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HomeMy WebLinkAbout01- Mayor's Office CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: Tom Minor, Mayor Subject: Lease/Leaseback Financing and Airport Ownership - Dept: Mayor's Office San Bernardino International r ", Airport Authority Date: January 28, 1998 Ole .it , Synopsis of Previous Council Action: Recommended Motion: Approve in concept that the City of San Bernardino,in conjunction with the County of San Bernardino and each city member of the San Bernardino International Airport Authority acquire title to the Airport properties and be jointly and severally liable pursuant to the Lease and Leaseback financing documents. f Signature Contact person: Tom Minor Mayor Phone Supporting data attached: Yes Ward: 1 FUNDING REQ S: Amount: Source:(Acct. No.) (Acct. Description) Finance: Council Notes: AT Agenda Item No._ CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION STAFF REPORT The structure proposed for the Lease and Leaseback financing has always contemplated that at least the County of San Bernardino and the City of San Bernardino would be required to provide credit support for the transaction. Several default situations could conceivably occur whereby the costs to the SBIAA would exceed the initial financial benefits to the SBIAA by a two to three times factor. Under such circumstances it will be necessary to create a structure that provides the investor with the assurance that a governmental entity other than the SBIAA will be financially and legally able to remit the required payments under the lease documents. The JPA agreement for the SBIAA as it currently exists does not require any member to unconditionally remit payments but imposes a remedy of forfeiture of participation and membership if required payments are not made. Banks and other lenders have always viewed this provision of the JPA agreement as an impediment to funding loans to the SBIAA without some form of guaranty from the County of San Bernardino and one or more of the city members. The Cities of Colton and Loma Linda could guaranty their proportionate amount of the potential lease liability by either a sublease agreement with the County of San Bernardino and the City of San Bernardino or by also accepting title to the Airport together with the County of San Bernardino and the City of San Bernardino. The preferred structure as has been informally communicated by the SBIAA and the members was to have the County of San Bernardino and all city members hold title to the Airport in joint tenancy. The County and the city members would be signatories to the lease documents and would be jointly and severally liable for all financial obligations of the SBIAA pursuant to the Lease and Leaseback financing. The financing group has requested that the SBLA-A, the County of San Bernardino Board of Supervisors and the City Council of each city member be presented with the opportunity to approve in concept proceeding further with the Lease and Leaseback financing with the members of the SBIAA acquiring title to the Airport and assuming all financial and performance obligations pursuant to the financing. TO: San Bernardino International Airport Authority Commission FROM: James H. Monger, Airport Director DATE: January 14, 1998 SUBJECT: RETAIN INVESTMENT BANKING FIRM AND SPECIAL LEASE COUNSEL RECONLM[ENDED ACTION: Motion to approve the retaining of Merrill Lynch and O'Melveny and Myers and authorize the preparation of appropriate agreements by SBIAA staff and legal counsel and authorize the execution thereof by the President and Secretary of the SBIAA. BACKGROUND AND COIMMENTS: Please see attached report from Agency Counsel, Tim Sabo. sb i Wagenda\01 1498\bank.dac ITEM NO. 21 STAFF REPORT TO: San Bernardino International Airport Authority FROM: Sabo & Green, a Professional Corporation DATE: January 14, 1998 RE: Retain Investment Banking Firm and Special Lease Counsel BACKGROUND: SBIAA staff and legal counsel have been working with representatives of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and the law firm of O'Melveny & Myers since February 1996 in connection with the proposed Lease and Leaseback financing. It is intended that the SBIAA financing be modeled after the same form of financing that was successfully undertaken by the County of San Bernardino and completed in May 1997 . Merrill Lynch was retained by the County of San Bernardino to serve as the financial advisor and placement agent responsible for coordinating all aspects of the financing and for assembling the participants for the financing which includes the municipal bond insurance company, investment agreement providers, appraisers and other attorneys . Additionally, Merrill Lynch would be responsible for structuring the cash flows of the leases, advising the SBIAA as to the other financial aspects of the financing and obtaining and negotiating with the equity investor for the placement of the lease and financing documents . The fees of Merrill Lynch would not exceed 2% of the value of the asset leased to the equity investor and payment of such fees would be contingent upon the successful closing of the Lease and Leaseback financing. The proposed agreement with Merrill Lynch would terminate on June 30, 1998, and could be terminated earlier by the SBIAA for any reason upon 30 days' prior written notice. The law firm of O'Melveny & Myers was previously retained by the County of San Bernardino to serve as special lease financing counsel to the County for the previous Lease and Leaseback financing as completed by the County. O'Melveny & Myers will be responsible for drafting of all leasing documents, reviewing of SBIA\0001\DOC\301 1\13\98 10:18 km California real estate matters and providing the necessary federal income tax opinions in connection with the tax advantages to be derived by the equity investor from this form of financing. The legal fees are based upon an hourly rate in the event the financing does not close for any reason whatsoever, and the legal fees, exclusive of reimbursable expenses, shall be equal to $650, 000 only upon the successful closing of the financing. O'Melveny & Myers also has requested that said law firm would be able to continue to represent certain other clients in matters that could possibly be adverse to the SBIAA but not in a matter that is substantially related to the Lease and Leaseback financing. The proposals from both firms are substantially similar to those as were previously approved by the County of San Bernardino in connection with the financing as undertaken by the County in May, 1997 . The fees that are payable to these firms and the other attorneys and consultants to the various parties will be paid from the gross available proceeds of the financing. The $10M to $15M amounts that have been quoted as potentially being available to the SBIAA from this financing has always been considered as a dollar figure that is net of all costs of the transaction including the Merrill Lynch fees and the O'Melveny & Myers legal fees . _ ACTION: Motion to approve the retaining of Merrill Lynch and O'Melveny & Myers and authorize the preparation of appropriate agreements by SBIAA staff and legal counsel and authorize the execution thereof by the President and Secretary of the SBIAA. SBIA\0001\DOC\301 1\13\98 10:18 ]an -2- Issues for discussion with San Bernardino Council on Monday, March 30, 1998, as to status of (i) SBIAA lease and lease-back financing and (ii) possible transfer of ownership of Airport to County of San Bernardino and City of San Bernardino 1 . Status of current SBIAA debt structure; loans from IVDA ($5 . OM principal amount, plus interest) and members ($3 . OM principal amount, plus interest) 2 . Status of SBIAA leasing activities, Santa Barbara Aerospace lease, other leases; transfer of IVDA EDC Property to SBIAA as a Public Benefit Transfer and results of negotiations with Air Force 3 . Previous and current Airport Improvement Projects; use of MAP grant funding through FAA for Airport improvements, infrastructure and building roof repairs and federal EDA grants for streets and other infrastructure; 100 or 250 local matching requirements 4 . Current financial status of SBIAA; current operating deficit; time period to achieve break-even 5 . Financing options available to SBIAA (see SBIAA Staff memorandum to SBIAA dated November 25, 1997) 6 . Structure of lease and lease-back financing; goals of financing are to (i) repay members in whole, (ii) repay a portion of the IVDA loan, and (iii) provide working capital for operations and other capital improvements 7 . Issues relative to County/Cities holding title to Airport upon transfer of title by Air Force; a . County of San Bernardino, City of San Bernardino and other cities of the SBIAA are not required to increase legal exposure beyond limits established in JPA Agreement b. lease and lease-back financing cannot be completed unless either the (i) County of San Bernardino, or (ii) the County of San Bernardino and the City of San Bernardino accept title to the Airport and execute all lease and lease-back financing documents; this is necessary to provide the credit support to the financing C. MBIA will insure the payment obligations of the Owner or Owners of the Airport in the event a payment is Page 1 of 2 �T required to be made by the Owner or Owners under the lease and lease-back financing documents d. the Owner or Owners of the Airport will enter into a Master Lease and Operating agreement with the SBIAA to delegate all operational and financial responsibility for the Airport to the SBIAA e . upon the Owner or Owners being required to remit a payment by virtue of their ownership position in the Airport, the payment obligation will be automatically presented to the SBIAA for payment from either (i) operating revenues of the SBIAA, or (ii) other borrowed funds of the SBIAA, or (iii) a request for payment to the members pursuant to Section 11 of the SBIAA JPA Agreement f . failure of any member to pay funds requested pursuant to Section 11 of the SBIAA JPA Agreement would cause the defaulting member to forfeit participation in the SBIAA, and continued defaults would then terminate membership in SBIAA after one (1) year 8 . Clarifications to the SBIAA JPA Agreement for purposes of the lease and lease-back financing are desirable; SBIAA requested that the members consider an amendment to the SBIAA JPA Agreement to have the SBIAA structured in a similar manner to the IVDA 9 . Any amendment to the SBIAA JPA Agreement, whether to merely comply with the clarifications necessitated by the lease and lease-back financing or to modify the voting structure, would require the approval of each member to the SBIAA through the Board of Supervisors and each City Council 10 . If any single member of the SBIAA does not approve a lease and lease-back financing requested modification to the SBIAA JPA Agreement, or if none of the members elect to accept title to the Airport and execute the lease and lease-back financing documents, the SBIAA will then seek alternate methods of financing the ongoing Airport operating deficits and capital requirements 11 . SBIAA has other options available to refinance a portion of the existing debt; however, the other traditional financing options will require the SBIAA to pay debt service which increases the annual operating deficit Page 2 of 2 TABLE OF CONTENTS 1 . November 11, 1997 San Bernardino International Airport Authority Special Meeting Cover Sheet and Agenda Item No. 5 . 2 . January 14, 1998 San Bernardino International Airport Authority Meeting approval of November 25, 1997 meeting minutes . 3 . January 14, 1998 San Bernardino International Airport Authority Meeting Agenda Item No. 19 . 4 . January 14 , 1998 San Bernardino International Airport Authority Meeting Agenda Item No. 20 . 5 . January 14, 1998 San Bernardino International Airport Authority Meeting Agenda Item No. 21 . 6 . January 28, 1998 San Bernardino International Airport Authority Meeting Agenda Item No. 21 (Continuation item from January 14th 1998 meeting. ) 7 . March 24, 1998 Draft of the Quitclaim Deed to the San Bernardino International Airport Authority Indenture . 8 . Agenda Item for the San Bernardino County Board of Supervisors to Accept Title to the San Bernardino International Airport, Dated March 17, 1998 . sbia\0001\doc\322 3\25\98 445 lmk SPECIAL MEETING SAN BERNARDINO INTERNATIONAL AIRPORT AUTHORITY A regional joint powers authority dedicated to the reuse of Norton Air Force Base for the economic benefit of the East Valley NOVEMBER 25, 1997 1:30 P.M. Loma Linda City Hall Council Chambers 25541 Barton Road Loma Linda,California AGENDA 1. CALL TO ORDER 2. ROLL CALL 3. ITEMS TO BE ADDED OR DELETED 4. BOARD ITEMS 5. San Bernardino International Airport Authority Financing Issues 6. ADDED AND DEFERRED ITEMS 7. PUBLIC COMMENT 8. CLOSED SESSION. There are no items for the Closed Session. 9. ADJOURN MEETING Page-I- For additional information-please call the 1VDA/SBlAA office at(909)3824100 sbiaa\uenda\l 1 2597.doc TO: San Bernardino International Airport Authority Commission FROM: James H. Monger,Airport Director DATE: November 25, 1997 SUBJECT: SAN BERNARDINO INTERNATIONAL AIRPORT AUTHORITY FINANCING ISSUES RECOMMENDED ACTION: Select alternative financing, direct staff to proceed with the implementation of the selected financing alternative and submit items for final approval at the December 10, 1997, SBIAA Board Meeting. BACKGROUND AND COMMENTS: I. Immediate Cash Requirements: A. Funds Available and Obligations: 1. $318,000 remaining funds under County of San Bernardino and City of San Bernardino $3 million line of credit. 2. $310,000 required for final payment of matching funds for parallel taxiway project. B. Cash Requirements: 1. $100,000 -Terminal Project matching funds. 2. $150,000 -Terminal Exterior matching funds. 3. $280,000 - operating deficit($70,000 per month for 4 months). 4. $125,000 - electrical connections to SCE system. 5. $ 70,000 -hangar roofs matching funds. 6. $ 75,000 - contingency and miscellaneous. 7. $800,000 -total additional funds required from November 1997, through February, 1998. II. City of San Bernardino and County of San Bernardino $3 million loan status: A. approximately $2.7M already drawn as of November 14, 1997; final draws will be made by November 30, 1997. B. upon disbursement of the final draw, the County of San Bernardino will have loaned $1M and the City of San Bernardino will have loaned $2M to the SBIAA. sbi aa\agendal l 12597\,doc - ITEM NO. 5 C. remaining $318,000 is required to be drawn for final payment on parallel taxiway project. D. no further draws can be made after December 15, 1997 under the Loan Agreement with the County of San Bernardino and the City of San Bernardino. E. the cities of Colton, Highland and Loma Linda each owe $500,000 on or before December 31, 1997 or the defaulting city or cities will forfeit membership in the SBIAA. F. when the cities of Colton, Highland and Loma Linda each pay their$500,000 amounts, the SBIAA will still owe $3M under the Loan Agreement; the County of San Bernardino will be owed $500,000, plus interest, and the City of San Bernardino will be owed $1M,plus interest, by the SBIAA; the cities of Colton, Highland and Loma Linda will then be owed their respective $500,000 amounts, plus interest accrual from the date of the advance,until repaid. III. Alternatives Available to SBIAA: A. payment of the anticipated$800,000 4-month operating deficit that will be incurred through February, 1998: 1. bill each of the members their share of the operating deficit equal to $33,333.3') per month for the County of San Bernardino and the cities of Colton, Highland and Loma Linda, and$66,666.66 per month for the City of San Bernardino for the months of November and December 1997 and January and February 1998. 2. SBIAA issues a tax-exempt lease revenue note payable from the Santa Barbara Aerospace lease equal to approximately$900,000 to $1M. 3. SBIAA obtains a tax-exempt or taxable short-term loan or line of credit from a bank or private lender payable from Santa Barbara Aerospace lease revenues. B. $3M County of San Bernardino and City of San Bernardino loan repayment: 1. no action- each of the other cities remit their payments of$500,000 each on or before December 31, 1997, and then undertake alternative a, b, or c below: a. refinance the S3M loan from the five (5) members of the SBIAA in January, 1998, with the issuance of tax-exempt lease revenue notes. sb iaa\agenda\1 12597\.doc ITEM NO. 5a b. do not refinance the $3M loan from the five (5) members at anytime in the foreseeable future. C. repay the $3M loan from the proceeds of the lease and lease-back financing , if available, in approximately February, 1998. 2. no action - other 3 cities do not remit their payments of$500,000 each and the non-participating members are automatically expelled from the SBIAA after December 31, 1997. a. refinance the $3M loan from the two (2) remaining members of the SBIAA in January, 1998,with the issuance of tax-exempt lease revenue notes. b. do not refinance the $3M loan from the two remaining members at anytime in the foreseeable future. C. repay the $3M loan from the proceeds of the lease and lease-back financing, if available, in approximately February, 1998. 3. refinance the $3M loan, plus interest,prior to the December 31, 1997 maturity date based upon the lease revenues of the Santa Barbara Aerospace lease with the issuance of tax-exempt lease revenue notes a. repay the financed $3M loan from the proceeds of the lease and lease-back financing, if available, in approximately February, 1998. b. invest the proceeds of the lease and lease-back financing as SBIAA reserves and use the interest income to support operating deficits of the SBIAA. IV. Status of Lease and Lease-Back Financing and use of Proceeds: A. Final appraisal figures are not available as of November 14, 1997. B. Proposed meeting with working group on November 19, 1997. C. anticipated closing date of February, 1998, assuming that there are no structural or financial concerns with the financing. D. lease and lease-back financing ,,gill require the credit support of the County of San Bernardino and the City of San Bernardino; investors do not want to have the sb iaa�avenda\1 12597.doc ITEM No. 5b other three (3) cities be subject to the guaranty due to added complexities in the credit review process and future enforcement of remedies against the guarantying parties. E. Use of Proceeds Options: 1. adopt a similar policy as did the County of San Bernardino and invest the proceeds as SBIAA reserves and apply the interest earnings for support of operating deficits (issue - will the County of San Bernardino permit the proceeds to be expended if the County of San Bernardino is guarantying at lease 1/') of the financial risk of the financing). 2. pay off the $3M loan, plus interest, to the then current members that have contributed towards the loan amount. 3. repay the IVDA the $5M plus interest owned on the prior loan advanced by the IVDA to the SBIAA. 4. apply the proceeds received solely for payment of the future operating deficits of the SBIAA. 5. apply the proceeds received solely for capital improvement projects and local matching fund contributions for current and future Airport improvement projects. V. Summary of SBIAA options: A. $800,000 short-term operating and capital deficit. 1. invoice each SBIAA member on a monthly basis. 2. SBIAA issue a 1 to 3 year tax-exempt note issue. 3. obtain a bank loan (possibly 7%, 2 points). 4. obtain a loan from a private lender(possibly 12%to 14%, 4 to 5 points). 5. the County of San Bernardino and/or City of San Bernardino agree to reloan in January 1998 all or a portion of the $1.5M that is to be repaid by the SBIAA after the payments of the $500,000 each are received by the SBIAA from the cities of Colton, Highland and Loma Linda. 6. payments directly (or reimbursement to members) from the proceeds of the lease and lease-back financing in approximately February 1998, if the guarantying parties agree to the release of proceeds. sbi aa\agenda\1 12597\.doc ITEM NO. 5C B. Repayment of the $3M line of credit(with the cities of Colton. Highland and Loma Linda remitting payments on or before December 31, 1997). 1. repayment from the proceeds of the lease and lease-back financing in approximately February 1998. 2. refinance the $3M line of credit any time after January, 1998, with the proceeds of a tax-exempt note financing secured by the rental payments from the Santa Barbara Aerospace lease revenues. 3. refinance the $3M line of credit any time after January, 1998, with the proceeds of a bank loan or a private lender financing secured by the rental payments from the Santa Barbara Aerospace lease revenues. 4. no repayment of either the principal or interest in the foreseeable future. 5. repayments directly to the members from the proceeds of the lease and lease-back financing in approximately February 1998, if the guarantying parties agree to the release of proceeds. C. Repayment of the $3M line of credit(without all of the cities of Colton, Highland and Loma Linda remitting the required payments of$500,000 each); same options as in B above but with the then remaining members of the SBIAA acting as the governing body of the SBIAA. sb iaa`agenda\1 12597\.doc ITEM NO. Sd i SAN BERNARDINO I ' NTL AIRPORT AUTHORITY MEETING MINUTES November 25, 1997 A special meeting of the San Bernardino International Airport Authority was called to order by President Tom Minor at approximately 1:30 p.m., Tuesday, November 25, 1997, in the Council Chambers, Loma Linda City Hall, 25541 Barton Road, Loma Linda, California. BOARD MEMBERS PRESENT: County of San Bernardino Supervisor Jerry Eaves City of Colton Mayor Karl Gaytan (1:40 p.m.) City of Loma Linda Secretary/Councilman Glenn Elssmann City of San Bernardino President/Mayor Tom Minor Councilman Jerry Devlin City of Highland Mayor Ray Rucker OTHERS PRESENT: William L. Bopf, Executive Director Jim Monger, Airport Director Penny Chua, Clerk of the Board Alex Estrada, Senior Property & Project Manager Martin Romeo, Chief Financial Officer Tim Sabo, Sabo & Green Patti Colby, Executive Secretary SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 3. ITEMS TO BE ADDED OR DELETED There were no items to be added or deleted. 4. BOARD ITEM Item#5 - San Bernardino International Airport Authority Financing Issues Agency Counsel Tim Sabo distributed revised handouts and the following issues regarding funding for the Airport Authority were discussed: I. Immediate Cash Requirements: A. Funds Available and Obligations: 1. $318,000 remaining funds under County of San Bernardino and City of San Bernardino $3 million line of credit. 2. $310,000 required for final payment of matching funds for parallel taxiway project. B. Cash Requirements: 1. $100,000 - Terminal Project matching funds. 2. $150,000 - Terminal Exterior matching funds. 3. $280,000 - operating deficit ($70,000 per month for 4 months). 4. $125,000 - electrical connections to SCE system. 5. $ 70,000 -hangar roofs matching funds. 6. $ 75,000 - contingency and miscellaneous. 7. $800,000 -total additional funds required from November 1997, through February, 1998. II. City of San Bernardino and County of San Bernardino $3 million loan status: A. approximately $2.7M already drawn as of November 14, 1997; final draws will be made by November 30, 1997. B. upon disbursement of the final draw, the County of San Bernardino will have loaned $1 M and the City of San Bernardino will have loaned $2M to the SBIAA. -2- SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 C. remaining $318,000 is required to be drawn for final payment on parallel taxiway project. D. no further draws can be made after December 15, 1997 under the Loan Agreement with the County of San Bernardino and the City of San Bernardino. E. the cities of Colton, Highland and Loma Linda each owe $500,000 on or before December 31, 1997 or the defaulting city or cities will forfeit membership in the SBIAA. F. when the cities of Colton, Highland and Loma Linda each pay their $500,000 amount, the SBIAA will still owe $3M under the Loan Agreement; the County of San Bernardino will be owed $500,000, plus interest, and the City of San Bernardino will be owed $1M, plus interest, by the SBIAA; the cities of Colton, Highland and Loma Linda will then be owed their respective $500,000 amounts, plus interest accrual from the date of the advance, until repaid. III. Alternatives Available to SBIAA: A. payment of the anticipated $800,000 4-month operating deficit that will be incurred through February, 1998: 1. bill each of the members their share of the operating deficit equal to $33,333.33 per month for the County of San Bernardino and the cities of Colton, Highland and Loma Linda, and $66,666.66 per month for the City of San Bernardino for the months of November and December 1997 and January and February 1998. 2. SBIAA issues a tax-exempt lease revenue note payable from the Santa Barbara Aerospace lease equal to approximately $900,000 to $1M. 3. SBIAA obtains a tax-exempt or taxable short-term loan or line of credit from a bank or private lender payable from Santa Barbara Aerospace lease revenues. B. $3M County of San Bernardino and City of San Bernardino loan repayment: SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 1. no action - each of the other cities remit their payments of $500,000 each on or before December 31, 1997, and then undertake alternative a, b, or c below: a. refinance the $3M loan from the five (5) members of the SBIAA in January, 1998, with the issuance of tax-exempt lease revenue notes. b. do not refinance the $3M loan from the five (5) members at anytime in the foreseeable future. C. repay the $3M loan from the proceeds of the. lease and lease-back financing, if available, in approximately February, 1998. 2. no action - other 3 cities do not remit their payments of$500,000 each and the non-participating members are automatically expelled from the SBIAA after December 31, 1997. a. refinance the $3M loan from the two (2) remaining members of the SBIAA in January, 1998, with the issuance of tax-exempt lease revenue notes. b. do not refinance the $3M loan from the two remaining members at anytime in the foreseeable future. C. repay the $3M loan from the proceeds of the lease and lease-back financing, if available, in approximately February, 1998. 3. refinance the $3M loan, plus interest, prior to the December 31, 1997 maturity date based upon the lease revenues of the Santa Barbara Aerospace lease with the issuance of tax-exempt lease revenue notes. a. repay the financed $3M loan from the proceeds of the lease and lease-back financing, if available, in approximately February, 1998. b. invest the proceeds of the lease and lease-back financing as SBIAA reserves and use the interest income to support operating deficits of the SBIAA. -4- SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 IV. Status of Lease and Lease-Back Financing and use of Proceeds: A. Final appraisal figures are not available as of November 14, 1997. B. Proposed meeting with working group on November 19, 1997. C. anticipated closing date of February, 1998, assuming that there are no structural or financial concerns with the financing. D. lease and lease-back financing will require the credit support of the County of San Bernardino and the City of San Bernardino; investors do not want to have the other three (3) cities be subject to the guaranty due to added complexities in the credit review process and future enforcement of remedies against the guarantying parties. E. Use of Proceeds Options: 1. adopt a similar policy as did the County of San Bernardino and invest the proceeds as SBIAA reserves and apply the interest earnings for support of operating deficits (issue - will the County of San Bernardino permit the proceeds to be expended if the County of San Bernardino is guarantying at lease 1/3 of the financial risk of the financing). 