NEW ISSUE — BOOK-ENTRY-ONLY RATING: S&P: AA+ (See ...cdiacdocs.sto.ca.gov/2009-0834.pdfthe Certificates will be available in book-entry form for delivery to DTC in New York, New

NEW ISSUE — BOOK-ENTRY-ONLY RATING:S&P: AA+

(See “RATING” herein)

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California (“Special Counsel”), underexisting statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certaincovenants and requirements described herein, the interest (and original issue discount) with respect to the 2009A Certificates is excluded fromgross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum taximposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) due with respect tothe Certificates is exempt from State of California personal income tax. The City has designated the 2009A Certificates as “bank qualified” underthe provisions of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. See “TAX MATTERS” herein.

$18,660,000CITY OF MALIBU

Certificates of Participation 2009A(Tax Exempt) (City Hall Project)

Evidencing Undivided Proportionate Interestsin Lease Payments to be Made by theCITY OF MALIBU, CALIFORNIA

Pursuant to a Lease with theMALIBU PUBLIC FINANCING CORPORATION

(BANK-QUALIFIED)

$815,000CITY OF MALIBU

Certificates of Participation 2009B(Taxable) (City Hall Project)

Evidencing Undivided Proportionate Interestsin Lease Payments to be Made by theCITY OF MALIBU, CALIFORNIA

Pursuant to a Lease with theMALIBU PUBLIC FINANCING CORPORATION

Dated: Date of Delivery Due: July 1, as shown on the inside cover

The City of Malibu Certificates of Participation 2009A (Tax Exempt) (City Hall Project) (the “2009A Certificates”) and the City of MalibuCertificates of Participation 2009B (Taxable) (City Hall Project) (the “2009B Certificates” and, together with the 2009A Certificates, the“Certificates”) are being executed and delivered to (i) provide funds to reimburse the City of Malibu (the “City”) for the acquisition of acommercial office building to be converted into a city hall for the City of Malibu (the “City”) and to pay certain costs of renovating, equipping andimproving such building as described herein (the “Project”), (ii) finance a reserve fund for the Certificates, (iii) to fund capitalized interestthrough September 1, 2012, and (iv) pay the costs of issuance incurred in connection with the execution and delivery of the Certificates. See“DESCRIPTION OF THE LEASED PREMISES.” The 2009A Certificates represent undivided proportionate interests of the Owners in certainlease payments (the “2009A Lease Payments”) and the 2009B Certificates represent undivided proportionate interests of the Owners in certainother lease payments (the “2009B Lease Payments” and, together with the 2009A Lease Payments, the “Lease Payments”), each to be made bythe City to the Malibu Public Financing Corporation (the “Corporation”), under the Lease/Purchase Agreement, dated as of September 1, 2009,by and between the City and the Corporation (the “Lease”) pursuant to which the City will lease from the Corporation the city hall property and allimprovements thereto (collectively, the “Leased Premises”). See “DESCRIPTION OF THE LEASED PREMISES” herein.

The Certificates will be executed and delivered in the principal amount of $5,000 and any integral multiple thereof pursuant to aTrust Agreement, dated as of September 1, 2009 (the “Trust Agreement”) by and among the City, the Corporation and Deutsche Bank NationalTrust Company, as trustee (the “Trustee”). Interest represented by the Certificates is payable semiannually on January 1 and July 1 of each year,commencing on January 1, 2010. See “THE CERTIFICATES — General” herein.

The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of Cede & Co., asnominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Certificates. Individualpurchases of the Certificates will be made in book-entry form only. Principal, premium, if any, and interest payments due with respect to theCertificates are payable directly to DTC by Deutsche Bank National Trust Company, as Trustee. Upon receipt of payments of principal, premium,if any, and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates. See Appendix F — “DTC BOOK-ENTRY SYSTEM” herein.

The Certificates are subject to extraordinary, optional and mandatory sinking account prepayment prior to maturity, as describedherein. See “THE CERTIFICATES — Prepayment” herein.

THE CERTIFICATES DO NOT CONSTITUTE AN OBLIGATION OF THE CORPORATION OR THE CITY FOR WHICH THECORPORATION OR THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CORPO-RATION OR THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO MAKE LEASEPAYMENTS UNDER THE LEASE DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATEDTO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OFTAXATION. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS CONSTITUTES ANINDEBTEDNESS OF THE CORPORATION, THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOFWITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

The purchase of the Certificates involves certain risks which should be considered by investors. See “RISK FACTORS” for a discussion ofcertain risk factors that should be considered in addition to the other matters set forth herein.

This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read theentire Official Statement to obtain information essential to making an informed investment decision.

The Certificates will be offered when, as and if executed and delivered, and received by the Underwriter, subject to the approval as to theirlegality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain otherconditions. Certain legal matters will be passed upon for the City and the Corporation by the City Attorney and by Stradling Yocca Carlson &Rauth, a Professional Corporation, as Disclosure Counsel, and for the Trustee by Kutak Rock LLP, Los Angeles, California. It is anticipated thatthe Certificates will be available in book-entry form for delivery to DTC in New York, New York, on or about September 9, 2009.

Dated: August 21, 2009

toneil

Typewritten Text

toneil

Typewritten Text

toneil

Typewritten Text

toneil

Typewritten Text

2009-0834

toneil

Typewritten Text

toneil

Typewritten Text

toneil

Typewritten Text

2009-0969

$18,660,000CITY OF MALIBU

Certificates of Participation 2009A (Tax Exempt)(City Hall Project)(Bank Qualified)

Maturity Schedule(Base CUSIP†: 56117P)

$8,525,000 Serial CertificatesMaturity(July 1)

PrincipalAmount

InterestRate Yield CUSIP†

2013 $330,000 4.000% 1.850% 56117PBC92014 340,000 4.000 2.280 56117PBD72015 355,000 4.000 2.550 56117PBE52016 365,000 4.000 2.870 56117PBF22017 385,000 4.000 3.180 56117PBG02018 400,000 4.000 3.480 56117PBH82019 415,000 5.000 3.680 56117PBJ42020 435,000 5.000 3.820(C) 56117PBK12021 460,000 5.000 3.980(C) 56117PBL92022 480,000 5.000 4.140(C) 56117PBM72023 505,000 4.125 4.250 56117PBN52024 525,000 4.250 4.350 56117PBP02025 645,000 4.375 4.450 56117PBQ82026 675,000 4.375 4.550 56117PBR62027 705,000 4.500 4.650 56117PBS42028 735,000 4.625 4.750 56117PBT22029 770,000 4.750 4.850 56117PBU9

$2,540,000 5.00% Term Certificates due July 1, 2032 Yield: 5.02% — CUSIP† 56117PBX3$7,595,000 5.00% Term Certificates due July 1, 2039 Yield: 5.17% — CUSIP† 56117PBY1

$815,000CITY OF MALIBU

Certificates of Participation 2009B (Taxable)(City Hall Project)

Maturity Schedule(Base CUSIP†: 56117P)

$415,000 Serial CertificatesMaturity(July 1)

PrincipalAmount

InterestRate Price CUSIP†

2013 $50,000 3.900% 100% 56117PBZ82014 55,000 4.400 100 56117PCA22015 55,000 4.810 100 56117PCB02016 60,000 5.060 100 56117PCC82017 60,000 5.300 100 56117PCD62018 65,000 5.550 100 56117PCE42019 70,000 5.700 100 56117PBV7

$400,000 6.40% Term Certificates due July 1, 2024 Price 100% — CUSIP† 56117PBW5

† Copyright 2009, American Bankers Association. CUSIP˛ data herein in provided by Standard & Poor’s,CUSIP˛ Service Bureau, a division of The McGraw-Hill Companies, Inc. Neither the City nor the Underwriterassumes any responsibility for the accuracy of such data.

(C) Yield to optional prepayment date of July 1, 2019.

CITY OF MALIBU COUNTY OF LOS ANGELES, CALIFORNIA

CITY COUNCIL

Andy Stern, Mayor Sharon Barovsky, Mayor Pro Tem Jefferson Wagner, Councilmember

John Sibert, Councilmember Pamela Conley Ulich, Councilmember

_____________

CITY OFFICIALS

Jim Thorsen, City Manager Reva Feldman, Administrative Services Director/Assistant City Manager

Christi Hogin, City Attorney Lisa Pope, City Clerk

_____________

MALIBU PUBLIC FINANCING CORPORATION BOARD OF DIRECTORS

Andy Stern, President Sharon Barovsky, Vice President Jefferson Wagner, Board Member

John Sibert, Board Member Pamela Conley Ulich, Board Member

Jim Thorsen, Treasurer Lisa Pope, Secretary

Reva Feldman, Assistant Treasurer _____________

SPECIAL COUNSEL AND DISCLOSURE COUNSEL

Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California

_____________

TRUSTEE

Deutsche Bank National Trust Company Santa Ana, California _________________

No dealer, broker, salesperson or other person has been authorized by the City or the Corporation to give any information or to make any representations in connection with the offer or sale of the Certificates other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Corporation. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers or owners of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The Underwriter has provided the following sentence for inclusion in this Official Statement:

The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

This Official Statement and the information contained herein are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties described herein since the date hereof. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a “plan,” “expect,” “estimate,” “project,” “budget,” “intend” or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions “DESCRIPTION OF THE PROJECT” and “CITY FINANCIAL INFORMATION.”

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

The City maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Certificates.

TABLE OF CONTENTS

PAGE

i

INTRODUCTION ......................................................................................................................................................... 1 General ............................................................................................................................................................. 1 Security and Sources of Payment for the Certificates ...................................................................................... 2 The Certificates ................................................................................................................................................ 2 Additional Certificates ...................................................................................................................................... 3 Prepayment ....................................................................................................................................................... 3 Tax Exemption ................................................................................................................................................. 3 Continuing Disclosure ...................................................................................................................................... 3 Professionals Involved in the Offering ............................................................................................................. 3 Certificate Owners’ Risks ................................................................................................................................. 4 Miscellaneous ................................................................................................................................................... 4

DESCRIPTION OF THE PROJECT ............................................................................................................................. 4 Project ............................................................................................................................................................... 4

DESCRIPTION OF THE LEASED PREMISES .......................................................................................................... 5

ESTIMATED SOURCES AND USES OF FUNDS ..................................................................................................... 6

THE CERTIFICATES ................................................................................................................................................... 6 General ............................................................................................................................................................. 6 Prepayment ....................................................................................................................................................... 7 Prepayment Procedures .................................................................................................................................... 8 Partial Prepayment............................................................................................................................................ 9

SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES ............................................................... 9 General ............................................................................................................................................................. 9 Lease Payments .............................................................................................................................................. 10 Reserve Fund .................................................................................................................................................. 11 Capitalized Interest ......................................................................................................................................... 11 Additional Payments ...................................................................................................................................... 11 Insurance ........................................................................................................................................................ 11

CERTIFICATE PAYMENT SCHEDULE .................................................................................................................. 12

CITY FINANCIAL INFORMATION......................................................................................................................... 13 Overview ........................................................................................................................................................ 13 Accounting and Financial Reporting .............................................................................................................. 14 Budget Procedure, Current Budget and Historical Budget Information ......................................................... 14 Comparative Change in Fund Balance of the City General Fund .................................................................. 16 Comparative General Fund Balance Sheets of the City ................................................................................. 17 Commercial Real Estate ................................................................................................................................. 17 Property Taxes ................................................................................................................................................ 19 Sales Taxes ..................................................................................................................................................... 22 Services .......................................................................................................................................................... 23 State of California Motor Vehicle In-Lieu Payments ..................................................................................... 23 Transient Occupancy Tax ............................................................................................................................... 23 Indebtedness ................................................................................................................................................... 23 Retirement Contributions ............................................................................................................................... 25 Other Post-Employment Benefits ................................................................................................................... 26 City Investment Policy ................................................................................................................................... 26 Insurance ........................................................................................................................................................ 27

TABLE OF CONTENTS

PAGE

ii

LIMITATIONS ON TAX REVENUES ...................................................................................................................... 28 Article XIIIA of the California Constitution .................................................................................................. 28 Article XIIIB of the California Constitution .................................................................................................. 29 Proposition 62 ................................................................................................................................................. 29 Proposition 218 ............................................................................................................................................... 30 Unitary Property ............................................................................................................................................. 30 Future Initiatives ............................................................................................................................................. 31

RISK FACTORS ......................................................................................................................................................... 31 No Pledge of Taxes or Revenues .................................................................................................................... 31 Additional Obligations of the City ................................................................................................................. 32 Default ............................................................................................................................................................ 32 Release or Substitution of Property ................................................................................................................ 32 Abatement ...................................................................................................................................................... 33 Natural Disasters ............................................................................................................................................ 34 Limitations on Remedies; Bankruptcy ........................................................................................................... 35 State Budget Information ............................................................................................................................... 35

THE CORPORATION ................................................................................................................................................ 41

TAX MATTERS ......................................................................................................................................................... 41

BANK QUALIFIED OBLIGATIONS ........................................................................................................................ 43

CERTAIN LEGAL MATTERS .................................................................................................................................. 43

LITIGATION .............................................................................................................................................................. 43

RATING ...................................................................................................................................................................... 44

UNDERWRITING ...................................................................................................................................................... 44

CONTINUING DISCLOSURE ................................................................................................................................... 44

FINANCIAL STATEMENTS OF THE CITY ............................................................................................................ 45

MISCELLANEOUS .................................................................................................................................................... 45 APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF MALIBU ............................................................................................... A-1 APPENDIX B THE CITY OF MALIBU AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008 ..................................................... B-1 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ................................................ C-1 APPENDIX D FORM OF LEGAL OPINION ....................................................................................... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT .......................................... E-1 APPENDIX F DTC BOOK-ENTRY SYSTEM ...................................................................................... F-1

1

$18,660,000 CITY OF MALIBU

Certificates of Participation 2009A (Tax Exempt) (City Hall Project)

Evidencing Undivided Proportionate Interests in Lease Payments to be Made

by the CITY OF MALIBU, CALIFORNIA

Pursuant to a Lease with the MALIBU PUBLIC FINANCING

CORPORATION

$815,000 CITY OF MALIBU

Certificates of Participation 2009B (Taxable)

(City Hall Project) Evidencing Undivided Proportionate

Interests in Lease Payments to be Made by the

CITY OF MALIBU, CALIFORNIA Pursuant to a Lease with the

MALIBU PUBLIC FINANCING CORPORATION

INTRODUCTION

This introduction contains only a brief summary of certain of the terms of the Certificates being offered, and a brief description of the Official Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of, provisions of the Constitution and laws of the State of California and any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions. Capitalized terms used in this Official Statement and not defined elsewhere herein have the meanings given such terms in Appendix C ⎯ “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein. This Official Statement speaks only as of its date, and the information contained herein is subject to change.

General

This Official Statement, including the cover page and the Appendices attached hereto (the “Official Statement”), provides certain information concerning the execution and delivery of the City of Malibu Certificates of Participation 2009A (Tax Exempt) (City Hall Project) (the “2009A Certificates”) in an aggregate principal amount of $18,660,000 and the City of Malibu Certificates of Participation 2009B (Taxable) (City Hall Project) (the “2009B Certificates” and, together with the 2009A Certificates, the “Certificates”) in an aggregate principal amount of $815,000. The Certificates will be executed and delivered pursuant to a Trust Agreement, dated as of September 1, 2009 (the “Trust Agreement”), by and among the City of Malibu (the “City”), the Malibu Public Financing Corporation (the “Corporation”) and Deutsche Bank National Trust Company, as trustee (the “Trustee”). The 2009A Certificates represent proportionate undivided interests of the registered owners thereof (the “2009A Owners”) in certain Lease Payments (the “2009A Lease Payments”) and the 2009B Certificates represent proportionate undivided interests of the registered owners thereof (the “2009B Owners” and, together with the 2009A Owners, the “Owners”) in certain other Lease Payments (the “2009B Lease Payments” and, together with the 2009A Lease Payments, the “Lease Payments”), each to be made by the City to the Corporation under that certain Lease/Purchase Agreement, dated as of September 1, 2009 (the “Lease”), by and between the Corporation, as lessor, and the City, as lessee. See “DESCRIPTION OF LEASED PREMISES” and “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES ⎯ Lease Payments.”

The Certificates are being delivered to (i) provide funds to reimburse the City of Malibu (the “City”) for the costs of acquiring a commercial office building which the City intends to convert into a new city hall (the “City Hall”) and to pay certain costs of renovating, equipping and improving such commercial office building (collectively, the “Project”), (ii) finance a reserve fund for the Certificates, (iii) fund capitalized interest due with respect to the Certificates through September 1, 2012, and (iv) pay the costs of issuance incurred in connection with the execution and delivery of the Certificates. See “DESCRIPTION OF THE PROJECT” and “DESCRIPTION OF THE LEASED PREMISES” herein. The City is located in the County of Los Angeles (the “County”). See Appendix A ⎯ “ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF MALIBU” herein.

2

Security and Sources of Payment for the Certificates

The Certificates are being executed and delivered pursuant to the Trust Agreement. The City will lease certain real property and the existing improvements thereon (referred to herein as the “Property”) consisting of the City’s new City Hall to the Corporation pursuant to a Site Lease between the City as lessor, and the Corporation, as lessee, dated as of September 1, 2009 (the “Site Lease”). Under the Lease, the Corporation will lease the Property back to the City together with the improvements and equipment required to convert the existing commercial building into the City Hall (collectively, the “Leased Premises”). The City is required under the Lease to pay Lease Payments for the use and possession of the Leased Premises, as further described under the caption “DESCRIPTION OF THE LEASED PREMISES” herein. The City is also required to pay any taxes and assessments and the cost of maintenance and repair of the Leased Premises.

Pursuant to an Assignment Agreement, dated as of September 1, 2009 (the “Assignment Agreement”), by and between the Corporation and the Trustee, the Corporation will assign to the Trustee, for the benefit of the Owners, substantially all of its rights under the Lease, including its rights to receive and collect Lease Payments and prepayments from the City under the Lease and rights as may be necessary to enforce payment of Lease Payments and prepayments. All rights assigned by the Corporation pursuant to the Assignment Agreement will be administered by the Trustee in accordance with the provisions of the Trust Agreement for the equal and proportionate benefit of all Owners.

The 2009A Certificates evidence proportionate undivided interests in the right to receive 2009A Lease Payments and prepayments thereof to be made by the City to the Corporation under the Lease. The 2009B Certificates evidence proportionate undivided interests in the right to receive 2009B Lease Payments and prepayments thereof to be made by the City to the Corporation under the Lease. The 2009A Lease Payments are calculated to be sufficient to pay, when due, the principal and interest with respect to the 2009A Certificates. The 2009B Lease Payments are calculated to be sufficient to pay, when due, the principal and interest with respect to the 2009B Certificates. The City has covenanted in the Lease that it will take such action as may be necessary to include the Lease Payments and other payments due under the Lease in its annual budgets and to make the necessary annual appropriations therefor as required by the Lease. The City’s obligation to make Lease Payments is subject to complete or partial abatement in the event of a failure to complete the portion of the Project being constructed on the Property on or before the date that amounts representing capitalized interest are fully expended, or the taking of, damage to or loss of use and possession of the Leased Premises. See “RISK FACTORS — Abatement” herein. The 2009A Certificates are secured under the Trust Agreement by the 2009A Lease Payments and other amounts held in the certain funds established thereunder for the 2009A Certificates other than the Project Fund and the Rebate Fund. The 2009B Certificates are secured under the Trust Agreement by the 2009B Lease Payments and other amounts held in the certain funds established thereunder for the 2009B Certificates other than the Project Fund and the Rebate Fund.

The obligation of the City to make Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness of the City, the Corporation, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.

The Certificates

Interest represented by the Certificates is payable semiannually on January 1 and July 1 of each year, commencing on January 1, 2010 (each an “Interest Payment Date”). See “THE CERTIFICATES — General” herein. The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Purchasers of the Certificates will not receive certificates representing

3

their ownership interests in the Certificates purchased. The Certificates will be executed and delivered in the principal amount of $5,000 and integral multiples thereof. Principal, premium, if any, and interest payments due with respect to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of principal, premium, if any, and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates. See “THE CERTIFICATES ⎯ General” and Appendix F ⎯ “DTC BOOK-ENTRY SYSTEM” herein.

Additional Certificates

Pursuant to the Trust Agreement, the City may cause Additional Certificates to be executed and delivered without the consent of the Owners of the Certificates if certain conditions precedent are satisfied. In connection with the execution and delivery of Additional Certificates, the Lease Payments due under the Lease would be increased. The Certificates and the Additional Certificates will be secured on a parity under the Trust Agreement by Lease Payments and other amounts held in the funds established thereunder other than the Project Fund and the Rebate Fund. See Appendix C—”SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Additional Certificates.”

Prepayment

The Certificates are subject to extraordinary, optional and mandatory sinking account prepayment prior to maturity, as described herein. See “THE CERTIFICATES ⎯ Prepayment” herein.

Tax Exemption

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California (“Special Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, the interest (and original issue discount) due with respect to the 2009A Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) due with respect to the Certificates is exempt from State of California personal income tax. See “TAX MATTERS” herein.

Continuing Disclosure

The City has covenanted for the benefit of the holders and beneficial owners of the Certificates to provide, or cause to be provided, to the Municipal Securities Rulemaking Board for purposes of Rule 15c2-12(b)(5) (the “Rule”) adopted by the Securities and Exchange Commission certain annual financial information and operating data and, in a timely manner, notice of certain material events. These covenants have been made in order to assist the Underwriter in complying with the Rule. See “CONTINUING DISCLOSURE” herein for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the disclosure agreement pursuant to which such reports are to be made.

Professionals Involved in the Offering

Deutsche Bank National Trust Company, Los Angeles, California, will act as Trustee with respect to the Certificates. The Certificates will be delivered subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel. Certain legal matters will be passed upon for the City and the Corporation by the City Attorney and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Disclosure Counsel, and for the Trustee by Kutak Rock LLP, Los Angeles, California. The City’s financial statements for the fiscal year ended June 30, 2008 included as Appendix B hereto have been audited by Lance Soll & Lunghard LLP,

4

Certified Public Accountants, Brea, California (the “Auditor”). See Appendix B ⎯ “THE CITY OF MALIBU AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008” herein. The City’s financial statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor has not performed any post-audit of the financial condition of the City.

Certificate Owners’ Risks

Certain events could affect the ability of the City to make the Lease Payments when due. See “RISK FACTORS” for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Certificates.

Miscellaneous

It is anticipated that the Certificates in book-entry form will be available for delivery to DTC on or about September 9, 2009 (the “Delivery Date”).

The description herein of the Trust Agreement, the Lease, the Site Lease, the Assignment Agreement and any other agreements relating to the Certificates are qualified in their entirety by reference to such documents, and the descriptions herein of the Certificates are qualified in their entirety by the form thereof and the information with respect thereto included in the aforementioned documents. See Appendix C ⎯ “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein. Copies of the documents are on file and available for inspection at the offices of the Trustee at 300 South Grand Avenue, 41st Floor, Los Angeles, California 90071, Attention: Corporate Trust Services.

All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings given such terms in Appendix C ⎯ “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein.

The information and expressions of opinion herein speak only as of their date and are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof.

The presentation of information, including tables of receipt of revenues, is intended to show recent historical information and, except for the estimated actual results for fiscal year 2008-09, is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future.

DESCRIPTION OF THE PROJECT

Project

The Project consists of the reimbursement to the City of the costs of acquiring an approximately 37,358 gross square foot commercial office building located in the Malibu Civic Center directly adjacent to the City’s current city hall. The City purchased the building and associated parking and other real property consisting of approximately 6.09 acres at a trustees sale on June 19, 2009 for $15,000,000. The City closed escrow on the Property on July 17, 2009. The building was formerly a multi-tenant building equipped for the Malibu Performing Arts Center, a dance studio, a church, banquet facility and associated office space. Approximately 9,500 square feet of the building consist of a state of the art auditorium, sound stage, recording studio and associated fixtures and equipment. Portions of the interior of building had not been previously built-out to finished office space.

5

The City engaged the architectural firm LPA, Inc., on August 10, 2009, to assist it in reconfiguring the interior space to accommodate a functioning city hall and council chamber. Cost estimates for the interior improvements are preliminary. However, the City estimates that interior renovation and other improvements to the property, including necessary design services, equipment (collectively, the “City Hall Improvements”), will cost approximately $1,700,000. The City expects the design of the City Hall Improvements to be completed by January 2010 and construction to commence in the second quarter of 2010 and expects to be able to move into the new City Hall by the end of the third quarter of 2010. The City expects to pay for the City Hall Improvements from Certificate proceeds, and, if necessary, from available General Fund monies. See Table 3 under the caption “CITY FINANCIAL INFORMATION—Comparative General Fund Balance Sheets of the City” for a description of unaudited General Fund balances as of June 30, 2009.

The City’s lease on its existing city hall does not expire until 2018; however, the City has an option to terminate such lease in August 2012. The City anticipates trying to sublease the existing City Hall space. The City currently anticipates terminating its lease in August 2012 regardless of whether the City can sublease its existing office space. See “CITY FINANCIAL INFORMATION—Indebtedness” herein. The Property is significantly larger than the City’s current city hall, which is approximately 17,000 square feet. Accordingly, the City does not need to occupy all of the Property currently and plans to maintain the auditorium, recording studio and sound stage in its current state and to rent it out to third parties on a part-time basis until it needs to convert such space to another use. The City has capitalized interest with respect to its Lease Payments through September 1, 2012, which is approximately 24 months in excess of the projected completion of the City Hall Improvements.

There can be no assurance that the Project will be completed for the costs and within the time described in this Official Statement, or that the City will be able to sublet the existing office space it uses as a city hall.

A delay in the completion or damage to the Project during construction could have an adverse effect on the costs of the Project. Contractor and subcontractor performance and integrity, availability and cost of labor, equipment and materials, and weather conditions, among other unexpected factors, could cause such a failure of timely on-budget construction.

DESCRIPTION OF THE LEASED PREMISES

Pursuant to the terms of the Site Lease, the City intends to lease the Property and the existing improvements thereon (collectively, “Property”) to the Corporation. Pursuant to the terms of the Lease, the Corporation intends to lease the Property, as improved, renovated and equipped as a city hall which as so improved, renovated, and equipped will comprise the “Leased Premises,” back to the City. The Leased Premises will also include any additional improvements constructed on the Property which are financed with the proceeds of any Additional Certificates. See “INTRODUCTION — Additional Certificates.”

The Property is located approximately half a mile north of Pacific Coast Highway at the end of Stuart Ranch Road, adjacent to the City’s current city hall. The Property consists of 6.09 acres with a two-story multi-tenant building built in 2000 and shares a portion of its open surface parking with the City’s current city hall.

A portion of the proceeds of the Certificates, along with interest earnings thereon and on the Reserve Fund, will be used to fund the interest due with respect to the Certificates through September 1, 2012. Should the City Hall Improvements not be completed and the City Hall not be available for use by the City on or before September 1, 2012, the Lease Payments will be completely or partially abated in accordance with the terms of the Lease until the Project, or the undelivered portion thereof, is made available to the City. See “RISK FACTORS — Abatement” herein.

6

Pursuant to the Lease, the City and the Corporation have agreed and determined that the Lease Payments required to be made under the Lease represent the fair rental value of the Leased Premises. Under the terms of the Lease, the City may substitute other property for the Leased Premises, or any portion thereof, and may release portions of the Leased Premises provided that certain conditions set forth in the Lease are met. See Appendix C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Covenants with Respect to the Property — Substitution or Release of the Leased Premises” and “RISK FACTORS — Release or Substitution of Property” herein.

ESTIMATED SOURCES AND USES OF FUNDS

The following table summarizes the estimated sources and uses of Certificate proceeds:

2009A Certificates 2009B

Certificates Total

Sources of Funds Principal Amount of Certificates $ 18,660,000.00 $ 815,000.00 $ 19,475,000.00 Net Original Issue Premium 31,507.10 -- 31,507.10 City Contribution -- 1,790,000.00 1,790,000.00

Total Sources $ 18,691,507.10 $ 2,605,000.00 $ 21,296,507.10

Uses of Funds City Reimbursement Fund $ 12,610,000.00 $ 2,390,000.00 $ 15,000,000.00 Project Fund 1,790,000.00 -- 1,790,000.00 Reserve Fund 1,259,250.58 54,999.42 1,314,250.00 Interest Subaccount(1) 2,639,613.89 138,255.25 2,777,869.14 Costs of Issuance(2) 392,642.63 21,745.33 414,387.96

Total Uses $ 18,691,057.10 $ 2,605,000.00 $ 21,296,507.10 (1) Represents gross funding of capitalized interest with respect to the Certificates through September 1, 2012. (2) Includes underwriting discount, Special Counsel fees, certain legal costs associated with acquiring the Property, printing

costs and other issuance costs. The amount remaining after payment of the underwriting discount will be deposited to the Project Fund and be applied to pay costs of issuance.

THE CERTIFICATES

General

The Certificates will be executed and delivered in the form of fully registered Certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be dated their date of delivery and mature on July 1 in the years set forth on the inside cover page hereof. Each Certificate will be payable with respect to interest on January 1 and July 1 of each year, commencing on January 1, 2010 at the respective rates of interest set forth on the inside front cover page hereof.

The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal, premium, if any, and interest payments due with respect to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of principal, premium, if any, and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates. See Appendix F ⎯ “DTC BOOK-ENTRY SYSTEM” herein.

7

Prepayment

Extraordinary Prepayment. The Certificates are subject to prepayment, without premium, prior to their respective maturity dates on any date, in whole or in part, from Net Proceeds which the Trustee transfers to the Prepayment Fund as provided in the Lease at least 45 days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with the accrued interest to the date fixed for prepayment.

In the event that Net Proceeds are to be applied to the prepayment of Certificates when Certificates and Additional Certificates, if any, are Outstanding, the Net Proceeds will be applied to prepay a proportionate amount of 2009A Certificates, 2009B Certificates and Additional Certificates based on the Outstanding principal amount and by lot within any maturity or sinking account prepayment.

Optional Prepayment. The 2009A Certificates maturing on or after July 1, 2020 are subject to prepayment prior to maturity in whole or in part on any date on or after July 1, 2019 at the option of the City, in the event the City exercises its option under the Lease to prepay all or a portion of the principal component of the Lease Payments (in integral multiples of $5,000), at par, plus accrued interest to the date fixed for prepayment, without premium.

Mandatory Sinking Account Prepayment. The 2009A Certificates maturing July 1, 2032 (the “20__ Term 2009A Certificates”) will be subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium, provided, however, that if some but not all of the 2032 Term 2009A Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced pro rata by the aggregate principal amount of the 2032 Term 2009A Certificates so prepaid. In addition, in lieu of prepayment thereof, the 2032 Term 2009A Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement.

Mandatory Prepayment Date (July 1)

Sinking Account Prepayment

2030 $ 805,000 2031 845,000 2032* 890,000

* Final Maturity

The 2009A Certificates maturing July 1, 2039 (the “2039 Term 2009A Certificates”) will be subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium, provided, however, that if some but not all of the 2039 Term 2009A Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced pro rata by the aggregate principal amount of the 2039 Term 2009A Certificates so prepaid. In addition, in lieu of prepayment thereof, the 2039 Term 2009A Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement.

8



2033 $ 930,000 2034 980,000 2035 1,030,000 2036 1,080,000 2037 1,135,000 2038 1,190,000 2039* 1,250,000

* Final Maturity

The 2009B Certificates maturing July 1, 2024 (the “2024 Term 2009B Certificates”) will be subject to prepayment in part by lot, on July 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2024 Term 2009B Certificates have been prepaid pursuant to an extraordinary prepayment, the total amount of all future sinking account payments will be reduced pro rata by the aggregate principal amount of the 2024 Term 2009B Certificates so prepaid. In addition, in lieu of prepayment thereof, the 2024 Term 2009B Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement.



2020 $ 70,000 2021 75,000 2022 80,000 2023 85,000 2024* 90,000

* Final Maturity

Prepayment Procedures

Whenever provision is made for the optional prepayment of Certificates and less than all Outstanding Certificates are called for prepayment, the Trustee shall select Certificates for optional prepayment from among maturities selected by the City and by lot within any maturity. For extraordinary prepayment of Certificates, the Trustee will select Certificates and Additional Certificates, if any, for prepayment pro rata among maturities and by lot within any maturity and for mandatory sinking account prepayment by lot.

Notice of prepayment will be mailed by first-class mail, postage prepaid, not less than 30 nor more than 60 days prior to the prepayment date to the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books, and will be sent by first class mail or delivery service, postage prepaid, to the Municipal Securities Depositories (as defined in the Trust Agreement) and to the Information Services (as defined in the Trust Agreement) which the City will designate to the Trustee. Neither failure to receive such notice nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the prepayment of such Certificates. Such notice will specify: (a) the prepayment date, (b) the prepayment price, (c) if less than all of the Outstanding Certificates are to be prepaid, the Certificate numbers (and in the case of partial prepayment, the respective principal amounts), (d) the CUSIP numbers of the Certificates to be prepaid, (e) the place or places where the prepayment will be made, (f) the original date of execution and delivery of the Certificates, (g) any other descriptive information regarding the Certificates needed to identify accurately the Certificates being prepaid. Such notice will further state that on the specified date there will become due and payable upon each Certificate to be prepaid, the

9

portion of the principal amount of such Certificate to be prepaid, together with interest accrued to said date and that from and after such date, provided that moneys therefor have been deposited with the Trustee, interest with respect thereto will cease to accrue and be payable.

So long as DTC is the registered Owner of the Certificates, all such notices will be provided to DTC as the Owner, without respect to the beneficial ownership of the Certificates. See Appendix F ⎯ “DTC BOOK-ENTRY SYSTEM” herein.

Notice having been given to the Owners of any Certificates being prepaid, and the moneys for the prepayment (including the interest to the applicable date of prepayment), having been set aside in the Prepayment Fund, the Certificates will become due and payable on the date of prepayment, and upon presentation and surrender thereof at the Principal Office of the Trustee such Certificates will be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to the date of prepayment.

If, on the date of prepayment moneys for the prepayment of all the Certificates to be prepaid, together with interest to the date of prepayment, are held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof has been given as described above, then, from and after the date of prepayment, interest with respect to the Certificates to be prepaid will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates will be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for interest thereon.

Partial Prepayment

Upon surrender by the Owner of a Certificate for partial prepayment at the Principal Office of the Trustee, payment of such partial prepayment of the principal amount of a Certificate will be paid to such Owner. Upon surrender of any Certificate prepaid in part only, the Trustee will execute and deliver to the registered Owner thereof, at the expense of the City, a new Certificate or Certificates which shall be of authorized denominations equal to the unprepaid portion of the Certificate surrendered and of the same tenor and maturity. Such partial prepayment will be valid upon payment of the amount thereby required to be paid to such Owner, and the City, the Corporation and the Trustee will be released and discharged from all liability to the extent of such payment.

SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES

Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an obligation of the City for which the City is obligated to levy or pledge, or for which the City has levied or pledged, any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness of the Corporation, the City, the State of California or any of its political subdivisions within the meaning of any constitutional limitation or violates any statutory debt limitation or restriction.

General

Each 2009A Certificate represents a proportionate undivided interest in the 2009A Lease Payments and prepayments to be made by the City to the Trustee under the Lease. Each 2009B Certificate represents a proportionate undivided interest in the 2009B Lease Payments and prepayments to be made by the City to the Trustee under the Lease. The 2009A Certificates and the 2009B Certificates are secured under the Trust Agreement by the respective Lease Payments and other amounts held in the respective funds established thereunder for such series of Certificates other than the Project Fund and the Rebate Fund. The City is obligated to pay Lease Payments from any source of legally available funds, and has covenanted in the Lease to include all Lease Payments coming due in its annual budgets and to make the necessary annual appropriations therefor. The Corporation, pursuant to the Assignment Agreement, has assigned all of its rights under the Lease (excepting certain rights as specified therein), including the right to receive Lease Payments

10

and prepayments, to the Trustee for the benefit of the respective Owners. By the fifteenth day of each June and December (if such day is not a Business Day, the next succeeding Business Day), the City must pay to the Trustee a Lease Payment (to the extent required under the Lease) which is expected to equal the amount necessary to pay the principal and interest with respect to the Certificates on the next succeeding Interest Payment Date.

The City’s obligation to make Lease Payments will be abated in whole or in part, in the event of non-completion of the City Hall Improvements, and to the extent of, substantial interference with use and possession of the Leased Premises arising from damage, destruction, title defect or taking by eminent domain or condemnation of the Leased Premises. Abatement would not constitute a default under the Lease and the Trustee would not be entitled in such event to pursue remedies against the City. See “RISK FACTORS — Abatement” herein.

Under the Lease, the City agrees to pay certain taxes, assessments, utility charges, and insurance premiums charged with respect to the Leased Premises, the Certificates and any Additional Certificates and fees and expenses of the Trustee. The City is responsible for repair and maintenance of the Leased Premises during the term of the Lease. The City may at its own expense in good faith contest such taxes, assessments and utility and other charges if certain requirements set forth in the Lease are satisfied, including obtaining an opinion of counsel that the Leased Premises will not be subjected to loss or forfeiture.

Should the City default under the Lease, the Trustee, as assignee of the Corporation, may terminate the Lease and re-lease the Leased Premises or may retain the Lease and hold the City liable for all Lease Payments thereunder on an annual basis. Under no circumstances will the Trustee have the right to accelerate Lease Payments. The exercise of the remedies provided to the Trustee is subject to various limitations on the enforcement of remedies against public agencies. See “RISK FACTORS — Default” herein.

Lease Payments

Subject to the provisions of the Lease regarding complete or partial abatement in the event of non-completion of the City Hall Improvements by September 1, 2012 or loss of use and possession of any portion of the Leased Premises (see “RISK FACTORS — Abatement” herein) and prepayment of Lease Payments (see the provisions relating to prepayment under the caption “THE CERTIFICATES” above), the City agrees to pay to the Corporation, its successors and assigns, the Lease Payments as annual rental for the use and possession of the Leased Premises. The Lease Payments are due and payable on December 15 and June 15 of each year (each, a “Lease Payment Date”).

Any monies held in an account of the Lease Payment Fund on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease and other amounts required for payment of past due principal or interest with respect to any Certificates not presented for payment) shall be credited to the payment of the respective Lease Payments due and payable on such Lease Payment Date to which such account of the Lease Payment Fund applies.

The Trust Agreement requires that Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee. The 2009A Lease Payment will be deposited in the 2009A Account of the Lease Payment Fund and the 2009B Lease Payment will be deposited in the 2009B Account of the Lease Payment Fund. Pursuant to the Trust Agreement, on January 1 and July 1 of each year, commencing January 1, 2010, the Trustee will apply such amounts in the respective accounts of the Lease Payment Fund as are necessary to make interest and principal payments, respectively, with respect to the Certificates as the same shall become due and payable, in the amounts specified in the Lease; provided, however, that all interest payable through July 1, 2012 and a portion of the interest payable on January 1, 2013 will be paid from the Certificate proceeds deposited in the respective Interest Subaccount of the Lease Payment Fund.

11

Reserve Fund

A Reserve Fund is established by the Trust Agreement which is to be maintained in an amount equal to the least of (i) maximum aggregate annual Lease Payments payable under the Lease in any Certificate Year (exclusive of Lease Payments attributable to Certificates and Additional Certificates that have been defeased), (ii) 125% of the average annual aggregate Lease Payments (in any Certificate Year) then payable under the Lease (exclusive of Lease Payments attributable to Certificates and Additional Certificates, if any, that have been defeased), or (iii) 10% of the face amount of the Certificates and any Additional Certificates, if any, (less original issue discount if in excess of two percent of the stated payment amount at maturity) (the “Reserve Requirement”). The Trustee may establish separate accounts within the Reserve Fund for any Series of Certificates. The full amount available in the Reserve Fund may be used by the Trustee to make payments due with respect to the Certificates and Additional Certificates, if any, in the event of abatement or a failure by the City to make Lease Payments when due. The 2009A Certificates and the 2009B Certificates have a co-equal lien on and security interest in the Reserve Fund.

Interest or income received by the Trustee on investment of monies in the Reserve Fund will be retained in the Reserve Fund so long as amounts on deposit in the Reserve Fund are less than the Reserve Requirement. In the event that amounts on deposit in the Reserve Fund exceed the Reserve Requirement, subject to the requirement of transfers to the Rebate Fund, such excess shall be transferred to the Lease Payment Fund on or before December 15 and June 15 of each year.

The Reserve Requirement, or any portion thereof, may also be satisfied by the City by crediting to the Reserve Fund a letter of credit, a surety bond insurance policy, or any other comparable credit facility or any combination thereof which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement. See Appendix C ⎯ “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ⎯ Definitions.”

Capitalized Interest

There will an initial deposit by the Trustee to the Interest Subaccount of each of the 2009A Account and the 2009B Account of the Lease Payment Fund from proceeds of the Certificates. The amount deposited has been calculated, together with earnings thereon and on the Reserve Fund, to be sufficient to make interest payments on the Certificates through July 1, 2012 and a portion of the interest payment due on January 1, 2013. Such amounts represent advance Lease Payments.

Additional Payments

Under the Lease, the City is to pay such amounts (“Additional Payments”) as are required for the payment of all administrative costs of the Corporation relating to the Leased Premises or the Certificates, including, without limitation, all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its leasehold interest in the Leased Premises or undertaking of the transactions contemplated in the Lease or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to comply with the terms of the Certificates or of the Trust Agreement, including premiums on insurance required to be maintained by the Lease or to indemnify the Corporation and its officers and directors.

Insurance

Pursuant to the Lease, the City is required to obtain either an ALTA leasehold title insurance policy (with Western Regional Exceptions) or a CLTA leasehold title insurance policy on the Leased Premises in an amount equal to the aggregate principal component of unpaid Lease Payments. The Lease also requires that the City maintain casualty insurance on the Leased Premises in amount equal to replacement value and rental

12

interruption insurance to insure against loss of Lease Payments caused by loss or damage to the Leased Premises covered under the City’s casualty insurance. The rental interruption insurance is to be in an amount not less than the maximum remaining scheduled Lease Payments in any future two-year period. The City also is obligated under the Lease to obtain a standard comprehensive general public liability and property damage insurance policy or policies and workers’ compensation insurance. See “CITY FINANCIAL INFORMATION — Insurance” and Appendix C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — INSURANCE” herein.

The proceeds of any rental interruption insurance will be deposited to (i) the Reserve Fund to make up any deficiency therein and (ii) in the Lease Payment Fund to be credited towards the payment of the Lease Payments in the order in which such Lease Payments become due and payable. The Lease requires the City to apply the Net Proceeds of any insurance award either to replace or repair the Leased Premises or to prepay Certificates and Additional Certificates, if any, if certain certifications with respect to the adequacy of the Net Proceeds to make repairs, and the timing thereof, cannot be made. See Appendix C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS.” The amount of Lease Payments will be abated and Lease Payments due under the Lease may be reduced during any period in which by reason of damage, destruction, title defect or taking by eminent domain or condemnation there is substantial interference with the City’s use and possession of all or part of the Leased Premises. See “RISK FACTORS ⎯ Abatement” herein.

CERTIFICATE PAYMENT SCHEDULE

Lease Payments are required to be made by the City under the Lease on or before December 15 and June 15 of each year for the use and possession of the Leased Premises for the period commencing as of the date of delivery of the Certificates and terminating on July 1, 2039, or a later date if such date is extended as provided in the Lease. The Interest Payment Dates with respect to the Certificates are January 1 and July 1, commencing January 1, 2010. The aggregate annual amounts of Certificate payments, comprising interest and principal payable to the Owners, are set forth below for each annual period ending on July 1 of the years indicated.

13

2009A Certificates 2009B Certificates

Annual Period

(Ending July 1) Principal Interest Total Principal Interest Total Total

2010(1) $ -- $ 718,999.31 $ 718,999.31 $ -- $ 37,659.08 $ 37,659.08 $ 756,658.39 2011(1) -- 886,437.50 886,437.50 -- 46,429.00 46,429.00 932,866.50 2012(1) -- 886,437.50 886,437.50 -- 46,429.00 46,429.00 932,866.50 2013(2) 330,000 886,437.50 1,216,437.50 50,000 46,429.00 96,429.00 1,312,866.50 2014 340,000 873,237.50 1,213,237.50 55,000 44,479.00 99,479.00 1,312,716.50 2015 355,000 859,637.50 1,214,637.50 55,000 42,059.00 97,059.00 1,311,696.50 2016 365,000 845,437.50 1,210,437.50 60,000 39,413.50 99,413.50 1,309,851.00 2017 385,000 830,837.50 1,215,837.50 60,000 36,377.50 96,377.50 1,312,215.00 2018 400,000 815,437.50 1,215,437.50 65,000 33,197.50 98,197.50 1,313,635.00 2019 415,000 799,437.50 1,214,437.50 70,000 29,590.00 99,590.00 1,314,027.50 2020 435,000 778,687.50 1,213,687.50 70,000 25,600.00 95,600.00 1,309,287.50 2021 460,000 756,937.50 1,216,937.50 75,000 21,120.00 96,120.00 1,313,057.50 2022 480,000 733,937.50 1,213,937.50 80,000 16,320.00 96,320.00 1,310,257.50 2023 505,000 709,937.50 1,214,937.50 85,000 11,200.00 96,200.00 1,311,137.50 2024 525,000 689,106.26 1,214,106.26 90,000 5,760.00 95,760.00 1,309,866.26 2025 645,000 666,793.76 1,311,793.76 -- -- -- 1,311,793.76 2026 675,000 638,575.00 1,313,575.00 -- -- -- 1,313,575.00 2027 705,000 609,043.76 1,314,043.76 -- -- -- 1,314,043.76 2028 735,000 577,318.76 1,312,318.76 -- -- -- 1,312,318.76 2029 770,000 543,325.00 1,313,325.00 -- -- -- 1,313,325.00 2030 805,000 506,750.00 1,311,750.00 -- -- -- 1,311,750.00 2031 845,000 466,500.00 1,311,500.00 -- -- -- 1,311,500.00 2032 890,000 424,250.00 1,314,250.00 -- -- -- 1,314,250.00 2033 930,000 379,750.00 1,309,750.00 -- -- -- 1,309,750.00 2034 980,000 333,250.00 1,313,250.00 -- -- -- 1,313,250.00 2035 1,030,000 284,250.00 1,314,250.00 -- -- -- 1,314,250.00 2036 1,080,000 232,750.00 1,312,750.00 -- -- -- 1,312,750.00 2037 1,135,000 178,750.00 1,313,750.00 -- -- -- 1,313,750.00 2038 1,190,000 122,000.00 1,312,000.00 -- -- -- 1,312,000.00 2039 1,250,000 62,500.00 1,312,500.00 -- -- -- 1,312,500.00

Totals $ 18,660,000 $ 18,096,749.35 $ 36,756,749.35 $ 815,000 $ 482,062.58 $ 1,297,062.58 $ 38,053,811.93 (1) To be paid from capitalized interest. (2) Partially paid from capitalized interest.

