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Item 6.1 - Vehicle License Fees CITY OF POWA Y AGENDA REPORT This report is included on the Consent Catendar. There will be no separate discussion of the report prior to approval by the City Council unless members of the Council, staff or public request it to be removed from the Consent Calendar and discussed separately. If you wish to have this report pulled for discussion, please fin out a slip indicating the report number and give it to the City Clerk prior to the beginning of the City CouncIl meeting TO: Honorable Mayor and Members of the City Council FROM: James L. Bowersox, City Manager (JfI/ INITIATED BY: Warren H, Shafer, Director of Administrative Service~ DATE: February 22, 2005 SUBJECT: A Resolution Approving the Form of and Authorizing the Execution and Delivery of a Purchase and Sale Agreement and Related Documents with Respect to the Sale of the Seller's Vehicle License Fee Receivable from the State; and Directing and Authorizing Certain Other Actions in Connection Therewith BACKGROUND Vehicle License Fees and VLF Gac Recavment: Vehicle license fees ("VLF") were historically assessed in the amount of 2% of a vehicle's depreciated market value for the privilege of operating a vehicle on California's public highways. Beginning in 1999, the VLF paid by vehicle owners was offset (or reduced) to the effective rate of 0.65%. In connection with the offset ofthe VLF, the Legislature authorized appropriations from the State General Fund to "backfill" the offset so that local governments, which receive all of the vehicle license fee revenues, would not experience any loss of revenues. The legislation that established the VLF offset program also provided that if there were insufficient State General Fund moneys to fully "backfill" the VLF offset, the percentage offset would be reduced proportionately (i.e., the license fee payable by drivers would be increased) to assure that local governments would not be disadvantaged. FINDINGS In June 2003, the Director of Finance under the Davis Administration ordered the suspension of VLF offsets due to a determination that insufficient State General Fund moneys would be available for this purpose, and, beginning in October 2003, the VLF paid by vehicle owners were restored to the 2% level. However, the offset suspension was rescinded by Governor Schwarzenegger on November 17, 2003, and State offset payments to local governments resumed, Local governments received "backfill" payments totaling $3.80 billion in FY 2002-03. "Backfill" payments totaling $2.65 billion were paid to local governments in FY 2003-04, However, approximately $1.2 billion was not received by local governments during the time period between the suspension of the VLF offsets and the implementation of higher fees and is still owed them by the State (the "VLF Gap Repayments"), The City's share of the VLF Gap Repayment is $845,032 (the "VLF Receivable"), 2 of 5 February 22, 2005'" Item # t.. I A Resolution Approving a Purcha!;;" and Sale Agreement With Respect to " ,", Sale of the Seller's Vehicle License Fee Receivable from the State February 22, 2005 Page 2 As part of the 2004 Budget Act negotiations, an agreement was made between the State and local government officials (the "State-local agreement") under which the VLF rate will be permanently reduced from 2% to 0.65%. The State-local agreement also provides for the repayment by August 15, 2006 of the approximately $1.2 billion VLF Gap Repayment. In order to protect local governments, the reduction in VLF revenue to cities and counties from this rate change will be replaced by an increase in the amount of property tax they receive. Under the State-local agreement, for FY 2004-05 and 2005-06 only, the replacement property taxes that cities and counties receive has been reduced by $700 million, Commencing in FY 2006-07, local governments will receive their full share of replacement property taxes and those replacement property taxes will now enjoy constitutional protection against transfers by the State due to the approval of Proposition 1A at the November 2004 election. VLF Proaram: Authorized under SB 1096, the VLF Program was instituted by the California Statewide Communities Development Authority ("CSCDA") in 2004 to enable the [City] and other cities and counties to sell their respective VLF Receivables to CSCDA for an upfront fixed purchase price estimated to be 92% of the VLF Gap Repayments. CSCDA is planning to issue notes ("VLF Notes") and to use the note proceeds to purchase the VLF Receivables and pay financing costs. The actual purchase price of the VLF Receivables will depend on the total amount of VLF Receivables that cities and counties sell to CSCDA and on bond market conditions at the time the VLF Notes are priced, If the City sells its VLF Receivable under the VLF Program, CSCDA will pledge the City's VLF Receivable to secure the repayment of a corresponding portion of the VLF Notes, The City's sale of its VLF Receivable will be irrevocable. Bondholders will have no recourse to the City if the State does not make the VLF Gap Repayment. VLF Proaram Sconsor: CSCDA is a joint powers authority sponsored by the League of California Cities and the California State Association of Counties. The member agencies of CSCDA include approximately 230 cities and 54 counties throughout California, including Poway, Benefits of Particication in the VLF Proaram: The benefits to the [City/County] of participation in the VLF Program include: Level cash flow from the State over next two years - as explained above, in each of FY 2004-05 and 2005-06, cities and counties across the State will lose a total of $700 million annually in property tax payments to the Educational Revenue Augmentation Fund ("ERAF"), which benefits the State, Accordingly, the City is projected to lose approximately $672,000 in each such fiscal year. This loss in property tax revenue in FY 2004-05 and 2005-06 will be followed by an increase in revenues in FY 2006-07 due to the payment by the State of the VLF Gap Repayment and due to the cessation of ERAF payments in that year. If the City sells its VLF Receivable through the VLF Program, it can use the sale proceeds to offset the loss of revenues due to its property tax contributions over the next two years and eliminate the spike in revenues in the third year, thereby creating a more level cash flow in each of the next three fiscal years. Mitiaates imcact of crocertv tax in-lieu of VLF swac over next two years - beginning in FY 2004-05, the State will permanently eliminate the VLF backfill paid to the City and will replace it with an equal amount of property tax. While these actions are intended to cancel each other out, the City is now receiving these payments semi-annually as property taxes, rather than monthly as VLF backfill payments. This situation creates potential cash flow problems for the City, which could be temporarily alleviated by selling the City's VLF Receivable. I 3 of 5 February 22, 20()5"" Item # ~. _ . A Resolution Approving a Purchas" and Sale Agreement With Respect to \, .d Sale of the Seller's Vehicle License Fee Receivable from the State February 22, 2005 Page 3 Budaetarv flexibility in FY 2004-05 and 2005-06 - the sale of the City's VLF Receivable would provide additional revenues in FY 2004-05, which can be applied to resolve budgetary challenges in FY 2004- 05 and 2005-06. Removes the question around whether the State makes the payment in August 2006 or delays it beyond that date. Estimated Proceeds of the Sale of the City's VLF Receivable: Upon delivery of the VLF Notes, CSCDA will make available to the City its fixed purchase price. This payment will equal the City's VLF Receivable amount less capitalized interest costs (to pay interest on the VLF Notes until maturity), credit enhancement fees and bond issuance costs. As discussed above, the City's VLF Receivable is $845,032. The purchase price to be paid by CSCDA is estimated to be $762,000 but cannot be determined with specificity until the total number of participants in the VLF Program is known and bond market conditions are taken into account at the time the VLF Notes are priced. Kev Provisions of the Procosed VLF Receivables Sale Resolution: The proposed VLF Receivables Sale Resolution: (1) authorizes the sale of the City's VLF Receivable to CSCDA for a minimum sale price at least equal to $762,000; (2) approves the form, and directs the execution and delivery, of the Purchase and Sale Agreement with CSCDA and related documents; (3) authorizes and directs any Authorized Officer to send, or to cause to be sent, an irrevocable written instruction required by statute to the State Controller notifying the State of the sale of the VLF Receivable and instructing the disbursement of the VLF Receivable to the VLF Bond Trustee; (4) approves the use of the VLF Receivables proceeds for general government purposes, ENVIRONMENTAL REVIEW This item is not subject to CEQA review. FISCAL IMPACT As stated in the report. ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE None. 40f5 February 22, 200S- Item # {, ./ A Resolution Approving a Purchas", and Sale Agreement With Respect to t,.d Sale of the Seller's Vehicle License Fee Receivable from the State February 22, 2005 Page 4 RECOMMENDATION It is recommended that the City Council adopt the resolution approving the Purchase and Sale Agreement and related documents with respect to the sale of the seller's vehicle license fee receivable from the State, and authorize the City Manager and/or Treasurer to execute the documents in connection therewith. Attachments: Resolution (In Preparation) m:ldirectorlbondslVlF report,doc 5 of 5 February 22, 2005'ltem # t. I RESOLUTION NO. OS-_ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF POWAY, CALIFORNIA APPROVING THE FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A PURCHASE AND SALE AGREEMENT AND RELATED DOCUMENTS WITH RESPECT TO THE SALE OF THE SELLER'S VEHICLE LICENSE FEE RECEIVABLE FROM THE STATE; AND DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH WHEREAS, certain public agendes within the State of Califomia (the "State") areentitled to receive certain payments payable by the State to each such local agency on or before August 15, 2006, in connection with vehide license fees pursuant to Section 10754.11 of the Califomia Revenue and Taxation Code ("VLF Gap Repayments"); and WHEREAS, the City of Poway (the "Seller") is entitled to and has determined to sell all right, title and interest of the Seller in and to the "VLF Receivable", as defined in Section 6585(i) of the California Government Code (the "VLF Receivable"), namely, the right to payment of moneys due or to become due to the Seller out of funds payable in connection with vehicle license fees to a local agency pursuant to Section 10754.11 of the California Revenue and Taxation Code; and WHEREAS, the California Statewide Communities Development Authority, a joint exercise of powers authority organized and existing under the laws of the State (the "Authority"), has been authorized pursuant to Section 6588(w) of the California Govemment Code to purchase the VLF Receivable; and WHEREAS, the Authority desires to purchase the VLF Receivable and the Seller desires to sell the VLF Receivable pursuant to a purchase and sale agreement by and between the Seller and the Authority in the form presented to this City Council (the "Sale Agreement") for the purposes set forth herein; and WHEREAS, in order to finance the purchase price of the VLF Receivable from the Seller and the purchase price of other VLF Receivables from other local agencies, the Authority will issue its taxable and tax-exempt notes (the "Notes") pursuant to Section 6590 of the Califomia Government Code and an Indenture (the "Indenture"), by and between the Authority and Wells Fargo Bank, National Association, as trustee (the "Trustee"), which Notes will be payable solely from the proceeds of the VLF Receivable and such other VLF Receivables; WHEREAS, the Seller acknowledges that the Authority will grant a security interest in the VLF Receivable to the Trustee and any credit enhancer to secure payment of the Notes; and 1 of 37 February 22, 2005 Item # 6.1 Resolution No. 05-_ Page 2 WHEREAS, a portion of the proceeds of the Notes will be used by the Authority to, among other things, pay the purchase price of the VLF Receivable; Taxable DOCSSF1 :795390.1 2; and WHEREAS, the Seller will use the proceeds received from the sale of the VLFReceivable for any lawful purpose as permitted under the applicable laws of the State. NOW THEREFORE, BE IT REsbL VED by the City Council of the City of Poway as follows: Section 1. All of the recitals set forth above are true and correct, and this City Council hereby so finds and determines. Section 2. The Seller hereby authorizes the sale of the VLF Receivable to the Authority for a price no less than the Minimum Purchase Price set forth in Appendix A. The form of Sale Agreement presented to the City Council is hereby approved. An Authorized Officer (as set forth in Appendix A) is hereby authorized and directed to execute and deliver the Sale Agreement on behalf of the Seller, which shall be in substantially the form presented to this meeting, with such changes therein, deletions therefrom and additions thereto, as such Authorized Officer shall approve, which approval shall be conclusively evidenced by the execution and delivery of the Sale Agreement. Section 3. Any Authorized Officer is hereby authorized and directed to send, or to cause to be sent, an irrevocable written instruction to the State Controller notifying the State of the sale of the VLF Receivable and instructing the disbursement pursuant to Section 6588.5(c) of Califomia Govemment Code of the VLF Receivable to the Trustee, on behalf of the Authority. Section 4. The Authorized Officers and such other Seller officers, as appropriate, are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents, including but not limited to one or more tax certificates, if required, appropriate escrow instructions relating to the delivery into escrow of executed documents prior to the closing of the Notes, and such other documents mentioned in the Sale Agreement or the Indenture, which any of them may deem necessary or desirable in order to implement the Sale Agreement 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 5. All consents, approvals, notices, orders, requests and other actions permitted or required by any of the documents authorized by this Resolution, whether before or after the sale of the VLF Receivable or the issuance of the 2 of 37 February 22, 2005 Item # 6.1 Resolution No. 05-_ Page 3 Notes, induding without limitation any of the foregoing that may be necessary or desirable in connection with any default under or amendment of such documents, may be given or taken by an Authorized Officef without further authorization by this City Council, and each Authorized Officer is hereby authorized and directed to give any such consent, approval, notice, order or request, to execute any necessary or appropriate documents or amendments, and to take any such action that such Authorized Officer may deem necessary Of desirable to further the purposes of this Resolution. Section 6. The City Council acknowledges that, upon execution and delivery of the Sale Agreement, the Seller is contractually obligated to sell the VLF Receivable to the Authority pursuant to the Sale Agreement and the SeUer shall not have any option to revoke its approval of the Sale Agreement or to determine not to perform its obligations thereunder. Section 7. This Resolution shall take effect from and after its adoption and approval. PASSED AND ADOPTED by the City Council of the City of Poway, State of Califomia, this 22nd day of February, 2005. Michael P. Cafagna, Mayor ATTEST: L. Diane Shea, City Clerk Approved as to form: SELLER'S COUNSEL By Dated: 3 of 37 February 22, 2005 Item # 6.1 Resolution No. 05- _ Page 4 STATE OF CALIFORNIA ) )SS COUNTY OF SAN DIEGO ) I, L. Diane Shea, City Clerk of the City of Poway, do hereby certify under penalty of perjury that the foregoing Resolution No. 05- _ was duly adopted by the City Council at a meeting of said City Council held on the 23111 day of February, 2005, and that it was so adopted by the following vote: AYES: NOES: ABSENT: DISQUALIFIED: L. Diane Shea, City Clerk City of POway 4 of 37 February 22, 2005 Item # 6.1 . Minimum Purchase PrIce: Authorized OffIcers: 5 of 37 APPENDIX A CITYOFPOWAY An amount equal to or greater than $762,000.00 (the "Minimum Purchase Price"). City Manager Director of Administrative ServicesfTreasurer any designee of any of them, as appointed in a written certificate of such Authorized Officer delivered to the Trustee. February 22, 2005 Item # 6.1 o : ,j: 1<" !o.. .,~_I.al ~""'.' 'U~, :. ",; .l':' I . ,"; '<<'.;' ~ 1:>,;;; ~ :', '.' . ! " . ~ii\>'..' " : -< ~ ~ """"""-'--..- "";,'".,,, ORRICK >: ~ .....: ~': ,.. i. ", ,.~, ;- February 18, 2005 Re: California Statewide Communities Development Authority Vehicle License Fee lVLF\ Receivable Financinl! Pro= To: Participating Local Agency Enclosed are the final versions of the n:solutions and documents that your local agency will need to approve and execute in order to participa1c in the Vehicle License Fee (VLF) Receivable Financing Program sponsored by the California Statewide Conununities Development Authority (CSCDA). Enclosed ate three (3) copies of the following documents: (A) Resolution approving participation in the VLF Receivable Financing Program (the "YLE Resolution''); and (B) Purchase and Sale Agreement (the "Sale A2reement''), hJ addition, attache" to the Sale Agreement are the following documents: (C) (D) (E) (F) (G) (H) (I) Opinion of Cmmsel to be deli vered in connection with pricing (Exhibit B I ); Bringdown Opinion of Cmmsel to be delivered in connection with closing (Exhibit B2); Certificate of the Cityrrown Clerk or the Clerk of the Board of Supervisors, as applicable (Exhibit Cl ); Seller Certificate (Exhibit C2); Bill of Sale and Bringdown Certificate (Exhibit C3); IIrevocable hJstructions to Controller (Exhibit m;and Escrow Instruction Letter ffixlu"bit f). Please note thai these documents are in final fonn and may not be changed without the approval from Orrick, Herrington & Sutdiffe UP. Transaction Counsel ("Orrick"). If you have questions or lJl?lieve changes are required, please contact one of lhe Orrick tearII members listed al the end of Ihis letter. 1. 