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FROM BRIGGS & MORGAN (WED) 07. 08' 98 15:24/ST. 15:23/N0. 3561732864 P 3 BRIGGS ]mute ry Joel Hanson July 8, 1998 Page 2 The initial proposal you, Mr. FinreId and I developed for presentation to the Council and Cinemark USA, Inc. in March. structured the transaction to take advantage of the City's unique statutory powers; to minimize the credit risk to the City (by credit risks I mean the risk that the Developer will not repay the City funds the City advances towards the development); and to protect the City, to the greatest extent possible, front development risks (by development risks I mean risks that either the cost of developing the property will be greater than anticipated or the profit earned from the development of the property will be less than anticipated). To accomplish these goals we developed a proposal that required the City to acquire and assemble the property and convey the property to the Developer using bond proceeds to finance the acquisition. The Developer was obligated to purchase the property at a price equal to the City's acquisition cost thus ensuring the City would have funds available to repay the bonds. The Developer was required to provide a letter of credit before the City commenced the acquisition process to secure the Developer's obligation to acquire the property from the City after the City had assembled the property. The Developer received "pay as you go" tax increments to partially reimburse the Developer for acquisition costs. It is my understanding that Cinemark USA, Inc. asked you to modify this proposal to allow Cinemark USA, Inc. to finance the cost of the land acquisition for the Theater Parcel through the use of a Ground Lease. The use of a Ground Lease allows the Developer to acquire the property without cbmmitting cash up front and without borrowing to fund the acquisition. in effect, the City lends the Developer the acquisition costs and recovers those costs through rent payments. The use of the Ground Lease increases the City's credit risk. The City will advance funds to assemble the property upon the execution of the Lease but will not be fully repaid for several years, Although Cinemark USA, Inc. has a contractual obligation to make the lease payments and the City has the ability to recover the leased property if Cinemark USA, Inc. does not make the required lease payments, the City bears the economic risk that Cinemark USA, Inc. will fail or refuse to make lease payments and that either Cinemark USA, Inc. will have inadequate assets to satisfy a judgment for the balance of the lease payments or the amounts the City can care through the sale or re -lease of the Ground Lease property will be insufficient to reimburse the City for the amounts it 95632$.1 Page 2