CITY FINANCIAL INFORMATION

Overview

The following is a description of the City’s budget process, current budget, historical budget information, changes in fund balance, balance sheets, its major revenues and expenditures, indebtedness, investments and certain other financial information relating to the City. The fiscal year of the City begins on the first day of July of each year and ends on the 30th day of June of the following year (a “Fiscal Year”).

The City’s Financial Statements along with accompanying notes and opinions from the Independent Auditor for the Fiscal Year ended June 30, 2008 which is the City’s most recent audited Fiscal Year, are set forth in Appendix B⎯“THE CITY OF MALIBU AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008” herein. Unaudited financial information for the Fiscal Year ending June 30, 2009 is also provided herein. The City’s financial statements are public documents and are included within this Official Statement without the prior approval the Auditor. Accordingly, the Auditor has not performed any post-audit analysis of the financial condition of the City.

Accompanying the Independent Auditor’s Report in Appendix B is the City Management’s Discussion and Analysis, which is not audited, but is supplementary information required by the Government Accounting Standards Board. Management’s Discussion and Analysis presents a summary and overview of the City’s financial condition. Management’s Discussion and Analysis should be reviewed in conjunction with the information presented below to obtain an understanding of the City’s financial condition.

14

Accounting and Financial Reporting

The City maintains its accounting records in accordance with Generally Accepted Accounting Principles (GAAP) and the standards established by the Governmental Accounting Standards Board (GASB). On a quarterly basis, a report is prepared for the City Council and City Staff which reviews fiscal performance to date against the budget. Combined financial statements are produced following the close of each Fiscal Year.

The City Council employs an independent certified public accountant, who, at such time or times as specified by the City Council, at least annually, and at such other times as they determine, examines the financial statements of the City in accordance with generally accepted auditing standards, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable, after the end of the Fiscal Year, a final audit and report is submitted by the independent accountant to the City Council.

The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various governmental funds are grouped, in the City’s annual financial statements, into generic fund types, which include the General Fund, Special Revenue Funds, Debt Service Funds and Capital Project Funds.

The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. It is expected that the Lease Payments will be paid for from amounts in the General Fund. Tables 1 through 4 below set forth certain historical and current fiscal year budget information for the General Fund. Information on the remaining governmental funds of the City as of June 30, 2008 is set forth in Appendix B. Additionally, Table 3A sets forth information regarding the City’s Commercial Real Estate Rental Fund. The Commercial Real Estate Fund is part of the General Fund but is accounted for separately from the General Fund. Revenues from the Commercial Real Estate Fund are available to pay Lease Payments.

Budget Procedure, Current Budget and Historical Budget Information

The City currently uses a one-year budget cycle. At such time as the City Manager determines, each department head must furnish to the City Manager an estimate of revenues and expenditures for the department for the ensuing Fiscal Year, detailed in such manner as may be prescribed by the City Manager. In preparing the proposed budget, the City Manager reviews the estimates, holds conferences thereon with the respective department heads, and revises the estimates as he or she deems advisable. The budget for Fiscal Year 2010 was approved on June 8, 2009.

Prior to the beginning of the Fiscal Year of the budget cycle, the City Manager submits to the City Council the proposed budget. The City Council determines the time for the holding of a public hearing and causes a notice of public hearing to be published. Not less than ten days prior to the date of the public hearing, copies of the proposed budget are available for inspection by the public in the office of the City Clerk. During the public hearing and after its conclusion, the City Council further considers the proposed budget and makes any revisions thereto that it deems advisable. On or before June 30, of the year prior to the Fiscal Year of the budget cycle, the City Council adopts the budget with revisions, if any, by the affirmative vote of at least a majority of the total members.

From the effective date of the budget, the amounts stated as proposed expenditures become appropriated to the several departments, offices and agencies for the objects and purposes named, provided that the City Manager may transfer appropriations of a fund from one object or purpose to another within the same

15

fund as appropriate. Any revisions or transfers that alter the total appropriations of any fund require City Council approval. All appropriations lapse at the end of the Fiscal Year to the extent that they have not been expended, lawfully encumbered or affirmatively reappropriated by the City Council during the adoption of the next year’s budget. At a public meeting after the adoption of the budget the City Council may amend or supplement the budget by motion adopted by three votes of the City Council.

Set forth in Table 1 is the General Fund budgets for Fiscal Years 2008, 2009 and 2010, the audited Fiscal Year 2008 results and the Estimated Fiscal Year End Results for Fiscal Year 2009. During the course of each Fiscal Year, the budgets are amended and revised as necessary by the City Council.

TABLE 1 CITY OF MALIBU

GENERAL FUND BUDGETS(1)

Final Fiscal Year 2008 Budget

Fiscal Year 2008 Results

Adopted Fiscal Year 2009 Budget

Estimated Fiscal Year

2009 Results


Revenues: Taxes (2) $ 13,522,593 $ 14,761,871 $ 14,379,621 $ 15,184,404 $ 15,209,446 Fines and forfeitures 250,000 282,581 300,000 253,994 300,000 Intergovernmental(3) 2,408,829 1,014,332 171,539 234,896 105,500 Use of money and property 601,000 705,485 501,000 381,084 300,000 Charges for services 5,214,010 4,928,778 5,290,580 4,811,886 4,353,875 Other 22,600 116,233 23,500 12,761 41,822 Total Revenues $ 22,019,032 $ 21,809,280 $ 20,666,240 $ 20,879,025 $ 20,310,643 Expenditures: Current Legislative and advisory $ 1,723,121 $ 1,440,201 $ 1,656,917 $ 1,703,302 $ 2,340,601 General government 3,346,952 3,473,209 3,979,548 3,738,472 3,387,637 Public safety (4) 5,641,613 5,201,576 5,839,622 5,618,373 5,932,979 Community development 4,146,466 3,370,805 4,816,760 3,944,665 5,150,185 Parks & Recreation 1,807,320 1,561,423 2,088,723 1,849,799 2,084,025 Public works 3,138,208 2,710,230 2,983,448 2,541,206 1,305,080 Capital outlay 453,676 345,331 341,065 257,534 3,661,663 Debt service: Principal -- -- Interest 44,767 44,767 31,156 31,156 32,000 Total Expenditures $ 20,302,123 $ 18,147,542 $ 21,737,239 $ 19,684,507 $ 23,894,170

(1) Excludes revenues and expenditures attributable to Commercial Real Estate Fund shown on Table 3A. (2) Includes Franchise Fees. (3) Revenue reflects reimbursement from FEMA. Revenue fluctuates according to disaster expenses and reimbursements

in a given year. (4) The City contracts with Los Angeles County for police, fire and lifeguard services. Source: Adopted Budgets of the City for Fiscal Years 2008, 2009 and 2010, Audited Financial Statements for Fiscal Year 2008.

City of Malibu for estimated actual results for Fiscal Year 2009.

16

Comparative Change in Fund Balance of the City General Fund

Table 2 below presents the City’s audited General Fund Statement of Revenues, Expenditures and Change in Fund Balance for Fiscal Years 2005-2008 and estimated General Fund Revenues and Expenditures for Fiscal Year 2009. Table 2 excludes the Commercial Real Estate Fund.

TABLE 2 CITY OF MALIBU GENERAL FUND STATEMENT OF

REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE FIVE YEAR COMPARISON

Fiscal Year Ending June 30, 2005 2006 2007 2008 2009(1)

Revenue: Taxes $ 11,008,625 $ 13,248,854 $ 14,050,140 $ 14,761,867 $ 15,184,404 Fine and Forfeitures 233,377 246,890 245,548 282,581 253,994 Intergovernmental 904,143 1,974,064 2,557,313 1,014,332 234,896 Use of Money and Property 311,203 580,846 756,151 705,485 381,084 Charges For Service 4,075,816 4,258,598 5,099,201 4,928,778 4,811,886 Other 102,524 123,613 103,831 116,233 12,761 Total Revenue $ 16,635,688 $ 20,432,865 $ 22,812,184 $ 21,809,280 $ 20,879,025 Expenditures: Legislative and Advisory $ 1,255,280 $ 1,397,974 $ 1,247,916 $ 1,440,201 $ 1,703,302 General Government 2,685,256 2,934,517 3,063,698 3,473,209 3,738,472 Public Safety(2) 4,269,842 4,661,444 4,986,200 5,201,576 5,618,373 Community Development 2,731,793 2,925,600 3,337,138 3,370,805 3,944,665 Parks and Recreation 1,068,555 1,130,594 1,583,741 1,561,423 1,849,799 Public Works 3,458,169 3,049,631 5,174,192 2,710,230 2,541,206 Capital Outlay 139,159 310,311 2,077,268 345,331 257,534 Debt Service — Leases 20,974 25,875 31,033 44,767 31,156 Total Expenditures $ 15,629,028 $ 16,435,946 $ 21,501,186 $ 18,147,542 $ 19,684,507 Excess (deficiency) of revenue over expenditures $ 1,006,660 $ 3,996,919 $ 1,310,998 $ 3,661,738 $ 1,194,518 Other Financing Sources (Uses): Proceeds from long-term debt $ -- $ -- $ -- $ -- $ -- Proceeds from sale of general capital assets -- 15,272 -- -- -- Operating transfers in 2,500 52,292 12,750 12,750 12,752 Operating transfers out (33,946) (1,203,473) (780,187) (3,043,021) (1,838,920) Capital Lease Financing -- 83,127 -- 40,137 47,432 Total Other Financing Sources (Uses) $ (31,446) $ (1,052,782) $ (767,437) $ (2,990,134) $ (1,778,736) Excess of Revenue and other Sources over Expenditures and other Uses $ 975,214 $ 2,944,137 $ 543,561 $ 671,604 $ (584,218) Fund Balance, Beginning of Year $ 14,143,081 $ 15,118,295 $ 18,062,432 $ 18,605,993 $ 19,277,597 Adjustment to Beginning Fund Balance -- -- -- -- -- Residual Equity Transfers In (Out) -- -- -- -- -- Fund Balance, End of Year $ 15,118,295 $ 18,062,432 $ 18,605,993 $ 19,277,597 $ 18,693,379 (1) Estimated actual results. (2) The City contracts with Los Angeles County for police, fire and lifeguard services. Source: Audited Financial Statements for Fiscal Years 2005-2008 and City of Malibu for estimated actual results for Fiscal Year 2009.

17

Comparative General Fund Balance Sheets of the City

Table 3 below presents the City’s audited General Fund Balance Sheets for Fiscal Years 2005-2008 and Estimated Balance Sheet for Fiscal Year 2009. Table 3 excludes the Commercial Real Estate Fund.


GENERAL FUND BALANCE SHEETS FIVE YEAR COMPARISON

Fiscal Year Ending June 30, 2005 2006 2007 2008 2009(1)

ASSETS Cash and investments $ 15,141,911 $ 17,388,465 $ 15,948,853 $ 15,252,093 $ 14,601,950 Accounts Receivables 1,021,307 1,420,626 1,109,303 1,346,666 1,117,500 Due from Other Governments 1,885,862 1,102,321 2,369,663 1,853,927 1,646,114 Notes Receivable 24,000 18,000 12,000 7,500 1,500 Interest Receivable 121,711 206,771 260,512 159,450 80,010 Prepaid Items 48,063 -- -- -- 738,282 Deposits with Others 40,682 40,682 40,682 64,861 2,564,861 Due from Other Funds 249,775 1,364,850 2,714,802 3,816,874 1,594,376 Total assets $ 18,533,311 $ 21,541,715 $ 22,455,815 $ 22,501,371 $ 22,344,593 LIABILITIES, EQUITY AND OTHER CREDITS

LIABILITIES

Accounts Payable $ 1,389,754 $ 1,965,514 $ 1,154,548 $ 1,032,326 $ 1,678,278 Accrued Wages and Salaries -- 71,372 -- -- -- Due to Other Governments -- 83,878 122,418 150,351 177,945 Unearned Revenue -- -- -- -- -- Deferred revenues 2,025,262 1,358,519 2,572,856 2,041,097 1,794,991 Total liabilities $ 3,415,016 $ 3,479,283 $ 3,849,822 $ 3,223,774 $ 3,651,214 EQUITY AND OTHER CREDITS

Fund balances:

Reserved: $ 196,037 $ 1,058,589 $ 377,515 $ 218,232 $ 3,303,143 Unreserved: Undesignated 10,636,864 12,234,413 15,421,054 14,015,739 11,719,446 Designated 4,285,394 4,769,430 2,807,424 5,043,626 3,670,790

Total equity and other credits $ 15,118,295 $ 18,062,432 $ 18,605,993 $ 19,277,597 $ 18,693,379 Total liabilities, equity and credits

$ 18,533,311 $ 21,541,715 $ 22,455,815 $ 22,501,371 $ 22,344,593

(1) Estimated actual results. Source: Audited Financial Statements for Fiscal Years 2005-2008. City of Malibu for estimated actual results for Fiscal Year

2009.

Commercial Real Estate

The City owns three commercial properties which it purchased in 2006 with proceeds of certificates of participation in connection with the purchase of the Legacy Park Site. See “—Indebtedness” herein. As of June 30, 2009, two of the properties were leased and one was available for lease.

Malibu Coast Animal Hospital. The City owns a 2,711 square foot commercial building located on Pacific Coast Highway between Cross Creek Road and Stuart Ranch Road. The building is currently leased to the Malibu Coast Animal Hospital. The lease continues through December 3, 2014 with a minimum monthly

18

lease payment that annually increases based on CPI. For 2009 the minimum monthly lease payment is $20,000. The lease is a triple-net lease.

Malibu Lumber Yard Shopping Center. The City owns a shopping center built and operated by Malibu Lumber LLC at the corner of Pacific Coast Highway and Cross Creek Road. The City executed a master lease agreement for the property in 2008 with the lease commencing on March 1, 2008 and continuing through March 1, 2046 with an option to extend to 2062. The minimum monthly lease payment through March 1, 2013 is $77,083 with fixed increases every five years thereafter. Additionally, the City will receive percentage rental income based on a formula by which the City receives 30% of the tenant’s income collected past $2.2 million annually. The first phase of the Shopping Center opened in April, 2009 and consists of approximately 15,293 square feet of retail space. The second phase consisting of 16,155 square feet of retail and restaurant space is scheduled to open by the end of calendar year 2009. Current tenants include Alice and Olivia, Intermix, Crumbs Bakery, Kitson Men, J.Crew, Planet Blue, Tory Burch, Theory, James Perse, Maxfield and Andrianna Shamaris. Future tenants include Milk, Café Habana and Dance Star.

Office Building. The City owns an approximately 4,848 square foot office building at the corner of Pacific Coast Highway and Stuart Ranch Road. The building was previously leased to Coldwell Banker, but has been vacant since the Coldwell Banker lease expired in February 2009. The City is currently negotiating a lease with a new tenant and anticipates executing a 10-year lease with a 10-year option effective September 2009.

Table 3A below presents the City’s Statement of Revenue and Expenses for its commercial real estate fund. Although accounted for separately, such monies are General Fund monies and generally available to pay Lease Payments.

TABLE 3A CITY OF MALIBU

COMMERCIAL REAL ESTATE FUND BUDGETS

Final Fiscal Year 2008 Budget

Fiscal Year 2008 Results


Estimated Fiscal Year

2009 Results


Revenues: Interest(1) $ 0 $ 69,106 $ 0 $ 113,137 $ 50,00 Rents 962,498 812,266 1,484,871 1,307,448 1,384,747 Total Revenues $ 962,498 $ 881,372 $ 1,484,871 $ 1,420,585 $ 1,434,747 Expenditures: Debt service: Principal $ 0 $ 0 $ 0 $ 0 $ 300,000 Interest 941,397 941,397 941,397 941,397 941,397 Operating Expenses: Professional & Contract Services

35,000

85,011 63,000 54,955

71,300

Repairs & Maintenance 10,000 15,273 10,000 13,072 15,000 Utilities 7,700 3,724 1,500 1,200 500 Supplies 14,000 17,165 8,000 4,064 10,000 Other 55,000 0 41,200 970 5,000 Total Expenditures $ 1,063,097 $ 1,062,570 $ 1,065,097 $ 1,015,658 $ 1,343,197

(1) Interest on funds deposited with LAIF. Source: Adopted Budgets of the City for Fiscal Years 2008, 2009 and 2010, Audited Financial Statements for Fiscal Year 2008.

City of Malibu for estimated actual results for Fiscal Year 2009.

19

Property Taxes

Property tax receipts of $8,004,185 provided the largest tax revenue source of the City, contributing approximately 53% of General Fund tax revenues and approximately 38% of total General Fund revenues during Fiscal Year 2009. In California, property which is subject to ad valorem taxes is classified as “secured” or “unsecured”. The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens, arising pursuant to State Law, on the secured property, regardless of the time of the creation of other liens. The valuation of property is determined as of January 1 each year, and installments of taxes levied upon secured property become delinquent on the following December 10th and April 10th of the subsequent calendar year. Taxes on unsecured property are due July 1, and become delinquent August 31.

Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The exclusive means of forcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes of the State for the amount of taxes that are delinquent. The taxing authority has four methods of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s Office in order to obtain a lien on certain property of the taxpayer, and (4) seizure and sale of personal property, improvement or possessory interest belonging or taxable to the assessee.

A ten percent penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, beginning on the July 1 following a delinquency, interest begins accruing at the rate of 1 1/2% per month on the amount delinquent. Such property may thereafter be redeemed by the payment of the delinquent taxes and the ten percent penalty, plus interest at the rate of 1 1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A ten percent penalty also applies to the delinquent taxes or property on the unsecured roll, and further, an additional penalty of 1 1/2% per month accrues with respect to such taxes beginning on the varying dates related to the tax billing date.

Legislation enacted in 1984 (Section 25 et seq. of the Revenue and Taxation Code of the State of California), provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new assessment for up to 14 months. Collection of taxes based on supplemental assessments occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated January 1 through May 31, which are calculated on the basis of the remainder of the current fiscal year and the full 12 months of the next fiscal year.

For a number of years, the State Legislature has shifted property taxes from cities, counties and special districts to the Educational Revenue Augmentation Fund. The term “ERAF” is often used as a shorthand reference for this shift of property taxes. In 1992-93 and 1993-94, in response to serious budgetary shortfalls, the State Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts. The 2004-05 California State Budget included an additional $1.3 billion shift of property taxes from certain local agencies, including the City, to occur in Fiscal Years 2004-05 and 2005-06. The City’s portion of such property tax shift for each of these two Fiscal Years was $242,427.

20

On November 2, 2004, California voters approved Proposition 1A, which amended the State Constitution to significantly reduce the State’s authority over major local government revenue sources. Under Proposition 1A, the State may not (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature, or (iv) decrease Vehicle License Fees revenues without providing local governments with equal replacement funding. Beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including (a) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (b) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. See “RISK FACTORS—State Budget Information” for information related to the Proposition 1A shift approved by the State for Fiscal Year 2010 and its impact on the City’s General Fund.

Table 4 below sets forth the property tax rates for the City for the Fiscal Years 2005 through 2009. The information in Table 4 has been provided by California Municipal Statistics, Inc. Neither the City nor the Underwriter has independently verified the information in Table 4 and do not guarantee its accuracy.


PROPERTY TAX RATES FISCAL YEARS 2005 THROUGH 2010

Typical Total Tax Rate Area (10853)

2005 2006 2007 2008 2009

General(1) 1.000000 1.000000 1.000000 1.000000 1.000000 Los Angeles County 0.000923 0.000795 0.000663 -- -- Santa Monica-Malibu Unified School District 0.028929 0.026116 0.024335 0.052218 0.046265 Santa Monica Community College District 0.029112 0.045683 0.050738 0.050340 0.047808 Los Angeles County Flood Control District 0.000245 0.000049 0.000052 -- -- Metropolitan Water District 0.005800 0.005200 0.004700 0.004500 0.004300 1.065009 1.077843 1.080488 1.107058 1.098373 (1) The passage of Proposition 13 on June 6, 1978 established a maximum countywide levy of 1% of market value or $1.00 per

$100 of assessed value. Source: California Municipal Statistics, Inc.

21

Table 5 below sets forth the secured and unsecured assessed valuations for property in the City for the Fiscal Years 2006 through 2010. The information in Table 5 with respect to Fiscal Years 2006 through 2009 has been provided by California Municipal Statistics, Inc. and the information with respect to Fiscal Year 2010 has been obtained directly from the County of Los Angeles Neither the City nor the Underwriter has independently verified the information in Table 5 and do not guarantee its accuracy.


ASSESSED VALUATION FISCAL YEARS 2005 TO 2009

Fiscal Year Local Secured Utility Unsecured Total

2005 $ 6,586,177,788 $127,488 $33,164,039 $ 6,619,469,315 2006 7,358,864,073 6,000 59,623,291 7,418,493,364 2007 8,420,648,000 6,000 63,360,858 8,484,014,858 2008 9,232,410,069 6,000 62,949,118 9,295,365,187 2009 10,110,905,938 1,000 75,243,372 10,186,150,310 2010 10,753,202,692 N/A(1) 36,824,080 10,790,026,772

(1) Not available as of the date of this Official Statement. Source: California Municipal Statistics, Inc.

Table 6 below sets forth property tax collections and delinquencies in the City as of June 30 for Fiscal Years 2004 through 2008.


PROPERTY TAX LEVIES AND COLLECTIONS FISCAL YEARS 2004 THROUGH 2008

Fiscal Year Total

Tax Levy

Current Tax Collections as

of June 30

Percent of Levy Collected as of June 30

Outstanding Delinquent Taxes as of June 30(1)

2004 $3,774,257 $3,750,330 99.37% $312,814 2005(2) 3,992,697 4,124,990 103.31 193,010 2006 4,542,311 4,439,043 97.73 475,363 2007 5,558,572 5,358,229 96.40 292,232 2008 6,072,197 6,101,052 100.48 102,785

(1) Includes delinquent taxes from prior Fiscal Years. (2) Collections higher than levy due to supplemental tax receipts. Source: City of Malibu

The 20 largest taxpayers in the City as shown on the Fiscal Year 2008-09 secured tax roll, the land use, the assessed valuation and the percentage of the City’s total property tax revenues attributable to each are shown on Table 7 below. The information in Table 7 has been provided by California Municipal Statistics, Inc. Neither the City nor the Underwriter has independently verified the information in Table 7 and do not guarantee its accuracy.

22


TWENTY PRINCIPAL TAXPAYERS

Property Owner Land Use 2008-09 Assessed

Valuation % of Total(1)

1. Malibu Realty LLC Residential $ 65,210,162 0.64% 2. KW Malibu Colony LLC Shopping Center 63,464,400 0.63 3. Malibu Retail Acquisition Company LLC Shopping Center 59,000,000 0.58 4. HRL Laboratories LLC Industrial 56,527,846 0.56 5. Carlyle CP Malibu LP Residential 55,141,145 0.55 6. Carbonview Limited LLC Residential 47,809,428 0.47 7. Lester J. Knispel Residential 40,145,210 0.40 8. Peter Morton Residential 39,132,478 0.39 9. Howard & Nancy Marks Residential 35,094,940 0.35 10. AZ Winter Mesa LLC Residential 31,316,040 0.31 11. SF Pacific LLC Residential 31,305,633 0.31 12. Sweetwater Malibu LLC Residential 31,212,000 0.31 13. 2XMD Partners LLC Residential 28,560,000 0.28 14. 6962 Wildlife Associates LLC Residential 27,608,523 0.27 15. Jamie L. McCourt Residential 27,250,000 0.27 16. Warley Avenue Trust Residential 26,530,200 0.26 17. Tamara H. Gustavson Residential 25,270,943 0.25 18. Victor Meschures Residential 25,098,919 0.25 19. Dume Plaza III LLC Shopping Center 24,938,387 0.25 20. Malibu CAC LLC Residential 24,835,972 0.25% $ 765,452,226 7.57%

(1) 2008-09 Local Secured Assessed Valuation: $10,110,905,938. Source: California Municipal Statistics, Inc.

Sales Taxes

Sales tax receipts of $2,395,965 provide the second largest tax revenue source for the City, contributing approximately 16% of General Fund tax revenues and approximately 11% of total General Fund revenues during Fiscal Year 2009. A sales tax is imposed on retail sales or consumption of personal property. The basic sales tax rate is established by the State Legislature, and local overrides may be approved by voters. The current sales tax rate in the City is 9.25%.

On March 2, 2004, voters approved a bond initiative formally known as the “California Economic Recovery Act.” This act authorized the issuance of $15 billion of Economic Recovery Bonds to finance ongoing State budget deficits, which are payable from a fund established by the redirection of tax revenues known as the “Triple Flip.” The State issued $11.3 billion of Economic Recovery Bonds prior to June 30, 2004. Under the “Triple Flip,” one-quarter of local governments’ one percent share of the sales tax imposed on taxable transactions within their jurisdiction is being redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, State legislation provides for certain property taxes to be redirected to local government. Because these property tax monies were previously earmarked for schools, the legislation provides for schools to receive other State general fund revenues. It is expected that the swap of sales taxes for property taxes will terminate once the Economic Recovery Bonds are repaid, which is currently expected to occur in approximately 9 to 13 years. See “RISK FACTORS – State Budget Information” herein.

23

Services

Fees of $4,811,886 collected for services provided by the City, including, but not limited to, fees for plan checks, issuing of building permits, public works projects and for parks and recreations programs, provided 23% of General Fund revenues during Fiscal Year 2009.

State of California Motor Vehicle In-Lieu Payments

The State imposes a vehicle license fee (“VLF”), which is the portion of the fees paid in lieu of personal property taxes on a vehicle. The vehicle license fee is based on vehicle value and declines as the vehicle ages. Prior to the adoption of the Fiscal Year 2004-05 State Budget, the fee was 2 percent of the value of a vehicle. Through legislation in prior fiscal years, the State enacted vehicle license fee reductions under which the State was required to “backfill” local governments for their revenue losses resulting from the lowered fee. The Fiscal Year 2004-05 State Budget permanently reduced the vehicle license fee from 2 percent to 0.65 percent and deleted the requirement for backfill payments, providing, instead, that the amount of the backfill requirement will be met by an increase in the property tax allocation to cities and counties. See “RISK FACTORS—State Budget Information.”

As set forth in Table 8 below, for Fiscal Year 2009, the City estimates that it received $1,243,189 in total VLF, of which $1,204,446 was distributed from property tax receipts.


STATE OF CALIFORNIA MOTOR VEHICLE IN-LIEU PAYMENTS FISCAL YEARS 2005-2009

Source 2005 2006 2007 2008 2009(1)

Motor Vehicle In-Lieu $ 882,494 $ 1,230,754 $ 1,088,966 $ 1,154,149 $ 1,243,189 (1) Estimated actual results. Source: The City of Malibu.

Transient Occupancy Tax

The City also collects a Transient Occupancy Tax on all hotel, motel and lodging bills within the City. Transient Occupancy Tax receipts is estimated to have provided 1,125,675 in Fiscal Year 2009, approximately 5% of the General Fund revenues during Fiscal Year 2009.

Indebtedness

General Obligation Debt. The City currently has no general obligation debt outstanding.

Long Term Debt. As of June 30, 2008, the City has the following long term debts other than compensated absences in the amount of $45,673 and a lease for office equipment, with a balance owed of $15,542:

Certificates of Participation. The City issued $17,850,000 of certificates of participation (the “2006 Certificates”) in March 2006 to finance the acquisition of Legacy Park and the related commercial lease properties. The 2006 Certificate are secured by installment payments payable from any source of lawfully available funds of the City. Series A of the 2006 Certificates was issued for $12,425,000 and is taxable. Series B was issued for $5,155,000 and is a tax exempt issue. The interest rate on the 2006 Certificates is fixed and ranges from 4.0% to 5.82%. Annual principal payments are due on July 1 in the years 2010 through

24

2036. The City’s Lease Payments with respect to the 2006 Certificates are approximately $1,245,000 annually through July 1, 2036.

Loans Payable. The City entered into a financing arrangement with a future tenant of one of the Legacy Park commercial properties to provide for the debt service on the 2006 Certificates while the commercial property is being renovated and is generating only a small amount of the anticipated rental income. A portion of the financing arrangement totaling $400,000 was paid by the City in May 2009; there was no interest due on this portion of the loan. The other portion of the loan totaling $238,750 is due on September 1, 2013 along with accumulated interest; the interest rate is equal to the LAIF rate over the term of the loan.

Operating Lease. Effective August 1, 2002, the City entered into a 15-year operating lease for the current city hall space. The lease is subject to early termination by the City at the end of the fifth and tenth years. For the fiscal year ending June 30, 2009, the total cost for city hall lease payments was $754,917. The future minimum lease payments for the remaining space are as follows:

Year Ending June 30 Total

2010 $ 741,163 2011 766,362 2012 797,356 2013 828,523

2014-2018 3,740,171

Total $ 6,873,575

As discussed above under the caption “DESCRIPTION OF THE PROJECT,” the City intends to sublease the building out upon completion of the City Hall Improvements. The City has an option to terminate the lease in 2012. The City makes no assurance on its ability to sublease the property or the amount of rent such sublease will generate.

Short-Term Debt. The City currently has no short-term debt outstanding.

Estimated Direct and Overlapping Bonded Debt. The estimated direct and overlapping bonded debt of the City as of July 1, 2009 is shown in Table 9 below. The information in Table 9 has been derived from data assembled and reported to the City by California Municipal Statistics, Inc. Neither the City nor the Underwriter has independently verified the information in Table 9 and do not guarantee its accuracy.

25


ESTIMATED DIRECT AND OVERLAPPING BONDED DEBT AS OF July 1, 2009

2008-09 Assessed Valuation: $10,186,150,310 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 7/1/09 Los Angeles County Flood Control District 1.118% $ 947,002 Metropolitan Water District 0.552 1,619,706 Santa Monica Community College District 36.218 87,417,824 Santa Monica-Malibu Unified School District 36.157 45,659,072 City of Malibu Community Facilities District No. 2006-1 100. 4,365,000 Los Angeles County Regional Park and Open Space Assessment District 1.091 2,693,406 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $142,702,010 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 1.091% $10,134,748 Los Angeles County Pension Obligations 1.091 2,571,387 Los Angeles Superintendent of Schools Certificates of Participation 1.091 173,516 Santa Monica Community College District Certificates of Participation 36.218 9,673,828 Santa Monica-Malibu Unified School District Certificates of Participation 36.157 6,065,879 City of Malibu Certificates of Participation 100. 17,580,000(1) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $46,199,358 COMBINED TOTAL DEBT $188,901,368(2) (1) Excludes the Certificates to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and

non-bonded capital lease obligations. Ratios to 2008-09 Assessed Valuation: Combined Direct Debt ($17,580,000) .......................... 0.17% Overlapping Tax and Assessment Debt .......................... 1.40% Combined Total Debt ..................................................... 1.85% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/08: $0 Source: California Municipal Statistics, Inc.

Retirement Contributions

The City provides retirement benefits for its employees through a contractual agreement with the California Public Employees’ Retirement System (“CalPERS”). The City currently contributes 7% of the annual covered salary for active members. The City is also required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for the City’s Miscellaneous Plan for Fiscal Year 2009 was 11.85% and for Fiscal Year 2010 will be 11.3%. The contribution requirements of the plan members are established by State statute, and the employer contribution rate is established and may be amended by CalPERS. For Fiscal Year 2008, the City’s annual pension costs and actual contribution was $755,858, and, for Fiscal Year 2009, the City’s required contribution was $887,865 and, for Fiscal Year 2010, the City’s estimated required contribution is $1,003,988.

Since the City’s Miscellaneous Plan had less than 100 members, it was required by CalPERS to participate in a risk pool. The Miscellaneous Plan’s share of the unfunded actuarial accrued liability of the risk

26

pool as of June 30, 2009 was $618,180. Contribution rates to CalPERS depend on a variety of factors, including, but not limited to, number of covered employees, benefit levels, salary increases and investment gains and losses of CalPERS. The City makes no assurance as to future contribution rates established by CalPERS.

Additionally, the City has established separate defined contribution plans with benefits for the City Manager and for City department heads. The plans require annual contributions of 5% of the City Manager’s salary and $3,000 annually (or a proportional amount based on the covered time period) on behalf of each department head. During Fiscal Year 2008, the City contributed $8,968 on behalf of the City Manager and a total of $15,040 on behalf of the covered department heads. During Fiscal Year 2009, the City contributed $9,482 on behalf of the City Manager and a total of $14,999 on behalf of the covered department heads.

In January 2007, the City entered into a defined contribution pension plan with Public Agency Retirement System (“PARS”) for all of its part-time employees. The plan is administered by PARS. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan. Plan members are required to contribute 6.2% of their salaries, and the City is required to contribute 1.3% of the members’ salaries. The contributions and any interest earned immediately vest in full. During Fiscal Year 2008, the City made employer contributions of $3,224 and employees contribution of $15,375.

Other Post-Employment Benefits

The City contracts with CalPERS for health benefits of its current employees, retirees and their respective dependents. CalPERS requires that participating agencies provide health benefits for retirees if employees are covered under CalPERS for their health insurance. Government Code Section 22892 requires a minimum City contribution for all vested employees of $28.40 a month. All employees hired prior to December 1, 2005 are automatically vested, with the City required to contribute 35% of the medical premium escalating 5% annually for each year of service up to 100%. Employees hired after December 1, 2005 vest at 50% after 10 years of state service (5 of which must be at the City) and each additional service credit year after 10 years increases the City’s contribution by 5%. In Fiscal Year 2009, the City paid $21,168 for retiree health benefits.

The Governmental Accounting Standards Board recently published Statement No. 45, requiring governmental agencies that fund post-employment benefits on a pay-as-you-go basis, such as the City, to account for and report the outstanding obligations and commitments related to such post-employment benefits in essentially the same manner as for pensions. The District retained Total Compensation Systems, Inc. (the “Actuarial Consultant”) to calculate the District’s post-employment benefits funding status. In a report dated May 8, 2009 (the “Report”), the Actuarial Consultant concluded that, as of February 1, 2009, the District’s unfunded actuarial accrued liability for post employment benefits based upon a 7.75% discount rate was $1,148,623. The Report also concluded that the annual required contribution (“ARC”) for the year beginning February 1, 2009 is $71,445. The ARC is the annual amount that would be necessary to fund the OPEB in accordance with the Governmental Accounting Standards Board’s Statements No. 43 and 45. The City elected to pay $254,761 to CalPERS prior to June 30, 2009 for deposit into a trust account for the City’s other post-employment benefits.

City Investment Policy

The City’s statement of Investment Policy rendered to the City Council by the City Treasurer pursuant to Section 53646 of the California Government Code (the “Investment Policy”) states that the basic premise underlying the City’s investment philosophy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. Hence, safety of principal is the foremost objective of the City, followed by liquidity and yield. Under provisions of the Investment Policy, the City may invest in time deposits, bankers acceptances, U.S. Treasury Bills and notes, governmental agency securities, repurchase agreements, reverse

27

repurchase agreements, commercial paper, medium term notes of corporations operating within the United States rated “A” or better by Standard and Poor’s Rating Group or by Moody’s Investors Services, and State Local Agency Investment Fund (“LAIF”), which is under the oversight of the State Treasurer. As of June 30, 2009, the City had invested its entire investment portfolio of in LAIF. LAIF has not been rated by any nationally recognized statistical rating organization. See also Appendix B—”THE CITY OF MALIBU AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008—NOTES TO THE FINANCIAL STATEMENTS—Note 2” herein.

Insurance

The City is a member of the California Joint Powers Insurance Agency (“CJPIA”). CJPIA is comprised of 119 California public entities and is organized under a joint powers agreement pursuant to Section 6500 et seq. of the California Government Code. The purpose of CJPIA is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance and reinsurance and to arrange for group-purchased insurance for property and other coverage. CJPIA’s pool began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors, which operates through a nine member executive committee.

General Liability. The City pays a primary deposit to cover estimated losses for a fiscal year (claims year). After the close of the fiscal year, outstanding claims are valued. A retrospective deposit computation is then made for each open claims year. Costs are spread to members of CJPIA as follows: the first $30,000 of each occurrence is charged directly to the City; costs from $30,001 to $750,000 are pooled based on the City’s share of costs under $30,000; costs from $750,001 to $15,000,000 are pooled based on payroll. Costs of covered claims above $15,000,000 are currently paid by reinsurance. The protection for the City is $50,000,000 per occurrence and $50,000,000 annual aggregate.

Worker’s Compensation. The City also participates in the workers’ compensation pool administered by CJPIA. Pool deposits and retrospective adjustments are valued in a manner similar to the General Liability Pool. The City is charged for the first $50,000 of each claim. Claims are pooled separately between public safety and non-public safety. Losses from $50,000 to $100,000 and the loss of development reserve associated with losses up to $100,000 are pooled based on the member’s share of losses under $50,000. Losses from $100,000 to $2,000,000 and employer’s liability losses from $5,000,000 to $10,000,000 and loss development reserves associated with those losses are pooled based on payroll. Costs between $2,000,000 and $300,000,000 are paid by excess insurance purchased by CJPIA. Costs in excess of $300,000,000 are pooled by the members based on payroll.

Environmental Insurance. The City participates in the pollution legal liability and remediation legal liability insurance which is available through CJPIA. The policy covers sudden and gradual pollution of scheduled property, streets and storm drains owned by the City. Coverage is on a claims made basis. There is a $50,000 deductible. CJPIA has a limit of $50,000,000 aggregate for the three year period from July 1, 2008 through June 30, 2011 and a per-member sub-limit of $10,000,000 during the three year term of the policy.

Property Insurance. The City participates in the all-risk property protection program of CJPIA. This insurance protection is underwritten by several insurance companies. The City’s property is currently insured according to a schedule of covered property submitted by the City to CJPIA. Total all-risk property insurance coverage is $27,225,049. There is a $5,000 per loss deductible except for non-emergency vehicle insurance which has a $1,000 deductible. Premiums for the coverage are paid annually and are not subject to retroactive adjustments.

Earthquake and Flood Insurance. The City purchases earthquake and flood insurance on a portion of its property. The earthquake insurance is part of the property protection program of CJPIA. The City’s property currently has earthquake protection in the amount of $16,742,244. There is a deductible of 5% of

28

value with a minimum deductible of $100,000. Premiums for the coverage are paid annually and are not subject to retroactive adjustments.

Fidelity Bonds. The City purchases blanket fidelity bond coverage in the amount of $1,000,000 with a $2,500 deductible. The fidelity coverage is provided through CJPIA. Premiums are paid annually and are not subject to retroactive adjustments.

The City also obtains rental interruption insurance from commercial carriers through CJPIA, with a self-insured retention of $5,000 and intends to obtain this insurance through CJPIA in the amounts required under the Lease. See Appendix C—”SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Lease—Insurance.”

LIMITATIONS ON TAX REVENUES

There are a number of provisions in the State Constitution that limit the ability of the City to raise and expend tax revenues.

Article XIIIA of the California Constitution

On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean “the county assessor’s valuation of real property as shown on the 1975/76 tax bill under ‘full cash value’, or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition (55% in the case of certain school facilities).

Legislation enacted by the California Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. Redevelopment agencies may capture a significant portion of taxes attributable to the assessed value of real property located within redevelopment project areas of such agencies.

Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) is allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts share the growth of “base” revenue from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation the following year. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above.

Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, and to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster and in certain other limited circumstances.

29

Article XIIIB of the California Constitution

At the statewide special election on November 6, 1979, the voters approved an initiative entitled “Limitation on Government Appropriations” which added Article XIIIB to the California Constitution. Under Article XIIIB, state and local government entities have an annual “appropriations limit” which limits the ability to spend certain moneys which are called “appropriations subject to limitation” (consisting of tax revenues and certain state subventions together called “proceeds of taxes” and certain other funds) in an amount higher than the “appropriations limit.” Article XIIIB does not affect the appropriation of monies which are excluded from the definition of “appropriations limit” including debt service on indebtedness existing or authorized as of October 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the “appropriations limit” is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if those entities’ revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.

The City’s appropriations limit exceeds its “appropriations subject to limitation” and the City does not expect that it will have to refund revenues in the foreseeable future.

Proposition 62

Proposition 62, which was adopted by the voters at the November 4, 1986 general election, (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two-thirds vote of the governmental entity’s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local government entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIII A of the California Constitution, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988.

On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court held that a county-wide sales tax of one-half of one percent was a special tax that, under Section 53722 of the Government Code, was invalid without the required two-thirds voter approval. The decision did not address the question of whether or not it should be applied retroactively.

Following the Guardino decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62. On June 4, 2001, the California Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. In this case, the court held that a public agency’s continued imposition and collection of a tax is an ongoing violation upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. The City believes that it has complied with the requirements of Proposition 62 with respect to its utility tax.

30

Proposition 218

On November 5, 1996, California voters approved Proposition 218—Voter Approval for Local Government Taxes—Limitation on Fees, Assessments, and Charges—Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments are deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote.

Proposition 218 also provides that no tax, assessment, fee or charge may be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and (iii) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such new provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges.

Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges that currently are deposited into the City’s General Fund.

Although a portion of the City’s General Fund revenues are derived from general taxes purported to be governed by Proposition 218, all of such taxes were either imposed, extended or increased prior to the effective date of Proposition 218 or in accordance with the requirements of Proposition 218. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges, such as the transient occupancy tax and the utility tax which support the City’s General Fund. In Fiscal Year 2010, the City has budgeted to receive approximately $950,000 in General Fund revenues (which constitute approximately 5% of General Fund revenues) from the transient occupancy tax and approximately $2,600,000 in General Fund revenues (which constitutes approximately 12% of General Fund revenues) from the utility tax. Both of these taxes, and other local taxes, assessments, fees and charges could be subject to reduction or repeal by initiative under Proposition 218.

Unitary Property

Some amount of property tax revenue of the City is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions (“unitary property”). Under the State Constitution, such property is assessed by the State Board of Equalization (“SBE”) as part of a “going

31

concern” rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the City) according to statutory formula generally based on the distribution of taxes in the prior year.

Future Initiatives

Article XIIIA, Article XIIIB and Propositions 62 and 218 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting the City’s current revenues or its ability to raise and expend revenues.

RISK FACTORS

The following factors, along with all other information in this Official Statement, should be considered by potential investors in evaluating the Certificates.

No Pledge of Taxes or Revenues

The obligation of the City to pay the Lease Payments and Additional Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay Lease Payments and Additional Payments does not constitute a debt or indebtedness of the Corporation, the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.

Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay Lease Payments and Additional Payments from any source of legally available funds (subject to certain exceptions) and the City has covenanted in the Lease that, for as long as the Leased Premises is available for its use and possession, it will make the necessary annual appropriations within its budget for all Lease Payments and Additional Payments. The City is currently liable on other obligations payable from general revenues, including certificates of participation issued by the City in 2006. In the event of a shortfall in revenues, a court might require that the City first set aside revenues to pay the other obligations of the City or to make expenditures necessary to preserve the health and welfare of City residents. See “CITY FINANCIAL INFORMATION ⎯ Indebtedness” herein.

Certain taxes, assessments, fees and charges presently imposed by the City, such as the City utility tax and the transient occupancy tax, could be reduced or eliminated by initiative pursuant to Article XIIIC of the State Constitution, and new taxes, assessments fees and charges subject to the voter approval requirements of Article XIIID of the State Constitution may not be approved by voters. The City does not believe that Article XIIIC grants to the voters the power to reduce or repeal local taxes, assessments, fees and charges received by the City to an extent that would prevent the City from performing its existing contractual obligations. However, it is possible that the initiative power could be exercised in a manner that would have a material adverse effect on the financial condition of the City, including its General Fund. Although the City does not currently anticipate that the provisions of Article XIIIC and Article XIIID of the State Constitution would adversely affect its ability to pay the principal of and interest with respect to the Certificates, as and when due, and its other obligations payable from the General Fund, no assurance can be given regarding the ultimate interpretation or effect of Article XIIIC and Article XIIID of the State Constitution on the City’s finances. See “CITY FINANCIAL INFORMATION — Major Revenues” and “LIMITATIONS ON TAX REVENUES —Proposition 218” herein.