1Dstradio.. for AdoDtioD of Resolutions Please take the following steps with respect to the enclosed resolutions: (A) Adoot the VLF Resolution to DarticiDa1c in the VLF Receivable Financinl! Prol!l'8J11. Al!CI1da Lan~l!C: The following langUage should be used for the agend;l of the meeting at which the VLF Resolution will be adop1ed: "A RESOLUTION APPROVING THE FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A Tnab1elMember IJOCSSFl :79SS66.2 6 of 37 February 22, 2005 Item # 6.1 o ORRICK PURCHASE AND SALE AGREEMENT AND RELATED DOCuMENTS WITH RESPECf TO TIlE SALE OF TIlE SELLER'S VEHICLE UCENSE FEE RECEN ABLE FROM THE STATE; AND DIIU;CTING AND AUTHORIZING CERTAIN 011IER ACTIONS IN CONNECTION THEREWITH." Sanmle Staff ReDort: A sample Staff Report can be obtained frQm CSCDA's website at: https:l/secure.caconununities.cQmlcacommlappslvlf/. Adol1titJ" DelltIliIIe: The JILF Ruolutio" must be lIIlopted "0 later t""" February 1 B, 2005 in order tD participate in 1M initial pluue oJthe JinallCing. Fill in blanks and si2l): The Clerk shQuld fill in the resolution number, the adoption date and the gQverning board infonnation, and sign the three (3) copies 'If the VLF Resolution where indicated by the RED tabs. YQur legal CQunsel sh'luld approve the form by signing each copy Qfthe VLF Resolution where indicated by the GREEN tabs. 2. Instructioas fQr ExecatloD of Doenmt!Dts Please take the fQllQwing steps with respect tQ the enclosed documents: (A) Sim the Sale Aereement. Please arrange for an authorized Qfficer tQ sign all three (3) copies 'If the Sale Agreement where indicated by the YEU-OW "SIGN HERE" tabs. Once your loaI llgency Iuu adopted ,lie VLF ResolJItiDn.lUld has signed the Sale Apeement, your local agency's obligations under tile Sale Agreement _ binding tmd are irrnoCllbIe. (B) Have le2>lI counsel sil!D the le2>1l Q1IiniQn (Exhibit BI to Sale AI!I'CCI\1CI\t\. Please arrange fQr legal CQunsel tQ sign all three (3) copies 'If the legal opinion attached as Exhibit B 1 'If the Sale Agteement where indicated by the GREEN tabs. Such legal counsel may be the TQwn AttQrney, City Attorney or CQunty Counsel, as appropriate. There is nQ requirement that the legal Qpinion be placed on the letterhead 'If such legal cQunseL (C) SiRD Cleric's Certificate (Exhibit CI tQ Sale A2I'eCItICDt\. Please arrange for the TQwn Clerk, City Cleric or Clerk 'If the BQard 'If S~SOl'5, as appropri~, (I) to manually write on the signature page 'If the Certificate attached as Exhibit CI tQ the Sale Agreement in the appropriate places the resolution number, the adoption date and the gQverning board informatiQn, and (2) tQ sign all three (3) copies 'If the Certificate where indicated by the RED tabs. Taxable/Member DOCSSF107955662 -2- 7 of 37 February 22, 2005 Item # 6.1 o ORRICK (D) Sim Seller Certificate (Exhibit C2 to Sale A2reement). Please arrange for all three (3) copies of the Seller Certificate attached as Exhibit C2 to the Sale Agreet11CIIt to be signed by (1) the authorized officers of your local agency where indicated by the YELLOW "SIGN HERE" tabs, and (2) the Town Clerk, City Clerk or Qerk of the Board of Supervisors, as appropriate, where indicated by the RED tabs. (E) Sim Irrevocable Instructions to Controller (Exhibit D to Sale A2reement). Please arrange for an authorized officer to sign all three (3) copies of the hrevocable Instructions to Controller attached as Exhibit D to the Sale Agreement where indicated by the YELLOW "SIGN HERE" tabs. Pleqae lelll'e the thu:_etU UNDATED - we 11';0 insert the dIlte of tlte closillg biter and selld tlte compieU!d I"evocable Instructiolls 10 CohtroUer to tlte St4te Cfllltroller IIJH'II daWng 011 behalf of your Weal agellCY. (F) Sim Escrow Instruction Letter (Exhibit F to the Sale Al!reetIIent\, Please arrange for an authorized officer to sign all three (3) copies of the Escrow Instruction Letter attached as Exhibit E to the Sale Agreement where indicated by the YELLOW "SIGN HERE" tabs. (G) Do NOT Sil!ll the Brin2down Doinion or the Bill of Sale at this time (Exhibits B2 and C3 to the Sale Al!I'CCI1'IenO. Please do not Sign the Bringdown Opinion or Bill of Sale at this time (Exhibits B2 and C3 to the Sale Agreement). These two documents will be sent to you for execution after the pricing of the Notes but prior to the closing. (See paragraph 4 below.) 3. Return Executed Documents ~d ResoiutiODS to Orrick As mentioned above, the YLF Resolution must be adopted no later than February 18, 2005 in order to participate in the YLF Receivable Financing Program. As sOOl1 as oossible thereafter. and in anv event no later than Februarv 25. 2005. all three (3) orilrinallv executed OODles of the documents and resolutions descn'bed above need to be returned to: Onick, Herrington & Sutcliffe LLP 405 Howard Street San Francisco, California 94105 Attention: Michael Eog (415) 773-5454 (direct dial) (415) 713-5759 (fax) meng@OITick.com (CSCDA YLF Financing) A self-addressed, prepaid federal express envelope has been enclosed with this letter to facilitate your return of these resolutions and documents. Taxable/Member OOCSSFI,79SS66.2 -3- 8 of 37 February 22, 2005 Item # 6.1 o ORRICK 4. Conclusion of TransaetiOD After Orrick receives the executed docwnents descn'bed above, CSCDA and its investment bankers will price the Note~ on Of about March 2, 2005. At that time, CSCDA will know the exact Purchase Price that your local agency will be paid fur its VLF receivable (the ''Final Purchase Price"). As descn'bed in the Sale Agreement, the Finall'urchase Price will be at least equal to the Minimum Purchase Price indicated in the VLF Resolution and the Sale Agreement. If the Authority cannot achieve the Minimum Purchase Price. yoot local agency's VLF Receivable will not be purchased and you will be notified that you have beer; removed &om the financing program. Please review carejWiy the Minimum Purchase Price indicated in tAe YLF Resolution tl1Id the Sale Agreement to ensure that it accvrately rejlects the minimum amCJUnl for which your local agency will sell its YLF Receivable. Once pricing occurs, Orrick will send to you an additional package which will contain (I) a notification of the Final Purchase Price (or that YOID" IQCai agency has been removed from the program as described above), and (2) the two additional documents that your local agency will need to sign and return before the closing of the financing, which are (a) the Bill of Sale and Bringdown CC\'tificate (Exhibit B2 to the Sale Agreement), and (b) the Sener's BringdQwn Certificate and Receipt (Edu'bit C3 to the Sale Agreement). Your local agency does not need to sign and return these two documents at this time as these documents will be finalized and sent to you after the pricing of the Notes. S. Contacts for Fwrther Information If you have any questions regarding this letter, the instructions contained herein, or the documents enclosed herewith, please call Michael Eng at (415) 773-5454, Patricia Wyler at (415) 713-5912, David Stevens at (415) 773-5503, Daniel Deaton at (213) 612.2321, Justin Cooper at (415) 773-5908, or John Knox at (415) 773-5626, Very Truly YQurs, ~~~ John H. Knox Taxabk/Member OO<;SsF! ;7955(;6 -4- 9 of 37 February 22,2005 Item # 6.1 . CITY OF POW A Y, CALIFORNIA, as Seller and CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, as Purchaser PURCHASE AND SALE AGREEMENT Dated March 2, 2005 Taxable rxxSSFI :795397.1 10 of 37 February 22, 2005 Item # 6.1 TABLE OF CONTENTS Page I. DEFINITIONS AND INTERPRETATION .......................................................................1 2. AGREEMENT TO SELL AND PURCHASE; CONDITIONS PRECEDENT.................2 3. CONVEYANCE OF VLF RECEIVABLE AND PAYMENT OF FINAL PURCHASE PRICE ...........................................................................................................3 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...........................3 5. REPRESENTATIONS AND WARRANTIES OF THE SELLER....................................3 6. COVENANTS OF THE SELLER......................................................................................5 7. NOTICES OF BREACH .........................................,..........................................................7 8. LIABILITY OF SELLER; INDEMNIFICATION.............................................................7 9. LIMITATION ON LIABILITY .........................................................................................7 10. THE SELLER'S ACKNOWLEDGMENT ........................................................................7 I I. NOTICES ...........................................................................................................................8 12. AMENDMENTS .................................................................................................,..............8 13. SUCCESSORS AND ASSIGNS ........................................................................................8 14. THIRD PARTY RIGHfS ...................................................................................................8 15. PARTIAL INVALIDITY ...................................................................................................8 16. COUNTERPARTS ....................'........................................................................................8 17. ENTIRE AGREEMENT .............................................................,......................................9 18. GOVERNING LAW ........................................................................................................1 0 EXlllBIT A - DEFINITIONS..................................................,................................................ A-I EXHIBIT Bl - OPINION OF SELLER'S COUNSEL ...........................................................BI-1 EXHIBIT B2 - BRINGDOWN OPINION OF SELLER'S COUNSEL..................................B2-1 EXHIBIT CI - CLERK'S CERTIFICATE ............................................................................ Cl-l EXHIBIT C2 - SELLER CERTIFICATE.............................................................................. C2-1 EXHIBIT C3 - BILL OF SALE AND BRINGDOWN CERTIFICATE................................ C3-1 EXHIBIT D - IRREVOCABLE INSTRUCTIONS TO CONTROLLER ................................ D-l EXHIBIT E - RESERVED ........................................................................................................