2. pay off the $3M loan, plus interest, to the then current members that have contributed towards the loan amount. 3. repay the IVDA the $5M plus interest owned on the prior loan advanced by the IVDA to the SBIAA. 4. apply the proceeds received solely for payment of the future operating deficits of the SBIAA. 5. apply the proceeds received solely for capital improvement projects and local matching fund contributions for current and future Airport improvement projects. V. Summary of SBIAA options: A. $800,000 short-term operating and capital deficit. -5- SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 1. invoice each SBIAA member on a monthly basis. 2. SBIAA issue a 1 to 3 year tax-exempt note issue. 3. obtain a bank loan(possibly 7%, 2 points). 4. obtain a loan from a private lender (possibly 12% to 14%, 4 to 5 points). 5. the County of San Bernardino and/or City of San Bernardino agree to reloan in January 1998 all or a portion of the $1.5M that is to be repaid by the SBIAA after the payments of the $500,000 each are received by the SBIAA from the cities of Colton, Highland and Loma Linda. 6. payments directly (or reimbursement to members) from the proceeds of the lease and lease-back financing in approximately February 1998, if the guarantying parties agree to the release of proceeds. B. Repayment of the $3M line of credit (with the cities of Colton, Highland and Loma Linda remitting payments on or before December 31, 1997). 1. repayment from the proceeds of the lease and lease-back financing in approximately February 1998. 2. refinance the $3M line of credit any time after January, 1998, with the proceeds of a tax-exempt note financing secured by the rental payments from the Santa Barbara Aerospace lease revenues. 3. refinance the $3M line of credit any time after January, 1998, with the proceeds of a bank loan or a private lender financing secured by the rental payments from the Santa Barbara Aerospace lease revenues. 4. no repayment of either the principal or interest in the foreseeable future. 5. repayments directly to the members from the proceeds of the lease and lease-back financing in approximately February 1998, if the guarantying parties agree to the release of proceeds. -6- SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 C. Repayment of the $3M line of credit (without all of the cities of Colton, Highland and Loma Linda remitting the required payments of $500,000 each); same options as in B above but with the then remaining members of the SBIAA acting as the governing body of the SBIAA. Discussion ensued relative to the possibility of a short term loan of $400,000 by the IVDA pending the lease/leaseback financing package anticipated to be completed in February 1998. The request to the short-term lease would be submitted to the IVDA Board at its next regularly scheduled meeting. MOTION WAS MADE BY PRESIDENT MINOR AND SECONDED BY COUNCILMAN GLENN ELSSMANN FOR (i) EACH MEMBER AGENCY (CITIES OF HIGHLAND, COLTON AND LOMA LINDA) TO REIMBURSE THE AIRPORT AUTHORITY AND BRING THEM UP TO PARITY WITH THE COUNTY AND CITY OF SAN BERNARDINO; (ii) EACH MEMBER AGENCY TO BE INVOICED FOR THE MONTHLY OPERATING EXPENSES OF THE AIRPORT PER THE JPA AGREEMENT; (iii) UPON THE COMPLETION OF THE LEASE/LEASE BACK FINANCING PACKAGE, THE MEMBER AGENCIES WOULD BE REPAID FIRST. MOTION CARRIED UNANIMOUSLY. 6. ADDED AND DEFERRED ITEMS There were no added or deferred items. 7. PUBLIC COMMENT There were no public comments. 8. CLOSED SESSION There was no Closed Session. 19. ADJOURN MEETING The meeting adjourned at 2:35 p.m. Minutes approved at Board Meeting on January 14, 1998. Penny Chua Assistant Secretary of the Board -7- A. Cash requirements November 1997 to March 1998 Amount 1. Taxiway project $400,000 2. Terminal project interior 100,000 3. Terminal project exterior 15,000 4. Cperational cost($70,000 per month) 350,000 5. Electric hook-up SCE 50,000 6. Hangar roofs 70,000 Total $985,000 B. Cash needs by months 1. November and December 1997 $140,000 2. January 1998 to March 1998 845,000 Total $985,000 i Page 1 NOV 25 '97 02:12PM MERRILL LYNCH PFG P.2i3 SAN Bk.,KNARDLVO INTERNATIONAL AIRPORT AUTHORITY Preliminary 1997 Timetable for Municipal Leasehold Financing ar of Noventber 25.1997 October November December S M T W T F S S b1 T W T F S S NM T W T F 3 1 2 3 4 1 1 2 3 4 5 i 5 6 7 8 9 10 11 2 3 4 5 6 7 8 7 8 9 10 11 12 3 12 13 14 15 16 17 18 9 10 11 12. 13 14 I5 14 15 16 17 19 19 .0 19 20 21 22 23 24 25 16 17 18 19 20 2I 22 21 22 23 24 25 26 .7 26 27 28 29 30 31 23 24 25 26 27 23 29 28 29 30 31 30 Parties to the Financin4 SBIAA San Bernardino International Airport Authority City City of San Bernardino County County of San Bernardino EI Equity Investors) SG Sabo&Grccn ONI O'Meiveny&Myers L Lender MS Marshall &Stevens ML Merrill Lynch Timing Activitv Responsibility Completed • Retain Appraiser SBIAA,NIL Complcted ♦ All hands Mceting to Discuss SBIAA,SG, OM, ML Plaecment and Documentation S trace a OY December 2 ♦ Prepare List of Potential Investors SBIAA, ML December 2 • Board Approval SBIAA,SG, OM December 4 ♦ Finalize Offeree List SBIAA,ML December 5 ♦ Preliminary Modeling Numbers for ML Authority Review December 8 ♦ Distribute Term Sheet to Potential ML Equity Investors Deccrnber 19 • Rcceivc Proposals form Investor(s) SBIAA, SG, OM, ML December 19 ♦ Begin Drafting Preliminary Lease EI, SG. OM Documentation December 29 • Revised Preliminary Structure SBIAA, SG, OM,ML Determined, Analyze Investor's Proposals and Select Investors rFa NOV 25 '97 02:12PM MERRILL LYNCH PFG P.3i3 anuary February S N1 T W T F S S M T W T F S 1 2 3 1 2 3 4 5 6 7 4 5 6 7 8 9 10 8 9 10 11 12 13 14 11 12 13 14 15 16 17 15 16 17 18 19 20 21 18 19 20 21 22 23 24 22 23 24 25 26 27 28 25 26 27 28 29 30 31 Timing Activity ResDoresibility January 15 ♦ Commitment Letter Signed SBIAA,EI January 16 ♦ Package to Board SBIAA,EI,SG,OM January 20 ♦ Board Approval of Parameters& SBIAA Basic Documentation January 21 4- Second Draft of Documents El,OM Distributed January 22 ♦ Authority Due Diligence With Bank SBIAA,SG, OM,L,ML January 27 • Investors' Due Diligence(Q&A)at SBIAA,EI,SG,L,ML San Bernardino January 30 ♦ Distribute Closing List EI,SG,OM February 3 ♦ Closing 7n -..- Status of S32AA Lease and Lease-back financing as of November 20, 1997 1 . The initial Airport appraised value is equal to $249, 200, 000 as of November, 1997; appraisal report also includes an aviation feasibility study. Final appraisal report valuation figure is subject to the final review of all existing SBIAA lease agreements and subject to change due to numerous factors. 2 . Potential net benefit to the SBIAA is equal to $10M or more in cash upon closing; closing will not occur by December 31, 1997, but will probably occur in February, 1998 provided that no further tax regulations or tax law changes are proposed. Actual net benefit amount is subject to change due to variables . 3 . SBIAA must obtain title transfer from the Air Force to the SBIAA; title must then transfer from the SBIAA to the County of San Bernardino and the City of San Bernardino and be held by the County of San Bernardino and the City of San Bernardino during the term of the lease and lease-back financing. 4 . The County of San Bernardino and the City of San Bernardino will each own (i) either a 1/3 or 1/2 undivided interest as to the County of San. Bernardino, or (ii) either a 2/3 or 1/2 undivided interest as to the City of San Bernardino. Under the primary lease agreement with the Equity Investor, both the County of San Bernardino and the City of San Bernardino will each be financially responsible for 100% of the lease- back payments to be made to the Equity Investor. Title to the Airport would revert to the SBIAA upon expiration of the term of the lease and lease-back financing pursuant to an Operating Agreement between the County of San Bernardino and the City of San Bernardino with the SBIAA. 5. The Operating Agreement would essentially give the full operational and management responsibilities to the SBIAA. All cash received from the Equity Investor upon the closing date of the lease and lease-back financing would be transferred to the SBIAA for use by the SBIAA as may be directed by the SBIAA. 6. MBIA has proposed to further secure the transaction by insuring both (i) she lease-back obligation of the County of San Bernardino and the City of San Bernardino to the Equity Investor (this obligation will be financially de=eased from Page 1 of 3 r`� �; �' NOV 25 '97 10:59AM SABO & GREEN P.3 the invested escrow funds) , and (ii) certain default payments that would be made to the Equity Investor in the even certain defaults occur that terminate the lease and lease-back transaction . The C_ty/County lease-back obligation will be economically de_°eased with the deposit to the escrow fund to be held by AIG which is rated "AAA" . The deposit amount will be funded by a prepayment amount from the Equity Investor. Although the City/County will have control over the Events of Default under the lease-back documents, some contingent risks will remain for the City/County. The financial liability, though remote, under (ii) above could be significant as a penalty amount and could be equal to 3 or more times the amount of the un front cash payment to the SBIF.A (up to $30M and decreasing during the term of the lease and lease-back financing) . In the event MBIA is required to make any payments under the insurance policy, the County of San Bernardino and the City of San Bernardino (subject to rei mbursement by proportionate amounts from the Cities of Colton, Highland and Loma Linda) would be required to either remit a cash payment to MBIA or to issue bonds or other obligations that may be insured by MBIA to thus reimburse MBIA for the insured loss . 7 . The County of San Bernardino and the City of San Bernardino as the fee title owners of the Airport would enter into a sub-sub-lease with the Countv of San Bernardino and the Cites of Colton, Highland, Loma Linda and San Bernardino guarantying the obligations incurred by the County of San Bernardino and the City of San Bernardino as the fee title owners of the Airport . Such guaranty would extend to any and all liabilities incurred by the County of San Bernardino and the City of San Bernardino in connection with (i) all liabilities as the property owner of the Airport, and (ii) all financial obligations incurred as a part of the lease and lease-back financing for the benefit of the SBIAA. 8 . SBIAA will be required tc maintain (i) rental interruption insurance, (ii) liability insurance, and (iii) property damage insurance which may include earthquake coverage at such limits as may be required by the Equity Investor and MBIA. 9 . SBIAA and/or the County and the separate Cities must retain or guaranty to pay the fees of certain members of the financing team (including feasibility consultants, engineers, appraiser, financial consultants and attorneys for the other participants) ; such commitment for the payment of fees could be in excess of $1M in the event the financing Page 2 cf 3 NOV 25 '97 11:OOAM SABO & GP.EEN P.4 ; can not or does not proceed to completicn for any reason. whatsoever. An initial cash deposit may be required by the outside legal counsel and the counsel for the Equity Investor prior to the commencement of negotiations and drafting of documents . The SBIAA may require that this deposit be obtained from the members of the SBIAA. If the financing is abandoned, then any unused portion of this deposit would be released to the members . Other members of the financing team, such as those arranging for the financing, will work on a contingency basis but will ask to be formally retained by the SBIAA. 10. The financing team must be retained not later than December 3, 1997, to ensure that the lease and lease-back financing has the possibility of closing during February, 1998 . Page 3 of 3 NOV 25 157 11:OORM SABO & GREEN P.5 Air Force/FAA Title SBIAA e e4� oQ Lease 1/3 or 1/2 County/SB 2/3 or 1/2 City/S3 Equity Investors Leaseback Sub-Sub-lease _ - - - - - - - - - AIG Investment MBIA Insurance Agreement defeases provides further E— City/County lease protection obligation .r 1/6 County/S3 1/3 City/SB 1/6 City/Colton 1/6 City/Highland 1/6 City/Loma Linda TO: San Bernardino International Airport Authority Commission FROM: James H. Monger, Airport Director DATE: January 14, 1998 SUBJECT: DIRECT STAFF TO COMMENCE THE PREPARATION AND DISTRIBUTION OF A RESTATED AND AMENDED JOINT EXERCISE OF POWERS AGREEMENT TO CONFIRM THE MEMBERSHIP AND VOTING STRUCTURE OF THE SBIAA RECOMMENDED ACTION: Motion to direct staff to commence preparation and distribution for review and approval by the Board of Supervisors and the City Councils of the Cities of Colton, Loma Linda and San Bernardino of a Restated and Amended Joint Exercise of Powers Agreement including the same title of officers, voting structure and appointment of individuals as exists for the Inland Valley Development Agency. BACKGROUND AND COMMENTS: Please see attached report from Agency Counsel, Tim Sabo. sb iaa\agenda\011498Vn ember.doc ITEM NO. 19 STAFF REPORT TO: San Bernardino International Airport Authority FROM: Sabo & Green, a Professional Corporation DATE: January 14, 1998 RE: Approval to Commence the Preparation and Distribution of a Restated and Amended Joint Exercise of Powers Agreement to Confirm the Membership and Voting Structure of the SBIAA f' BACKGROUND: The proposed Lease and Leaseback financing will require the Board of Supervisors and the City Councils for the Cities of Colton, Loma Linda and San Bernardino to re-adopt the Joint Exercise of Powers Agreement that initially established the SBIAA in 1992 . This proposed action will enable the members of the financing team for the Lease and Leaseback financing to have access to a single legal document that confirms the current membership of I the SBIAA. This is especially important since the departure of the ii Cities of Highland and Redlands from the SBIAA membership. 1 The SBIAA is presented with an opportunity to restructure the voting membership and individual participation within the SBIAA to be identical with that of the IVDA while at the same time accomplishing the restructuring of the SBIAA. It is proposed that the officers, official duties and responsibilities and the appointment of the individuals serving on both the IVDA and SBIAA be virtually identical for further streamlining the administrative functions of the IVDA and the SBIAA. This proposal would also require that the individuals appointed by the Board of Supervisors and each City Council to the SBIAA would be the same individuals who are appointed to the IVDA. Even though the previous Settlement Agreement entered into by the IVDA in 1992 with the Cities of Highland and Redlands and the East Valley Association remains in effect, such restructuring of the SBIAA by adopting the Restated and Amended Joint Exercise of Powers Agreement is not intended to in any manner violate the provisions of the Settlement Agreement. The proposed restructuring of the governing body of the SBIAA together with the previous actions of both the SBIAA and the IVDA to consolidate I: SBIA\0001\DOC\299 I1\13\98 10:22 km f. staffing functions and adopt a single organizational structure will provide further efficiencies to the local reuse efforts for the former NAFB properties whether the property in question is controlled by the SBIAA or the IVDA. The IVDA and the SBIAA will retain their unique legal existence and identities as separate and distinct joint powers authorities . It is the intent of SBIAA staff to carefully distinguish the redevelopment and tax increment revenue powers of the IVDA from the aviation and Airport ownership functions of the SBIAA. This is necessary for maintaining the integrity of the IVDA and SBIAA in furtherance of the federally approved transfers of the Airport by the FAA to the SBIAA and the transfer of the Palm Meadows Golf Course and the Economic Development Conveyance properties from the Air Force to the IVDA. ACTION: Motion to direct staff to commence preparation and distribution for review and approval by the Board of Supervisors and the City Councils of the Cities .of Colton, Loma Linda and San Bernardino of a Restated and Amended Joint Exercise of Powers Agreement including the same title of officers, voting structure and appointment of individuals as exists for the Inland Valley Development Agency. SBIA\0001\DOC\299 _ 1\13\98 10:22 km �2 T� TO: San Bernardino International Airport Authority Commission FROM: James H. Monger, Airport Director DATE: January 14, 1998 SUBJECT: PRESENTATION OF STATUS OF LEASE AND LEASEBACK FINANCING FOR DISCUSSION PURPOSES RECOMMENDED ACTION: Receive for information. BACKGROUND AND COMMENTS: Mr. Tim Sabo, Agency Counsel, will update the Board on the status of the Lease/Leaseback Financing package for the Airport. I sb iaa\agenda\O 1 1498\6 nance.doc ITEM NO. 20 1 1• . STAFF REPORT TO: San Bernardino International Airport Authority FRAM: Sabo & Green, a Professional Corporation DATE: January 14, 1998 RE: Presentation of Status of Lease and Leaseback Financing for Discussion Purposes BACIfG&Q� Attached for your information are copies of the fo:.lowing documents in connection with the Lease and Leaseback financing: (i) a time schedule showing the required actions for the completion of the Lease and Leaseback financing and the anticipated closing date of April 15, 1998; (ii) a term sheet prepared by Merrill Lynch setting forth the detailed terms and conditions of the proposed Lease and Leaseback financing. A meeting was held with representatives of Merrill. Lynch on Tuesday, January 6, 1998, to discuss the status of the Leese and Leaseback financing and to address the various issues required for the successful closing. The Lease and Leaseback financing is presently scheduled to close by mid-April 1998 . It is still anticipated that the SBTAA will have encumbered furds of approximately $10M to $15M upon the closing of the financing for purposes of repaying the loans as advanced by the Members of the SBIAA,. The two most important issues for the SBIAA to un(iertake at the present time are (i) expediting the transfer of tit:.e from the Air Force to the SBIAA, and (ii) receiving the written concurrence from the FAA as to the intended transfer of t:.tle of the Airport properties to the four members of the SBIAA with a reversion of title to the SBIAA at a later date. A separate Operating Agreement between the four members and the SBI7.A will allow the SBIAA to exercise full operational central and responsibility for the Airport. This Operating Agreement wi11 also ensure that the eventual title transfer back to the SBIAA oc:urs at the end of the Lease and Leaseback financina term. UP on the termination of the Lease and Leaseback financing, the Operating Agreement would also end and title to the Airport would immeiiately revert to the SSTAA. Depending upon the final structure of the 9s1a\000:\00c\300 1\13\98 1:03 km HIV 1 - '98 01:33PN SAGO& GREEN P.2 Lease and Leaseback financing, the financing may be subject to an optional prepayment occurring at any time after 15 years following the lease commencement date and prior to the end of the 35-year financing term. The earliest date fer an optional prepayment, as well as final expiration date for the Lease and Leaseback financing, will depend upon the final structure of the proposed financing. During the interim period of time that title is held by the County and the three Cites, all FAA grant assurances would be adhEred to and all other FAA requirements pursuant to the Public F,enefit Transfer would be followed. The SB7.AA would continue to be responsible for all operational aspects of the Airport activities including budget approval, execution of leases, hirir.g and termination of emplovees and establishing of Airport Cper2.tional Guidelines and other Rules and Regulations for Airport acti-ities . No action is required to be taken at the present by the SBIAA on this agenda item. 3BIA\OCOi\flOC\300 �'Z� 1\13199 1:03 km SAN BERNARDINO INTERNATIONAL AIRPORT AUTHORITY Preliminary Timetable for Municipal Leasehold Financing as of lanuary 8. 1998 January 1998 February 1998 March 1998 S M T W T F S S M T W T F S S i`I T W T F S l 2 3 1 2 3 4 5 6 7 1 2 3 4 5 6 7 4 5 6 7 8 9 10 8 9 10 11 12 13 14 8 9 10 11 12 13 14 11 12 13 14 15 16 17 15 16 17 18 19 20 21 15 16 17 18 19 20 21 18 19 20 21 22 23 24 22 23 24 25 26 27 28 22 23 24 25 26 27 28 25 26 27 28 29 30 31 29 30 31 Parties to the Financing SBIAA San Bernardino International Airport Authority Cities Cities of San Bernardino. Loma Linda&Colton County County of San Bernardino EI Equity Investor(s) SG Sabo&Green OM O'Melveny & Myers L Lender MS Marshall& Stevens ML Merrill Lynch Timing Activity Responsibility Completed Retain Appraiser SBIAA. ML Completed All hands Meeting to Discuss Placement and SBIAA. SG,OM,ML Documentation Strategy Completed . Prepare List of Potential Investors SBIAA, ML Completed . Preliminary Modeling Numbers ML Competed . Preliminary Appraisal SBIAA, ML,M&S Completed . Draft Term Sheet to MBIA and Authority ML Completed . Financing Team Meeting SG, OM, ML,County January 9 . Distribute revised numbers ML . SBIAA Board Packase submitted SG January 14 . Negotiations with MBIA ML . SBIAA Board approves contracts,concept&commits to SBIAA expenses January 21 . Submit packages for Board/Councils' Approval SG, OM January 26-27 . Board/Councils' Approval of Concept and Draft Term SBIAA, County,Cities Sheet J Merrill Lynch March 1998 April 1998 S M T W T F S S N1 T W T F S 1 2 3 4 5 6 7 1 2 3 4 8 9 10 11 12 13 14 5 6 7 8 9 10 Il 15 16 17 18 19 20 21 12 13 14 15 16 17 18 22 23 24 25 26 27 28 19 20 21 22 23 24 25 29 30 31 26 27 28 29 30 Timing Activitv Responsibility Late January . Finalize FAA Issues, if any SBIAA,SG,ML Preliminary Engineering,Title, Insurance& Survey SBIAA,SG, OM,ML Issues resolved January 27 . Finalize Term Sheet SBIAA, SG, OM, ML January 28 . Distribute Term Sheet to Potential Equity Investors ML February 2 . Receive Proposals from Investor(s) SBIAA, SG,OM, ML February 4 . Analyze Investor's Proposals and Select Investors SBIAA. SG,OM, ML February 9 . Revised Term Sheet distributed SG, OM, ML,EI February 13 . Commitment Letter Signed SBIAA, EI February 20 . I"Draft of Deal Documents Received OM,EIC,AIG February 25 . Document Review Meeting(9:00 a.m.) All February 26 . Investors' Due Diligence(Q&A)at San Bernardino SBIAA, EI,SG, L, ML March 4 . 2nd Draft Documents Received OM,EIC,AIG March I I . Document Review Meeting(9:00 a.m.) All March 16 . Fed Title Transfer occurs SBIAA March 18 . 3`d Draft Documents Received SBIAA,EI,SG.OM March 24 . Document Review Meeting(9:00 a.m.) All March 31 . Distribute Board Packages &Closing Documents EI, SG,OM By April 7 . Board/Councils' Approval of all Final Documents County, Cities, SBIAA April 13 . Pre-Closing Starts All April 15 . Closing All 649 Merrill Lynch San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions -1/7 Draft Facility/Asset Certain real property consisting of the various land, improvements, buildings,runways, taxiways,hangers,etc. that make up the San Bernardino International Airport which was previously the Norton Airforce Base. Total Asset Cost Approximately$249 million. Head Lessor County of San Bernardino and cities of San Bernardino, Loma Linda and Colton (the "Owners") will be the Head Lessor under the Head Lease on a joint and several basis. The San Bernardino International Airport Authority ("SBIAA" or the"Authority") will obtain fee simple title to the San Bernardino International Airport(the "Airport") from the US Airforce and transfer such title on a joint and several basis to the Owners. In turn, the Owners will enter into a long-term Operating Agreement with the Authority for operation of the Airport and will transfer the Net Benefit of the transaction to the Authority. After termination of the Head Lease, the Owners will transfer title back to the Authority. Head Lessee A special purpose Delaware business trust created by and wholly owned by the Investor(the "Trust") will be the Head Lessee. The Head Lessee will also be the Sublessor under the Sublease. Sublessor The Trust. Sublessee The Owners. Equity Investor (To Be Determined) Investor Counsel (To be designated by Equity Investor.► Lender (AIG Financial Products Corp("AIGFP").) Lender's Counsel {White &Case.