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Contract - Roto - 2001-07-12 s. LEASE WITH OPTION TO PURCHASE #01-074-AF This LEASE WITH OPTION TO PURCHASE dated July 12 2001 ( "Lease ) is by and between MUNICIPAL FINANCE CORPORATION ( Corporation ) a corporation duly organized and operating under the laws of the State of California as lessor and COSTA MESA SANITARY DISTRICT a sanitary district duly organized and existing under the laws of the State of California ( Lessee ) as lessee RECITALS WHEREAS Lessee deems it essential for Lessee to acquire the property described herein for its own public purposes and WHEREAS it is intended that this Lease be treated as a tax-exempt obligation of Lessee for federal income tax purposes and WHEREAS Lessee and Corporation agree to mutually cooperate now and hereafter to the extent possible in order to sustain the intent of this Lease and the bargain of both parties hereto WITNESSETH NOW THEREFORE in consideration of the mutual covenants hereinafter set forth the parties hereto agree as follows SECTION 1 Lease Corporation hereby leases to Lessee and Lessee hereby leases and hires from Corporation all property (the Property ) described in the schedule or schedules (collectively the Schedule ) executed by the parties concurrently herewith and hereafter and made a part hereof Hereinafter reference to Corporation means Corporation and Corporation s assigns for those rights interests and obligations that may be assigned by Corporation SECTION 2 Term The terms and conditions of this Lease shall become effective upon the authorized execution of this Lease by the parties hereto The rental term of the Property leased hereunder commences and terminates on the dates specified in the Schedule SECTION 3A Representations and Warranties of Lessee The Lessee represents and warrants to Corporation that (a) Lessee is a sanitary district and political subdivision duly organized and existing under the Constitution and laws of the State of California with authority to enter into this Lease and to perform all of its obligations hereunder (b) Lessee s governing body has duly authorized the execution and delivery of this Lease and further represents and warrants that all requirements have been met and procedures followed to ensure its enforceability (c) The execution delivery and performance of this Lease do not and will not result in any breach of or constitute a default under any indenture mortgage contract agreement or instrument to which Lessee is a party by which it or its property is bound (d) There is no pending or to the knowledge of Lessee threatened action or proceeding before any court or administrative agency which will materially adversely affect the ability of Lessee to perform its obligations under this Lease (e) The Property being leased is essential to Lessee in the performance of its governmental functions and its estimated useful life to Lessee exceeds the term of this Lease SECTION 3B Budget and Appropriation Lessee shall take such action as may be necessary to include all rental payments in its annual budget and annually to appropriate an amount necessary to make such rental payments During the term of this Lease Lessee will furnish to Corporation if so requested copies of each proposed budget of Lessee within thirty (30) days after it is filed and of each final budget of the Lessee within thirty (30) days after it is printed The covenants on the part of Lessee shall be deemed and construed to be duties imposed by law and it shall be the duty of each and every public official of Lessee to take such action and do such things as are required by law in the performance of the official duty of such officials to enable Lessee to carry out and perform the covenants and agreements in this Lease agreed to be carried out and performed by Lessee SECTION 4 Representations and Warranties of Corporation Corporation represents and warrants to Lessee that (a) Corporation is duly organized validly existing and in good standing under the laws of the State of California with full corporate power and authority to lease and own real and personal property (b) Corporation has full power authority and legal right to enter into and perform its obligations under this Lease and the execution delivery and performance of this Lease have been duly authorized by all necessary corporate actions on the part of Corporation and do not require any further approvals or consents (c) The execution delivery and performance of this Lease do not and will not result in any breach of or constitute a default under any indenture mortgage contract agreement or instrument to which Corporation is a party by which it or its property is bound (d) There is no pending or to the knowledge of Corporation threatened action or proceeding before