&1 EXHIBIT F - ESCROW INSTRUCTION LETTER.................................................................F-I Taxable DOCSSF1:795397.1 11 of 37 February 22, 2005 Item # 6.1 . PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT, dated March 2, 2005 (this "Agreement"), is entered into by and between: "Seller"); and (1) CITY OF POW A Y, a municipal corporation of the State of California (the (2) CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Purchaser"). RECITALS A. The Seller is the owner of the VLF Receivable (as defined below). B. The Seller is willing to sell, and the Purchaser is willing to purchase, the VLF Receivable upon the tenns specified in this Agreement. C. The Purchaser will issue its taxable and tax-exempt notes (the "Notes") pursuant to an Indenture (the "Indenture"), between the Purchaser and Wells Fargo Bank, National Association, as trustee (the "Trustee"), and will use a portion of the proceeds thereof to purchase the VLF Receivable trom the Seller. D. The Purchaser will grant a security interest in such VLF Receivable to the Trustee and each Credit Enhancer to secure the Notes. AGREEMENT NOW, THEREFORE, in consideration of the above Recitals and the mutual covenants herein contained, the parties hereto hereby agree as follows: I. Definitions and Interpretation (a) For all purposes of this Agreement, except as otherwhe expressly provided herein or unless the context otherwise requires, capitalized tenns not otherwise defined herein shall have the meanings ascribed to such tenns in Exhibit A attached hereto and which is incorporated by reference herein. (b) The words "hereof," "herein," "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; section and exhibits references contained in this Agreement are references to sections and exhibits in or to this Agreement unless otherwise specified; and the tenn "including" shall mean "including without limitation." (c) Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as trom time to time may be amended, modified or supplemented and includes (in the Taxable DOCSSFI:795397,1 12 of 37 February 22, 2005 Item # 6.1 case of agreements or instruments) references to all attachments and exhibits thereto and instruments incorporated therein; and any references to a Person are also to its pennitted successors and assigns. 2. Agreement to Sell and Purchase; Conditions Precedent. (a) The Seller agrees to sell, and the Purchaser agrees to purchase, on the Closing Date, for cash paid by the Purchaser in an amount equal to the amount detennined pursuant to Section 3(a) (the "Final Purchase Price"), which shall be not less than $762,000.00 (the "Minimum Purchase Price"), all future right, title and interest of the Seller in and to the "VLF Receivable" as defined in Section 6585(i) of the California Government Code (the "VLF Receivable"), namely, the right to payment of moneys due or to become due to the Seller out of funds payable in connection with vehicle license fees to a local agency pursuant to Section 10754.11 of the California Revenue and Taxation Code. The Purchaser shall pay the Final Purchase Price by transferring such Final Purchase Price directly to the Seller. (b) The perfonnance by the Purchaser of its obligations hereunder shall be conditioned upon: (i) Transaction Counsel receiving on or before the date the Notes are sold (the "Pricing Date"), to be held in escrow until the Closing Date and then delivered to the Purchaser on the Closing Date, the following docmnents duly executed by the Seller or its counsel, as applicable: (I) an opinion of counsel to the Seller dated the Pricing Date in substantially the fonn attached hereto as Exhibit B I, (2) certificates dated the Pricing Date in substantially the fonns attached hereto as Exhibit C I and Exhibit C2, (3) irrevocable instructions to the Controller dated as of the Closing Date in substantially the fonn attached hereto as Exhibit D, (4) this Agreement, (5) a certified copy of the resolution of the Seller's City Council approving this Agreement, the transactions contemplated hereby and the documents attached hereto as exhibits, and (6) an escrow instruction letter in substantially the fonn attached hereto as Exhibit F; (ii) Transaction Counsel receiving on or before the Closing Date, (I) a bringdown opinion of counsel to the Seller dated as of the Closing Date in substantially the fonn attached hereto as Exhibit B2, and (2) a bill of sale and bringdown certificate of the Seller (the ''Bill of Sale ") in substantially the Dnn attached hereto as Exhibit C3: provided that the Purchaser may waive in its sole discretion the requirements of Section 2(b )(ii)(I); and (iii) the Purchaser issuing notes in an amount which will be sufficient to pay the Final Purchase Price. (c) The perfonnance by the Seller of its obligations hereunder shall be conditioned solely upon the Purchaser's payment of the Final Purchase Price as set forth in this Agreement and no other act or omission on the part of the Purchaser or any other party shall excuse the Seller from perfonning its obligations hereunder. Taxable DOCSSFL795397.1 2 13 of 37 February 22, 2005 Item # 6.1 (d) The Final Purchase Price shall be an amount that satisfies the conditions of Section2 of the Resolution referred to in Section 2(b)(i)(5) above. 3. Convevance ofVLF Receivable and Pavment of Final Purchase Price. (a) Upon pricing of the Notes by the Purchaser, the Purchaser will infonn the Seller of the Final Purchase Price, which shall be an amount at least equal to the Minimum Purchase Price, and which shall be detennined by the Purchaser based on the final interest rates, costs of credit enhancement and issuance and tenns of the Notes. Upon pricing of the Notes, the Purchaser shall deliver a certificate to the Seller indicating the Final Purchase Price to be paid to the Seller on the Closing Date. (b) In consideration of the payment and delivery by the Purchaser to the Seller of the Final Purchase Price, the Seller agrees to (a) transfer, grant, bargain, sell, assign, convey, set over and deliver to the Purchaser, absolutely and not as collateral security, without recourse except as expressly provided herein, and the Purchaser agrees to purchase, accept and receive, the VLF Receivable, and (b) assign to the Purchaser, to the extent pennitted by law (as to which no representation is made), all present or future rights, if any, of the Seller to enforce or cause the enforcement of payment of the VLF Receivable pursuant to the Act and other applicable law. 4. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Seller that, as of the date hereof, (a) it is duly organized, validly existing and in good standing under the laws of the State of California, (b) it has full power and authority to enter into this Agreement and to perfonn its obligations hereunder, (c) neither th: execution and delivery by the Purchaser of this Agreement, nor the perfonnance by the Purchaser of its obligations hereunder, shall conflict with or result in a breach or default under any of its organizational documents, any law, rule, regulation, judgment, order or decree to which it is subject or any agreement or instrument to which it is a party, and (d) this Agreement, and its execution, delivery and perfonnance hereof have been duly authorized by it, and this Agreement has been duly executed and delivered by it and constitutes its valid and binding obligation enforceable against it in accordance with the tenns hereof, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity. 5. Representations and Warranties of the Seller. The Seller hereby represents and warrants to the Purchaser, as of the date hereof, as follows: (a) The Seller is a municipal corporation validly eXlstmg under the laws and Constitution of the State of California, with full power and authority to execute and deliver this Agreement and to carry out its tenns. (b) The Seller has full power, authority and legal right to sell and assign the VLF Receivable to the Purchaser and has duly authorized such sale and assignment to the Purchaser by all necessary action; and the execution, delivery and perfonnance by the Seller of this Agreement has been duly authorized by the Seller by all necessary action. Taxable DOCSSFI:795397.J 14 of 37 3 February 22, 2005 Item # 6.1 . (c) This Agreement has been, and as of the Closing Date the Bill of Sale will have been, duly executed and delivered by the Seller and, assuming the due authorization, execution and delivery of this Agreement by the Purchaser, constitutes a legal, valid and binding obligation of the Seller enforceable in accordance with its tenns, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, rraudulent conveyance and other similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity. (d) All approvals, consents, authorizations, elections and orders of or filings or registrations with any gowrnmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would adversely affect, the sale by the Seller of the VLF Receivable or the perfonnance by the Seller of its obligations under the Resolution and the Transaction Documents and any other applicable agreements, have been obtained and are in full force and effect. (e) Insofar as it would materially adversely affect the Seller's ability to enter into, carry out and perfonn its obligations under any or all of the Transaction Documents to which it is a party, or consummate the transactions contemplated by the same, the Seller is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which it is a party or to which it or any of its property or assets is otherwise