( Advisor/Placement Agent Merrill Lvnch&Co. Counsel to Authority/Owners O'Melveny&Myers Guarantor and Guarantor (The Guarantor and Guarantor Beneficary provide a structure that is Beneficiary bankruptcy remote as to the Owners. Whether this structure is required in light of a True Sale opinion from O'Melveny&Myers needs to be determined.) A special purpose,bankruptcy remote,not for profit entity(the"SPC")created for the benefit of the Owners or a non- Merrill Lynch 1 San Bernardino International Airport Lease/Lease Back Financing Summary of Terms and Conditions - 1/7Draft business trust affiliate thereof will act as a payment guarantor (the "Guarantor")of the Owners' payment obligations under the Sublease Agreement(the "Payment Guarantee"). Closing Date The Closing Date is expected to occur by April 16, 1998,but closing will not occur before all the Conditions to Closing are satisfied nor after June 30, 1998. Conditions to Closing Closing of the transaction will be conditioned upon: (i) approval by the Investor and any required committees thereof, (ii)satisfactory completion of due diligence, (iii) receipt of an appraisal from the Appraiser and tax opinion from Investor Counsel each satisfactory to the Investor in its sole discretion,(iv) receipt of insurance and environmental reports, each satisfactory to the Investor, (v) documentation satisfactory to Investor and Investor Counsel,(vi) customary material adverse change conditions, (vii) satisfactory survev of the Asset's boundaries, to the extent needed, (viii)evidence of title and other customary conditions for a transaction of this type,including no change or proposed change in tax or other applicable law or regulations having an adverse effect on Investor and(ix) receipt of satisfactory evidence of the Head Lessor's enforceability of the Operative Documents. Head Lease The Head Lessor will lease its interest in the Asset relating to approximately up to [$249] million,subject to the existing subleases, to the Head Lessee for a combined period equal to approximately 1401 years. The Head Lease will have an initial term of approximately 1201 years (the"Base Head Lease Term").The Head Lessee will have the option to renew the Head Lease at anv time on or before the end of the Base Head Lease Term for an additional term equal to approximately [201 years (the"Head Lease Renewal Term"). The length of the Base Head Lease Term and the Head Lease Renewal Term will be adjusted prior to Closing to the extent necessary so that the combined term is for a period calculated to be the shorter of(i)approximately (401 years or (ii)a period of time ending at a point when at least 20%of the appraised useful life and at least 20%of the uninflated fair market value of the Asset remains. Residual value and useful life will need to be determined for the Asset. Sublease The Sublessor will sublease the Asset back to the Owners, as Sublessee, for a Base Sublease Term equal to the Base Head Lease Term. The Sublessee will have an option to purchase the Sublessor's remaining Head Lease interest at the end of the Base Sublease Term for a fixed price("FPO") for the Asset. The FPO price will be fixed on the Closing Date and will exceed the currently estimated future fair market value t Merrill Lynch 2 San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions - 1/7 Draft (after giving effect to inflation)of the remaining Head Lease interest on the FPO date by at least 5%,as confirmed by the Appraisal. If the Sublessee elects not to exercise the FPO, then the Sublessor will have the option to require the Sublessee to renew the lease for a term equal to approximately (15} years(the"Sublease Renewal Term"). The Base Sublease Term when combined with the Sublease Renewal Term, will be for a period(calculated at the Closing Date,based on the Appraisal) equal to the shorter of: (i)approximately (35} years or(ii)a period of time ending at a point when at least 15%of the Head Lease life(including any renewal) and at least 209%of the uninflated fair market value of the Head Lease(including anv renewal) remain. Head Lessee's Prepayment Option The Head Lessee either on the Closing Date or on or before the 90th day after the Closing Date, will have the option(s) to prepay rent or portion thereof due during the Base Head Lease Term and the Head Lease Renewal Term. The Head Lessor will receive cash equal to at least the Net Present Value Benefit, the LOC Equity payment and the Sublessee's transaction costs on the Closing Date. Guarantor Capital Contribution and (Subject to need for existence of Guarantor}. The Owners will make Assignment of Rents payments to the Guarantor from a portion of the prepaid rent payments and from amounts received over time under the Head Lease in an amount at least sufficient to permit the Guarantor to make the required payments to the LOC (Equity and Loanj providers. Upon closing the transaction, the Owners will assign its right to receive rent payments as the Head Lessor under the Head Lease to the Guarantor. The Owners' obligation to make payments to the Guarantor will be limited to those amounts received under the Head Lease. For purposes of this transaction a non-consolidation opinion will be provided with regard to the Guarantor and the Owners. LOC Loan The Guarantor will enter into an agreement with a financial institution (the LOC Loan Provider) which may be an affiliate of, and its obligations under this Agreement will be guaranteed by, the Parent Company of the Lender,which has a credit rating of not less than AAA by S&P and Aaa by Moody's and is satisfactory to the Investor, the Owners and the Lender. Pursuant to the LOC Loan (of which there may be more than one LOC Loan), the LOC Loan Provider will agree to make draws upon the LOC Loan to pay the Sublessor, on behalf of the Guarantor and Owners, the Loan portion of the Sublease Rent due (including such amounts as are due by reason of an early termination of the sublease, including by reason of an Event of Default, including a bankruptcy default) and the Loan portion of the FPO. In order to purchase the LOC Loan,the Guarantor will be obligated to make payments at Closing and periodically equal to the principal amount of e Merrill Lynch 3 San Bernardino International Airport Lease/Lease Back Financing Summary of Terms and Conditions - 1/7 Draft the Loan(s) (see below), plus payment of an arm's length fee. The Guarantor's obligation to purchase the LOC Loan will be limited to amounts received as pre-paid and regularly scheduled rents under the Head Lease. Once an LOC Loan is purchased, the LOC Loan Provider will be unconditionally obligated to make such payment without set off or counterclaim and irrespective of any rights it(or the Lender) may have as the Lender. The Sublessee will be liable for the Sublease Rents if for any reason the LOC Loan Provider fails to make such payments. Neither the Guarantor nor the LOC Loan Provider shall be subrogated to any rights by reasons of making such payments. The Investor will require support for the separateness and arm's length nature of the Loan and the Lender Payment Assumption Agreement(i.e. the market appropriateness of the debt interest rate and the Lender Payment deposit rates) which is not to be provided by the Owners. LOC Equity The Guarantor will enter into an agreement with a financial institution (the LOC Equity Provider) which may be an affiliate of and its obligations under this Agreement will be guaranteed by the Parent Company of the Lender, which has a credit rating of not less than AAA by S&P and Aaa by Moody's and is satisfactory to the Investor, the Owners and the Lender. Pursuant to the LOC Equity, the LOC Equity Provider will agree to make draws upon the LOC Equity to pay the Sublessor on behalf of the Guarantor and Owners the Equity portion of the Sublease Rent Rentals(including such amounts as are due by reason of an early termination of the Sublease, including by reason of an Event of Default,including a bankruptcy default) and the equity portion of the FPO. To purchase the LOC Equity, the Guarantor and Owners will be obligated to make a payment at Closing equal to the present value of the Equity portion of the Sublease Rents and FPO discounted at the LOC Equity rate of{6.5%01(as may be adjusted based on a change in Pricing Assumptions) plus an arm's length fee. The LOC Equity Provider will be unconditionally obligated to make such payment without set off or counterclaim and irrespective of any rights it(or the Lender) may have as the Lender. The Sublessee will be liable for the Sublease Rentals if for any reason the LOC Equity Provider fails to make such payments. Neither the Guarantor nor the LOC Equity Provider shall be subrogated to any rights by reason of making such payments. The Investor will require support for the separateness and arm's length nature of the LOC Equity(i.e. the market appropriateness of the Equity Payment deposit rate) which is not to be provided by the Owners. Guarantor/Owners Substitution In the event that the LOC Loan or LOC Equity Provider(s) credit rating Rights falls to A+by S&P or Al by:vtoody's or below' , the Guarantor or the Owners will have the right and shall be obligated, if directed by the Owners or the Investor to request collateral be posted by the LOC Loan Merrill Lynch 4 San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions - 1/7 Draft or LOC Equity Provider, or substitute another qualified financial institution which has a credit rating of not less than AA by S&P and Aa2 by Moody's and is satisfactory to the Investor and the Owners. Additionally, upon transfer of the LOC Loan, the Sublessor shall use good faith efforts to seek to obtain a replacement loan for the benefit of the Sublessor from an affiliate of the"New LOC Loan Provider", the proceeds from which will be used to repay all outstanding principal balances plus any accrued and unpaid interest on the Loan. All fees and expenses associated with said transfers, inclusive of any costs associated with a differential in the rates upon refinancing, will be at the cost of the party electing the substitution. Loan The Lender will make a loan to the Head Lessee. The Loan will be non- recourse to the Investor and will be secured by an assignment of the Sublease(and the Sublease rentals payable thereunder) and the Head Lessee's interests under the Head Lease subject to usual exclusions. In addition, the Loan will be secured by an assignment of the Sublessor's security interest in the LOC Loan, but not the LOC Equity. MBIA Insurance of Owners MBIA will issue an insurance policy that will provide for payment of Obligations the amount in excess of amounts remaining in the LOC equity and LOC debt(The Additional Amount) to make Termination Payments due to an Event of Default by the Owners, Burdensome Buyout,Event of Loss or Early Termination. Appraisals Investor will receive an appraisal from Marshall and Stevens ("M&S") with respect to the Asset. M&S will address issues relevant to the assessment of items such as the following: i. the expected fair market value year-by-year and economic life of the Asset and the respective Leasehold'Interest; ii. that the terms and conditions of the Head Lease(taking into account the Head Lease Renewal Term) does not transfer ownership of each of the Asset to the Head Lessee (i.e., that at the end of the Head Lease the Asset will still have a significant value and remaining useful life); iii. that terms and conditions of the Sublease(taking into account the Sublease Renewal Term) do not transfer economic ownership of the Head Lease interest to the Sublessee (e.g., that at the end of the Sublease, the Head Lessee will be able to profitably use the Head Lease interest by finding another sublessee or by operating the IAsset itself); iv. that the Sublessee will not be economically compelled to pay the FPO amount and purchase the remaining -lead Lease interest at the end of the Sublease Term; 14 Merrill Lynch 5 San Bernardino International Airport Lease/Lease Back Financing Summary of Terms and Conditions - 1/7 Draft V. that the rents specified in the Sublease Renewal Term are expected to be less than 95%of the fair market value rents for the Asset after giving affect to inflation, that the Sublessor will not be economically compelled to exercise its Sublease Renewal Option with respect to any parcel,and that based on all facts and circumstances, it is not generally expected that the Sublessor would so exercise its Sublease Renewal Option;and vi. that the Sublease Rents do not exceed fair market rentals. The Investor may also require that the Appraisal support the income tax treatment of its deductions of the Head Lease Rent by concluding that the formula used to calculate the amount due upon a prepayment of any Head Lease Rent does not compel such prepayment,or by addressing similar matters. Material changes could affect the pricing and Net Present Value Benefit. Transaction Costs Transaction Costs will include,but not be limited to, the fees and expenses(including out-of-pocket expenses) of the Investor,Investor Counsel,Lender Counsel, the Head Lessor's Counsel, Equity and Loan Placement Agents("Agents"), Advisor,Investor's local counsel, trustee(s), title insurance, environmental consultant,engineer, insurance consultant, if any,surveys, if any,MBIA and the Appraiser. Transaction costs will be divided into costs appropriately borne by the Head Lessee(fees and expenses of the Investor,Investor Counsel, Lender Counsel,Investor's Local Counsel,Loan Placement Agent, Appraiser,environmental consultant,engineer, insurance consultant and the trustee) and those costs appropriately borne by the Head Lessor and the Sublessee(fees and expenses of the Head Lessor's Counsel, Advisor,title insurance,surveys,MBIA and the Guarantor if any). Transaction Costs will be paid by the party bearing such cost at Closing or within 90 days thereafter. If the Investor has assumed Transaction Costs in the pricing which exceed the amount of Transaction Costs to be so paid by the Investor, then such additional assumed Transaction Costs shall be paid over to the Head Lessor as rent within 30 days of Closing. In the event that the transaction does not close for any reason other than a breach by the Investor of its commitment, the Transaction Costs shall be borne by the Owners. Participation Agreement All parties to the transaction will enter into a Participation Agreement that sets forth each party's obligation to the others to proceed with the transaction,and the conditions that each party will require to be met before it will close the transaction. The Participation Agreement will also contain customary representations and warranties by the parties, 64n Merrill Lynch 6 San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions - 1/7Draft and other terms and conditions that affect all of the parties consistent with the terms hereof. Quiet Enjoyment and Maintenance The Sublessee will have the right to peaceably and quietly hold,possess and use the Asset during the Sublease Term free from interference by the Sublessor or those claiming by,through or for the Sublessor,but not otherwise,so long as no Event of Default by the Sublessee shall have occurred and be continuing under the Sublease. The Sublessee will maintain the Asset in as good a condition as when delivered,normal wear and tear excepted, in compliance with all applicable laws, regulations and insurance requirements. Insurance The Owners will be obligated under the Sublease to maintain insurance, and will look to the Authority, through the Operating Agreement, to cause to be carried and maintained,commercial all-risk property and casualty coverage, excluding earthquake coverage, in an amount deemed advisable by a qualified insurance consultant of the Authority and consistent with current insurance coverage. Modifications The Sublessee will have the right to make modifications, alterations or improvements to the Asset so long as such modifications, alterations or improvements do not impair the value, useful life, residual value or utility of the Asset. Subject to customary contest rights and materiality standards,the Sublessee will also have the obligation to make any modifications,alterations,or improvements to the parcels that are required by law or by any governmental Owners having jurisdiction over such parcel. Existing Leases and Sub-Subleases In addition to the existing leases or portions of the Asset, the Sublessee will have the right to enter into future sub-subleases for portions of the Asset. Net Sublease and Additional Rent The Sublease will be a"triple net"sublease(meaning the Sublessee will be fully responsible for and shall indemnify against all cost and expenses relating to ownership,use,lease,sublease, repair, maintenance,insurance and operation of the Asset) and the Sublessee will be obligated to pay all Sublease Rent payments unless the Sublease shall be terminated. The Sublessee will be required,subject to customary exclusions, to pay as Additional Rent,on an after tax basis, costs and expenses arising out of the operation,ownership, leasing, subleasing,maintenance or other activity with regard to the Asset. Payments to be made pursuant hereto are subject to certain limitations detailed below under"Pavments and Remedies in the Event of Abatement,Default and Early Termination". Merrill Lynch 7 San Bernardino International Airport Lease/Lease Back Financing Summary of Terms and Conditions — 1/7 Draft Payments&Remedies in the Event In accordance with the California general fund lease law,Sublease of Abatement, Default and Early payments shall be abated and payments shall not be made from the Termination Owners general fund in an amount greater than the fair rental value of the Asset after abatement of the Sublease due to damage,destruction, condemnation or title defect where there is substantial interference of use of the Asset or portion thereof by the Sublessee. In addition,in an Event of Loss, Burdensome Buvout or Early Termination, future Sublease payments due from the Owners'general fund may not be accelerated to pay the required Termination Value. Remedies available include the right of eviction, re-letting and the ability to sue for annual rent as long as the Sublessee has beneficial use of the subject parcel. Notwithstanding the foregoing, there shall be no abatement of the Sublease rents to the extent that insurance proceeds are available or to the extent the LOC Loan and LOC Equity payments are available to pay the Sublease rents which would otherwise be abated. Notwithstanding the foregoing, upon the occurrence of an Event of ' Default by the Sublessee or the Guarantor, Events of Loss, Burdensome Buvout or Early Termination, the Sublessee shall be obligated to pay the Termination Value, but only from amounts available from insurance or condemnation proceeds, or pursuant to the LOC Loan and LOC Equity. To the extent the amount of the required"Termination Value"is greater than such proceeds, the Sublease shall not be terminated and the Sublease rents shall be payable from any and all legally available funds and the Owners covenant to make appropriation therefor. In the event of non-payment or other default the remedies available include the right of eviction,re-letting and the ability to sue for annual rent as long as the Sublessee has the beneficial use of the Asset or portion thereof. Additional Rent Subject to customary exclusions (including the exclusion for income taxes which are discussed below) and contest rights, the Owners will pay, on an after-tax basis,as Additional Rent,sales tax, property taxes and other fees or taxes relating to use of any of the parcels or resulting from the transaction to the party upon which such taxes or fees are imposed (the Impaired Party). Provided however,no Additional Rent or other obligation of the Owners will be due for,among others,any taxes based upon net or gross income,net receipts,minimum tax, alternative minimum taxes,excess profit,capital, franchise,net worth, conduct of business of Investor or Head Lessee. Customary contest rights means, among other things, the absence as condition to contest of any admission of liability and any threshold amount of tax liability. Carve-outs from the payment of Additional Rent will include,among other things, without limitation: the gross negligence or willful misconduct of the Impaired Party, the inaccuracy or breach of certain specified representations, warranties or covenants of the Impaired Party Merrill Lynch 8 San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions - 1/7Draft and other carve-outs to be agreed upon in the Operative Documents. Carve outs shall also include the imposition of a federal sales tax or Value Added Tax that if such federal sales tax or VAT reduces the bargained for benefit of both the Owners and the Investor, the Owners and the Investor agree to negotiate to restructure the transaction to mitigate equally the harm to both parties. There shall not be any Additional Rent due in the event any capital changes or increases in capital charges are imposed on the Lender. Withholding Taxes The transaction will be structured so that no withholding taxes will be applicable under existing laws. The Owners agrees that, except as provided below, all payments of Rent and other payments, if any, payable to the Head Lessee, and all payments by the Head Lessee to the Trustee or the Lender,shall be free of all withholdings of any nature whatsoever on an after-tax basis,and in the event any withholding is required,and the Lender demands payment thereof,the Owners shall have the right to replace the Lender. If the Owners does not replace the Lender, the Sublessor shall have the right to terminate the Sublease. In such event the Sublessor shall advise the Owners of the amount necessary to make the Sublessor whole,and the Owners may at its option pay such amount, in which event the Sublease shall not terminate. If the Owners pays an amount to any Lender, the Head Lessee or the Investor for a withholding tax for which the Owners are not ultimately responsible under the Operative Documents, the responsible party for such withholding tax will reimburse the Owners therefor. If a tax of a withholding nature is imposed subsequent to the Closing Date, all parties shall negotiate to restructure the transaction so that such withholding tax is avoided or minimized but no party shall be required to agree to any provision that may be adverse to it or its affiliates. Provided further, the Lender shall assume a duty,on a best efforts basis, to relocate its affiliates to avoid the imposition of withholding taxes. If the cost of such withholding tax exceeds$2.5 million the Owners may purchase the Leasehold Interest by executing a Burdensome Buyout. Notwithstanding the foregoing, if a withholding tax is incurred by Ireason of a transfer by the Investor to another Investor or the Head Lessee to another trustee (in each case,other than while a Sublessee Event of Default has occurred and is continuing), the Investor shall be responsible for such withholding tax to the extent such tax exceeds the amount of any withholding tax that would have been imposed but for such transfer. S4 Merrill Lynch 9 San Bernardino International Airport Lease/Lease Back Financing Summary of Terms and Conditions - I/7Draft Possessory Interest Tax The transaction will be structured so that no possessory interest taxes will be applicable under existing laws. The Owners agrees that all payments of Rent or Additional Rent to the Sub-Lessor or the Lender, shall be free of all possessory interest tax of any nature whatsoever. In the event any possessory interest tax is required, the Owners shall pay to the Sub-Lessor or Lender(as Additional Rent under the Sublease Agreement),at the same time that such possessory interest tax payment is due and payable, an additional amount such that the net amount actually received by the person entitled to Rent or Additional Rent, will equal the amount then due absent such possessory interest tax. The Owners shall pay such possessory interest taxes, if any, as Additional Rent under the Sub-Lease. Failing that,if any Lender,Sub-Lessor or the Investor,as the case may be, does not waive the Owners' Additional Rent payment obligations, the Owners shall have the right to hold harmless the Sub-Lessor and other responsible parties with respect to such possessory interest tax in accordance with 'he foregoing and continue the transaction. In additional, if the cost of such possessory interest tax exceeds$2.5 million on a PV basis, the Owners will have the right to execute a Burdensome Buvout. Burdensome Buyout The Burdensome Buvout options allows the Owners to terminate the transaction in the event certain events cause the continuation of the transaction to become overly burdensome on the Owners. The Owners may purchase the Head Lessee's interest in the Head Lease by paving on any Rent payment date the relevant Burdensome Buyout Value if, among other reasons, (i) possessory interest tax shall be imposed on the Head Lessee giving rise to a payment obligation of$2.5 million or greater on a present value basis;(ii) it shall have become illegal for the Owners to continue the Sublease or for the Owners to make payments under the Sublease;and (iii) one or more events shall have occurred which are reasonably likely to give rise to an avoidable Additional Rent or Withholding Tax obligation in excess$2.5 million on a present value basis. For any buyout pursuant to clause (i) or(iii) hereof, the cost must be eliminated with the purchase and the Impaired Party must have the right to waive any additional rent in excess of$2.5 million on a present value basis and continue the transaction. The relevant Burdensome Buyout Value for events described in clauses (i) and (ii) above shall be the Termination Value and for events described in clause(iii) above shall be the greater of fair market value and Termination Value. The Owners shall also pay all Additional Rents and all costs and expenses covered by the Additional Rent associated with the exercise of its rights under this section. i Merrill Lynch 10 San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions - 1/7Draft Return of the Properties Upon any Sublessee Event of Default or other early termination of the Sublease Term, unless the Owners has purchased the Head Lessee's interest in the Head Lease,or if the fixed purchase option (FPO) under the Sublease is not exercised and the use of the Asset is transferred to the Head Lessee for the remaining term of the Head Lease, the Owners will be required to relinquish possession of the Asset. Upon return to the Owners, the Asset shall be in at least as valuable condition as it would have been in had it been maintained and repaired in compliance with the Sublease and the Asset shall be free and clear of all Liens other than Permitted Liens and other than the Lien of the Indenture. Right of Substitution At the Owners'option or in the Event of Loss due to condemnation or destruction the Asset may be substituted with like-kind property of at least equal value,utility,residual value at the end of the lease term and renewal term, remaining useful life and as supported by an independent appraisal reasonably acceptable to the Investor. The Owners shall pay all costs including without limitation any income tax costs incurred by reason of the exercise of its Right of Substitution. Transfer Restrictions Subject to certain objective restrictions to be agreed upon, the Investor may transfer all or part of its interest in the Trust to a transferee that has executed an agreement by which any transferee assumes the duties and obligations of the Investor under the Operative Documents. Early Termination If during the Sublease Term the Sublessee determines that the Asset is obsolete,surplus or uneconomic to the Sublessee's needs, the Sublessee will have the right to either(i) substitute a new Asset in accordance with the Right of Substitution or(ii) terminate the Sublease and pay the Head Lessee an amount equal to the required "Termination Value" for such date,subject however to certain limitations specified under "Payments and Remedies in the Event of Abatement, Default and Earlv Termination". Upon an Early Termination,Sublessee(as agent for the Head Lessee) will be responsible for the cash resale of the Head Lessee's interest to a third party unaffiliated with the Sublessee. The Sublessee will receive credit against its Termination Value obligation for the net proceeds received from disposition of the Head Lease pursuant to an Early Termination. Proceeds (net of expense of sale) in excess of Termination Value will be for the account of the Investor. The Head Lessee mav, at any time prior to the date of such termination,elect to retain the Head Lease interest, in which case the Sublessee will be relieved of its obligation to pay Termination Value. Upon payment of Termination Value, the Head Lessor will be required to sell its interest in the Asset as a condition to the Early Termination right. Termination Value will be calculated so as to be sufficient to repay the outstanding principal amount of the Loan plus accrued interest,and to �e i Merrill Lynch 11 San Bernardino International Airport Lease/Lease Back Financing Summary of Terms and Conditions - 1/7Draft provide for the recovery of the Investor's remaining investment and the preservation of the economic return expected by the Investor up to the date of termination in entering into the transaction and will be provided as an attachment to the Sublease. In the event of a termination funds available to pay the Termination Value under the LOC Loan will first be paid to the Lender until the Loan obligation is paid-in-full. Events of Loss Events of Loss with respect to the Asset will include any of the following events: (1) the parcel becoming destroved,or, in the reasonable good faith opinion of Sublessee,irreparably damaged or uneconomical to repair for any cause whatsoever,or(2)condemnation, confiscation or requisition for use of the Asset by any governmental authority or purported governmental authority for the lesser of(i)one year or(ii) a period anticipated to,or which actually does,extend beyond the Sublease Term. Upon the occurrence of an Event of Loss with respect to the Asset,the Guarantor will be required to either(i)pay to the Head Lessee the scheduled Termination Value, (ii)subject to customary conditions, rebuild and repair such parcel or(iii)substitute a new parcel of like- kind with at least equal value, utility, residual value,remaining useful life and a similar valuation curve. Any proceeds from the disposition of the Head Lease interest paid to the Head Lessee will be credited against such payment of Termination Value. Events of Default Events of Default under the Sublease will include the following: i. failure by the Sublessee/Guarantor to pay Sublease Rent, supplemental rent or other amounts due under the Sublease,within an agreed upon time period after such payment is due; ii. failure by Sublessee to perform any other covenant in the Sublease or Mead Lease in any material respect which shall continue unremedied for