiums, if any, and the redemption terms, if any, for such Additional Bonds; 45635.01436\32560729.2 26 (vii) The amount, if any, to be deposited from the proceeds of sale of such Additional Bonds in the Interest Account; and (viii) Such other provisions (including the requirements of a book entry Bond registration system, if any) as are necessary or appropriate and not inconsistent herewith. Section 3.02 Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with the Act, the City shall execute such Additional Bonds for issuance hereunder and shall deliver them to the Trustee, and thereupon such Additional Bonds shall be delivered by the Trustee to the Purchaser thereof upon the Written Request of the City, but only upon receipt by the Trustee of the following documents or money or securities, all of such documents dated or certified, as the case may be, as of the date of delivery of such Additional Bonds by the Trustee: (a) An executed copy of the Supplemental Indenture authorizing the issuance of such Additional Bonds; (b) A Written Request of the City as to the delivery of such Additional Bonds; (c) An Opinion of Counsel to the effect that (1) the City has executed and delivered the Supplemental Indenture, and the Supplemental Indenture is valid and binding upon the City and (2) such Additional Bonds are valid and binding obligations of the City entitled to the benefits of the Act and hereof, and such Additional Bonds have been duly and validly issued in accordance with the Act and herewith; (d) A Certificate of the City containing such statements as may be reasonably necessary to show compliance with the conditions for the issuance of such Additional Bonds contained herein; and (e) Such further documents, money or securities as are required by the provisions of the Supplemental Indenture providing for the issuance of such Additional Bonds. The City shall deliver to the Bond Insurer a copy of the disclosure document, if any, circulated with respect to such Additional Bonds. ARTICLE IV FUNDS AND ACCOUNTS Section 4.01 Deposits to Bond Fund. (a) The City agrees and covenants that, not later than August 1 of each Fiscal Year, it will transfer to and deposit with the Trustee the amount of the City’s obligations on the Bonds in the then current Bond Year. 45635.01436\32560729.2 27 (b) All amounts payable by the City hereunder shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the “Bond Fund” which fund is hereby created and shall be held in trust by the Trustee. Section 4.02 Allocation of Money in the Bond Fund. On each Interest Payment Date, the Trustee shall transfer from the Bond Fund, in immediately available funds, for deposit into the following respective accounts (each of which is hereby created and which the Trustee shall maintain in trust separate and distinct from the other accounts and funds established hereunder) 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 funds sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any account subsequent in priority: First: Interest Account, Second: Principal Account, and Third: Administrative Expense Account. All money in each of such accounts shall be held in trust by the Trustee and shall be applied, used and withdrawn only for the purposes hereinafter authorized in this section. (a) Interest Account. On each Interest Payment Date, the Trustee shall set aside from the Bond Fund and deposit in the Interest Account that amount of money which is equal to the amount of interest becoming due and payable on all Outstanding Bonds on such Interest Payment Date. No deposit need be made in the Interest Account if the amount contained therein is at least equal to the aggregate amount of interest becoming due and payable on all Outstanding Bonds on such Interest Payment Date. All money in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity). (b) Principal Account. On each Principal Payment Date, the Trustee shall set aside from the Bond Fund and deposit (i) in the Principal Account an amount of money equal to the Principal Amount of all Outstanding Serial Bonds maturing on such Principal Payment Date and (ii) into the respective Sinking Fund Accounts for all Outstanding Term Bonds (established below) the amount of all Sinking Fund Account Payments required to be made on such Sinking Fund Account Payment Date. No deposit need be made in the Principal Account if the amount contained therein is at least equal to the aggregate amount of the principal of all Outstanding Serial Bonds maturing by their terms on such Principal Payment Date plus the aggregate amount of all Sinking Fund Account Payments required to be made on such Sinking Fund Account Payment Date for all Outstanding Term Bonds. 45635.01436\32560729.2 28 The Trustee shall establish and maintain within the Principal Account a separate Sinking Fund Account for the Term Bonds of each series and maturity, designated as the “_____ Sinking Fund Account,” inserting therein the series and maturity (if more than one such account is established for such series) designation of such Bonds. With respect to each Sinking Fund Account, on each Sinking Fund Account Payment Date established for such Sinking Fund Account in Appendix D attached hereto, the Trustee shall apply the Sinking Fund Account Payment required on that date to the redemption (or payment at maturity, as the case may be) of Term Bonds of the series and maturity for which such Sinking Fund Account was established, upon the notice and in the manner set forth herein or in the Supplemental Indenture providing for the issuance of such Term Bonds; provided, that, at any time prior to giving such notice of such redemption, the Trustee may, upon the Written Request of the City, apply moneys in such Sinking Fund Account to the purchase for cancellation of Term Bonds of such series and maturity for which such Sinking Fund Account was established at public or private sale as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the City, except that the purchase price (excluding accrued interest) shall not exceed the redemption price that would be payable for such Term Bonds upon redemption by application of such Sinking Fund Account Payment. If, during the twelve month period immediately preceding any Sinking Fund Account Payment Date the Trustee has purchased Term Bonds of such series and maturity for which such Sinking Fund Account was created with money in such Sinking Fund Account, such Term Bonds so purchased shall be applied (to the extent of the full Principal Amount thereof) to reduce such Sinking Fund Account Payment. All money in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal, Accreted Value or redemption price of the Bonds as they shall become due and payable, whether at maturity or prior redemption, except that any money in any Sinking Fund Account shall be used and withdrawn by the Trustee only to purchase or to redeem or to pay Term Bonds for which such Sinking Fund Account was created. (c) Administrative Expense Account. Following the deposits set forth above, any money remaining in the Bond Fund shall be deposited by the Trustee in the Administrative Expense Account. All money deposited in the Administrative Expense Account shall be transferred by the Trustee to or upon the order of the City, as specified in a Written Request of the City. Any moneys remaining in the Administrative Expense Account at the end of any Bond Year shall be transferred to the Interest Account. Any moneys remaining in the Administrative Expense Account after final payment of the Bonds is made shall be returned to the City. Section 4.03 Deposit and Investments of Money in Accounts and Funds. All money held by the Trustee in any of the accounts or funds established pursuant hereto shall be invested in Permitted Investments at the Written Request of the City. If no Written Request of the City is received, the Trustee shall invest funds held by it in Permitted Investments described in clause (6) of the definition thereof. Such investments shall, as nearly as practicable, mature on or before the dates on which such money is anticipated to be needed for disbursement hereunder. All interest or profits received on any money so invested shall be deposited in the Bond Fund. Trustee may act as principal or agent in the acquisition or disposition of investments. For investment purposes, the Trustee may, in its discretion, commingle the funds and accounts 45635.01436\32560729.2 29 hereunder, but shall account for each separately. The Trustee shall not be liable for any loss from such investments. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City will not receive such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. Section 4.04 Establishment of Deposit Fund and Transfers Therefrom. The following Section shall apply in the event the City were to elect to enter into a Qualified Swap Agreement, with the consent of the Bond Insurer. The Trustee shall establish a special fund designated as the “City of Azusa Deposit Fund, Series 2020” (the “Deposit Fund”). The Deposit Fund shall be funded and applied solely in accordance with this section; it is intended for the proper matching of debt service payments on the Bonds, which may bear interest at variable rates under a supplemental indenture, if any, that are covered by Qualified Swap Agreements, with the related Swap Payments and the required netting of such payments in order to assure full and timely payments to the Holders of the variable rate Bonds affected by such Qualified Swap Agreements (collectively, “Swapped Bonds”); provided, that in the absence of any Qualified Swap Agreements, the Deposit Fund shall remain unfunded. On or before the date that is two (2) Business Days prior to each Interest Payment Date or such other date that may be established for Swapped Bonds, the City shall transfer to the Trustee for deposit into the Deposit Fund the portion of the City’s debt service prepayment obligation (as set forth in Section 4.01) on deposit in the Bond Fund that is necessary in order to make Swap Payments for all Swapped Bonds. ARTICLE V COVENANTS OF THE CITY Section 5.01 Punctual Payment and Performance. The City will punctually pay the principal, Accreted Value or redemption price of and the interest on every Bond issued hereunder in strict conformity with the terms hereof and of the Bonds, and will faithfully observe and perform all the agreements and covenants required to be observed or performed by the City contained herein and in the Bonds. Section 5.02 Extension of Payment of the Bonds. The City will not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any Event of Default hereunder, to the benefits hereof, except subject to the prior payment in full of the Principal Amount of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended; provided, that nothing in this section shall be deemed to limit the right of the City to issue bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. 