any court or administrative agency which will materially adversely affect the ability of Corporation to perform its obligations under this Lease SECTION 5 Property Acquisition; Deposit of Moneys Corporation hereby appoints Lessee as its purchasing agent to acquire the Property leased hereunder and Lessee hereby accepts said appointment (hereinafter the Agency ) The Agency is limited to i) negotiation of terms conditions and acquisition cost of acquiring the Property from suppliers and contractors (collectively the Supplier ) selected by Lessee ii) to the inspection and acceptance of the Property upon its delivery and installation and iii) to the exercise 2 of any rights or remedies with respect to Property warranties or guarantees All warranties and guarantees either express or implied that inure to Corporation by virtue of the Agency are hereby passed through to Lessee to prosecute at Lessee s sole discretion The costs associated with the acquisition and installation of the Property including appurtenant work and related expenses are set forth in the Schedule Corporation and Lessee agree that in order to ensure that moneys sufficient to pay all costs will be available for this purpose when required Corporation shall cause the financing amount designated on the Schedule (the Financing Amount ) to be deposited to a custodial account (the Acquisition Account ) and held in the name of Corporation as custodian for the benefit of Lessee The date said Financing Amount is initially deposited to the Acquisition Account is defined as the Lease Issuance Date Disbursements may be made either directly to the Supplier or to Lessee as a reimbursement of its prior expenditures for Property costs Lessee shall deliver to Corporation a disbursement authorization form along with Supplier invoices and required reconciliation documents prior to Corporation making a disbursement to the Supplier or a reimbursement to Lessee Corporation shall receive a $50 fee per disbursement which Corporation shall deduct from the Acquisition Account without any further authorization from Lessee Corporation shall retain at least ten percent (10a) of the Financing Amount in the Acquisition Account until Lessee delivers to Corporation a Certificate of Acceptance Any moneys that remain in the Acquisition Account (including future earnings thereon) after completing the disbursements for Property costs shall apply towards the payment or prepayment (with applicable premium) of the principal component of succeeding Rental Payments Upon final disbursement from the Acquisition Account that shall occur no later than three years from the Lease Issuance Date the Acquisition Account shall be closed SECTION 6 Lease Proceeds The Financing Amount deposited to the Acquisition Account may be invested in interest bearing instruments pursuant to written direction and authority given by Lessee Permitted investments are those specified in Government Code Sections 53601 and 53635 Principal and interest earnings from each investment will be deposited directly to the Acquisition Account The Financing Amount plus earnings thereon shall constitute the Lease Proceeds available for acquiring the Property (the Lease Proceeds ) Corporation shall be responsible for the safekeeping of deposit certificates and other investment confirmation documents With the exception of acts of gross negligence or willful misconduct by Corporation Corporation will not be held responsible for any investment losses for any reason whatsoever and is indemnified and held harmless by Lessee In the event the Lease Proceeds are not sufficient to pay for the Property due to insufficient investment earnings or an increase in such 'costs subsequent to the Lease Issuance Date Lessee shall deposit additional moneys in the Acquisition Account immediately upon request of Corporation or its assignee sufficient to pay the remaining Property costs Failure by Lessee to deposit the additional moneys will constitute a default under the Lease SECTION 7 Rental Payments LESSEE SHALL PAY CORPORATION RENTAL PAYMENTS (the Rental Payments ) IN THE AMOUNTS AND AT THE TIMES SET FORTH IN THE SCHEDULE AT THE OFFICE OF CORPORATION OR TO SUCH 3 OTHER PERSON OR AT SUCH OTHER PLACE AS CORPORATION MAY FROM TIME TO TIME DESIGNATE IN WRITING Should Lessee fail to pay any part of the Rental Payments herein reserved within fifteen (15) days from the due date thereof Lessee shall upon Corporation' s written request pay interest on such delinquent payment from the date said payment was due until paid at the rate of twelve percent (12%) per annum or the maximum legal rate whatever is less Lessee shall pay Rental Payments exclusively from legally available funds in lawful money of the United States of America to the Corporation The obligation to pay Rental Payments