an agreed upon period; M. any representation(other than tax representations)shall prove to be incorrect in a material respect when made and the condition or circumstance with respect to which such representation was made shall remain material and uncured or uncorrected for an agreed upon time period; iv. bankruptcy or reorganization proceedings being commenced by the Sublessee, or being commenced against the Sublessee and not discharged or stayed within an agreed upon time period; V. Guarantor bankruptcy; and Merrill Lynch 12 San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions -1/7 Draft vi. failure of the Sublessee to maintain required insurance (with grace periods to be agreed upon). The remedies available to the Sublessor/Head Lessee upon the occurrence of a Sublease Event of Default shall include, without limitation, the right to have its interest in the Head Lease purchased by the Sublessee in an amount equal to the Termination Value,subject however to certain limitations specified under"Payments and Remedies in the Event of Abatement,Default and Early Termination". Other remedies available include, the right of eviction, re-letting and the ability to sue for annual rent as long as the Sublessee has beneficial use of the Asset. Head Lessee Events of Default Any events or actions of the Head Lessee or any third party claiming by, through or for the Head Lessee which shall materially impair the Sublessee's rights under the Sublease to the use and possession of the Asset,including any material risk of sale,loss or forfeiture. Additionallv, under the Head Lease in the event that the"optional" prepayments are not made to the Head Lessor,an Event of Default will occur if the Head Lessee has breached its obligation to make Head Lease Rent payments in a timely manner which remains unremedied for 30 days(or if the Investor or Head Lessee is diligently attempting to cure such breach and there is no material risk of the Sublessee defaulting under its obligations under the Sublease due to the delinquency of the Head Lease rents,within 180 days). Upon the occurrence of a Head Lessee Event of Default, following customary notice and cure periods,the Owners shall have the option to purchase the Sublessor's Head Lease interest for Special Termination Value. "Special Termination Value"shall equal to the current balances under the Equity and Lender Payment Agreements Lender and Head Lessee Security Interests Collateral and Lender and Head Collateral will include the"Leasehold Interest" in the Asset, the rights Lessee Security Interests under the LOC Equity and LOC Loan and any insurance or condemnation proceeds,to the extent permissible by law, upon an event of condemnation or destruction.The Lender will be granted a first priority security interest in the Head Lessee's interest in the Head Lease and the Sublease subject to standard excepted rights and payments. The Investor will be granted a first pledge of the all I amounts under the LOC Equity. The Head Lessee will be granted a pledge of all amounts under the LOC Loan and the Head Lessee will Irepledge such amounts to the Lender for the benefit of the Lender. IMarill Lynch 13 San Bernardino International Airport Lease/Lease Back Financing Summary of Terms and Conditions -1/7 Draft Sublease Assumptions The Owners will not make any representation,warranty or covenant with respect to any of the following assumptions. Except as expressly 1. Investor's Tax Benefit provided in the Sublease, the Owners will not make payments of Assumptions: Additional Rent nor will an Event of Default occur by reason of any of the below assumptions proving to be incorrect. The Investor's Net Economic Return will be determined by making the following assumptions for United States Federal and state income tax purposes("U.S.Tax Assumptions"): (a) The Head Lease and the Sublease will be treated as a "true lease", the Trustee will be treated as the lessee and the sublessor of the Asset and Owners will be treated as the lessor and the sublessee thereof; (b) The obligations evidenced by the Loan will constitute indebtedness of the Trustee,and the Investor will be entitled to current deductions for interest and premium(if any) paid or accrued on the Loan(the"Interest Deductions"); (c) The Investor's marginal tax rate is and will be[_%] in the taxable year's ending in 1997 and thereafter,and the Investor will always have sufficient taxable income to utilize the Interest Deductions,Amortization Deductions and the Rent Deductions(as defined below); (d) The Investor will be entitled to rental deductions under Section 162 of the Internal Revenue code of 1986 as amended(the"Code") with respect to the Head Lease Rent not prepaid in each taxable year of the Head Lease Term in the actual amount of Head Lease Rent allocated in accordance with the Head Lease (in advance or arrears, as the case may be) to the portion of the Head Lease period within such taxable year and the Head Lease Rent prepaid in the amount allocated to each period so prepaid; (e) The Investor will amortize: (i) its Transaction Expenses attributable to the Head Lease on a straight-line basis over the term of the Head Lease(the "Head Lease Expenses"); (ii) its Transaction Expenses attributable to the Sublease on a straight-line basis over the Sublease Term ("Sublease Expenses"); Merrill Lynch 14 San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions - 1/7 Draft (iii) the Transaction Expenses attributable to the Loan on a straight- line basis over the term of the Loan("Loan Expenses",such Head Lease,Sublease and Loan Expenses are, together, the "Amortization Deductions"); (f) neither the Head Lease nor the Sublease will be subject to application of Section 467(b)(2) of the Code or be a "disqualified leaseback or long-term agreement"subject to the Proposed Treasury Regulation promulgated under Section 467 of the Code; (g) the Asset has been or will be"placed in service"by Owners not later than the Closing Date; (h) the trust estate created for the benefit of the Investor w ill be treated as a grantor trust for U.S. Federal Tax purposes,and the Investor,as owner of the entire trust,will be entitled and required to take into account,in computing its taxable income,all items of income,gain, loss or deduction with respect to he Trustee's interest in the Head Lease; (i) the Investor is an accrual basis taxpayer with a calendar year end; (j) the Investor will not have any income by reason of entering into this transaction other than Sublease rent when scheduled, the FPO, Termination Values and payments specified to be made on an after- tax basis; and (k) anv other tax assumption used by the Investor in pricing the transaction as incorporated in the computer time share pricing file. 2. The Owners/Guarantor's The Owners and the Guarantor will make certain representations, Tax Representations, warranties and covenants in the Sublease with respect to the following: Warranties and Covenants: (a) All written information supplied by the Owners or the Guarantor to the Appraiser was accurate and complete as of the date given and the Closing Date; (b) During the Sublease Term, the Owners or the Guarantor will not take positions that are inconsistent with the Investor's U.S.Tax Assumptions other than certain permitted positions; (c) The Asset is not commercially useable only by the Sublessee; (d) The Asset is currently"in service" and does not require improvements to make it useful by the Owners; e Merrill Lynch 15 San Bernardino International Airport Lease/Lease Back Financing Summary of Terms and Conditions —1/7 Draft (e) Neither the Owners, the Guarantor, the SPC nor anv affiliate of either of the foregoing has or will(A) directly or indirectly acquire any interest in the Loan or make any loan to or deposit in or other arrangement with either the Lender or any party related to the Lender that funds the Lender or the Pavment Bank that, in anv such case,is related to the transaction contemplated by the Operative Documents, which loan,deposit or other arrangement directly or indirectly changes the rights or interests of the Lender or the Payment Bank under the Payment Undertaking Agreement(in each case except as described herein or otherwise pursuant to the Operative Documents)or(B) relinquish, waive, abrogate or allow to lapse any of its rights (other than rights to accelerate payment) under any loan,deposit or other arrangement with the Lender or any party related to the Lender that funds the Lender or the Payment Bank if doing so would directly or indirectly abrogate any rights to payment(other than to accelerate payment)either of the Lender or the Payment Bank under the Payment Undertaking Agreement(in each case,except as described herein or otherwise I pursuant to the Operative Documents); (f) On the Closing Date, there will not be any agreements,side letters,or other like arrangements not disclosed in writing to the Investor between the Owners,the Guarantor, the SPC or any entity controlled by either of the foregoing and any person pertaining to the exercise or non-exercise by the Owners of any purchase option under the Sublease or of any Burdensome Buyout provision or Early Termination provision,nor has the Owners adopted any resolution authorizing the exercise or non-exercise by the Owners of any Purchase Option or Burdensome Buvout or Early Termination Provision nor is the Owners required by law to exercise any of the Purchase Option, Burdensome Buyout or Early Termination provisions; Each of the items listed in(i) through (vii) below, if taken by the Owners without the Investor's consent and if the same causes the imposition of costs on the Investor,including without limitation anv income tax costs, will be a breach of the Sublease,giving the Investor the right to exercise lease remedies: (i)anv act or failure to act by the Owners that materially adversely affects the Investor as provided under the Operative Documents;(ii) the breach or inaccuracy of any of the Owners' representations, warranties or covenants;(iii) any replacement or substitution of all or any part of any of the Asset, (iv) modifications, alterations, additions or repairs not treated as permitted non-severable improvements{need to discuss this in light of many anticipated improvements at the airport};(v)damage to,destruction,condemnation or retirement of any of the parcels, (vi) prepayment of Sublease rent;or Merrill Lynch 16 San Bernardino International Airport Lease/Leaseback Financing Summary of Terms and Conditions - 1/7Draft (vii) default under the Head Lease,Sublease or Guarantee, if any. The Investor shall estimate the tax exposure and the Owners and the Guarantor may cure the default by providing for payment on an after- tax basis,for the amount of anv additional Federal income,state and local taxes that would be payable by the Investor as a result of certain events including but not limited to the loss of assumed tax benefits. 3. Contest Rights: If the Investor, receives written notice of any action against any affiliate by the IRS,which,if sustained, would cause a curable default, the Investor will promptly notify the Owners in writing and, if requested by the Owners, will contest such action by the IRS (including appeals) under certain conditions. Pricing Adjustment Pricing is based upon certain assumptions. There will be appropriate Head Lease and Sublease Rent Adjustments (up or down) prior to the Closing Date if the Sublessor determines that as of the Closing Date any of such assumptions inciuding,but not limited to, Lessor's Cost, Transaction Expenses,Assumed Tax Benefits,Depreciation Components, Interest Rate, Basic Lease Commencement Date are other than as assumed. In all cases the Rent Adjustment will be calculated to preserve Sublessor's after-tax rate of return and aggregate net after-tax cash flow (collectively, the Sublessor's"Anticipated Economics") and to maximize the net present value benefit to the Sublessee in a manner consistent with the original pricing assumptions. Pricing adjustments will also include adjustments to the Termination Value schedules computed on a basis consistent with that used originally in the calculation of Head Lease and Sublease Rent and Termination Values. Provided however,should such adjustments cause the net present value benefit(after payment of all transaction costs)of the transaction to fall below 4.30%, the Sublessee would have the option to terminate the transaction before closing by paying all transaction costs. All Pricing Adjustments will be subject to reasonable agreement. 64�Merrill Lynch 17 Public Finance Group Western Region Corporate and Institutional Client Group Two California Plaza 350 South Grand Avenue,Suite 2830 Merrill Lynch Los Angeles,California 90071 213 217 4500 FAX 213 217 4530 January I4, 1993 San Bernardino International Airport Authority 294 S.Leland Norton Way. Suite 1 San Bernardino, CA 92408 Dear Ladies and Gentlemen: Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") would be pleased to act as arranger, advisor and placement agent to the San Bernardino International Airport Authority (the "Authority") and to the sponsoring agencies (the County of San Bernardino and the Cities of San Bernardino,Colton and Loma Linda) to implement a tax oriented lease and leaseback or related financing of approximately $250 million on the Authority's airport assets (the "Transaction"). The Authority and Merrill Lvnch shall mutually agree upon the assets currently owned by the Authoritv that are eliuible and designated for the Transaction(the"Property"). As the Authority's advisor and placement agent. Merrill Lynch will assist the Autnority in, aniong other things, coordinating all aspects of the Transaction including structuring the head-lease and sub-lease, advising on lease funding and defeasance strategies, preparing a term sheet for the placement of equity and debt, finding equity and debt providers, evaluating bids, negotiating with all parties and closing the Transaction. In connection with our activities on behalf of the Authority, Merrill Lynch may assist the Authority in the preparation of a term sheet or brochures (the "Brochure') which will describe the Transaction and the various parties associated therewith, including the Authority, its operations. management and financial status, and will incorporate other relevant information furnished to Merrill Lynch by the Authority. It is understood that the Authority may also make available to potential investors certain additional information and data relating;to the Authority and the Transaction(the"Transaction Data"). The Authoritv recognizes and confirms that, in assisting in the preparation of any such Brochure, Merrill Lvnch will be using and relying on information and data furnished to Merrill Lynch by the Authority (the "Information") as well as information available from generally recognized public sources. The Authority further recognizes and confirms that Merrill Lynch does not assume responsibility for the accuracy and completeness of the Brochure, the Information, such public information or the Transaction Data. Merrill Lynch will not undertake to verify independently the contents of the Brochure, the Information, the Transaction Data or such public information, nor will Merrill Lynch make an appraisal of the Property or of any assets of the Authority. In particular, it is intended that Merrill Lynch may rely on any reports of the Authority's staff or advisors delivered to Merrill Lynch as well as the reports of any independent consultants retained by the Authority. Any such Brochure will be utilized in discussions with potential investors, and the form and contents of the Brochure will be approved by and shall be sole responsibility of the Authoritv. Merrill Lvnch agrees not to distribute anv written Information, Transaction Data or other written information to potential investors unless the same has been approved by the Authority. Merrill Lynch San Bernardino International A:rpor;Authority December 10, 1997 Page 2 If, during the period Merrill Lynch is retained by the Authority or within six months thereafter, the Authority completes a lease and leaseback or similar transaction or engages equity investors for the Property(i) with investors which Merrill Lynch identified to the Authority verbally or in writing, and (ii) with investors which the Authoritv or Merrill Lynch had discussions re,yarding an equity investment in such lease transaction, in any such case, Merrill Lynch shall be compensated with a fee for advisory and placement agent services of not to exceed 2.0 17c of the appraised value of the Property. including all legal and other expenses of Merrill Lynch, payable upon successful completion of the transaction only. Merrill Lynch will not be compensated in the event the Transaction fails to close. If the transaction closes. certain transaction expenses shall be born by the equity investor or the trustee on behalf of the equity investor and certain expenses will be borne by the Authority. However, the benefit to the Authority shall be net of all such expenses. Transaction expenses include the reasonable fees and expenses of(i) an appraiser, (ii) the trustee and its counsel, (iii) the lender and its counsel, (iv) the equity investor and its counsel(s), (v) the transaction counsel, (vi) placement agent fees for any debt and/or equity, (vii) the advisor. (viii) engineering and surveying fees. (ix) and certain other transaction expenses. If the transaction is not consummated as a result of the failure of the equity investor to negotiate in good faith, the equity investor shall pay its own fees and expenses, including its counsel fees. If the transaction is not consummated because of any other reason,the Transaction Expenses shall be born by the Authority. To the extent permitted by law, the Authority agrees to indemnify Merrill Lynch and its affiliates, and its and their respective directors, employees, agents and controlling persons (Merrill Lynch and each such person being an "Indemnified Party") from and against any and all losses,claims,damages, and liabilities, joint or several, to which such Indemnified Party may become subject under any applicable federal, state or foreign law, otherwise. related to or arising out of(i) any untrue statement or alleged untrue statement of a material fact contained in any information (whether oral or written) or documents, including without limitation any Brochure. Information, and the Transaction Data, in each case as furnished or made available by the Authority, directly or through Merrill Lynch, to potential investors or any of their representatives or the omission or the alleLed omission to state therein a material fact necessary in order to make the statements therein not misleading in the light of the circumstances under which they were made, or (ii) the engagement of and performance by Merrill Lynch pursuant to this agreement. The Authority also agrees to reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by the Authority, provided, however. that the Authority will not be liable under clause (ii), hereof to the extent that any loss, claim, damage, or liability is found in a final judgment by a court of competent jurisdiction, or by mutual consent a=reement between the Authority and Merrill Lynch. to have resulted from Merrill Lynch's or, with respect to an Indemnified Party, an Indemnified Party's willful misconduct or gross negligence in performing the services described above. The Authority also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Authority related to or arising out of the engagement of Merrill Lynch pursuant to, or the performance by Merrill Lynch of the services contemplated by. this agreement except to the extent that any loss, claim, damage or liability is found in a final judgment by a court of competent jurisdiction to have resulted from Merrill Lynch's or, with respect to an Indemnified Party, an Indemnified Party's willful misconduct or gross ne-livence. Merrill Lynch San Bernardino International Airport Authority December 10, 1997 Pate 3 If the indemnification of an Indemnified Party provided for in this letter agreement is for any reason held unenforceable although otherwise applicable in accordance with its terms or insufficient in respect of any losses, claims, damages and liabilities referred to therein, the Authority agrees to contribute to the losses, claims. damages and liabilities, as incurred, in proportion as is appropriate to reflect the relative benefits to the Authority, on the one hand, and Merrill Lvnch, on the other hand, of the transaction contemplated herein; provided. however, that no person guilty of fraudulent misrepresentation (within the meaning of I I(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Authority agrees that foe the purposes of this paragraph, the relative benefits to the Authority and to Merrill Lynch of the Transaction as contemplated herein shall be deemed to be in the same proportion that the total value received or contemplated to be received by the Authority as a result of or in connection with the Transaction as contemplated herein bears to the fees paid or to be paid to Merrill Lynch under this agreement. Promptly after receipt by the Authority or Merrill Lynch of notice of any claim or the commencement of any action or proceeding relating to the Transaction contemplated by this letter agreement, the party receiving such notice will notify the other party in writing of such claim or of the commencement of such action or proceeding;provided, however, that any failure to do so will not result in loss of indemnification hereunder. The Authority agrees that, without Merrill Lynch's prior written consent, which consent will not be unreasonably withheld, it will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification could be sought under the indemnification provisions of this letter agreement (whether or not Merrill Lynch or any Indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent includes an unconditional release of such other party and each Indemnified Party from all liability arising out of such claim,action or proceeding. Merrill Lynch agrees that, without the Authority's prior written consent, which consent will not be unreasonably withheld, it will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding; in respect of which indemnification could be sought under the indemnification provisions of this letter agreement (whether or not the Authority or any Indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent includes an unconditional release of such other party and each Indemnified Partv from all liability arising out of such claim,action or proceeding. In the event Merrill Lynch or any Indemnified Party is (i) required to appear as a witness in any action brou`cht by or a�cainst the Authority or any participant in a transaction covered hereby in which an Indemnified Party is not named as a defendant, or (ii) requested by the Authority to appear as a witness or to assist the Authority in the presentation of its position in any action brought by or against the Authority or any participant in a transaction covered hereby in which an Indemnified Party is not named as a defendant, the Authority agrees to reimburse Merrill Lynch for all expenses incurred by it in connection with such party preparing and appearing as a witness or in its assistance to the Authority for the preparation of the Authority's position. Merrill Lvnch agrees to keep all Intormation confidential except Information that (i) is or becomes generally available to the public(other than as a result of a disclosure by Merrill Lynch), (ii) was available Merrill Lynch San Bernardino International Airport Authority December 10, 1997 Page d to Merrill Lynch on a non-confidential basis prior to its disclosure by the Authority, (iii) becomes available to Merrill Lynch on a non-confidential basis from a person other than the Authority who, to the knowledge of Merrill Lynch, is not bound by a confidentiality agreement with the Authority or otherwise prohibited from transferring such information to Merrill Lynch. (iv) the Authority agrees may be disclosed or (v) Merrill Lynch is required by law, red=ulation, legal process or regulatory authority or requested by regulatory authority to disclose. No waiver, amendment or other modification of this letter agreement shall be effective unless in writing and signed by each party to be bound thereby. This agreement shall inure to the benefit of and be binding upon Merrill Lynch, any other Indemnified Party, the Authority. or any subsidiary or affiliate thereof. and their respective successors: this agreement and the conditions and provisions hereof being for the sole and exclusive benefit of such persons or entities and their respective successors and for the benefit of no other person or entity. No assignment of this agreement by either party will be effective without the written consent of the other party. Each of Merrill Lynch and the Authority(in its own behalf and, to the extent permitted by applicable law, on behalf of its shareholders or partners) waives all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) related to or arising out of the engagement of Merrill Lynch pursuant to, or the performance by Merrill Lynch of the services contemplated by, this letter agreement. The obligations of the parties hereunder will terminate on June 30, 1998, but may be extended by mutual agreement of the parties. This agreement and Merrill Lynch's rights and obligations hereunder may be terminated by the Authority for any reason upon 30 days' prior written notice to Merrill Lynch. This agreement and the Authority's rights and obligations hereunder may be terminated by Merrill Lynch for any reason upon 90 days' prior notice to the Authority. Notwithstanding any termination of this agreement as provided herein, the Authority understands and agrees that the provisions relating to the payment of expenses. indemnification (to the extent permitted by law), limitations on the liability of Indemnified Parties, contribution, settlements, choice of law and waiver of the right to trial by jury will survive any such termination. With regard to the fees described in this letter agreement, the Authority agrees to treat such information confidentially and take reasonable steps to insure such confidentiality is maintained, except where disclosure is required by law. All communications hereunder shall be in writing and if sent to;Merrill Lynch, shall be mailed, delivered, or telecopied and confirmed to Merrill Lynch at 5500 Sears Tower, 56th Floor, Chicago, Illinois 60606, telecopy number (312) 906-6343. Attention of Stephen R. Cotna. Managing Director, Municipal Finance Group (telephone number (312) 906-6349 for confirmation of receipt) or, if sent to the Authority, shall be mailed. delivered, telecopied or telegraphed and confirmed to it at the office of the Authority, , telecopy number , Attention _ (telephone number for confirmation of receipt). ki�,- Merrill Lynch San Bernardino International Airport Authority December 10, 1997 Page 5 This letter agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts executed and to be wholly performed therein. If you are in agreement with the foregoing, please sign all copies of this agreement retaining one copy for your tiles and returning the remaining copies to the undersigned. MERRILL LYNCH.PIERCE.FENNER g SMITH INCORPORATED By: Authorized Signatory Agreed and Accepted: THE AUTHORITY By: Name: Title: i i 1 FR0 SA30 & G=LEN CAiA?ASAS RED) I. T98 13: 14/27. 13: 13/N0. 