32

Additional Obligations of the City

The City is permitted to enter into other obligations which constitute additional charges against its revenues without the consent of Owners of the Certificates. To the extent that additional obligations are incurred by the City, the funds available to pay Lease Payments may be decreased.

The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Premises, taxes and other governmental charges levied against the Leased Premises) are payable from funds lawfully available to the City. In the event that the amounts which the City is obligated to pay in a fiscal year exceed the City’s revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments and Additional Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare.

Default

Whenever any event of default referred to in the Lease happens and continues, the Trustee, as the assignee of the Corporation, is authorized under the terms of the Lease to exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything therein or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN DUE OR PAST DUE TO BE IMMEDIATELY DUE AND PAYABLE. NEITHER THE CORPORATION NOR ITS ASSIGNEE SHALL HAVE ANY RIGHT TO REENTER OR RELET THE LEASED PREMISES EXCEPT FOLLOWING A DEFAULT UNDER THE LEASE. Following an event of default, the Trustee, as the assignee of the Corporation, may elect either to terminate the Lease and seek to collect damages from the City or to maintain the Lease in effect and seek to collect the Lease Payments as they become due. The Lease further provides that so long as an event of default exists under the Lease, the Corporation, or its assignee, may re-enter the Leased Premises for the purpose of taking possession of any portion of the Leased Premises and to re-let the Leased Premises and, in addition, at its option, with or without such entry to terminate the Lease as described therein. See Appendix C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — LEASE — Remedies On Default.”

No assurance can be given that the Trustee will be able to re-let the Leased Premises so as to provide rental income sufficient to pay principal and interest evidenced by the Certificates in a timely manner or that such re-letting will not adversely affect the exclusion of interest due with respect to the Certificates from gross income for federal or State income tax purposes. Furthermore, due to the fact that the Leased Premises are needed to provide essential public services to residents of the City, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect to the Leased Premises.

In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease and the Trustee is not empowered to sell the Leased Premises and use the proceeds of such sale to prepay the Certificates or pay debt service with respect thereto. The City will be liable only for Lease Payments on an annual basis and, in the event of a default, the Trustee would be required to seek a separate judgment each year for that year’s defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in California, including a limitation on enforcement of judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments were due and against funds needed to serve the public welfare and interest.

Release or Substitution of Property

The City has the right from time to time to add other real property and improvements (subject only to Permitted Encumbrances) or to substitute other real property or improvements (subject only to Permitted

33

Encumbrances) for all or a portion of the Leased Premises or to release a portion of the real property or improvements constituting the Leased Premises, subject to the conditions precedent to such addition, substitution or release as set forth in the Lease. No addition, substitution or release under the Lease will be, by itself, the basis for any reduction in or abatement of the Lease Payments due from the City thereunder. A release could, however, result in a reduction in the fair rental value of the Leased Premises which would result in less security for the Owners should it be necessary to relet the Leased Premises to cure a default in Lease Payments. See Appendix C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — COVENANTS WITH RESPECT TO THE PROPERTY — Substitution or Release of the Leased Premises” herein.

In connection with a substitution or release, all interests of the Corporation, and its assignee, in the portion of the Leased Premises released shall terminate and the Corporation and its assignee shall execute and record with the County Recorder of the County all documents deemed necessary by the City to evidence such termination of interest. Upon satisfaction by the City of the conditions set forth in the Lease, the Trustee also will execute a Lease Supplement and will not impose on the City any further conditions or prerequisites to the requested addition, substitution or release. The City will cause the Lease Supplement, or another document substantially in the form of the Lease Supplement, to be recorded in the real property records of the County.

All costs and expenses incurred in connection with such addition, substitution or release will be borne by the City.

Abatement

The City’s obligation to make Lease Payments will be subject to full or partial abatement and could result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates in the event that the City Hall Improvements are not completed on or before September 1, 2012 and under certain circumstances related to damage, destruction, condemnation or title defects which cause a substantial interference with the use and occupancy of the Leased Premises. In addition, if Additional Certificates are sold to finance additional improvements to the Leased Premises, failure to complete the improvements on or before the date to which capitalized interest is funded on the Additional Certificates could incur an abatement and result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates and Additional Certificates when due.

Project Costs. There can be no assurance that the City Hall Improvements will be completed for the costs and within the time described in this Official Statement. As discussed above under the caption “DESCRIPTION OF THE PROJECT,” the City has not yet completed its design of the City Hall Improvements and has only preliminary cost estimates. Although the City believes it has sufficient Certificate proceeds and available reserves to complete the City Hall Improvements, it can make no assurance as to the actual cost to complete the City Hall Improvements. A delay in the completion or damage to the Leased Premises during construction could have an adverse effect on the costs of the City Hall Improvements. Contractor and subcontractor performance and integrity, availability and cost of labor, equipment and materials, and weather conditions, among other unexpected factors, could cause the City to fail to complete the City Hall Improvements on time and on budget.

Project Completion. The City is not obligated to pay the Lease Payments, other than from proceeds of the Certificates deposited in the Lease Payment Fund and the Reserve Fund, until the City Hall Improvements are completed. If the City Hall Improvements are not delivered and installed by September 1, 2012, and if there are no amounts on deposit in the Lease Payment Fund and the Reserve Fund, the Lease remains in effect, but the Lease Payments will be abated in proportion to the undelivered portion of the Project, until the Project or uncompleted portion thereof is completed. If the Project or portions thereof are not delivered or installed by the date that the Lease Payments funded from capitalized interest and amounts in the Reserve Fund have been depleted, the combination of the unabated Lease Payments and other funds held by the Trustee may not be sufficient to pay the full amount of principal and interest due with respect to the

34

Certificates and any Additional Certificates when and if issued. Pursuant to the Lease, the City is not required to impose liquidated damages provisions on the contractor it selects to construct the City Hall Improvements.

Insurance. The Lease obligates the City to obtain and keep in force various forms of insurance to assure the repair or replacement of the Leased Premises in the event of damage or destruction to the Leased Premises (see Appendix C — “SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS — THE LEASE AGREEMENT — Insurance” herein). The City makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy provided for in the Lease. In addition, the City is not required under the Lease Agreement to obtain earthquake and flood insurance. The City does currently maintain earthquake and flood insurance with respect to the Leased Premises, but does not make any assurances about its ability or willingness to maintain such insurance in the future.

In the event the Leased Premises are partially or completely damaged or destroyed due to any uninsured or underinsured event, it is likely that Lease Payments will be partially or completely abated. Apart from the proceeds of insurance, the City and the Corporation will have no obligation to expend any funds to repair or replace such damaged or destroyed property. If the Leased Premises so damaged or destroyed are not repaired or replaced within the period during which the proceeds of rental interruption insurance or amounts in the Reserve Fund are available, any such abatement could result in the Trustee having insufficient funds to pay the principal of and interest with respect to the Certificates as scheduled.

See Appendix C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS — Abatement of Lease Payments in the Event of Loss of Use” herein.

Natural Disasters

In the Letter of Transmittal accompanying its Comprehensive Annual Financial Report attached hereto as Appendix B, the City notes that its financial condition could be adversely impacted by future natural disasters such as floods, fires, landslides and earthquakes. Because of the potential cost to the City of natural disasters, the City has increased the amount of the reserve in its General Fund. A major natural disaster could adversely impact the ability of the City to pay the principal of and interest with respect to the Certificates as scheduled.

Like many areas of California, the City is subject to seismic activity. According to the Public Safety Element of the City’s General Plan, the City is located in a seismically active region and could be impacted by a major earthquake originating from the numerous faults in the area. The City, including the Malibu Civic Center area where the Leased Premises are located, is traversed by the Malibu Coast Fault, which is considered to be an active fault, and a major earthquake affecting the Los Angeles area could have a significant impact on structures within the City. Seismic hazards encompass potential surface rupture, ground shaking, landslides and liquefaction. The City is not obligated under the Lease to maintain earthquake insurance on the Leased Premises unless the City, in its reasonable discretion, determines that such coverage is available from reputable insurers at commercially reasonable rates. In the event that any portion of the Leased Premises is destroyed by an earthquake, an abatement could occur and result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates as and when due. The City makes no assurance regarding the City’s ability to maintain earthquake insurance in the future.

The City has experienced firestorms in 1993, 1996, 2007 and 2008. The City could be affected by future firestorms; however, the City will maintain fire insurance for the Leased Premises as required under the Lease.

35

Limitations on Remedies; Bankruptcy

The rights of the owners of the Certificates are subject to the limitations on legal remedies against municipalities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Certificates, and enforcement of the City’s obligations under the Lease, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor’s rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against counties in the State. Bankruptcy proceedings under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the City, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Certificates to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. See “RISK FACTORS — Default” herein.

State Budget Information

The following information concerning the State’s budgets has been obtained from publicly available information which the City believes to be reliable; however, the City does not guaranty the accuracy or completeness of this information and has not independently verified such information. Furthermore, it should inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Certificate is payable from the General Fund of the City.

The State of California is experiencing significant financial and budgetary stress. State budgets are affected by national and state economic conditions and other factors over which the City has no control. The State’s financial condition and budget policies affect communities and local public agencies throughout California. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget. The State’s 2008-09 and 2009-10 budgets contain a number of measures which impact the City’s finances.

The State Budget Act for Fiscal Year 2008-09 was signed by the Governor on September 23, 2008—the latest in state history. Thereafter, on-going weak economic conditions resulted in significant revenue shortfalls and the Governor declared a fiscal emergency and called special sessions of the Legislature to consider budget actions to address the problems. The Governor’s proposed budget for Fiscal Year 2009-10, released December 31, 2008, estimated there would be a budget gap of more than $40 billion for the 18-month period ending June 30, 2010. Following lengthy budget negotiations, on February 19, 2009, the State Legislature passed revisions to the State Budget Act for the remainder of Fiscal Year 2008-09, as well as the State Budget Act for Fiscal Year 2009-10 and related legislation, which the Governor signed on February 20, 2009 after making additional line-item vetoes.

The State Budget Acts rely upon a combination of temporary and permanent measures, totaling $41.6 billion for the remainder of FY 2008-09 and FY 2009-10. The main elements of the budget compromise are about $14.9 billion in expenditure reductions, $12.5 billion in revenue adjustments (primarily tax increases), $7.9 billion in new funding for the State to be received as a result of enactment of the federal American Recovery and Reinvestment Act (“ARRA”), and $5.4 billion in borrowing. Approximately $5 billion of the proposed borrowing have been derived from securitization of future State Lottery revenues if changes to the State Lottery law had been approved by the voters in a special state-wide election held on May 19, 2009. The Governor vetoed an additional $957 million of expenditures from the FY 2009-10 Budget Bill voted by the Legislature, leaving an estimated budget reserve of $2 billion at June 30, 2010. As part of the legislative

36

package that included the State Budget Acts, a proposal to establish a new State spending cap was placed on the May 19 special election ballot together with other political and budgetary measures.

On May 14, 2009, Governor Schwarzenegger released his May revision to the State budget (the “May Budget Revise”). The Governor made two proposals, contingent on the outcome of the May 19 special election, in which six measures affecting the State’s fiscal crisis were presented to the voters.

The first proposal in the May Budget Revise assumes that the voters approved the six measures and assumes a $15.4 billion deficit. The second proposal assumes those measures were rejected, in which case the deficit swells to $21.3 billion. Under the second proposal, the Governor proposes to borrow $2 billion in local property taxes under Proposition 1A to help close the deficit. Five of the six measures failed at the May special election. The measure which passed does not have a direct effect on State revenues or expenditures.

Under the second proposal the projected $21.3 billion State budget deficit would be resolved through additional measures, including an additional $2.3 billion reduction in funding for K-14 school programs. Programs with City impact include $1.982 billion in borrowing of property taxes from local government under Proposition 1A of 2004. (See “CITY FINANCIAL INFORMATION — Property Taxes” for a discussion of Proposition 1A below.) The proposed budget would allow use of a joint powers agency to allow local agencies to borrow as a group against the State’s repayment obligation. If implemented, this borrowing could significantly mitigate the impact of the $1.982 billion diversion. In addition, the Governor’s budget would adversely affect local government under a proposed $76 million surcharge on insurance policies to partially fund CAL Fire and local response agencies.

Governor’s Update to the May Revision to the 2009-10 State Budget. On May 26, 2009 and on May 29, 2009, the Governor released updates to the May Revised Budget (collectively, the “May Revision Update”). The May Revision Update projects a budget gap of $3.10 billion through the remainder of Fiscal Year 2008-09 due to shortfalls in revenue collections and increased costs and the failure of five of the six budget-related propositions included in the May Special Election. The May Revision Update estimates Fiscal Year 2008-09 revenues and transfers of $85.95 billion, total expenditures of $91.35 billion and a year-end deficit of $3.10 billion, which includes a $2.31 billion prior-year State General Fund balance and an allocation of $1.08 billion to the reserve for the liquidation of encumbrances. The May Revision Update projects Fiscal Year 2009-10 revenues and transfers of $92.22 billion, total expenditures of $83.52 billion and a year-end surplus of $5.60 billion (net of the $3.10 billion deficit from Fiscal Year 2008-09), of which $1.08 billion will be reserved for the liquidation of encumbrances and $4.52 billion will be deposited in a special fund for economic uncertainties. The May Revised Budget and the May Revision Update, collectively, include proposals to reduce State General Fund spending in the amount of $3.12 billion during the remainder of Fiscal Year 2008-09 and $20.85 billion during Fiscal Year 2009-10 in order to eliminate the State’s projected $21.3 billion deficit through such period.

Although the May Revised Budget initially included a State borrowing of $5.6 billion through the issuance of revenue anticipation warrants, which would be repayable in Fiscal Year 2010-2011, the May Revision Update eliminates such borrowing, and instead proposes additional cuts of approximately $5.6 billion, including elimination of the CalWorks program ($1.3 billion spending reduction), reduction in prison population and contract and other costs relating to the Department of Corrections and Rehabilitation of approximately $0.9 billion, and significant reductions in certain gas tax payments to local governments. Under the May Revision Update, the local share of the gasoline tax would be reduced from $1.05 billion to $300 million and the State would apply the $750 million difference to pay current and prior year debt service on highway bonds.

The State has also stated that it requires significant cash flow borrowings (in excess of $10 billion) in order to have sufficient resources to pay its obligations as they become due. The State has requested that the federal government provide loan guarantees or other assistance with respect to such borrowing but to date the federal government has not agreed to provide such assistance. For several weeks in February 2009, the State

37

Controller deferred payments and in June 2009 began to issue warrants for certain outstanding obligations. There can be no assurances that the State’s financial difficulties will not result in deferrals in Fiscal Year 2009-10, or will not otherwise materially adversely affect the financial condition of the City.

LAO Report. On May 21, 2009, the Legislative Analyst’s Office issued a report entitled “Overview of the 2009-10 May Revision” (the “LAO Report”). The following excerpt is from the LAO Report:

“The Governor’s estimate of the budget problem that now needs to be addressed is reasonable. Our updated estimates of General Fund revenues and expenditures differ somewhat from the administration’s, indicating that the problem may be larger by about $3 billion….Our rough estimate is that even with adoption of all the Governor’s proposals, the state would still have an imbalance between General Fund resources and expenditures of greater than $15 billion in 2010-11, with even higher annual operating shortfalls in the subsequent three years.”

The LAO Report also stated that:

“……. [S]everal billion dollars of the Governor’s 2009-10 May Revision budget proposals are high-risk. It is very unlikely, for example, that parts of the State Compensation Insurance Fund (“SCIF”)—the publicly run workers’ compensation insurer—can be sold during 2009-10 for $1 billion. In addition, it is uncertain whether the Medi-Cal savings proposal requiring federal government approval would actually save $750 million. Other proposals present similar concerns.”

“California, the United States, and much of the rest of the world remain in a deep economic recession—the longest since World War II. As we discussed in our earlier report on the February budget package, significant negative developments in the economy occurred after the Legislature and the Governor reached agreement on the budget measures. Unemployment increased, steep declines in gross domestic product were reported, and stock market prices remained much depressed from levels of just one year ago. Housing prices also remain low, compared to prior years. California’s tax system is very sensitive to changes in the state and national economies, and as a result of these recessionary impacts, state revenue collections lagged expectations through April 2009. The administration’s revenue forecast reflects the state’s weak collections since February 2009, as well as a lowered forecast for revenues for the rest of 2008-09 and 2009-10.”

“California’s cities, counties, and special districts also have been experiencing fiscal stress due to the economic downturn. Some of the Governor’s budget solutions would exacerbate this stress because they (1) decrease local revenues (particularly the property tax) or (2) indirectly increase demand for local programs (such as county jails and indigent health programs). Any budget package that the Legislature adopts is likely to negatively affect local governments in some way—whether by budgetary cuts or payment delays.”

The LAO Report and other information concerning the state budget are available on the LAO’s website at www.lao.ca.gov.

Amendments to 2009-10 State Budget. On July 28, 2009, the Governor signed into law a series of amendments to the 2009-10 State Budget (the “2009-10 Budget Amendments”). The following information has been adapted from both the Department of Finance and LAO reports on the 2009-10 Budget Amendments.

The 2009-10 Budget Amendments are designed to address the State’s budget deficit, which grew to approximately $60 billion since the adoption of the 2009-10 State Budget. As a result of the deteriorating state and national economies, the 2009-10 Budget Amendments lower projected General Fund revenues for fiscal year 2009-10 by $3 billion. Further, the 2009-10 Budget Amendments project $89.5 billion of General Fund revenues and authorize $84.6 billion of expenditures. The State is now expected to the end the 2009-10 fiscal year with a $500 million reserve.

38

The 2009-10 Budget Amendments include measures for both fiscal year 2008-09 and 2009-10, and are in addition to those implemented as part of the 2009-10 State Budget. Specifically, the 2009-10 Budget Amendments include $18 billion in expenditure reductions, $3.5 billion in revenue increases, and $2.2 billion in borrowings. The LAO notes that year-to-year comparisons of revenues and expenditures are difficult due to the variety of one-time solutions.

The 2009-10 Budget Amendments include the following major features. In formulating many of the expenditure reductions, the Department of Finance notes that General Fund costs would be significantly higher but for the receipt of federal stimulus funding:

• Higher Education. For fiscal years 2008-09 and 2009-10, reductions of $1 billion for each of the University of California (“UC”) and California State University (“CSU”) systems. When combined with the reductions approved as part of the 2009-10 State Budget, and factoring in the receipt of federal stimulus funds and new fee revenues, the UC and CSU systems have experienced an 8% cut in base funding.

• Student Fees. The 2009-10 Budget Amendments authorize an increase of enrollment fees at California Community Colleges by $6 per unit, which is expected to generate $80 million in additional revenue. Student fees are also increased in the UC and CSU systems by 9.3% and 32%, respectively. These increases are expected to generate $166 million and $366 million, respectively, in additional revenues.

• Cal Grant. The 2009-10 Budget Amendments fully fund Cal Grant programs for fiscal year 2009-10, and reduce General Fund expenditures by $32 million by borrowing a like amount from the Student Loan Operating Fund.

• Proposition 1A Suspension. The 2009-10 Budget Amendments borrow $1.9 billion of city, county, and special district property taxes, which it uses to offset state General Fund spending for education and other programs. The 2009-10 Budget Amendments also establishes a state-financed loan repayment securitization program to offset the local fiscal effect of the borrowing.

• Redevelopment Shift. The 2009-10 Budget Amendments require $1.7 billion to be shifted from redevelopment agency revenues in fiscal years 2009-10, and $350 million in fiscal year 2010-11. These revenues will be used to fund courts, prisons, the Medi-Cal system, as well as offset reduced General Fund Proposition 98 funding.

• Corrections/Rehabilitation. $788 million in fiscal year 2009-10 reductions to the California Department of Corrections and Rehabilitation resulting from a combination of operational savings, program reductions, and policy reforms. When added to the reductions approved by the 2009-10 State Budget, total reductions are approximately $1.2 billion. The 2009-10 Budget Amendments also assume $50 million in savings from limiting reimbursement rates paid to private contractors providing health care to inmates outside of prison.

• Medi-Cal. The 2009-10 Budget Amendments assume $1 billion in General Fund savings from the receipt of federal funds that were either past due or authorized through federal waivers. The 2009-10 Budget Amendments also assume unspecified reductions to the Medi-Cal program amounting to approximately $323 million. The LAO notes that the manner in which these savings would be achieved has not been determined.

39

• Supplemental Security Income/State Supplementary Payment (SSI/SSP). $108 million in reductions to SSI/SSP program for fiscal year 2009-10 by reducing grants for individuals by $5 per month and grants for couples to $72 per month.

• CalWORKs. $510 million in reductions to the CalWORKs program for fiscal year 2009-10, primarily from a reduction in county block grant allocations for welfare-to-work and child care services.

• In Home Supportive Services (IHSS). $264 million in reductions for IHSS expenditures for fiscal year 2009-10 and consisting primarily of (i) reforms designed to reduce or prevent fraud, (ii) elimination of the State’s share-of-cost contribution, and (iii) eliminating or reducing domestic and related services for all but the most severely disabled recipients.

• Regional Center and Developmental Center Programs. $284 million in reductions for developmental services in fiscal year 2009-10. The bulk of the expected savings consist of a $234 million cost containment target set for the statewide developmental services system. The Department of Finance notes that proposals are being developed by the Legislature to achieve this savings.

• COLAs. The 2009-10 Budget Amendments eliminate automatic COLAs for the CalWORKs and SSI/SSP programs, beginning in fiscal year 2010-11. COLAs for long-term care providers, including skilled nursing facilities, are frozen, resulting in a reduction of $76 million in General Fund expenditures.

• Transportation. The 2009-10 Budget Amendments include several fund shifts and borrowings related to transportation funding, including (i) the use of $562 million in spillover gasoline sales tax revenues from 2009-10 to reimburse the General Fund for regional center transportation and debt service funding, (ii) redirection of $225 million in Public Transportation Account funds for regional center transportation and debt service funding, (iii) an interfund loan of $135 million from the State Highway Account to the General Fund, which loan must be repaid with interest in three years, and (iv) transfer of $70 million in unrestricted motor vehicle account revenues to the General Fund.

• Resources and Environmental Protection. The 2009-10 Budget Amendments include $14 million in reductions to General Fund support for state park operations, as well as $62 million in loans from resource-related special funds to the General Fund.

• State Operations. The 2009-10 Budget Amendments include a series of expenditure reductions related to State operations, including (i) the deferral of $900 million in state employee paychecks to the next fiscal year by moving the June 30, 2010 payday to July 1, 2010, (ii) the imposition of a third monthly furlough day for certain state employees, which the 2009-10 Budget Amendments assume will yield $425 million in savings, (iii) $100 million in reductions to information technology budgets, (iv) $50 million in assumed savings from the consolidation, reorganization or elimination of various state boards and committees; and (v) $150 in assumed savings from changes in PERS rates and fees.

• Other Reductions. Other reductions include (i) $168.6 million in fiscal year 2009-10 for state trial courts, (ii) $178.6 million in fiscal year 2009-10 for the Healthy Families Program.

• Revenue Increases. The 2009-10 Budget Amendments include the following measures designed to increase State revenues: (i) an increase of 10% in the state wage withholding, effective as of October 1, 2009, which is expected to increase revenues by $1.7 billion in

40

fiscal year 2009-10, (ii) alteration to the amount of estimated taxes that individuals and corporations must submit to the state each quarter that is expected to increase revenues by $610 million in fiscal year 2009-10, and (iii) the sale of a portion of the State Compensation Insurance Fund which is expected to yield increased revenues of $1 billion in fiscal year 2009-10.

• Gubernatorial Vetoes. Prior to signing the 2009-10 Budget Amendments, the Governor used his veto power to further reduce expenditures. These vetoes included (i) $6 million in financial aid administration for the Cal Grant program, (ii) $80 million in county funding for child welfare services, (iii) virtually all funding for the Williamson Act Open Space program, (iv) $55 million of departmental funding for certain scheduled pay increases, (v) $50 million for developmental services funding, and (vi) $300 million in healthcare spending. Representatives of groups affected by these reductions have publicly expressed their intent to judicially challenge the Governor’s veto power over these expenditures.

The 2009-10 Budget Amendments reduce Proposition 98 funding to $49.1 billion in fiscal year 2008-09, a change of $1.6 billion from the levels set by the 2009-10 State Budget. This reduction is achieved primarily by reverting unallocated categorical programs funding that had not been distributed at the end of the 2008-09 fiscal year to the General Fund. The 2009-10 Budget Amendments also create a future funding obligation, or “maintenance factor,” of $11.2 billion as a result of the reductions in Proposition 98 funding for fiscal year 2008-09. Payments with respect to this funding obligation will be required in future fiscal years until repaid in full.

For fiscal year 2009-10, the 2009-10 Budget Amendments reduce Proposition 98 funding to $50.4 billion, a change of $4.5 billion from the funding levels set by the 2009-10 State Budget. This figure reflects a total reduction in Proposition 98 funding of $5.3 billion, which is offset by $850 million in redevelopment revenues shifted from certain state agencies, as discussed above. The bulk of this reduction consists primarily of (i) $2.1 billion in reductions to school district and county office of education revenue limit payments, (ii) $80 million in reductions to basic aid school district categorical programs, (iii) $580 million in reductions to ongoing California Community College funding, and (iv) a deferral of $1.7 billion in school district revenue limit payments and $115 million community college apportionments from the 2009-10 fiscal year to August of the 2010-11 fiscal year. As a cash management measure, the 2009-10 Budget Amendments also defer approximately $2 billion in K-12 apportionments from the first few months of the 2009-10 fiscal year to December 2009 and January 2010.

The Department of Finance notes that reductions in Proposition 98 funding have been partially offset by the receipt of approximately $6 billion in federal stimulus funds—including $2.8 billion pursuant to ARRA—for fiscal years 2008-09 and 2009-10. The State expects to maintain the minimum spending levels required for the continued receipt of ARRA stimulus funds.

Additional information concerning State budget matters and the State’s financial condition may be found on the website of the State of California Department of Finance at http://www.dof.ca.gov.

None of the information on the websites listed above is a part of this Official Statement or incorporated herein and the City takes no responsibility for the accuracy of such information.

City Impact. As a result of the Proposition 1A borrowing, the City expects the State to withhold approximately $700,000 of property tax revenues in Fiscal Year 2010, which the City expects the State to repay within 3 years. See “CITY FINANCIAL INFORMATION—Property Taxes” for a description of Proposition 1A.

The City cannot predict what actions will be taken in the future by the State Legislature and the Governor to address the State’s current and future budget deficits. Future State budgets could be affected by

41

national economic conditions and the factors over which the City will have no control. To the extent that the State budget process results in reduced revenues or increased expenses to the City, the City will be required to make adjustments to its budget.

THE CORPORATION

The Malibu Public Financing Corporation is a nonprofit public benefit corporation organized to provide assistance to the City and public agencies in the State of California and any other purpose incidental thereto, for the sole purpose of financing, refinancing, constructing, and rehabilitating facilities, land and equipment, and in the sale or leasing of facilities, land and equipment, for the use, benefit and enjoyment of the public served by such agencies. The board of directors of the Corporation is comprised of the members of the City Council of the City.

TAX MATTERS

2009A Certificates

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest due with respect to the 2009A Certificates is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, interest due with respect to the 2009A Certificates is exempt from State of California personal income tax. Special Counsel notes that, with respect to corporations, interest due with respect to the 2009A Certificates is not included as an adjustment in the calculation of alternative minimum taxable income.

The difference between the issue price of a 2009A Certificate (the first price at which a substantial amount of the Certificates of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2009A Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to the owner of the 2009A Certificate before receipt of cash attributable to such excludable income (with respect to the 2009A Certificates). The amount of original issue discount deemed received by the owner of a 2009A Certificate will increase the owner’s basis in the 2009A Certificate. In the opinion of Special Counsel original issue discount that accrues to the owner of a 2009A Certificate is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.

Special Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of constituting interest (and original issue discount) due with respect to the 2009A Certificates is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City and the Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the execution and delivery of the 2009A Certificates to assure that the portion of each Lease Payment constituting interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) due with respect to the 2009A Certificates to be included in gross income for federal income tax purposes retroactive to the date of execution and delivery of the 2009A Certificates. The City and the Corporation have covenanted to comply with all such requirements applicable to each, respectively.

The amount by which a 2009A Certificate Owner’s original basis for determining loss on sale or exchange in the applicable 2009A Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable 2009A Certificate premium, which must be amortized under Section 171 of the Code; such amortizable 2009A Certificate premium reduces the 2009A

42

Certificate Owner’s basis in the applicable 2009A Certificate (and the amount of tax-exempt interest received with respect to the 2009A Certificates), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2009A Certificate premium may result in a 2009A Certificate Owner realizing a taxable gain when a 2009A Certificate is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2009A Certificate to the Owner. Purchasers of the 2009A Certificates should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable 2009A Certificate premium.

An owner who acquires a 2009A Certificate for an amount that is greater than the sum of all amounts payable on the 2009A Certificate after the purchase date other than payments of qualified stated interest will be considered to have purchased such 2009A Certificate at a premium. An owner of a 2009A Certificate generally may elect to amortize such premium using a constant yield method over the remaining term of the 2009A Certificate. Any such election shall apply to all debt instruments (other than debt instruments the interest on which is excludable from gross income) held at the beginning of the first taxable year to which the election applies or thereafter acquired, and is irrevocable without consent of the IRS. Special rules may apply if a 2009A Certificate is subject to call prior to maturity at a price in excess of its redemption price at maturity.

Special Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreement, the Lease, and the Tax Certificate permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the effect on the exclusion from gross income for federal income tax purposes of interest (and original issue discount) due with respect to any Certificate if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2009A Certificates will be selected for audit by the IRS. It is also possible that the market value of the 2009A Certificates might be affected as a result of such an audit of the 2009A Certificates (or by an audit of similar securities).

Although Special Counsel has rendered an opinion that the interest (and original issue discount) due with respect to the 2009A Certificates is excluded from gross income for federal income tax purposes provided that the City and the Corporation continue to comply with certain requirements of the Code, the ownership of the 2009A Certificates and the accrual or receipt of interest (and original issue discount) with respect to the 2009A Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2009A Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences with respect to the 2009A Certificates.

The form of Special Counsel’s proposed opinion with respect to the Certificates is attached hereto in Appendix D.

2009B Certificates

In the opinion of Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest with respect to the 2009B Certificates is exempt from State of California personal income tax.

The difference between the issue price of a 2009B Certificate (the first price at which a substantial amount of the 2009B Certificates of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2009B Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method. The amount of original issue discount deemed

43

received by the 2009B Certificate Owner will increase the 2009B Certificate Owner’s basis in the 2009B Certificate.

The amount by which a 2009B Certificate Owner’s original basis for determining loss on sale or exchange in the applicable 2009B Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable 2009B Certificate premium, which a Certificate holder may elect to amortize under Section 171 of the Code; such amortizable 2009B Certificate premium reduces the 2009B Certificate Owner’s basis in the applicable 2009B Certificate (and the amount of taxable interest received), and is deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2009B Certificate premium may result in a 2009B Certificate Owner realizing a taxable gain when a 2009B Certificate is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2009B Certificate to the Owner. Purchasers of the 2009B Certificate should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable 2009B Certificate premium.

The federal tax and State of California personal income tax discussion set forth above is included for general information only and may not be applicable depending upon an owner’s particular situation. The ownership and disposal of the 2009B Certificates and the accrual or receipt of interest (and original issue discount) with respect to the 2009B Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Any federal tax advice contained herein is not intended or written to be used, and it cannot be used, for the purpose of (i) avoiding penalties under the Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein with respect to the 2009B Certificates. Accordingly, before purchasing any of the 2009B Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2009B Certificates.

A copy of the proposed form of opinion of Special Counsel with respect to the 2009B Certificates is attached hereto in Appendix D.

BANK QUALIFIED OBLIGATIONS

The City has designated the 2009A Certificates as “qualified tax-exempt obligations,” thereby allowing certain financial institutions that are holders of such qualified tax-exempt obligations to deduct a portion of such institution’s interest expense allocable to such qualified tax-exempt obligations, all as determined in accordance with Section 265 of the Internal Revenue Code of 1986, as amended.

CERTAIN LEGAL MATTERS

Certain legal matters incident to the authorization, sale, execution and delivery of the Certificates are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel. A complete copy of the proposed form of opinion of Special Counsel is contained in Appendix D hereto. Special Counsel has not undertaken any responsibility to the Owners for the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the Certificates and expresses no opinion relating thereto. Certain legal matters will be passed upon for the City and the Corporation by the City Attorney and by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, and for the Trustee by Kutak Rock LLP, Los Angeles, California. Compensation of Special Counsel is contingent upon the execution and delivery of the Certificates.

LITIGATION

To the best knowledge of the City, there is no action, suit or proceeding known to be pending, or threatened, restraining or enjoining the execution or delivery of the Certificates, the Trust Agreement, the

44

Leased Premises, the Lease, the Assignment Agreement or any other document relating to the Certificates, or in any way contesting or affecting the validity of the foregoing.

There are a number of lawsuits and claims pending against the City. In the opinion of the City, such suits and claims as are presently pending will not have a material adverse affect on the ability of the City to make Lease Payments.

RATING

Standard & Poor’s Ratings Group (“S&P”) is expected to assign rating of “AA+” to the Certificates. Such rating reflects only the views of such organization and any desired explanation of the significance of such rating should be obtained from S&P, at the following address: Standard & Poor’s Corporation, 55 Water Street, New York, New York 10041. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates.

UNDERWRITING

The Certificates were sold to Stone & Youngberg (the “Underwriter”) at negotiated sale. The 2009A Certificates are being purchased by the Underwriter for $18,551,137.03 (representing the par amount of the Certificates, plus net original issue premium of $31,507.10 less an underwriter’s discount of $140,370.07). The 2009B Certificates are being purchased by the Underwriter for $806,795.07 (representing the par amount of the Certificates, less an underwriter’s discount of $8,204.93). The Underwriter is committed to purchase all of the Certificates if any are purchased. The Underwriter may offer and sell the Certificates to certain dealers (including dealers depositing Certificates into investment trusts) and others at prices lower than the offering prices stated on the cover of this Official Statement. After the initial public offering, the public offering prices of the Certificates may be changed from time to time by the Underwriter.

CONTINUING DISCLOSURE

Pursuant to a Continuing Disclosure Agreement (the “Disclosure Agreement”), the City has agreed to provide, or cause to be provided, certain annual financial and operating data, including its audited financial statements and certain of the information of the type set forth in Tables 1 through 3A, 5 and 6 of this Official Statement under the heading “CITY FINANCIAL INFORMATION”, by no later than April 1 of each year commencing April 1, 2010, to the Municipal Securities Rulemaking Board for purposes of Rule 15c2-12(b)(5) (the “Rule”) adopted by the Securities and Exchange Commission (each, a “Repository”).

In addition, the City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board in a timely manner notice of the following “Listed Events” if determined by the City to be material: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on the debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the security; (7) modifications to rights of security holders; (8) bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the securities; and (11) rating changes. These covenants have been made in order to assist the Underwriter in complying with the Rule. The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. For a detailed description of the City’s responsibilities under the Disclosure Agreement see Appendix E — “FORM OF CONTINUING DISCLOSURE AGREEMENT.”

45

FINANCIAL STATEMENTS OF THE CITY

Included herein as Appendix B are the audited financial statements of the City as of and for the year ended June 30, 2008, together with the report thereon dated November 12, 2008 of Lance Soll & Lunghard LLP, Certified Public Accountants (the “Auditor”). Such audited financial statements have been included herein in reliance upon the report of the Auditor. The Auditor has not undertaken to update the audited financial statements of the City or its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to its report dated November 12, 2008.

The City is currently in the process of preparing unaudited, preliminary financial information for the fiscal year which ended June 30, 2009 for submission to the Auditor in connection with the Auditor’s preparation of the fiscal year 2008-09 audited financial statements of the City. The City believes that there has not been any materially adverse change in the financial condition of the City’s General Fund since June 30, 2008, although the available unreserved fund balance has declined since June 30, 2008, as set forth herein. See “CITY FINANCIAL INFORMATION — Budget Procedure, Current Budget and Historical Budget Information.”

MISCELLANEOUS

Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or Owners of any of the Certificates.

The execution and delivery of this Official Statement has been duly authorized by the City.

CITY OF MALIBU

By: /s/ Jim Thorsen City Manager

(THIS PAGE INTENTIONALLY LEFT BLANK)

A-1

APPENDIX A

ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF MALIBU

This appendix sets forth general information about the City of Malibu (“Malibu”) including

information with respect to its finances. The following information concerning Malibu, the County of Los Angeles (the “County”) and the State of California (the “State”) is included only for general background purposes. It is not intended to suggest that the Certificates are payable from any source other than Lease Payments.

General Description

Malibu was incorporated on March 28, 1991. Located in northwest Los Angeles County, the City has 21 miles of coastline along the Pacific Ocean, Malibu encompasses over 20 square miles. Malibu operates under a Council-Manager form of government and provides the following services: public safety, community services, engineering services, planning services, public works and general administrative services. With a 2009 estimated population of 13,750, Malibu has over 10 million visitors each year.

Malibu is a predominantly residential community that has become a haven for those seeking to escape the urban life of Los Angeles. Its small commercial sectors of many quaint shops and restaurants welcome locals and visitors alike. Programs and exhibits offered by Pepperdine University and the Wiesman Museum provide culturally enriching experiences.

Population

The historic population of Malibu, the County and the State is shown below.

City of Malibu, County of Los Angeles and State of California Population Estimates

Year City of Malibu County of Los Angeles State of California

2005 13,614 10,158,409 36,676,931 2006 13,619 10,209,201 37,086,191 2007 13,634 10,243,764 37,472,074 2008 13,624 10,301,658 37,883,992 2009 13,750 10,393,185 38,292,687

Source: State of California, Department of Finance, E-4 Population Estimates for Cites, Counties and the State, 2001-2009,

with 2000 Benchmark. Sacramento, California, May 2009.

A-2

Building Activity

Residential building activity for the past five calendar years for Malibu is shown in the following tables.

City of Malibu New Housing Units Building Permits

2004 2005 2006 2007 2008

Single Family Units 16 7 25 31 30 Multifamily Units 0 8 0 0 0 Total Units 16 15 25 31 30 Source: Construction Industry Research Board.

City of Malibu Building Permit Valuations

2004 2005 2006 2007 2008 Residential New Single Family $ 13,057,092 $ 4,407,670 $ 16,069,861 $ 20,227,440 $ 22,425,612 New Multifamily -- 3,800,000 -- -- -- Res. Alt. & Adds 17,938,191 18,484,089 19,757,065 18,795,740 28,987,600 Total Residential $ 30,995,283 $ 26,691,759 $ 35,826,926 $ 39,023,180 $ 51,413,212 Nonresidential New Commercial $ -- $ -- $ 1,200,000 $ -- $ 12,469,000 New Industrial -- -- -- -- -- New Other(1) 3,962,626 2,931,626 5,072,114 8,802,680 8,097,065 Alters. & Adds. 1,173,806 1,401,487 3,427,382 5,344,865 4,302,042 Total Non- Residential

$ 5,136,432 $ 4,333,113 $ 9,699,496 $ 14,147,545 $ 24,868,107

Total All Building $ 36,131,715 $ 31,024,872 $ 45,526,422 $ 53,170,725 $ 76,281,319 (1) Includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings,

residential garages, public works and utilities buildings and no-residential alterations and additions. Note: “Total All Building” is the sum of Residential and Nonresidential Building Permit Valuations. Totals may not add to

sums because of independent rounding. Source: Construction Industry Research Board.

A-3

Employment

The following table summarizes the labor force, employment and unemployment figures over the period 2004 through 2008 for Malibu, the County, the State and the United States.

Malibu, Los Angeles County, State of California and United States Labor Force, Employment and Unemployment Yearly Average

Year and Area Civilian

Labor Force Civilian

Employment(1) Civilian

Unemployment(2) Civilian

Unemployment Rate(3)

2004 Malibu 7,500 7,300 200 2.2% Los Angeles County 4,809,700 4,494,000 315,700 6.6 California 17,552,300 16,459,900 1,092,400 6.2 United States 147,401,000 139,252,000 8,149,000 5.5 2005 Malibu 7,500 7,400 100 1.8% Los Angeles County 4,837,300 4,581,100 256,200 5.3 California 17,695,600 16,746,900 948,700 5.4 United States 149,320,000 141,730,000 7,591,000 5.1 2006 Malibu 7,600 7,500 100 1.6% Los Angeles County 4,860,600 4,631,600 229,000 4.7 California 17,941,000 17,076,000 865,000 4.8 United States(4) 152,571,000 146,081,000 6,491,000 4.3 2007 Malibu 7,700 7,600 100 1.7% Los Angeles County 4,912,600 4,662,700 249,900 5.1 California 18,078,000 17,108,700 969,300 5.4 United States(4) 153,124,000 146,047,000 7,078,000 4.6 2008 Malibu 7,700 7,500 200 2.6% Los Angeles County 4,972,000 4,598,300 373,800 7.5 California 18,391,800 17,059,600 1,332,300 7.2 United States(4) 154,287,000 145,362,000 8,924,000 5.8 (1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded

figures in this table. (4) Not strictly comparable with data for prior years Source: State of California Employment Development Department, Labor Market Information Division, based on May 2009

benchmark and U.S. Department of Labor, Bureau of Labor Statistics.

A-4

Los Angeles-Long Beach-Glendale Metropolitan Division, which includes Malibu, civilian labor force and wage and salary employment figures for calendar years 2004 through 2008 are shown in the following table. These figures are county-wide statistics and may not necessarily accurately reflect employment trends in Malibu. Additionally, there has been a significant economic deterioration and dramatic increases in unemployment in the United State, California and Los Angeles County since 2008.

Los Angeles-Long Beach-Glendale Metropolitan Division Industry Employment & Labor Force - by Annual Average

Title 2004 2005 2006 2007 2008

Civilian Labor Force 4,809,700 4,810,000 4,844,500 4,912,600 4,972,000 Civilian Employment 4,494,000 4,552,800 4,613,200 4,662,700 4,598,300 Civilian Unemployment 315,700 257,100 231,300 249,900 373,800 Civilian Unemployment Rate 6.6% 5.3% 4.8% 5.1% 7.5% Total Farm 7,600 7,400 7,600 7,500 6,900 Total Nonfarm 3,992,200 4,024,200 4,092,500 4,122,100 4,069,300 Total Private 3,405,600 3,440,500 3,503,900 3,526,400 3,465,600 Goods Producing 627,500 624,100 622,900 611,200 583,300 Natural Resources and Mining 3,900 3,700 4,000 4,400 4,400 Construction 139,400 148,700 156,700 157,600 145,100 Manufacturing 484,200 471,700 462,300 449,200 433,800 Durable Goods 267,800 263,400 257,800 250,900 242,900 Nondurable Goods 216,500 208,300 204,400 198,300 191,000 Service Providing 3,364,700 3,400,100 3,469,600 3,510,900 3,486,000 Private Service Producing 2,778,100 2,816,400 2,879,400 2,915,200 2,882,000 Trade, Transportation and Utilities 780,200 795,400 814,100 818,500 804,000 Wholesale Trade 214,500 219,300 225,200 227,000 224,500 Retail Trade 404,500 414,400 423,200 426,000 417,400 Transportation, Warehousing and Utilities 161,100 161,700 165,700 165,600 162,000 Information 208,100 207,600 209,700 209,800 211,300 Financial Activities 243,200 244,000 248,000 246,000 235,400 Professional and Business Services 561,000 576,100 594,700 605,400 584,100 Educational and Health Services 467,700 471,300 481,300 490,500 501,500 Leisure and Hospitality 373,100 377,800 387,500 397,900 399,500 Other Services 144,800 144,300 145,700 147,100 146,500 Government 586,600 583,700 588,600 595,700 603,700 Total, All Industries 3,999,700 4,031,600 4,100,200 4,129,600 4,076,200

Note: The “Total, All Industries” data is not directly comparable to the employment data found herein. Source: State of California, Employment Development Department, Labor Market Information Division, Los Angeles-Long

Beach-Glendale Metropolitan Division, Industry Employment & Labor Force - by Annual Average, May 2009 Benchmark.

A-5

Sales Taxes

The following table shows taxable transactions in Malibu by type of business during calendar years 2004 through 2008. A summary of historic taxable transactions for Malibu is shown in the following table.

City of Malibu Taxable Transactions(1) (Dollars in thousands)

2004 2005 2006 2007 2008

Apparel Stores $ 23,280 $ 25,902 $ 29,056 $ 31,300 $ 29,178 General Merchandise 176 432 564 144 1,943 Food Stores 18,551 19,674 20,444 19,730 21,379 Eating and Drinking Places 66,265 66,506 72,305 76,324 78,061 Building Material 16,240 9,451 10,638 11,109 10,060 Auto Dealers and Supplies 1,539 2,427 1,810 1,851 1,237Service Stations 21,312 23,273 24,775 27,441 25,014 Other Retail Stores 41,128 41,930 43,445 45,826 44,014 All Other Outlets 40,340 42,678 38,783 42,036 44,792 Total All Outlets $ 228,831 $ 232,274 $ 241,820 $ 255,763 $ 255,767

(1) Due to confidentiality issues, the names of the ten largest revenue payers are not available. The categories presented are

intended to provide alternative information regarding the sources of the City’s revenue. Source: State Board of Equalization and the City .