will be absolute and unconditional in all events and will not be subject to set-off defense abatement reduction counterclaim or recoupment for any reason whatsoever SECTION 8 Reserved SECTION 9 Security Interest As additional security for the payment of all of Lessee s obligations hereunder Lessee hereby grants Corporation its successors or assigns a security interest in the Property its accessions and attachments thereto and replacements thereof and substitutions therefor and all proceeds of the Acquisition Account and all proceeds and products of any of the foregoing Lessee agrees to execute such additional documents including financing statements which Corporation deems necessary or appropriate to establish and maintain Corporation s security interest SECTION 10 Use Lessee shall cause the Property to be used in a careful and proper manner and shall comply with and conform to all national state municipal police and other laws ordinances and regulations in anyway relating to the possession use or maintenance of the Property SECTION 11 Acceptance Lessee shall acknowledge receipt and inspection of the Property by executing a Certificate of Acceptance SECTION 12 Reserved SECTION 13 Property Selection and Ordering Lessee has selected or will select the type and quantity of the Property leased hereunder Lessee shall ensure that all Property is properly invoiced to Corporation Corporation shall not be liable for nor shall the validity enforeceability or effectiveness of this Lease be affected by any delay in or failure of delivery of the Property Lessee acknowledges that it is solely responsible for determining the suitability of the Property for its intended use Corporation shall have no duty to inspect the Property If the Property is not properly installed does not operate as represented or warranted by the Supplier or is unsatisfactory for any reason Lessee shall make any claim on account thereof solely against the Supplier Lessee hereby assumes the risks burdens and obligations to the Supplier on account of nonacceptance of the Property and/or cancellation of this Lease and upon the occurrence of any such event Corporation will assign to Lessee without recourse or warranty its rights and title to the Property and any documents related thereto SECTION 14 Disclaimer of Warranty CORPORATION NOT BEING THE MANUFACTURER OR SUPPLIER OF THE PROPERTY NOR A DEALER IN SIMILAR 4 PROPERTY HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATION WARRANTY OR COVENANT EXPRESS OR IMPLIED WITH RESPECT TO THE DESIGN DURABILITY FITNESS FOR USE SUITABILITY OR MERCHANTABILITY OF THE PROPERTY IN ANY RESPECT AND AS BETWEEN CORPORATION AND LESSEE ALL PROPERTY SHALL BE ACCEPTED AND LEASED BY LESSEE WHERE IS AS IS AND WITH ALL FAULTS " AND CORPORATION SHALL NOT BE RESPONSIBLE FOR ANY PATENT OR LATENT DEFECTS THEREIN LESSEE AGREES TO SETTLE DIRECTLY SUCH CLAIMS WITH THE SUPPLIER AND WILL NOT ASSERT ANY SUCH CLAIMS AGAINST CORPORATION SECTION 15 Alterations and Attachments All additions and improvements that are made to the Property shall belong to and become the property of the Corporation except that separately identifiable attachments added to the Property by Lessee may remain the property of Lessee as long as (i) the attachment is paid for in full by Lessee and (ii) Lessee agrees to remove the attachment and restore the Property to substantially as good condition as when received normal wear and tear excepted if and when the Property may be returned to Corporation SECTION 16 Reserved SECTION 17 Maintenance and Repairs Lessee at its own cost and expense shall furnish necessary labor and materials to maintain the Property in good repair condition and working order Lessee s obligations to maintain the Property does not relieve the Supplier of its responsibility to fully perform with respect to all applicable Property warranties and guarantees SECTION 18 Risk of Loss; Damage; Destruction With the exception of acts resulting from intentional misconduct or gross negligence by Corporation its agents and representatives Lessee hereby assumes and shall bear the entire risk of loss and damage to the Property from any and every cause whatsoever No loss or damage to the Property or any part thereof shall impair any obligation of Lessee under this Lease which shall continue in full force and effect Lessee waives the benefit of Civil Code Sections 1932 (2) and 1933 (4) and any and all other rights to terminate this Lease by virtue of any damage or destruction to the Property SECTION 19 Physical Damage/Public Liability Insurance Lessee shall keep the Property insured against risk of loss or damage from any special form peril for not less than the applicable purchase option value in the Schedule and Lessee shall carry public liability and property damage insurance