4260609243 P 4 January 7th 1 9 9 8 Mr. William Bopf Executive Director San Bernardino international Airport Authority 294 South Leland Norton way Suite 1 San Bernardino, CA 92408 Re: Engagement, Conflict waiver and Relationship Matters Dear 2&.. Bep f we are pleased to have the opportunity to serve as attorneys for the San Bs,. rdino International Airport Authority (the "Authority") . Our firm is committed to providing efficient and 'responsive legal servicas to our clients in a professional relationship based on mutual trust, confidentiality, and prompt and candid communication. In that spirit, this letter sets f orth our agreement with the Authority regarding the firms billing practices and related representation and conflict of interact matters. We will be representing the Authority at the present time only as to certain matters relating to the lease and lease-back of certain property controlled by the Authority (the "Subject Hatter") _ We have not been asked to represent the Authority in other legal matters at this time. The Authority nay limit or expand the scope of our representation from time to time, but there Should be a clear mutual understanding as to any substantial expansion. our firm represents eery other companies and individuals other than the Authority. It is possible that during the time we are representing the Authority, some of our present cr future clients will have disputes or transactions with or involving the Authority. Because our representation of the Authority is limited in scope to the subject Mattes; we wish to clarify the extent to which our present representation may affect our ability to represent other existing or future clients in other legal matters. In a separate legal matter not involving tt'ze Authority, we may be asked to represent a client that has an interest that is adverse to the Authority in our present representation. For example, we currently represent AIG Financial Products Corp. in a variety of matters not involving the Authority. We understand that AIG -��oi�s.vl of/ociya 20*d Tki7 CFn GY___ 's .W-a)_Ew 10 ZZ:z 6 e661-L,0-ter FROM SABO & GREEN CALA?ASAS (WED) 1. 7' 98 13: 15/ST. 13: :: NO. 4260609243 P 5 Financial Products Corp. is likely to be a party to the transaction to which this letter relates. Alternatively, we may be asked to represent another client in a legal natter unralatad to our present representation of the Authority, but with respect 'ta....which the Authority is an adverse party. For example, we regularly represent.. certain airlines such as United Airlines, USAir and others one or more of which might seek contractual relationships with the Authority in the future. As a condition of our undertaking this matter, the Authority agrees that we may continue to represent, or may in' the future represent, AIG Financial Products Corp. and any airlines in any matter that is not substantially related to our work for the Authority in the Subject Hatter, even if those,clients, interests are adverse to the Authority. By executing this letter and consenting to the arrangements described in it, the Authority will be era±ving any conflict of interest that might arisa in such a situation and agreeing not to seek to disqualify us in those engagements or assert a conflict. For matters not covered' by this letter,. we would not undertake any representation of a client whose interests are adverse to those of the Authority in a matter substantially related to the Subject Matte: except with the written consent of the Authority or otherwise as contemplated by applicable ethical principles. 2sA the Authority knows, we may be jointly representing the County of San Bernardino, the City of San Barnazdino, the City of Loma Linda and/or the City of Colton and -the Authority in this matter. Based upon the information available to us at this tine, we do not believe that representing such parties involves an actual conflict of interest. Hownvar, a conflict of interest may develop if the parties, interests become inconsistent or adverse. If that occurs, wQ will promptly tell the Authority about any such conflict. Multiple representation can be both efficient and effec- tive. However, it involves risks the Authority should assess in deciding whether to engage us at this time. First, our responsi- bilities must apply equally to our joint clients, rather 'than exclusively to one client. Although ve do not presently see actual or reasonably foreseeable adverse affects of that shared responsi- bility, issues may arise that affect multiple clients in somewhat different ways. For example, if one of our joint clients asserts a claim against the other, or our joint clients give us conflicting instructions, we may be required to withdraw from representing one or more of then. Therefore, it is important to understand that our Joint client responsibilities may directly or indirectly affect our ability to focus exclusively on the Authority's interests and may be materially limited by our representation of these other joint clients. In addition, during the course of our common represen- tation of the Authority and such other parties, as well as after L11-770135.41 01/OG/9i ' �e•d IV-1 do StEAW 2 MBn2?w,a zr:z. e66i-4Z-ri:�r FROM SABO G BEN CA?A:_!iASAS (WED) 1. 7' 98 13: 15/ST. l;: SM. 426,0609243 P 6 such common representation, any information you share with us will not be kept confidential from such other partias. In short, the attorney-client privilege generally will not protect communications that take place among our joint. clients and us. - This means that anything tha Authority discloses to us may be disclosed 'to any other jointly-represented client. Finally, the Authority should be aware that this information could be used by such other partias against the Authority if a conflict of interest ever arises. The Authority should also understand that, if a dispute or conflict of interest develops between such other parties 'and the Authority, it is possible that we may be disqualified from Continuing to represent such other parties and the authority c jointly. In that event, separate counsel may be -reuired. . For services rendrstd hereunder, we shall be paid a fee of $650,000 exclusive of expenses, provided however that if the transaction is not consusmaated for any reason, we shall be compensated at a rate of $285 per hour for all attorney hours and $95 per hour for all legal assistant hours, exclusive of expanses. This faa is based upon the assumption that the transaction will close on or before May 31, 1998, and dogs not include litigation services, If any is required. if the closing is delayed past May 31, 1998, ore will agree on such additional compensation, if any, as may be appropriate. We will send tine Authority on a quarterly basis commencing in May 1998 a statement for progress payments for our legal fees and expenses On the Authority's behalf. our fees are determined on the understanding that the Authority Will pay our statements within 30 days and I urge the Authority to call' ma at any time it has a question regarding any of our statements. These quarterly progress payments will be calculated on the basis of the hourly rates set forth above. Amounts paid pursuant to such statements will be creditad against the total amount that may become due her®under. As far as expenses are concerned, we charge for tzavel (airfare, lodging, meals, and other incidentals) , database searches, secretarial overtime when required by the urgency of a ' client's matter, long distance telephone calls, special deliveries, and other similar items. All such charges are billed at or below our estimated costs. We also charge for duplicating and facsimile transmission. These items are currently balled at $. 15 and $1.25 per page, respectively. Our schedule of charges changes from timQ to time to reflect inflation and other factors. Those" changes apply prospectively to all mattars than bring handled by the firm. our engagement, eopfliat and billing practices reflect o= desire to deal fairly with our clients in this as in all other aspects of our relationship. We welcome the, opportunity to be retained by the Authority, and, assuming this letter is acceptabla s.u-�7o135.v1 of/cr/9� S8'd ttf l d-M s.lW I ANa)1L=;W.❑ I FROM SABO & GREEN CALABASAS (WED) I. T98 13:16/ST. 13: 13/N0. 4260609243 P 7 to the Authority, we look forward to providing our services to the Authority on a basis that is mntually satisfactory. If the terms of this engagement and related :contlict waivers ara acceptable to the Authority and reflect its urtderstanding and agreement, please have the appropriate authorized. officer sign and return the enclosed extra copy of this lettero Very truly yours, Of O'MELVENY & MYERS LLP I' ACCEPTED AND AGREED WITH CONSENTS AND WAIVERS GRANTED: 'SAN BErWARDINO AIRPORT AUTHORITY By Its i _ L7►1-�01]5.�I1 of/oc/et raq cm1 Ski 7 AN-211-13W.0 :z 8661-rya-tJtir TO: San Bernardino International Airport Authority Commission FROM: James H. Monger,Airport Director DATE: January 14, 1998 SUBJECT: RETAIN INVESTMENT BANKING FIRM AND SPECIAIL LEASE COUNSEL RECOMMENDED ACTION: Motion to approve the retaining of Merrill Lynch and O'Melveny and Myers and authorize the preparation of appropriate agreements by SBIAA staff and legal counsel and authorize the execution thereof by the President and Secretary of the SBIAA. BACKGROUND AND COMMENTS: Please see attached report from Agency Counsel, Tim Sabo. sbiaa\agenda\01 1498\bwk.doc ITEM NO. 21 STAFF REPORT r r TO: San Bernardino International Airport Authority FROM: Sabo & Green, a Professional Corporation DATE: January 14, 1998 RE: Retain Investment Banking Firm and Special Lease Counsel BACKGROUND: SBIAA staff and legal counsel have been working with representatives of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and the law firm of O'Melveny & Myers since February 1996 in connection with the proposed Lease and Leaseback financing. It is intended that the SBIAA financing be modeled after the same form of financing that was successfully undertaken by the County of San Bernardino and completed in May 1997 . Merrill Lynch was retained by the County of San Bernardino to serve as the financial advisor and placement agent responsible for coordinating all aspects of the financing and for assembling the participants for the financing which includes the municipal bond insurance company, investment agreement providers, appraisers and other attorneys . Additionally, Merrill Lynch would be responsible for structuring the cash flows of the leases, advising the SBIAA as to the other financial aspects of the financing and obtaining and negotiating with the equity investor for the placement of the lease and financing documents . The fees of Merrill Lynch would not exceed 20 of the value of the asset leased to the equity investor and payment of such fees would be contingent upon the successful closing of the Lease and Leaseback financing. The proposed agreement with Merrill Lynch would terminate on June 30, 1998, and could be terminated earlier by the SBIAA for any reason upon 30 days' prior written notice . The law firm of O'Melveny & Myers was previously retained by the County of San Bernardino to serve as special lease financing counsel to the County for the previous Lease and Leaseback financing as completed by the County. O'Melveny & Myers will be responsible for drafting of all leasing documents, reviewing of SBIA\0001\DOC\301 1\13\98 10:18 km California real estate matters and providing the necessary federal income tax opinions in connection with the tax advantages to be derived by the equity investor from this form of financing . The legal fees are based upon an hourly rate in the event the financing does not close for any reason whatsoever, and the legal fees, exclusive of reimbursable expenses, shall be equal to $650, 000 only upon the successful closing of the financing. O'Melveny & Myers also has requested that said law firm would be able to continue to represent certain other clients in matters that could possibly be adverse to the SBIAA but not in a matter that is substantially related to the Lease and Leaseback financing. The proposals from both firms are substantially similar to those as were previously approved by the County of San Bernardino in connection with the financing as undertaken by the County in May, 1997 . The fees that are payable to these firms and the other attorneys and consultants to the various parties will be paid from the gross available proceeds of the financing. The $10M to $15M amounts that have been quoted as potentially being available to the SBIAA from this financing has always been considered as a dollar figure that is net of all costs of the transaction including the Merrill Lynch fees and the O'Melveny & Myers legal fees . ACTION: Motion to approve the retaining of Merrill Lynch and O' Melveny & Myers and authorize the preparation of appropriate agreements by SBIAA staff and legal counsel and authorize the execution thereof by the President and Secretary of the SBIAA. SBIA\0001\DOC\301 1\13\98 10:18 km -2- TO: San Bernardino International Airport Authority Commission FROM: William L. Bopf, Executive Director DATE: January 28, 1998 SUBJECT: DIRECT STAFF TO CONVaIENCE THE PREPARATION AND DISTRIBUTION OF A RESTATED AND AMENDED JOINT EXERCISE OF POWERS AGREEMENT TO CONFIRM THE MEMBERSHIP AND VOTING STRUCTURE OF THE SBIAA (CONTINUED FROM JANUARY 14, 1998 MEETING) RECOMMENDED ACTION: Direct staff to commence the preparation and distribution for review and approval by the Board of Supervisors and the City Councils of the Cities of Colton, Loma Linda and San Bernardino of a Restated and Amended Joint Exercise of Powers Agreement including the same title of officers, voting structure and appointment of individuals as exists for the Inland Valley Development Agency. BACKGROUND AND COMMENTS: At the Board Meeting of January 14, 1998, the City of Highland was granted a two-week extension to confirm their membership in the Airport Authority. After the City of Highland advises whether or not they will remain a member of the Airport Authority, Mr. Tim Sabo, Agency Attorney, will prepare either an amendment to the Joint Exercise of Powers Agreement to include the same title of officers, voting structure and appointment of individuals as exists for the Inland Valley Development Agency or an action for each City Council and the Board of Supervisors to ratify the continued membership of the City of Highland in the Airport Authority. I I- sbi aa\ag=da\012898\member.doc ITEM No. 21 STAFF REPORT TO: San Bernardino International Airport Authority FROM: Sabo & Green, a Professional Corporation DATE: January 14, 1998 RE: Approval to Commence the Preparation and Distribution of a Restated and Amended Joint Exercise of Powers Agreement to Confirm the Membership and Voting Structure of the SBIAA BACKGROUND: The proposed Lease and Leaseback financing will require the Board of Supervisors and the City Councils for the Cities of Colton, Loma Linda and San Bernardino to re-adopt the Joint Exercise of Powers Agreement that initially established the SBIAA in 1992 . This proposed action will enable the members of the financing team for the Lease and Leaseback financing to have access to a single legal document that confirms the current membership of the SBIAA. This is especially important since the departure of the Cities of Highland and Redlands from the SBIAA membership. The SBIAA is presented with an opportunity to restructure the voting membership and individual participation within the SBIAA to be identical with that of the IVDA while at the same time accomplishing the restructuring of the SBIAA. It is proposed that the officers, official duties and responsibilities and the appointment of the individuals serving on both the IVDA and SBIAA be virtually identical for further streamlining the administrative functions of the IVDA and the SBIAA. This proposal would also require that the individuals appointed by the Board of Supervisors and each City Council to the SBIAA would be the same individuals who are appointed to the IVDA. Even though the previous Settlement Agreement entered into by the IVDA in 1992 with the Cities of Highland and Redlands and the East Valley Association remains in effect, such restructuring of the SBIAA by adopting the Restated and Amended Joint Exercise of Powers Agreement is not intended to in any manner violate the provisions of the Settlement Agreement . The proposed restructuring of the governing body of the SBIAA together with the previous actions of both the SBIAA and the IVDA to consolidate SBIA\0001\D0C\299 1\13\98 10:22 km sta f=ing functions and adopt a single organizational structure will provide further efficiencies to the local reuse efforts for the former NAFB properties whether the property in question is controlled by the SBIP.A or the IVDA. The IVDA and the SBIAA will retain their unique legal existence and identities as separate and distinct joint powers authorities . It is the intent of SBIAA staff to carefully distincuish the redevelopment and tax increment revenue powers of the IVDA from the aviation and Airport ownership functions of the SBI�.A. This is necessary for maintaining the integri=y of the IVDA and SBIAA in furtherance of the federally approved transfers of the Airport by the FAA to the SBIAA and the transfer of the Palm Meadows Golf Course and the Economic Development Conveyance properties from the Air Force to the IVDA. ACTION: Motion to direct staff to commence preparation and distribution for review and approval by the Board of Supervisors and the City Councils of the Cities of Colton, Loma Linda and San Bernardino of a Restated and Amended Joint Exercise of Powers Agreement including the same title of officers, voting structure and appointment of individuals as exists for the Inland Valley Development Agency. SB1A\0001\DOC\299 1\13\98 10:22 km -2� 7 RECORDING REQUESTED BY ) Drl i:'U 9CT San Bernardino International ) 3/24/98 Airport Authority ) AND WHEN RECORDED MAIL TO: ) 294 South Leland Norton Way ) Suite 1 ) San Bernardino, California 92408 ) Attn: Executive Director ) (Space Above for Use By Recorder) [Recordation of this instrument is exempt from fees under Government Code Section 6103 -- and -- No documentary transfer tax is payable under the exemption of Revenue and Taxation Code Section 11922] INDENTURE AND QUITCLAIM DEED [A-1] THIS INDENTURE AND QUITCLAIM DEED (the "Deed") is dated as of , 1998 . The parties to the Deed are the UNITED STATES OF AMERICA, acting by and through the Secretary of the Air Force (herein the "UNITED STATES") and the San Bernardino International Airport Authority, a joint powers authority established under the laws of the State of California (herein the "GRANTEE") . PART I Common Terms and References I The text of this Deed is organized for purposes of reference and convenience into six (6) general divisions or "PARTS" and the ( ) exhibits attached to the Deed. Each of the PARTS is labeled as follows: "PART I Common Terms and References;" "PART II Quitclaim of Title of the UNITED STATES in the Property to the GRANTEE Subject to Certain Exceptions and Reservations of Easements in Favor of the UNITED STATES;" SBIA/0001/DOC/311 -- -- SBIAA Draft: 3/24/98 1 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] "PART III Use of the Property for Airport Purposes and Power of Termination ' and Right of Reentry of the UNITED STATES in the Event That After the Date of this Deed the Property or A Portion Thereof, Is Not Used For Airport Purposes or the Landing Area Is Not Maintained For The Use and Benefit of the Public;" "PART IV CERCLA Notices and Covenants of the UNITED STATES Relating to Hazardous Substances and Description of Remedial Actions;" "PART V Covenants Which Benefit and Burden the Property and Which Shall Run With the Land and Which Are Established By the UNITED STATES and the GRANTEE Upon Acceptance of the Deed by the GRANTEE; " and "PART VI Miscellaneous Provisions of the Deed." I [A-8] All of the real property transferred to the GRANTEE by this Deed has heretofore been declared surplus to the needs of the UNITED STATES and as of the date of this Deed is under the jurisdiction of the Department of the Air Force, and all of the real property transferred to the GRANTEE by this Deed is available and has been authorized for disposal by the Secretary of the Air Force, acting pursuant to the powers and authority of the Defense Base Closure and Realignment Act of 1990, as amended (See: 10 U.S.C. Section 2687 note) , the Federal Property and Administrative Services Act of 1949, as amended (40 U.S.C. Section 484) and the rules, orders, and regulations issued pursuant to those statutes. Certain words and phrases as found in this Deed are used in the context of a defined term or phrase. In general, the usage of a defined term or phrase in the text of this Deed is denoted by an initially capitalized first letter. Several defined terms or phrases which are used frequently in the various parts of this Deed are presented below for ease of reference: SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 2 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] • "Administrator" refers to the Administrator of the Federal Aviation Administration or such other officer of the FAA or other person designated by the Administrator of the Federal Aviation Administration to perform administrative or ministerial duties of the Administration with respect to the enforcement of the provisions of this Deed (and each successor in function to the Administrator of the Federal Aviation Administration) . (FROM A-11] "Airport" refers to all of the land, buildings, structures, improvements, and equipment transferred by the UNITED STATES to the GRANTEE on the date of this Deed under PART II of this Deed and all of the modifications, improvements, replacements, reconstructions and demolitions to any of these as well as the construction and installation of new improvements and new structures at the Airport which may be undertaken by the GRANTEE at any time after the date of the Deed. • "Airport Layout Plan" refers to that certain airport layout plan, dated December 18, 1995, which has been prepared by the SBIAA and approved and accepted by the Administrator for the Airport, together with all amendments and modifications to the Airport Layout Plan which may be prepared by the SBIAA and approved by the Administrator after the date of this Deed. • "Airport Purposes" refers to the use of the Property by the GRANTEE for public airport operations, including without limitation: (i) for clear zones, navigation aides, runways, taxiways, aprons and other aircraft movement areas; (ii) for activities directly supporting flight operations (e.g. , aircraft maintenance, fueling, and servicing; mail, passenger, and cargo processing facilities; communications and air traffic control; airport fire fighting and rescue) ; (iii) maintenance for facilities for services that enhance the utility or convenience of the aeronautical services (e.g. , facilities to provide food, shelter, surplus transportation, or motor vehicle parking) ; and (iv) for the production of sources of revenues to sustain the public and governmental functions of GRANTEE at the Airport SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 3 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] from non-aviation businesses, including the lease of land or land and buildings, to non-aviation civilian commercial retail or industrial uses and occupancies. • "Amended Application" refers to the application of the SBIAA, dated January 18, 1994, submitted to the Department of the Air Force pursuant to Section 13 (g) of the Surplus Property Act of 1944, as amended (40 U.S.C. Section 741, et sea. ) relating to portions of the former Norton Air Force Base. • "CBA OU" refers to a program of environmental investigation, response and remediation undertaken by the UNITED STATES through the Air Force at the Airport (and other lands) as more fully described in the November 1993 Central Base Area Operable Unit Record of Decision , together with all supplements and amendments thereto (the "CBA OU ROD") . A copy of the CBA OU ROD is on file and is available for inspection as a public record during regular business hours of the Clerk of the Board of the San Bernardino International Airport Authority. • "CERCLA" refers to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. • "Exclusive Right" refers to each and every use of the Airport which use is forbidden by the provisions of 49 United States Code Section 47107 (a) (4) , as amended. As of the date of this Deed 49 United States Code Section 47107 (a) (4) Iprovides in relevant part as follows: " (4) a person providing, or intending to provide, aeronautical services to the public will not be given an exclusive right to use the airport, with a right given to only one fixed-base operator to provide services at an airport deemed not to be an exclusive right if - (A) the right would be unreasonably costly, burdensome, or impractical for more than one fixed-base operator to provide the services; and SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 4 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] (B) allowing more than one fixed-base operator to provide the services would require reducing the space leased under an existing agreement between the one fixed-base operator and the airport owner or operator;" • "FAA" refers to the Federal Aviation Administration. The UNITED STATES may act through the Administrator of the FAA or such other officer of the FAA or other person designated by the Administrator of the FAA (and each of the successors in function to the Administrator of the FAA) to enforce, implement or administer various provisions of this Deed for the UNITED STATES as set forth under PART III through PART VI, below. • "Federal Facilities Agreement" refers to the document entitled A copy of the Federal Facilities Agreement is on file and is available for inspection as a public record during the regular business hours of the Clerk of the Board of the San Bernardino International Airport Authority. • "FOST" refers to the document entitled "Finding of Suitability to Transfer", dated October 1997. A copy of the FOST is on file and is available for inspection as a public record during regular business hours of the Clerk of the Board of the San Bernardino International Airport Authority. • "GRANTEE" refers to the San Bernardino International Airport Authority, a joint powers authority established under the laws of the State of California, and each successor or assign of the GRANTEE in the Property or in any portion of the Property. • "Landing Area" refers to a portion of the Airport on the Property which corresponds with the meaning of the term "landing area" found in 49 United States Code Section 40102 (a) (28) , as amended and FAA regulations pertaining thereto. In general, as of the date of this Deed, the Landing Area of the Airport is situated within the area of the Property shown as SBIAA Record of Survey Parcel "A." SBIA/0001/DOC/311 SBIAA Draft: 3/24798 5 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] • "Property" refers to the fee interest in the land and improvements thereon, together with the easements, including all avigation easements, mineral rights and other rights appurtenant or benefiting such land as transferred by the UNITED STATES to the GRANTEE on the date of this Deed under PART II of this Deed. • "Reserved Interest Area" refers to and includes certain lands of the UNITED STATES which are excepted from conveyance under this Deed and refers to the reserved easements of the UNITED STATES, all as noted in the legal description of the Property attached to this Deed as Exhibit "A". • "SBIA.A" refers to the San Bernardino International Airport Authority, a joint powers authority established under the laws of the State of California, and to the successors and assigns of the SBIAA. The SBIAA is also referred to in this Deed as the GRANTEE. • "SBIAA Record of Survey" refers to San Bernardino County Office of the Recorder Record of Survey No. 97-0077 on file as an official land record at Book Pages