45635.01436\32560729.2 30 Section 5.03 Accounting Records and Reports. The City will keep or cause to be kept proper books of record and accounts in which complete and correct entries shall be made of all transactions relating to the receipts, disbursements, allocation and application of all money on deposit in the funds established hereunder, which such books shall be available for inspection by the Trustee and the Bond Insurer upon reasonable notice at reasonable times and under reasonable conditions. Not more than two hundred ten (210) days after the close of each Fiscal Year, the City shall furnish to the Trustee and the Bond Insurer copies of the audited financial statements of the City for such Fiscal Year, including a balance sheet as of the end of such Fiscal Year and such accompanying statements for such Fiscal Year as are required by generally accepted accounting principles, with each such statement and balance sheet prepared in accordance with generally accepted accounting principles consistently applied and audited by a firm of Independent Certified Public Accountants; provided, that the Trustee shall have no duty to review or examine any such financial statements. Section 5.04 Prosecution and Defense of Suits. The City will defend against every suit, action or proceeding at any time brought against the Trustee upon any claim to the extent involving the failure of the City to fulfill its obligations hereunder; provided, that the Trustee or any Holder at its election may appear in and defend any such suit, action or proceeding. Section 5.05 Continuing Disclosure. The City will comply with and carry out all of the provisions of the Continuing Disclosure Certificate executed by the City and dated the Closing Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof, and notwithstanding any other provision hereof, failure of the City to comply with such Continuing Disclosure Certificate shall not be considered an Event of Default hereunder; provided, that any Holder 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 thereunder. Section 5.06 Waiver of Laws. Except as provided by the California Tort Claims Act (Division 3.6 (commencing with Section 810) of Title 1 of the Government Code of the State of California), and to the extent permitted by law, the City shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the agreements and covenants contained herein or in the Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the City to the extent permitted by law. Section 5.07 Further Assurances. Whenever and so often as reasonably requested to do so by the Trustee , the Bond Insurer or any Holder, the City will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments, and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Trustee, the Bond Insurer and the Holders all rights, interests, powers, benefits, privileges and advantages conferred or intended to be conferred upon them hereby. Section 5.08 Reporting Requirements. The City will furnish, or cause to be furnished, to the Bond Insurer: 45635.01436\32560729.2 31 (a) the fiscal year budget of the City prior to the beginning of each fiscal year; (b) annual audits of the City prepared by an independent certified public accountant, within one hundred eighty (180) days of the completion of the City’s fiscal year; (c) prior to the City issuing additional parity debt, any disclosure document or financing agreement pertaining to such additional parity debt, which disclosure document or financing agreement shall include, without limitation, the applicable maturity schedule, interest rate or rates, redemption and security provisions pertaining to any such additional parity debt; (d) within thirty (30) days following any litigation or investigation that may have a material adverse effect on the financial position of the City or the PERS Contract, notice of such litigation or investigation; and (e) Any other additional information as it may reasonably request regarding the security for the Bonds with appropriate officers of the City, and will use its best efforts to enable the Bond Insurer to have access to the facilities, books and records of the City on any business day upon reasonable prior notice. The Trustee shall notify the Bond Insurer of any failure of the City to provide notices, certificates and other information under this Indenture. ARTICLE VI THE TRUSTEE Section 6.01 The Trustee. Wilmington Trust, National Association is hereby appointed the Trustee for the Bonds issued hereunder for the purpose of receiving all money which the City is required to deposit with the Trustee hereunder and for the purpose of allocating, applying and using such money as provided herein, with the rights and obligations provided herein, and the City agrees that it will at all times so long as any Bonds are Outstanding maintain a Trustee having the qualifications required hereby. The City, with the prior written consent of the Bond Insurer, may at any time (unless there exists any Event of Default hereunder), and shall at the written request of the Bond Insurer, remove the Trustee initially appointed and any successor thereto and may appoint a successor or successors thereto by an instrument in writing; provided, that any such successor shall be a state or national bank or corporation with trust powers or a trust company having (or in the case of a corporation, bank or trust company included in a bank holding company system, the related bank holding company shall have) a combined capital (exclusive of borrowed capital) and surplus of at least one hundred million dollars ($100,000,000) and shall be subject to supervision or examination by federal or state authority; and if such bank, corporation 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 purpose of this section the combined capital and surplus of such bank, corporation or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee may at any time resign by giving written notice of such resignation to the City and 45635.01436\32560729.2 32 the Bond Insurer and by mailing notice of such resignation under Section 10.06 to the Holders, and upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of a Trustee and appointment of a successor Trustee shall become effective only after a successor Trustee acceptable to the Bond Insurer shall have been appointed and upon the acceptance of appointment by such successor Trustee; provided, that if, within thirty (30) days after notice of the removal or resignation of the Trustee no successor Trustee shall have been appointed and shall have accepted such appointment, the removed or resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, which court may thereupon, after such notice, if any, as it may deem proper and prescribe and as may be required by law, appoint a successor Trustee having the qualifications required hereby. The Trustee may be removed at any time, at the request of the Bond Insurer, for any breach of its obligations and duties set forth herein. Any bank, corporation or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank, corporation or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank, corporation or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business shall become the successor Trustee without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding; provided, that such bank, corporation or trust company shall be eligible under this section. The Trustee is hereby authorized to pay the principal, Accreted Value or redemption price of the Bonds when duly presented for payment on their Principal Payment Dates or their Redemption Dates as provided herein and to pay the interest on the Bonds on their Interest Payment Dates as provided herein. The Trustee shall cancel all Bonds upon payment thereof on their Principal Payment Date or on their Redemption Date or upon the surrender thereof to the Trustee by the City, and the Trustee shall destroy all such cancelled Bonds and shall deliver a certificate of destruction to the City and shall keep accurate records of all Bonds paid and discharged and cancelled and destroyed by it. The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default that may have occurred hereunder, perform such duties, and only such duties, as are specifically set forth herein, and no implied duties or obligations shall be read herein. The Trustee shall, during the existence of any Event of Default hereunder that has not been cured, exercise such of the rights and powers vested in it hereby, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. Section 6.02 Liability of the Trustee. The recitals of facts, agreements and covenants contained herein and in the Bonds shall be taken as recitals of facts, agreements and covenants of the City, and the Trustee shall not assume any responsibility for the correctness of the same and does not make any representation as to the sufficiency, validity or priority hereof or of the Bonds, and shall not incur any responsibility in respect thereof other than in connection with the rights or obligations assigned to or imposed upon it herein, in the Bonds or in law or equity. The Trustee shall not be liable in connection with the performance of its duties hereunder except for its own negligence or willful misconduct, and the Trustee shall not be liable for any error of 45635.01436\32560729.2 33 judgment made in good faith unless it shall be proved that the Trustee was negligent in ascertaining the relevant facts. The Trustee shall not be bound to recognize any person as the Holder of a Bond unless and until such Bond is submitted for inspection, if required, and such Holder’s title thereto satisfactorily established, if disputed. The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in aggregate principal amount of all Outstanding Bonds or the Bond Insurer relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or the exercise of any trust or power conferred upon the Trustee hereunder. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it hereby at the request, order or direction of any of the Holders or the Bond Insurer pursuant to the provisions hereof unless such Holders or the Bond Insurer shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby. The Trustee shall have no obligation or liability to the Holders for the payment of the principal, Accreted Value or redemption price of or the interest on the Bonds from its own funds; but rather the Trustee’s obligations shall be limited solely to the performance of its duties hereunder. The Trustee shall not be deemed to have knowledge of any Event of Default hereunder unless and until an officer of the Trustee at its Corporate Trust Office responsible for the administration of its duties hereunder shall have actual knowledge thereof or shall have received written notice thereof, and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the agreements, conditions, covenants or terms contained herein or of any of the documents executed in connection with the Bonds, or as to the existence of an Event of Default hereunder but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the City, personally or by agent or attorney. The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through attorneys in fact, agents or receivers, and shall not be answerable for the negligence or misconduct of any such attorney in fact, agent or receiver if such attorney-in-fact, agent or receiver was selected by the Trustee with due care. The Trustee shall be entitled to advice of counsel and other professionals concerning all matters of trust and its duty hereunder, but the Trustee shall not be answerable for the professional malpractice of any attorney at law or certified public accountant in connection with the rendering of his professional advice in accordance with the terms hereof if such attorney at law or certified public accountant was selected by the Trustee with due care. The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any money or securities which shall be released to the City in accordance with the provisions hereof. 45635.01436\32560729.2 34 Whether or not therein expressly so provided, every provision hereof or of any related documents relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this article. The Trustee shall be protected in acting upon any bond, certificate (including any Certificate of the City), consent, email or facsimile transmission, notice, opinion, order, report, request (including any Written Request of the City), requisition, resolution or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Whenever in the administration of its rights and obligations hereunder the Trustee shall deem it necessary or desirable that a matter be established or proved prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Trustee, be deemed to be conclusively proved and established by a Certificate of the City, which certificate shall be full warrant to the Trustee for any action taken or suffered under the provisions hereof upon the faith thereof, but in its discretion the Trustee may in lieu thereof accept other evidence of such matter or may require such additional evidence as it may deem reasonable. No provision hereof shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties hereunder, or in the exercise of its rights or powers. The Trustee shall have no responsibility, opinion, or liability with respect to any information, statements or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds. The Trustee shall not be considered in breach of or in default with respect to any obligation created hereunder in the event of any enforced delay in the performance of such obligation 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, acts of a government, acts of the City, 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, malicious mischief, condemnation and unusually severe weather or delays of supplies or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. No permissive power, right or remedy conferred upon the Trustee hereunder shall be construed to impose a duty to exercise such power, right or remedy. All moneys received by the Trustee, until used or applied or invested as provided in this Indenture, shall be held in trust and such moneys need not be segregated from other moneys 45635.01436\32560729.2 35 except to the extent required by law or as provided in this Indenture. The Trustee shall not otherwise be under liability for interest on any moneys received under this Indenture except such as may be agreed upon. The Trustee may become the Holder of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depositary for and permit any of its offices or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Holders, whether or not such committee shall represent the Holders of a majority in principal amount of the Bonds then Outstanding. The Trustee agrees to accept and act upon facsimile transmission of written instructions and/or directions pursuant to this Indenture; provided, however, that: (a) subsequent to such facsimile transmission of written instructions and/or directions the Trustee shall forthwith receive the originally executed instructions and/or directions, (b) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions, and (c) the Trustee shall have received a current incumbency certificate containing the specimen signature of such designated person. Section 6.03 Compensation and Indemnification of the Trustee. The City covenants to pay to the Trustee from time to time, and the Trustee shall be entitled to, receive reasonable compensation for all services rendered by it in the exercise and performance of any of the powers and duties hereunder, and the City will pay or reimburse the Trustee upon its request for all expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance that may arise from its negligence or willful misconduct, including the negligence or willful misconduct of any of its directors, officers or employees. The City, to the extent permitted by law, shall indemnify, defend and hold harmless the Trustee, including its directors, officers and employees, against any loss, damages, liability or expense incurred without negligence or willful misconduct on the part of the Trustee arising out of or in connection with the acceptance or administration of the trusts created hereby, including costs and expenses (including attorneys’ fees) of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder; provided, that the Trustee shall make payments on the Bonds when due, shall cause the acceleration of the Bonds and shall cause the mandatory redemption of the Bonds in accordance herewith prior to seeking any indemnity hereunder. The rights of the Trustee and the obligations of the City under this section shall survive the discharge of the Bonds and the Indenture and the resignation or removal of the Trustee. ARTICLE VII AMENDMENT OF THE INDENTURE Section 7.01 Amendment of the Indenture. (a) Amendment with Written Consent of Holders. The Indenture and the rights and obligations of the City and of the Holders may be amended at any time (with the prior written 45635.01436\32560729.2 36 consent of the Bond Insurer and after one (1) week’s prior written notice to the Rating Agencies without the City receiving any objection thereto) by a Supplemental Indenture which shall become binding when the written consents of the Holders of a majority in aggregate principal amount of the Outstanding Bonds, exclusive of Bonds disqualified as provided in Section 7.02, are filed with the Trustee (except that so long as the Insurance Policy is in effect, only the consent of the Bond Insurer shall be required to any such amendment) and after receipt of an approving Opinion of Counsel that such amendment is authorized hereunder. No such amendment shall (1) extend the maturity of or reduce the interest rate on or amount of interest on or principal, Accreted Value or redemption price of any Bond without the express written consent of the Holder of such Bond, or (2) reduce the percentage of Bonds required for the written consent to any such amendment. Notwithstanding any other provision hereof, the Bond Insurer shall be deemed to be the Holder of any Bond insured by the Bond Insurer for purposes of granting consent to any amendment so long as the Insurance Policy remains in full force and effect. (b) Amendment without Written Consent of Holders. The Indenture and the rights and obligations of the City and of the Holders may also be amended at any time for any purpose that will not materially adversely affect the interests of the Holders (with the prior written consent of the Bond Insurer and after one (1) week’s prior written notice to the Rating Agencies without the City receiving any objection thereto) by a Supplemental Indenture which shall become binding without the consent of any Holders, but only to the extent permitted by law and after receipt of an approving Opinion of Counsel that any such amendment is authorized hereunder, including (without limitation) for any one or more of the following purposes -- (i) to add to the agreements and covenants required herein to be performed by the City other agreements and covenants thereafter to be performed by the City, to pledge or assign additional security for the Bonds (or any portion thereof) or to surrender any right or power reserved herein to or conferred herein on the City; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein and in any Supplemental Indenture or in regard to questions arising hereunder which the City may deem desirable or necessary and not inconsistent herewith; (iii) to modify, amend or add to the provisions herein or in any Supplemental Indenture to permit the qualification hereof or thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statutes hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by such statute or any similar statute; (iv) to modify, amend or add to the provisions herein to provide for the establishment of different interest rate modes, tender or purchase provisions in connection with the Bonds or to adjust any Mode provided for to the specifications for such Mode generally used by the remarketing agent, broker- 45635.01436\32560729.2 37 dealer or similar firm which has agreed with the City to handle the marketing, remarketing or auctioning of the Bonds to which such Mode applies; (v) to modify, amend or add to the provisions herein to provide for credit facilities, liquidity facilities or other financial products agreements in connection with the Bonds; or (vi) to make any amendments necessary or appropriate to preserve or protect the exemption of interest on the Bonds from State personal income taxes. The Trustee shall not be required to enter into or consent to the execution of any Supplemental Indenture which, in the sole judgment of the Trustee, might adversely affect the rights, obligations, powers, privileges, indemnities, or immunities provided the Trustee herein. Section 7.02 Disqualified Bonds. Bonds owned or held by or for the account of the City shall not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding Bonds provided in this article, and shall not be entitled to consent to or take any other action provided in this article; provided, that the Trustee shall not be deemed to have knowledge that the City owns any such Bonds unless the City is a Holder or the Trustee has received written notice that the City is a Holder. Section 7.03 Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as hereinabove provided, the City may determine that the Bonds may bear a notation by endorsement (in a form approved by the City) as to such action, and in that case upon demand of the Holder