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<br />73 <br />Bankruptcy proceedings, or the exercise of powers by the federal or state government, if <br />initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their <br />rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or <br />modification of their rights. The opinion of Bond Counsel notes that the rights of the owners of <br />the Bonds and the enforceability of the Bonds and the Indenture are limited by bankruptcy, <br />insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights <br />generally, and by equitable principles, whether considered at law or in equity. <br />The City is a governmental unit and therefore cannot be the subject of an involuntary <br />case under the United States Bankruptcy Code (the “Bankruptcy Code”). However, the City is a <br />municipality and therefore may seek voluntary protection from its creditors pursuant to <br />Chapter 9 of the Bankruptcy Code for purposes of adjusting its debts. If the City were to become <br />a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions <br />of the Bankruptcy Code as applicable in a Chapter 9 case. Among the adverse effects of such a <br />bankruptcy might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, <br />which, until relief is granted, would prevent collection of payments from the City or the <br />commencement of any judicial or other action for the purpose of recovering or collecting a claim <br />against the City and could prevent the Trustee from making payments from funds in its <br />possession; (ii) the avoidance of preferential transfers occurring during the relevant period prior <br />to the filing of a bankruptcy petition; (iii) the existence of unsecured or secured debt which may <br />have a priority of payment superior to that of Owners of the Bonds; and (iv) the possibility of the <br />adoption of a plan (an “Adjustment Plan”) for the adjustment of the City’s various obligations <br />over the objections of the Trustee or all of the Owners of the Bonds and without their consent, <br />which Adjustment Plan may restructure, delay, compromise or reduce the amount of any claim <br />of the Owners if the Bankruptcy Court finds that such Adjustment Plan is “fair and equitable” and <br />in the best interests of creditors. The Adjustment Plans approved by the Bankruptcy Courts in <br />connection with the bankruptcies of the cities of Vallejo, San Bernardino and Stockton resulted <br />in significant reductions in the amounts payable by the cities in connection with lease revenue <br />obligations substantially identical or similar to the Bonds. The City can provide no assurances <br />about the outcome of the bankruptcy cases of other California municipalities or the nature of any <br />Adjustment Plan if it were to file for bankruptcy. <br /> <br />In addition, the City could either reject the Site Lease or the Lease or assume the Site <br />Lease or the Lease despite any provision of the Site Lease or the Lease that makes the <br />bankruptcy or insolvency of the City an event of default thereunder. If the City rejects the Lease, <br />the Trustee, on behalf of the Owners of the Bonds, would have a pre-petition unsecured claim <br />that may be substantially limited in amount, and this claim would be treated in a manner under <br />an Adjustment Plan over the objections of the Trustee or Owners of the Bonds. Moreover, such <br />rejection would terminate the Lease and the City’s obligations to make payments thereunder. <br />The City may also be permitted to assign the Lease (or the Site Lease) to a third party, <br />regardless of the terms of the transaction documents. <br /> <br />Litigation <br />The City may be or become a party to litigation that has an impact on the City’s General <br />Fund. Although the City maintains certain insurance policies that provide coverage under <br />certain circumstances and with respect to certain types of incidents (see “THE CITY AND CITY <br />FINANCIAL INFORMATION – Risk Management” for further information), the City cannot <br />predict what types of liabilities may arise in the future and whether these may adversely affect <br />the ability of the City to pay Lease Payments under the Lease when due. See also <br />“CONCLUDING INFORMATION – Litigation.”