Education

Public educational instruction from kindergarten through high school is provided by the Santa Monica-Malibu Unified School District. The District administers ten elementary schools, two junior high schools and two senior high schools. Santa Monica College is a two year community college located in Santa Monica. Pepperdine University (located just outside the City limits) is an independent, medium-sized university enrolling approximately 8,300 students in five colleges and schools. Seaver College, the School of Law, the Graduate School of Education and Psychology, the Graziadio School of Business and Management and the School of Public Policy are located on Pepperdine University’s 830-acre campus overlooking the Pacific Ocean in Malibu. There are several universities or colleges within 30 minutes commuting distance from Malibu in the Los Angeles Metropolitan Area.

Community Facilities

There are two daily and two weekly newspapers published and circulated in Malibu. Malibu has one public library.

Recreational facilities within or near Malibu include Leo Carrillo State Park, Malibu Creek State Park, Santa Monica Mountains National Recreation Area, Solstice Canyon Park, Malibu Bluffs Park, Charmlee Nature Center and Las Flores Creek Park. Malibu has 21 miles of coastline, including 12 public beaches that host more than 10 million visitors a year.

Transportation

California Route 1 provides full access from Malibu west to Los Angeles and east to Ventura and there are three major access routes through the Santa Monica Mountains to U.S. Highway 101.

Daily bus connections serve Malibu. Los Angeles International Airport is thirty minutes to the southeast of Malibu.

A-6

Utilities

Electric power is provided by Southern California Edison. Natural Gas is provided by The Gas Company. Verizon provides telephone service to the area. Los Angeles County Water District #29 provides water services. Los Angeles County also administers several community-based wastewater treatment facilities within Malibu.

B-1

APPENDIX B

THE CITY OF MALIBU AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008


CITY OF MALIBU, CALIFORNIA

COMPREHENSIVE ANNUAL FINANCIAL

REPORT

FOR THE YEAR ENDED JUNE 30, 2008

Prepared by: City of Malibu

Administrative Services Department Reva Feldman, Administrative Services Director

CITY OF MALIBU, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30, 2008

TABLE OF CONTENTS

INTRODUCTORY SECTION

Letter of Transmittal ............................................................................................................ i City Officials ........................................................................................................................ v Awards ............................................................................................................................... vi Organization Chart ............................................................................................................ vii

FINANCIAL SECTION

Independent Auditor's Report .............................................................................................. 1 Management's Discussion and Analysis ............................................................................. 3

Basic Financial Statements: Statement of Net Assets ......................................................................................... 13 Statement of Activities ........................................................................................... 14 Balance Sheet- Governmental Funds ................................................................... 15 Reconciliation of the Balance Sheet to the Statement of

Net Assets- Governmental Funds .............................................................. 16 Statement ofRevenues, Expenditures and Changes in

Fund Balances - Governmental Funds ....................................................... 1 7 Reconciliation of the Statement of Revenues, Expenditures and

Changes in Fund Balances to the Statement of Activities -Governmental Funds ................................................................................... 18

Statement of Revenues, Expenditures and Changes in Fund Balances -Budget and Actual - General Fund ................................. .l9

Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Grants Special Revenue Fund ....... 20

Statement of Net Assets- Proprietary Fund ......................................................... .21 Statement of Revenues, Expenses and Changes in

Fund Net Assets- Proprietary Fund ......................................................... 22 Statement of Cash Flows - Proprietary Fund ........................................................ 23 Statement of Fiduciary Net Assets- Fiduciary Fund ............................................ 24 Statement of Changes in Fiduciary Net Assets ..................................................... .25 Notes to the Financial Statements ......................................................................... .26

Individual Fund Financial Statements and Schedules (Supplementary Infonnation):

Governmental Funds: Combining Balance Sheet- Non-major Governmental Funds ............................. .46 Combining Statement of Revenues, Expenditures and

Changes in Fund Balances- Non-major Governmental Funds ................ .48 Schedule ofRevenues, Expenditures and Changes in Fund

Balances- Budget and Actual- Non-major Governmental Funds ........... 50

CITY OF MALIBU, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30,2008

TABLE OF CONTENTS

Governmental Funds (continued): Combining Statement of Net Assets Pension Trust Funds ................................. 63 Combining Statement of Changes in Net Assets - Pension Trust Funds .............. 64 Statement of Changes in Assets and Liabilities Agency Fund ........................... 65

INTRODUCTORY SECTION

The Introductory Section of the Comprehensive Annual Financial Report provides general information of the City of Malibu,. California's structure and its personnel, as well as information useful in assessing the City's financial condition. This section includes the following:

• Letter of Transmittal

• List of City Officials

• Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting

• City's Organizational Chart

City of Malibu 23815 Stuart Ranch Road, Malibu, California 90265-4861

(310) 456-2489 fax (310) 456-3356

December 1 , 2008

Honorable Mayor and City Council City of Malibu, California

The Comprehensive Annual Financial Report (CAFR) of the City of Malibu for the fiscal year ending June 30, 2008 is hereby submitted. Responsibility for the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the information presented is accurate in all material aspects, and is reported in a manner designed to present fairly the financial position and results of operations of the various funds of the City of Malibu. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included.

The financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB). This report consists of management's representations concerning the finances of the City of Malibu, California. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the City's assets from loss, theft or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management we attest that, to the best of our knowledge and belief, this financial report is complete and reliable in all material aspects.

The City's financial statements have been audited by Lance, Soli & Lunghard LLP, a public accounting firm fully licensed and qualified to perform audits of state and local governments within the State of California. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditors concluded, based upon the audit, that there was reasonable basis for rendering an unqualified opinion that the City of Malibu, California's financial statements for the fiscal year ended June 30, 2008, are fairly presented in conformity with GAAP.

Recycled Paper

This CAFR is presented in three sections: introductory, financial, and statistical. The introductory section includes this transmittal letter, the City's organization chart, awards and a list of City officials. The financial section includes the independent auditor's report, the basic financial statements, notes to the financial statements, and the combining and individual fund financial statements. The statistical section, which is unaudited, contains selected financial and demographic information, generally presented on a multi-year basis.

GAAP requires that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. Malibu's MD&A can be found immediately following the report of the independent auditors in the financial section of the CAFR.

Profile of the City of Malibu

The City of Malibu was incorporated as a general law city on March 28, 1991 and operates under the council/manager form of government. Located in northwest Los Angeles County, the City encompasses over 20 square miles along the Pacific Ocean. Malibu has a population of approximately 13,700 residents, but with its miles of public beaches, more than 1 0 million people visit the City each year. The City provides a full range of services, some of which are contracted through outside agencies and/or firms. These services include law enforcement, highways and roads, recreation areas, planning and zoning, building and environmental safety, emergency preparedness and general administrative services.

The City of Malibu has a rich and diverse history. Originally settled by the Chumash Indians, they named the stretch of beach at the mouth of the Malibu Creek "Humaliwo" or "the surf I sounds loudly". In 1802, Jose Tapia established a ranch in the area. Passed on through generations, it was eventually sold in 1891 to Fredrick Rindge. Seeking an ideal country home for his family, the private domain was guarded fiercely. Rindge's widow, May, fought off an effort to route the Southern Pacific Railroad through Malibu by establishing her own private I

railroad. Later, the State of California succeeded in obtaining a right-of-way to build the Pacific Coast Highway through the property. A final court battle in the late 1920's forced Rindge to begin leasing, then selling the property at the mouth of Malibu Creek. As most of the purchasers were movie stars, the area became known as the Malibu Movie Colony.

Today, Malibu is a predominantly residential community that has become a haven for those seeking to escape the urban life of Los Angeles. Its small commercial sectors consist of many quaint shops and restaurants that welcome locals and visitors alike. Programs and exhibits offered by Pepperdine University and the Wiesman Museum of Art provide culturally enriching I experiences.

Factors Affecting Financial Condition

Malibu's local economy is unique in that it is significantly impacted by climate. In the warm weather months, millions come to Malibu to enjoy the beautiful beaches. During the winter months, rain and pounding surf can flood roads and create landslides, making travel through the City difficult. Since its incorporation in 1991, Malibu has been plagued with disasters,

Recycled Paper

I I I I I I I I I I I I I I I I I I I I I I I I I I I I

including floods, multiple fires and an earthquake, creating a significant drain on the City's finances. For this reason the City maintains a substantial reserve in its General Fund. The City has seen an increase in its General Fund reserves over the past few years.

While the State of California struggles with a significant budget deficit and many government agencies have been impacted by a slower economy in recent years, the City of Malibu's financial position remains strong. The largest revenue source is property tax, which continues to increase due to a strong residential real estate market and increased valuation. Sales tax is relatively unaffected by the economy, as the City has only small retail establishments. Malibu relies heavily on grant funding for many of the capital projects it undertakes and has been successful in securing millions of dollars over the years from various agencies.

Other Information

Budgetary Controls. The City of Malibu maintains a budget control system to ensure compliance with the spending limits incorporated in the annual operating budget adopted by the City Council. Activities of the general fund and special revenue funds are included in the annual appropriated budget. Project-length financial plans are adopted for the capital project funds. Budgetary control is maintained at the fund level for administrative and operating expenditures and at the project level for capital improvements. Only the City Council has the authority to increase total appropriations within any fund, subject to the appropriations limitations established by State law. The City also maintains an encumbrance accounting system as one technique of accomplishing budgetary control.

Long Term Financial Planning. The City prepares and adopts its budget on an annual basis. Each budget, however, takes into account future years spending needs and revenue availability. Capital projects are budgeted using a five-year planning approach and other major expenditures are evaluated and budgeted based on expectations of revenues and expenditures in future fiscal years. The City maintains a strong General Fund reserve. As of June 30, 2008, the City had over $19 million in reserves, which allows for flexibility in budget projecting, and also provides the City with funding in the event of an unexpected fiscal emergency in future years.

Cash Management. The City manages cash and investments on a pooled basis, consisting primarily of participation in the Local Agency Investment Fund (LAIF), a pooled fund controlled by the State Treasurer. The City's investment policy allows for investments in short-term money market instruments and U.S. government issues, the State and County pooled funds, and passbook savings accounts, but prohibits investment in long-term instruments and derivatives.

In fiscal year 2007-08 the City of Malibu's investment portfolio averaged approximately $19 million with an average annualized return on investments of 4.3% and total interest of $941,436.

In fiscal year 2005-2006, the City issued Certificates of Participation (COPs) in the amount of $17.5 million. The City purchased an approximately 20 acre parcel in the Civic Center area of Malibu. Funding for the acquisition was a combination of grants, donations, COPs and

iii Recycled Paper

General Fund dollars. The vacant portion property is being developed into a passive park that is part of a storm water and waste water management plan. There are three commercial properties on the site that are leased out by the City. The COPs will be repaid in a period of thirty years. Funding for the lease payments associated with the COPs is generated from rental fees collected from the commercial properties.

Risk Management. The City is a member of the California Joint Powers Insurance Agency (CJPIA), a self-insurance pool comprised of 107 municipalities and special districts throughout California, for the purpose of pooling Malibu's risk for general liability and worker's compensation losses with those of other member cities. The City's self-insured retention is $30,000 per occurrence for general liability and $50,000 per occurrence for worker's compensation. Under the CJPIA, insurance coverage in excess of the self-insured amount is provided up to a limit of $50,000,000.

Pension Plan. The City contracts with the California Public Employees Retirement System (CaiPERS) for retirement benefits for full-time employees. The annual actuarial valuation by CaiPERS changes from year to year, and the City's contribution rates are modified accordingly. For more information, please refer to note number 8 of the notes to the Financial Statements.

Awards and Acknowledgements

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Malibu for its comprehensive annual financial report for the fiscal year ended June 30, 2007. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for the preparation of state and local government financial reports. In order to be awarded a Certificate of Achievement, the City must publish an easily readable and efficiently organized comprehensive annual financial report that must satisfy both generally accepted accounting principles and applicable legal requirements.

The Certificate of Achievement from the GFOA is valid for a period of one year. City staff believes that this current comprehensive annual financial report continues to meet the requirements for the award and will submit it to the GFOA to determine its eligibility for another certificate.

The preparation of this report could not have been accomplished without the efficient and dedicated services of the Administrative Services Department staff. Special acknowledgment is given to Mike Matsumoto, Ruth Piyaman and to the assistance of Lance, Soli, & Lunghard LLP, the City's independent auditors. I would also like to thank the City Manager, Mayor and members of the City Council for their support in planning and conducting the operations of the City in a responsible and progressive manner.

~£ Reva Feldman Administrative Services Director

iv Recycled Paper

CITY OF MALIBU, CALIFORNIA LIST OF CITY OFFICIALS

CITY COUNCIL

MAYOR PAMELA CONLEY ULICH

MAYOR PRO TEM ANDY STERN

COUNCIL MEMBER SHARON BAROVSKY

COUNCIL MEMBER JOHN SIBERT

COUNCIL MEMBER JEFFERSON WAGNER

DEPARTMENT OFFICIALS

CITY MANAGER JIM THORSEN

ADMINISTRATIVE SERVICES DIRECTOR REV A FELDMAN

CITY CLERK LISA POPE

COMMUNITY DEVELOPMENT DIRECTOR VIC PETERSON

PARKS AND RECREATION DIRECTOR BOB STALLINGS

PUBLIC WORKS DIRECTOR BOB BRAGER

CITY ATTORNEY CHRISTI HOGIN

CITY TREASURER LILY RUFF

v

Certificate of Achievement for Excellence

in Financial Reporting

Presented to

City of Malibu California

For its Comprehensive Annual

Financial Report·

for the Fiscal Year Ended

June 30, 2007

A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers

Association of the United States and Canada to government units and public employee retirement

systems whose comprehensive annual fmancial reports (CAFRs) achieve the highest standards in government accounting

and financial reporting .

. ·.ax·· . . .

. ~~ .·.- ,··

President

Executive Director

vi

City of Malibu

City Clerk

Deputy City Clerk

;§,

Assistant to the City Manager

Emergency Services

Coordinator

Executive Assistant

City Attorney

ADMINISTRATIVE SERVICES DIRECTOR

Finance/Accounting Manager

Human Resources Analyst

Information Services Administrator

Information Services Technician

Accounting Technician (2)

Receptionist/Office Assistant

Telecommunications Specialist

Office Assistant**

PUBLIC WORKS DIRECTOR/CITY

ENGINEER

Deputy City Engineer

Senior Civil Engineer

Public Works Superintendent

Senior Public Works Inspector

Senior Public Works Maintenance Worker

Environmental Programs Coordinator

Administrative Assistant

Senior Office Assistant

Office Assistant**

Crossing Guard**

**part time or seasonal

CITY COUNCIL City Treasurer Mayor

Mayor ProTem Council member Councilmember Councilmember

City Commissions

CITY MANAGER

COMMUNITY DEVELOPMENT DIRECTOR

Division Manager- Environmental & Building Safety

Division Manager- Planning

Division Manager- Permit Service & Code Enforcement

Principal Planner

Senior Planner (2)

Associate Planner (2)

Assistant Planner (2)

Planning Technician

Building Inspector (3)

Environmental Health Administrator

Certified Plans Examiner

Sr. Code Enforcement Officer

Code Enforcement (2)

Sr. Administrative Analyst

Administrative Analyst

Administrative Assistant (2)

Senior Permit Services Technician

Permit Services Technician (2)

Wastewater Programs Analyst

Office Assistant (3)

Office Assistant **

Intern**

PARKS & RECREATION

DIRECTOR

Recreation Manager

Recreation Supervisor

Administrative Analyst

Park Supervisor

Recreation Coordinator (3)

Senior Parks Maintenance Worker

Recreation Assistants**

Lifeguards**

FINANCIAL SECTION

The Financial Section of the Comprehensive Annual Financial Report contains the following:

• Independent Auditor's Report

• Required Supplementary Information- Management Discussion and Analysis (MD&A)

• Basic Financial Statements

t::.=:w Lance Soli & Lung hard

LLP Certified Public Accountants

INDEPENDENT AUDITORS' REPORT

To the Honorable Mayor and Members of the City Council City of Malibu, California

Brandon W. Burrows Donald L. Parker Michael K. Chu David E. Hale A Professional Corporation

Donald G. Slater Richard K. Kikuchi

Retired Robert C. Lance

1914·1994

Richard C. Soli Fred J. Lunghard, Jr.

1928-1999

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Malibu, California, as of and for the year ended June 30, 2008, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Malibu's management Our responsibility is to express opinions on these financial statements based on our audit

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Malibu as of June 30, 2008, and the respective changes in financial position and cash flows where applicable thereof, and the respective budgetary comparison for the General Fund and the Grants Special Revenue Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated November 12, 2008, on our consideration of the City of Malibu's internal control over financial reporting and our tests of its compliance with certain laws, regulations, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit

The accompanying management's discussion and analysis- is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it

75YEARS

203 N. Brea Blvd., Suite 203 • Brea, CA 92821-4056 • (714) 672-0022 • Fax (714) 672-0331 • www.lslcpas.com

nee I&

nghard LLP

CERTIFIED PUBLIC ACCOUNTANTS

To the Honorable Mayor and Members of the City Council City of Malibu, California

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying introductory section, the combining and individual fund statements, schedules and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying combining and individual nonmajor fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The accompanying introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.

November 12, 2008

CITY OF MALIBU Management's Discussion and Analysis June 30, 2008

As management of the City of Malibu, we offer readers of the City of Malibu's financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, 2008. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found in the introductory section of this report.

Financial Highlights

~ The assets of the City of Malibu exceed its liabilities at the close of the fiscal year ended June 30, 2008 by $88,142,511 (net assets). Of this amount, $22,014,775 (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors.

~ The City's total net assets increased by $8,354,279.

~ As of June 30, 2008, the City's governmental funds reported a combined ending fund balance of $22,388,738, an increase of $487,485 in comparison with the prior year. Of this amount, $13,266,607 is available for spending at the government's discretion (unreserved, undesignated fund balance).

~ As of June 30, 2008, the unreserved, undesignated fund balance for the General Fund was $14,015,739 or 77% of total General Fund expenditures.

Overview of the Financial Statements

This discussion and analysis is intended to serve as an introduction to the City's basic financial statements, which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business.

The statement of net assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Malibu is improving or deteriorating.

The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the changes' underlying event occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this

3


statement for some items that will only result in cash flows in future fiscal periods (e.g. uncollected taxes and earned but unused vacation leave).

Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include legislative and advisory, general government, public safety, community development, parks and recreation, and public works. Business-type activities are comprised of commercial real estate rental.

The government-wide financial statements are in this report's financial section immediately following the Management's Discussion and Analysis (MD&A).

Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Malibu, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, enterprise funds, and fiduciary funds.

Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The City of Malibu maintains 16 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, the Grants Fund and the Capital Improvements Fund, all of which are considered to be major funds. Data from the other 13 governmental funds are combined into a single, aggregated presentation.

4


Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report.

The City of Malibu adopts an annual appropriated budget for each of its governmental funds, excluding the Capital Improvements Capital Projects Fund. A budgetary comparison statement has been provided for each governmental fund which has an annual budget to demonstrate compliance with this budget.

The basic governmental fund financial statements can be found in the financial section of this report immediately following the government-wide financial statements.

Proprietary funds. Activities where the City charges fees to cover the costs are generally reported in proprietary funds (Enterprise and Internal Service). Like the government-wide financial statements, this fund type provides both long-term and short-term financial information utilizing the economic resources measurement focus. The City of Malibu reports one proprietary fund; the City's commercial real estate rental enterprise fund is represented as a business-type activity in the government wide financial statements. The individual fund presentation provides detailed information about the operating statements and cash flows.

Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the governmentwide and fund financial statements. The notes to the financial statements can be found in the financial section of this report following the fund financial statements.

Other information. Combining and individual fund statements and schedules can be found in the financial section of this report following the notes to the financial statements.

Government-wide Financial Analysis

City of Malibu Net Assets

ro:3~-~~~~~~ental:~~~~~g8· :_~ Current and other assets $ 26,984,226 $ 26,734,788 Capital assets 47,021,515 52,495,175

Total assets 14,005,741 79,229,963 Long-term liabilities 275,534 367,388 Other liabilities 2,510,117 2,304,953

Total liabilities - .·.·· 2,785,651 2,672,341 Invested in capital assets 46,982,322 52,456,246 Restricted 2,483,915 2,431,741 Unrestricted 21,753,853 21,669,635

Total net assets $71,220,090 $ 76;557,622

• ··• .-Business-tYpe ACtivities Total --

-- 3b~Jun::o7 ·•- 30cJun-08 -30-Jun-07 30-Jun-08 ·. $2,566,372 $ 2,663,844 $ 29,550,598 $29,398,632 25.190,990 28,396,606 72,212.505 80,891,781 27,757,362 31,060,450 101,763,103 110,290,413 18,317,174 18,103,440 18,592,708 18,470,828

872,046 1 ,372,121 3,382,163 3,677,074 19,189,220 19,475,561 21,974,871 22,147,902 6,873,734 10,747,846 53,856,056 63,204,092

539,258 491,903 3,023,173 2,923,644 1 '155,150 345,140 22,909,003 22,014,775

$8,568,142 $ 11,584,889 $ 79,788,232 $88,142,511

As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City of Malibu, assets

5


exceeded liabilities by $88,142,511 at June 30, 2008. The largest portion of the City's net assets ($63,204,092 or 72 percent) reflects its investment in capital assets (e.g. land, infrastructure, buildings, and equipment). The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending.

An additional portion of the City's net assets ($2,923,644 or 3%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($22,014,775 or 25%) may be used to meet the government's ongoing obligations to citizens and creditors.

City of Malibu Changes in Net Assets -_,-<·?·· Gove-rnme,ntai;Acthil{l~~-::·~-~ ~-~'-·_·_euslnes-s~tYJfe·Actf./i~ie~-~ ~ ;_:~::\ · ~--=Total

1 30cJun-07 ': ·30"JUn~o8 30"Jun~o'l • 30~JUn-08 3o~Jun~07 _ 30~Jun~Q8 ··· Program revenues:

Charges for services $ 6,410,329 $ 6,164,151 $ 492,287 $ 838,046 $ 6,902,616 $ 7,002,197 Operating contributions and grants 4,485,950 1,669,641 72,212 - 4,558,162 1,669,641 Capital contributions and grants 5,331,418 3,581,462 - 2,500,000 5,331,418 6,081,462

General revenues: Property taxes 6,708,260 7,359,616 - - 6,708,260 7,359,616 Other taxes 6,638,188 6,956,025 - - 6,638,188 6,956,025 Other revenues and transfers 1,474,375 269,978 443,596 1 ,256,125 1,917,971 1 ,526,103

· Total revenues c, . 31,048,520 26,000,873 1,008,095 ... 4,594,171 32,056,615• 30,595,044

Expenses: Legislative and advisory 1,247,916 1,440,201 - - 1,247,916 1,440,201 General government 3,268,188 3,738,866 - - 3,268,188 3,738,866 Public safety 5,108,528 5,326,433 - - 5,108,528 5,326,433 Public works 7,488,386 5,176,755 - - 7,488,386 5,176,755 Parks and recreation 1,624,278 1,605,337 - - 1,624,278 1,605,337 Community development 3,348,348 3,371,383 - - 3,348,348 3,371,383 Interest on long-term debt 4,052 4,366 - - 4,052 4,366 Commercial real estate rental - - 1,580,343 1,577,424 1,580,343 1,577,424

Total expenses 22,089;696 20,663,341· ··1,580,343 1,577,424 I' 23,670,039 22,240,765 Increase in net assets . · · .· •. :: ·8,958,824 . 5,337,532 ·. (572,248 3,016;747 ... · 8,386,576 ••. ·• 8,354,279 Net assets c July.1 .. ·• 62,261,266 '71,220,090 9,140,390 .. 8,568,142 71,401,656 79,788,232 Net assets- June 30c .· · $71;220,090 $ 76;557 ,622 $8,568;~42 $ 11,584,889 $79,788,232 $ 88,142,511

Governmental activities. Governmental activities increased the City's net assets by $5.3 million during the fiscal year in contrast to an increase of $8.9 million during the prior fiscal year. Key elements include:

)o> An increase of $651,000 in property tax revenue due to growth in assessed values of property.

)o> A decrease of $4.6 million in operating and capital grants, mainly a result of receiving fewer disaster-related grants as well as having essentially completed the Civic Center Stormwater Treatment Plant in the prior year.

)o> A decrease of $2.3 million in public works expenses due to a decrease in costs related to disaster responses.

)o> A decrease of $1.2 million in other revenues and transfers. This decrease is essentially due to transferring $1.2 million to the Commercial Real Estate Enterprise Fund to offset shortfalls in operating revenues over operating expenses and debt service costs.

6


Business-type activities. Business-type activities are financed primarily by fees charged to external parties for goods and services. The City's commercial real estate rental activity resulted in an increase of $3.017 million in net assets. The main reason for the increase is the $2.5 million capital contribution by a tenant. The tenant is doing major improvements to some commercial property owned by the City.

Revenues by Source (Government-wide)

other other taxes 1%

28%

operating contributions and grants

6%

Expenses and Program Revenues (Government-wide)

$8,000,000 l

$6,000,000

$4,000,000 i .

$2,000,000

$-

EIExpenses

• Program Revenues

Legislative and General Public Safety Public Works Parks and Community Interest on long- Commercial real Advisory Government Recreation Development term debt estate rental

The previous two charts illustrate the City's overall expenses and revenues by source (including both governmental and business-type activities). General revenues such as property, utility users, and sales taxes are not shown by program, but are effectively used to support program activities citywide. Without

7


regard for program, taxes are the largest single source of funds for the City (47%), followed by charges for services (23%), and capital contributions and grants (20% ).

Public Safety is the largest expense function, accounting for 25% of the total. Public Works is second at 23%, with General Government and Community Development functions each at 17% and 15% of the total, respectively. The expenses of public works decreased by $2.3 million in FY 2007-2008 due to a decrease in costs related to disaster responses in public works.

Financial Analysis of the City's Funds

As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $22,388,738, an increase of $487,485 over the prior year. This increase is due to the General Fund's revenues exceeding expenditures and transfers out by $671,000 which was then offset by the nonmajor governmental funds' expenditures and transfers out exceeding revenues by $184,000.

Approximately 59% ($13,266,607) of the combined ending fund balances constitutes unreserved, undesignated fund balance, which is available for spending at the City's discretion. The remainder of the combined ending fund balances is reserved or designated to indicate that it is not available for new spending because it has already been committed 1) to liquidate contracts and purchase orders of the prior period ($958,503), 2) to set aside funding towards the construction of a new Civic Center ($1 ,541,431 ), or 3) for a variety of other restricted or authorized purposes ($6,622, 197).

General Fund. The General Fund is the chief operating fund of the City of Malibu and comprises approximately 70% of the governmental expenditures of the City. At the end of the current fiscal year the unreserved, undesignated fund balance of the General Fund was $14,015,739 while the total fund balance reached $19,277,597. As a measure of the General Fund's liquidity, it may be useful to compare both unreserved, undesignated fund balance and total fund balance to total fund expenditures. The General Fund's unreserved, undesignated fund balance represents 77% of total General Fund expenditures, while the General Fund's total fund balance represents 106% of that same amount.

The General Fund revenues exceeded expenditures and transfers in fiscal year 2007-08. The main reasons were 1) the continued increase in taxable assessed valuation and 2) a delay in some expected general fund expenditures that will occur in future fiscal years.

Grants Special Revenue Fund. The purpose of the Grants Fund is to account for projects funded by various grants received from other governmental agencies. The majority of funds received are transferred to the Capital Improvements Fund.

8


Capital Improvements Capital Project Fund. This fund is used to account for the acquisition, construction and repair of major facilities and is fully funded by monies transferred from other funds.

Proprietary Fund. This fund is used to account for the commercial real estate rental activity. All revenues and expenses are for the commercial real estate rental program.

Budgetary Highlights

In preparing its budgets, the City attempts to estimate its revenues using realistic, but conservative methods so as to budget its expenditure appropriations and activities in a prudent manner. As a result, the City Council adopts budget adjustments during the course of the fiscal year to reflect both changed priorities and availability of additional revenues to allow for expansion of existing programs. During the course of the year, the City Council amended the originally adopted budget to reappropriate prior year approved projects and expenditures and to increase legal and professional services.

General Fund. The General Fund balance reflected a net total favorable budget variance of $1,944,829 (before other financing sources) when comparing actual amounts to the final budget for the current fiscal year. This amount reflects a ·negative variance of $210,000 in revenues and a positive variance of $2.15 million in expenditures. Although tax revenues exceeded budgeted amounts, this positive variance was offset by receiving fewer than expected grant revenues, resulting in the negative revenue variance. The positive expenditure variance resulted from fewer projects being performed and from projects progressing more slowly than anticipated.

The difference between the General Fund original budget and the final amended budget for expenditures was an increase of $1.5 million and can be attributed to:

• An increase of approximately $650,000 for disaster response expenditures

• An increase of approximately $200,000 for emergency preparedness services and equipment

• Approximately $100,000 for additional employees

• An increase of approximately $145,000 for capital equipment

• $300,000 for professional services for an environmental study

9


• An increase of approximately $100,000 for other professional services and operating expenses

Capital Asset and Debt Administration

Capital assets. The City's capital assets for governmental and business type activities as of June 30, 2008, amounts to $80,891,781 (net of accumulated depreciation). The capital assets include land, roadways, buildings, leasehold improvements, storm drains, vehicles, computer equipment, furniture, other equipment, and construction in progress. The total increase in the City's investment in capital assets net of related debt for the current fiscal year is $9.3 million, or 11.6% of capital assets net of accumulated depreciation. The increase in capital assets primarily reflects the City's ongoing work to improve the Las Flores and Solstice Creek parks as well as public works projects for road improvements and storm water treatment facility improvements.

The City has adopted a multi-year capital improvement program with the next fiscal year's costs totaling $8.5 million. Major projects budgeted for the 2008-2009 fiscal year include:

~ $2.6 million for construction and restoration of parks

~ $400,000 for street improvements

~ $5.6 million for street improvements and other capital projects

City of Malibu Capital Assets (net of depreciation)

:Governmental Activities· 0 Business-type Activities.· Tatai .· 30cJun-6f 30-Jun-08 ·.·· 30~Jun-07. 30'-Jun-08 30-Jun~07 30"Jun-OB~

Land $ 4,126,446 $ 4,126,446 $ 15,404,922 $ 15,404,922 $19,531,368 $19,531,368 Right of Way 24,807,624 24,807,624 - - 24,807,624 24,807,624 Construction in Progress 1,271,037 624,416 639,395 4,326,414 1,910,432 4,950,830 Leasehold Improvements 157,605 129,433 - - 157,605 129,433 Buildings 215,011 3,423,142 9,146,673 8,665,270 9,361,684 12,088,412 Equipment and Furniture 378,775 429,764 - - 378,775 429,764 Vehicles 83,022 62,025 - - 83,022 62,025 Infrastructure 15,981,995 18,892,325 - - 15,981,995 18,892,325

Total .·· $ 47;021 ,515 $ 52,495,175 $ 25,190,990 $ 28,396,606 $ 72,212,505 $ 80,891 '781

Additional information on the City's capital assets can be found in note 3 of the notes to the financial statements.

Long-term debt. At the end of the current fiscal year, the City of Malibu had total debt outstanding of $18,470,828.

10


City of Malibu Outstanding Debt

Employee compensated absences Capital leases Certificates of participation Loans payable

Total·. :_c_ .·· .·· C·

·8overnmentai Activities ·3o-Jun~07 30-Jun-08

$ 236,341 $ 328,459 39,193 38,929

- -- -

$ 275,534 $ 367,388

· Business-type Activities . · 30~Jun-o7 · 30-Jllri-Ci8

----- ·- - -·-rota·r--. -· 30-Jun-07 30~Jun~08 ·

$ - $ - $ 236,341 $ 328,459 - - 39,193 38,929

17,447,174 17,451,754 17,447,174 17,451,754 870,000 651,686 870,000 651,686

$18,317,174 $18,103,440 $ 18,592,708 $18,470,828.

The amount of general obligation debt a governmental entity may issue is limited by state statutes to a maximum of 15% of the entity's total assessed valuation. The City of Malibu currently has no general obligation debt, and therefore, has no debt that is applicable to the limit. Additional information on the City's long-term debt can be found in note 4 of the notes to the financial statements.

In conjunction with the Malibu Public Financing Corporation, the City has issued certificates of participation. This debt has been recorded in the City's Commercial Real Estate Rental Enterprise Fund. The lease payments are expected to be offset through the collection of rent from commercial tenants; however, if operating costs and lease payments exceed the operating revenues, the City intends to budget within and transfer from the General Fund the amount needed to offset any shortfall in revenue.

Economic Factors and Next Year's Budgets and Rates

Although the national and state economies have declined in recent years, the City's budget and financial position remain strong. Excluding intergovernmental grants, revenues have continued to increase by a modest percentage each year. However, with continued fiscal problems at the state level, the City developed its FY 2008-2009 budget conservatively.

Revenues. Due to a continuously conservative approach to budgeting revenues over the past several years, the City decided to increase budgeted revenues in 2008-2009 by 4.8% in order to be consistent with actual revenues received in the past two fiscal years. It is believed that this amount is still a conservative estimate. Budgetary expectations reflect:

~ Local property values remain strong; therefore, property tax revenue (over 36 percent of budgeted City-wide revenues in 2008-09) remains unaffected by the downturn in the economy and is projected to increase by at least 1 Opercent.

~ Other revenues are expected to remain stable.

Expenditures. Expenditures for Fiscal Year 2008-2009 were budgeted consistently with expenditures in Fiscal Year 2007-2008.

11


While the future of local government revenues remains uncertain, the City Council is committed to maintaining a large undesignated General Fund reserve to provide a buffer against such uncertainty.

Requests for Information

This financial report is designed to provide a general overview of the financial position of the City of Malibu for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Administrative Services Department, 23815 Stuart Ranch Road, Malibu, California 90265.

12

BASIC FINANCIAL STATEMENTS

The City's basic financial statements, including the accompanying notes, constitute the core of the CAFR' s financial section. The Basic Financial Statements include the following:

• The Government-wide Financial Statements • Fund Financial Statements • Notes to Basic Financial Statements

Major funds reported in the Basic Financial Statements are defined in note 1 of notes to Basic Financial Statements.

CITY OF MALIBU STATEMENT OF NET ASSETS

JUNE 30, 2008

Governmental Activities

ASSETS Cash and cash equivalents $19,141,026 Accounts receivable 1,496,120 Interest receivable 159,450 Due from other governments 5,671,809 Notes receivable 7,500 Deposits with others 64,861 Restricted assets:

Cash and cash equivalents with fiscal agent 194,022 Deferred charges Capital assets, non-depreciable 29,558,486 Capital assets, net of accumulated depreciation 22,936,689

Total assets 79,229,963

LIABILITIES Accounts payable 1,692,268 Retentions payable 462,334 Salaries and wages payable 150,351 Interest payable Deposits Noncurrent liabilities due within one year 306,173 Noncurrent liabilities due in more than one year 61,215

Total liabilities 2,672,341

NET ASSETS Invested in capital assets, net of related debt 52,456,246 Restricted for:

Debt service Contractors 194,022 Public works 2,028,998 Parks and recreation 208,721

Unrestricted 21,669,635

Total Net Assets $76,557,622

The notes to the financial statements are an integral part of this statement.

13

Business-type Activities Total

$ 1,662,618 $ 20,803,644 54,643 1,550,763

159,450 5,671,809

7,500 64,861

491,903 685,925 454,680 454,680

19,731,336 49,289,822 8,665,270 31,601,959

31,060,450 110,290,413

249,388 1,941,656 462,334 150,351

470,698 470,698 652,035 652,035 400,000 706,173

17,703,440 17,764,655

19,475,561 22,147,902

10,747,846 63,204,092

491,903 491,903 194,022

2,028,998 208,721

345,140 22,014,775

$11,584,889 $88,142,511

Governmental activities: Legislative and advisory General government Public safety Community development Parks and recreation Public works Interest on long-term debt

$

ExEenses

1,440,201 3,738,866 5,326,433 3,371,383 1,605,337 5,176,755

4,366

CITY OF MALIBU STATEMENT OF ACTIVITIES


Prooram Revenues Operating Capital

Charges for Grants and Grants and Services Contributions Contributions

$ 1,137 $ $ 383,541 442,037 657,836 100,000

4,097,665 546,125 20,000 162,311 477,847 1,107,604 3,419,151

Total governmental activities 20,663,341 6,164,151 1,669,641 3,581,462

Business-type activities: Commercial real estate rental 1,577,424 838,046 2,500,000

Total $ 22,240,765 $7,002,197

General revenues: Taxes:

Property tax Utility users tax Transient occupancy tax Franchise tax Sales tax Parking occupancy tax

$ 1,669,641 $6,081,462

Motor vehicle in lieu tax, intergovernmental, unrestricted Unrestricted investment earnings Other revenues

Transfers

Total general revenues and transfers

Change in net assets

Net assets- beginning of year

Net assets- end of year


14

Net (Expense) Revenue and Changes in Net Assets

Governmental Business-type Activities Activities Total

$ (1,439,064) $ $ (I ,439,064) (2,913,288) (2,913,288) ( 4,568,597) ( 4,568,597)

726,282 726,282 (876,901) (876,901) (172,153) (172,153)

{4,3661 (4,366)

(9,248,087) (9,248,087)

1,760,622 1,760,622

(9,248,087) 1,760,622 (7,487,465)

7,359,616 7,359,616 2,756,725 2,756,725

907,612 907,612 466,713 466,713

2,554,234 2,554,234 215,708 215,708

55,033 55,033 872,330 69,106 941,436 584,667 584,667

(I, 187,0191 1,187,019

14,585,619 1,256,125 15,841,744

5,337,532 3,016,747 8,354,279

71,220,090 8,568,142 79,788,232

$ 76,557,622 $ 11,584,889 $ 88,142,511

CITY OF MALIBU GOVERNMENTAL FUNDS

BALANCE SHEET JUNE 30, 2008

Special Capital Revenue Projects

Fund Fund Other Capital Governmental

General Grants Im2rovements Funds Totals ASSETS

Cash and investments $ 15,252,093 $ $ 749,836 $ 3,139,097 $ 19,141,026 Accounts receivable 1,346,666 149,454 1,496,120 Interest receivable 159,450 159,450 Due from other governments 1,853,927 3,814,858 3,024 5,671,809 Notes receivable 7,500 7,500 Deposits with others 64,861 64,861 Due from other funds 3,816,874 3,816,874 Restricted assets:

Cash and invetsments with fiscal agent 194,022 194,022

Total assets $ 22,501,371 $ 3,814,858 $ 943,858 $ 3,291,575 $ 30,551,662

LIABILITIES AND FUND BALANCES

LIABILITIES Accounts payable $ 1,032,326 $ $ 481,524 $ 178,418 $ 1,692,268 Retentions payable 462,334 462,334 Wages & salaries payable 150,351 150,351 Due to other funds 3,814,858 2,016 3,816,874 Deferred revenue 2,041,097 2,041,097

Total liabilities 3,223,774 3,814,858 943,858 180,434 8,162,924

FUND BALANCES Reserved:

Encumbrances 153,371 555,110 56,000 764,481 Contract retentions 194,022 194,022 Deposits 64,861 64,861

Unreserved, designated for, reported in General Fund:

Civic center 1,541,431 1,541,431 Information technology replacement 38,776 38,776 Vehicle replacement 94,856 94,856 Building and safety 500,000 500,000 Authorized expenditures 2,868,563 2,868,563

Unreserved, designated for authorized expenditures reported in special revenue funds 3,055,141 3,055,141

Unreserved, undesignated reported in: General fund 14,015,739 14,015,739 Capital projects fund (749,132) (749,132)

Total fund balances 19,277,597 3,111,141 22,388,738

Total liabilities and fund balances $ 22,501,371 $ 3,814,858 $ 943,858 $ 3,291,575 $ 30,551,662


15


RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS

JUNE 30, 2008

Fund Balances of Governmental Funds

Amounts reported for governmental activities in the statement of net assets are different because:

Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds.

Other long-term assets are not available to pay for current period expenditures and, therefore, are deferred in the funds.

Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the funds.

Net Assets of Goverrunental Activities


16

$ 22,3 88,73 8

52,495,175

2,041,097

(367,388)

$76,557,622


STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2008

Special Capital Revenue Projects

Fund Fund Other Capital Governmental

General Grants lmErovements Funds Total REVENUES

Taxes $ 14,761,871 $ $ $ 381,871 $ 15,143,742 Fines and forfeitures 282,581 375,255 657,836 Intergovernmental 1,014,332 3,608,740 1,198,800 5,821,872 Use of money and property 705,485 166,845 872,330 Charges for services 4,928,778 178,860 5,107,638 Other 116,233 116,233

Total revenues 21,809,280 3,608,740 2,301,631 27,719,651

EXPENDITURES Current:

Legislative and advisory 1,440,201 1,440,201 General government 3,473,209 18,476 3,491,685 Public safety 5,201,576 100,765 5,302,341 Community development 3,370,805 3,370,805 Parks and recreation 1,561,423 1,561,423 Public works 2,710,230 27,278 6,136,364 1,654,259 10,528,131

Capital outlay 345,331 600 345,931 Debt service:

Principal 40,401 40,401 Interest 4,366 4,366

Total expenditures 18,147,542 27,278 6,136,364 1,774,100 26,085,284

Revenues over (under) expenditures 3,661,738 3,581,462 (6,136,364) 527,531 1,634,367

OTHER FINANCING SOURCES (USES) Transfers in 12,750 6,136,364 706,792 6,855,906 Transfers out (3,043,021) (3,581,462) (1,418,442) (8,042,925) Capital lease 40,137 40,137

Total other financing sources (uses) (2,990,134) (3,581 ,462) 6,136,364 (711,650) (1,146,882)

Net change in fund balance 671,604 (184,119) 487,485

FUND BALANCE - BEGINNING 18,605,993 3,295,260 21,901,253

FUND BALANCE - ENDING $ 19,277,597 $ $ $ 3,111,141 $ 22,388,738


17

CITY OF MALIBU RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCES pF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2008

Net Change in Fund Balances - Total Governmental Funds

Amounts reported for governmental activities in the Statement of Activities differ from the amounts reported in the Statement of Revenues, Expenditures, and Changes in Fund Balances because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives as depreciation expense. This activity is reconciled as follows:

Cost of assets capitalized Depreciation expense

Governmental funds report as revenues those monies that become available in the current period but which were earned and reported as revenue in a prior period within the Statement of Activities.

Governmental funds exclude revenues for monies that are not available in the current year but which are earned and reported as revenue in the Statement of Activities.

Compensated absences net expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds.

The issuance of long-term debt is reported as a financing source in the governmental funds. However, this type of transaction has no effect on net assets.

Principal payment on long-term debt is reported as an expenditure in the governmental funds. However, this type of transaction has no effect on net assets.