through , inclusive of Records of Survey. The SBIAA Record of Survey has been prepared by the GRANTEE for the purpose of facilitating the cross-reference between the legal description of the Property transferred by the UNITED STATES to the GRANTEE under this Deed with the descriptions of various parts or potions of the Property and certain structures and facilities located therein in relation to the description of lands and facilities on the former Norton Air Force Base as found in various reports and documents prepared by the UNITED STATES which predate this Deed, including without limitation, the Amended Application, the Related Lease, and the FOST. The SBIPA Record of Survey depicts the general location of various buildings and structures which prior to the date of this Deed have been assigned identification numbers by the Air Force (e.g. , "Building #575" or "Air Force Tract No 119 off-base Instrument Landing System Middle Marker, " etc. , in relation to the legal description of the Property contained in Exhibit "A" of this Deed. SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 6 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] • "SBIAA Record of Survey Parcel A through Parcel B-4, inclusive, refers to certain portions or subareas of the Property which are delineated in the SBIAA Record of Survey by the label of "Parcel A, " or "Parcel B-1, " for purposes of cross- reference, between the legal description of the Property contained in this Deed with the description of the lard or facilities on the former Norton Air Force Base. It is noted that in several documents prepared by the UNITED STATES which predate this Deed, including without limitation, the Amended Application, the CBA OU ROD, the Federal Facilities Agreement and the FOST, specific areas of the Property are identified or referred to as "Parcel A" or "Parcel B" or "Parcel B-4, " etc. PART II Quitclaim of Title of the UNITED STATES in the Property to the GRANTEE Subject to Certain Exceptions and Reservation of Easements in Favor of the UNITED STATES [A-2] , [A-3] , Subject to the matters of record and all existing [A-4] , [A-5] occupancies on the date of this Deed, the UNITED [A-9] STATES hereby remises, releases, and quitclaims to GRANTEE all of the right, title and interest of the UNITED STATES in and to the Property situated in the City of San Bernardino, County of San Bernardino in the State of California which comprises a portion of the lands formerly known as Norton Air Force Base and which is more particularly described in the ( ) page metes-and-bounds legal description of the Property attached to this Deed as Exhibit "A", upon the conditions, and subject to the exceptions, and the reservations of easements in favor of the UNITED STATES described in the next five (5) paragraphs of this PART II . [A-9] , [A-10] The transfer of the Property to the GRANTEE under this Deed is subject to the exceptions of certain lands of the UNITED STATES identified in Exhibit "A" as land excepted from the legal description of the Property. These excepted lands of the UNITED STATES are adjacent or contiguous to the Property. SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 7 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] The transfer of the Property to the GRANTEE under this Deed is also subject to reservations in favor of the UNITED STATES of certain appurtenant easements and interests in the Property which are set forth in the legal description of the Property in Exhibit "A", including without limitation, easements of ingress and egress across or upon the Property for use by the UNITED STATES and its assigns for the benefit of the lands excepted from this Deed, or owned or used by the UNITED STATES. The transfer of the Property to the GRANTEE under this Deed is further subject to the reservation of a perpetual right of entry and access upon and across all areas of the Property in favor of the UNITED STATES, its assigns and the licensees of the UNITED STATES, including as licensees of the UNITED STATES on the date of this Deed the United States Environmental Protection Agency and the State of California Board of Toxic Substance Control and the respective officers, agents, employees, and contractors of each of them, for the purpose of conducting or facilitating environmental investigation, response remediation, or other corrective action to be performed after the date of this Deed by or on behalf of the UNITED STATES pursuant to the CBA OU ROD. Such perpetual right of entry and access reserved by the UNITED STATES on and across the Property shall include to the extent permitted by law the right to construct, install, operate, maintain, renew and remove groundwater monitoring wells, pumping wells and groundwater wellhead treatment facilities and pipelines, together with utility services necessary to operate any of these on, above or under the Property for use by the UNITED STATES in support of environmental response action, remedial action, or other corrective action as may hereafter be found necessary on the Property or on lands of the UNITED STATES excepted from the Property or on adjoining lands after the date of the Deed. The exercise of the perpetual right of entry and access reserved to the UNITED STATES shall be subject to appropriate prior notice and reasonable accommodation of the use, occupancy and improvement of the Property by the GRANTEE for Airport Purposes . SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 8 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] The transfer of the Property to the GRANTEE under this Deed is further subject to the exercise by the Administrator after the date of this Deed of the power of termination and right of reentry upon and to the Property to enforce certain public interests of the UNITED STATES set forth in PART III of this Deed. PART III IUse of the Property for Airport Purposes and Power of Termination and Right of Reentry of the UNITED STATES in the Event that After the Date of This Deed, the Property, or A Portion Thereof, Is Not Used For Airport Purposes or the Landing Area Is Not Maintained for the Use and Benefit of the Public [A-11] (1) Except as provided in PART V(3) of this Deed, [A-6] the Property shall be used for Airport Purposes for use and benefit of the public by the GRANTEE on reasonable terms and without unjust discrimination, without grant or exercise by the GRANTEE of any Exclusive Right. [A-12] (2) Except as provided in PART V(3) of this Deed, the Landing Area shall be maintained for the use and benefit of the public at all times in safe and serviceable condition so as to assure the efficient operation and use of the Landing Area; provided, � . however, that such maintenance shall be required as to structures, improvements, facilities, and equipment in the Landing Area only during the useful life thereof as determined by the Administrator. In the event materials are required to rehabilitate or repair certain of the aforementioned structures, improvements, facilities, or equipment in the Landing Area, they may be procured by demolition of other structures, improvements, facilities, or equipment transferred to the GRANTEE under this Deed and located on the Landing Area which have outlived their use as airport property in the opinion of the Administrator. Notwithstanding any other provision of this Deed: (1) with the prior written approval of the Administrator, the GRANTEE may close or otherwise limit use of access to any portion of the SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 9 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] Landing Area that it deems appropriate if such closure or use limitation is related to Airport operating considerations or is based upon insufficient demand for such portion of the Airport; and (2) thereafter with respect to any such portion of the Landing Area, the GRANTEE shall be under further obligation to maintain the same other than as may be required to maintain adequate public safety conditions . [A-27] (3) In the event that any condition of the UNITED STATES relating to the use of the Property for I Airport Purposes under PART III (1) of this Deed or in the event that any condition of the UNITED STATES relating to the maintenance of the Landing Area for the use and benefit of the public under PART 111 (2) of this Deed is not met, observed, or complied with by the GRANTEE, then without limiting the other remedies of the UNITED STATES under PART V of this Deed, the Amended Application or under other applicable law, the right, title and interest of the GRANTEE in the Property (or in any portion thereof) transferred by this Deed to the GRANTEE shall, at the option of the Administrator revert to the UNITED STATES upon demand in its then-existing condition within sixty (60) days following the date upon which demand is made in writing by the Administrator. However if such default or violation shall have been cured, observed, or complied with within such sixty (60) days, or if the GRANTEE shall have commenced the actions necessary to comply with any such condition in accordance with a compliance schedule approved by the Administrator, then in such event the reversion to the UNITED STATES shall not occur, and title, right of possession, and all other rights transferred by this Deed, except such, if any, as shall have previously reverted to the UNITED STATES, shall remain vested in the GRANTEE. PART IV CERCLA Notices and Covenants of the UNITED STATES Relating to Hazardous Substances and Description of Remedial Action SBIA/0001/DOC/311 SBIA.A Draft: 3/24/98 10 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] (1) As used in this PART IV, the words "hazardous substances", "release", "remedial action", "facility", "pollutant or contaminant" have the meanings given such terms under Section 101 of CERCLA. (2) Pursuant to Section 120 (h) (3) of CERCLA, a ( ) page description of the type and quantity of hazardous substances which were either stored for one year or more on the Property or on the Reserved Interest Area, as applicable, known to have been released or disposed on or under the Property or on, under or from the Reservation of Interest Area is attached to this Deed as Exhibit "B". In addition, Exhibit "B" contains a description of the time at which such storage, release or disposal took place for each hazardous substance identified, and a description of the remedial action taken, if any, through the date of this Deed. [A-37] (3) The UNITED STATES covenants and warrants that all remedial action necessary to protect human health and the environment with respect to any such hazardous ' substance as set forth in Exhibit "B" remaining on the Property has been taken by the UNITED STATES before the date of this Deed. Any additional remedial action found to be necessary after the date of this Deed shall be conducted by the UNITED STATES at the sole cost and expense of the UNITED STATES; provided however, that this covenant shall not apply in any case where the GRANTEE is a potentially responsible party with respect to the Property. PART V Covenants Which Benefit and Burden the Property and Which Shall Run With the Land and Which Are Established By the UNITED STATES and the GRANTEE Upon Acceptance of the Deed By the GRANTEE (1) Upon the delivery of this Deed by the UNITED STATES and its acceptance by the GRANTEE, the covenants, conditions and restrictions contained in this Deed affecting the Property shall be covenants, conditions and restrictions which run with the land and shall be enforceable by the Administrator against the GRANTEE, and each successor or assign of the GRANTEE, including without limitation, any tenant or licensee of the GRANTEE that may claim a possessory interest in any portion of the Property. SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 11 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] [A-17] (2) Insofar as it is within its power and to the extent reasonable, the GRANTEE shall adequately clear and protect the aerial approach and departure paths to the Airport. The GRANTEE will, either by the acquisition and retention of easements or other interests in or rights for the use of land and airspace, or by seeking the adoption and enforcement of zoning regulations, prevent the construction, erection, alteration, or growth of any structure, tree, or other object in the approach areas of the runways of the Airport which would constitute an obstruction to air navigation according to the criteria or standards prescribed in 14 CFR Part 77, as applicable, according to the Airport Layout Plan in effect on the date of this Deed and as may be updated and revised from time to time as set forth in PART V (9) . In addition, the GRANTEE will not erect or permit the erection of any permanent structure or facility on the Property which would interfere materially with the use, operation, or future development of the Airport, in any portion of a runway approach area in which the GRANTEE has acquired, or may hereafter acquire, a property interest permitting it to so control the use made of the surface of the land. Insofar it is within its power and to the extent reasonable, the GRANTEE will take action to restrict the use of the land adjacent to or in the immediate vicinity of the Airport to activities and purposes compatible with normal airport operations, including commercial and industrial uses of such land. [A-14] (3) No portion of the Property shall be used, leased, sold, salvaged, or disposed of by the GRANTEE for a use other than for Airport Purposes unless the GRANTEE has first ' obtained the written consent of the Administrator for such other use. The consent of the Administrator shall be granted only if the Administrator determines that the affected portion of the Property can be used, leased, ' sold, salvaged, or disposed of for other use without materially and adversely affecting the development, improvement, operation, or maintenance of the Airport and the remaining portions of the Property. Furthermore, the Administrator shall not grant consent [A-51] to any other proposed use of the Property which may include use for "target housing" unless as a condition of approval of such a use, the GRANTEE covenants to abate all lead-based paint hazards and all potential SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 12 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] lead-based paint hazards from the portion of the Property proposed for use other than for Airport Purposes, and the GRANTEE shall certify to the satisfaction of the Administrator that all lead-based paint hazards have been abated from such portion of Property in accordance with the Lead-Based Paint Reduction Act of 1992 (42 USC Section 4852 (d) (Title X) and Title 25 CFR Part 35, Subpart H, and 40 CFR Part 745, Subpart F prior to the use of any portion of the Property. [A-15] (4) The Airport shall be used and maintained by the GRANTEE for the use and benefit of the public on fair and reasonable terms, without unjust discrimination. In furtherance of this covenant (but without limiting its general applicability and effect) , the GRANTEE specifically agrees: (1) that it will keep the Airport open to all types, kinds, and classes of aeronautical use without discrimination among such types, kinds and classes. However, the GRANTEE may establish such fair, equal, and not unjustly discriminatory conditions to be met by all users of the Airport as may be necessary for its safe and efficient operation. Furthermore, the GRANTEE may prohibit or limit any given type, kind, or class of aeronautical use of the Airport if such action is necessary for the safe operation of the Airport or necessary to serve the civil aviation needs of the public; (2) in its operation and the operation of facilities on the Airport, neither the GRANTEE or any person or organization occupying space or facilities thereupon, will discriminate against any person or class of persons by reason of race, color, creed, or national origin in the use of any of the facilities provided for the public at the Airport; (3) in any agreement, contract, lease, or other arrangement under which a right or privilege at the Airport is granted by the GRANTEE to any person, firm or corporation to conduct or engage in any aeronautical activity for furnishing services to the public at the Airport, the GRANTEE will insert and enforce provisions requiring such person: (a) to furnish service on a fair, equal and not unjustly discriminatory basis to all users; and (b) to charge fair, reasonable, and not unjustly discriminatory prices for each unit for service, ,provided, that the contractor may be allowed to make reasonable and nondiscriminatory discounts, rebates, or other similar types of price reductions to volume purchasers; (4) that the GRANTEE will not exercise or grant any right or privilege which would operate to prevent any person, firm, or corporation operating aircraft on the Airport from SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 13 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] performing any services on its own aircraft with its own employees (including, but not limited to maintenance and repair) that it may choose to perform; and (5) in the event the GRANTEE itself exercises any of the rights and privileges referred to in subsection (3) above, the services involved must be provided on the same conditions that would apply to the furnishing of such services by contractors or concessionaires of the GRANTEE under the provisions of such subsection (3) of PART V (4) of this Deed. [A-16] (5) The GRANTEE will not grant or permit any prohibited Exclusive Right for the use of the Airport by any person or persons to the exclusion of others in the same class, and will otherwise comply with all applicable laws . In furtherance of this covenant (but without limiting its general applicability and effect) , the GRANTEE specifically agrees that, unless authorized by the Administrator, it will not, either directly or indirectly, grant or permit any person, firm or corporation an Exclusive Right to conduct any aeronautical activity on the Airport including but not limited to, charter flights, pilot training, aircraft rental and sight-seeing, aerial photography, crop dusting, aerial advertising and surveying, air carrier operations, aircraft sales and services, sale of aviation petroleum products whether or not conducted in conjunction with other aeronautical activity, repair and maintenance of aircraft, sale of aircraft parts, and any other activities which because of their direct relationship to the operation of aircraft can be regarded as an aeronautical activity. The GRANTEE further agrees that it will terminate as soon as possible and no later than the earliest renewal, cancellation, or expiration date applicable thereto, any prohibited Exclusive Right existing at any airport owned or controlled by the GRANTEE or hereafter acquired and that thereafter no such prohibited Exclusive Right shall be granted. However, nothing contained in this PART V shall be construed to prohibit the granting by the GRANTEE or exercise of an exclusive right for the furnishing of non-aviation products and supplies or any services of a non-aeronautical nature or to obligate the GRANTEE to furnish any particular non-aeronautical service at the Airport. SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 14 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] [A-18] (6) The GRANTEE will operate and maintain in a safe and serviceable condition, as deemed reasonably necessary by the Administrator, the Airport, other than facilities owned or controlled by the UNITED STATES, and the GRANTEE will not permit any activity thereon which would interfere with its use for Airport Purposes. Nothing contained in this PART V shall be construed to require (1) that the Airport be operated for aeronautical uses during temporary periods when snow, flood, or other climatic conditions interfere with such operation and maintenance, or (2) the repair, restoration or replacement of any structure or facility which is substantially damaged or destroyed by virtue of an act of God or other condition or circumstances beyond the control of the GRANTEE. [A-23] (7) The GRANTEE will: (1) furnish the Administrator with annual or special Airport financial and operational reports as may be reasonably requested using either forms furnished by the Administrator or in such manner as it elects so long as the essential data are furnished; and (2) upon reasonable request of the Administrator, make available for inspection by the Administrator all non-privileged and non-confidential public records and documents affecting the Property, the Airport and the Landing Area, including deeds, leases of land, or leases of land and buildings or structures on SBIAA Record of Survey Parcels B-1 through B-4, inclusive, Airport operation and use agreements, Airport regulations, and other instruments and will furnish to the Administrator a true copy of any such document which may be reasonably requested. [A-24] (8) The GRANTEE will not enter into any action which would operate to deprive it of any of the rights and powers necessary to perform or comply with any or all of the covenants and conditions set forth in this Deed unless by such transaction the obligation to perform or comply with all such covenants and conditions is assumed by another public agency found by the Administrator to be eligible as a public agency as defined in the Airport and Airway Improvement Act of 1982, as amended, to assume such obligation and have the power, authority, and financial resources to carry out all such obligations . If an arrangement is made for management or operation of the Airport by any agency or person other than the GRANTEE, the GRANTEE shall reserve sufficient rights and authority to insure that the Landing Area and the Airport will be operated and SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 15 I _ PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] maintained in accordance with these covenants and conditions, any applicable Federal statute, and applicable provisions of the FAA Regulations . [A-25] (9) The GRANTEE will at all times keep an up-to-date Airport Layout Plan showing: (1) the boundaries of the Airport, the Landing Area and all proposed additions thereto, together with the boundaries of the Property and all off-site areas owned or controlled by the GRANTEE for use for Airport Purposes and proposed additions thereto; (2) the location and nature of all existing and proposed Airport facilities and structures (such as runways, taxi-ways, aprons, terminal buildings, hangars, and roads) , including all proposed extensions and reductions of existing Airport facilities; and (3) the location of all existing and proposed non-aviation uses of land or land and buildings on SBIAA Record of Survey Parcel B-1 through B-4, inclusive and other areas on the Property and all existing improvements thereon and uses made thereof. Each amendment, revision or modification of the Airport Layout Plan, shall be subject to the approval of the Administrator which approval shall be evidenced by the signature of the Administrator (or a duly authorized representative of the Administrator) on the face of such amendment to the Airport Layout Plan. The GRANTEE will not make or permit the making of any change or alteration in the Airport or any of its facilities other than in conformity with the Airport Layout Plan as so approved by the Administrator, if such change or alteration might adversely affect the safety, utility, or efficiency of the Airport. [A-26] (10) If at any time it is determined by the Administrator that there is any outstanding right or claim of right in or to the Property, the existence of which creates an undue risk of interference with the operation of the Airport or the performance or compliance by the GRANTEE with any covenant of the GRANTEE for the benefit of the UNITED STATES under this Deed, the GRANTEE will, to the extent practicable following receipt of written notice from the Administrator, acquire, extinguish, or modify such right or claim of right in a manner acceptable to the Administrator. [A-29] (11) The GRANTEE covenants that: (A) the GRANTEE will comply with all requirements imposed by or pursuant to the regulations of the United States Department of Transportation as in effect on the date of this Deed (See : 49 CFR Part 21) issued under the provisions of Title VI of the Civil Rights Act of 1964, as amended; SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 16 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] (B) this covenant shall be subject in all respects to the provisions of such regulations; (C) the GRANTEE will promptly take and continue to take such action as may be necessary to effectuate this covenant; (D) the UNITED STATES acting by or through either the Administrator or the Attorney General of the United States shall have the right to seek judicial enforcement of this covenant at law or at equity; and (E) the GRANTEE will: (1) obtain from any person, including any legal entity, who, through contractual or other arrangements with the GRANTEE is authorized to provide services or benefits, a written agreement pursuant to which such entity shall, with respect to such services or benefits which he or she is authorized to provide, undertake for himself the same obligations as those imposed upon the GRANTEE by this covenant; and (2) furnish a copy of the original of such agreement to the Administrator upon request. [A-19] (12) The GRANTEE will make the Airport available to the UNITED STATES and any instrumentality or agency of the UNITED STATES, at all times without charge for the landing and taking off of aircraft of the UNITED STATES, except that if such use of the Airport by aircraft of any agency or instrumentality of the UNITED STATES in comparison with the common use by the general public of aircraft at the Airport is or becomes substantial after the date of this Deed, a reasonable share, proportional to such use, of the cost of operating and maintaining facilities so used by the UNITED STATES, may be charged by the GRANTEE. Unless otherwise determined by the Administrator (or unless specifically provided after the date of this Deed pursuant to a separate landing agreement between the GRANTEE and any agency of the UNITED STATES) substantial use of the Airport by aircraft of the UNITED STATES for landing and taking off will be considered to exist when operations of such aircraft exceed those which, in the opinion of the Administrator, would unduly interfere with use of the Landing Area by other authorized aircraft, or that during any calendar month: (1) either five (5) or more aircraft of any agency of the UNITED STATES are regularly based at the Airport or on land of the UNITED STATES adjacent thereto; or (2) the total number of movements (counting each landing as a movement and each takeoff as a movement) of aircraft of the UNITED STATES is three hundred (300) or more; or (3) the gross accumulative weight of aircraft of the UNITED STATES using the Airport (the total movements of such federal aircraft multiplied by gross certified weights thereof) is in excess of five million (5, 000, 000) pounds. SBIA/0001/DCC/311 SBIAA Draft: 3/24/98 17 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] [A-20] (13) During a national emergency declared by the President or by Congress, the UNITED STATES is entitled to use, control, or possess the Airport for the landing or taking off of aircraft, provided however, the UNITED STATES shall pay to the GRANTEE: (i) the entire cost of maintaining the part of the Airport it exclusively uses, controls or possesses during the emergency; and (ii) contribute a reasonable share, consistent with the part of the Airport it uses, controls or possesses on a non- exclusive basis