of any Outstanding Bond and presentation of his Bond for such purpose at the Corporate Trust Office, a suitable notation as to such action shall be made on such Bond; provided, that if the City shall so determine, new Bonds so modified as, in the opinion of the City, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Holder of any Outstanding Bond a new Bond or Bonds shall be exchanged at the Corporate Trust Office without cost to each Holder for his Bond or Bonds then Outstanding upon surrender of such Outstanding Bond or Bonds. Section 7.04 Amendment by Mutual Consent. The provisions of this article shall not prevent any Holder from accepting any amendment as to the particular Bonds held by such Holder, provided, that due notation thereof is made on such Bonds. Section 7.05 [Bond Insurer Notice and Consent. With respect to amendments or supplements to this Indenture described in Section 7.01(b), the Bond Insurer must be given notice of any such amendments or supplements. With respect to amendments or supplements to this Indenture described in Section 7.01(a), the Bond Insurer’s prior written consent is required. Additionally, any provision in this Indenture expressly recognizing or granting rights in or to the Bond Insurer may not be amended in any manner that affects the rights of the Bond Insurer without the prior written consent of the Bond Insurer. Copies of any amendments or supplements to this Indenture which are consented to by the Bond Insurer shall be sent to the Rating Agencies. Notwithstanding any other provision of this Indenture, in determining whether the rights of Holders will be adversely affected by any action taken pursuant to the terms and provisions of this Indenture, the Trustee shall consider the effect on the Holders as if there were 45635.01436\32560729.2 38 no Insurance Policy; provided, that for purposes of Section 7.01(b), any amendment approved in writing by the Bond Insurer shall be deemed to not materially adversely affect the interests of the Holders so long as the Insurance Policy is in full force and effect at the time of the amendment.] ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF HOLDERS Section 8.01 Events of Default. If any of the following events occur, they shall constitute Events of Default hereunder, namely: (a) If default shall be made by the City in the due and punctual payment of the interest due on any Bond when and as the same shall become due and payable; (b) If default shall be made by the City in the due and punctual payment of the principal, Accreted Value or redemption price of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or by proceedings for redemption; (c) If default shall be made by the City in the performance of any of the agreements or covenants not otherwise described in (a) or (b) above, required herein to be performed by the City, and such default shall have continued for a period of thirty (30) days after the City shall have been given notice in writing of such default by the Trustee or the Bond Insurer or the Holders of not less than twenty five per cent (25%) in aggregate Principal Amount of the Outstanding Bonds, specifying such default and requiring the same to be remedied; provided, if the default stated in the notice can be corrected, but not within the applicable period, the Trustee and such Holders shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected; or (d) If an Event of Bankruptcy shall occur, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of its property. Section 8.02 Remedies for Events of Default. If an Event of Default occurs hereunder and is continuing, the Trustee shall (upon written direction of the Bond Insurer), by written notice to the City, declare the Principal Amount of all Bonds then Outstanding and the interest accrued thereon to be due and payable immediately, whereupon the same shall become immediately due and payable without any further action or notice; provided, that if at any time after such acceleration and before any judgment or decree for the payment of money with respect thereto has been entered all amounts payable to the Trustee hereunder on the Bonds subject to acceleration under this paragraph (except principal or Accreted Value of or the interest on the Bonds which is due solely by reason of such acceleration) shall have been paid or payment shall have been duly provided for by deposit with the Trustee and all existing Events of Default hereunder shall have been cured or waived, then the Bond Insurer may annul such acceleration and its consequences by written notice to the City and the Trustee, which such annulment shall be binding upon the City and the Trustee and all of the Holders, but no such annulment shall 45635.01436\32560729.2 39 extend to or affect any subsequent Event of Default hereunder or impair any right or remedy consequent thereon. Section 8.03 Application of Funds Upon Acceleration. All money in the funds provided in Sections 4.01 and 4.02 upon the date of the declaration of acceleration by the Trustee as provided in Section 8.02 and any amounts thereafter received by the City hereunder shall be transmitted to the Trustee and shall be applied by the Trustee in the following order -- First, to the payment of the fees, costs and expenses of the Trustee, if any, in carrying out the provisions of this article, including payment of reasonable compensation to its accountants and counsel and any outstanding fees and expenses of the Trustee, and then to the payment of the costs and expenses of the Holders in providing for the declaration of such event of default, including reasonable compensation to their accountants and counsel; Second, upon presentation of the several Bonds, and the stamping thereon of the amount of the payment if only partially paid or upon the surrender thereof if fully paid, to the payment of the whole amount then owing and unpaid upon the Bonds for the principal or Accreted Value thereof and the interest thereon, with interest on the overdue principal or Accreted Value and interest at the rate borne by such Bonds, and in case such money shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such principal or Accreted Value, interest and (to the extent permitted by law) interest on overdue principal or Accreted Value and interest without preference or priority among such principal or Accreted Value, interest and interest on overdue principal or Accreted Value and interest ratably to the aggregate of such principal or Accreted Value, interest and interest on overdue principal or Accreted Value and interest, and then to the payment of fees and expenses or other amount due the Bond Insurer and remaining unpaid. Section 8.04 Institution of Legal Proceedings by the Trustee. If an Event of Default hereunder shall happen and be continuing, the Trustee may, and upon the written request of the Holders of a majority in Principal Amount of the Outstanding Bonds, and upon being indemnified to its satisfaction therefor, shall (with prior written consent of the Bond Insurer) proceed to protect or enforce its rights or the rights of the Holders of the Bonds hereunder by a suit in equity or action at law, either for the specific performance of any agreement or covenant contained herein or in aid of the execution of any power herein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights and duties hereunder. Section 8.05 Non Waiver. Nothing in this article or in any other provision hereof or in the Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal, Accreted Value or redemption price of and the interest on the Bonds to the respective Holders of the Bonds on the respective Payment Dates as provided herein, or shall affect or impair the right of such Holders, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied herein and in the Bonds. A waiver of any default or breach of duty or contract by the Trustee or any Holder shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the 45635.01436\32560729.2 40 Trustee or any Holder to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Holders by the Act or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Holders. If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned, the Trustee, the City, the Bond Insurer and any Holder shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. Section 8.06 Actions by the Trustee as Attorney in Fact. Any action, proceeding or suit which any Holder shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Holders, whether or not the Trustee is a Holder, and the Trustee is hereby appointed (and the successive Holders, by taking and holding the Bonds issued hereunder, shall be conclusively deemed to have so appointed it) the true and lawful attorney in fact of the Holders for the purpose of bringing any such action, proceeding or suit and for the purpose of doing and performing any and all acts and things for and on behalf of the Holders as a class or classes as may be advisable or necessary in the opinion of the Trustee as such attorney in fact. Section 8.07 Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Holders is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by the Act or by any other law. Section 8.08 Limitation on Holders’ Right to Sue. No Holder of any Bond shall have the right to institute any suit, action or proceedings, at law or equity, for any remedy hereunder unless (a) such Holder shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Holders of at least a majority in aggregate Principal Amount of all Outstanding Bonds and the Bond Insurer shall have made written request upon the Trustee to exercise the powers hereinabove granted or to institute such suit, action or proceeding in its own name; (c) such Holders shall have tendered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred by it in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such request shall have been received by, and such tender of indemnity shall have been made to, the Trustee; provided, that this limitation shall not apply to the Bond Insurer. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Holder of Bonds of any remedy hereunder; it being understood and intended that no one or more Holders of Bonds shall have any right in any manner whatever by his or their action to enforce any right hereunder except in the manner herein provided, and that all proceedings at law or in equity to enforce any provision hereof shall be instituted and maintained in the manner herein provided and for the equal benefit of the Holders of all Outstanding Bonds. 