covering the Property All said insurance shall be in form and amount and with reputable companies and shall name Corporation as an additional insured and loss payee Lessee shall pay the premiums therefor and deliver certification of said policies to Corporation Each insurer shall agree by endorsement upon the policy or policies issued by it or by independent instrument furnished to Corporation that it will give Corporation thirty (30) days written notice before the policy or policies shall be altered or canceled The proceeds of such insurance at the option of Lessee shall be applied (a) toward the replacement restoration or repair of the Property or (b) toward payment of the total remaining obligations of Lessee hereunder provided however that Lessee shall be responsible for the amount by which such insurance proceeds are insufficient to satisfy the 5 cost of option (a) or option (b) above as applicable Should Lessee replace restore or repair the Property as set out in option (a) above this Lease shall continue in full force and effect Lessee may self-insure up to specified limits as evidenced by a certificate of self insurance to be attached hereto in form and amount acceptable to Corporation Any self-insurance program in which Lessee is a participant shall comply with the provisions under this Lease respecting cancellation and modification and payment of losses to the Corporation as its respective interests may appear Such self-insurance shall be maintained on a basis which is actuarially sound as established by Lessee s risk manager or an independent insurance consultant which determination shall be made annually Any deficiency shall be corrected within sixty (60) days of Lessee becoming aware of such deficiency SECTION 20 Reserved. SECTION 21 Liens and Taxes Lessee shall keep the Property free and clear of all levies liens and encumbrances and shall promptly pay all fees assessments charges and taxes (municipal state and federal) which may now or hereafter be imposed upon the ownership leasing renting sale possession or use of the Property excluding however all taxes on or measured by Corporation s income SECTION 22 Indemnity Subject to California law concerning contribution and enforceability of indemnifications Lessee shall indemnify Corporation against and hold Corporation harmless from any and all claims actions suits proceedings costs expenses damages and liabilities including attorneys fees arising out of connected with or resulting from the selection possession use operation or return of the Property excepting that Lessee shall not be required to indemnify Corporation in the event that such liability or damages are caused by the gross negligence or intentional misconduct of Corporation its agents or representatives SECTION 23 Events of Default The term Event of Default as used in this Lease means the occurrence of any one or more of the following events (a) Lessee fails to make any Rental Payment (or any other payment) within fifteen (15) days after the due date thereof or Lessee fails to perform or observe any other covenant condition or agreement to be performed or observed by it hereunder and such failure to either make the payment or perform the covenant condition or agreement is not cured within ten (10) days after written notice thereof by Corporation (b) Corporation discovers that any statement representation or warranty made by Lessee in this Lease the Schedule or in any document ever delivered by Lessee pursuant hereto or in connection herewith is false misleading or erroneous in any material respect (c) Lessee becomes insolvent is unable to pay its debts as they become due makes an assignment for the benefit of creditors applies or consents to the appointment of a receiver trustee conservator or liquidator of Lessee or of all or a substantial part of its assets or a petition for relief is filed by or against Lessee under federal bankruptcy insolvency or similar laws SECTION 24 Remedies Upon the occurrence of an Event of Default Corporation may at its option exercise any one or more of 6 the following remedies (a) by written notice to Lessee request Lessee to (and Lessee agrees that it shall) at Lessee s expense promptly return the Property to Corporation freight prepaid and insured to any location in the State of California as designated by Corporation or Corporation at its option may enter upon Lessee s premises where the Property is located and take immediate possession of and remove the same without liability to Corporation or its agents for such entry or for damage to property or otherwise (b) sell or lease the Property or sublease it for the account of the Lessee holding Lessee liable for all Rental Payments and other payments due to the effective date of such selling leasing or subleasing plus any