Change in Net Assets of Governmental Activities


18

$ 487,485

6,345,041 (871,381)

(2,565,356)

2,033,597

(92,118)

(40,137)

40,401

$ 5,337,532

CITY OF MALIBU GENERAL FUND

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES -BUDGET AND ACTUAL


Budgeted Amounts Original

REVENUES Taxes $ 13,522,593 $ Fines and forfeitures 250,000 Intergovernmental 2,408,829 Use of money and property 601,000 Charges for services 5,214,010 Other 22,600

Total revenues 22,019,032


Legislative and advisory 1,695,621 General government 3,236,152 Public safety 5,496,010 Community development 3,798,466 Parks and recreation 1,769,020 Public works 2,521,608

Capital outlay 239,500 Debt service:

Principal 40,401 Interest 4,366

Total expenditures 18,801,144

Revenues over expenditures 3,217,888

OTHER FINANCING SOURCES (USES) Transfers in Transfers out Capital lease

Total other financing sources (uses)

Net change in fund balance $ 3,217,888 $

FUND BALANCE- BEGINNING

FUND BALANCE- ENDING


19

Final

13,522,593 250,000

2,408,829 601,000

5,214,010 22,600

22,019,032

1,723,121 3,346,952 5,641,613 4,146,466 1,807,320 3,138,208

453,676

40,401 4,366

20,302,123

1,716,909

1,716,909

Actual

$ 14,761,871 282,581

1,014,332 705,485

4,928,778 116,233

21,809,280

1,440,201 3,473,209 5,201,576 3,370,805 1,561,423 2,710,230

345,331

40,401 4,366

18,147,542

3,661,738

12,750 (3,043,021)

40,137

(2,990,134)

671,604

18,605,993

$ 19,277,597

Variance with Final Budget

Positive/ (Negative)

$ 1,239,278 32,581

(1,394,497) 104,485

(285,232) 93,633

(209,752)

282,920 (126,257) 440,037 775,661 245,897 427,978 108,345

2,154,581

1,944,829

12,750 (3,043,021)

40,137

(2,990, 134)

$ (1,045,305)

CITY OF MALIBU GRANTS SPECIAL REVENUE FUND

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES -BUDGET AND ACTUAL


Bud~eted Amounts Ori~inal

REVENUES Intergovernmental $ 5,940,410 $


Public works

Revenues over (under) expenditures 5,940,410

OTHER FINANCING USES Transfers out

Net change in fund balance $ 5,940,410 $

FUND BALANCE - BEGINNING

FUND BALANCE - ENDING


20

Final

5,940,410

5,940,410

5,940,410

Actual

$ 3,608,740

27,278

3,581,462

(3,581,462)

$



$ (2,331 ,670)

(27,278)

(2,358,948)

(3,581,462)

$ (5,940,410)

ASSETS

CITY OF MALIBU PROPRIETARY FUND

STATEMENT OF NET ASSETS JUNE 30, 2008

Current assets: Cash and cash equivalents Accounts receivable

Total current assets

Noncurrent assets: Retricted:

Cash and cash equivalents with fiscal agent Deferred charges Capital assets, non depreciable Capital assets, net of accumulated depreciation

Total noncurrent assets

Total assets

LIABILITIES Current liabilities:

Accounts payable Interest payable Deposits Noncurrent liabilities due within one year:

Loans payable

Total current liabilities

Noncurrent liabilities: Noncurrent liabilities due in more than one year:

Cetiificates of participation, net Loans payable

Total noncurrent liabilities

Total liabilities

NET ASSETS Invested in capital assets, net of related debt Restricted for debt service Umestricted

Total Net Assets


21

Business-type Activities

Enterprise Fund: Commercial Real

Estate Rental

$ 1,662,618 54,643

1,717,261

491,903 454,680

19,731,336 8,665,270

29,343,189

31,060,450

249,388 470,698 652,035

400,000

1,772,121

17,451,754 251,686

17,703,440

19,475,561

10,747,846 491,903 345,140

$11,584,889


STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS


OPERATING REVENUES Charges for sales and services:

Rental income Other

Total operating revenues

OPERATING EXPENSES Professional and contractual services Repairs and maintenance Utilities Supplies

Total operating expenses

Operating income before depreciation

Depreciation expense

Operating income

NONOPERATING REVENUES (EXPENSES) Investment and interest income Interest expense Amortization of bond costs

Total nonoperating revenues (expenses)

Loss before contributions and transfers Capital contributions - leasehold improvements Transfers in


NET ASSETS, BEGINNING

NET ASSETS, ENDING


22



Estate Rental

$ 812,266 25,780

838,046

85,011 15,273 3,724

17,165

121,173

716,873

481,403

235,470

69,106 (952,143)

(22,705)

(905,742)

(670,272) 2,500,000 1,187,019

3,016,747

8,568,142

$ 11,584,889


STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2008

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers

Net cash provided by operating activities

CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Transfers Donations Principal paid Interest paid Additions to capital assets

Net cash used for capital financing activities

CASH FLOWS FROM INVESTING ACTIVITIES Interest received

Net cash provided by investing activities

Net increase in cash and cash equivalents

CASH AND CASH EQUIVALENTS, BEGINNING

CASH AND CASH EQUIVALENTS, ENDNG

Reconciliation of operating income to net cash provided by operating activities:

Operating income Adjustments to reconcile operating income to net

cash provided by operating activities: Depreciation expense Increase in accounts receivable Increase in accounts payable Increase in customer deposits Increase in payments received but not earned

Total adjustments

Net cash provided by operating activities

Noncash activities: Amortization of original issue discount on debt Amortization of deferred charges on debt Tenant-made leasehold improvements


23



Estate Rental

$ 1,253,048 (88,554)

1,164,494

1,187,019 72,212

(218,314) (954,332)

(1,187,019)

(1' 1 00,434)

69,106

69,106

133,166

2,021,355

$ 2,154,521

$ 235,470

481,403 (54,643) 32,619

512,146 (42,501)

929,024

$ 1,164,494

$ 4,580 $ 18,125 $ 2,500,000

ASSETS

CITY OF MALIBU FIDUCIARY FUNDS

STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2008

Agency Fund

Pension Trust Funds

Cash and investments $1,080,397 $ 70,801

Total Assets 1,080,397

LIABILITIES Accounts payable 34,380 Deposits 1,046,017

Total Liabilities 1,080,397

NET ASSETS Held in trust for pension benefits $


24

70,801

$ 70,801

CITY OF MALIBU FIDUCIARY FUNDS

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED JUNE 30, 2008

ADDITIONS Contributions by employer

DEDUCTIONS Investment losses


NET ASSETS - BEGINNING

NET ASSETS - ENDING


25

Pension Trust Funds

$ 24,008

5,130

18,878

51,923

$ 70,801

CITY OF MALIBU, CALIFORNIA

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of the City of Malibu (the City) conform to accounting principles generally accepted in the United States of America as applicable to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting and financial reporting principles. The following is a summary of the significant policies.

A. REPORTING ENTITY

The City of Malibu was incorporated in 1991 under the general laws of the State of California. The City has a council-manager form of government and is governed by an elected five-member council. The Mayor position is rotated among the five council members.

As required by generally accepted accounting principles, the accompanying financial statements include the financial activity of the City and its blended component unit, the Malibu Public Financing Corporation. The Corporation is a legally separate entity although in substance it is considered to be part of the City's operations. The City is considered to be financially accountable for the Corporation which is governed by a board comprised entirely of the City's council members. There is no requirement for separate financial statements of the Corporation; consequently, separate financial statements for the Corporation are not prepared. The Corporation had no financial activity during the fiscal year ended June 30, 2008, other than the interest payments on the outstanding certificates of participation (see Note 4).

B. MEASUREMENT FOCUS, BASIS OF PRESENTATION, AND FINANCIAL STATEMENT PRESENTATION

The accounts of the City are organized and operated on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds is maintained consistent with legal and managerial requirements. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

Government-Wide Financial Statements

The Government-Wide Financial Statements include a Statement of Net Assets and a Statement of Activities and Changes in Net Assets. These statements present summaries of non-fiduciary activities of the City, and fiduciary activities of the City are not included in these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. For the most part, the effect of interfund activity has been removed from these statements. The exceptions to this general rule are transactions between the City's proprietary and governmental funds. Interfund services provided and used are not eliminated in the process of consolidation.

These statements are presented on an economic resources measurement focus and the accrual basis of accounting. Accordingly, all of the City's assets and liabilities, including capital assets and infrastructure as well as long-term debt, are included in the accompanying Statement of Net Assets. The Statement of Activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The Statement of Activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. The types of transactions reported as program revenues for the City are classified in three categories: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Charges for services include revenues from customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function. Grants and contributions include revenues restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues.

26 "-_-/

CITY OF MALIBU, CALIFORNIA NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2008

NOTE #1- SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)

Governmental Fund Financial Statements

Governmental Fund Financial Statements include a Balance Sheet and a Statement of Revenues, Expenditures, and Changes in Fund Balances for all major governmental funds and aggregated non-major funds. An accompanying schedule is presented to reconcile and explain the differences in net assets as presented in these statements to the net assets presented in the Government-Wide Financial Statements.

All governmental funds are accounted for on a spending or current financial resources measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (generally those that are anticipated to be received within 180 days after year-end) are recognized when due. Property taxes are subject to accrual if received within 60 days after year-end. The primary sources susceptible to accrual are property tax, sales tax, transient occupancy tax, franchise fees, motor vehicle-in-lieu, highway users tax, investment income, and grant revenues.

Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. An exception to this general rule is principal and interest on general long-term debt which is recognized when due.

Proprietary Fund Financial Statements

Proprietary Fund Financial Statements include a Statement ofNet Assets, a Statement of Revenues, Expenses, and Changes in Fund Net Assets, and a Statement of Cash Flows. The City has one Proprietary Fund, which is accounted for using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

Fiduciary Fund Financial Statements

Fiduciary Fund Financial Statements include a Statement of Net Assets and a Statement of Changes in Fiduciary Net Assets. The City's Fiduciary Funds consist of two Pension Trust Funds, which are accounted for using the accrual basis of accounting, and an Agency Fund.

The Pension Trust Funds are used to account for activities of the City's defined contribution plans which accumulate resources for pension benefit payments.

The Agency Fund is custodial in nature (assets equal liabilities) and does not involve measurement of results of operations; consequently, the Agency Fund is not included within the Statement of Changes in Fiduciary Net Assets. The Agency Fund is used to account for monies collected for specific uses that are not part of the City's operating activities. These deposits include monies collected from property grading, special events, and donations.

Fund Classifications

The City reports the following major governmental funds:

The General Fund is the City's primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund.

27



The Grants Special Revenue Fund is used to account for projects funded by various grants received from other government agencies. The majority of funds received are transferred to the Capital Improvement Capital Projects Fund to reimburse related capital project expenditures.

The Capital Improvements Capital Projects Fund is used to account for financial resources to be used for the acquisition, construction, or repair of major facilities.

The City reports one proprietary fund: The Commercial Real Estate Rental Fund accounts for the capital assets being leased to commercial customers. The lease revenue is used to pay the debt service requirements of the longterm liabilities of the fund (see Note 4).

Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance.

C. BUDGETARY PRINCIPLES

General Budget Policies

The City Manager submits a proposed budget to the City Council by May 1st of each year. The City Council holds public hearings, modifies the City Manager's recommendations, and adopts a final budget by resolution prior to June 30th of each year. The City Manager is authorized to transfer budgeted amounts between line items within a fund. Any revisions or transfers that alter the total appropriations of any fund must be approved by the City CounciL Supplemental appropriations may be adopted by the City Council during the year.

Budgets are adopted on a basis consistent with generally accepted accounting principles adjusted for encumbrances and are used as a management control device. Annual appropriated budgets are adopted for the General Fund and all Special Revenue funds. The City maintains budgetary controls to ensure compliance with legal provisions embodied in the appropriated budget approved by the City CounciL The annual budget indicates appropriations by fund, and the legal level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) for the operating budget is within a fund.

Encumbrances and Construction Commitments

Encumbrances represent commitments related to unperformed contracts for goods and services. Encumbrance accounting - under which purchase orders, contracts or other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation - is utilized in the governmental funds. Encumbrances outstanding at year-end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year.

As of fiscal year end, the City had open construction commitments totaling $397,278. These commitments have all been included within the fund balance reserved for encumbrances within the Capital Improvements Capital Projects Fund, a major fund.

Continuing Appropriations

Unexpended annual appropriations lapse at the end of the fiscal year; encumbered appropriations are re-budgeted in the next fiscal year. Unexpended capital improvement appropriations are carried forward until the improvements or programs are complete.

28



Budgetary Basis of Accounting

Budgets are adopted on a basis consistent with generally accepted accounting principles. Budgeted amounts presented are as originally adopted and as further amended by the City Council. Supplemental appropriations were required during the fiscal year and were approved by the City Council as follows:

General Fund

Excess of Expenditures over Appropriations

Originally Adopted Budget

$18,801,144

Amended Budget

$20,302,123

The legal level of budgetary control is at the fund level for governmental funds. Expenditures exceeded appropriations in the following funds by the amounts indicated for the year ended June 30, 2008:

Major Funds: Special Revenue Funds:

Grants Non-Major Funds:

Special Revenue Funds: Proposition A Air Quality Management Solid Waste Management Surcharge Brulte Bill Grant Community Development Block Grant Big Rock Mesa LMD

D. PROPERTY TAX REVENUES

$27,278

10,084 17,567 17,748

765 74

44,947

Property taxes are levied, based on the assessed values determined by the Los Angeles County Assessor (the County) as of March 1st and become a lien on the real property at July 1st. Secured taxes are due annually in two installments on November 1st and February 1 s\ and become delinquent on December lOth and April lOth, respectively. Unsecured taxes are due annually on July 1st and become delinquent on August 31st. The lien date for secured and unsecured property taxes is March 1st of the preceding fiscal year. The total property tax levy is recognized as revenue to the extent that it results in current available resources. Current available resources are those amounts received within 60 days past fiscal year end.

California law limits ad valorem taxes on real property to 1% of value plus taxes necessary to pay indebtedness approved by the voters. Annual increases are limited to the cost of living, not to exceed 2% each year. Property may also be reassessed to full market value after a sale, transfer of ownership, or completion of new construction. The State is prohibited from imposing new ad valorem, sales or transactions taxes on real property. Local government may impose special taxes (except on real property) with the approval of two-thirds of the qualified electors voting in a general or special election.

E. INVESTMENTS AND INTEREST INCOME ON INVESTMENTS

Investments are stated at fair value which is based on quoted market prices. Cash and investments of the City are managed on a pooled basis. Investment income from the pool is allocated to certain funds quarterly based on the average cash balances in relation to total cash balances. All investments are controlled by an investment policy that is adopted annually by the City Council and further controlled by State legislation.

29



F. CAPITAL ASSETS

Capital assets, which include land, buildings, leasehold improvements, equipment and furniture, vehicles, and infrastructure assets are reported in the applicable governmental or business-type activities columns of the Government-Wide Financial Statements. Non-infrastructure capital assets are defined by the City as individual assets with an initial, individual cost of more than $1,000 and an expected useful life of three years or more.

Infrastructure capital assets are defined by the City as long-lived capital assets with an initial cost of more than $50,000 that are stationary and can be preserved for at least 35 years (such as streets, storm drains, bridges, etc.). The City has capitalized all infrastructure assets, including those acquired prior to 1980.

All purchased capital assets are valued at cost where historical cost records are available and at an estimated historical cost where no historical records exist. Donated capital assets are valued at their estimated fair value on the date received. Capital leases are capitalized in accordance with generally accepted accounting principles.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed.

Using the convention of no depreciation expense in the year of acquisition, depreciation is recorded on a straightline basis over the useful life of the assets as follows:

Computers Furniture Vehicles Buildings Leasehold improvements Walkways and ramps Street network Storm drain network

G. COMPENSATED ABSENCES PAYABLE

3-5 years 3-10 years 5-10 years 20-30 years 3-20 years 45 years 35-65 years 60 years

Compensated absences include accrued vacation and sick leave that are available to employees in future years either in time off or in cash (upon leaving the employ of the City). The City accounts for compensated absences in accordance with GASB Code Section C60. A liability for compensated absences is reported in governmental funds only if the liability has matured, such as would occur as a result of employee resignations and retirements.

H. RESTRICTED ASSETS

Certain assets are classified as restricted because their use is limited by applicable debt covenants. Specifically, the assets are restricted for installment payments due on certificates of participation or are maintained by a trustee as a reserve requirement for the certificates of participation. Other assets are classified as restricted because the monies are held by a fiscal agent to pay contract retentions on certain projects.

When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed.

I. CLAIMS AND JUDGMENTS

The City has no estimated liability for claims and judgments as of June 30, 2008. Additionally, because of the City's participation in the California Joint Powers Insurance Authority and based on historical trends, the City estimates no liability for incurred but not yet reported claims.

30



J. PREPAID ITEMS

Payments to vendors which reflect costs applicable to future accounting periods are recorded as prepaid items in both the government-wide and fund financial statements. There were no prepaid items as of June 30, 2008.

K. DEFERRED AND UNEARNED REVENUE

Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds report unearned revenue in connection with resources that have been received but not yet earned.

L. DEFERRED COMPENSATION PLANS

The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. Pursuant to the IRC 457 subsection (g); all amounts of compensation deferred under the deferred compensation plan, all property, or rights are solely the property and rights of the employee and beneficiaries of the plan. Deferred compensation funds are not subject to the claims of the City's general creditors; consequently, the assets and related liabilities of the plan are not included within the City's financial statements.

M. CASH EQUIVALENTS

Investments with original maturities of three months or less are considered to be cash equivalents.

N. OPERATING AND NON-OPERATING REVENUES AND EXPENSES

Operating revenues and expenses result from activities related to renting commercial real estate to customers. All revenues and expenses which do not relate to rental activities and which are not capital in nature are reported as non-operating revenues and expenses.

2. CASH AND INVESTMENTS

The City maintains a cash and investment pool, which is available for use by all funds. All funds participate in the pool except for the Pension Trust funds. Cash and investments consisted of the following as of June 30, 2008:

Pooled Deposits & Investments: Demand Deposits Investments

Pension Trust Investments Cash and Investments with Fiscal Agents:

Demand Deposits Investments

Petty Cash Total Cash and Investments

Amount

$ 403,612 21,479,339

70,801

194,022 491,903

1,090 $22,640,767

Cash and investments are reported in the basic financial statements as follows:

Governmental Funds: Unrestricted Restricted

Proprietary Funds: Unrestricted Restricted

Fiduciary Funds Total Cash and Investments

31

$19,141,026 194,022

1,662,618 491,903

1,151,198 $22,640,767


At June 30, 2008, the bank balance was $601,179. The amount shown for pooled demand deposits is the amount after outstanding checks are subtracted and deposits in transit are added. At June 30, 2008, $194,022 was held in demand deposit accounts by fiscal agents to pay contract retentions on certain projects. Interest income earned on pooled cash and investments is allocated quarterly to the various funds based on month-end cash balances.

INVESTMENTS AUTHORIZED BY THE CALIFORNIA GOVERNMENT CODE & MALIBU'S INVESTMENT POLICY

The following table identifies the investment types that are authorized by the California Government Code and the City's investment policy. The table also identifies certain provisions of either the California Government Code or the City's investment policy (whichever is more restrictive) that address interest rate risk, credit risk, and concentration of credit risk.

A separate table addresses investments of debt proceeds that are held by fiscal agents. Those investments are governed by the provisions of the debt agreements rather than the general provisions of the California Government Code or the City's investment policy.

Authorized Maximum by Malibu's Maximum Investment

Investment Type - Authorized by the Investment Maximum Percentage in a Single California Government Code Polic,Y Maturity (I) of Portfolio (I) Issuer (I)

Local Agency Bonds No 5 years None None U.S. Treasury Obligations Yes 5 years None None California State Treasury Obligations No 5 years None None U.S. Agency Securities Yes 5 years None None Banker's Acceptances Yes 180 days 20%(2) 10%(2) Commercial Paper Yes 270 days 15%(2) 5%(2) Negotiable Certificates of Deposit Yes 5 years 30% None Repurchase Agreements Yes I year None None Reverse Repurchase Agreements No 92 days 20% of base value None Corporate Medium-Term Notes No 5 years 30% None Mutual Funds No NIA 20% 10% Money Market Mutual Funds Yes N/A 20% None Mortgage Pass-Through Securities/CMO No 5 years 20% None County Investment Pools Yes N/A None None Local Agency Investment Fund (LAIF) Yes N/A None None

Notes: (I) Restrictions are in accordance with the California Government Code unless indicated otherwise.

(2) The restriction is in accordance with the City's Investment Policy which is more restrictive than the California Government Code.

INVESTMENTS AUTHORIZED BY DEBT AGREEMENTS

The investment of debt proceeds held by fiscal agents is governed by provisions of the debt agreements rather than the general provisions of the California Government Code or the City's investment policy. The following table identifies the investment types that are authorized for investments held by the City's fiscal agent. Unless indicated otherwise, the trust agreement does not specifY a maximum maturity, a maximum percentage of the portfolio, nor a maximum investment in a single issuer. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk.

32


Investment Type- Authorized by Trust Agreements

Local Agency Bonds

U.S. Treasury Obligations

California State Treasury Obligations

U.S. Agency Securities

Banker's Acceptances (maximum maturity is 360 days)

Commercial Paper (maximum maturity is 270 days)

Repurchase Agreements

Money Market Mutual Funds

Local Agency Investment Fund (LAIF)

DISCLOSURES RELATING TO INTEREST RATE RISK

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer an investment has before maturity, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide cash flow and liquidity needed for operations. The City monitors the interest rate risk inherent in its investments, including those held by fiscal agents, by using specific identification ofthe investments. Following is a table ofthese investments as of fiscal year end.

Investments held by fiscal agents - Deutsche Bank: Money market mutual funds:

GS Financial Treasury Obligations

Subtotal

City's Pooled Investments: Federal Home Loan Bank, 3.00% Repurchase agreement Local Agency Investment Fund (LAIF)

Subtotal

Total

DISCLOSURES RELATING TO CREDIT RISK

Fair Value

$ 491,903

491,903

2,001,880 269,987

19,207,472

21,479,339

$21,971,242

Maturities

N/A

6/24/2009 7/112008

212 day average

Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. As of June 30, 2008, the City's pooled investments consisted entirely of investments with no legal minimum rating. While the $269,987 and the $19,207,472 invested in a repurchase agreement and in LAIF, respectively, have no rating as of June 30, the $2,001,880 invested in U.S. Agency Securities have a Standard & Poor's rating of AAA.

CUSTODIAL CREDIT RISK

Custodial credit risk for deposits is the risk that in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The California Government Code and the City's investment policy contain legal requirements that limit the exposure to custodial credit risk for deposits as follows: a financial institution must secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. At June 30, 2008, the City's pooled bank balance of $601,179 was comprised of $100,000 insured and $501,179 that was collateralized in accordance with state law; the City's demand deposits held with fiscal agents of $194,022 was comprised of $100,000 insured and $94,022 that was collateralized in accordance with state law.

33


Custodial credit risk for investments is the risk that in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. As of June 30, 2008, the City has investments that are held by the counterparty or the counterparty's safekeeping department: a) the $269,987 repurchase agreement is an overnight sweep arrangement and is purchased and held by Bank of America, b) the $2,001,880 in Federal Home Loan Bank investments are purchased and held by Bane of America Investment Services, Inc., and c) the $491,903 of investments held within the safekeeping department of the City's fiscal agent were purchased by the fiscal agent as the broker-dealer.

CONCENTRATION OF CREDIT RISK

The City diversifies its investments by security type and institution. Investments guaranteed by the U.S. government and investments in mutual funds and external investment pools are excluded from the requirement to disclose all investments with more than a 5% concentration in a single security type or in a single financial institution. As of fiscal year end, the City has investments in Federal Home Loan Bank (U.S. Agency Securities) totaling $2,001,880 which represents more than 5% of the City's pooled investments.

INVESTMENT IN STATE INVESTMENT POOL

The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Included in LAIF's investment portfolio are mortgage-backed securities, other asset-backed securities, loans to certain state funds, securities with interest rates that vary according to changes in rates greater than a one-for-one basis, and structured notes.

3. CAPITAL ASSETS

Changes in capital assets during the fiscal year ended June 30, 2008, were as follows:

Balances Balances July 1, 2007 Additions Deletions June 30, 2008

Business-type Activities Nondepreciable capital assets:

Cost: Land $15,404,922 $ $ $15,404,922 Construction in progress 639,395 3,687,019 4,326,414

Total nondepreciable capital assets 16,044,317 3,687,019 19,731,336

Depreciable capital assets: Cost:

Buildings and other improvements 9,628,076 9,628,076

Accumulated depreciation for: Buildings and other improvements (481,403) (481,403) (962,806)

Net depreciable assets 9,146,673 (481,403) 8,665,270

Total net capital assets $25,190,990 $ 3,205,616 $ $ 28,396,606

34


Balances July 1, 2007

Governmental Activities Nondepreciable capital assets:

Cost: Land $ 4,126,446 Right of way 24,807,624 Construction in progress 1,271,037

Total nondepreciable capital assets 30,205,107

Depreciable capital assets: Cost:

Leasehold improvements 367,269 Buildings and other improvements 293,640 Equipment and furniture 1,029,785 Vehicles 185,029 Infrastructure 26,923,206

Subtotal 28,798,929

Accumulated depreciation for: Leasehold improvements (209,664) Buildings and other improvements (78,629) Equipment and furniture (651,010) Vehicles (102,007) Infrastructure (10,941,211)

Subtotal (11,982,521)

Net depreciable assets 16,816,408

Total net capital assets $47,021,515

Balances Additions Deletions June 30, 2008

$ $ $ 4,126,446 24,807,624

6,085,605 (6,732,226) 624,416

6,085,605 ( 6, 732,226) 29,558,486

20,000 387,269 3,219,654 3,513,294

195,841 1,225,626 185,029

3,556,167 30,479,373

6,991,662 35,790,591

(48,172) (257,836) (11,523) (90,152)

(144,852) (795,862) (20,997) (123,004)

(645,837) (11,587,048)

(871,381) (12,853,902)

6,120,281 22,936,689

$ 12,205,886 $ (6,732,226) $52,495,175

The City follows the convention of recording no depreciation expense in the year of acquisition and recording a full year's depreciation expense in the year of disposal. Depreciation expense was charged to functions/programs of the City as follows:

Governmental Activities Legislative and advisory General government Public safety Community development Parks and recreation Public works

Total depreciation expense

Business-type Activities Commercial real estate rental

35

$ 98,068 18,111

578 37,540

717,084 $871,381

$481,403


4. LONG-TERM DEBT

All long-term debt will be repaid from future general fund resources. Typically, the general fund has been used in prior years to liquidate the compensated absences liability; it is expected to continue using the general fund to liquidate the compensated absences liability. The following is a summary of the changes in long-term debt for the fiscal year ended June 30, 2008:

Governmental Activities Business-Tl:l!e Activities Certificates

Compensated Capital of Loans Absences Leases Total Particil!ation Pal:able Total

Balance, July 1, 2007 $236,341 $ 39,193 $275,534 $ 17,580,000 $870,000 $18,450,000 Additions 374,904 40,137 415,041 12,936 12,936 Deletions 282,786 40,401 323,187 231,250 231,250

Balance, June 30, 2008 328,459 38,929 367,388 17,580,000 651,686 18,231,686 Amount due within one year 282,786 23,387 306,173 400,000 400,000 Unamortized discount 128,246 128,246

Long-term amount $ 45,673 $ 15,542 $ 61,215 $17,451,754 $251,686 $17,703,440

COMPENSATED ABSENCES

The City's policies related to compensated absences are described in Note 1.

CAPITAL LEASES

The City has entered into lease agreements for copy machines. For accounting purposes, the lease agreements qualify as capital leases and, therefore, have been recorded at the present value of the future minimum lease payments as of the inception date. The interest rate on all of the capital leases is 7.5%. The assets acquired through capital leases are included in the Equipment and Furniture category of capital assets at a cost of $133,236 with accumulated depreciation of$62,067 as of June 30, 2008.

CERTIFICATES OF PARTICIPATION

The City issued $17,580,000 of certificates of participation in March 2006 at a discount of $138,552. The purpose of the certificates was to fmance the acquisition of Legacy Park and the related commercial lease properties. Each certificate of participation represents a direct and proportionate interest in the semi-annual interest payments. Installment payments for the issues are payable from any source of lawfully available funds of the City. Series A was issued for $12,425,000 and is taxable. Series B was issued for $5,155,000 and is a tax exempt issue. The interest rate on the certificates is fixed and ranges from 4.0% to 5.34%. Annual principal payments are due on July 1 in years 2010 through 2032.

LOANS PAYABLE

The City entered into a financing agreement with a future tenant of one of the Legacy Park commercial properties. The purpose of the financing agreement was to provide for the debt service on the 2006 certificates of participation while the commercial property is being renovated and is generating only a small amount of the anticipated rental income. A portion of the loan totaling $400,000 is due in May 2009; there is no interest due on this portion of the loan. The other portion of the loan totaling $238,750 is due on September 1, 2013 along with accumulated interest; the interest rate is equal to the LAIF rate over the term of the loan.

36


ANNUAL AMORTIZATION REQUIREMENTS

The annual requirements to amortize all capitalized leases, certificates of participation, and loans as of June 30, 2008, are as follows:

Year Governmental Activities Business-~ee Activities Ending Capital Leases Certificates of Particieation Loans Papble

June 30, Principal Interest Total Principal Interest Total Principal Interest Total 2009 $23,387 $ 1,997 $25,384 $ $ 941,397 $ 941,397 $400,000 $ 7,832 $407,832 2010 15,542 688 16,230 300,000 941,397 1,241,397 7,832 7,832 2011 315,000 925,798 1,240,798 7,832 7,832 2012 330,000 909,292 1,239,292 7,832 7,832 2013 345,000 891,867 1,236,867 7,832 7,832

2014-2018 2,030,000 4,160,112 6,190,112 251,686 1,305 252,991 2019-2023 2,665,000 3,530,281 6,195,281 2024-2028 3,520,000 2,671,902 6,191,902 2029-2033 4,670,000 1,525,011 6,195,011 2034-2036 3,405,000 310,950 3,715,950

Totals $38,929 $2,685 $41,614 $17,580,000 $16,808,007 $34,388,007 $651,686 $40,465 $692,151

5. OPERATING LEASES

A. CITY AS LESSEE

Effective August 1, 2002, the City entered into a 15-year operating lease for City Hall and storage space. The lease is subject to early termination by the City at the end of the fifth and tenth years. Additionally, the City prepaid $194,544 for a five year portion of the lease (through July 2007) for space specified as the Senior Center. For August 1, 2006 through July 31, 2009, the City has leased additional space known as Suite 105. For fiscal year ending June 30, 2008, the total cost for City Hall lease payments was $719,165. The future minimum lease payments for the remaining space are as follows:

Year Ending June 30, Total

2009 $ 754,917 2010 741,163 2011 766,362 2012 797,356 2013 828,523 2014-2018 3,740,171 Total $ 7,628,492

B. CITY AS LESSOR

The City's Commercial Real Estate Rental Enterprise Fund owns commercial properties at the Legacy Park site. As of June 30, 2008, the City has non-cancelable tenant leases on three properties.

Office Building: The City assumed the existing lease upon purchase of the Legacy Park site in 2006. The lease continues through December 3, 2008 with a minimum monthly lease payment of $28,981 for 2008. Beginning December 3, 2008, the lease may continue on a month-to-month basis for one year for a minimum monthly lease payment of $29,813. There are no contingent rental payments on this lease. This leased property is valued at $1,141,105 for the land and $2,924,082 for the building. The building has accumulated depreciation of $292,408 as of June 30, 2008.

Animal Hospital: The City assumed the existing lease upon purchase of the Legacy Park site in 2006. The lease continues through December 3, 2014 with a minimum monthly lease payment that annually increases based on CPl. For 2008 the minimum monthly lease payment is $13,815. There are no contingent rental payments on this lease. This leased property is valued at $855,829 for the land and $855,829 for the building. The building has accumulated depreciation of$85,582 as ofJune 30, 2008.

37


Lumber Yard: The City executed a master lease agreement for the property in 2008 with the lease commencing on March 1, 2008 and continuing through March 1, 2046 with an option to extend to 2062. The minimum monthly lease payment through March 1, 2013 is $77,083 with fixed amount increases every five years thereafter. Additionally, the City will receive percentage rental income based on a formula by which the City receives 30% of the tenant's income collected past $2.2 million annually. As of June 30, 2008, 25% of the tenant improvements have been completed. Expected completion of the property improvements is anticipated for December 2008 with an estimated total construction cost of $10 million. This leased property is valued at $3,138,040 for the land and $5,848,165 for the building. The building has accumulated depreciation of$584,816 as of June 30, 2008.

The future minimum lease payments are due to the City as follows:

Year Ending June 30,

2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2033 2034-2038 2039-2043 2044-2047

Total

Total $ 1,235,683

1,090,778 1,090,778 1,106,195 1,137,028 5,155,853 5,167,051 5,425,402 5,696,671 5,981,504 6,280,580 4,555,488

$43,923,012

6. CLASSIFICATION OF NET ASSETS AND FUND BALANCE

In the Government-Wide financial statements, net assets are classified in the following categories:

Invested in Capital Assets Net of Related Debt: This category represents all capital assets, unspent debt proceeds, and required reserves, less accumulated depreciation and the outstanding principal of capital-related debt. The City's capital assets do not represent a financial resource and, consequently, are not readily available for funding current obligations.

Restricted Net Assets: This category represents external restrictions imposed by creditors, grantors, contributors, or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation.

Unrestricted Net Assets: This category represents the net assets of the City that are not restricted for any project or other purpose.

In the Fund Financial Statements, reserves segregate portions of fund balance that are not available. Designations segregate portions of fund balance that have been earmarked for specific purposes as established by actions of the City Council and Management and can be increased, reduced, or eliminated by similar actions. Following is a summary of reservations of fund balance and components of unreserved fund balance at June 30, 2008:

38


Major Funds

Reserves: Encumbrances Contract retentions Deposits

Subtotal - Reserves Designations:

General Fund: Civic center Information technology replacement Vehicle replacement Building and safety Authorized expenditures

Special revenue authorized purposes: State gas tax Traffic safety Proposition A-transit Proposition C-transit Air quality management Solid waste management surcharge Parkland development in-lieu Quimby Act parkland dedication Big Rock Mesa LMD Malibu Road LMD Calle del Barco LMD

Subtotal - Designations

Unreserved, undesignated Total Fund Balances

7. RETIREMENT BENEFITS

A. DEFINED BENEFIT PLAN

PLAN DESCRIPTION

$

General Fund

153,371

64,861 218,232

1,541,431 38,776 94,856

500,000 2,868,563

5,043,626

14,015,739 $19,277,597

$

Capital Projects

Fund

555,110 194,022

749,132

(749,132) $

Non-Major Funds Other

Governrnental Funds

$ 56,000

56,000

400,000 305,246 614,935 522,508

34,310 512,176 142,579 66,142

220,012 21,129

216,104 3,055,141

$ 3,111,141

The City of Malibu's defined benefit pension plan (Miscellaneous Members), provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The Miscellaneous Plan is part of the Public Agency portion of the California Public Employees Retirement System (CalPERS), a costsharing multiple-employer defined benefit plan, which acts as a common investment and administrative agent for participating public employers within the State of California. CalPERS issues a separate, comprehensive annual financial report that may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, CA.

BENEFITS

All full-time employees of the City participate in this defmed benefit plan. A menu of benefit provisions as well as other requirements is established by State statutes within the Public Employees' Retirement Law. The City selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through local ordinance.

FUNDING POLICY

Employee Portion: As required by City ordinance, the City makes the contributions required of City employees on their behalf and for their account. The employee portion of the rates is set by state statute and, therefore, remains unchanged from year to year at 7% of covered payroll.

39


Employer Portion: The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members; the actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The employer contribution is established and may be amended by CalPERS. The required contribution for fiscal year 2007-08 was determined as part of the June 30, 2005 actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percent of pay. For fiscal year 2007-08, the City's employer contribution rate was 12.000% of covered payroll.

ANNUAL PENSION COST

The following table provides salary and contribution requirements for the current and two prior fiscal years. For the current and two prior fiscal years, the required contribution equaled the contribution actually made.

Total Payroll Costs

Payroll Costs of Employees Covered by PERS

Contribution Requirements: Employee Required Contribution City Required Contribution

Total Contribution (required and actual)

Employee Required Contribution as a Percent of Covered Payroll

City Required Contribution as a Percent of Covered Payroll

Total Contribution as a Percent of all Participating Entities' Contributions

Total Actual Contribution as a Percent of the Required Contribution

B. DEFINED CONTRIBUTION PLANS- CITY ADMINISTERED

For the Fiscal Year Ending June 30, 2008 June 30, 2007 June 30, 2006 $ 4,619,236 $ 4,194,563 $ 3,350,350

3,975,250 3,937,335 3,111,768

278,563 275,610 217,680 477,295 487,633 392,453

$ 755,858 $ 763,243 $ 610,133

7% 7% 7%

12% 12% 13%

0.10% 0.10% 0.08%

100% 100% 100%

In March 2004, the City adopted a defmed contribution pension plan with benefits at retirement for the City manager and a separate, defined contribution pension plan with benefits at retirement for the City's department heads. The plans were established by City Resolution, may be amended by the City Council, and are administered by the City. In a defined contribution pension plan, benefits depend solely on amounts contributed to the plan plus investment earnings.

The plans' financial statements are prepared using the accrual basis of accounting, and all contributions are recognized in the period that the contributions are due. Plan investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. The fair value of long-term investments is based on quoted market prices.

CITY MANAGER PLAN

The plan requires the City to contribute five percent of the City Manager's salary; the City Manager is not allowed to make contributions. The contributions and any interest earned immediately vest in full. Terminated employees are not allowed to participate in the plan; all vested assets of terminated employees are removed and are under the control of the terminated employee.

During fiscal year 2007-08, the City contributed $8,968 on behalfofthe City Manager, based on a salary of$179,360 for the covered period. There was one covered employee during the year. Assets of the plan totaled $16,499 at June 30, 2008.

40


DEPARTMENT HEAD PLAN

The plan requires the City to contribute $3,000 annually (or a proportional amount based on the covered time period) on behalf of each member; members are not allowed to make contributions. The contributions and any interest earned immediately vest in full. Terminated employees are not allowed to participate in the plan; all vested assets of terminated employees are removed and are under the control of the terminated employee.

During fiscal year 2007-08, the City contributed a total of $15,040 on behalf of the covered employees. There were five covered employees during the year. Assets of the plan totaled $54,302 at June 30, 2008.

Summary financial statements for the two defined contribution plans follow:

CITY OF MALIBU COMBINING STATEMENT OF NET ASSETS- PENSION TRUST FUNDS

JUNE 30, 2008

Department City Head Manager Plan Plan

Assets: Cash and investments $ 54,302 $ 16,499

Net Assets: Held in trust for pension benefits $ 54,302 $ 16,499

CITY OF MALIBU

Total Pension

Trust Funds

$ 70,801

$ 70,801

COMBINING STATEMENT OF CHANGES IN NET ASSETS- PENSION TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2008

Total Department City Pension

Head Manager Trust Plan Plan Funds

Additions: Contributions by employer $ 15,040 $ 8,968 $ 24,008

.Deductions: Investment losses 3,021 2,109 5,130

Total additions 12,019 6,859 18,878

Net assets- beginning of year 42,283 9,640 51,923

Net assets- end of year $ 54,302 $ 16,499 $ 70,801

C. DEFINED CONTRIBUTION PLAN- ADMINISTERED BY PUBLIC AGENCY RETIREMENT SYSTEM

In January 2007, the city entered into a defined contribution pension plan with Public Agency Retirement System (PARS) for all of its part-time employees. The plan was established by City Resolution and may be amended by the City Council. The plan is administered by PARS. Plan investments are reported at fair value and are based on quoted market prices.

In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan. Plan members are required to contribute 6.2% of their salaries, and the City is required to contribute 1.3% of the members' salaries. The contributions and any interest earned immediately vest in full.

For the year ended June 30, 2008, the City's covered payroll was $247,988 for the 53 employees participating in the plan. The City made employer contributions of$3,224 and employees contributed $15,375. Assets ofthe plan totaled $27,256 at June 30, 2008.

41


8. OTHER POST -EMPLOYMENT BENEFITS

The City of Malibu contracts with the California Public Employees Retirement System (CalPERS) for health benefits of its current employees. CalPERS requires that participating agencies provide health benefits for retirees if employees are covered under CalPERS for their health insurance. The City is currently required to pay 43% - 59% of retirees' health premiums. This percentage will increase by 5% each year until, ultimately, the City will pay 100% of the cost of health care for its retirees. In fiscal year 2007-08, the City paid $15,671 for retiree health benefits for five people.

9. PARKLAND DEVELOPMENT

The City of Malibu charges Parkland Development fees when new residential units are constructed. In fiscal year 2007-08, the fees were $3,315 for each detached single family dwelling; $2,831 for each unit of an attached multifamily dwelling with fewer than five units; $2,108 for each unit of an attached multi-family dwelling with five or more units; $2,628 for each unit of a duplex, triplex, or quadplex; and $1,908 for each mobile home space. The fees are deposited in the Parkland Development In-Lieu special revenue fund, and they are used to acquire and upgrade parks. The State of California requires fees to be spent within five years of collection. During the current fiscal year, the City collected Parkland Development fees of $82,884 and earned interest of $9,807. A total of $119,000 was spent in fiscal year 2007-08. At June 30, 2008, the balance of fees on hand was $142,579.

10. INTERFUND TRANSACTIONS

During the normal course of operations, the City has numerous transactions between funds. Transactions that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as due from/due to other funds. These short-term loans are made from the General Fund to other funds in advance of receiving grant fund reimbursements. The composition ofinterfund balances at June 30, 2008 is as follows:

Due To Other Funds Grants Nonmajor

Special Revenue Governmental Total Due From Other Funds

General Fund $ 3,814,858 $ 2,016 $ 3,816,874

Total $ 3,814,858 $ 2,016 $ 3,816,874

Other interfund transactions transfer resources from a fund receiving revenue to the fund through which the resources are to be expended. Such transactions are recorded as transfers. Transfers for the year ended June 30, 2008, are as follows:

Transfers Out General Grants Nonmajor

Fund Special Revenue Governmental Total Transfers In

General Fund $ $ $ 12,750 $ 12,750 Capital Improvements Capital Projects Fund 1,583,110 3,581,462 971,792 6,136,364 Nonmajor Governmental Funds 272,892 433,900 706,792 Commercial Real Estate Rental Enterprise Fund 1,187,019 1,187,019

Total $ 3,043,021 $ 3,581,462 $ 1,418,442 $ 8,042,925

The City uses the Capital Improvements Fund to account for all of its capital projects. The funding sources for those projects are reported as transfers from various funds to the Capital Improvements Fund.

All other transfers were to provide reimbursement for costs incurred by one fund on behalf of another fund.

42


11. LIABILITY, PROPERTY AND WORKERS' COMPENSATION PROTECTION

DESCRIPTION OF SELF-INSURANCE POOL PURSUANT TO JOINT POWERS AGREEMENT

The City is a member of the California Joint Powers Insurance Agency (Authority). The Authority is comprised of 119 California public entities and is organized under a joint powers agreement pursuant to California Government Code Section 6500 et seq. The purpose of the Authority is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group-purchased insurance for property and other coverages. The Authority's pool began covering claims of its members in 1978. Each member government has an elected official as a representative on the Board of Directors which operates through a 9-member Executive Committee.

SELF INSURANCE PROGRAMS OF THE AUTHORITY

General Liability. Each member government pays a primary deposit to cover estimated losses for a fiscal year (claims year). After the close of a fiscal year, outstanding claims are valued. A retrospective deposit computation is then made for each open claims year. Claims are pooled separately between police and non-police. Costs are spread to members as follows: the first $30,000 of each occurrence is charged directly to the member's primary deposit; costs from $30,000 to $750,000 and the loss development reserves associated with losses up to $750,000 are pooled based on the member's share of losses under $30,000. Losses from $750,000 to $5,000,000 and the associated loss development reserves are pooled based on payroll. Costs of covered claims from $5,000,000 to $50,000,000 are currently paid by excess insurance. Costs of covered claims for subsidence losses from $15,000,000 to $25,000,000 are paid by excess insurance. The protection for each member is $50,000,000 per occurrence and $50,000,000 annual aggregate. Administrative expenses are paid from the Authority's investment earnings.

Workers' Compensation. The City also participates in the workers' compensation pool administered by the Authority. Each member pays a primary deposit to cover estimated losses for a fiscal year (claims year). After the close of a fiscal year, outstanding claims are valued. A retrospective deposit computation is then made for each open claims year. Claims are pooled separately between public safety and non-public safety. Each member has a retention level of $50,000 for each loss, and this is charged directly to the member's primary deposit. Losses from $50,000 to $100,000 and the loss development reserve associated with losses up to $100,000 are pooled based on the member's share of losses under $50,000. Losses from $100,000 to $2,000,000 and employer's liability losses from $5,000,000 to $10,000,000 and loss development reserves associated with those losses are pooled based on payroll. Losses from $2,000,000 to $5,000,000 are pooled with California State Association of Counties - Excess Insurance Authority members. Costs from $2,000,000 to $300,000,000 are transferred to reinsurance carriers. Costs in excess of $300,000,000 are pooled among the members based on payroll. Protection is provided per statutory liability under California Workers' Compensation law. Administrative expenses are paid from the Authority's investment earnings.

Environmental Insurance. The City of Malibu participates in the pollution legal liability and remediation legal liability insurance which is available through the Authority. The policy covers sudden and gradual pollution of scheduled property, streets, and storm drains owned by the City of Malibu. Coverage is on a claims-made basis. There is a $50,000 deductible. The Authority has a limit of $50,000,000 for the 3-year period from July 1, 2005 through June 30,2008. Each member of the Authority has a $10,000,000 limit during the 3-year term of the policy.

Property Insurance. The City of Malibu participates in the all-risk property protection program of the Authority. This insurance protection is underwritten by several insurance companies. The City's property is currently insured according to a schedule of covered property submitted by the City to the Authority. The City's property currently has all-risk property insurance protection in the amount of $26,767,311. There is a $5,000 deductible per occurrence except for non-emergency vehicle insurance which has a $1,000 deductible. Premiums for the coverage are paid annually and are not subject to retroactive adjustments.

Earthquake and Flood Insurance. The City purchases earthquake and flood insurance on a portion of its property. The earthquake insurance is part of the property protection insurance program of the Authority. The City's property currently has earthquake protection in the amount of$16,742,244. There is a deductible of 5% of value with a minimum deductible of$100,000. Premiums for the coverage are paid annually and are not subject to retroactive adjustments.

Crime Insurance. The City purchases crime insurance coverage in the amount of $1,000,000 with a $2,500 deductible. The fidelity coverage is provided through the Authority. Premiums are paid annually and are not subject to retroactive adjustments.

43


Special Event Tenant User Liability Insurance. The City further protects against liability damages by requiring tenant users of certain property to purchase low-cost tenant user liability insurance for certain activities on City property. The insurance premium is paid by the tenant user and is paid to the City according to a schedule. The City then pays for the insurance. The insurance is arranged by the Authority.

ADEQUACY OF PROTECTION

During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year.

12. COMMITMENTS AND CONTINGENCIES

The City is involved in various legal proceedings. At this time, the City is unable to determine the effect that these cases may have on the financial condition of the City.

The City has received State and Federal funds for specific purposes that are subject to review by the grantor agencies. Although such audits could generate expenditure disallowances under the terms of the grants, the City is unable to determine the effect this may have on the financial condition of the City at this time.

The City is prone to natural disasters. The City is aware of the potential for disaster and attempts to maintain an adequate fund balance in the General Fund to cover the cost of these disasters. Based on the history, there remains a potential for a call on future revenues and existing fund balances.

13. FUTURE EVENTS

COMMUNITY FACILITIES DISTRICT

On August 14, 2006, the City Council approved the formation of a Community Facilities District (CFD). On May 14, 2007, the City Council approved the issuance of a Request for Proposal to hire a consultant to assist with the formation. Once formed, the purpose of the District will be to incur bonded indebtedness within the CFD in order to finance the proposed under-grounding of utilities along Broad Beach Road. It is intended that once formed, the City will be reimbursed for all costs incurred related to the CFD's formation and that the City will not be liable for the CFD's debt.