subject, and, to the best of the knowledge of the Seller, no event has occurred and is continuing which with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, and the adoption of the Resolution and the execution and delivery by the Seller of the Transaction Documents to which it is a party, and compliance by the Seller with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the Seller a breach of or default under any agreement or other instrument to which the Seller is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Seller is subject. (I) To the best of the knowledge of the Seller, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened in any way against the Seller affecting the existence of the Seller or the titles of its City Council members or officers to their respective offices, or seeking to restrain or to enjoin the sale of the VLF Receivable or to direct the application of the proceeds of the sale thereof, or in any way contesting or affecting the validity or enforceability of any of the Transaction Documents or any other applicable agreements or any action of the Seller contemplated by any of said documents, or in any way contesting the powers of the Seller or its authority with respect to the Resolution or the Transaction Documents to which the Seller is a party or any other applicable agreement, or any action on the part of the Seller contemplated by the Transaction Documents, or in any way seeking to enjoin or restrain the Seller from selling the VLF Receivable or which if detennined adversely to the Seller would have an ,adverse effect upon the Seller's ability to sell the VLF Receivable, nor to the knowledge of the Seller is there any basis therefor. Taxable DOCSSFI:795397.1 15 of 37 4 February 22, 2005 Item # 6.1 . (g) Prior to the sale of the VLF Receivable to the Purchaser, the Seller was the sole owner of the VLF Receivable, and has such right, title and interest as provided in the Act. From and after the conveyance of the VLF Receivable by the Seller to Purchaser on the Closing Date, the Seller shall have no interest in the VLF Receivable. Except as provided in this Agreement, the Seller has not sold, transferred, assigned, set over or otherwise conveyed any right, title or interest of any kind whatsoever in all or any portion of the VLF Receivable, nor has the Seller created, or to the knowledge of the Seller permitted the creation of, any lien, pledge, security interest or any other encumbrance (a "Lien") thereon. Prior to the sale of the VLF Receivable to the Purchaser, the Seller held title to the VLF Receivable free and clear of any Liens. As of the Closing Date, this Agreement, together with the Bill of Sale, constitutes a valid sale to the Buyer of the Seller's right, title and interest in and to the VLF Receivable. (h) The Seller acts solely through its authorized officers or agents. Purchaser. (i) The Seller maintains records and books of account separate from those of the G) The Seller maintains its respective assets separately from the assets of the Purchaser (including through the maintenance of separate bank accounts); the Seller's funds and assets, and records relating thereto, have not been and are not commingled with those of the Purchaser. (k) The Seller's principal place of business and chief executive office is located at 13325 Civic Center Drive, Poway, CA 92064. (I) The Seller has received reasonably equivalent value for the VLF Receivable. (m) The Seller does not act as an agent of the Purchaser in any capacity, but instead presents itself to the public as an entity separate fi'om the Purchaser. (n) The Seller has not guaranteed and shall not guarantee the obligations of the Purchaser, nor shall it hold itself out or permit itself to be held out as having agreed to payor as being liable for the debts of the Purchaser; and the Seller has not received nor shall the Seller accept any credit or financing fi:om any Person who is relying upon the availability of the assets of the Purchaser to satisf'y the claims of such creditor. (0) All transactions between or among the Seller, on the one ham, and the Purchaser on the other hand (including, without limitation, transactions governed by contracts for services and facilities, such as payroll, purchasing, accounting, legal and personnel services and office space), whether existing on the date hereof or entered into after the date hereof, shall be on terms and conditions (including, without limitation, terms relating to amounts to be paid thereunder) which are believed by each such party thereto to be both fair and reasonable and comparable to those available on an arms- length basis fi'om Persons who are not affiliates. 6. Covenants of the Seller. (a) The Seller shall not take any action or omit to take any action which adversely affects the interests of the Purchaser in the VLF Receivable and in tlr proceeds thereof. The Taxable DOCSSFU95397.1 5 16 of 37 February 22, 2005 Item # 6.1 Seller shall not take any action or omit to take any action that shall adversely affect the ability of the Purchaser, and any assignee of the Purchaser, to receive payments made under the Act. (b) The Seller shall not take any action or omit to take any action that would impair the validity or effectiveness of the Act, nor, without the prior written consent of the Purchaser or its assignee, amend, modifY, tenninate, waive or surrender, or agree to any amendment, modification, tennination, waiver or surrender of, the tenns of the Act, or waive timely perfonnance or observance under the Act, in each case if the effect thereof would be materially adverse to the Purchaser or to the Noteholders or any Credit Enhancer as assignees of the Purchaser. Nothing in this agreement shall impose a duty on the Seller to seek to enforce the Act or to seek enforcement thereof by others, or to prevent others from modifYing, tenninating, discharging or impairing the validity or effectiveness of the Act. (c) Upon request of the Purchaser or its assignee, (i) the Seller shall execute and deliver such further instruments and do such further acts (including being named as a plaintiff in an appropriate proceeding) as may be reasonably necessary or proper to carry O\t more effectively the purposes and intent of this Agreement, and (ii) the Seller shall take all actions necessary to preserve, maintain and protect the title of the Purchaser to the VLF Receivable, provided that such acts shall not impose any additional cost on the Seller that is not reimbursed. (d) On or before the Closing Date, the Seller shall send (or cause to be sent) an irrevocable instruction to the Controller pursuant to Section 6588.5(c) of California Government Code to cause the Controller to disburse all payments of the VLF Receivable to the Trustee, together with notice of the sale of the VLF Receivable to the Purchaser and the assignment of all or a portion of such assets by the Purchaser to the Trustee. Such notice and instructions shall be in the fonn of Exhibit D hereto. The Seller shall not take any action to revoke or which would have the effect of revoking, in whole or in part, such instructions to the Controller. The Seller hereby relinquishes and waives any control over the VLF Receivable, any authority to collect the VLF Receivable, and any power to revoke or amend the instructions to the Controller contemplated by this paragraph. The Seller shall not rescind, amend or modifY the instruction described in the first sentence of this paragraph. The Seller shall cooperate with the Purchaser or its assignee in giving instructions to the Controller if the Purchaser or its assignee transfers the VLF Receivable. In the event that the Seller receives any proceeds of the VLF Receivable, the Seller shall hold the same in trust for the benefit ofthe Purchaser and the Trustee and each Credit Enhancer, as assignees of the Purchaser, and shall promptly remit the same to the Trustee. ( e) The Seller hereby covenants and agrees that it will not at any time institute against the Purchaser, or join in instituting against the Purchaser, any bankruptcy, reorganization, arrangement, insolvency, liquidation, or similar proceeding under any United States or state bankruptcy or similar law. (I) The financial statements and books and records of the Seller prepared after the Closing Date shall reflect the separate existence of the Purchaser. (g) The Seller shall treat the sale of the VLF Receivable as a sale for regulatory and accounting purposes. Taxable DOCSSFI:795397.1 6 17 of 37 February 22, 2005 Item # 6.1 (h) From and after the date of this Agreement, the Seller shall not sell, transfer, assign, set over or otherwise convey any right, title or interest of any kind whatsoever in all or any portion of the VLF Receivable, nor shall the Seller create, or to the knowledge of the Seller pennit the creation of, any Lien thereon. 7. Notices of Breach (a) Upon discovery by the Seller or the Purchaser that the Seller has breached any of its covenants or that any of the representations or warranties of the Seller or the Purchaser are materially false or misleading, in a manner that materially and adversely affects the value of the VLF Receivable, the discovering party shall give prompt written notice thereof to the other party and to the Trustee, as assignee of the Purchaser, who shall, pursuant to the Indenture, promptly thereafter notifY each Credit Enhancer and the Rating Agencies. (b) The Seller shall not be liable to the Purchaser, the Trustee, the Noteholders, or any Credit Enhancer for any loss, cost or expense resulting solely from the failure of the Trustee, any Credit Enhancer or the Purchaser to promptly notify the Seller upon the discovery by an authorized officer of the Trustee, any Credit Enhancer or the Purchaser of a breach of any covenant or any materially false or misleading representation or warranty contained herein. 