accrued interest to the date of termination and (c) exercise any other right remedy or privilege which may be available to it under applicable law including the right to (i) proceed by appropriate court action to enforce the terms of this Lease (ii) recover damages for the breach of this Lease and (iii) rescind this Lease as to any portion of or all of the Property No right or remedy herein conferred upon or reserved to Corporation is exclusive of any other right or remedy herein but each shall be cumulative of every other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise and may be enforced concurrently therewith or from time to time SECTION 25 Non-Waiver No covenant or condition to be performed by Lessee under this Lease can be waived except by the written consent of Corporation Forbearance or indulgence by Corporation in any regard whatsoever shall not constitute a waiver of the covenant or condition in question Until performance by Lessee of said covenant or condition is complete Corporation shall be entitled to invoke any remedy available to Corporation under this Lease or by law or in equity despite said forbearance or indulgence SECTION 26 Assignment Without the prior written consent of Corporation Lessee shall not (a) assign transfer pledge or hypothecate this Lease the Property or any part thereof or any interest therein or (b) sublet or lend the Property or any part thereof or permit the Property or any part thereof to be used in a material way by anyone other than Lessee or Lessee s employees Consent to any of the foregoing prohibited acts applies only in the given instance and is not a consent to any subsequent like act by Lessee or any other person Corporation shall not assign its obligations under this Lease with the exception of its obligation to issue default notices and its obligations pursuant to Section 30 Corporation may assign its right title and interest in this Lease the Rental Payments and other amounts due hereunder and the Property in whole or in part to one or more assignees or subassignees at any time without the consent of Lessee Any such assignment by Corporation or its assigns shall comply with the requirements of Sections 5950-5955 of the California Government Code No such assignment shall be effective as against Lessee unless and until Corporation shall have filed with Lessee written notice thereof Lessee shall pay all Rental Payments hereunder pursuant to the direction of Corporation or the assignee named in the most recent assignment or notice of assignment filed with Lessee During this Lease term Lessee shall keep a complete and accurate record of all such notices of assignment Subject always to the foregoing this Lease inures to the benefit of and is binding upon 7 the heirs legatees personal representatives successors and assigns of the parties hereto SECTION 27 Ownership The Property is and shall at all times be and remain the sole and exclusive property of Corporation and Lessee shall have no right title or interest therein or thereto except as expressly set forth in Sections 29 and 30 Lessee shall take all actions necessary to insure that legal title to the Property being acquired by Lessee hereunder whether by Lessee or by a third party acting on behalf of Lessee is vested in Corporation SECTION 28 Personal Property The Property is and shall at all times be and remain personal property notwithstanding that the Property or any part thereof may now be or hereafter become in any manner affixed or attached to or imbedded in or permanently resting upon real property or any building thereon or attached in any manner to what is permanent by means of cement plaster nails bolts screws or otherwise SECTION 29 Purchase Option If Lessee is not in default of any term condition or payment specified hereunder Lessee may exercise options to prepay this Lease and purchase not less than all of the Property in "as-is and "where-is condition on the specified dates and for the specified amounts set forth in the Schedule annexed hereto Each purchase option payment specified for a particular date is exclusive of the Rental Payment due on the same date SECTION 30 Release of Liens Upon Lessee either making all of the Rental Payments scheduled herein or making a purchase option payment Corporation its successors or assigns shall cause i) legal title to the Property to be transferred to Lessee and ii) the release of all liens encumbrances or security interests on the Property created pursuant to Corporation s rights under this Lease SECTION 31 Reports/Tax Covenants Lessee shall cooperate with Corporation to comply with any and all reporting requirements that may be mandated by agencies of the United States of America or the State of California including the timely filing of IRS Form #8038-G or #8038- GC Lessee