during the emergency; and (iii) pay to the GRANTEE a fair rental for use, control, or possession of improvements and buildings on the Airport during the emergency. [A-22] (14) Upon the written request of the Administrator, the GRANTEE will furnish without cost to the UNITED STATES one or more sites on the Airport for construction, operation and maintenance by the UNITED STATES of facilities for air traffic control activities, or weather reporting activities or communication activities related to air traffic control as the Administrator may designate; provided however that the GRANTEE shall not be compelled to furnish any site to the UNITED STATES for such a purpose if the site is not shown on the current Airport Layout Plan as an FAA site, or if the delivery of the site to the UNITED STATES would displace the use or occupancy of the site by a third person under a separate agreement with the GRANTEE which either predates such notice of the Administrator or which predates the then current Airport Layout Plan. The GRANTEE will make available such areas or any portion thereof for the purposes provided in this PART V (14 ) , within one hundred and twenty (120) days after receipt of written request from the Administrator. [A-39] (15) The GRANTEE covenants and agrees that it shall cooperate with the UNITED STATES in connection with the use or access by the UNITED STATES of any portion of Reserved Interest Area and the performance by the UNITED STATES of any duty or obligation of the UNITED STATES on, upon or under the surface of any portion of the Property, or on upon or under the surface of any portion of the Reserved Interest Area as may be necessary under PART IV(4) of this Deed. Furthermore, the GRANTEE shall not disrupt any remediation activity of the UNITED STATES or jeopardize the effectiveness of any remedy by engaging in disruptive activities on the Property, including but not limited to, surface application of water which could SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 18 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] impact the migration of contaminated groundwater, subsurface drilling, or use of ground water produced by the GRANTEE from wells located on the Property, unless the UNITED STATES acting by and through the Secretary of the Air Force has first determined in writing addressed to the GRANTEE that there will be no adverse impact on the remediation activity of the UNITED STATES. (16) The GRANTEE may hereafter enter into one or more leases of land or land and buildings for Airport Purposes for the exclusive possession by non-aviation industrial, retail or commercial business entities affecting any of the areas of the Property generally identified as SBIAA Record of Survey Parcel B-1 through B-4, inclusive, and as an incident to any such lease or other instrument creating a possessory interest, the GRANTEE may authorize the development, modification, improvement or construction of a building or structure on such portion of Property without prior consultation or notice to the Administrator; provided however, the GRANTEE shall include within each such lease a suitable reference and notice of the provisions of this Deed, as applicable. [A-49] (17) The GRANTEE, its successors, assigns and transferees covenant that in its and their use and occupancy of the Property the GRANTEE shall comply with all Federal, State, and local laws relating to asbestos for which the GRANTEE acknowledges and agrees that the UNITED STATES retains no liability. (18) The GRANTEE acknowledges that threatened or endangered species are present on certain portions of the Property. The endangered Santa Ana River Woolly-Star occurs on SBIAA Record of Survey Parcel A and on SBIAA Record of Survey Parcel B-1 . The San Bernardino Merriam' s Kangaroo Rat is listed under the Federal Endangered Species Act of 1973, as amended (the "Act") , and the San Bernardino Merriam' s Kangaroo Rat occurs on SBIAA Record of Survey Parcel A (low to high density) SBIAA Record of Survey Parcel B-1 (low density) and SBIAA Record of Survey Parcel B-1 (low density) . The GRANTEE further acknowledges its obligation to comply with the Act, including without limitation, the obligation of the GRANTEE to consult and mitigate, and to comply with the Conservation Management Plan established by the UNITED STATES for the former Norton AFB ("CMP") in furtherance of the use of the Property for Airport Purposes and the protection of the endangered or potentially endangered SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 19 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] species on the Property in compliance with the CMP. The GRANTEE further acknowledges the right of the United States Department of Interior Fish and Wildlife Service to take all legal and equitable action which may be necessary to enforce the Act and the CMP against the GRANTEE under appropriate circumstances. However, the GRANTEE retains the right to seek amendments to the MCP from time to time in accordance with the Act in furtherance of the use of the Property for Airport Purposes . PART VI Miscellaneous (1) Until such time as all of the interests of the UNITED STATES in the property described in the Amended Application shall have been transferred to the GRANTEE as contemplated under the Amended Application, the promises and obligations of the parties which arise under the Amended Application with respect to the Property shall not be deemed to have merged into this Deed. (2) The GRANTEE shall not conduct any mineral right or resource extraction, severance or removal activity on the Property, including without limitation sand and gravel extraction operations unless: (i) the GRANTEE shall have first obtained the specific written consent of the Administrator for such activity; (ii) the GRANTEE shall pay to the UNITED STATES a mineral right or resource extraction, severance or removal fee in an amount to be mutually determined by the UNITED STATES and GRANTEE; and (iii) all revenues realized by the GRANTEE from such mineral right or resource extraction, severance or removal activity (net of amounts paid to the UNITED STATES under (ii) above) shall be used for Airport Purposes. [A-54] (3) To the fullest extent permitted at either law or in equity, the covenants set forth in this Deed shall be binding for the benefit and in favor of and be enforceable solely by the Administrator, except as provided in PART V (11) with respect to the additional enforcement powers of the Attorney General, except as provided in PART V (15) with respect to the additional enforcement powers of the Secretary of the Air Force, and except as provided in PART V (18) with respect to the CMP and the additional enforcement powers of the SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 20 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] United States Department of the Interior Fish and Wildlife Service. The Administrator (and the Attorney General under PART V(11) , the Secretary of the Air Force under PART IV (15) , and the United States Department of the Interior Fish and Wildlife Service under PART V (18) ) shall be entitled to institute legal action to enforce performance and observance of these covenants, enjoin acts which are violative of these covenants, and exercise any other legal or equitable right or remedy with respect to these covenants. The rights and remedies of the UNITED STATES which arise under this Deed as covenants which run with the land may be exercised separately or in combination by the Administrator with other administrative powers conferred on the Administrator by statute or by administrative regulation of the Administrator. [A-28] (4) If a court of competent jurisdiction finds any provision of this Deed to be invalid or unenforceable as to either the UNITED STATES or the GRANTEE, such finding shall not render any other provision of this Deed invalid or unenforceable as between the UNITED STATES and the GRANTEE. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity in order to achieve the purposes of this Deed. However, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Deed shall remain valid and enforceable. [A-67] (5) Attachments or "exhibits" are made a part of the Deed, as follows: [A-68] Exhibit "A" - Legal Description of the Property [See: PART II] Exhibit "B" - CERCLA Notice [See: PART IV] [A-69] IN WITNESS WHEREOF, the UNITED STATES OF AMERICA, acting by I and through the Secretary of the Air Force, has caused these presents to be executed this day of I 1998 . uL SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 21 PARAGRAPH REFERENCE TO 12-11-97 DRAFT TEXT] [A-70] UNITED STATES OF AMERICA acting by and through the Secretary of the Air Force Secretary of the Aim Force By: Albert F. Lowas, Jr. Acting Director Air Force Base Conversion Agency Witnessed by: SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 22 1 COMMONWEALTH OF VIRGINIA ) ss . COUNTY OF ARLINGTON ) On the day of December, 1996, before me ---------------------------------------- , the undersigned Notary Public, personally appeared Albert F. Lowas, Jr. , personally known to me to be the person whose name is subscribed to the foregoing Deed, and personally known to me to be the Deputy Director, Air Force Base Conversion Agency, and acknowledged that the same was the act and deed of the Secretary of the Air Force and that he executed the same as the act and deed of the Secretary of the Air Force. p -U ana D Notary Public Commonwealth of Virginia My Commission expires SEAL SBIA/0001/DCC/311 SBIAA Draft: 3/24/98 23 ACCEPTANCE OF TRANSFER OF TITLE IN REAL PROPERTY BY A PUBLIC AGENCY (SAN BERNARDINO INTERNATIONAL AIRPORT AUTHORITY) The San Bernardino International Airport Authority, a joint powers authority established under the laws of the State of California hereby accepts the delivery of the instrument identified above as the "Indenture and Quitclaim Deed" and the transfer of the Property from the United States of America acting by and through the Secretary of the Air Force, subject to each of the exceptions, reservations, conditions, covenants and restrictions contained in the Indenture and the Quitclaim Deed. The San Bernardino International Airport Authority hereby further accepts and agrees to each of the covenants in the Indenture and Quitclaim Deed which touch and concern the Property and are covenants which run with the land. GRANTEE San Bernardino International Airport Authority, a joint powers authority established under the laws of the State of California Dated: By. Co-Chairman of the San Bernardino Intern,f"tional Airport Authority By. Co-Chairman of the San Bernardino International Airport Authority By: D � � Secretary of the Board San Bernardino International Airport Authority [STATE OF CALIFORNIA NOTARY JURAT FORM FOR SIGNATURES OF OFFICERS OF GRANTEE ATTACHED] SBIA/0001/DOC/311 SBIAA Draft: 3/24/98 24 UNITED STATES OF AMERICA - and - SAN BERNARDINO INTERNATIONAL AIRPORT AUTHORITY Indenture and Quitclaim Deed EXHIBIT "A" -- LEGAL DESCRIPTION OF THE PROPERTY TRANSFERRED BY THE UNITED STATES TO THE GRANTEE SUBJECT TO CERTAIN EXCEPTIONS AND RESERVATIONS OF EASEMENTS IN FAVOR OF THE UNITED STATES -- (Describes a Portion of the Lands Formerly Known As the Norton Air Force Base, San Bernardino, California) This document is referred to as Exhibit "A" in the Indenture and Quitclaim Deed. In the following text, this document is referred to as the "Legal Description" and it contains a legal description of the Property transferred by the United States of America acting through the Secretary of the Air Force as grantor to the San Bernardino International Airport Authority, as the grantee, subject to certain exceptions and reservations of easements in favor of the United States of America. The Legal Description includes a total of (_) separate pages and contains ( ) pages of text and (_) pages of vicinity maps which generally depict the Property. The pages of vicinity maps are included in this Legal Description for purposes of reference and convenience only and to the extent there may be any conflict or inconsistency between the information presented on any page of the maps with the description (or any portion thereof) presented in any of the ( ) pages of the text, the description of the Property as presented in the text shall prevail. Unless the specific context of useage may otherwise require, the meaning of terms and phrases as SBIA/0001/DOC/315 3/23/98 330 A Page 1 of 6 defined in the Deed shall have the same meaning when used in this Legal Description. The Property is more particularly described as follows: PARCEL A: [insert text of metes and bounds description of Parcel A, together with the mineral rights therein and an easement for avigation purposes affecting Recorded Instrument No. ] AND EXCEPTING FROM PARCEL A the following: [insert text of metes and bounds description of Air Force fee exceptions inside Parcel A, as applicable]; AND SUBJECT TO THE RESERVATION IN FAVOR OF THE UNITED STATES, ITS SUCCESSORS AND ASSIGNS OF AN [easement, etc.] FOR [roadway purpose, etc.] ACROSS PARCEL A, as more particularly described as: [insert text of metes and bounds description of reserved easement, etc., as applicable] AND SUBJECT TO THE RESERVATION IN FAVOR OF THE UNITED STATES, ITS SUCCESSORS, ASSIGNS AND LICENSEES, as particularly noted in PART H of the Deed, including as licensees of the UNITED STATES as of the date of the Deed, the United States Environmental Protection Agency and the State of California Board of Toxic Substance Control, and the respective officers, agents, employees, and contractors of each of them and such other licensees as may hereafter be designated in writing by the UNITED STATES acting through the Secretary of the Air Force, a SBIA/0001/DOC/315 3/23/98 330 ah Page 2 of 6 perpetual right of entry and access across Parcel A for the purpose of conducting or facilitating environmental investigation, response remediation, or other corrective action to be performed by or on behalf of the UNITED STATES pursuant to the CBA OU ROD on Parcel A or on lands of the UNITED STATES excepted from Parcel A after the date of the Deed. Such perpetual right of entry and access reserved by the UNITED STATES shall include to the extent permitted by law the right to construct, install, operate, maintain, renew and remove groundwater monitoring wells, pumping wells and groundwater wellhead treatment facilities and pipelines, together with utility services necessary to operate any of these on, above or under Parcel A for use by the UNITED STATES in support of environmental response action, remedial action, or other corrective action as may hereafter be found necessary on Parcel A or on lands of the UNITED STATES excepted from Parcel A or on adjoining lands after the date of the Deed. The exercise of the perpetual right of entry and access reserved to the UNITED STATES shall be subject to appropriate prior notice and reasonable accommodation of the use, occupancy and improvement of Parcel A by the GRANTEE for Airport Purposes. -- AND -- PARCEL B: [insert text of metes and bounds description of Parcel B, together with the mineral rights therein and an easement for avigation purposes affecting Recorded Instrument I No. ] AND EXCEPTING FROM PARCEL B, the following: [insert text of metes and bounds description of Air Force fee exceptions inside Parcel B, as applicable]; I SBIA/00o1/DOC/315 3/23/98 330 A Page 3 of 6 I AND SUBJECT TO THE RESERVATION IN FAVOR OF THE UNITED STATES, ITS SUCCESSORS AND ASSIGNS OF AN [easement, etc.] FOR [roadway purpose, etc.] ACROSS PARCEL B, as more particularly described as: [insert text of metes and bounds description of reserved easement, etc., as applicable] AND SUBJECT TO THE RESERVATION IN FAVOR OF THE UNITED STATES, ITS SUCCESSORS, ASSIGNS AND LICENSEES, as particularly noted in PART II of the Deed, including as licensees of the UNITED STATES as of the date of the Deed, the United States Environmental Protection Agency and the State of California Board of Toxic Substance Control, and the respective officers, agents, employees, and contractors of each of them and such other licensees as may hereafter be designated in writing by the UNITED STATES acting through the Secretary of the Air Force, a perpetual right of entry and access across Parcel B for the purpose of conducting or facilitating environmental investigation, response remediation, or other corrective action to be performed by or on behalf of the UNITED STATES pursuant to the CBA OU ROD on Parcel B or on lands of the UNITED STATES excepted from Parcel B after the date of the Deed. Such perpetual right of entry and access reserved by the UNITED STATES shall include to the extent permitted by law the right to construct, install, operate, maintain, renew and remove groundwater monitoring wells, pumping wells and groundwater wellhead treatment facilities and pipelines, together with utility services necessary to operate any of these on, above or under Parcel B for use by the UNITED STATES in support of environmental response action, remedial action, or other corrective action as may hereafter be found necessary on Parcel B or on lands of the UNITED STATES excepted from Parcel B or on adjoining lands after the date of the Deed. The exercise of the perpetual right of entry and access reserved to the UNITED STATES shall be subject to appropriate prior notice and reasonable accommodation of the use, occupancy and improvement of Parcel B by the GRANTEE for Airport Purposes. SBIA/0001/DOC/315 3/23/98 330 ah Page 4 of 6 -- AND -- PARCEL C: [insert text of metes and bounds description of Parcel C, together with the mineral rights therein and an easement for avigation purposes affecting Recorded Instrument No. ] AND EXCEPTING FROM PARCEL C, the following: [insert text of metes and bounds description of Air Force fee exceptions inside Parcel C, as applicable]; AND SUBJECT TO THE RESERVATION IN FAVOR OF THE UNITED STATES, ITS SUCCESSORS AND ASSIGNS OF AN [easement, etc.] FOR [roadway purpose, etc.] ACROSS PARCEL C, as more particularly described as: [insert text of metes and bounds description of reserved easement, etc., as applicable] AND SUBJECT TO THE RESERVATION IN FAVOR OF THE UNITED STATES, ITS SUCCESSORS, ASSIGNS AND LICENSEES, as particularly noted in PART H of the Deed, including as licensees of the UNITED STATES as of the date of the Deed, the United States Environmental Protection Agency and the State of California Board of Toxic Substance Control, and the respective officers, agents, employees, and contractors of each of them and such other licensees as may hereafter be designated in writing by the UNITED STATES acting through the Secretary of the Air Force, a perpetual right of entry and access across Parcel C for the purpose of conducting or facilitating environmental investigation, response remediation, or other corrective action to be performed by or on SBIA/0001/DOC/315 3/23/98 330 A Page 5 of 6 behalf of the UNITED STATES pursuant to the CBA OU ROD on Parcel C or on lands of the UNITED STATES excepted from Parcel C after the date of the Deed. Such perpetual right of entry and access reserved by the UNITED STATES shall include to the extent permitted by law the right to construct, install, operate, maintain, renew and remove groundwater monitoring wells, pumping wells and groundwater wellhead treatment facilities and pipelines, together with utility services necessary to operate any of these on, above or under Parcel C for use by the UNITED STATES in support of environmental response action, remedial action, or other corrective action as may hereafter be found necessary on Parcel C or on lands of the UNITED STATES excepted from Parcel C or on adjoining lands after the date of the Deed. The exercise of the perpetual right of entry and access reserved to the UNITED STATES shall be subject to appropriate prior notice and reasonable accommodation of the use, occupancy and improvement of Parcel C by the GRANTEE for Airport Purposes. [SPECIAL NOTE: SBIAA civil engineers are preparing the "SBIAA Record of Survey" to be recorded concurrently with the Deed. The SBIAA Record of Survey includes a number of points of cross-reference with the text of the Legal Description with descriptions of various portions of the Property as found in documents and instruments which pre-date this Deed, including without limitation, the Amended Application.] SBIA/0001/DOC/315 3/23/98 330 ah Page 6 of 6 UNITED STATES OF AMERICA - and - SAN BERNARDINO INTERNATIONAL AIRPORT AUTHORITY Indenture and Quitclaim Deed EXHIBIT "B" CERCLA Notices and Covenants of the UNITED STATES Relating to Hazardous Substances and Description of Remedial Actions (Affects A portion of the Lands Formerly Known as the Norton Air Force Base, San Bernardino, California) This document is identified as Exhibit "B" in the Indenture and Quitclaim Deed. In the following text, this document is referred to as the "CERCLA Notice Listing." Unless the specific content of usage may otherwise require the meaning of terms and phrases as defined in the Deed shall have the same meaning when used in this CERCLA Notice Listing. This CERCLA Notice Listing includes (_) pages of text and contains a description of the information required by Section 120(h) of CERCLA as relates to the Property and certain response actions previously taken by the Air Force on the Property and on the Reserved Interest Area prior to the data of the Deed with respect to the potential presence, release and/or remediation of hazardous substances or hazardous wastes and petroleum products on the Property. An excerpt from Section 120(h) of CERCLA which generally describes the contents of such a notice of the Air Force relating to these activities is set forth in PART IV of the Deed. The FOST contains a detailed summary and bibliography of reference materials and site-specific technical investigations conducted by the Air Force on the Property. Pages (_) through (_) of this CERCLA Notice Listing appear as "Attachment 3" of the FOST and Pages (_) through of the CERCLA Notice Listing appear as "Attachment 4" of the FOST. SBIA/0001/DOC/315 3/3/98 415 ct Page 1 of The information in Attachment 3 of the FOST is presented in six (6) columns on each page and the left hand column includes a site-specific reference for the location of various hazardous substances stored on the Projects such as "Facility 302, Auto Hobby Shop." This reference to "Facility 302, Auto Hobby Shop" corresponds to the site or location catalog number assigned to this facility as found in the SBIAA Record of Survey. (See: Sheet 8 of SBIAA Record of Survey No. 97-0077) The information in Attachment 4 of the FOST is presented in eight (8) columns on each page and the left hand column includes a site-specific reference for the location of various hazardous substances released or disposed on the Property such as "IRP Site 9, Electroplating Shop." This reference to "IRP Site 9, Electroplating Shop" corresponds to the site or location categorized number assigned to this facility by the Air Force as found in the SBIAA Record of Survey. (See: Sheet 8 of SBIAA Record of Survey No. 97-0077) [SEE ALSO ATTACHMENT 7 OF THE FOST] NOTE ONLY 6 PAGES FROM FOST ATTACHED TO EXHIBIT "B" AT THIS TIME FOR PURPOSES OF REFERENCE AND FORMAT. SBIA/0001/DOC/315 3/3/98 415 ct Page 2 of cl v� -- c c - c c s x Z- C11 C I 'e N �C % N N CZ Q -: S tj - G= cn C, y G 1=i_!_I Fill, ' =1= rA cr c c 1J �• C uyi � T N I { ej L G I r' d� ycj Cc y T c a� _ c-� y U u C11 .C. �! � J u u.' - iuV ' � y � � T U —I ..^•I _I :J �1 � :J:i U� :al �I9I = J`I ^- �=� -j :J 1I={= 2 J 73 _j -IiJ � �I=f •.) iJ v: -. C � L U. `.'��IC'�r iC�C IC�';.'iL'i�' 'V{Ci i�IL;�IL IU���'�•- j� � r r r CIC c c c c c ' c c c c c �cl c c c c c cic c c c c c c c c c c c c c c cic c c c CCCCCC. 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T � T C C`3 n �., u 1 i A Supplemental Environmental Baseline Survey Attachment 7 Parcels A and B Norton Air Force Base San Bernardino, California f. t: Q l� � oCGo(tr.)tQS' Olr � Y�' t� litl=s July 1997 prepared by Air Force Base Conversion A;7-::cy r f. .. ����-1iV f/�/i r • Technical Memorandum October 1996 Groundtivater Sampling Data Results Summary Report Comprehensive GroundivaterMonitoring Program, CDtvf Federal Programs Corot t December 1996 • Removal of JP4- Fuel hydrant System Closure Report, GeolResoures Consultants, Inc., January 1997 • AST BCP:Update, Booz Alen &Hamilton,March 1995 • Final Technical Memorandum Basezvide Conj?rmaiion Study Results 4#anded Source Investigation Work Plan, February 1995 • Final Technical;,& wrandum Ezparded Source Investigation Results, ll,fav 1996 • Draft Final Installation Restoration Program (LKP) Engineering Repor Pump and Treat Erpansion, Central Base Area Operable Unit, Norton AFB, Cal�fornia, Earth Tech, September 1994 • Final Environmental Impact Statement (FE 15)for the Disposal and Rause of Morton AFB, June 1993 • =Record of Decision (ROD), March 199 • Record of Decision (ROD)for the Central Basa Area Operating Unit,November 1993 • Federal Facility Agraemenr (FFA),June 1989 • JWL RCRA Closzrre Plan, CDM Federal Programs Con.,November 1996 • Remedial Action Wor' Plan Addendum, TCE Source Area Ramedlation, Central Base Cperable Unit, Norton: f ber if , , m 199''. • Technical:Llemorandum Preliminary Results of the Confirmation.Study Addendum Number 1, CDhf Federal Programs Corp.,March 1996 • Final Remedial Investigation, CDM Federal Programs Corp.,March 199-3 • Norton Air Force Base Base vide Environmental Baseline Survey, Ear.1 ech, December 1993 • Final Baseivide Records Search for Norton Air Force Base, Cal�orrin., CDM Federal P:omams Corp., October 1993 • B.14c Cleanup Plan (BCP), Norton Air Ford Base, San Bernardino, California, April 199 . • Draft Technical Memorandum, Preliminary Results of the Confirmatior. Study Addendum Number 1, CDM Federal Proms ams Corp.,June 1995 2.1.2 Inspections of Properties Conducted Visual site inspections (V SIs) were conducted on Parcels A and B 1-B4 on Janulary 2, 6,and 9, 1997. The visual site inspections involved exterior and interior (walk-through) inspections, and were conducted at facilir_es in Parcels A and B 1-B4. , I3.0 Summary of Data (Site Specific) This Surplemental EBS presents the findings of the records search and VSL. dccurrented for Norton?FB. ,reprding Parcels A and DI-311. Section 3.1 provides a br:efhistary of the base, while Section 3.2 gives a description of the environmental setting of the base, including ;.'T ti 3.3 4 3." describe resource findings and conc!,usiors. Parcel specific EI S infcrrnat:on will be dccurn ent_-d. Where there has been no chan2t from me Base:vide Ej , it will be so stated, and ap licable sections of the LEIS will be cite'. , . 