LEGACY PARK PROJECT

In 2006, the City purchased the Legacy Park project site. A portion of the site is developed, and the areas are leased to commercial tenants by the City. The remaining area of the site will be developed into a passive park and used by the City to implement a proposed water retention basin and a reclaimed water recharge field for a proposed stormwater treatment plant.

In order to finance the development of the park, the City anticipates fmancing the construction through a variety of state and local grants, private donations, City General Fund reserves, and through the execution and delivery of Certificates of Participation evidencing undivided fractional interests in certain lease payments made by the City to the Malibu Financing Corporation for use of the site. The City would be required to annually budget and appropriate the lease payments from the City's General Fund, but expects to offset all or a portion of the lease payments through the collection of rent from the existing commercial tenants. At the time of the production of this document, the final amount of the Certificates of Participation and the amount to be drawn from the City's General Fund reserves have yet to be determined.

TRANCASCANYONPARK

The City anticipates constructing a park at the Trancas Canyon Park site during fiscal year 2008-09. Trancas Canyon Park consists of approximately 13.5 vacant acres. The City proposes to construct a multi-use park facility on approximately 7 acres and to leave approximately 6.5 acres in its existing vegetative and topographical condition. Improvements to Trancas Park are proposed to consist of multi-use sports fields, half-court, basketball court, picnic area, tot-lot/playground, dog park, restrooms, storage building, and a 64-space parking area. The City anticipates financing the construction through a variety of state and local grants, City General Fund reserves, and through the execution and delivery of certificates of participation. At the time of the production of this document, the final amount of the Certificates of Participation and the amount to be drawn from the City's General Fund reserves have yet to be determined.

44

SUPPLEMENTARY INFORMATION

This section of the CAFR provides information on each individual fund not already provided in the basic financial statements. This section includes the nonmajor governmental funds, which consist of the following special revenue funds:

• STATE GAS TAX - To account for monies received from the state gas tax allocations, which are required to be spent on construction, improvement and maintenance of public streets and infrastructure.

• TRAFFIC SAFETY - To account for revenues collected from traffic violations that the City has identified for use on traffic safety related expenditures including traffic control and street maintenance not included in the Gas Tax Fund.

• PROPOSITION A -To account for revenues and expenditures associated with the Y2 cent sales tax approved by taxpayers as Proposition A in 1980. These funds may only be expended for transportation-related services as approved by the Los Angeles County Metropolitan Transportation Authority (MT A).

• PROPOSITION C - To account for revenues and expenditures associated with the Y2 cent sales tax approved by taxpayers as Proposition C in 1990. These funds may only be expended for transportation~related services as approved by the MTA.

• AIR QUALITY MANAGEMENT - To account for monies received from the South ·Coast Air Quality Management District Which are used for generating alternative transportation programs to reduce the problem of poor air quality in Southern California.

• SOLID WASTE MANAGEMENT SURCHARGE - This fund accounts for monies received from fees generated by solid waste collections in the City. Funds are to be used for implementing the solid waste management process as defined in the Source Reduction and Recycling Element.

• PARKLAND DEVELOPMENT IN-LIEU - The City collects fees from developers, as a condition of approval, to be used for parkland and recreation facilities and programs.

• QUIMBY ACT PARKLAND DEDICATION - Similar to the Parkland Development funds, the City collects fees from the development of subdivisions. Funds are restricted .to acquisition of parkland and/or construction of facilities for recreation purposes.

• LAW ENFORCEMENT BLOCK GRANT - This fund accounts for monies received from the Federal Government for use in supplementing certain law enforcement programs. Malibu uses these funds to assist in the L.A. County Sheriff Department's Juvenile Intervention Team program.

• BRULTE BILL GRANT - The City also receives funding from the State of California as a supplemental grant for law enforcement. Malibu uses these funds for a variety of programs provided by the Sheriffs Department..

• COMMUNITY DEVELOPMENT BLOCK GRANT- To account for monies received and expended by the City as a participant in the Federal Community Development Block Grant Program.

• BIG ROCK MESA/MALIBU ROAD/CALLE DEL BARCO LMD' s - To account for special assessments . on property within district boundaries for the restricted purpose of providing landslide maintenance services.

45

CITY OF MALIBU NON-MAJOR GOVERNMENTAL FUNDS

COMBINING BALANCE SHEET JUNE 30, 2008

SEecial Revenue Funds Air

State Traffic Proposition Proposition Quality Gas Tax Safety A c Management

ASSETS

Cash and investments $ 411,004 $ 272,906 $ 640,793 $ 522,508 $ 30,619 Accounts receivable 82,174 32,340 4,291 Due from other governments

Total assets $ 493,178 $ 305,246 $ 640,793 $ 522,508 $ 34,910

LIABILITIES AND FUND BALANCES

LIABILITIES

Accounts payable $ 93,178 $ $ 25,858 $ $ 600 Due to other funds

Total liabilities 93,178 25,858 600

FUND BALANCES

Reserved for encumbrances Unreserved:

Designated for authorized expenditures 400,000 305,246 614,935 522,508 34,310

Total fund balances 400,000 305,246 614,935 522,508 34,310

Total liabilities and fund balances $ 493,178 $ 305,246 $ 640,793 $ 522,508 $ 34,910

46

Solid Waste Parkland Quimby Act Brulte Management Development Parkland Bill

Surcharge In-Lieu Dedication Grant

$ 547,845 $ 142,579 $ 66,142 $ 30,649

$ 578,494 $ 142,579 $ 66,142 $

$ 10,318 $ $ $

10,318

56,000

512,176 142,579 66,142

568,176 142,579 66,142

$ 578,494 $ 142,579 $ 66,142 $ ===

SEecial Revenue Funds Community Big Rock

Development Mesa Block Grant LMD

$ $ 246,950

3,024

$ 3,024 $ 246,950

$ 1,008 $ 26,938 2,016

3,024 26,938

220,012

220,012

Total Malibu Calle Non-major Road del Barco Governmental LMD LMD Funds

$ 31,780 $ 225,971 $ 3,139,097 149,454

3,024

$ 31,780 $ 225,971 $ 3,291,575

$ 10,651 $ 9,867 $ 178,418 2,016

10,651 9,867 180,434

56,000

21,129 216,104 3,055,141

21,129 216,104 3,111,141

$ 3,024 $ 246,950 $ 31,780 $ 225,971 $ 3,291,575

47

CITY OF MALIBU NON-MAJOR GOVERNMENTAL FUNDS

COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES


SEecial Revenue Funds Air

State Gas Traffic Proposition Proposition Quality Tax Safety A c Mana~?;ement

REVENUES Taxes $ $ $ $ $ Fines and forfeitures 375,255 Intergovernmental 644,591 238,288 181,027 16,420 Use of money and property 22,025 26,397 55,368 1,240 Charges for services

Total revenues 644,591 397,280 264,685 236,395 17,660


General government Public safety Public works 938,631 185,084 17,567

Capital outlay

Total expenditures 938,631 185,084 17,567

Revenues over (under) expenditures (294,040) 397,280 79,601 236,395 93

OTHER FINANCING SOURCES (USES)

Transfers in 706,790 Transfers out (12,750) (400,000) (837,537)

Total other financing

sources (uses) 694,040 (400,000) (837,537)

Net change in fund balance 400,000 (2,720) 79,601 (601,142) 93

FUND BALANCE - BEGINNING 307,966 535,334 1,123,650 34,217

FUND BALANCE - ENDING $ 400,000 $ 305,246 $ 614,935 $ 522,508 $ 34,310

48

Solid Waste Management

Surcharl?;e

$

24,510 178,860

203,370

93,698 600

94,298

109,072

(44,275)

(44,275)

64,797

503,379

$ 568,176

Parkland Quimby Act Brulte Development Parkland Bill

In-Lieu Dedication Grant

$ 82,884 $ $

100,000 9,807 3,115 327

92,691 3,115 100,327

100,765

100,765

92,691 3,115 (438)

(119,000) (4,880)

(119,000) (4,880)

(26,309) (1,765) (438)

168,888 67,907 438

$ 142,579 $ 66,142 $

SEecial Revenue Funds Community Big Rock Malibu

Development Mesa Road Block Grant LMD LMD

$ $ 253,023 $ 43,832

18,474 12,412 1,012

18,474 265,435 44,844

18,476

330,846 43,851

18,476 330,846 43,851

(2) (65,411) 993

2

2

(65,411) 993

285,423 20,136

Calle del Barco

LMD

$ 2,132

10,632

12,764

44,582

44,582

(31,818)

(31,818)

247,922

Total Non-major

Governmental

$

Funds

381,871 375,255

1,198,800 166,845 178,860

2,301,631

18,476 100,765

1,654,259 600

1,774,100

527,531

706,792 (1,418,442)

(711,650)

(184,119)

3,295,260

$ $ 220,012 $ 21,129 $ 216,104 $ 3,111,141

49

CITY OF MALIBU STATE GAS TAX SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES -BUDGET AND ACTUAL


Buds;eted Amounts Original Final Actual

REVENUES Intergovernmental $ 400,000 $ 400,000 $ 644,591


Public works 987,143 987,143 938,631

Revenues over (under) expenditures (587,143) (587,143) (294,040)

OTHER FINANCING SOURCES (USES) Transfers in 706,790 Transfers out (12,750)

Total other financing sources (uses) 694,040

Net change in fund balance $ (587,143) $ (587,143) 400,000


FUND BALANCE - ENDING $ 400,000

50



$ 244,591

48,512

293,103

706,790 (12,750)

694,040

$ 987,143

CITY OF MALIBU TRAFFIC SAFETY SPECIAL REVENUE FUND



Budgeted Amounts Original Final Actual

REVENUES Fines and forfeitures $ 400,000 $ 400,000 $ 375,255 Intergovernmental 150,000 150,000 Use of money and property 15,000 15,000 22,025

Total revenues 565,000 565,000 397,280

OTHER FINANCING USES Transfers out (400,000)

Net change in fund balance $ 565,000 $ 565,000 (2,720)

FUND BALANCE- BEGINNING 307,966


51



$ (24,745) (150,000)

7,025

(167,720)

(400,000)

$ (567,720)

CITY OF MALIBU PROPOSITION A SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL


Budgeted Amounts Oris;inal Final Actual

REVENUES Intergovernmental $ 200,000 $ 200,000 $ 238,288 Use of money and property 8,000 8,000 26,397

Total revenues 208,000 208,000 264,685


Public works 175,000 175,000 185,084

Net change in fund balance $ 33,000 $ 33,000 79,601


FUND BALANCE- ENDING $ 614,935

52


Positive/ (Nes;ative)

$ 38,288 18,397

56,685

(10,084)

$ 46,601

CITY OF MALIBU PROPOSITION C SPECIAL REVENUE FUND



Buds;eted Amounts Original Final Actual

REVENUES Intergovernmental $ 175,000 $ 175,000 $ 181,027 Use of money and property 25,000 25,000 55,368

Total revenues 200,000 200,000 236,395



FUND BALANCE - BEGINNING 1,123,650


53



$ 6,027 30,368

36,395

(837,537)

$ (801,142)

CITY OF MALIBU AIR QUALITY MANAGEMENT SPECIAL REVENUE FUND




REVENUES Intergovernmental $ 25,000 $ 25,000 $ 16,420 Use of money and property 500 500 1,240

Total revenues 25,500 25,500 17,660


Public works 17,567

Net change in fund balance $ 25,500 $ 25,500 93



54



$ (8,580) 740

(7,840)

(17,567)

$ (25,407)

CITY OF MALIBU SOLID WASTE MANAGEMENT SURCHARGE SPECIAL REVENUE FUND




Budgeted Amounts Positive/ Original Final Actual (Negative)

REVENUES Intergovernmental $ 5,000 $ 5,000 $ $ (5,000) Use of money and property 7,500 7,500 24,510 17,010 Charges for services 137,000 137,000 178,860 41,860

Total revenues 149,500 149,500 203,370 53,870


Public works 71,550 71,550 93,698 (22,148) Capital outlay 5,000 5,000 600 4,400

Total expenditures 76,550 76,550 94,298 (17,748)

Revenues over expenditures 72,950 72,950 109,072 36,122

OTHER FINANCING USES Transfers out (44,275) (44,275)

Net change in fund balance $ 72,950 $ 72,950 64,797 $ (8,153)

FUND BALANCE - BEGINNING 503,379


55

CITY OF MALIBU PARKLAND DEVELOPMENT IN-LIEU SPECIAL REVENUE FUND



Budgeted Amounts OriBinal Final Actual

REVENUES Taxes $ 10,000 $ 10,000 $ 82,884 Use of money and property 1,500 1,500 9,807

Total revenues 11,500 11,500 92,691





56


Positive/ (NeBative)

$ 72,884 8,307

81,191

(119,000)

$ (37,809)

CITY OF MALIBU QUIMBY ACT PARKLAND DEDICATION SPECIAL REVENUE FUND




Bud~eted Amounts Positive/ Ori~inal Final Actual (Ne~ative)

REVENUES Use of money and property $ 1,000 $ 1,000 $ 3,115 $ 2,115

OTHER FINANCING USES Transfers out (4,880) (4,880)

Net change in fund balance $ 1,000 $ 1,000 (1,765) $ (2,765)



57

CITY OF MALIBU BRUL TE BILL GRANT SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND

CHANGES IN FUND BALANCES -BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2008


REVENUES Intergovernmental $ 100,000 $ 100,000 $ 100,000 Use of money and property 500 500 327

Total revenues 100,500 100,500 100,327


Public safety 100,000 100,000 100,765

Net change in fund balance $ 500 $ 500 (438)

FUND BALANCE - BEGINNING 438

FUND BALANCE- ENDING $

58

.........



$ (173)

(173)

(765)

$ (938)

CITY OF MALIBU COMMUNITY DEVELOPMENT BLOCK GRANT SPECIAL REVENUE FUND



REVENUES Intergovernmental


General government

Revenues over (under) expenditures

OTHER FINANCING SOURCES Transfers in

Net change in fund balance


FUND BALANCE- ENDING

Budgeted Amounts Original Final

$ 80,000 $ 80,000

18,402 18,402

61,598 61,598

$ 61,598 $ 61,598

59

Actual

$ 18,474

18,476

(2)

2

$



$ (61,526)

(74)

(61,600)

2

$ (61,598)

CITY OF MALIBU BIG ROCK MESA LMD SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND

CHANGES IN FUND BALANCES -BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2008

Bud~eted Amounts Ori~inal Final Actual


Total revenues 103,000 103,000 265,435


Public works 182,117 182,117 330,846 Capital outlay 103,782 103,782


Net change in fund balance $ (182,899) $ (182,899) (65,411)



60


Positive/ (Ne~ative)

$ 153,023 9,412

162,435

(148,729) 103,782

(44,947)

$ 117,488

CITY OF MALIBU MALIBU ROAD LMD SPECIAL REVENUE FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL



REVENUES Taxes $ 40,000 $ 40,000 $ 43,832 Use of money and property 500 500 1,012

Total revenues 40,500 40,500 44,844




Net change in fund balance $ (10,247) $ (10,247) 993



61



$ 3,832 512

4,344

(3,104) 10,000

6,896

$ 11,240

CITY OF MALIBU CALLE DEL BARCO LMD SPECIAL REVENUE FUND



Budgeted Amounts Ori~inal Final Actual


Total revenues 230,000 230,000 12,764







62


Positive/ (Ne~ative)

$ (217,868) 632

(217,236)

4,197 31,549

35,746

$ (181,490)

CITY OF MALIBU COMBINING STATEMENT OF NET ASSETS

PENSION TRUST FUNDS JUNE 30, 2008

Department City Head Manager

Defined Defined Contribution Contribution

Pension Pension Trust Fund Trust Fund

ASSETS Cash and investments $ 54,302 $16,499

Total assets 54,302 16,499

NET ASSETS Held in trust for pension benefits $ 54,302 $16,499

63

Total Pension

Trust Funds

$ 70,801

70,801

$ 70,801

CITY OF MALIBU COMBINING STATEMENT OF CHANGES IN NET ASSETS

PENSION TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2008

Department City Head Manager

Defined Defined Total Contribution Contribution Pension

Pension Pension Trust Trust Fund Trust Fund Funds

ADDITIONS Contributions by employer $15,040 $ 8,968 $24,008

DEDUCTIONS Investment losses 3,021 2,109 5,130

Changes in net assets 12,019 6,859 18,878

Net assets- beginning of year 42,283 9,640 51,923

Net assets- end of year $54,302 $16,499 $70,801

64

CITY OF MALIBU STATEMENT OF CHANGES IN ASSETS AND LIABILITIES

AGENCY FUND FOR THE YEAR ENDED JUNE 30, 2008

Balances July I, 2007 Additions Deletions

Special Deposits ASSETS

Cash and investments $1,283,851 $ 594,602 $ 798,056

LIABILITIES Accounts payable $ 50,195 $ 725,640 $ 741,455 Deposits 1,233,656 596,277 783,916

Total Liabilities $1,283,851 $1,321,917 $1,525,371

65

Balances June 30, 2008

$1,080,397

$ 34,380 1,046,017

$1,080,397

C-1

APPENDIX C

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following is a summary of certain provisions of the Trust Agreement and the Lease which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the respective agreement for a full and complete statement of the provisions thereof.

DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT

DEFINITIONS

Unless the context otherwise requires, the terms defined below will for all purposes below have the meanings defined below, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined below. All capitalized terms used below and not defined below shall have the meanings ascribed thereto in the Lease.

“Additional Certificates” means certificates of participation authorized by a Supplemental Agreement that are executed and delivered by the Trustee under and pursuant to the Trust Agreement.

“Additional Payments” means all amounts payable by the City as Additional Payments as defined in the Lease.

“Assignment Agreement” means the Assignment Agreement related to the Certificates, dated as of the date of the Trust Agreement, by and between the Trustee and the Corporation, and any duly authorized and executed amendments thereto.

“Beneficial Owner” means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes.

“Business Day” means any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York or the State of California are authorized or required by law or executive order to remain closed.

“Certificates” means collectively, the 2009A Certificates and the 2009B Certificates.

“Certificate of Completion” means a certificate of the City Representative stating that all components of the Project have been completed or concluded in conformity with the requirements of the Lease.

“Certificate Year” means the period extending from July 2 each calendar year to July 1 of the subsequent calendar year provided that the first Certificate Year will commence on the Closing Date and end on July 1, 2010.

“City” means the City of Malibu, a municipal corporation organized and existing under the laws and Constitution of the State, and its successors and assigns.

“City Representative” means the City Manager of the City, the Assistant City Manager or any other person authorized by the City Manager of the City to act on behalf of the City with respect to the Lease or the Trust Agreement.

C-2

“Closing Date” means the date on which the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser thereof.

“Code” means the Internal Revenue Code of 1986, and the regulations issued under the Trust Agreement, as the same may be amended from time to time, and any successor provisions of law.

“Continuing Disclosure Agreement” means that certain Continuing Disclosure Agreement dated as of the date of the Trust Agreement, by the City and the Trustee, as Dissemination Agent, as it may be amended from time to time in accordance with the terms thereof.

“Delivery Cost Requisition” means a written requisition substantially in the form attached to the Trust Agreement.

“Delivery Costs” means and includes all items of expense directly or indirectly payable by or reimbursable to the City or the Corporation relating to the financing of the Project from the proceeds of the Certificates, including but not limited to costs provided in the contract of purchase with the Original Purchaser, filing and recording costs, settlement costs, printing costs, word processing costs, reproduction and binding costs, initial fees and charges of the Trustee, including its first annual administration fee and the fees of its counsel, legal fees and charges, financing and other professional consultant fees, fees of auctioning the Certificates, costs of rating agencies and costs of providing information to such rating agencies, any computer and other expenses incurred in connection with the Certificates, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing.

“Depository” means the securities depository acting as depository pursuant to the Trust Agreement.

“DTC” means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the Certificates.

“Event of Default” means an event of default under the Lease, as defined therein.

“Fiscal Year” means the fiscal year of the City commencing July 1 and ending June 30 of the next year.

“Government Obligations” means Permitted Investments of the type described in paragraph (A) or (B) of the definition thereof.

“Independent Counsel” means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Corporation, the Trustee or the City.

“Interest Payment Date” means July 1 and January 1 of each year commencing January 1, 2010.

“Lease” means the Lease/Purchase Agreement related to the Certificates, dated as of the date of the Trust Agreement, by and between the City and the Corporation, and any duly authorized and executed amendments thereto.

“Lease Payment” means any of the 2009A Lease Payments or the 2009B Lease Payments required to be paid by the City to the Corporation pursuant to the Lease, as set forth in Exhibit A thereto.

“Lease Payment Date” means each June 15 and December 15 commencing December 15, 2009.

C-3

“Lease Payment Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Leased Premises” means the Property and the Project leased by the Corporation to the City pursuant to the Lease.

“Letter of Representations” means the letter of the City delivered to and accepted by the Depository on or prior to delivery of the Certificates as book-entry certificates making reference to the DTC Operational Arrangements memorandum, as it may be amended from time to time, setting forth the basis on which the Depository serves as depository for such book-entry certificates, as such letters were originally executed or as they may be supplemented or revised or replaced by letters from the City and the Trustee delivered to and accepted by the Depository.

“Moody’s” means Moody’s Investors Service or any successors or assigns thereto.

“Net Proceeds” means any proceeds of any insurance, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys’ fees) incurred in the collection thereof.

“Net Proceeds Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Trust Agreement.

“Original Purchaser” means the original purchaser of the Certificates on the Closing Date.

“Outstanding” when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates or Additional Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except:

(a) Certificates or Additional Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation;

(b) Certificates or Additional Certificates for the payment or prepayment of which funds or Government Obligations, together with interest earned thereon, in the necessary amount will have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates or Additional Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment will have been given as provided in the Trust Agreement or provision satisfactory to the Trustee will have been made for the giving of such notice; and

(c) Certificates or Additional Certificates in lieu of or in exchange for which other Certificates or Additional Certificates will have been executed and delivered by the Trustee pursuant to the Trust Agreement.

“Owner” or “Certificate Owner” or “Owner of a Certificate”, or any similar term, when used with respect to a Certificate means the person in whose name such Certificate is registered on the registration books maintained by the Trustee.

“Participants” means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds book-entry certificates as securities depository.

C-4

“Permitted Investments” means, if and to the extent permitted by law and by any policy guidelines promulgated by the City:

A. Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America.

B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):

1. Farmers Home Administration (FmHA) Certificates of beneficial ownership

2. Federal Housing Administration Debentures (FHA)

3. General Services Administration Participation certificates

4. Government National Mortgage Association (GNMA or “Ginnie Mae”) GNMA-guaranteed mortgage-backed bonds GNMA-guaranteed pass-through obligations

5. U.S. Maritime Administration Guaranteed Title XI financing (qualified under the Ship Financing Act of 1972)

6. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Corporation Bonds

C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself):

1. Federal Home Loan Bank System Senior debt obligations

2. Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”) Participation certificates Senior debt obligations

3. Federal National Mortgage Association (FNMA or “Fannie Mae”) Mortgage-backed securities and senior debt obligations (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal)

C-5

4. Student Loan Marketing Association (SLMA or “Sallie Mae”) Senior debt obligations

5. Resolution Funding Corp (REFCORP) The interest only component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York

6. Farm Credit System Corp. - Consolidated system-wide bonds and notes

D. Money market funds registered under the Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor’s of “AAAm-G,” “AAAm” or “AAm” and by Moody’s of “Aaa,” “Aa1” or “Aa2,” including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services.

E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above and having a maturity of one year or less. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks whose short-term obligations are rated “A-1+” by Standard & Poor’s and “Prime-1” by Moody’s, which may include the Trustee and its affiliates. The collateral must be held by a third party and the Bondholders must have a perfected first security interest in the collateral.

F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC (including those of the Trustee and its affiliates).

G. Commercial paper rated at the time of investment “Prime - 1” by Moody’s and “A-1+” or better by Standard & Poor’s.

H. Investment agreements, including guaranteed investment agreements, acceptable to the Trustee.

I. Bonds or notes issued by any state or municipality which are rated by Moody’s and Standard & Poor’s in one of the two highest rating categories assigned by such agencies.

J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of “Prime - 1” or “A3” or better by Moody’s and “A-1+” or better by Standard & Poor’s, including those of the Trustee and its affiliates.

K. Repurchase agreements rated “AA” or better by Standard and Poor’s and that provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee (buyer/lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee, in exchange for the securities at a specified date or dates.

L. Any guaranteed investment contract, including forward delivery agreements (“FDAs”) and forward purchase agreements (“FPAs”), with a financial institution or insurance company which has at the date of execution thereof an outstanding issue of unsecured, uninsured and unguaranteed debt obligations or a claims-paying ability rated within the two highest rating categories of Standard & Poor’s and Moody’s. Only Permitted Investments described in clauses A, B or C above and having maturities equal to or less than 30 years from their date of delivery will be considered eligible for any collateralization/delivery purposes for guaranteed investment contracts, FDAs or FPAs;

C-6

M. Pre-refunded municipal bonds rated “Aaa” by Moody’s and “AAA” by Standard & Poor’s. If, however, the issue is only rated by Standard & Poor’s (i.e., there is no Moody’s rating), then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre-refunded municipals to satisfy this condition.

N. The Local Agency Investment Fund of the State, provided that the Trustee may deposit and withdraw monies in its own name.

O. Any other investment which the City is permitted by law to make (including investment agreements and forward delivery or forward purchase agreements).

“Value” of the above investments shall be determined by the manner currently employed by the Trustee or any other manner consistent with industry standard.

“Prepayment” means any payment made by the City pursuant to the Lease as a prepayment of Lease Payments.

“Prepayment Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Principal Office or Corporate Trust Office” means the corporate trust office of the Trustee at 1761 East St. Andrew’s Place, Santa Ana, California 92705, or such other or additional offices as may be designated by the Trustee; provided, however, that for the purposes of payment, transfer or exchange of Certificates such term means the office or agency of the Trustee at which, at any particular time its corporate trust agency business shall be conducted.

“Project” means the improvements described in the Lease to be constructed on the Property.

“Project Cost Requisition” means a written requisition substantially in the form attached to the Trust Agreement.

“Project Costs” means, with respect to any item or portion of the Project, the contract price paid or to be paid therefor upon acquisition, construction, procurement or improvement thereof, in accordance with a purchase order or contract therefor. Project Costs include, but are not limited to, the administrative, engineering, interior decorating, legal, financial and other costs incurred by the City and the Corporation in connection with the acquisition, construction, procurement, remodeling or improvement of the Project, all applicable sales taxes and other charges resulting from such construction, procurement, remodeling or improvement of the Project and the costs associated with making rebate calculations required by the Code. Project Costs will not include any costs of the City or the Corporation to enforce remedies under the Trust Agreement or under the Lease.

“Project Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Property” means the site described in the Lease being leased to the City by the Corporation under the terms of the Lease.

“Record Date” means the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenth day is a Business Day.

“Reserve Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

C-7

“Reserve Requirement” means, as of any calculation date, the least of (1) the maximum aggregate annual Lease Payments (in any Certificate Year) then payable under the Lease (exclusive of Lease Payments attributable to Certificates that have been defeased), (2) 125% of the average annual aggregate Lease Payments (in any Certificate Year) then payable under the Lease (exclusive of Lease Payments attributable to Certificates that have been defeased), or (3) 10% of the face amount of the Certificates and/or the Additional Certificates, as applicable (less original issue discount if in excess of two percent of the stated prepayment amount at maturity).

“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw Hill Companies, Inc., or any successors or assigns thereto.

“Series” means either the 2009A Certificates and such Additional Certificates which are secured by 2009A Lease Payments or the 2009B Certificates and such Additional Certificates which are secured by the 2009B Lease Payments, as the context may suggest.

“Site Lease” means the Site Lease related to the Certificates, dated the date of the Trust Agreement, by and between the Corporation and the City.

“Special Counsel” means Stradling Yocca Carlson & Rauth, a Professional Corporation, or any other attorney or firm of attorneys of nationally recognized standing in matters pertaining to the tax-exempt status of interest on obligations issued by states and their political subdivisions and acceptable to the City.

“State” means the State of California.

“Supplemental Agreement” means a supplement to the Trust Agreement providing for the execution and delivery of Additional Certificates pursuant to the Trust Agreement.

“Tax Certificate” means the Tax Certificate, dated as of the Closing Date, concerning matters pertaining to the use and investment of proceeds of the Certificates executed and delivered to the City on the date of execution and delivery of the Certificates, including any and all exhibits attached thereto.

“Term” means the time during which the Lease is in effect, as provided in the Lease.

“Trustee” means Deutsche Bank National Trust Company, a national banking association duly organized and existing under the laws of the United States, and any successor trustee.

“Trust Agreement” means the Trust Agreement, together with any amendments thereof or supplements thereto permitted to be made under the Trust Agreement.

“2009A Certificates” means the $18,660,000 aggregate principal amount of the City of Malibu Certificates of Participation, 2009A (Tax Exempt) (City Hall Project) to be executed and delivered by the Trustee pursuant to this Trust Agreement.

“2009B Certificates” means the $815,000 aggregate principal amount of the City of Malibu Certificates of Participation, 2009B (Taxable) (City Hall Project) to be executed and delivered by the Trustee pursuant to this Trust Agreement.

“2009A Lease Payments” means any payment required to be paid by the City to the Corporation pursuant to the Lease as set forth in Exhibit A thereto and deposited in the 2009A Account of the Lease Payment Fund.

C-8

“2009B Lease Payments” means any payment required to be paid by the City to the Corporation pursuant to the Lease as set forth in Exhibit A thereto and deposited in the 2009B Account of the Lease Payment Fund.

“2009A Prepayment” means any payment made by the City pursuant to the Lease as a prepayment of the 2009A Lease Payments.

“2009B Prepayment” means any payment made by the City pursuant to the Lease as a prepayment of the 2009B Lease Payments.

THE CERTIFICATES

Equal Security. In consideration of the acceptance of the Certificates by the Owners, the Trust Agreement shall be deemed to be and shall constitute a contract between the Trustee and the Owners to secure the full and final payment of the interest, if any, and principal represented by the Certificates which may be executed and delivered thereunder, subject to each of the agreements, conditions, covenants and terms contained in the Trust Agreement; and all agreements, conditions, covenants and terms contained in the Trust Agreement required to be observed or performed by or on behalf of the Trustee shall be for the equal and proportionate benefit, protection and security of all Owners without distinction, preference or priority as to security or otherwise of any Certificates of a Series over any other Certificates of a Series by reason of the number or date thereof or the time of execution or delivery thereof or for any cause whatsoever, except as expressly provided in the Trust Agreement. All of the Certificates are equally secured, except as may be otherwise expressly provided in the Trust Agreement, provided that the 2009A Lease Payments and the 2009A Prepayments shall provide security only for the 2009A Certificates and the 2009B Lease Payments and the 2009B Prepayments shall provide security only for the 2009B Certificates. The 2009A Certificates and the 2009B Certificates shall be equally secured by the Reserve Fund.

Transfer and Exchange

Transfer of Certificates. Any Certificate may, in accordance with its terms, be transferred upon the books required to be kept pursuant to the provisions of the Trust Agreement by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificate for cancellation at the Principal Office accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Certificate or Certificates will be surrendered for transfer, the Trustee will execute and deliver a new Certificate or Certificates of the same tenor and maturity, for like aggregate principal amount in authorized denominations. The Trustee may require the payment by the Certificate Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such exchange.

Exchange of Certificates. Certificates may be exchanged at the Principal Office for a like aggregate principal amount of Certificates of other authorized denominations of the same tenor and maturity. The Trustee may require the payment by the Certificate Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange.

Time for Transfer or Exchange. The Trustee will not be obligated to transfer or exchange any Certificate after a Record Date and before the following Interest Payment Date, or during the period in which it is selecting Certificates for prepayment, or after notice of prepayment has been given as provided in the Trust Agreement.

Certificate Register

The Trustee will keep or cause to be kept at its Principal Office sufficient books for the registration and transfer of the Certificates which will, during normal working hours and upon reasonable notice, be open

C-9

to inspection by the City and the Corporation; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, Certificates. The City, the Corporation and the Trustee will be entitled to treat the registered owner of a Certificate as the absolute owner thereof for all purposes, whether or not a Certificate will be overdue and the City, the Corporation and the Trustee will not be affected by any notice to the contrary.

Additional Certificates

Subsequent to the execution and delivery by the Trustee of the Certificates, the Trustee will, upon written request or requests of the City Representative and of the Corporation Representative, execute and deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there has been compliance with all of the following conditions, which are conditions precedent to the preparation, execution and delivery of such Additional Certificates:

(a) The parties to the Trust Agreement have executed a Supplemental Agreement which (i) sets forth the terms and provisions of such Additional Certificates, including the establishment of such funds and accounts, which may be separate and apart from the funds and accounts established under the Trust Agreement for the Certificates, as are necessary or appropriate, (ii) requires that prior to the delivery of such Additional Certificates the Reserve Requirement with respect to such Additional Certificates is on deposit in the Reserve Fund established under the Trust Agreement or in a reserve fund established under such Supplemental Agreement, and (iii) specifies whether such Certificates are payable from 2009A Lease Payments or 2009B Lease Payments;

(b) The scheduled principal and interest payable with respect to such Additional Certificates will be payable only on Interest Payment Dates applicable to the Certificates;

(c) The Lease will have been amended, if necessary, to (i) increase or adjust the Lease Payments due and payable on each Lease Payment Date to an amount sufficient to pay the principal, premium (if any) and interest payable with respect to all Outstanding Certificates, including all Additional Certificates, as and when the same mature or become due and payable (except to the extent such principal, premium and interest may be payable out of moneys then in the Reserve Fund or otherwise on deposit with the Trustee in accordance with the Trust Agreement), (ii) if appropriate, amend the definition of “Leased Premises” to include as part of the Leased Premises all or any portion of additions, betterments, extensions, improvements or replacements, or such other real or personal property (whether or not located upon the Leased Premises as such Leased Premises is constituted as of the date of the Trust Agreement), to be financed, acquired or constructed by the preparation, execution and delivery of such Additional Certificates, and (iii) make such other revisions to the Lease as are necessitated by the execution and delivery of such Additional Certificates (provided, however, that such other revisions will not prejudice the rights of the Owners of Outstanding Certificates as granted them under the terms of the Trust Agreement);

(d) There has been delivered to the Trustee a counterpart of the amendments required by the Trust Agreement;

(e) The Trustee has received a certificate of the Corporation Representative that there exists on the part of the Corporation no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default);

(f) The Trustee has received a certificate of the City Representative that (i) there exists on the part of the City no Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (ii) the Lease Payments as increased or adjusted do not exceed in any year the fair rental value of the Leased Premises;

C-10

(g) The Trustee has received an opinion of Special Counsel substantially to the effect that (i) said Supplemental Agreement and said amendments to the Lease have been duly authorized, executed and delivered by the City and the Corporation, as applicable (provided that said opinion of Special Counsel, in rendering the opinions set forth in this clause (i), will be entitled to rely upon one or more other opinions of counsel, including counsel to any of the respective parties to said Supplemental Agreement or said amendments to the Lease), (ii) assuming that no Event of Default has occurred and is continuing, the Trust Agreement, as amended by said Supplemental Agreement, and the Lease, as amended by the respective amendments thereto, constitute the legal, valid and binding obligations of the City and the Corporation, as applicable, enforceable against said parties in accordance with their respective terms (except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, moratorium, debt adjustment or other laws affecting creditors’ rights generally, and except to the extent that enforcement thereof may be limited by general principles of equity, regardless of whether enforcement is sought in a legal or equitable proceeding), and (iii) the execution of such Supplemental Agreement and said amendments to the Lease, and performance by the parties under the Trust Agreement, will not result in the inclusion of the interest portion of any 2009A Lease Payments payable with respect to any Outstanding 2009A Certificates, including Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax-exempt Certificates), theretofore prepared, executed and delivered, in the gross income of the Owners of the 2009A Certificates or the owners of Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax-exempt Certificates) for purposes of federal income taxation;

(h) There will have been delivered to the Trustee an endorsement to or reissuance of the title insurance policy delivered under the Lease providing that the insured amount is at least equal to the aggregate principal amount of all of the Certificates and Additional Certificates outstanding upon the execution and delivery of such Additional Certificates;

(i) Upon the execution and delivery of such Additional Certificates, the amount on deposit in the Reserve Fund or in a reserve fund established under the Supplemental Agreement pursuant to which such Additional Certificates are executed and delivered shall be equal to the Reserve Requirement, taking into account the execution of the Additional Certificates; and

(j) Such other conditions will have been satisfied, and such other instruments will have been duly executed and delivered to the Trustee, as the City or the Corporation will have reasonably requested.

Upon delivery to the Trustee of the foregoing instruments, the Trustee will cause to be executed and delivered Additional Certificates of a Series representing the aggregate principal amount specified in such Supplemental Agreement, and such Additional Certificates of like Series will be equally and ratably secured with all Certificates, including any Additional Certificates, theretofore prepared, executed and delivered, all without preference, priority or distinction (other than with respect to maturity, payment, prepayment or sinking fund payment (if any)) of any one Certificate of a Series, including Additional Certificates, over any other; provided, however, that no provision of the Trust Agreement will require the City to consent to or otherwise permit the preparation, execution and delivery of Additional Certificates, it being understood and agreed that any such consent or other action of the City to permit the preparation, execution and delivery of Additional Certificates, or lack thereof, will be in the sole discretion of the City.

PROJECT FUND

Establishment of Project Fund

The Trustee will establish a special fund designated as the “City of Malibu (City Hall Project) Project Fund,” referred to in the Trust Agreement as the “Project Fund,” and shall establish a 2009A Account and a

C-11

2009B Account therein. Within each of the 2009A Account and the 2009B Account, there shall be established Delivery Costs Subaccounts therein; will keep the Project Fund separate and apart from all other funds and moneys held by it; and will administer such fund as provided in the Trust Agreement.

Purpose

Moneys in the Project Fund will be expended for Project Costs and Delivery Costs.

Deposit of Moneys; Payment of Project Costs and Delivery Costs

Deposits. There will be credited to the Project Fund the following amounts: (1) the proceeds of sale of the 2009A Certificates required to be deposited therein pursuant to the Trust Agreement; (2) all investment earnings on moneys held in the 2009A Account of the Project Fund, which will remain in the Project Fund until expended for Project Costs or applied to the prepayment of Certificates; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs.

There will be credited to the Project Fund the following amounts: (1) the proceeds of sale of the 2009B Certificates required to be deposited therein pursuant to the Trust Agreement; (2) all investment earnings on moneys held in the 2009B Account of the Project Fund, which will remain in the Project Fund until expended for Project Costs or applied to the prepayment of Certificates; and (3) any other funds from time to time deposited with the Trustee to pay Project Costs.

Disbursements. The Trustee will disburse moneys in the Project Fund from time to time to pay Project Costs directly or to reimburse the City for payment of Project Costs, upon receipt by the Trustee of a Project Cost Requisition signed by the City Representative. The Trustee has no duty or liability to monitor the application of any moneys disbursed under the Trust Agreement. The Trustee will disburse moneys from the Delivery Cost Subaccounts to pay Delivery Costs or to reimburse the City for payment of such Delivery Costs upon receipt by the Trustee of a Delivery Cost Requisition signed by the City Representative.

Transfers of Unexpended Proceeds. Upon the filing with the Trustee of the Certificate of Completion pursuant to the Lease, the Trustee will withdraw all remaining moneys in the Project Fund (other than any moneys retained therein to pay Project Costs not then due and payable and certified by the City Representative) and will transfer such moneys to the applicable account of the Lease Payment Fund to be applied to the payment of principal and interest with respect to the applicable Series of Certificates as prescribed in the Trust Agreement or, at the written election of the City delivered to the Trustee, together with an opinion of Special Counsel that such transfer will not cause interest due with respect to the 2009A Certificates to be included in gross income for federal income tax purposes, will transfer such moneys to the City for the purpose of capital expenditures of the City, and following such transfer, the Project Fund will be closed.

PREPAYMENT FUND

Establishment of Prepayment Fund.

The Trustee will establish a special fund designated as the “City of Malibu (City Hall Project) Prepayment Fund,” referred to in the Trust Agreement as the “Prepayment Fund”; will keep such fund separate and apart from all other funds and moneys held by it; and will administer such fund as provided in the Trust Agreement. Within the Prepayment Fund, the Trustee will establish a 2009A Account into which any 2009A Prepayments will be deposited and a 2009B Account into which any 2009B Prepayments will be deposited. Moneys to be used for prepayment of the Certificates will be deposited into the appropriate account of the Prepayment Fund established for such Series and used solely for the purpose of prepaying the applicable Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrender of such Certificates to the Trustee.

C-12

Surplus

Any funds remaining in the Prepayment Fund after prepayment and payment of all Certificates Outstanding, including accrued interest and payment of any applicable fees and expenses to the Trustee pursuant to the Trust Agreement and any other Additional Payments payable under the Lease or provision made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement, will be withdrawn by the Trustee and remitted to the City.

LEASE PAYMENTS; LEASE PAYMENT FUND

Assignment of Rights in Lease

The Corporation has, pursuant to the Assignment Agreement, absolutely assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Corporation’s rights to receive and collect all of the Lease Payments, the Prepayments and all other amounts required to be deposited in the Lease Payment Fund pursuant to the Lease or pursuant to the Trust Agreement. All Lease Payments, Prepayments and such other amounts to which the Corporation may at any time be entitled (other than Additional Payments due to the Corporation under the Lease) are to be paid directly to the Trustee, and all of the Lease Payments and Prepayments collected or received by the Corporation are to be deemed to be held and to have been collected or received by the Corporation as the agent of the Trustee and if received by the Corporation at any time are to be deposited by the Corporation with the Trustee within five (5) Business Days after the receipt thereof, and all such Lease Payments are to be deposited by the Trustee upon the receipt thereof in the Lease Payment Fund, all such Prepayments are to be deposited by the Trustee upon the receipt thereof in the Prepayment Fund.

Security Interest in Moneys and Funds

The Corporation and the City, as their interests may appear, grant to the Trustee for the benefit of the Owners of the 2009A and 2009B Certificates a lien on and a security interest in all moneys in the following funds or accounts held by the Trustee under the Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including, without limitation, the Lease Payment Fund, the Reserve Fund, the Prepayment Fund and the Net Proceeds Fund, and all such moneys are to be held by the Trustee in trust and applied to the purposes specified in the Trust Agreement and in the Lease.

Only Owners of the 2009A Certificates shall have a lien on and a security interest in all moneys in the Trust Agreement the 2009A Account of the Lease Payment Fund and the 2009A Account of the Prepayment Fund.

Only Owners of the 2009B Certificates shall have a lien on and a security interest in all moneys in the Trust Agreement the 2009B Account of the Lease Payment Fund and the 2009B Account of the Prepayment Fund.

The 2009A Certificates and the 2009B Certificates shall have a co-equal lien on and security interest in the Reserve Fund.

Pledge of Lease Payments and Proceeds

The 2009A Lease Payments are irrevocably pledged to and will be used for the punctual payment of the interest and principal represented by the 2009A Certificates (and any Additional Certificates to the extent provided in a Supplemental Agreement). The 2009B Lease Payments are hereby irrevocably pledged to and shall be used for the punctual payment of the interest and principal represented by the 2009B Certificates (and any Additional Certificates to the extent provided in a Supplemental Agreement). Any proceeds from the re-letting or any other disposition of the Leased Premises pursuant to the Lease (the “Lease Proceeds”) are hereby

C-13

irrevocably pledged equally to the 2009A Certificates, the 2009B Certificate and any Additional Certificates. The Lease Payments and Lease Proceeds will not be used for any other purpose while any of the Certificates remain Outstanding. This pledge will constitute a first lien on the Lease Payments and Lease Proceeds in accordance with the Trust Agreement.

Establishment of Lease Payment Fund

The Trustee will establish a special fund designated as the “City of Malibu (City Hall Project) Lease Payment Fund,” and a 2009A Account and a 2009B Account therein. Within each of the 2009A Account and the 2009B Account, there shall be established an Interest Subaccount therein. All moneys at any time deposited by the Trustee in an account of the Lease Payment Fund will be held by the Trustee in trust for the benefit of the respective Owners of the applicable Certificates of such Series. So long as any Certificates are Outstanding, neither the City nor the Corporation will have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in the Trust Agreement, and such moneys will be used and applied by the Trustee as provided in the Trust Agreement.

Deposits

There will be deposited in the 2009A Account of the Lease Payment Fund all 2009A Lease Payments and in the 2009A Account of the Prepayment Fund all 2009A Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement and the Lease, and any other moneys required to be deposited in the Interest Subaccount therein pursuant to the Lease, including without limitation that section of the Lease regarding proceeds of rental interruption insurance or pursuant to the Trust Agreement, which moneys will be applied as a credit towards any 2009A Lease Payment then due.

There will be deposited in the 2009B Account of the Lease Payment Fund all 2009B Lease Payments and in the 2009B Account of the Prepayment Fund all 2009B Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement and the Lease, and any other moneys required to be deposited in the Interest Subaccount therein pursuant to the Lease, including without limitation that section of the Lease regarding proceeds of rental interruption insurance or pursuant to the Trust Agreement, which moneys will be applied as a credit towards any 2009B Lease Payment then due.

Application of Moneys

Except as provided in the Trust Agreement, all amounts in the 2009A Account of the Lease Payment Fund will be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the 2009A Certificates as the same will become due and payable, in accordance with the provisions of the Trust Agreement.