45635.01436\32560729.2 41 Section 8.09 Absolute Obligation of the City. Nothing contained herein or in the Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal, Accreted Value or redemption price of and the interest on the Bonds to the respective Holders of the Bonds on their respective Payment Dates as provided herein. Section 8.10 [Rights of the Bond Insurer]. [Anything in this Indenture to the contrary notwithstanding, upon the occurrence and continuation of an Event of Default, the Bond Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted hereunder to the Holders, or to the Trustee for the benefit of the Holders, including but not limited to rights and remedies granted pursuant to Sections 8.04 and 8.08 and including but not limited to the right to approve all waivers of any Events of Default. In the event of any Bankruptcy of the City, any reorganization or liquidation plan with respect to the City shall be subject to the approval of the Bond Insurer, and the Bond Insurer shall have the right to vote on behalf of the Holders. The rights granted to the Bond Insurer under this Indenture shall be deemed terminated and shall not be exercisable by the Bond Insurer during any period during which the Bond Insurer shall be in default under the Insurance Policy.] ARTICLE IX DEFEASANCE Section 9.01 Discharge of the Bonds. (a) If the City shall pay or cause to be paid or there shall otherwise be paid to the Holders of all Outstanding Bonds the principal, Accreted Value or redemption price thereof and the interest thereon at the times and in the manner stipulated herein and therein, then all agreements, covenants and other obligations of the City to the Holders of such Bonds hereunder shall thereupon cease, terminate and become void and be discharged and satisfied, and in such event the Trustee shall execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the City all money or securities held by it pursuant hereto which are not required for the payment of the principal, Accreted Value or redemption price of and the interest on such Bonds. (b) Any Outstanding Bonds shall prior to the Payment Dates or Redemption Dates thereof be deemed to have been paid within the meaning of and with the effect expressed in subsection (a) of this section if (1) there shall have been deposited with the Trustee either (A) money or (B) Federal Securities which are not subject to redemption prior to maturity (including any such Federal Securities issued or held in book entry form on the books of the Treasury of the United States of America), the interest on and principal of which when paid will provide money, which, together with other money, if any, deposited with the Trustee at the same time, shall be sufficient, in the opinion of an Independent Certified Public Accountant, to pay when due the principal, Accreted Value or redemption price of and the interest on such Bonds on and prior to the Payment Dates or Redemption Dates thereof, as the case may be, and (2) the City shall have given the Trustee in form satisfactory to it irrevocable instructions to mail to the Holders in accordance with Section 10.06 and to the Information Services notice that the deposit required by clause (1) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with this section and stating the Payment Dates or Redemption Dates on 45635.01436\32560729.2 42 which money is to be available for the payment of the principal, Accreted Value or redemption price of and the interest on such Bonds. The escrow agreement shall further provide that: (i) Any substitution of securities shall require a verification by an independent certified public accountant and the prior written consent of the Bond Insurer. (ii) The City will not exercise any optional redemption of Bonds secured by the escrow agreement or any other redemption other than mandatory sinking fund redemptions unless (a) the right to make any such redemption has been expressly reserved in the escrow agreement and such reservation has been disclosed in detail in the official statement for the refunding bonds, and (b) as a condition of any such redemption there shall be provided to the Bond Insurer a verification of an independent certified public accountant as to the sufficiency of escrow receipts without reinvestment to meet the escrow requirements remaining following such redemption. (iii) The City shall not amend the escrow agreement or enter into a forward purchase agreement or other agreement with respect to rights in the escrow without the prior written consent of the Bond Insurer. (iv) The escrow agreement shall be accompanied with an opinion addressed to the Trustee and the Bond Insurer as to the validity and enforceability of the escrow agreement as to the City. (c) Notwithstanding anything in this Indenture to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by the Bond Insurer pursuant to the Insurance Policy, the Bonds shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City, and all covenants, agreements and other obligations of the City to the Holders shall continue to exist and shall run to the benefit of the Bond Insurer, and the Bond Insurer shall be subrogated to the rights of such Holders. Section 9.02 Unclaimed Money. Anything contained herein to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of the Bonds or the interest thereon which remains unclaimed for two (2) years after the date when such Bonds or interest thereon shall have become due and payable, if such money was held by the Trustee at such date, or for two (2) years after the date of deposit of such money if deposited with the Trustee after the date when such Bonds and interest shall have become due and payable, shall be repaid by the Trustee to the City as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Holders shall not look to the Trustee for the payment of such Bonds; provided, that before being required to make any such payment to the City, the Trustee may, and at the request of the City shall, at the expense of the City, mail to the Holders in accordance with Section 10.06 and to the Information Services a notice that such money remains unclaimed and that, after a date named in such notice, which date shall not be less than thirty (30) days after the date of mailing such notice, the balance of such money then unclaimed will be returned to the City. 45635.01436\32560729.2 43 ARTICLE X MISCELLANEOUS Section 10.01 Benefits of the Indenture Limited to Parties. Nothing contained herein, expressed or implied, is intended to give to any person other than the Trustee, the City, the Holders and the Bond Insurer any right, remedy or claim under or by reason hereof, and any agreement, condition, covenant or term contained herein required to be observed or performed by or on behalf of the City or any officer or employee thereof shall be for the sole and exclusive benefit of the Trustee, the Holders and the Bond Insurer, and to the extent that the Indenture confers upon or gives or grants to the Bond Insurer any right, remedy or claim under or by reason hereof, the Bond Insurer is hereby explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. Section 10.02 Successor Is Deemed Included In All References To Predecessor. Whenever herein either the City or any officer thereof or the Trustee is named or referred to, such reference shall be deemed to include the successor or assigns thereof, and all agreements and covenants required hereby to be performed by or on behalf of the City or any officer thereof or the Trustee shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 10.03 Execution of Documents by Holders. Any declaration, request or other instrument which is permitted or required herein to be executed by Holders may be in one or more instruments of similar tenor and may be executed by Holders in person or by their attorneys appointed in writing. The fact and date of the execution by any Holder or such Holder’s attorney of any declaration, request or other instrument or of any writing appointing such attorney may be proved by the certificate of any notary public or other officer authorized to make acknowledgments of deeds to be recorded in the state or territory in which such person purports to act that the person signing such declaration, request or other instrument or writing acknowledged to such person the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of any Bonds and the amount, maturity, number and date of holding the same may be proved by the registration books for the Bonds maintained by the Trustee under Section 2.10. Any declaration, request, consent or other instrument or writing of the Holder of any Bond shall bind all future Holders of such Bond with respect to anything done or suffered to be done by the Trustee or the City in good faith and in accordance therewith. Section 10.04 Waiver of Personal Liability. No officer of the City shall be individually or personally liable for the payment of the principal, Accreted Value or redemption price of or the interest on the Bonds by reason of their issuance, but nothing herein contained shall relieve any officer of the City from the performance of any official duty provided by the Act or any other applicable provisions of law or hereby. Section 10.05 Acquisition of Bonds by the City. All Bonds acquired by the City shall be surrendered to the Trustee for cancellation. 45635.01436\32560729.2 44 Section 10.06 Notice to Holders. Any notice required to be given by the Trustee hereunder by mail to any Holders of Bonds shall be given by mailing a copy of such notice, first class postage prepaid, or by giving such notice by telecopy or by an overnight delivery service, to the Holders of such Bonds at their addresses appearing in the registration books maintained by the Trustee pursuant to Section 2.10 not less than thirty (30) days nor more than forty -five (45) days following the action or prior to the event concerning which notice thereof is required to be given; provided, that receipt of any such notice shall not be a condition precedent to the effect of such notice and neither failure of any Holder to receive any such notice nor any immaterial defect contained therein shall affect the validity of the proceedings taken in connection with the action or the event concerning which such notice was given. Section 10.07 Content of Certificates. Every Certificate of the City with respect to compliance with any agreement, condition, covenant or provision provided herein shall include (a) a statement that the person or persons making or giving such certificate have read such agreement, condition, covenant or provision and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements contained in such certificate are based; (c) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such agreement, condition, covenant or provision has been complied with; and (d) a statement as to whether, in the opinion of the signers, such agreement, condition, covenant or provision has been complied with. Any Certificate of the City may be based, insofar as it relates to legal matters, upon an Opinion of Counsel unless the person making or giving such certificate knows that the Opinion of Counsel with respect to the matters