8. Liability of Seller: Indemnification The Seller shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Seller under this Agreement. The Seller shall indemnifY, defend and hold hannless the Purchaser, the Trustee and each Credit Enhancer, as assignees of the Purchaser, and their respective officers, directors, employees and agents from and against any and all costs, expenses, losses, claims, damages and liabilities to the extent that such cost, expense, loss, claim, damage or liability arose out of, or was imposed upon any such Person by the Seller's breach of any of its covenants contained herein or any materially false or misleading representation or warranty of the Seller contained herein. Notwithstanding anything to the contrary herein, the Seller shall have no liability for the payment of the principal of or interest on the Notes issued by the Purchaser. 9. Limitation on Liability. (a) The Seller and any officer or employee or agent of the Seller may rely in good faith on the advice of counsel or on any document of any kind, prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Seller shall not be under any obligation to appear in, prosecute or defend any legal action regarding the Act that is unrelated to its specific obligations under this Agreement. (b) No officer or employee of the Seller shall have any liability for the representations, warranties, covenants, agreements or other obligations of the Seller hereunder or in any of the certificates, notices or agreements deliyered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Seller. 10. The Seller's Acknowledgment. The Seller hereby agrees and acknowledges that the Purchaser intends to assign and grant a security interest in all or a portion of (a) its rights hereunder and (b) the VLF Receivable, to the Trustee and each Credit Enhancer pursuant to the Indenture. The Seller further agrees and acknowledges that the Trustee, the Noteholders, and Taxable DOCSSFI:795397.1 18 of 37 7 February 22, 2005 Item # 6.1 each Credit Enhancer have relied and shall continue to rely upon each of the foregoing representations, warranties and covenants, and further agrees that such Persons are entitled so to rely thereon. Each of the above representations, warranties and covenants shall survive any assignment and grant of a security interest in all or a portion of this Agreement or the VLF Receivable to the Trustee and each Credit Enhancer and shall continue in full force and effect, notwithstanding any subsequent tennination of this Agreement and the other transaction documents. The above representations, warranties and covenants shall inure to the benefit of the Trustee and each Credit Enhancer. I I. Notices. All demands upon or, notices and communications to, the Seller, the Purchaser, the Trustee or the Rating Agencies under this Agreement shall be in writing, personally delivered or mailed by certified mail, return receipt requested, to such party at the appropriate notice address, and shall be deemed to have been duly given upon receipt. 12. Amendments. This Agreement may be amended by the Seller and the Purchaser, with (a) the consent ofthe Trustee, (b) the consent of each Credit Enhancer, and (c) a Rating Agency Confinnation, but without the consent of any of the Noteholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. Promptly after the execution of any such amenlment, the Purchaser shall furnish written notification of the substance of such amendment to the Trustee and to the Rating Agencies. 13. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Seller, the Purchaser and their respective successors and pennitted assigns. The Seifer may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Purchaser. Except as specified herein, the Purchaser may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Seller, 14. Third Party Rights. The Trustee and each Credit Enhancer are express and intended third party beneficiaries under this Agreement. Nothing expressed in or to be implied from this Agreement is intended to give, or shall be construed to give, any Person, other than the parties hereto, the Trustee and each Credit Enhancer, and their pennitted successors and assigns hereunder, any benefit or legal or equitable right, remedy or claim under or by virtue of this Agreement or under or by virtue of any provision herein. 15. Partial Invaliditv. If at any time any provISIon of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of this Agreement nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. 16. Counterparts. This Agreement may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. Taxable DOCSSFl:795397.1 19 of 37 8 February 22, 2005 Item # 6.1 ] 7. Entire Agreement. This Agreement sets forth the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes any and all oral or written agreements or understandings between the parties as to the subject matter hereof. Taxable DOCSSFI:795397.1 9 20 of 37 February 22, 2005 Item # 6.1 18. Governing Law. This Agreement shall be governed by and construed In accordance with the laws of the State of California. IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Purchase and Sale Agreement to be duly executed as of the date first written above. CITY OF POW A Y, as Seller By: Authorized Officer CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, as Purchaser By: Member Taxable DOCSSFI :795397.1 21 of 37 IO February 22, 2005 Item # 6.1 EXHIBIT A DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, capitalized tenns not otherwise defined herein shall have the meanings set forth below. "Act" means Section 10754.11 of the California Revenue and Taxation Code. "Bill of Sale" has the meaning given to that tenn in Section 2(b)(ii) hereof. "Credit Enhancer" means any municipal bond insurance company, bank or other financial institution or organization which is perfonning in all material respects its obligations under any Credit Support Instrument for some or all of the Notes. "Credit Support Instrument" means a policy of insurance, a letter of credit, a stand-by purchase agreement, revolving credit agreement or other credit arrangement pursuant to which a Credit Enhancer provides credit or liquidity support with respect to the payment of interest, principal or the purchase price of the Notes. "Closing Date" means the date the Notes are issued. "Controller" means the Controller of the State. "Final Purchase Price" has the meaning ascribed thereto in Section 2. "Minimum Purchase Price" has the meaning ascribed thereto in Section 2. "Noteholder" means, with respect to any Note, the person in whose name such Note is registered. "Oustanding" has the meaning given to that tenn in the Irrlenture. "Pricing Date" means the date the Notes are sold. "Rating Agency" means any nationally recognized rating agency then providing or maintaining a rating on the Notes at the request of the Purchaser. "Rating Agency Confinnation" means written confirmation ITom each Rating Agency that any proposed action will not, in and of itself, cause the Rating Agency to lower, suspend or withdraw the rating then assigned by such Rating Agency to any Outstanding Notes. "Resolution" means the resolution adopted by the City Council approving the sale of the VLF Receivable. "State" means the State of California. "Transaction Counsel" means Orrick, Herrington & Sutcliffe LLP. Taxable DOCSSFl:795397.1 22 of 37 A-I February 22, 2005 Item # 6.1 "Transaction Documents" mean this Agreement, the Bill of Sale, the Indenture, and the Notes. Taxable DOCSSFI:795397J 23 of 37 A-2 February 22, 2005 Item # 6.1 EXHIBIT Bl OPINION OF COUNSEL to CITYOFPOWAY March 2, 2005 California Statewide Communities Development Authority Sacramento, California Wells Fargo Bank, National Association Los Angeles, California Re: Sale ofVLF Receivable Ladies & Gentlerren: This Office acted as counsel for the City of Poway (the "Seller") in connection with the adoption of that certain resolution (the "Resolution") of the City Council of the Seller (the "Governing Body") pursuant to which the Seller authorized the sale to the California Statewide Communities Development Authority (the "Purchaser") of the Seller's "VLF Receivable", as defined in and pursuant to the Purchase and Sale Agreement dated March 2, 2005 (the "Sale Agreement'') between the Seller and the Purchaser. In connection with these transactions, the Seller has issued certain Irrevocable Instructions For Disbursement of the Seller's VLF Receivable to the Controller of the State of California (the "Disbursement Instructions" and collectively with the Sale Agreement, the "Transaction Documents"). Unless the context otherwise requires, capitalized terms used but not otherwise defined herein shall have the meanings given to such terms in the Sale Agreement. I have examined and am familiar with those documents relating to the existence, organization, and operation of the Seller, the Resolution, the Transaction Documents and such certified proceedings, certifications of officers of the Seller and others, and such other agreements, instruments and documents, and have satisfied myself as to such other matters, as I deem necessary in order to render the following opinions. Based upon the foregoing, I am of the opinion that: organized and California. I. The Seller is a municipal corporation of the State of California, duly validly existing pursuant to the laws and the Constitution of the State of Taxable DOCSSFl:795397.1 BI-I 24 of 37 February 22, 2005 Item # 6.1 2. The Seller has full power and authority to adopt the Resolution and to execute and deliver the Transaction Documents. 