Except as provided in the Trust Agreement, all amounts in the 2009B Account of the Lease Payment Fund will be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the 2009B Certificates as the same will become due and payable, in accordance with the provisions of the Trust Agreement, subject to the requirement that certain investment earnings may be transferred to the Rebate Fund, as provided in the Trust Agreement.

On or before each Interest Payment Date, the Trustee will set aside an amount sufficient to pay the interest becoming due and payable on such Interest Payment Date on all Outstanding Certificates and Additional Certificates. Moneys so set aside will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Certificates and Additional Certificates as it will become due and payable (including, accrued interest on any Certificates and Additional Certificates prepaid prior to maturity).

On or before each Interest Payment Date on which the principal of the Certificates and Additional Certificates will be payable, the Trustee will set aside an amount equal to (i) the principal amount of the

C-14

Certificates and Additional Certificates coming due and payable on such Interest Payment Date pursuant to the Trust Agreement, (ii) the prepayment price of the Certificates and Additional Certificates (consisting of the principal amount thereof and any applicable premiums) required to be prepaid on such Interest Payment Date pursuant to any of the provisions of the Trust Agreement. Moneys so set aside will be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal of the Certificates and Additional Certificates at the maturity thereof, or (ii) paying the principal of and premium (if any) on any Certificates upon the prepayment thereof pursuant to the Trust Agreement.

Surplus

Any funds remaining in the Lease Payment Fund after payment of all Certificates Outstanding, including accrued interest and payment of any applicable fees to the Trustee pursuant to the Trust Agreement and any other Additional Payments due under the Lease, or provision made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement, will be withdrawn by the Trustee and remitted to the City.

RESERVE FUND

Establishment of Reserve Fund

The Trustee will establish a special fund designated as the “City of Malibu (City Hall Project) Reserve Fund,” referred to in the Trust Agreement as the “Reserve Fund.” For accounting purposes, the Trustee may establish one or more accounts within the Reserve Fund as directed in writing by the City Representative. All moneys at any time on deposit in the Reserve Fund will be held by the Trustee in trust for the benefit of the Owners of the Certificates, as a reserve for the payment when due of all the Lease Payments to be paid pursuant to the Lease and of all payments on the Certificates and applied solely as provided in the Trust Agreement.

The Reserve Requirement, or any portion thereof, may also be satisfied by the City by crediting to the Reserve Fund a letter of credit, a surety bond insurance policy, or any other comparable credit facility or any combination thereof which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement.

Certain Net Proceeds

Net Proceeds of rental interruption insurance will be deposited first to the Reserve Fund to make up any deficiencies therein and second to the Lease Payment Fund to be credited to the payment of the Lease Payments in the order in which they become due. In the event that Net Proceeds are insufficient to pay both a 2009A Lease Payment and 2009B Lease Payment then due, such Net Proceeds shall be deposited in the 2009A Account and 2009B Account of the Lease Payment Fund proportionately based on the amount of such Lease Payments then due.

Transfers of Excess

The Trustee will, on or before June 15 and December 15 of each year, provide written notice to the City of any moneys which will be on hand in the Reserve Fund (including investment earnings) in excess of the Reserve Requirement on such date, and one Business Day immediately preceding any Lease Payment Date, the Trustee will transfer such excess moneys to the Lease Payment Fund to be applied proportionately to the 2009A Lease Payment and 2009B Lease Payment then due from the City; provided, however, prior to the date of delivery of the Completion Certificates, all such amounts shall be deposited in the Project Fund. In the event of the partial Prepayment of Lease Payments the City may instruct the Trustee to reduce the amounts on deposit in the Reserve Fund to the Reserve Requirement as of such date and may direct the Trustee to transfer excess amounts from the Reserve Fund to the Lease Payment Fund or for any lawful purpose, together with an

C-15

opinion of Special Counsel that such transfer will not cause interest due with respect to the 2009A Certificates to be included in gross income for federal income tax purposes.

The transfers described above are in each case subject to the requirement that if the Certificate proceeds will have become subject to the arbitrage rebate provisions of the Code as described in the Trust Agreement then certain investment earnings are to be transferred to the Rebate Fund at the direction of the City as provided in the Trust Agreement.

Application of Reserve Fund in Event of Deficiency in Lease Payment Fund

Whether or not Lease Payments are then in abatement, if one (1) day immediately preceding any Interest Payment Date, the moneys available in the Lease Payment Fund do not equal the amount of the principal, and interest with respect to the Certificates then coming due and payable, the Trustee first will apply the moneys available in the Reserve Fund to make delinquent Lease Payments on behalf of the City by transferring the amount necessary for such purpose to the Lease Payment Fund. The Trustee will take whatever action is necessary to liquidate or draw upon investments of funds held in the Reserve Fund or draw upon any surety bond, insurance policy or letter of credit securing the Reserve Fund to make such funds available for application as provided under the Trust Agreement on the Interest Payment Date. In the event amounts on deposit in or available to the Reserve Fund are insufficient to make all Lease Payments then due, such amounts shall be deposited proportionately to the 2009A Account and the 2009B Account of the Lease Payment Fund based on the amount of such Lease Payments then due.

In the event that the Trustee has transferred money from the Reserve Fund to the Lease Payment Fund in accordance with the Trust Agreement, upon receipt of the moneys from the City to increase the balance in the Reserve Fund to the Reserve Requirement, the Trustee shall deposit such money in the Reserve Fund.

Transfer to Make All Lease Payments

If on any Interest Payment Date the moneys on deposit in the Reserve Fund and the Lease Payment Fund (excluding amounts required for payment of principal or interest with respect to Certificates not presented for payment) are sufficient to pay all Outstanding Certificates, including all principal, interest and prepayment premiums (if any), the Trustee will, upon the written direction of the City Representative, transfer all amounts in the Reserve Fund to the Lease Payment Fund to be applied to the payment of the Lease Payments or Prepayments on behalf of the City and such moneys will be distributed to the Owners of Certificates in accordance with the Trust Agreement. Any amounts remaining in the Reserve Fund upon payment in full of all Outstanding Certificates and the Trustee’s fees and expenses pursuant to the Trust Agreement and any other Additional Payments due under the Lease, or upon provision for such payments as provided in the Trust Agreement and provisions for any amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement, will at the written direction of the City be withdrawn by the Trustee and paid to the City.

NET PROCEEDS FUND

Establishment of Net Proceeds Fund: Deposits

The Trustee will establish when required a special fund designated as the “City of Malibu (City Hall Project) Net Proceeds Fund,” referred to in the Trust Agreement as the “Net Proceeds Fund,” to be maintained and held in trust for the benefit of the Owners, subject to disbursement therefrom as provided in the Trust Agreement. The Trustee will deposit Net Proceeds in the Net Proceeds Fund as provided in the Lease.

Casualty Insurance. The Trustee will disburse Net Proceeds for replacement or repair of the Leased Premises as provided in the Lease, or transfer such proceeds to the Prepayment Fund upon notification of the City Representative as provided in the Lease. Pending such application, such Net Proceeds may be invested

C-16

by the Trustee as directed by the City in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. After all of the Certificates have been paid and the entire amount of principal and interest with respect to the Certificates has been paid in full, or provision made for payment satisfactory to the Trustee, including provision for all amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement, the Trustee will pay any remaining moneys in the Net Proceeds Fund to the City after payment of any amounts due to the Trustee pursuant to the Trust Agreement and any other Additional Payments due under the Lease.

Title Insurance. Proceeds of any policy of title insurance received by the Trustee with respect to the Leased Premises will be applied and disbursed by the Trustee upon the Written Request of the City as follows:

(a) If the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Premises and will not result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease (such determination to be certified by the City in writing), such proceeds will be remitted to the City and used for any lawful purpose thereof; or

(b) If the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Premises and will result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease; then the Trustee will immediately deposit such proceeds in the Prepayment Fund and such proceeds will be applied to the prepayment of Certificates in the manner provided in the Trust Agreement.

MONEYS IN FUNDS; INVESTMENT

Held in Trust

The moneys and investments held by the Trustee under the Trust Agreement, other than in the Rebate Fund, are irrevocably held in trust for the benefit of the respective Owners and, in the case of the Rebate Fund, for payment as required to the United States Treasury, and for the purposes in the Trust Agreement, and such moneys, and any income or interest earned thereon, will be expended only as provided in the Trust Agreement, and will not be subject to levy or attachment or lien by or for the benefit of any creditor of the Corporation, the Trustee or the City, or any of them.

Investments Authorized

By Trustee. Subject to the further provisions of the Trust Agreement, moneys held by the Trustee under the Trust Agreement will be invested and reinvested on maturity thereof by the Trustee pursuant to the Trust Agreement. The Trustee will report any such investments to the City on a monthly basis in its regular statements.

Upon Direction of City. The City Representative will direct by facsimile, to the designated trust officer responsible for the administration of the Trust Agreement, followed by oral notification and distribution by U.S. Mail or overnight courier service of such notice, such investment in specific Permitted Investments not less than two Business Days prior to the date that such Permitted Investment is to take effect. Such investments and reinvestments will be made giving full consideration for the time at which funds are required to be available based upon, among other things, scheduled completion of the various components of the Project. In the event that the City Representative does not so direct the Trustee, the Trustee will invest in the Permitted Investments described in paragraph (D) of the definition thereof.

Investments purchased with funds on deposit in the Lease Payment Fund and Prepayment Fund are to mature not later than the Interest Payment Date or prepayment date, as appropriate, immediately succeeding the investment. Investments instructed by the City Representative to be purchased with funds on deposit in the

C-17

Project Fund will mature not later than the dates upon which such funds will be needed to be expended for the payment of Project Costs. Notwithstanding anything to the contrary contained in the Trust Agreement, investments instructed by the City Representative to be purchased with funds on deposit in the Reserve Fund shall have an average aggregate weighted term to maturity of not greater than five years; provided that such amounts may be invested in an investment agreement to the later of the final maturity of the Certificates or any Additional Certificates so long as such amounts may be withdrawn at any time, without penalty, for application in accordance with the Trust Agreement; and provided that no such investment of amounts in the Reserve Fund allocable to the Certificates or a series of Additional Certificates shall mature later than the respective final maturity date of the Certificates or the series of Additional Certificates, as applicable. The Trustee may conclusively rely upon the written instructions of the City Representative as to both the suitability and legality of the directed investments.

Registration. Such investments, if registrable, will be registered in the name of the Trustee for the benefit of the Owners and held by the Trustee or its nominee.

Trustee as Purchaser or Agent. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by the Trust Agreement. The Trustee may act as purchaser or agent in the making or disposing of any investment. The Trustee or any of its affiliates may act as a sponsor of, or as an advisor to any provider of, Permitted Investments under the Trust Agreement. The City and the Corporation acknowledge that, to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City and the Corporation the right to receive brokerage confirmations of security transactions as they occur, the City and the Corporation specifically waive receipt of such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Trust Agreement.

Trustee Standard of Care. Except as otherwise provided in the Trust Agreement, the Trustee shall not be responsible or liable for any consequences of any investment of funds or sale of such investment made by it in accordance with the Trust Agreement or disposition made by it in accordance with the Trust Agreement.

Crediting of Investments

Any income, profit or loss on the investment of moneys held by the Trustee under the Trust Agreement will be credited to the respective fund for which it is held, except as otherwise provided in the Trust Agreement.

Accounting

The Trustee will furnish to the City, not less than monthly, an accounting (which may be in the form of its regular statements) of all investments made by the Trustee and all funds and amounts held by the Trustee; provided, that the Trustee will not be obligated to deliver an accounting for any fund or account that (i) has a balance of zero and (ii) has not had any activity since the last reporting date. The Trustee will keep accurate records of all funds administered by it and of all Certificates paid and discharged.

Valuation and Disposition of Investments

Valuation. Subject to the provisions of the Trust Agreement, for the purpose of determining the amount in any fund, all Permitted Investments (except investment agreements) credited to such fund will be valued at the lower of the cost or the market price, exclusive of accrued interest. With respect to all funds and accounts, investments will be valued by the Trustee (i) not less often than annually nor more often than monthly, and (ii) upon any draw upon the Reserve Fund. In making any such valuations, the Trustee may utilize, and conclusively rely upon such valuation services as may be available to the Trustee, including those within its regular accounting system.

C-18

Disposition. Subject to the provisions of the Trust Agreement, the Trustee will sell, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it will be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited.

Commingling of Moneys in Funds

The Trustee may, and upon the written request of the City Representative will, commingle any of the funds held by it pursuant to the Trust Agreement into a separate fund or funds for investment purposes only; provided, however, that all funds or accounts held by the Trustee under the Trust Agreement will be accounted for separately notwithstanding such commingling by the Trustee.

Tax Covenants

General. The City and the Corporation have covenanted with the holders of the 2009A Certificates that, notwithstanding any other provisions of the Trust Agreement (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates), they will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest with the 2009A Certificates under the Code. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) will not, directly or indirectly, use or permit the use of proceeds of the 2009A Certificates or the Project, or any portion thereof, by any person other than a governmental unit (as such term is used in the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest with respect to the 2009A Certificates.

Use of Proceeds. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) will not take any action, or fail to take any action, if any such action or failure to take action would cause the 2009A Certificates to be “private activity bonds” within the meaning of the Code, and in furtherance thereof, will not make any use of the proceeds of the 2009A Certificates or the vacant portions of the Project, or any other funds of the City, that would cause the 2009A Certificates to be “private activity bonds” within the meaning of the Code. To that end, so long as any 2009A Certificates are outstanding, the City and the Corporation, with respect to such proceeds and the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued under the Trust Agreement and under the Code, to the extent such requirements are, at the time, applicable and in effect. The City will establish reasonable procedures necessary to ensure continued compliance with the Code and the continued qualification of the 2009A Certificates as “governmental bonds.”

Arbitrage. The City and the Corporation (to the extent that the Corporation may have control over the Project or the proceeds of the Certificates) will not, directly or indirectly, use or permit the use of any proceeds of any 2009A Certificates, or of the vacant portions of the Project, or other funds of the City, or take or omit to take any action, that would cause the Certificates to be “arbitrage bonds” within the meaning of the Code. To that end, the City and the Corporation will comply with all requirements of the Code and all regulations of the United States Department of the Treasury issued under the Trust Agreement to the extent such requirements are, at the time, in effect and applicable to the 2009A Certificates.

Federal Guarantee. The City and the Corporation (to the extent that the Corporation may have control over the proceeds of the Certificates) will not make any use of the proceeds of the Certificates or any other funds of the City, or take or omit to take any other action, that would cause the 2009A Certificates to be “federally guaranteed” within the meaning of the Code.

Compliance with Tax Certificate. In furtherance of the foregoing tax covenants of the Trust Agreement, the City covenants that it will comply with the provisions of the Tax Certificate, which is

C-19

incorporated in the Trust Agreement as if fully set forth in the Trust Agreement. These covenants will survive payment in full or defeasance of the 2009A Certificates.

Rebate Fund

The Trustee will establish a special fund designated the “City of Malibu (City Hall Project) Rebate Fund” (the “Rebate Fund”). All amounts at any time on deposit in the Rebate Fund will be held by the Trustee in trust, to the extent required to satisfy the requirement to make rebate payments to the United States (the “Rebate Requirement”) pursuant to the Code and the Treasury Regulations promulgated thereunder (the “Treasury Regulations”). Such amounts will be free and clear of any lien under the Trust Agreement and will be governed by the Trust Agreement and by the Tax Certificate.

THE TRUSTEE

Appointment of Trustee

Appointment. Deutsche Bank National Trust Company, a national banking association organized under the laws of the United States, has been appointed Trustee by the Corporation and the City.

Qualifications. The Corporation and the City agree that they will maintain a Trustee having a corporate trust office in New York, New York, San Francisco, California, Santa Ana, California, or Los Angeles, California capable of exercising trust powers in the State of California, with a combined capital (exclusive of borrowed capital) and a surplus of at least $75,000,000, or be a member of a bank holding company system, which will have a combined capital and surplus of at least $75,000,000, and subject to supervision or examination by federal or state authority, so long as any Certificates are Outstanding.

Removal. So long as there is no Event of Default, the City, may remove the Trustee initially appointed, and any successor thereto, and may appoint a successor or successors thereto.

Resignation. The Trustee may, upon prior written notice to the City and the Corporation, resign; provided that such resignation will not take effect until the successor Trustee is appointed as provided in the Trust Agreement. Upon receiving such notice of resignation, the City will promptly appoint a successor Trustee and be reimbursed by the City for all costs incurred in connection therewith.

Successor. Any successor Trustee will be a bank, corporation or trust company meeting the qualifications as set forth above. Any resignation or removal of the Trustee and appointment of a successor Trustee will become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the successor Trustee will mail notice thereof to the Owners at their respective addresses set forth on the Certificate registration books.

Rights of the Trustee

Ownership of Certificates. The Trustee may become the Owner with the same rights it would have if it were not Trustee; may acquire and dispose of other bonds or evidence of indebtedness of the City with the same rights it would have if it were not the Trustee; and may act as a depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of the majority in principal amount of the Certificates then Outstanding.

Attorneys, Agents, Receivers. The Trustee may execute any of the trusts or powers and perform the duties required of it under the Trust Agreement by or through attorneys, agents, or receivers, shall not be responsible for the actions or omissions of such attorneys, agents or receivers if appointed by it with

C-20

reasonable care, and shall be entitled to advice of counsel concerning all matters of trust and its duty under the Trust Agreement.

Standard of Care. The Trustee shall not be liable in connection with the performance of its duties under the Trust Agreement, except for its own negligence or willful misconduct. The Trustee will only perform those duties specifically set forth in the Trust Agreement and no implied duties, covenants or obligations whatsoever shall be read into the Trust Agreement. In the event of and during the continuance of an Event of Default, the Trustee will exercise such care in performing its duties under the Trust Agreement as a prudent person would exercise under the circumstances in the conduct of its own affairs. No action by the Trustee shall be construed or deemed to expand the limitation on the scope of the Trustee’s duties. The Trustee will not be considered in breach of or in default in its obligations under the Trust Agreement in the event of enforced delay ("unavoidable delay") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.

Indemnification of Trustee. The City will, to the extent permitted by law, indemnify and save the Trustee and its officers, directors, agents, and employees harmless from and against (whether or not litigated) all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on, the Leased Premises by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under the Trust Agreement and any other agreement made and entered into for purposes of the Leased Premises, (iii) any act of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Premises, (iv) any act of any assignee of, or purchaser from, the City or of any of its or their agents, contractors, servants, employees or licensees with respect to the Leased Premises, (v) the construction or acquisition of the Project or the expenditure of Project Costs, or (vi) the exercise and performance by the Trustee of its powers and duties under the Trust Agreement or any related document, (vii) the sale of the Certificates and the carrying out of any of the transactions contemplated by the Certificates or the Trust Agreement, or (viii) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made in light of the circumstances in which they were made, not misleading in any official statement or other disclosure document utilized in connection with the sale of the Certificates. No indemnification will be made in the Trust Agreement or other agreements for willful misconduct or negligence by the Trustee, its officers, agents, employees, successors or assigns.

In accepting the trust created by the Trust Agreement, the Trustee acts solely as Trustee for the Owners and not in its individual capacity, and all persons, including, without limitation, the Owners, Corporation and City, having any claim against the Trustee arising from the Trust Agreement will look only to the funds and accounts held by the Trustee under the Trust Agreement for payment, except as otherwise provided in the Trust Agreement or where the Trustee has breached its standard of care as described in the Trust Agreement. Under no circumstances will the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates.

No provision of the Trust Agreement will require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties under the Trust Agreement or in the exercise of any of its rights or powers.

C-21

The Trustee will not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Certificates at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee or in the exercise of any right under the Trust Agreement. In the event of conflicting instructions under the Trust Agreement, the Trustee shall have the right to decide the appropriate course of action and be protected in so doing.

The Trustee will have no responsibility or liability with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed in any respect relating to the Certificates.

The Trustee will not to be deemed to have knowledge of any Event of Default under the Trust Agreement or under the Lease unless it has actual knowledge thereof at its Principal Office.

MODIFICATION OR AMENDMENT OF AGREEMENTS

Amendments Permitted

With Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time, with notice to any rating agency then rating the Certificates, by a Supplemental Agreement or amendment thereto which will become effective when the written consent of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in the Trust Agreement, will have been filed with the Trustee. No such modification or amendment will:

(a) extend or have the effect of extending the maturity of any Certificate or reducing the fixed interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificate being affected, or

(b) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease, or

(c) modify any of the rights or obligations of the Trustee without its written assent thereto, or

(d) amend the Trust Agreement dealing with permitted amendments without the prior written consent of the Owners of all Certificates then outstanding.

The Trustee will have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest with respect to the 2009A Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto will become effective as provided in the Trust Agreement.

Without Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a Supplemental Agreement or amendments thereto without the consent of any such Owners, but only to the extent permitted by law and only:

(a) to add to the covenants and agreements of the City under the Trust Agreement,

(b) to cure, correct or supplement any ambiguous or defective provision contained in the Trust Agreement or in the Lease,

C-22

(c) in regard to matters arising under the Trust Agreement or under the Lease Agreement, as the parties thereto may deem necessary or desirable, will not adversely affect the interest of the Owners,

(d) to substitute the Leased Premises, or a portion thereof, in accordance with the Lease,

(e) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of the interest component of Lease Payments and the interest payable with respect to the Certificates,

(f) to add to the rights of the Trustee,

(g) to provide for the execution and delivery of Additional Certificates in accordance with the provisions of the Trust Agreement.

No such modification or amendment, however, will modify and of the rights or obligation of the Trustee without its written assert thereto. Any such Supplemental Agreement will become effective upon execution and delivery by the parties thereto.

The Trustee will have the right to require such opinions of counsel as it deems necessary concerning (i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will not affect the tax status of interest with respect to the 2009A Certificates or any Additional Certificates. Any such Supplemental Agreement or amendments thereto will become effective as provided in the Trust Agreement.

Procedure for Amendment with Written Consent of the Owners

The Trust Agreement or the Lease may be amended by Supplemental Agreement as provided in the Trust Agreement. In the event the consent of the Owners is required pursuant to the Trust Agreement, a copy of the form of such Supplemental Agreement, together with a request to the Owners for their consent thereto, will be mailed by the Trustee to each Owner of a Certificate at his address as set forth in the Certificate registration books, but failure to receive copies of such Supplemental Agreement and request so mailed will not affect the validity of the Supplemental Agreement when assented to as provided in the Trust Agreement.

Such Supplemental Agreement will not become effective unless there will be filed with the Trustee the written consent of the Owners of at least a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in the Trust Agreement) and notices will have been mailed as provided the Trust Agreement. Any such consent will be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when further notice has been mailed as provided in the Trust Agreement.

After the Owners of the required percentage of Certificates shall have filed their consent to such Supplement Agreement, the Trustee will mail a notice to the Owners of the Certificates in the manner provided in the Trust Agreement for the mailing of such Supplemental Agreement, stating in substance that such Supplemental Agreement has been consented to by the Owners of the required percentage of Certificates and will be effective as provided in the Trust Agreement (but failure to mail copies of said notice shall not affect the validity of such Supplemental Agreement or consents thereto). A record, consisting of the papers required by the Trust Agreement to be filed with the Trustee, will be proof of the matters therein stated until the contrary is proved. The Trustee may obtain and conclusively rely on an opinion of counsel with regard to such matters.

C-23

Effect of Supplemental Agreement

From and after the time any Supplemental Agreement becomes effective pursuant to the Trust Agreement, the Trust Agreement or the Lease, as the case may be, will be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations of the parties thereto and all Owners of Certificates Outstanding, as the case may be, will thereafter be determined, exercised and enforced under the Trust Agreement subject in all respects to such modification and amendment, and all the terms and conditions of any Supplemental Agreement will be deemed to be part of the terms and conditions of the Trust Agreement or the Lease, as the case may be, for any and all purposes.

COVENANTS

Compliance With and Enforcement of the Lease

The City has covenanted to perform all obligations and duties imposed on it under the Lease. The Corporation has covenanted to perform all obligations and duties imposed on it under the Lease. The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Corporation.

The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Corporation thereunder. The Corporation and the City, immediately upon receiving or giving any notice, communication or other document in any way relating to or affecting their respective estates, or either of them, in the Leased Premises, which may or can in any manner affect such estate of the City, will deliver the same, or a copy thereof, to the Trustee.

Payment of Taxes

The City shall pay all taxes as provided in the Lease.

Observance of Laws and Regulations

The City will observe and perform all valid and lawful obligations or regulations imposed on it by contract, or prescribed by any law of the United States, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise owned or acquired by the City, including its right to exist and carry on business as a municipal corporation, to the end that such rights, privileges and franchises will be maintained and preserved, and will not become abandoned, forfeited or in any manner impaired.

Prosecution and Defense of Suits

The City will promptly, and also upon request of the Trustee, the Insurer or any Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased Premises, and will prosecute all such suits, actions and other proceedings as may be appropriate for such purpose.

City Budgets

In accordance with the Lease, the City Representative will certify to the Trustee on or before August 1 of each year that the City has included all Lease Payments (other than Lease Payments of advance rental) and Additional Payments due under the Lease in the Fiscal Year covered by its annual budget and the amount so included. If the City fails to certify that it has included all such Lease Payments and Additional Payments in

C-24

such annual budget, the Trustee will promptly provide the City written notice specifying that the City has failed to observe and perform its covenant and agreement in the Lease and requesting that such failure be remedied within 30 days, or such failure will constitute an Event of Default under the Lease.

LIMITATION OF LIABILITY

Limited Liability of the City

Except for the payment of Lease Payments, Additional Payments and Prepayments when due in accordance with the Lease and the performance of the other covenants and agreements of the City contained in the Trust Agreement and in the Lease, the City will have no obligation or liability to any of the other parties to the Trust Agreement or to the Owners with respect to the Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee.

No Liability of the City or Corporation for Trustee Performance

Except as expressly provided in the Trust Agreement, neither the City nor the Corporation will have any obligation or liability to any other parties thereto or to the Owners with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement.

Limitation of Rights to Parties and Certificate Owners

Nothing in the Trust Agreement or in the Certificates expressed or implied is intended or will be construed to give any person other than the City, the Corporation, the Trustee and the Owners, any legal or equitable right, remedy or claim under or in respect of the Trust Agreement or any covenant, condition or provision of the Trust Agreement; and all such covenants, conditions and provisions are and will be for the sole and exclusive benefit of the City, the Corporation, the Trustee and the Owners.

Except as expressly provided in the Trust Agreement, the Corporation shall not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City or with respect to the observance or performance by the City of the other agreements, conditions, and covenant imposed upon the City by the Lease or by the Trust Agreement.

EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS

Events of Default

Remedies. If an Event of Default occurs, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything in the Trust Agreement or in the Lease to the contrary, THERE WILL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE MATURITIES OF THE CERTIFICATES OR OTHERWISE TO DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE.

Actual Knowledge. The Trustee will not be deemed to have knowledge of any Event of Default unless and until the trust officer responsible for the administration of the Trust Agreement will have actual knowledge thereof, or will have received written notice thereof at the Principal Office.

Application of Funds

All moneys received by the Trustee pursuant to any right given or action taken under the provisions of the Trust Agreement or the Lease, will be deposited into the Lease Payment Fund and be applied by the Trustee after payment of all amounts due and payable to the Trustee pursuant to the Trust Agreement and the

C-25

Lease in the following order upon presentation of the several Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid -

First, Costs and Expenses: to the payment of the costs, fees and expenses of the Trustee in declaring such Event of Default and in performing its duties and obligations under the Trust Agreement, including reasonable compensation to its or their agents, attorneys and counsel and then any of such amounts incurred by the Owners;

Second, Interest: to the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installment, and, if the amount available is not sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and

Third, Principal: to the payment to the persons entitled thereto of the unpaid principal with respect to any Certificates which will have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue principal and interest at a rate equal to the rate paid with respect to the Certificates and, if the amount available will not be sufficient to pay in full all the amounts due with respect to the Certificates on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference.

Institution of Legal Proceedings

If one or more Events of Default will happen and be continuing, the Trustee may, and upon the written request of the Owners of a majority in principal amount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, will, proceed to protect or enforce its rights or the rights of the Owners by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained in the Trust Agreement or in the Lease, or in aid of the execution of any power in the Trust Agreement granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee will deem most effectual in support of any of its rights or duties under the Trust Agreement; provided that such written request will not be otherwise than in accordance with provisions of law and the Trust Agreement and that the Trustee will have the right to decline to follow any such written request if the Trustee will be advised by counsel that the action or proceeding so requested may not be taken lawfully or if the Trustee in good faith will determine that the action or proceeding so requested would be unjustly prejudicial to the Certificate Owners not a party to such written request or expose the Trustee to liability.

Non-Waiver

Nothing in the Trust Agreement or in the Certificates will affect or impair the obligation of the City which is absolute and unconditional, to pay or prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default will impair any such right or power or will be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by the Trust Agreement to the Trustee or to the Owners may be exercised from time to time and as often as will be deemed expedient by the Trustee or the Owners.

Remedies Not Exclusive

No remedy conferred or reserved to the Trustee or to the Owners in the Trust Agreement is intended to be exclusive of any other remedy, and every such remedy will be cumulative and will be in addition to every other remedy given under the Trust Agreement, at law or in equity or by statute or otherwise.

C-26

Power of Trustee to Control Proceedings

In the event that the Trustee, upon the happening of an Event of Default, will have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Trust Agreement, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Certificates then Outstanding, it will have full power, in the exercise of its discretion for the best interest of the Owners of the Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee will not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of at least a majority in principal amount of the Outstanding Certificates under the Trust Agreement opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation.

Limitation on Certificate Owners’ Right to Sue

No Owner of any Certificate executed under the Trust Agreement will have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Trust Agreement, unless (a) such Owner will have previously given to the Trustee written notice of the occurrence of an Event of Default under the Lease; (b) the Owners of a majority in aggregate principal amount of all the Certificates then Outstanding will have made written request upon the Trustee to exercise the powers granted or to institute such action, suit or proceeding in its own name; (c) said Owners will have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee will have refused or omitted to comply with such request for a period of 60 days after such written request will have been received by, and said tender of indemnity will have been made to, the Trustee; and (e) there has been a default in the payment of such Owner’s proportionate interest in the Lease Payments as the same become due.

Such notification, request, tender of indemnity, refusal or omission, and default are, in every case, to be conditions precedent to the exercise by any Owner of any remedy under the Trust Agreement; it being understood and intended that no one or more Owners will have any right in any manner whatever by his or their action to enforce any right under the Trust Agreement, except in the manner provided in the Trust Agreement and for the equal benefit of all Owners of the Outstanding Certificates.

The right of any Owner of any Certificate to receive payment of said Owner’s proportionate interest in the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, will not be impaired or affected without the consent of such Owner, notwithstanding any provision of the Trust Agreement.

MISCELLANEOUS

Defeasance

Methods. If and when any Outstanding Certificates are paid and discharged in any one or more of the following ways:

(i) Payment or Prepayment: by well and truly paying or causing to be paid the principal, interest and prepayment premiums (if any) with respect to such Certificates Outstanding, as and when the same become due and payable;

(ii) Cash: if prior to maturity and having given at least 30 days prior written notice of prepayment by depositing with the Trustee, in trust, concurrent with the giving of such notice, an amount of cash which (together with cash then on deposit in the Lease Payment Fund and the Reserve Fund together with the interest to accrue thereon, in the event of payment or provision for payment of

C-27

all Outstanding Certificates) is sufficient to pay such Certificates Outstanding, including all principal and interest and premium, if any; or

(iii) Government Obligations: by irrevocably depositing with the Trustee, in trust, Government Obligations together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon (and, in the event of payment or provision for payment of all Outstanding Certificates, moneys then on deposit in the Lease Payment Fund and the Reserve Fund together with the interest to accrue thereon), be fully sufficient to pay and discharge such Certificates (including all principal and interest represented thereby and prepayment premiums if any) at or before their maturity date;

and all other amounts due under the Trust Agreement have been paid in full, then, notwithstanding that any Certificates will not have been surrendered for payment, all obligations of the Corporation, the Trustee and the City with respect to such Certificates will cease and terminate, except only the obligation of the City and the Corporation to comply with the Code and the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the City from funds deposited pursuant to paragraphs (ii) and (iii) above, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to paragraphs (ii) and (iii) above, the Certificates will continue to represent direct and proportionate interests of the Owners thereof in applicable Lease Payments under the Lease.

Surplus Moneys. Any funds held by the Trustee, at the time of payment or provision for payment of all Outstanding Certificates pursuant to the one of the procedures described in the Trust Agreement, which are not required for the payment to be made to Owners, will be paid over to the City, after the payment of any amounts due to the Trustee pursuant to the Trust Agreement and any other Additional Payments due under the Lease.

Surviving Provisions. The Trustee will retain such rights, powers and privileges under the Trust Agreement as may be necessary or convenient for the payment of the principal, interest and prepayment premium, if any, on the Certificates and for the registration, transfer and exchange of the Certificates.

Opinions and Reports. Prior to any defeasance becoming effective, the City shall cause to be delivered (i) an executed copy of a report, addressed to the Trustee and the City, in form and substance acceptable to the City of a nationally recognized firm of certified public accountants, verifying that the Government Obligations and cash, if any, satisfy the requirements of the Trust Agreement, (ii) a copy of the escrow deposit agreement entered into in connection with such defeasance, and (iii) a copy of an opinion of Special Counsel, dated the date of such defeasance and addressed to the Trustee and the City, in form and substance acceptable to the City, to the effect that such Certificates are no longer Outstanding under the Trust Agreement.

Non-Presentment of Certificates. In the event any Certificate will not be presented for payment when the principal with respect thereto becomes due, either at maturity, or at the date fixed for prepayment thereof, if moneys sufficient to pay such Certificate will have been deposited in the Prepayment Fund or Lease Payment Fund, as applicable, all liability of the City and the Trustee to the Owner thereof for payment of such Certificate will forthwith cease, terminate and be completely discharged, and thereupon it will be the duty of the Trustee to hold such moneys, without liability for interest thereon, for the benefit of the Owner of such Certificate who will thereafter be restricted exclusively to such moneys, for any claim of whatever nature on his or her part under the Trust Agreement or on, or with respect to, said Certificate.

Any moneys so deposited with and held by the Trustee not so applied to the payment of Certificates within two years after the date on which the same will have become due will be paid by the Trustee to the City, free from the trusts created by the Trust Agreement. Prior to forwarding any such moneys to the City, the Trustee may publish notice of its intention to transfer such funds in The Bond Buyer or another financial newspaper of general circulation in New York, New York. In addition, Trustee will be indemnified from and

C-28

against any and all liabilities to third parties resulting from its actions under the Trust Agreement. Thereafter, Owners will be entitled to look only to the City for payment, and then only to the extent of the amount so repaid by the Trustee. The City will not be liable for any interest on the sums paid to it pursuant to the defeasance provisions of the Trust Agreement and will not be regarded as a trustee or trustees of such money.

C-29

DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE

DEFINITIONS

Unless the context otherwise requires, the terms defined below shall for all purposes below have the meanings defined below, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined below. All capitalized terms used below and not defined below shall have the meanings ascribed thereto in the Trust Agreement.

“Environmental Regulations” means all Laws and Regulations, now or hereafter in effect, with respect to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (42 U.S.C. Section 9601, et seq.) (together with the regulations promulgated thereunder, “CERCLA”), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901, et seq.) (together with the regulations promulgated thereunder, “RCRA”), the Emergency Planning and Community Right-to-Know Act, as amended (42 U.S.C. Section 11001, et seq.) (together with the regulations promulgated thereunder, “Title III”), the Clean Water Act, as amended (33 U.S.C. Section 1321 et seq.) (together with the regulations promulgated thereunder, “CWA”), the Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.) (together with the regulations promulgated thereunder, “CAA”) and the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 et seq.) (together with the regulations promulgated thereunder, “TSCA”), and any state or local similar laws and regulations and any so-called local, state or federal “superfund” or “superlien” law.

“Leased Premises” means the Property and the portion of the Project constructed on the Property and leased by the Corporation to the City pursuant to the Lease.

“Permitted Encumbrances” means, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of the Lease, permit to remain unpaid; (ii) the Assignment Agreement; (iii) the Lease, and any amendment thereof providing for the execution and delivery of Additional Certificates; (iv) the Site Lease; (v) any contested right or claim of any mechanic, laborer, materialman, supplier or vendor filed or perfected in the manner prescribed by law to the extent permitted under the Lease; (vi) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions, liens or restrictions which exist of record as of the Closing Date, which the City hereby certifies will not materially impair the use of the Leased Premises by the City; and (vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of this Lease and to which the Corporation, the City and the Trustee consent in writing.

“Project” means the Property and improvements thereto as described in the Lease, and any and all additions or substitutions thereto made as provided in the Lease, and any additional improvements financed with the proceeds of Additional Certificates and located on the Property.

“Property” means the site described in the Lease and the existing improvements thereon being leased to the City by the Corporation.

“Vendors” or “Contractors” means the persons with whom the Corporation, or the City as agent of the Corporation, has contracted for completion of the Project.

C-30

ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT

Completion of Project

The Corporation and the City agree to execute and deliver the Agency Agreement pursuant to which the City, as the agent of the Corporation, will acquire, construct, deliver and install the Project. The City and the Corporation each covenants and agrees to comply with the terms of the Agency Agreement.

Payment of Project and Delivery Costs

Payment of the Project Costs and Delivery Costs will be made from the moneys deposited with the Trustee in the Project Fund as provided in the Lease and the Trust Agreement, which will be disbursed in accordance and upon compliance with the Trust Agreement.

Completion Certification

The City and the Corporation expect that the Project will be substantially completed in accordance with plans and specifications described in the Agency Agreement on or prior to the dates specified in the Agency Agreement. Upon the completion of acquisition, construction, delivery and installation of the portion of the Project to be financed with the proceeds of the Certificates, and upon the completion of the improvements to be financed with each series of Additional Certificates, the City will deliver to the Trustee a Completion Certificate with respect thereto. A separate Completion Certificate will be filed with respect to the portion of the Project to be financed from the Certificates and the portion to be financed with each series of Additional Certificates.

If the Corporation, for any reason whatsoever, cannot deliver possession of the portion of the Leased Premises comprising the Project by the dates specified in the Agency Agreement, and as a result of which non-delivery the City is deprived of the use and occupancy of a substantial portion of the Leased Premises, this Lease will not be void or voidable, nor shall the Corporation be liable to the City for any loss or damage resulting therefrom. In such event, however, Lease Payments and Additional Payments, with respect to the period between the dates specified in the Agency Agreement for the completion of a component of the Project and the time when the portion of the Leased Premises comprising a component of the Project is substantially completed, will be payable solely to the extent and from the sources of payment identified in the Lease.

On the date of filing a Completion Certificate, all excess moneys remaining in the Project Fund for the Certificates or issue of Additional Certificates for which such Completion Certificate is delivered shall be applied in accordance with the provisions of the Trust Agreement.

Substitution of or Addition to the Project

The City will have the right to substitute alternate items for any portion of the Project listed in the Lease or provide for additional components of the Project by providing the Trustee with a written certificate in the form contained in the Lease and so long as such substitution or addition does not cause, in and of itself, the interest represented by the 2009A Certificates or any Additional Certificates (to the extent such Certificates are executed and delivered as tax-exempt certificates) to be included in gross income for federal income tax purposes or result in a reduction in the fair rental value of the Leased Premises.

C-31

AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS

Term

The term of the Lease will commence on the date of execution thereof and will end on July 1, 2036, unless extended pursuant to the Lease, or unless terminated prior thereto upon the earliest of any of the following events:

Default and Termination. A default by the City and the Corporation’s election to terminate the Lease under the termination provisions of the Lease;

Payment of All Lease Payments. The payment by the City of all Lease Payments and any Additional Payments required under the Lease; or

Prepayment. The deposit of funds or Government Obligations with the Trustee in amounts sufficient to pay all Lease Payments as the same will become due, as provided in the Lease and the Trust Agreement.

Purchase. Upon the exercise by the City of its option to purchase all of the Corporation’s interest in the Leased Premises as provided in the Lease; provided, however, that upon exercise by the City of its option to purchase the Corporation’s interest in a portion of the Leased Premises, as provided in the Lease, the Lease will be terminated only with respect to the portion of the Leased Premises purchased.

Extension of Lease Term

The Term of the Lease may be extended in connection with the execution and delivery of any Additional Certificates. If on the final maturity date of the Certificates or any Additional Certificates all Interest Components and Principal Components represented thereby shall not be fully paid by the City, or if the Lease Payments or Additional Payments under the Lease shall have been abated at any time as permitted by the terms thereof, then the Term shall be extended until all Certificates and Additional Certificates shall be fully paid, except that the Term shall in no event be extended beyond the tenth anniversary of the final scheduled maturity of any Certificate or Additional Certificate.

Lease Payments

Time and Amount. Subject to the provisions of the Lease regarding abatement in event of loss of use of any portion of the Leased Premises, regarding option to purchase and regarding prepayment of Lease Payments, the City has agreed to pay to the Corporation, its successors and assigns, as annual rental for the use and possession of the Leased Premises, the 2009A Lease Payments and the 2009B Lease Payments (denominated into components of principal and interest, the interest component of such Lease Payment being paid semiannually) in the amounts specified in Exhibit A to the Lease, to be due and payable in arrears on the 15th day of the month (or if such day is not a Business Day, the next succeeding Business Day) immediately preceding the respective Certificate Payment Dates specified in Exhibit A to the Lease (the “Lease Payment Date”) which are sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. In the event that any Additional Certificates are executed and delivered pursuant to the Trust Agreement, the City and the Trustee shall execute an amendment to state the Lease Payments due under the Lease as a result of the execution and delivery of such Additional Certificates.

The obligation of the City to pay Lease Payments shall commence on the Closing Date for the Certificates; provided, however, that, until that portion of the Project being constructed on the Property and being financed with the proceeds of the Certificates is made available for use and occupancy by the City, a portion of the Lease Payments may be abated and shall be paid only to the extent described in the Lease from the proceeds of the sale of the Certificates deposited with the Trustee, any liquidated damages of the type described in the Lease deposited to the Lease Payment Fund, or any other source of legally available funds.

C-32

In the event the City does not pay a Lease Payment due on the respective Lease Payment Date, the Trustee will provide prompt written notice to the City of such failure to pay; provided, however, that failure to give such notice will not excuse any event of default under the Lease.

Credits. Any amount held in the 2009A Account of the Lease Payment Fund or the 2009B Account of the Lease Payment Fund on any Lease Payment Date (other than capitalized interest, which will be credited in accordance with the Trust Agreement, and other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease and other amounts required for payment of principal with respect to any Certificates or Additional Certificates that have matured or been called for payment and have not been presented for payment or interest) will be credited towards the applicable Lease Payment then due and payable. The City need not transfer additional cash to the Trustee on any Lease Payment Date if the amounts then held in the 2009A Account of the Lease Payment Fund or the 2009B Account of the Lease Payment Fund (other than those amounts excluded under the prior sentence) are at least equal to the respective Lease Payments then required to be paid.

Rate on Overdue Payments. In the event the City should fail to make any of the Lease Payments required in the Lease, the Lease Payment in default will continue as an obligation of the City until the amount in default will have been fully paid, and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date such amount was originally payable at the rate equal to the original interest rate payable with respect to each Certificate then represented by such delinquent Lease Payment.

No Withholding. Notwithstanding any dispute between the Corporation and the City, including a dispute as to the failure of any portion of the Property in use by or possession of the City to perform the task for which it is leased, the City will make all Lease Payments and Additional Payments when due and will not withhold any Lease Payments pending the final resolution of such dispute.

Fair Rental Value

The Lease Payments and Additional Payments will be paid by the City in consideration of the right of possession of, and the continued quiet use and enjoyment of, the Leased Premises during each such period for which said Lease Payments are to be paid. The parties to the Lease have agreed and determined that such total rental represents the fair rental value of the Leased Premises. In making such determination, consideration has been given to the fair market value and replacement cost of the Leased Premises, other obligations of the parties under this Lease (including but not limited to costs of maintenance, taxes and insurance), the uses and purposes which may be served by the Leased Premises and the benefits therefrom which will accrue to the City and the general public, and the transfer of the Corporation’s leasehold interest in the Leased Premises at the end of the Term.

Budget and Appropriation

The City has covenanted to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. To the extent the amount of such payments becomes known after the adoption of the annual budget, such amounts will be included and maintained in such budget as amended. The covenants on the part of the City contained in the Lease shall be deemed to be and shall be construed to be duties imposed by law and it shall be the ministerial duty of each and every public official of the City 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 the City to carry out and perform the covenants and agreements in the Lease agreed to be carried out and performed by the City.

C-33

Abatement of Lease Payments and Additional Payments

In the Event of Non-Delivery. To the extent described below, the amount of Lease Payments and Additional Payments due under the Lease shall be abated during any period in which by reason of delay in the completion of the portions of the Project being constructed on the Property there is substantial interference with the City’s use and occupancy of the Leased Premises. The amount of such abatement shall be such that the resulting Lease Payments and Additional Payments do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who may not be an employee of the City) for the use and occupancy of the portions of the Leased Premises available to the City for its use and occupancy. Such abatement will continue until the substantial completion of the Leased Premises. Notwithstanding the foregoing, the City will remain obligated to make Lease Payments and Additional Payments under the Lease, as an obligation of the City payable from a special fund, (i) to the extent there are proceeds of any completion or performance bonds or moneys paid to the City by the contractors or any other person as liquidated damages as a result of any defect or delay in completion of the portion of the Project being constructed on the Property, or (ii) to the extent that amounts in the Reserve Fund or the Interest Account (including amounts deposited therein representing capitalized interest) of the Lease Payment Fund are available to pay Lease Payments which would otherwise be abated under the Lease. Any amounts received by the City as liquidated damages will be deposited by the City immediately upon receipt in the Lease Payment Fund.