upon which his certificate may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should have known that the same was erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters information with respect to which is in the possession of the City, upon a representation by an officer or officers of the City unless the counsel executing such Opinion of Counsel knows that the representation with respect to the matters upon which his opinion may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should have known that the same was erroneous. Section 10.08 Accounts and Funds; Business Days. Any account or fund required hereby to be established and maintained by the Director of Finance or the Trustee may be established and maintained in the accounting records of the Director of Finance or the Trustee, as the case may be, either as an account or a fund, and may, for the purposes of such accounting records, any audits thereof and any reports or statements with respect thereto, be treated either as an account or a fund; but all such records with respect to all such accounts and funds shall at all times be maintained in accordance with sound accounting practice and with due regard for the protection of the security of the Bonds and the rights of the Holders. Any action required to occur hereunder on a day which is not a Business Day shall be required to occur on the next succeeding Business Day. Section 10.09 Addresses of Notice Parties. All written notices to be given hereunder shall be given by mail to the party entitled thereto (with copy to the Bond Insurer) at its address set forth below, or at such other address as such party may provide to the other party in writing from time to time, namely: 45635.01436\32560729.2 45 If to the City: City of Azusa Azusa City Hall 213 E. Foothill Boulevard Azusa, CA 91702-1395 Attention: Director of Finance If to the Trustee: Wilmington Trust, National Association 650 Town Center Drive, Suite 600 Costa Mesa, CA 92626 FAX: Attention: If to the Bond Insurer: [To Come] Section 10.10 Article and Section Headings, Singular and Plural Forms, Gender and References. The headings or titles of the several articles and sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof, and the singular and plural forms of words shall be deemed interchangeable, and words of any gender shall be deemed and construed to include all genders, and all references herein to “Articles,” “Sections” and other subdivisions or clauses are to the corresponding articles, sections, subdivisions or clauses hereof; and the words “hereby,” “herein,” “hereof,” “hereto,” “herewith,” “hereunder” and other words of similar import refer to the Indenture as a whole and not to any particular article, section, subsection, paragraph, subparagraph or clause in which such word appears. Section 10.11 Partial Invalidity. If any one or more of the agreements or covenants or portions thereof required hereby to be performed by or on the part of the Trustee or the City shall be contrary to law, then such agreement or agreements, such covenant or covenants or such portions thereof shall be null and void and shall be deemed separable from the remaining agreements and covenants or portions thereof and shall in no way affect the validity hereof or of the Bonds, and the Holders shall retain all the benefit, protection and security afforded to them under the Act or any other applicable provisions of law. The Trustee and the City hereby declare that they would have executed and delivered the Indenture and each and every other article, section, paragraph, subdivision, sentence, clause and phrase hereof and would have authorized the issuance of the Bonds pursuant hereto irrespective of the fact that any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or phrases hereof or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 10.12 Execution in Counterparts. The Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Trustee and the City shall preserve undestroyed, shall together constitute but one and the same instrument. 45635.01436\32560729.2 46 Section 10.13 Governing Law. The Indenture shall be governed by and construed in accordance with the laws of the State. (Signature page follows) 45635.01436\32560729.2 S-1 IN WITNESS WHEREOF, Wilmington Trust, National Association in token of its acceptance of the trusts created hereunder, has caused the Indenture to be signed in its name by one of its duly authorized officers, and the City of Azusa has caused the Indenture to be signed in its name by the City Manager of the City, all as of the day and year first above written. WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee By: _____________________________________ Authorized Officer CITY OF AZUSA By: _____________________________________ Sergio Gonzalez City Manager -Signature Page- Indenture 45635.01436\32560729.2 A-1 APPENDIX A FORM OF STANDARD BOND UNITED STATES OF AMERICA STATE OF CALIFORNIA CITY OF AZUSA TAXABLE PENSION FUNDING BOND, SERIES 2020 No. R-__ $__________ Interest Rate Maturity Date Original Issue Date CUSIP __________, 2020 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: DOLLARS THE OBLIGATIONS OF THE CITY HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ALL PAYMENTS WHEN DUE, ARE OBLIGATIONS OF THE CITY IMPOSED BY LAW AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT ANY RIGHT OF SET- OFF OR COUNTERCLAIM. THIS BOND DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION, AND NEITHER THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE PAYMENTS ON THE BONDS CONSTITUTE AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The City of Azusa, a municipal corporation organized and validly existing under the Constitution and laws of the State of California (the “City”), for value received hereby promises to pay in lawful money of the United States of America to the registered owner specified above, or registered assigns, on the maturity date specified above (subject to any right of prior redemption hereinafter provided for) the principal sum specified above, together with interest on such principal sum from the interest payment date next preceding the date of authentication of this Bond (unless this Bond is authenticated as of an interest payment date or during the period from the Record Date (as that term is defined in the Indenture hereafter defined, and herein a “Record Date”) preceding an interest payment date to such interest payment date, in which event it shall bear interest from such interest payment date, or unless this Bond is authenticated prior to the first interest payment date, in which event it shall bear interest from the original issue date specified above) until the principal hereof shall have been paid at the interest rate per annum 45635.01436\32560729.2 A-2 specified above, payable on August 1, 2021, and thereafter on February 1 and August 1 of each year. Interest due on or before the maturity or prior redemption hereof shall be payable only by check mailed by first class mail to the registered owner hereof by Wilmington Trust, National Association, as trustee (the “Trustee”); provided, that upon the written request of the registered owner of one million dollars ($1,000,000) or more in aggregate principal amount of Bonds received by the Trustee prior to the applicable Record Date, interest shall be paid by wire transfer in immediately available funds. The principal hereof and redemption premium, if any, hereon is payable in lawful money of the United States of America at the Corporate Trust Office (as that term is defined in the Indenture hereinafter defined, and herein “Corporate Trust Office”) of the Trustee. This Bond is one of a duly authorized issue of bonds of the City designated as its “Taxable Pension Funding Bonds, Series 2020,” further designated “Series 2020” and issued as Fixed Rate Bonds (the “2020 Bonds” or the “Bonds”) in the aggregate principal amount of $__________ all of like tenor and date (except for such variations, if any, as may be required to designate varying numbers, maturities and interest rates and modes), and is issued under and pursuant to the provisions of Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California and all laws amendatory thereof or supplemental thereto (the “Act”) and is issued under and pursuant to the provisions of an Indenture dated as of September 1, 2020, by and between the Trustee and the City (the “Indenture”) (copies of which are on file at the Corporate Trust Office of the Trustee). Under the Indenture, the obligation of the City under the 2020 Bonds, including the obligation to make all payments of the principal of and the interest on the 2020 Bonds on their respective Payment Dates (as that term is defined in the Indenture), is exempt from the debt limitations of the California Constitution, the City is obligated, to the extent permitted by law, to satisfy its obligations under the 2020 Bonds from any lawfully available funds of the City. Reference is hereby made to the Act and to the Indenture and to any and all amendments thereof for a description of the terms on which the 2020 Bonds are issued, for the rights of the registered owners of the 2020 Bonds, for the security for payment of the 2020 Bonds, for the remedies upon default and the limitations thereon and for the provisions for the amendment of the Indenture (with or without consent of the registered owners of the 2020 Bonds); and all the terms of the Indenture are hereby incorporated herein and constitute a contract between the City and the registered owner of this Bond, to all the provisions of which the registered owner of this Bond, by acceptance hereof, agrees and consents. Under the Indenture, additional bonds may be issued on a parity with the 2020 Bonds, but only subject to the conditions and upon compliance with the procedures set forth in the Indenture. The Bonds are subject to redemption on the dates, at the redemption prices and pursuant to the terms set forth in the Indenture. Notice of redemption of any Bonds or any portions thereof shall be given as set forth in the Indenture. Failure by the Trustee to give notice pursuant to the Indenture to any one or more of the Information Services, or the insufficiency of any such notice or the failure of any registered owner to receive any redemption notice mailed to such registered owner or any immaterial defect in the notice so mailed shall not affect the sufficiency of the proceedings for the redemption of any Bonds; provided, that any such notice of redemption may be cancelled and annulled by a Written Request of the City (as that term is defined in the Indenture) given to the Trustee at least five (5) days prior to the date fixed for 45635.01436\32560729.2 A-3 redemption, whereupon the Trustee shall forthwith give appropriate notice of such cancellation and annulment to all the recipients of such notice