covenants to Corporation that (a) Throughout the term of the Lease the Property will be used for performing one or more governmental functions consistent with the permissible scope of Lessee s authority and will not be used in a trade or business of any person or entity other than Lessee except for uses by community services organizations as prescribed in the California Government Code (b) Lessee will not take any action or omit to take any action which action or omission if reasonably expected on the date of this Lease would have caused this Lease to be an arbitrage bond within the meaning of Section 148 of the Internal Revenue Code of 1986 (as amended) (the Code ) (c) The Rental Payments are not directly guaranteed or indirectly guaranteed in whole or in part by the United States or any agency or instrumentality of the United States so as to cause the Rental Payments 8 to be federally guaranteed within the meaning of Section 149 (b) of the Code (d) The Lease Proceeds used for reimbursement of prior expenditures will be made pursuant to and in compliance with Income Tax Regulations Section 1 150 2 (e) Lessee hereby designates this Lease for purposes of paragraph (3) of Section 265 (b) of the Code and represents that not more than $10 000 000 aggregate principal amount of obligations the interest on which is excludable (under Section 103 (a) of the Code) from gross income for federal income tax purposes (excluding (i) private activity bonds as defined in Section 141 of the Code except qualified 501 (c) (3) bonds as defined in Section 145 of the Code and (ii) current refunding obligations to the extent the amount of the refunding obligation does not exceed the outstanding amount of the refunded obligation) including this Lease has been or will be issued by Lessee including all subordinate entities of Lessee during calendar year 2001 SECTION 32 Extraordinary Costs In the case of litigation the prevailing party shall be entitled to recover from the opposing party all costs and expenses including attorneys fees (which may be the allocable cost of in house counsel) incurred by the prevailing party in exercising any of its rights or remedies hereunder or enforcing any of the terms conditions or provisions hereof SECTION 33 Severability If any provision of this Lease shall be held invalid or unenforceable by a court of competent jurisdiction such holdings shall not invalidate or render unenforceable any other provision of this Lease unless elimination of such provision materially alters the rights and obligations embodied in this Lease SECTION 34 Entire Agreement This Lease the Schedule and any agreements that specifically refer to this Lease that are duly executed by authorized agents of the parties hereto constitute the entire agreement between Corporation and Lessee and it shall not be further amended altered or changed except by a written agreement that is properly authorized and executed by the parties hereto SECTION 35 Notices Service of all notices under this Lease shall be sufficient if given personally or mailed to the party involved at its respective address hereinafter set forth or at such address as such party may provide in writing from time to time Any such notice mailed to such address shall be effective when deposited in the United States mail duly addressed and with postage prepaid SECTION 36 Titles The titles to the Sections of this Lease are solely for the convenience of the parties and are not an aid in the interpretation thereof SECTION 37 Further Assurances and Corrective Instruments Corporation and Lessee agree that they will from time to time execute acknowledge and deliver or cause to be executed acknowledged and delivered such supplements hereto and such further instruments as may be reasonably required for correcting any inadequate or incorrect 9 description of the Property hereby leased or intended so to be or for carrying out the expressed intention of this Lease SECTION 38 Execution in Counterparts This Lease may be executed in several counterparts each of which shall be original and all of which shall constitute but one and the same instrument SECTION 39 Time Time is of the essence in this Lease and each and all of its provisions SECTION 40 Lease Interpretation This Lease and the rights of the parties hereunder shall be determined in accordance with the laws of the State of California IN WITNESS WHEREOF the parties hereto have caused their authorized agents to execute this Lease on the dates specified below MUNICIPAL FINANCE CORPORATION COSTA MESA SANITARY DISTRICT 23945 Calabasas Road Suite 103 77 Fair Drive 3rd Floor Calabasas CA 91302 Costa Mesa CA 92626 By A (lessor) (les see) RAB cue a er Title ADMM Title President Date _ e72//0/ Date August 21, 2001 By Art Perry Title Secretar Date August 21 2001 10