In the Event of Damage, Destruction, Condemnation or Title Defect. Except to the extent that proceeds of the type described in the following paragraph are available, the amount of Lease Payments and Additional Payments shall be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement shall be such that the resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement shall continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided the Lease, in the event of any such damage, destruction, interference or taking, the Lease shall continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking.

Notwithstanding a substantial interference with the use and possession of all or a portion of the Leased Premises, the City shall remain obligated to make Lease Payments which would otherwise be abated (i) to the extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Reserve Fund or the Lease Payment Fund to pay the amount which would otherwise be abated. The Lease Payments shall be payable from such amounts paid under (i) and (ii) above as an obligation of the City payable from a special fund.

Repair or Replacement. In the event of such abatement, unless the abatement will be avoided as a result of a prepayment of Lease Payments from Net Proceeds, the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel, not result in the obligations of the City under the Lease constituting indebtedness of the City in contravention of the Constitution and laws of the State.

Additional Payments

In addition to the Lease Payments, the City will also pay such amounts (“Additional Payments”) as will be required for the payment of all administrative costs of the Corporation relating to the Leased Premises

C-34

or the Certificates and any Additional Certificates, including without limitation all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its interest in the Leased Premises or undertaking of the transactions contemplated in the Lease or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers and any and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Certificates and any Additional Certificates or of the Trust Agreement including premiums or insurance maintained pursuant to the Lease or to indemnify the Corporation and its employees, officers and directors and the Trustee. All such Additional Payments to be paid hereunder shall be paid when due directly by the City to the respective parties to whom such Additional Payments are owing.

Net-Net-Net Lease

The Lease will be deemed and construed to be a “net-net-net lease” and the City has agreed that the Lease Payments will be an absolute net return to the Corporation, free and clear of any expenses, charges or set-offs whatsoever, except as expressly provided in the Lease.

INSURANCE

Public Liability and Property Damage

Coverage. The City will maintain or cause to be maintained, throughout the Term of the Lease, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City and the Corporation and their officers, agents and employees. Said policy or policies will provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or operation of any City property or portion thereof.

Limits. Said policy or policies will provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $500,000 in each case for damage to property resulting from each accident or event (subject to a deductible clause of not to exceed $250,000). Such public liability and property damage insurance may, however, be in the form of a single limit policy covering all such risks in an amount equal to the liability limits set forth in the Lease.

Joint or Self-Insurance. Such liability insurance, including the deductible, may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and, subject to compliance with the Lease, may be maintained in the form of self-insurance by the City.

Payment of Net Proceeds. The proceeds of such liability insurance will be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds will have been paid.

Workers’ Compensation

The City will also maintain workers’ compensation insurance issued by a responsible carrier authorized under the laws of the State to insure its employees against liability for compensation under the Workers’ Compensation Insurance and Safety Act now in force in the State, or any act hereafter enacted as an amendment or supplement thereto (with provision for self-insurance).

Casualty and Theft Insurance

Casualty and Theft Insurance; Coverage. The City will procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, insurance against loss or damage to any portion of the

C-35

Leased Premises caused by fire and lightning, with extended coverage and theft, vandalism and malicious mischief insurance. Said extended coverage insurance will, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance, excluding flood and earthquake. The City shall not be required to purchase or maintain earthquake insurance with respect to the Leased Premises.

Amount. Such insurance will be in an amount not less than the replacement cost of the Leased Premises, subject to a “deductible clause” not to exceed two hundred fifty thousand dollars ($250,000) for any one loss, or in the case of a flood and earthquake rider, ten percent (10%) of the coverage obtained or such other amount as the City in its sole discretion shall determine is commercially reasonable. The term “full replacement value” as used in this paragraph shall mean the actual replacement cost of the improvements constituting the Leased Premises.

Joint or Self-Insurance. Such insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with the Lease, may be maintained in the form of self-insurance by the City through a California joint powers authority. Insurance obtained through a California joint powers authority of which the City is a member shall not be deemed self-insurance.

Payment of Net Proceeds. The Net Proceeds of such insurance will be paid to the Trustee and deposited in the Net Proceeds Fund and applied as provided in the Lease.

Rental Interruption Insurance

Coverage and Amount. Upon delivery of the Leased Premises to it for occupancy, the City shall maintain or cause to be maintained rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24-month period, to insure against loss of rental income from all structures on the Leased Premises caused by perils covered by the insurance required to be maintained as provided in the Lease. Such rental interruption insurance shall name the Trustee and the Corporation as additionally insured parties and the Trustee as the loss payee.

Joint Insurance. Such insurance may be maintained as part of or in conjunction with any other rental income or use and occupancy of insurance carried by the City, but may not be maintained in the form of self-insurance by the City.

Payment of Net Proceeds. The Net Proceeds of such rental interruption insurance will be paid to the Trustee and deposited (1) in the Reserve Fund to make up any deficiencies therein, and (2) deposited in the Lease Payment Fund, to be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable and proportionately between the 2009A Lease Payments and 2009B Lease Payments if there are insufficient Net Proceeds to pay all Lease Payments when due in any such Certificate Year.

Title Insurance

The City will obtain and, throughout the Term of the Lease, maintain or cause to be maintained title insurance on the Leased Premises, in the form of an ALTA title policy (with western regional exceptions) or in the form of a CLTA title policy, in an amount equal to the aggregate principal amount of the Certificates and Additional Certificates Outstanding, issued by a company of recognized standing, duly authorized to issue the same, payable to the Trustee for the benefit of the Owners, subject only to Permitted Encumbrances. Said policy or policies will insure the City’s leasehold estate under the Lease in the Leased Premises, subject only to Permitted Encumbrances. All Net Proceeds received under said policy or policies will be deposited with the Trustee and applied as provided in the Trust Agreement. So long as any of the Certificates and Additional Certificates remain Outstanding, each policy of the title insurance obtained pursuant to the Lease or required

C-36

thereby will provide that all proceeds thereunder will be payable to the Trustee for the benefit of the Certificate Owners and the owners of any Additional Certificates. The Net Proceeds of such insurance will be applied as provided in the Lease.

General Insurance Provisions

Form of Policies. All policies of insurance required to be procured and maintained pursuant to the Lease and any statements of self-insurance will be in a form certified by the City Representative or an insurance agent, broker or consultant to the City to comply with the provisions of the Lease. All such policies will provide that the insured parties will be given thirty (30) days’ notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. Each policy of insurance required to be procured and maintained pursuant to the Lease regarding casualty and theft insurance, regarding rental interruption insurance and regarding title insurance will provide that all proceeds thereunder will be payable to the Trustee for the benefit of the Owners. All required insurance policies must be provided by a commercial insurer rated A by Best or A- and A3 by S&P and Moody’s, respectively. All policies shall name the Lessee, the Lessor, and the Trustee as insureds and the Trustee as a loss payee.

Payment of Premiums. The City will pay or cause to be paid when due the premiums for all insurance policies required by the Lease.

Self Insurance. The City may only elect to self insure as permitted by the Lease if and to the extent such self-insurance method or plan of protection will afford reasonable protection to the Corporation and the Trustee, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by other municipal corporations in the State other than the City. Insurance provided through a California joint powers authority of which the City is a member or with which the City contracts for insurance will not be deemed to be self-insurance for purposes of the Lease. Any self-insurance maintained by the City pursuant to the Lease will comply with the following terms:

(a) The self-insurance program will be approved in writing by the City Manager or Assistant City Manager and an independent insurance consultant in accordance with the California Labor Code and the California Government Code;

(b) The self-insurance program will include an actuarially sound claims reserve fund out of which each self-insured claim will be paid; the adequacy of such fund will be evaluated on an annual basis by the City Representative in a certified statement delivered to the Trustee; and any deficiencies in any self-insured claims reserve fund will be remedied in accordance with the recommendation of the City Representative;

(c) The self-insurance fund must be held in a separate trust fund by an independent trustee; and

(d) In the event the self-insurance program will be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City Representative, will be maintained.

DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS

Application of Net Proceeds

Deposit in Net Proceeds Fund. The City will remit promptly to the Trustee any Net Proceeds received by the City from its casualty and theft insurance and its title insurance and the Trustee, pursuant to the Trust Agreement, will deposit such Net Proceeds of insurance in the Net Proceeds Fund. The City and/or the Corporation will transfer to the Trustee any other Net Proceeds received by the City and/or Corporation in the

C-37

event of any accident, destruction, theft or taking by eminent domain or condemnation with respect to the Project, for deposit in the Net Proceeds Fund.

Disbursement for Replacement or Repair of the Leased Premises. Upon receipt of the certification described in paragraph (a) below and the requisition described in paragraph (b) below, the Trustee will disburse moneys in the Net Proceeds Fund to the person, firm or corporation named in the requisition as provided in the Lease.

(a) Certification. The City Representative must certify to the Corporation and the Trustee that:

(i) Sufficiency of Net Proceeds. The Net Proceeds available for such purpose, together with any other funds supplied by the City to the Trustee in a subaccount of the Net Proceeds Fund for such purpose, are expected to equal at least 100% of the projected costs of replacement or repair, as demonstrated in an attached reconstruction budget, and

(ii) Timely Completion. In the event that damage, destruction or taking results or is expected to result in an abatement of Lease Payments, such replacement or repair can be fully completed within a period not in excess of the period in which rental interruption insurance proceeds, as described in the Lease together with other identified available moneys, will be available to pay in full all Lease Payments coming due during such period as demonstrated in an attached reconstruction schedule.

(b) Requisition. The City Representative must state with respect to each payment to be made (1) the requisition number, (2) the name and address of the person, firm or corporation to whom payment is due, (3) the amount to be paid and (4) that each obligation mentioned therein has been properly incurred, is a proper charge against the Net Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation.

Any balance of the Net Proceeds remaining after such replacement or repair has been completed and after payment or provision for payment of all Certificates as provided in the Trust Agreement and all Additional Certificates as provided in any Supplemental Trust Agreement pursuant to which such Additional Certificates are executed and delivered will be paid to the City after payment of amounts due the Trustee pursuant to the Trust Agreement.

Disbursement for Prepayment. If the City Representative notifies the Trustee in writing of the City’s determination that the certification provided above cannot be made or that replacement or repair of any portion of the Leased Premises is not economically feasible or in the best interest of the City, then the Trustee will promptly transfer the Net Proceeds to the Prepayment Fund as provided in the Trust Agreement and apply them to prepayment of the Certificates as provided in the Trust Agreement and Additional Certificates as provided in a Supplemental Trust Agreement and prepayment of Lease Payments as provided in the Lease; provided that in the event of damage or destruction in whole of the Leased Premises and in the event such Net Proceeds, together with funds then on hand in the Lease Payment Fund and Reserve Fund are not sufficient to prepay all the Certificates and Additional Certificates then Outstanding, then the City will not be permitted to certify that repair, replacement or improvement of all of the Leased Premises is not economically feasible or in the best interest of the City. In such event, the City will proceed to repair, replace or improve the Leased Premises as described in the Lease from legally available funds in the then-current Fiscal Year and will make the required notification to the Trustee pursuant to the Trust Agreement and the Trustee will disburse moneys in the Net Proceeds Fund to the person, firm, or corporation named in the Requisition as provided therein.

C-38

COVENANTS WITH RESPECT TO THE PROPERTY

Use of the Leased Premises

The City represents and warrants that it has an immediate need for, and expects to make immediate use of, all of the Leased Premises, which need is not temporary or expected to diminish in the foreseeable future.

Interest in the Leased Premises and the Lease

During the Term of the Lease, the Corporation does and shall hold a leasehold interest in the Leased Premises pursuant to the Site Lease. The City shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents reasonably required, to maintain and evidence such title and interest at all times during the Term of the Lease.

Upon expiration of the Term as provided in the Lease, all right, title and interest of the Corporation in and to all of the Leased Premises shall be transferred to and vest in the City, without the necessity of any additional document of transfer.

Option to Purchase

The City may exercise an option to purchase the Corporation’s interest under the Site Lease and the Lease in the Leased Premises by depositing with the Trustee cash and/or Government Obligations as provided in the Trust Agreement in an amount sufficient to prepay the Certificates. In such event, all or a portion of the obligations of the City under the Lease, and the security provided by the Lease for said obligations or said portion of the obligations, will cease and terminate as provided in the Lease, excepting in the case all of the Corporation’s interest has been purchased, only the obligation of the City to make, or cause to be made, such Lease Payments from such deposit. In the event Lease Payments and Additional Payments under the Lease have been paid in full, on the date of said deposit, the Corporation’s interest in the Leased Premises will revert and transfer to the City automatically and without further action by the City or the Corporation, and the Corporation will execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of the Corporation’s interests in the Leased Premises. In the event Lease Payments under the Lease have been paid in part only, on the date of said deposit, the City will specify a discrete portion of the Corporation’s interest in the Leased Premises for reversion and transfer to the City and the Corporation will execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of such portion of the Corporation’s interest in the Leased Premises; provided, that such portion will revert and transfer to the City only if the reduction in the fair rental value of the Leased Premises effected by such reversion and transfer at the time of such reversion and transfer (as determined by an independent appraisal acceptable to the Corporation) is proportionately less than or equal to the reduction in the maximum annual Lease Payments under the Lease effected by such purchase. Any such deposit will be deemed to be and will constitute a special fund for the payment of Lease Payments in accordance with the Lease.

Quiet Enjoyment

During the Term, the Corporation shall provide the City with quiet use and enjoyment of the Leased Premises, and the City shall during such Term peaceably and quietly have and hold and enjoy the Leased Premises, without suit, trouble or hindrance from the Corporation, or any person or entity claiming under or through the Corporation except as expressly set forth in the Lease. The Corporation will, at the request of the City, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent the Corporation may lawfully do so. Notwithstanding the foregoing, the Corporation shall have the right to inspect the Leased Premises.

C-39

Installation of the City’s Personal Property

The City may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or other property in or upon any portion of the Leased Premises. All such items shall remain the sole property of the City, regardless of the manner in which the same may be affixed to such portion of the Leased Premises, in which neither the Corporation nor the Trustee shall have any interest, and may be modified or removed by the City at any time; provided that the City shall repair and restore any and all damage to such portion of the Leased Premises resulting from the installation, modification or removal of any such items of equipment. Nothing in the Lease shall prevent the City from purchasing items to be installed pursuant to this Section, provided that no lien or security interest shall attach to any part of the Leased Premises.

Access to the Leased Premises

The City agrees that the Corporation, any Corporation Representative and the Corporation’s successors, assigns or designees shall have the right at all reasonable times to enter upon the Leased Premises or any portion thereof to examine and inspect the Leased Premises. The City further agrees that the Corporation, any such Corporation Representative, and the Corporation’s successors, assigns or designees shall have such rights of access to the Leased Premises as may be reasonably necessary to cause the proper maintenance of the Leased Premises in the event of failure by the City to perform its obligations under the Lease.

Maintenance, Utilities, Taxes and Assessments

(a) Maintenance; Repair and Replacement. Throughout the Term of the Lease, as part of the consideration for the rental of the Leased Premises, all repair and maintenance of the Leased Premises will be the responsibility of the City, and the City will pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Premises resulting from ordinary wear and tear or want of care on the part of the City or any sublessee thereof. The City waives the benefits of subsections 1 and 2 of Section 1932 of the California Civil Code, but such waiver shall not limit any of the rights of the City under the terms of the Lease.

(b) Tax and Assessments; Utility Charges. The City will also pay or cause to be paid all taxes and assessments, including but not limited to utility charges, of any type or nature charged to the Corporation or the City or levied, assessed or charged against any portion of the Leased Premises or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City will be obligated to pay only such installments as are required to be paid during the Term of the Lease as and when the same become due.

(c) Contests. The City may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it will furnish the Corporation and the Trustee with the opinion of an Independent Counsel acceptable to the Corporation, to the effect that, by nonpayment of any such items, the interest of the Corporation in such portion of the Leased Premises will not be materially endangered and that the Leased Premises will not be subject to loss or forfeiture. Otherwise, the City will promptly pay such taxes, assessments or charges or make provisions for the payment thereof in form satisfactory to the Corporation. The Corporation will cooperate fully in such contest, upon the request and at the expense of the City.

C-40

Modification of the Leased Premises

Additions, Modifications and Improvements. The City will, at its own expense, have the right to make additions, modifications, and improvements to any portion of the Leased Premises if such improvements are necessary or beneficial for the use of such portion of the Leased Premises. All such additions, modifications and improvements will thereafter comprise part of the Leased Premises and be subject to the provisions of the Lease. Such additions, modifications and improvements will not in any way cause an abatement of Lease Payments with respect to the Leased Premises or cause it to be used for purposes other than those authorized under the provisions of State and federal law or in any way which would impair the State tax-exempt status with respect to the Certificates and any Additional Certificates or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2009A Certificates and any Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax-exempt Certificates); and the Leased Premises, upon completion of any additions, modifications and improvements made pursuant to the Lease, will have an annual fair rental value which is not less than the annual Lease Payments.

No Liens. Except for Permitted Encumbrances, the City will not permit any mechanic’s or other lien to be established or remain against the Leased Premises for labor or materials furnished in connection with any additions, modifications or improvements made by the City pursuant to the Lease; provided that if any such lien is established and the City will first notify or cause to be notified the Corporation of the City’s intention to do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and will provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Trustee (as assignee of the Corporation). The Corporation will cooperate fully in any such contest, upon the request and at the expense of the City.

Replacements, Redevelopment and Renovation. The City will, at its own expense, or with the proceeds of Additional Certificates, have the right to make replacements, redevelopment or renovation of all or a portion of the Leased Premises if the following conditions precedent are satisfied:

(a) The City receives an opinion of Special Counsel, a copy of which the City will furnish to the Corporation and the Trustee, that (1) such replacement does not adversely affect the federal income tax exclusion of the 2009A Certificates and the Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax-exempt Certificates) or the State tax-exempt status of the interest with respect to the Certificates and any Additional Certificates, and (2) the Lease will remain the legal, valid, binding and enforceable obligation of the City;

(b) In the event such replacement, redevelopment or renovation would result in the temporary abatement of Lease Payments as provided in the Lease, the City will notify the Insurer and any rating agency then providing a rating on the Certificates and shall deposit moneys with the Trustee in advance for payment of Lease Payments from the proceeds of Additional Certificates or from special funds of the City or other moneys, the application of which would not, in the opinion of Special Counsel (a copy of which shall have been delivered to the Trustee), result in such Lease Payments constituting indebtedness of the City in contravention of the Constitution and laws of the State;

(c) The City will certify to the Trustee that it has sufficient funds to complete such replacement, redevelopment or renovation; and

(d) In the case of replacement(s), redevelopment or renovation other than the proceeds of Additional Certificates, the City and the Trustee receive an independent appraisal from a California

C-41

certified general appraiser that the annual fair rental value of the replacements will be at least equal to the annual Lease Payments immediately prior to such replacement or redevelopment.

Encumbrances; Alternative Financing Methods

Encumbrances. Except as provided in the Lease, the City will not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or with respect to the Leased Premises, other than Permitted Encumbrances and other than the respective rights of the Corporation and the City as provided in the Lease. Except as expressly provided in the Lease, the City will promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same will arise at any time; provided that the City may contest such liens if it desires to do so. The City will reimburse the Corporation for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim.

Alternative Financing Methods. Notwithstanding the foregoing, the City may create or suffer to create any mortgage, pledge, liens, charges, encumbrances or claims upon the Leased Premises or any improvements thereto, provided that (1) any such mortgage, pledge, liens, charges, encumbrances or claims will at any time while any of the Certificates or Additional Certificates remain Outstanding be and remain subordinate in all respects to the Site Lease and Lease and any security interest given to the Trustee for the benefit of the Owners and (2) the City will have first delivered to the Trustee an opinion of Special Counsel substantially to the effect that such mortgage, pledge, liens, charges, encumbrances or claims would not result in the inclusion of the interest with respect to the 2009A Certificates and the Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax-exempt Certificates) in the gross income of the owners thereof for purposes of federal income taxation or impair the State tax-exempt status of interest payments with respect to the Certificates and the Additional Certificates.

Substitution or Release of the Leased Premises

The City will have the right to substitute alternate real property for any portion of the Leased Premises described in the Lease or to release a portion of the Leased Premises from the lien of the Lease by providing the Trustee with a supplement to the Lease substantially in the form attached as Exhibit D to the Lease and by satisfying the conditions set forth in paragraphs (i) through (vi) below. All costs and expenses incurred in connection with such substitution or release will be borne by the City. Notwithstanding any substitution pursuant to the Lease, there will be no reduction in or abatement of the Lease Payments due from the City under the Lease as a result of such substitution. No substitution or release will be permitted under the Lease unless:

(i) in the case of a substitution, the City provides the Trustee with a certificate that the substituted real property has an equivalent or greater useful life as the Leased Premises to be released and that the useful life of the substituted real property exceeds the remaining term of the Lease Payments under the Lease;

(ii) an independent California certified general appraiser or equivalent certified real estate appraiser selected by the City finds (and delivers a certificate to the City and the Trustee setting forth its findings) that the Leased Premises following any release or substitution has an annual fair rental value greater than or equal to the corresponding Lease Payments due thereunder so that the Lease Payments payable by the City pursuant to the Lease will not be abated;

(iii) the City obtains or causes to be obtained an ALTA title insurance policy (with western regional exceptions) or CLTA title insurance policy with respect to any substituted property, with an endorsement so as to be payable to the Trustee for the benefit of the Owners showing no prior liens thereon other then Permitted Encumbrances. Such policy will comply with the Lease, will be in

C-42

the amount equal to the principal component of Lease Payments attributable to the substituted real property, and will insure the leasehold interest or the fee simple interest of the Corporation or the City, as applicable, to the substituted real property;

(iv) the City provides the Corporation and the Trustee with an opinion of Special Counsel that such substitution or release does not cause, in and of itself, the interest evidenced and represented by the 2009A Certificates and any Additional Certificates (to the extent such Additional Certificates were executed and delivered as tax-exempt Certificates) to be included in gross income for federal income tax purposes;

(v) the City will give, or cause to be given, any notice of the occurrence of such substitution or release required to be given pursuant to the Continuing Disclosure Agreement; and

(vi) upon the substitution of any real property and improvements thereon for all or a portion of the Leased Premises then existing, the City, the Corporation and the Trustee will execute and the City will record with the office of the County Recorder, County of Los Angeles, California, any document necessary to reconvey to the City the portion of the Leased Premises being released and to include any substituted real property and/or improvements thereon as all or a portion of the Leased Premises.

Condemnation of Leased Premises

The City has agreed, to the extent it may lawfully do so, that so long as any of the Certificates remain outstanding and unpaid, and except as otherwise provided in the Site Lease, the City will not condemn the Leased Premises. The City has agreed, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City will fail or refuse to abide by such covenant and condemns the Leased Premises, then the appraised value of the Leased Premises will not be less than the sum of: (i) as to the Certificates and Additional Certificates are then subject to optional prepayment, the principal and interest components of such Certificates and Additional Certificates outstanding through the date of their prepayment, and (ii) as to Certificates and Additional Certificates are not then subject to optional prepayment, the amount necessary to defease such Certificates and Additional Certificates to the first available prepayment date in accordance with the Trust Agreement.

ASSIGNMENT, SUBLEASING AND AMENDMENT

Assignment by the Corporation

Except as provided in the Lease, in the Trust Agreement and the Assignment Agreement, the Corporation will not assign the Lease to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in the Lease.

Assignment and Subleasing by the City

Assignment. The Lease may be assigned by the City so long as such assignment does not, in the opinion of Special Counsel, adversely affect the State tax-exempt status with respect to the Certificates and any Additional Certificates or the exclusion from gross income for federal income tax purposes of the interest with respect to the 2009A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax-exempt certificates) or affect the validity of the Lease. In the event that the Lease is assigned by the City, the obligation to make Lease Payments under the Lease will remain the obligation of the City.

Sublease. The City may sublease all or any portion of the Leased Premises, subject to (i) the Lease and the obligation of the City to make Lease Payments under the Lease will remain obligations of the City; (ii)

C-43

the City will, within 30 days after the delivery thereof, furnish or cause to be furnished to the Corporation and the Trustee a true and complete copy of such sublease; and (iii) the City will furnish to the Corporation and the Trustee an opinion of Special Counsel to the effect that the sublease will not cause the interest due with respect to the 2009A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax-exempt Certificates) to become includable in gross income for federal income tax purposes or subject to State personal income taxes or adversely affect the exclusion from gross income for federal income tax purposes of such amounts, provided that no such opinion shall be required with respect to the subleases in effect upon the Date of Delivery or with respect to any lease with respect to the use of the auditorium, soundstage and recording studio.

Amendments and Modifications. The Lease may be amended or any of its terms modified with the written consent of the City and the Trustee (as assignee of the Corporation), in accordance with the Trust Agreement.

EVENTS OF DEFAULT AND REMEDIES

Events of Default Defined

The following will be “events of default” under the Lease and the terms “events of default” and “default” means, whenever they are used in the Lease, any one or more of the following events:

Payment Default. Failure by the City to pay any Lease Payment required to be paid under the Lease by the corresponding Lease Payment Date; and

Covenant Default. Failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed in the Lease or otherwise with respect thereto or in the Trust Agreement or in the Site Lease, other than as referred to in the foregoing paragraph, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Corporation and the Trustee, or the Owners of not less than 20% in aggregate principal amount of Certificates and Additional Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Corporation, the insurer of any Additional Certificates or such Owners, as the case may be, will not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected.

Bankruptcy or Insolvency. The filing by the City of a case in bankruptcy, or the subjection of any right or interest of the City under the Lease to any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may be enacted.

Remedies on Default

Whenever any event of default referred to in the Lease will have happened and be continuing, it will be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE WILL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement.

C-44

No Termination; Repossession and Re-Lease on Behalf of City. In the event the Corporation does not elect to terminate the Lease in the manner provided for in the Lease, the Corporation may, with the consent of the City, which consent has been irrevocably given, repossess the Leased Premises and re-lease it for the account of the City, in which event the City’s obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the City will remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re-enters or not. The City will remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained in the Lease and will reimburse the Corporation for any deficiency arising out of the releasing of the Leased Premises, or, in the event the Corporation is unable to re-lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency will be payable only at the same time and in the same manner as provided for the payment of Lease Payments and Additional Payments under the Lease, notwithstanding such repossession by the Corporation or any suit brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Corporation.

The City has irrevocably appointed the Corporation as the agent and attorney-in-fact of the City to repossess and re-lease the Leased Premises in the event of default by the City in the performance of any covenants contained in the Lease to be performed by the City and to remove all personal property whatsoever situated upon the Leased Premises, to place such property in storage or other suitable place in the County of Los Angeles, for the account of and at the expense of the City, and the City has exempted and agreed to save harmless the Corporation from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re-leasing of the Leased Premises. The City thereby waives any and all claims for damage caused or which may be caused by the Corporation in repossessing the Leased Premises as provided in the Lease and all claims for damages that may result from the destruction of or the injury to the Leased Premises and all claims for damages to or loss of any property belonging to the City that may be in or upon the Leased Premises.

The City agrees that the terms of the Lease constitute full and sufficient notice of the right of the Corporation to re-lease the Leased Premises in the event of such repossession without effecting a surrender of the Lease, and further agrees that no acts of the Corporation in effecting such re-leasing shall constitute a surrender or termination of the Lease irrespective of the term for which such re-leasing is made or the terms and conditions of such re-leasing, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate the Lease shall vest in the Corporation to be effected in the sole and exclusive manner provided for in the Lease.

The City will retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re-leasing the Leased Premises, and all amounts payable by the City under the Lease and the Trust Agreement.

In the event that the liability of the City under this subsection (a) is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such year, the Corporation, or the Trustee or the Owners, as assignees of the Corporation, shall not exercise the remedies provided in this subsection (a).

Termination; Repossession and Re-Lease. In the event of the termination of the Lease by the Corporation at its option and in the manner provided on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the re-leasing of the Leased Premises), the City nevertheless has agreed to pay to the Corporation all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re-lease or other disposition of the Leased Premises by the Corporation will be deposited into the Lease Payment Fund and be

C-45

applied in accordance with the provisions of the Trust Agreement. Any surplus received by the Trustee, as assignee of the Corporation, from such re-leasing over total Lease Payments will be remitted to the City. Additional Payments that would have been due hereunder and the fees, expenses and costs of the Trustee as assignee of the Corporation on re-leasing the Leased Premises will be remitted to the City.

Opinion of Special Counsel. The re-leasing of the Leased Premises as provided in the Lease will be subject to the opinion of Special Counsel that such re-leasing will not cause the interest with respect to the Certificates and any Additional Certificates to be subject to State personal income tax or with respect to the 2009A Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax-exempt Certificates) adversely affect the exclusion from gross income for federal income tax purposes of such amounts.

No Termination by City

Under no circumstances may the City terminate the Lease as a remedy for a default by the Corporation in the performance of any obligation of the Corporation under the Lease.

No Remedy Exclusive

No remedy conferred in the Lease upon or reserved to the Corporation is intended to be exclusive and every such remedy will be cumulative and will be in addition to every other remedy given under the Lease existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default will impair any such right or power or will be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient.

No Additional Waiver Implied by One Waiver

In the event any agreement contained in the Lease should be breached by either party and thereafter waived by the other party; such waiver will be limited to the particular breach so waived and will not be deemed to waive any other breach under the Lease.

Application of the Proceeds from the Re-Lease of the Leased Premises

All amounts received by the Corporation under the Lease will, subject to the Trust Agreement, be deposited by the Trustee in the Lease Payment Fund and credited towards the Lease Payments in order of Lease Payment Dates, and proportionately among 2009A Lease Payments and 2009B Lease Payments.

Trustee and Owners to Exercise Rights

Such rights and remedies as are given to the Corporation under the Lease have been assigned by the Corporation to the Trustee under the Assignment Agreement, to which assignment the City has consented. Such rights and remedies will be exercised by the Trustee and the Owners as provided in the Trust Agreement.

PREPAYMENT OF LEASE PAYMENTS

Security Deposit

Notwithstanding any other provision of the Lease, the City may, on any date, secure the payment of Lease Payments and Additional Payments by a deposit by it with the Trustee of cash and/or Government Obligations as provided in the Trust Agreement. In such event, and provided that the City has paid any other amounts due and owing under the Lease and the Trust Agreement, all obligations of the City under the Lease, and all security provided by the Lease for said obligations, will cease and terminate, excepting only the obligation of the City to make, or cause to be made, Lease Payments and Additional Payments from such

C-46

deposit. On the date of said deposit title to the Leased Premises will vest in the City automatically and without further action by the City or the Corporation (except as provided in the Lease). Said deposit will be deemed to be and will constitute a special fund for the payment of Lease Payments in accordance with the provisions of the Lease.

Extraordinary Prepayment

The City will be obligated to prepay the Lease Payments in whole or in part on any date, from and to the extent of any Net Proceeds or other moneys theretofore deposited in the Prepayment Fund (at least 45 days prior to the date fixed for prepayment of the Certificates and any Additional Certificates) pursuant to the Trust Agreement. The City and the Corporation have agreed that such Net Proceeds or other moneys will be credited towards the City’s obligations under the Lease (except in the case of such prepayment of the Lease Payments in whole) pro rata among Lease Payments so that following Prepayment, the remaining annual Lease Payments will be proportional to the initial annual Lease Payments.

Optional Prepayment

Subject to the terms and conditions of the Lease, the Corporation has granted an option to the City to prepay all or a portion of the Lease Payments to the extent and on the dates at the prepayment prices set forth in the Trust Agreement and in any Supplemental Agreement. The City and the Corporation have agreed that such prepayments will be credited toward City’s obligations under the Lease corresponding to the resulting prepayment of the Certificates and Additional Certificates in accordance with the Trust Agreement and any Supplemental Agreement on the dates and at the prepayment prices provided therein.

D-1

APPENDIX D

FORMS OF LEGAL OPINIONS

Upon the execution and delivery of the 2009A Certificates, Stradling Yocca Carlson & Rauth, a Professional Corporation, Special Counsel, proposes to render its final approving opinion in substantially the following form:

[Closing Date]

City Council City of Malibu Malibu, California

Re: $18,660,000 City of Malibu Certificates of Participation 2009A (Tax Exempt) (City Hall Project)

Dear Ladies and Gentlemen:

We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Malibu (the “City”) in connection with the authorization, execution and delivery by the City of that certain Lease/Purchase Agreement, dated as of September 1, 2009 (the “Lease”), by and between the Malibu Public Financing Corporation (the “Corporation”) and the City. We have also reviewed that certain Trust Agreement, dated as of September 1, 2009 (the “Trust Agreement”), by and among Deutsche Bank National Trust Company, as trustee (the “Trustee”), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchaser of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined.

Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $18,660,000 City of Malibu Certificates of Participation 2009A (Tax Exempt) (City Hall Project) (the “Certificates”) evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the “2009A Lease Payments”) to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $815,000 City of Malibu Certificates of Participation 2009B (Taxable) (City Hall Project) (the “2009B Certificates”), which will evidence undivided proportionate interests in certain other lease payments (the “2009B Lease Payments”) to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2009B Certificates or the 2009B Lease Payments. Pursuant to that certain Assignment Agreement, dated as of September 1, 2009 (the “Assignment Agreement”), the Corporation has assigned to the Trustee the Corporation’s right to receive 2009A Lease Payments from the City under the Lease.

The Certificates are dated their date of delivery. The Certificates mature on the dates and in the amounts set forth in the Trust Agreement. Interest due with respect to the Certificates is payable on the dates and at the rates per annum set forth in the Trust Agreement. The Certificates are registered Certificates in the forms set forth in the Trust Agreement and are subject to optional, extraordinary and mandatory sinking account prepayment prior to maturity in the manner and upon the terms set forth in the Trust Agreement.

Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that:

D-2

(1) The obligation of the City to pay 2009A Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make 2009A Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof.

(2) The Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver.

(3) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) with respect to the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations and with respect to corporations will not be included as an adjustment in the calculation of alternate minimum taxable income.

(4) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California.

(5) The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment price at maturity with respect to such Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Certificate owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner’s basis in the applicable Certificate. Original issue discount that accrues to a Certificate owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations (as described in paragraph 3 above) and is exempt from State of California personal income tax.

(6) The amount by which a Certificate owner’s original basis for determining loss on sale or exchange in a Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Certificate premium, which must be amortized under Section 171 of the Code; such amortizable Certificate premium reduces the Certificate owner’s basis in the applicable Certificate (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Certificate premium may result in a Certificate owner realizing a taxable gain when a Certificate is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the Certificate to the owner.

The opinions expressed in paragraphs (3) and (5) are subject to the condition that the City and the Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the delivery of the Certificates to assure that such interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) with respect to the

D-3

Certificates to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Certificates. The City and the Corporation have covenanted to comply with all such requirements.

Except as expressly set forth in paragraphs (3), (4), (5) and (6) we express no opinion regarding any tax consequences with respect to the Certificates.

Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Tax Certificate executed by the City and other documents related to the Certificates may be changed and certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax-exempt obligations. We express no opinion as to the effect on the tax consequences on and after the date on which any such change occurs or action is taken or omitted upon advice or approval of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.

We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters.

We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.

The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery.

We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement.

Respectfully submitted,

D-4

Upon the execution and delivery of the 2009B Certificates, Stradling Yocca Carlson & Rauth, a Professional Corporation, Special Counsel, proposes to render its final approving opinion in substantially the following form:

[Closing Date]

City Council City of Malibu Malibu, California

Re: $815,000 City of Malibu Certificates of Participation 2009B (Taxable) (City Hall Project)

Dear Ladies and Gentlemen:

We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Malibu (the “City”) in connection with the authorization, execution and delivery by the City of that certain Lease/Purchase Agreement, dated as of September 1, 2009 (the “Lease”), by and between the Malibu Public Financing Corporation (the “Corporation”) and the City. We have also reviewed that certain Trust Agreement, dated as of September 1, 2009 (the “Trust Agreement”), by and among Deutsche Bank National Trust Company, as trustee (the “Trustee”), the Corporation and the City. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Corporation and the City, the initial purchasers of the Certificates (defined below) and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined.

Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $815,000 City of Malibu Certificates of Participation 2009B (Taxable) (City Hall Project) (the “Certificates”) evidencing undivided proportionate interests of the owners of the Certificates in certain lease payments (the “2009B Lease Payments”) to be made by the City pursuant to the Lease. Pursuant to the Trust Agreement, simultaneous with the execution and delivery of the Certificates, the Trustee will execute and deliver the $18,660,000 City of Malibu Certificates of Participation 2009A (Tax Exempt) (City Hall Project) (the “2009A Certificates”) which will evidence direct and undivided proportionate interests in certain other lease payments (the “2009A Lease Payments”) to be made by the City pursuant to the Lease. No opinion is expressed herein as to the 2009A Certificates or the 2009A Lease Payments. Pursuant to that certain Assignment Agreement, dated as of September 1, 2009 (the “Assignment Agreement”), the Corporation has assigned to the Trustee the Corporation’s right to receive 2009B Lease Payments from the City under the Lease.

The Certificates are dated their date of delivery. The Certificates mature on the dates and in the amounts set forth in the Trust Agreement. Interest due with respect to the Certificates is payable on the dates and at the rates per annum set forth in the Trust Agreement. The Certificates are registered Certificates in the form set forth in the Trust Agreement and are subject to optional, extraordinary and mandatory sinking account prepayment prior to maturity in the manner and upon the terms set forth in the Trust Agreement.

Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that:

(1) The obligation of the City to pay 2009B Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefore, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights, by equitable principles, by the

D-5

exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California. The obligation of the City to make 2009B Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of California or any political subdivision thereof.

(2) The Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification, penalty, contribution, choice of law, choice of forum or waiver.

(3) Interest (and original issue discount) with respect to the Certificates is exempt from personal income taxes imposed in the State of California.

(4) The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated prepayment price at maturity with respect to such Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Certificate owner before receipt of cash attributable to such income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner’s basis in the applicable Certificate.

(5) An owner who acquires a Certificate for an amount that is greater than the sum of all amounts payable on the Certificate after the purchase date, other than payments of qualified stated interest, will be considered to have purchased such Certificate at a premium. An owner of a Certificate generally may elect to amortize such premium using a constant yield method over the remaining term of the Certificate. Any such election shall apply to all debt instruments (other than debt instruments the interest on which is excludable from gross income) held at the beginning of the first taxable year to which the election applies or to such debt instrument thereafter acquired, and is irrevocable without consent of the IRS. Special rules may apply if a Certificate is subject to call prior to maturity at a price in excess of its redemption price at maturity.

Except as expressly set forth in paragraphs (3), (4), and (5) we express no opinion regarding any tax consequences with respect to the Certificates.

We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease, the Site Lease and the Assignment Agreement or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters.

We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.

The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates on the date of their execution and delivery.

D-6

Any federal tax advice contained herein is not intended or written to be used, and it cannot be used, for the purpose of (i) avoiding penalties under the Code, or (ii) promoting, marketing or recommending to another party any transaction or matters addressed herein with respect to the Certificates.

We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the Certificates or other offering material relating to the Certificates and expressly disclaim any duty to advise the owners of the Certificates with respect to matters contained in the Official Statement.

Respectfully submitted,

E-1

APPENDIX E

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement, dated as of September 1, 2009 (the “Disclosure Agreement”) is executed and delivered by the City of Malibu (the “City”) and Deutsche Bank National Trust Company (the “Dissemination Agent”) in connection with the execution and delivery of $18,660,000 City of Malibu Certificates of Participation 2009A (Tax Exempt) (City Hall Project) (the “2009A Certificates”) and the $815,000 City of Malibu Certificates of Participation 2009B (Taxable) (City Hall Project) (the “2009B Certificates” and, together with the 2009A Certificates, the “Certificates”). The Certificates are being executed pursuant to a Trust Agreement, dated as of September 1, 2009, by and among the City, Deutsche Bank National Trust Company, as trustee (the “Trustee”) and the Malibu Public Financing Corporation (the “Corporation”). The City covenants as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Certificates and in order to assist the Participating Underwriter in complying with the Rule.

SECTION 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Comprehensive Annual Financial Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes.

“Disclosure Representative” shall mean the City Manager of the City, the Administrative Services Director of the City or their designee, or such other officer or employee as the City shall designate in writing from time to time.

“Dissemination Agent” shall mean Deutsche Bank National Trust Company, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“Official Statement” shall mean the Official Statement relating to the Certificates, dated August 21, 2009.

“Participating Underwriter” shall mean the original underwriter of the Certificates required to comply with the Rule in connection with the offering of the Certificates.

“Repository” shall mean the Municipal Securities Rulemaking Board, which can be found at http://emma.msrb.org.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“State” shall mean the State of California.

E-2

SECTION 3. Provision of Annual Reports.

(a) The City shall, or, upon delivery of the Annual Report to the Dissemination Agent, shall cause the Dissemination Agent to, not later than each April 1 of each year commencing April 1, 2010, provide to the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) Not later than fifteen (15) business days prior to said date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If the City is unable to provide to the Repository an Annual Report by the date required in subsection (a), the City shall send a notice to the Repository in substantially the form attached as Exhibit A.

(c) The Dissemination Agent shall:

(i) confirm the electronic filing requirements of the Municipal Securities Rulemaking Board for the Annual Report the name and address of each Repository; and

(ii) (if the Dissemination Agent is other than the City), file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was provided.

SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or include by reference the following:

(a) The City’s audited financial statements, prepared in accordance with generally accepted auditing standards for municipalities in the State of California. If the City’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) To the extent not contained in the audited financial statements filed pursuant to the preceding subsection (a) by the date required by Section 3 hereof, updates of Tables 1 through 3A, 5 and 6 set forth in the Official Statement.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates, if material:

(i) Principal and interest payment delinquencies.

E-3

(ii) Non-payment related defaults.

(iii) Modifications to rights of Certificate holders.

(iv) Optional, contingent or unscheduled certificate calls.

(v) Defeasances.

(vi) Rating changes.

(vii) Adverse tax opinions or events affecting the tax-exempt status of the Certificates.

(viii) Unscheduled draws on the debt service reserves reflecting financial difficulties.

(ix) Unscheduled draws on the credit enhancements reflecting financial difficulties.

(x) Substitution of the credit or liquidity providers or their failure to perform.

(xi) Release, substitution or sale of property securing repayment of the Certificates.

(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable federal securities laws.

(c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the City shall promptly file a notice of such occurrence with the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(iv) and (v) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Certificates pursuant to the Trust Agreement.

SECTION 6. Termination of Reporting Obligation. The City’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing thirty days written notice to the City and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the City and shall have no duty to review any information provided to it by the City. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the City in a timely manner and in a form suitable for filing.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule; provided, the Dissemination Agent shall have first consented to any amendment that modifies or increases its duties or obligations hereunder. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of

E-4

financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, any Holder or Beneficial Owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the City to comply with this Disclosure Agreement shall be an action to compel performance.

No Certificate holder or Beneficial Owner may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, the Certificate holders, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates.

SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the City: City of Malibu 23815 Stuart Ranch Road Malibu, California 90265 Attention: City Manager

E-5

To the Dissemination Agent: Deutsche Bank National Trust Company 1761 East St. Andrew’s Place Santa Ana, California 92705 Attention: Jane Snyder

SECTION 13. Beneficiaries. This Disclosure Agreement solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Certificates, and shall create no rights in any other person or entity.

E-6

SECTION 14. Signature. This Disclosure Agreement has been executed by the undersigned on the date hereof, and such signature binds the City to the undertaking herein provided.

CITY OF MALIBU

By: Its: City Manager

DEUTSCHE BANK NATIONAL TRUST COMPANY, as Dissemination Agent By: Its: Authorized Officer

E-7

EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: City of Malibu

Name of Certificate Issues: $18,660,000 City of Malibu Certificates of Participation 2009A (Tax Exempt) (City Hall Project)

$815,000 City of Malibu Certificates of Participation 2009B (Taxable) (City Hall Project)

Date of Issuance: September 9, 2009

NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-named Certificates as required by the Continuing Disclosure Agreement executed by the City on the date of issuance of the Certificates. The City anticipates that the Annual Report will be filed by _____________.

Dated: DEUTSCHE BANK NATIONAL TRUST COMPANY, as Dissemination Agent

By:


F-1

APPENDIX F

DTC BOOK-ENTRY SYSTEM

The information in this Appendix D concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Certificates, payment of principal, premium, if any, accreted value, if any, and interest on the Certificates to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Certificates and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Certificates. The Certificates will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each annual maturity of the Certificates, each in the aggregate principal amount of such annual maturity and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Notes Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Notes and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC’s records. The ownership interest of each actual purchaser of each Certificate (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Certificates, except in the event that use of the book-entry system for the Certificates is discontinued.

To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by

F-2

an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as prepayments, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Prepayment notices shall be sent to DTC. If less than all of the Certificates within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Prepayment proceeds, distributions, and dividend payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Trustee, on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee; disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Certificate certificates are required to be printed and delivered and the registration and transfer provisions of the Trust Agreement will apply.

The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Certificate certificates will be printed and delivered to DTC and the registration and transfer provisions of the Trust Agreement will apply.

Documents

NEW ISSUE — BOOK-ENTRY-ONLY RATING: S&P: AA+ (See ...cdiacdocs.sto.ca.gov/2009-0834.pdfthe Certificates will be available in book-entry form for delivery to DTC in New York, New