of redemption. If an Event of Default (as that term is defined in the Indenture) shall occur, the Principal Amount of all Bonds (and any additional bonds authorized by the Indenture) may be declared due and payable upon the conditions, in the manner and with the effect provided in the Indenture; provided, that the Indenture provides that in certain events such declaration and its consequences may be rescinded under the circumstances as provided therein. This Bond is transferable only on a register to be kept for that purpose at the above mentioned office of the Trustee by the registered owner hereof in person or by his duly authorized attorney upon payment of the charges provided in the Indenture and upon surrender of this Bond, together with a written instrument of transfer satisfactory to the Trustee duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully registered Bond or Bonds of the same maturity in the same aggregate principal amount of authorized denominations will be issued to the transferee in exchange therefor. The Trustee and the City may deem and treat the registered owner hereof as the absolute owner hereof for the purpose of receiving payment of the interest hereon and principal hereof and for all other purposes, whether or not this Bond shall be overdue, and neither the Trustee nor the City shall be affected by any notice or knowledge to the contrary; and payment of the principal, Accreted Value or redemption price of and interest on this Bond shall be made only to such registered owner, which payments shall be valid and effectual to satisfy and discharge liability on this Bond to the extent of the sum so paid. This Bond shall not be entitled to any benefit, protection or security under the Indenture or become valid or obligatory for any purpose until the certificate of authentication and registration hereon endorsed shall have been executed and dated by an authorized signatory the Trustee. It is hereby certified that all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit prescribed by the Constitution or laws of the State of California and is not in excess of the amount of Bonds permitted to be issued under the Indenture. (Balance of this page intentionally left blank) 45635.01436\32560729.2 A-4 IN WITNESS WHEREOF, the City of Azusa has caused this Bond to be executed in its name and on its behalf by the signature of the Mayor of the City and countersigned by the signature of the City Clerk, who has caused this Bond to be dated as of the original issue date specified above. CITY OF AZUSA By: _____________________________________ Robert Gonzales Mayor Countersigned: ___________________________________ Jeffrey Lawrence Cornejo, Jr. City Clerk 45635.01436\32560729.2 A-5 DTC ENDORSEMENT Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof Cede & Co., has an interest herein. 45635.01436\32560729.2 A-6 CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within mentioned Indenture which has been authenticated on ____________________. WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee By: _____________________________________ Authorized Signatory 45635.01436\32560729.2 A-7 [FORM OF ASSIGNMENT] For value received the undersigned hereby sells, assigns and transfers unto ______________________________________________________________________________ ______________________________________________________________________________ (Name, Address and Tax Identification or Social Security Number of Assignee) the within- mentioned Bond and hereby irrevocably constitutes and appoints _____________________, attorney, to transfer the same on the Bond register of the Trustee 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 Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. 45635.01436\32560729.2 B-1 APPENDIX B FORM OF CAPITAL APPRECIATION BOND UNITED STATES OF AMERICA STATE OF CALIFORNIA CITY OF AZUSA TAXABLE PENSION FUNDING BOND, SERIES 2020 No. R-____ $________ Yield to Maturity Maturity Date Dated Date CUSIP __________, 2020 REGISTERED OWNER: INITIAL PRINCIPAL AMOUNT: MATURITY AMOUNT: THE OBLIGATIONS OF THE CITY HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ALL PAYMENTS OF ACCRETED VALUE WHEN DUE, ARE OBLIGATIONS OF THE CITY IMPOSED BY LAW AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT ANY RIGHT OF SET-OFF OR COUNTERCLAIM. THIS BOND DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION, AND NEITHER THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE PAYMENTS ON THE BONDS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The City of Azusa, a municipal corporation organized and validly existing under the Constitution and laws of the State of California (the “City”), for value received hereby promises to pay in lawful money of the United States of America to the registered owner specified above, or registered assigns, the Maturity Amount set forth above, on the Maturity Date set forth above. Interest on this Bond with respect to the Principal Amount hereof will accrue at the Interest Rate per annum shown above from the Dated Date shown above and will be compounded thereafter on August 1 and February 1 of each year until maturity, computed using a year of 360 days comprised of twelve 30-day months and shall be payable only at maturity as part of the Maturity Amount. The Accreted Value hereof is payable at the corporate trust office of the Trustee, Wilmington Trust, National Association. (the “Trustee”), located in Los Angeles, California, or such other place as may be designated by the Trustee, acting as Trustee under that certain Indenture, by and between the City and the Trustee, dated as of September 1, 2020 (the “Indenture”). 45635.01436\32560729.2 B-2 This Bond is one of a duly authorized issue of bonds of the City designated as its “Taxable Pension Funding Bonds, Series 2020,” further designated “Series 2020” and issued as Fixed Rate Bonds (the “2020 Bonds” or the “Bonds”) in the aggregate principal amount of $____________, all of like tenor and date (except for such variations, if any, as may be required to designate varying numbers, maturities and interest rates and modes), and is issued under and pursuant to the provisions of Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California and all laws amendatory thereof or supplemental thereto (the “Act”) and is issued under and pursuant to the provisions of Articles 10 and 11 (commencing with Section 53570) of Chapter 2, Division 2, Title 5 of the Government Code of the State of California, and all laws amendatory thereof or supplemental thereto (the “Act”) and under and pursuant to the provisions of the Indenture (copies of which are on file at the Corporate Trust Office of the Trustee). Under the Indenture, the obligation of the City under the 2020 Bonds, including the obligation to make all payments of the principal, Accreted Value or redemption price of and the interest on the 2020 Bonds on their respective Payment Dates (as that term is defined in the Indenture), is exempt from the debt limitations of the California Constitution, the City is obligated to satisfy its obligations under the 2020 Bonds from any lawfully available funds of the City. Reference is hereby made to the Act and to the Indenture and to any and all amendments thereof for a description of the terms on which the 2020 Bonds are issued, for the rights of the registered owners of the 2020 Bonds, for the security for payment of the 2020 Bonds, for the remedies upon default and the limitations thereon and for the provisions for the amendment of the Indenture (with or without consent of the registered owners of the 2020 Bonds); and all the terms of the Indenture are hereby incorporated herein and constitute a contract between the City and the registered owner of this Bond, to all the provisions of which the registered owner of this Bond, by acceptance hereof, agrees and consents. Under the Indenture, additional bonds may be issued on a parity with the 2020 Bonds, but only subject to the conditions and upon compliance with the procedures set forth in the Indenture. This Bond is subject to redemption prior to its maturity date as set forth in the Indenture. This Bond is transferable only on a register to be kept for that purpose at the abovementioned office of the Trustee by the registered owner hereof in person or by his duly authorized attorney upon payment of the charges provided in the Indenture and upon surrender of this Bond, together with a written instrument of transfer satisfactory to the Trustee duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully registered Bond or Bonds in the same aggregate principal amount of authorized denominations will be issued to the transferee in exchange therefor. The City and the Trustee may deem and treat the registered owner hereof as the absolute owner hereof for the purpose of receiving payment of the interest hereon and principal hereof and for all other purposes, whether or not this Bond shall be overdue, and neither the City nor the Trustee shall be affected by any notice or knowledge to the contrary; and payment of the interest on and principal of this Bond shall be made only to such registered owner, which payments shall be valid and effectual to satisfy and discharge liability on this Bond to the extent of the sum or sums so paid. This Bond shall not be entitled to any benefit, protection or security under the Indenture or become valid or obligatory for any purpose until the certificate of authentication and 45635.01436\32560729.2 B-3 registration hereon endorsed shall have been executed and dated by an authorized signatory of the Trustee. It is hereby certified that all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit prescribed by the Constitution or laws of the State of California and is not in excess of the amount of Bonds permitted to be issued under the Indenture. (Balance of this page intentionally left blank) 45635.01436\32560729.2 B-4 IN WITNESS WHEREOF, the City of Azusa has caused this Bond to be executed in its name and on its behalf by the signature of the Mayor of the City and countersigned by the signature of the City Clerk, who has caused this Bond to be dated as of the original issue date specified above. CITY OF AZUSA By: _____________________________________ Robert Gonzales Mayor Countersigned: ___________________________________ Jeffrey Lawrence Cornejo, Jr. City Clerk 45635.01436\32560729.2 B-5 DTC ENDORSEMENT Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof Cede & Co., has an interest herein. 