3. The Seller has duly authorized and executed the Transaction Documents and, assuming delivery, each Transaction Document will be legal, valid, and binding against the Seller, and enforceable against the Seller in accordance with its tenns, except as enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or laws relating to or affecting creditors' rights, and the application of equitable principles and the exercise of judicial discretion in appropriate areas. 4. The Resolution was duly adopted at a meeting of the Governing Body which was called and held pursuant to law with all public notice required by law and at which a quorum was present and acting when the Resolution was adopted. 5. The Resolution is in full force and effect and has not been amended, modified, supplemented or rescinded. 6. To the best of my knowledge, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened in any way against the Seller affecting the existence of the Seller or the titles of its Governing Body members or officers to their respective offices, or seeking to restrain or to enjoin the sale of the VLF Receivable or to direct the application of the proceeds of the sale thereof, or in any way contesting or affecting the validity or enforceability of the Resolution, the Transaction Documents or any other applicable agreements or any action of the Seller contemplated by any of said documents, or in any way contesting the powers of the Seller or its authority with respect to the Resolution or the Transaction Documents or any other applicable agreement, or any action on the part of the Seller contemplated by any of said documents, or in any way seeking to enjoin or restrain the Seller from selling the VLF Receivable or which if detennined adversely to the Seller would have a material and adverse effect upon the Seller's ability to sell the VLF Receivable, nor to my knowledge is there any basis therefor. 7. Insofar as it would materially adversely affect the Seller's ability to enter into, carry out and perfonn its obligations under any or all of the foregoing agreements, or consummate the transactions contemplated by the same, the Seller is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which it is a party or to which it or any of its property or assets is otherwise subject, and, to the best of my knowledge, no event has occurred and is continuing which with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, and the adoption of the Resolution and the execution and delivery by the Seller of the Transaction Documents, and compliance with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the Seller a breach of or default under any agreement or other instrument to which the Seller is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Seller is subject. Taxable DOCSSFl:795397.J 25 of 37 BI-2 February 22, 2005 Item # 6.1 . 8. Prior to the sale of the VLF Receivable to the Purchaser, the Seller was the sole owner of the VLF Receivable, and has such right, title and interest as provided in the Act. From and after the conveyance of the VLF Receivable by the Seller to Purchaser on the Closing Date, the Seller shall have no interest in the VLF Receivable. Except as provided in the Sale Agreement, the Seller has not sold, transferred, assigned, set over or otherwise conveyed any right, title or interest of any kind whatsoever in all or any portion of tre Seller's VLF Receivable, nor has the Seller created, or to my knowledge pennitted the creation of, any Lien thereon. Prior to the sale of the VLF Receivable to the Purchaser, the Seller held title to the VLF Receivable tree and clear of any Liens. 9. To tll: best of my knowledge, all approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the sale by the Seller of the VLF Receivable or the perfonnance by the Seller of its obligations under the Resolution and the Transaction Documents and any other applicable agreements, have been obtained ani are in full force and effect. 10. The Disbursement Instructions are irrevocable by the Seller, and comply with the requirements of Section 6588.5(c) of the California Government Code. Each Credit Enhancer, the underwriters of the Notes and Transaction Counsel may rely upon this legal opinion as if it were addressed to them. Very truly yours, By: Seller's Counsel Taxable DOCSSFI :795397.1 BI-3 26 of 37 February 22, 2005 Item # 6.1 EXffiBIT B2 OPINION OF COUNSEL to CITY OF POWAY [Closing Date] California Statewide Communities Development Authority Sacramento, California Wells Fargo Bank, National Association Los Angeles, California Re: Sale ofVLF Receivable (Bringdown Opinion) Ladies & Gentlemen: Pursuant to that certain Purchase and Sale Agreement dated March 2, 2005 (the "Sale Agreement") between the City of Poway (the "Seller") and the California Statewide Communities Development Authority (the "Purchaser"), this Office delivered an opinion (the "Opinion") dated the Pricing Date (as defined in the Sale Agreement) as counsel for the Seller in connection with the sale of the Seller's VLF Receivable (as defined in the Sale Agreement), the execution of documents related thereto and certain other related matters. 1 confirm that you may continue to rely upon the Opinion as if it were dated as of the date hereof. Each Credit Enhancer, the underwriters of the Notes and Transaction Counsel may rely upon this legal opinion as if it were addressed to them. This letter is delivered to you pursuant to Section 2(b )(ii)( 1) of the Sale Agreement. Very truly yours, By: Seller's Counsel Taxable DOCSSFl :795397, I B2-1 27 of 37 February 22, 2005 Item # 6.1 . EXHIBIT Cl CLERK'S CERTIFICATE CERTIFICATE OF 1HE CITY CLERK OF CITY OF POW A Y, CALIFORNIA Dated: March 2, 2005 The undersigned City Clerk of the City of Poway, California, do hereby certifY that the foregoing is a full, true and correct copy of Resolution No. duly adopted at a regular meeting of the City Council of said Seller duly and regularly and legally held at the regular meeting place thereof on the day of , 2005, of which meeting all of the members of said City Council had due notice and at which all members thereof were present, and that at said meeting said resolution was adopted by the following vote: AYES: NOES: ABSENT: ABSTAIN: I do hereby further certifY that I have carefully compared the same with the original minutes of said meeting on file and of record in my office and that said resolution is a full, true and correct copy of the original resolution adopted at said meeting and entered in said minutes and that said resolution has not been amended, modified or rescinded since the date of its adoption and the same is now in full force and effect. I do hereby further certifY that an agenda of said meeting was posted at least 72 hours before said meeting at a location in the City of Poway, California freely accessible to members of the public, and a brief general description of said resolution appeared on said agenda. WITNESS my hand as of the day and year first above written. By: City Clerk of the City of Po way, California Taxable IXJCSSFI:795397.1 CI-l 28 of 37 February 22, 2005 Item # 6.1 EXHIBIT C2 SELLER CERTIFICATE SELLER CERTIFICATE Dated: March 2, 2005 We, the undersigned officers of the City of Poway (the "Seller"), State of California, holding the respective offices herein below set opposite our signatures, do hereby certifY that on the date hereof the following documents (the "Transaction Documents") were officially executed and delivered by the Authorized Officer or Officers whose names appear on the executed copies thereof, to wit: Document 1. Purchase and Sale Agreement, dated March 2, 2005 (the "Sale Agreement"), between the Seller and the California Statewide Communities Development Authority (the "Purchaser") 2. Irrevocable Instructions For Disbursement of Seller's VLF Receivable to the Controller of the State of California dated the Closing Date Capitalized tenns used herein and not defined herein shall have the meaning given such tenns in the Sale Agreement. We further certifY as follows: 1. At the time of signing the Transaction Documents and the other documents and opinions related thereto, we held said offices, respectively, and we now hold the same. 2. The representations and warranties contained in the Transaction Documents are true and correct as of the date hereof in all material respects. 3. The City Council duly adopted its resolution (the "Resolution") approving the sale of the Seller's VLF Receivable at a meeting of the City Council which was duly called and held pursuant to law with all public notice required by law and at which a quorum was present and acting when the Resolution was adopted, and such Resolution is in full force and effect and has not been amended, modified, supplemented or rescinded. 4. To the best knowledge of the undersigned, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened, in any way against the Seller affecting the existence of the Seller or the titles of its City Council members or officers to their respective offices, or seeking to restrain or to enjoin the sale of the Seller's VLF Receivable or to direct the application thereof of the Taxable JX)CSSFI :795397.1 C2-1 29 of 37 February 22, 2005 Item # 6.1 proceeds of the sale thereof, or in any way contesting or affecting the validity or enforceability of the Resolution, the Transaction Documents, the Indenture, the Notes, or any other applicable agreements or any action of the Seller contemplated by any of said documents, or in any way contesting the powers of the Seller or its authority with respect to the Resolution or the Transaction Documents or any other applicable agreement, or any action on the part of the Seller contemplated by any of said documents, or which if detennined adversely to the Seller would have a material and adverse effect upon the Seller's ability to sell the Seller's VLF Receivable, nor to our knowledge is there any basis therefor. 