9 REPOMRECOM M ENDATION TO THE BOARD OF SUPERVISORS OF SAN BERNARDINO COUNTY, CALIFORNIA AND RECORD OF ACTION March 17, 1998 FROM: MICHAEL E. NUBY, Director Redevelopment Programs SUBJECT: PROPOSAL FOR COUNTY OF SAN BERNARDINO TO ACCEPT TITLE TO THE SAN BERNARDINO INTERNATIONAL AIRPORT RECOMMENDATION: That the San Bernardino County Board of Supervisors: 1) Approve the concept of accepting the title to the San Bernardino International Airport at a later date. 2) Authorize the preparation of all necessary lease and lease-back financing documents, subject to review and approval of all final documents by County Counsel, and subject to final approval by the Board of Supervisors. BACKGROUND INFORMATION: The San Bernardino International Airport Authority ("SBIAA' has decided to participate in a lease and lease-back financing similar to that completed by the County in 1997- The SBIAA has retained the same financing team as was retained by the County to work with the SBIAA to accomplish a similar financing transaction. On January 14, 1998, the SBIAA requested that each Member take action to formally accept or reject the concept of holding title to the San Bernardino International Airport. The financing team has determined that the structure of the joint powers agreement establishing the SBIAA would not provide the equity investor with the type of financial assurances required to successfully conclude the intended lease and lease-back financing_ The credit of the County of San Bernardino will be required to accomplish this financing by the County holding title to the Airport facilities and executing similar documentation as was executed by the County for the County lease and lese-back financing in 1997. It is expected that the SBIAA lease and lease-back financing will generate between $10M and $ISM of net available funds to the SBIAA for the repayment of the outstanding loans as previously made by each Member, payment of the ongoing operating deficits of the SBIAA, repayment of a portion of the amount owed to the IVDA, and funds to pay additional capital improvements requirements of the SBIAA. Page 1 of 2 Record of Action of the Board of Supervisors I' Rev 07/97 PROPOSAL FOR COUNTY OF SAN BERNARDINO TO ACCEPT TITLE TO THE SAN BERNARDINO INTERNA'T'IONAL AIRPORT March 17, 1999 Page 2 of 2 The proposed transfer deed from the Air Force for the Airport properties is presently being prepared and,reviewed by the Air Force, the Federal Aviation Administration and staff of the SBIAA. It is expected that the title transfer could be accomplished by the end of March, 1998. The present time schedule would provide funds from the lease and lease-back financing by the end of April, 1998. The proposed action by the Board of Supervisors is merely to provide an approval in concept as to whether or not the County is willing to accept title to the San Bernardino International Airport and to execute the necessary lease and lease-back financing documents at a later date. This action is not intended to bind the County, but is merely to provide direction to the financing team as to the preparation of documents and the marketing to intended equity investors. All final documents for the lease and lease-back financing and the title transfer documents will be presented to the Board of Supervisors at a later date for consideration. REVIEW BY OTHERS: 5'h District FINANCIAL IMPACT: No financial impact at this time. SUPERVISORIAL DISTRICT(S): 5'h District PRESENTER: Honorable Jerry Eaves, Chairman; Board of Supervisors 2 SAN BERNARDINO I ' NTL AIRPORT AUTHORITY MEETING MINUTES November 25, 1997 A special meeting of the San Bernardino International Airport Authority was called to order by President Tom Minor at approximately 1:30 p.m.. Tuesday, November 25, 1997, in the Council Chambers, Loma Linda City Hall, 25541 Barton Road, Loma Linda, California. BOARD MEMBERS PRESENT: County of San Bernardino Supervisor Jerry Eaves City of Colton Mayor Karl Gaytan(1:40 p.m.) City of Loma Linda Secretary/Councilman Glenn Elssmann City of San Bernardino President/Mayor Tom Minor Councilman Jerry Devlin City of Highland Mayor Ray Rucker OTHERS PRESENT: William L. Bopf, Executive Director Jim Monger, Airport Director Penn- Chua, Clerk of the Board Alex Estrada. Senior Property & Project Manager Martin Romeo, Chief Financial Officer Tim Sabo. Sabo & Green Patti Colbv. Executive Secretary SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 3. ITEMS TO BE ADDED OR DELETED There were no items to be added or deleted. 4. BOARD ITEM Item #5 - San Bernardino International Airport Authority Financing Issues Agency Counsel Tim Sabo distributed revised handouts and the following issues regarding funding for the Airport Authority were discussed: I. Immediate Cash Requirements: A. Funds Available and Obligations: 1. $318,000 remaining funds under County of San Bernardino and City of San Bernardino S') million line of credit. 2. $310,000 required for final payment of matching funds for parallel taxiway project. B. Cash Requirements: 1. $100.000 - Terminal Project matching funds. 2. $150,000 - Terminal Exterior matching funds. 3. $280,000 - operating deficit ($70,000 per month for 4 months). 4. $125,000 - electrical connections to SCE system. 5. $ 70,000 - hangar roofs matching funds. 6. $ 75,000 - contingency and miscellaneous. 7. $800,000 -total additional funds required from November 1997, through February, 1998. Il. City of San Bernardino and Count- of San Bernardino S3 million loan status: A. approximately $2.7%1 already drawn as of November 14, 1997; final draws will be made by November 30, 1997. B. upon disbursement of the final draw, the County of San Bernardino will have loaned $1 N1 and the City_ of San Bernardino will have loaned $2M to the SBIAA. SAN BERNARDINO INT'L AIRPORT AUTHORrrY MEETING MINUTES NOVEMBER 25,1997 C. remaining $318,000 is required to be drawn for final payment on parallel taxiway project. D. no further draws can be made after December 15, 1997 under the Loan Agreement with the County of San Bernardino and the City of San Bernardino. E. the cities of Colton. Highland and Loma Linda each owe $500,000 on or before December 31, 1997 or the defaulting city or cities will forfeit membership in the SBIAA. F. when the cities of Colton, Highland and Loma Linda each pay their 5500,000 amount, the SBIAA will still owe $3M under the Loan Agreement; the County of San Bernardino will be owed $500,000, plus interest, and the City of San Bernardino will be owed SIM, plus interest, by the SBIAA; the cities of Colton, Highland and Loma Linda will then be owed their respective $300,000 amounts, plus interest accrual from the date of the advance, until repaid. III. Alternatives Available to SBIAA: A. payment of the anticipated $800,000 4-month operating deficit that will be incurred through February, 1998: 1. bill each of the members their share of the operating deficit equal to $33,333.33 per month for the County of San Bernardino and the cities of Colton, Highland and Loma Linda, and $66.666.66 per month for the City of San Bernardino for the months of November and December 1997 and January and February 1998. 2. SBIAA issues a tax-exempt lease revenue note payable from the Santa Barbara Aerospace lease equal to approximately 5900,000 to SIM. 3. SBIAAA obtains a tax-exempt or taxable short-term loan or line of credit from a bank or private lender payable from Santa Barbara Aerospace lease revenues. B. S3M County of San Bernardino and City of San Bernardino loan repayment: SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 1. no action - each of the other cities remit their payments of $500,000 each on or before December 31, 1997, and then undertake alternative a, b, or c below: a. refinance the $31M loan from the five (5) members of the SBIAA in January, 1998, with the issuance of tax-exempt lease revenue notes. b. do not refinance the $3L1 loan from the five (5) members at anytime in the foreseeable future. C. repay the $3M loan from the proceeds of the lease and lease-back financing, if available, in approximately February, 1998. 2. no action - other 3 cities do not remit their payments of$500,000 each and the non-participating members are automatically expelled from the SBIAA after December 31, 1997. a. refinance the S')M loan from the two (2) remaining members of the SBIAA in January, 1998, with the issuance of tax-exempt lease revenue notes. b. do not refinance the S3M loan from the two remaining members at anytime in the foreseeable future. C. repay the S3N1 loan from the proceeds of the lease and lease-back financing, if available, in approximately February, 1998. 3. refinance the S3,1v1 loan, plus interest, prior to the December 31, 1997 maturity date based upon the lease revenues of the Santa Barbara Aerospace lease with the issuance of tax-exempt lease revenue notes. a. repay the financed S3M loan from the proceeds of the lease and lease-back financing, if available, in approximately February, 1998. b. invest the proceeds of the lease and lease-back financing as SBIAA reserves and use the interest income to support operating deficits of the SBIAA. -4- SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 IV. Status of Lease and Lease-Back Financing and use of Proceeds: A. Final appraisal figures are not available as of November 14, 1997. B. Proposed meeting with working group on November 19, 1997. C. anticipated closing date of February, 1998, assuming that there are no structural or financial concerns with the financing. D. lease and lease-back financing will require the credit support of the County of San Bernardino and the City of San Bernardino; investors do not want to have the other three (3) cities be subject to the guaranty due to added complexities in the credit review process and future enforcement of remedies against the guarantying parties. E. Use of Proceeds Options: 1. adopt a similar policy as did the County of San Bernardino and invest the proceeds as SBIAA reserves and apply the interest earnings for support of operating deficits (issue - will the County of San Bernardino permit the proceeds to be expended if the County of San Bernardino is guarantying at lease 1/3 of the financial risk of the financing). 2. pay off the S3',v1 loan, plus interest, to the then current members that have contributed towards the loan amount. 3. repay the IVDA the $Jivl plus interest owned on the prior loan advanced by the IVDA to the SBIAA. 4. apply the proceeds received solely for payment of the future operating deficits of the SBIAA. 5. apply the proceeds received solely for capital improvement projects and local matching fund contributions for current and future Airport improvement projects. V. Summary of SBIAA options: A. $800,000 short-term operating and capital deficit. -5- SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MINUTES NOVEMBER 25,1997 1. invoice each SBIAA member on a monthly basis. 2. SBIAA issue a 1 to 3 year tax-exempt note issue. 3. obtain a bank loan (possibly 7%, 2 points). 4. obtain a loan from a private lender (possibly 12% to 14%, 4 to 5 points). 5. the County of San Bernardino and/or City of San Bernardino agree to reloan in January 1998 all or a portion of the S1.5M that is to be repaid by the SBIAA after the payments of the $500,000 each are received by the SBIAA from the cities of Colton, Highland and Loma Linda. 6. payments directly (or reimbursement to members) from the proceeds of the lease and lease-back financing in approximately February 1998, if the guarantying parties agree to the release of proceeds. B. Repayment of the S3M line of credit (with the cities of Colton, Highland and Loma Linda remitting payments on or before December 31. 1997). 1. repayment from the proceeds of the lease and lease-back financing in approximately February 1998. ?. refinance the SJ.N I line of credit any time after January. 1998, with the proceeds of a tax-exempt note financing secured by the rental payments from the Santa Barbara Aerospace lease revenues. 3. refinance the S3NI line of credit any time after January, 1998, with the proceeds of a bank loan or a private lender financina secured by the rental payments from the Santa Barbara Aerospace lease revenues. 4. no repayment of either the principal or interest in the foreseeable future. 5. repayments directly to the members from the proceeds of the lease and lease-back financing in approximately February 1998, if the auarantvina parties agree to the release of proceeds. -6- SAN BER'YARDINO INT'L AIRPORT Ali THORTTY MEETING NILNUTES NOVEMBER 25,1997 C. Repayment of the $3M line of credit (without all of the cities of Colton, Highland and Loma Linda remitting the required payments of $500,000 each); same options as in B above but with the then remaining members of the SBIAA acting as the governing body of the SBIAA. Discussion ensued relative to the possibility of a short term loan of $400,000 by the IVDA pending the lease/leaseback financing package anticipated to be completed in February 1998. The request to the short-term lease would be submitted to the IVDA Board at its next regularly scheduled meeting. MOTION WAS MADE BY PRESIDENT MINOR AND SECONDED BY COUNCILMAlN GLENN ELSSMANN FOR (i) EACH MEMBER AGENCY (CITIES OF HIGHLAND, COLTON AND LOMA LINDA) TO REIMBURSE THE AIRPORT AUTHORITY AND BRING THEM UP TO PARITY WITH THE COUNTY AND CITY OF SAN BERNARDINO; (ii) EACH MEMBER AGENCY TO BE INVOICED FOR THE MONTHLY OPERATING EXPENSES OF THE AIRPORT PER THE JP A AGREEMENT; (iii) UPON THE COMPLETION OF THE LEASE/LE ASE BACK FINANCING PACKAGE, THE MEMBER AGENCIES WOULD BE REPAID FIRST. MOTION CARRIED UNANIMOUSLY. ANIMOUSLY. 6. ADDED AND DEFERRED ITEMS There were no added or deferred items. 7. PUBLIC COMMENT There were no public comments. 8. CLOSED SESSION There was no Closed Session. 19. ADJOURN MEETING The meeting adjourned at 2:35 p.m. Minutes approved at Board Meeting on January 14, 1998. Penny Chua Assistant Secretary of the Board -7- A Cash requirements November 1997 to March 1998 Amoun 1. Taxiway project $400,000 2. Terminal project interior 100,000 3. Terminal project exterior 15,000 4. Operational cost($70,000 per month) 350,000 5. Electric hook-up SCE 50,000 6. Hangar roofs 70,000 Total $985,000 B. Cash needs by months 1. November and December 1997 $140,000 2. January 1998 to March 1998 845,000 Total $985,000 y u g ;;may VU Pace 1 CURRENT DEVELOPMENT AT THE SAN BERNARDINO AIRPORT AND INTERNATIONAL TRADE CENTER March, 1998 • 2.2 million square feet of buildings have been leased since the base closed three years ago. • Nearly 2,600 jobs have been created or retained. �J • $15 million has been expended creating new roads and infrastructure. • $10 million has been expended or is in process on: a a. seismic retrofit on the Airport Terminal; s b. exterior remodeling of the Airport Terminal; m v E c. anew taxiway extension; ���`�; c „ d. runway markings and improvements; e. roof repairs on six (6)hangars. E W v «- 0 • Blue's Aviation is the Fixed Base Operator: cc c E a. servicing and overhauling of general aviation craft; ° E = cc b. refueling of aviation gas and jet fuel; -0`—' c. two (2) flying schools operate as sublessees; W a d. estimated annual flight operations at 30,000. W • Thirty-one acres of property have been sold to Ming Plaza Development which has completed: a. the Hangar Inn Bakery and Deli; b. a Children's Music School; c. Studio One - Tanning and Hair Salon; d. a Travel Agency; e. Neighborhood Club Oasis, international restaurant, and sports bar. f. Their plans call for the remodeling of the commissary into a Skating Rink starting in May 1998. • Five parcels have been leased with Options to Purchase totaling 15 acres. • Santa Barbara Aerospace: a. has employed 283 people and will hire about 20 more per month until they total approximately 800 employees; b. two 737's are being modified and refurbished; c. one 727 is being modified and refurbished; d. one 747 cargo plane is currently being modified and refurbished; e. this spring, more 747's will be at Santa Barbara for maintenance. • The IVDA will be holding a Public Hearing on April 8, 1998 to sell 157 acres to Space Center Mira Loma, Inc. who will develop a mixed-use industrial park. • The San Bernardino International Airport (SBIA) is a multi-purpose airport including air carrier, air cargo, heavy aircraft maintenance and general aviation. • As of February 1998, Casino Express began service with B-737's (a Part-121 carrier). The SBIA also has pending service promises from other passenger carriers. The completion of the new terminal building has been key to this air carrier service. The SBIA has completed a $3.5 million parallel taxiway project. The airport once again accommodates Custom Air Transport, a Part-121 cargo carrier from Ft. Lauderdale, Florida, which flies B-737's five days per week. Service was suspended for construction. • SBIA receives non-scheduled air cargo service from Heavylift Air Cargo (Russian AN-124) once per month with shipments from Hughes Aircraft to Russia. • SBIA tenant, Santa Barbara Aerospace, has 200 mechanics on staff and does heavy aircraft maintenance and painting for airline customers. Santa Barbara does major maintenance on heavy aircraft such as B-747's and other wide-bodied jets. The SBIA has already expended over $700,000 modifying the hangar environment and other systems to accommodate Santa Barbara Aerospace, but could not afford roof repair. By the end of 1998, Santa Barbara expects to employ 600 mechanics and turn-out one aircraft per week. A hangar roof repair project is currently underway and near completion which will remediate the roof situation at both the Santa Barbara Aerospace facility and at the SBIA hangars as well. • SBIA's general aviation is very active on the East end of the airport. There are approximately 30,000 operations per year, two flight schools, 18 based aircraft, two avionics shops, an engineer repair station, fuel and full services for corporate aircraft, and a Part-135 operator. • SBIA is becoming the dispatch center for the United States Forest Service fire tanker bombers. Area fires have caused heavy use of the airport this year. worddoc/bb/mar98/055.doc SAN BERNARDINO I ' NTL AIRPORT AUTHORITY MEETING MLNUTES November 25, 1997 A special meeting of the San Bernardino International Airport Authority was called to order by President Tom Minor at approximately 1:30 p.m.. Tuesday, November 25, 1997, in the Council Chambers, Loma Linda City Hall, 25541 Barton Road, Loma Linda, California. BOARD MEMBERS PRESENT: County of San Bernardino Supervisor Jerry Eaves City of Colton Mayor Karl Gaytan(1:40 p.m.) City of Loma Linda Secretary/Councilman Glenn Elssmann City of San Bernardino President/' ayor Tom Minor Councilman Jerry Devlin City of Highland Mayor Ray Rucker OTHERS PRESENT: William L. Bopf, Executive Director Jim Monger, Airport Director Penn-,- Chua. Clerk of the Board Alex Estrada. Senior Property & Project Manager Martin Romeo, Chief Financial Officer Tim Sabo. Sabo & Green Patti Colby, Executive Secretary sAN BERNARDINo EvrL AIRPORT AUTHORITY MEETING.MefUTEs NOVEMEER 25,1997 3. ITEMS TO BE ADDED OR DELETED There were no items to be added or deleted. 4. BOARD ITEM Item 95 - San Bernardino International Airport Authority Financing Issues Agency Counsel Tim Sabo distributed revised handouts and the following issues regarding funding for the Airport Authority were discussed: I. Immediate Cash Requirements: A. Funds Available and Obligations: 1. $318,000 remaining funds under County of San Bernardino and City of San Bernardino S3 million line of credit. 2. $310,000 required for final payment of matching funds for parallel taxiway project. B. Cash Requirements: 1. S 100.000 - Terminal Project matching funds. 2. S 1 50,000 - Terminal Exterior matching fiends. J. 5280.000 - operating deficit (570,000 per month for 4 months). 4. 5125.000 - electrical connections to SCE system. 5. S 70.000 - hangar roofs matching funds. 6. S 75,000 - contingency and miscellaneous. 7. 5800,000 -total additional funds required from November 1997, through February, 1998. H. Citv of San -Bernardino and Countv of San Bernardino S3 million loan status: A. approximately S2.71v1 already drawn as of November 14, 1997; final draws will be made by November 30, 1997. B. upon disbursement of the final draw, the County of San Bernardino will have loaned S 1 M and the City of San Bernardino will have loaned $2M to the SBIAA. SAN BERNARDINO INT'L AIRPORT AUTHORrrY MEETING MINUTES ,NOVEMBER 25,1997 C. remaining $318,000 is required to be drawn for final payment on parallel taxiway project. D. no further draws can be made after December 15, 1997 under the Loan Agreement with the County of San Bernardino and the City of San Bernardino. E. the cities of Colton. Highland and Loma Linda each owe $500,000 on or before December 31, 1997 or the defaulting city or cities will forfeit membership in the SBIAA. F. when the cities of Colton, Highland and Loma Linda each pay their $500,000 amount, the SBIAA will still owe $3M under the Loan Agreement; the County of San Bernardino will be owed $500,000, plus interest, and the City of San Bernardino will be owed $1 M, plus interest, by the SBIAA; the cities of Colton,Highland and Loma Linda will then be owed their respective $ 00,000 amounts, plus interest accrual from the date of the advance, until repaid. III. Alternatives Available to SBIAA: A. payment of the anticipated $800,000 4-month operating deficit that will be incurred through February, 1998: 1. bill each of the members their share of the operating deficit equal to $33,333.3; per month for the County of San Bernardino and the cities of Colton. Highland and Loma Linda, and $66.666.66 per month for the City of San Bernardino for the months of November and December 1997 and January and February 1998. ?. SBIA.-k issues a tax-exempt lease revenue note payable from the Santa Barbara Aerospace lease equal to approximately $900,000 to •$1M. SBI:_-� obtains a tax-exempt or taxable short-term loan or line of credit from a bank or private lender payable from Santa Barbara Aerospace lease revenues. B. $3�vl County of San Bernardino and City of San Bernardino loan repayment: SAN BEXNARDRYO Orl"L AIRPORT AUTHORM MEETING MriUTES " NOVEMBER 25,Im 1. no action - each of the other cities remit their payments of $500,000 each on or before December 31, 1997, and then undertake alternative a, b, or c below: a. refinance the $3M loan from the five (5) members of the SBIAA in January, 1998, with the issuance of tax-exempt lease revenue notes. b. do not refinance the $3LI loan from the five (5) members at anytime in the foreseeable future. C. repay the $3M loan from the proceeds of the. lease and lease-back financing, if available, in approximately February, 1998. 2. no action - other 3 cities do not remit their payments of$500,000 each and the non-participating members are automatically expelled from the SBIAA after December 31, 1997. a. refinance the S3M loan from the two (2) remaining members of the SBIAA in January, 1998, with the issuance of tax-exempt lease revenue notes. b. do not refinance the $3M loan from the two remaining members at anytime in the foreseeable future. C. repay the S3Nf loan from the proceeds of the lease and lease-back financing, if available. in approximately February, 1998. 3. refinance the S3NI loan, plus interest, prior to the December 31, 1997 maturity date based upon the lease revenues of the Santa Barbara Aerospace lease with the issuance of tax-exempt lease .revenue notes. a repay the financed S3M loan from the proceeds of the lease and lease-back financing, if available.. in approximately February, 1998. b. invest the proceeds of the lease and lease-back financing as SBIAA reserves and use the interest income to support operating deficits of the SBIAA. -4- SAN BERNARDINO INT'L AIRPORT AUTHORITY • FETING MEWTES NOVEMBER 25,1997 IV. Status of Lease and Lease-Back Financing and use of Proceeds- A. Final appraisal figures are not available as of November 14, 1997. B. Proposed meeting with working group on November 19, 1997. C. anticipated closing date of February, 1998, assuming that there are no structural or financial concerns with the financing. D. lease and lease-back financing will require the credit support of the Count-,• of San Bernardino and the City of San Bernardino; investors do not want to have the other three (3) cities be subject to the guaranty due to added complexities in the credit review process and future enforcement of remedies against the guarantying parties. E. Use of Proceeds Options: 1. adopt a similar policy as did the County of San Bernardino and invest the proceeds as SBIAA reserves and apply the interest earnings for support of operating deficits (issue - will the County of San Bernardino permit the proceeds to be expended if the County of San Bernardino is guarantying at lease 1/3 of the financial risk of the financing). 2. pay off the $3-I loan. plus interest, to the then current members that have contributed towards the loan amount. J. repay the IVDA the $5iV1 plus interest owned on the prior loan advanced by the IVDA to the SBIAA. 4. apply the proceeds received solely for payment of the future operating deficits of the SBIAA. 5. apply the proceeds received solely for capital improvement projects and local matching fund contributions for current and future airport improvement projects. V. Summary of SBIAA options: A. $800,000 short-term operating and capital deficit. SAN BERNARDINO INT'L AIRPORT AUTHORITY MEETING MENUTES NOVEMBER 25,19W 1. invoice each SBIAA member on a monthly basis. 2. SBIAA issue a 1 to 3 year tax-exempt note issue. 3. obtain a bank loan(possibly 7%, 2 points). 4. obtain a loan from a private lender (possibly 12% to 14%, 4 to 5 points). 5. the County of San Bernardino and/or City of San Bernardino agree to reloan in January 1998 all or a portion of the S1.52M that is to be repaid by the SBIAA after the payments of the $500,000 each are received by the SBIAA from the cities of Colton, Highland and Loma Linda. 6. payments directly (or reimbursement to members) from the proceeds of the lease and lease-back financing in approximately February 1998, if the guarantying parties agree to the release of proceeds. B. Repayment of the $3M line of credit (with the cities of Colton, Highland and Loma Linda remitting payments on or before December 31. 1997). 1. repayment from the proceeds of the lease and lease-back financing in approximately February 1998. 2. refinance the S3vI line of credit any time after January. 1998, with the proceeds of a tax-exempt note financing secured by the rental payments from the Santa Barbara Aerospace lease revenues. 3. refinance the 531 line of credit any time after January, 1998, with the proceeds of a bank loan or a private lender financing secured by the rental payments from the Santa Barbara Aerospace lease -revenues. 4. no repayment of either the principal or interest in the foreseeable future. 5. repayments directly to the members from the proceeds of the lease and lease-back financing in approximately February 1998, if the Quaranrying parties agree to the release of proceeds. -6- SAN BERNARDLYO INT'L AIRPORT AL-rHORm MEETLYG MINUTES NOVEMBER 25,1997 C. Repayment of the $3M line of credit (without all of the cities of Colton, Hiahland and Loma Linda remitting the required payments of $500,000 each); same options as in B above but with the then remaining members of the SBIAA acting as the governing body of the SBIAA. Discussion ensued relative to the possibility of a short term loan of $400,000 by the IVDA pending the lease/leaseback financing package anticipated to be completed in February 1998. The request to the short-term lease would be submitted to the IVDA Board at its next regularly scheduled meeting. MOTION WAS MADE BY PRESIDENT MINOR AND SECONDED BY COUNCILyIAN GLENN ELSSMANN FOR (i) EACH MEivIBER AGENCY (CITIES OF HIGHLAND, COLTON AND LOMA LINDA) TO REIMBURSE THE AIRPORT AUTHORITY AND BRING THEM UP TO PARITY WITH THE COUNTY AND CITY OF SAN BERNARDINO; (ii) EACH MEvIBER AGENCY TO BE INVOICED FOR THE MONTHLY OPERATING EXPENSES OF THE AIRPORT PER THE JP A AGREEMENT; (iii) UPON THE COMPLETION OF THE LEASEILE ASE BACK FINANCING PACKAGE, THE MEMBER AGENCIES WOULD BE REP AID FIRST. MOTION CARRIED UNANIMOUSLY. 6. ADDED AND DEFERRED ITEMS There were no added or deferred items. 7. PUBLIC COMINIENT There were no public comments. 8. CLOSED SESSION There was no Closed Session. 19. ADJOURN MEETING The meeting adjourned at 2:35 p.m. Minutes approved at Board Meeting on January 14, 1998. Penny Chua Assistant Secretary of the Board -7- A- Cash requirements November 1997 to March 1998 Amount 1. Taxiway project $400,000 2. Terminal project interior 100,000 3. Terminal project exterior 15,000 4. Operational cost($70,000 per month) 350,000 5. Electric hook-up SCE 50,000 6. Hangar roofs 70,000 Total $985,000 B. Cash needs by months 1. November and December 1997 $140,000 2. January 1998 to March 1998 845,000 Total $985,000 e Page 1