45635.01436\32560729.2 B-6 [FORM OF CERTIFICATE OF AUTHENTICATION] This is one of the Bonds described in the within-mentioned Indenture which has been authenticated on ___________________________. WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee By: _____________________________________ Authorized Signatory 45635.01436\32560729.2 B-7 [FORM OF ASSIGNMENT] For value received the undersigned hereby sells, assigns and transfers unto ______________________________________________________________________________ ______________________________________________________________________________ (Name, Address and Tax Identification or Social Security Number of Assignee) the within- mentioned Bond and hereby irrevocably constitutes and appoints _____________________, attorney, to transfer the same on the Bond register of the Trustee 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 Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. 45635.01436\32560729.2 B-8 STATEMENT OF INSURANCE [TO COME] 45635.01436\32560729.2 C-1 APPENDIX C FORM OF CONVERTIBLE CAPITAL APPRECIATION BOND UNITED STATES OF AMERICA STATE OF CALIFORNIA CITY OF AZUSA TAXABLE PENSION FUNDING BOND, SERIES 2020 No. R-____ $________ Reoffering Yield Yield to Maturity Maturity Date Conversion Date Dated Date CUSIP ISIN % ___% ________ _, ____ _________, ____ Date of Delivery ________ ___ REGISTERED OWNER: PRINCIPAL AMOUNT: CONVERSION DATE AMOUNT: THE OBLIGATIONS OF THE CITY HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ALL PAYMENTS WHEN DUE, ARE OBLIGATIONS OF THE CITY IMPOSED BY LAW AND ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT ANY RIGHT OF SET- OFF OR COUNTERCLAIM. THIS BOND DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION, AND NEITHER THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE PAYMENTS ON THE BONDS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The City of Azusa, a municipal corporation organized and validly existing under the Constitution and laws of the State of California (the “City”), for value received hereby promises to pay in lawful money of the United States of America to the registered owner specified above, or registered assigns, the Conversion Date Amount set forth above, on the Conversion Date set forth above. Interest on this Bond with respect to the Principal Amount hereof will accrue at the Interest Rate per annum shown above from the Dated Date shown above and will be compounded thereafter on __________ and ____________ of each year until the Conversion Date, computed using a year of 360 days comprised of twelve 30-day months and shall be payable only at maturity as part of the Maturity Amount. Thereafter, interest on this bond shall accrue at the interest rate shown above on August 1 and February 1 of each year until the 45635.01436\32560729.2 C-2 Maturity Date, computed using a year of 360 days comprised of twelve 30-day months. The Conversion Date Amount hereof is payable at the corporate trust office of the Trustee, Wilmington Trust, National Association (the “Trustee”), located in Los Angeles, California, or such other place as may be designated by the Trustee, acting as Trustee under that certain Indenture, by and between the City and the Trustee, dated as of September 1, 2020 (the “Indenture”). This Bond is issued under and pursuant to the provisions of Articles 10 and 11 (commencing with Section 53570) of Chapter 2, Division 2, Title 5 of the Government Code of the State of California, and all laws amendatory thereof or supplemental thereto (the “Act”) and under and pursuant to the provisions of the Indenture (copies of which are on file at the Corporate Trust Office of the Trustee). The Bonds are issued on a parity under the Indenture with $______ aggregate principal amount of the City’s Taxable Pension Funding Bonds, 2020 Series ___, ___ and ___ (collectively with the Bonds, the “2020 Bonds”). Under the Indenture, the obligation of the City under the 2020 Bonds, including the obligation to make all payments of the principal, Conversion Date Amount of and the interest on the 2020 Bonds on their respective Payment Dates (as that term is defined in the Indenture), is exempt from the debt limitations of the California Constitution, the City is obligated to satisfy its obligations under the 2020 Bonds from any lawfully available funds of the City. Reference is hereby made to the Act and to the Indenture and to any and all amendments thereof for a description of the terms on which the 2020 Bonds are issued, for the rights of the registered owners of the 2020 Bonds, for the security for payment of the 2020 Bonds, for the remedies upon default and the limitations thereon and for the provisions for the amendment of the Indenture (with or without consent of the registered owners of the 2020 Bonds); and all the terms of the Indenture are hereby incorporated herein and constitute a contract between the City and the registered owner of this Bond, to all the provisions of which the registered owner of this Bond, by acceptance hereof, agrees and consents. Under the Indenture, additional bonds may be issued on a parity with the 2020 Bonds, but only subject to the conditions and upon compliance with the procedures set forth in the Indenture. [This Bond is subject to redemption prior to its maturity date as set forth in the Indenture.] This Bond is transferable only on a register to be kept for that purpose at the abovementioned office of the Trustee by the registered owner hereof in person or by his duly authorized attorney upon payment of the charges provided in the Indenture and upon surrender of this Bond, together with a written instrument of transfer satisfactory to the Trustee duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully registered Bond or Bonds in the same aggregate principal amount of authorized denominations will be issued to the transferee in exchange therefor. The City and the Trustee may deem and treat the registered owner hereof as the absolute owner hereof for the purpose of receiving payment of the interest hereon and principal hereof and for all other purposes, whether or not this Bond shall be overdue, and neither the City nor the Trustee shall be affected by any notice or knowledge to the contrary; and payment of the interest on and principal of this Bond shall be made only to such registered owner, which payments shall be valid and effectual to satisfy and discharge liability on this Bond to the extent of the sum or sums so paid. 45635.01436\32560729.2 C-3 This Bond shall not be entitled to any benefit, protection or security under the Indenture or become valid or obligatory for any purpose until the certificate of authentication and registration hereon endorsed shall have been executed and dated by an authorized signatory of the Trustee. It is hereby certified that all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit prescribed by the Constitution or laws of the State of California and is not in excess of the amount of Bonds permitted to be issued under the Indenture. (Balance of this page intentionally left blank) 45635.01436\32560729.2 C-4 IN WITNESS WHEREOF, the City of Azusa has caused this Bond to be executed in its name and on its behalf by the signature of the Mayor of the City and countersigned by the signature of the City Clerk, who has caused this Bond to be dated as of the original issue date specified above. CITY OF AZUSA By: _____________________________________ Robert Gonzales Mayor Countersigned: ___________________________________ Jeffrey Lawrence Cornejo, Jr. City Clerk 45635.01436\32560729.2 C-5 DTC ENDORSEMENT Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof Cede & Co., has an interest herein. 45635.01436\32560729.2 C-6 [FORM OF CERTIFICATE OF AUTHENTICATION] This is one of the Bonds described in the within-mentioned Indenture which has been authenticated on ___________________________. WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee By: _____________________________________ Authorized Signatory 45635.01436\32560729.2 C-7 [FORM OF ASSIGNMENT] For value received the undersigned hereby sells, assigns and transfers unto __________________________ (Taxpayer Identification Number: ________________) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer the within bond on the books kept for registration thereof, with full power of substitution in the premises. ______________________________________ Dated: ________________ Note: The signature to this Assignment must correspond with the name as written on the face of the Bond in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: __________________________________________________________ Notice: Signature(s) guarantee should be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program. 45635.01436\32560729.2 C-8 STATEMENT OF INSURANCE 45635.01436\32560729.2 D-1 APPENDIX D INTEREST RATE AND PAYMENT DATES, PRINCIPAL PAYMENT DATES, MANDATORY AND OPTIONAL REDEMPTION PROVISIONS FOR 2020 BONDS $__________ CITY OF AZUSA TAXABLE PENSION FUNDING BONDS SERIES 2020 Series 2020 Bonds Maturity Schedule $__________ Principal Amount Series 2020 Current Interest Bonds Maturity Dates (August 1) Initial Principal Interest Rate Interest Payment Dates Interest Payment Dates for Series 2020 Current Interest Bonds shall be August 1 and February 1, commencing on February 1, ____. Redemption Provisions (a) Optional Redemption. The Bonds maturing on or before August 1, ____, are not subject to optional redemption prior to their respective stated maturities. The Bonds maturing after August 1, ____, are subject to optional redemption from any source of available funds of the City, prior to their respective maturities, in whole or in part among maturities as specified by City, and by lot within a maturity, on any date on or after August 1, ____, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. The City must give the Trustee written notice of its intention to redeem Bonds under this subsection (a), and the manner of selecting such Bonds for redemption from among the 45635.01436\32560729.2 D-2 maturities thereof, in sufficient time to enable the Trustee to give notice of such redemption in accordance with subsection (c) of this Section. (b) Sinking Fund Redemption. (i) The Bonds maturing August 1, ____, are subject to mandatory redemption from mandatory Sinking Account payments, in part, by lot, on August 1, ____, and on each August 1 thereafter to and including August 1, ____, from money on hand in the Sinking Account at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the redemption date, without premium, as set forth below (subject to modification in the event of an optional redemption mentioned above): Redemption Date (August 1) Principal Amount (ii) The Bonds maturing August 1, ____, are subject to mandatory redemption from mandatory Sinking Account payments, in part, by lot, on August 1, ____, and on each August 1 thereafter to and including August 1, ____, from money on hand in the Sinking Account at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the redemption date, without premium, as set forth below (subject to modification in the event of an optional redemption mentioned above): Redemption Date (August 1) Principal Amount