5. Insofar as it would materially adversely affect the Seller's ability to enter into, carry out and perfonn its obligations under any or all of the Transaction Documents, or consummate the transactions contemplated by the same, the Seller is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which it is a party or to which it or any of its property or assets is othelWise subject, and, to the best of our knowledge, no event has occurred and is continuing which with the passage of time or the giving of notice, or both, would constitute a default or an event of default under any such instrument, and the adoption of the Resolution and the execution and delivery by the Seller of the Transaction Documents, and compliance by the Seller with the provision<; thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the Seller a breach of or default under any agreement or other instrument to which the Seller is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Seller is subject. 6. Prior to the sale of the VLF Receivable to the Purchaser, the Seller was the sole owner of the VLF Receivable, and has such right, title and interest as provided in the Act. From and after the conveyance of the VLF Receivable by the Seller to Purchaser on the Closing Date, the Seller shall have no interest in the VLF Receivable. Except as provided in the Sale Agreement, the Seller has not sold, transferred, assigned, set over or othelWise conveyed any right, title or interest of any kind whatsoever in all or any portion of the Seller's VLF Receivable, nor has the Seller created, or to our knowledge pennitted the creation of, any Lien thereon. Prior to the sale of the VLF Receivable to the Purchaser, the Seller held title to the VLF Receivable free and clear of any Liens. 7. All approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, roard, agency or commission having jurisdiction which would constitute a condition precedent to or the absence of which would materially adversely affect, the sale by the Seller of the Seller's VLF Receivable or the perfonnance by the Seller of its obligations under the Resolution and the Transaction Documents and any other applicable Dated as of the date first above written. Name, Official Title James L. Bowersox, City Manager Warren H. Shafer, Director of Administrative Servicesffreasurer genuine. Taxable DOCSSFl:795397.1 31 of 37 Signature I HEREBY CERTIFY that the signatures of the officers named above are Dated as ofthe date first above written. By: C2-3 City Clerk of the City of Po way, California February 22, 2005 Item # 6.1 EXHIBIT C3 BILL OF SALE AND BRINGDOWN CERTIFICATE BILL OF SALE AND BRINGDOWN CERTIFICATE In consideration of the payment and delivery by the California Statewide Communities Development Authority (the "Purchaser") to the undersigned (the "Seller") of $[Final Purchase Price] (the "Final Purchase Price"), and pursuant to tenns and conditions of the Purchase and Sale Agreement (the "Sale Agreement"), dated March 2, 2005, between the Seller and the Purchaser, the Seller does hereby (a) transfer, grant, bargain, sell, assign, convey, set over and deliver to the Purchaser, absolutely and not as collateral security, without recourse except as expressly provided in the Sale Agreement, the VLF Receivable as defined in the Sale Agreement (the "VLF Receivable"), and (b) assign to the Purchaser, to the extent pennitted by law (as to which no representation is made), all present or future rights, if any, of the Seller to enforce or cause the enforcement of payment of the VLF Receivable pursuant to the Act (as defined in the Sale Agreement) and other applicable law. The Seller hereby acknowledges receipt of the Final Purchase Price. The Seller hereby certifies that the representations and warranties of the Seller set forth in the Certificate of the City Clerk dated March 2, 2005, the Seller Certificate dated March 2, 2005, and in the Transaction Documents (as such tenns are defined in the Sale Agreement) are true and correct in all material respects as of the date hereof (except for such representations and warranties made as of a specified date, which are true and correct as of such date). Dated: _[Closing Date]_ CITY OF POW A Y By: Authorized Officer Taxable DOCSSFI :795397.1 32 of 37 C3-1 February 22, 2005 Item # 6.1 EXHIBIT D IRREVOCABLE INSTRUCTIONS TO CONTROLLER IRREVOCABLE INSTRUCTIONS FOR DISBURSEMENT OF VLF RECE]V ABLE OF CITY OF POW A Y ,2005 Office of the Controller State of California P.O. Box 942850 Sacramento, California 94250-5872 Re: Notice of Sale ofVLF Receivable by the City of Po way and Wiring Instructions Infonnation Fonn Dear Sir or Madam: Pursuant to Section 6588.5(c) of the California Government Code, City of Po way (the "Seller") hereby notifies you of the sale by the Seller, effective as of the date of these instructions written above, of all right, title and interest of the Seller in and to the "VLF Receivable" as defined in Section 6585(i) of the California Government Code (the "VLF Receivable"), namely, the right to payment of moneys due or to become due to the Seller out of funds payable in connection with vehicle license fe es to a local agency pursuant to Section 10754.] 1 of the California Revenue and Taxation Code. By resolution, the Seller's City Council authorized the sale of the VLF Receivable to the California Statewide Communities Development Authority (the "Purchaser') pursuant to a Purchase and Sale Agreement, dated March 2, 2005 and a Bill of Sale, dated [Closing Date]. The VLF Receivable has been pledged and assigned by the Purchaser pursuant to an Indenture, dated March 2, 2005 (the "]ndenture") between the Purchaser and Wells Fargo Bank, National Association, as Trustee (the "Trustee"). The Seller hereby irrevocably requests and directs that, commencing as of the date of these instructions written above, all payments of the VLF Receivable (and documentation related thereto) be made directly to Wells Fargo Bank, National Association, as Trustee, in accordance with the wire instructions and bank routing infonnation set forth below. Please note that the sale of the VLF Receivable by the Seller is irrevocable and that (i) the Seller has no power to revoke or amend these instructions at any time, (ii) the Purchaser shall have the power to revoke or amend these instructions only if there are no notes of the Purchaser outstanding under the Indenture and the Indenture has been discharged, and (iii) so long as the Indenture has not been discharged, these instructions cannot be revoked or amended by the Purchaser without the consent of the Trustee. Taxable DOCSSFl:795397.1 ~l 33 of 37 February 22, 2005 Item # 6.1 Bank Name: Bank ABA Routing #: Bank Account #: Bank Account Name: Further Credit To: Bank Address: Bank Te]ephone #: Bank Contact Person: Wells Fargo NA. ]21000248 0001038377 Corporate Trust Clearing CSCDA VLF #16914200 Wells Fargo Bank 707 Wilshire B]vd., 17 Floor Los Angeles, CA 90017 (213) 614-3353 Robert Schneider Please do not hesitate to call the undersigned if you have any questions regarding this transaction. Thank you for your assistance in this matter. Taxable DOCSSFl:795397.1 34 of 37 Very truly yours, CITY OF POW A Y By: Authorized Officer D-2 February 22, 2005 Item # 6.1 EXHIBIT E RESERVED Taxable DOCSSFI :795397.1 35 of 37 E-l February 22, 2005 Item # 6.1 EXHIBIT F ESCROW INSTRUCTION LETTER PARTICIPATION AGREEMENT AND ESCROW INSTRUCTION LETTER March 2, 2005 California Statewide Communities Development Authority 1100 K Street Sacramento, CA 95814 Re: VLF Receivable Finan:ing Dear Sir or Madam: The City of Poway (the "Seller") hereby notifies you of its agreement to participate in the California Statewide Communities Development Authority VLF Receivable Financing. By adoption of a resolution (the "Resolution") authorizing the sale of its VLF Receivable, the Seller's City Council has agreed to sell to the California Statewide Communities Development Authority, for a purchase price that meets the conditions set forth in the Resolution, all of its right, title and interest in the VLF Receivable. Enclosed herewith are the following documents which have been duly approved and executed by the Seller and which are to be held in escrow by Orrick, Herrington & Sutcliffe LLP, as transaction counsel ("Transaction Counsel"), as instructed below: 1. certified copy of the Resolution, together with a certificate of the City Clerk, dated March 2, 2005; 2. the Seller Certificate, dated March 2, 2005; 3. the Opinion of Seller's Counsel, dated March 2, 2005; 4. the Purchase and Sale Agreement, dated March 2,2005; and 5. the Irrevocable Instructions to the Controller, undated. The foregoing documents are to be held in escrow by Transaction Counsel and shall be delivered only upon payment to the Seller on or before April 29, 2005, of the Final Purchase Price (as defined in the Purchase and Sale Agreement) that meets the conditions of the Resolution. Upon such payment, Transaction Counsel is hereby authorized to fill in the closing date on the Irrevocable Instructions to the Controller. Taxable DOCSSFl:795397.1 F-I 36 of 37 February 22, 2005 Item # 6.1