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q 1 6 -42 interpretation and application of these provisions could result in an inability of the City to pay the Lease Payments when due. See "RISK FACTORS - State Budget Deficit" below and "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS" herein. Limited Recourse on Default: No Acceleration If the City defaults on its obligation to make Lease Payments, there is no available remedy of acceleration of the total Lease Payments due over the term of the Lease Agreement The City will only be liable for Lease Payments on an annual basis, and the Trustee would be required to seek a separate judgment in each fiscal year for that fiscal year's rental payments. Limitation on Remedies; Bankruptcy The rights of the Owners of the Bonds are subject to the limitations on legal remedies against cities and counties in the State, including State constitutional limits on expenditures and limitations on the enforcement of judgments against funds needed to serve the public welfare and interest, by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws affecting the enforcement of creditors' rights, by equitable principles, by the exercise of judicial powers in appropriate cases and by the exercise by the federal and State governments of their sovereign powers. The opinions of counsel, including Bond Counsel, delivered in connection with the Bonds will be so qualified. Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the City, there are no involuntary petitions in bankruptcy. Bankruptcy proceedings, if initiated, or the exercise of powers by the federal or state government, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy proceedings or otherwise and consequently may entail risk or delay, limitation or modification of their rights. Priority of Lease Agreement Upon Destruction of Leased Property or Eminent Domain As discussed under the heading "THE FINANCING PLAN," the Lease Agreement constitutes a sublease of interests of the City and the Authority under a lease entered into in 1998 in connection with the 1998 Bonds. U.S. Bank National Association, as Trustee under the 1998 Bonds, will continue to have a first priority lien on the Leased Property with regard to obligations created in connection with the 1998 Bonds. Accordingly, the Trustee will have a subordinate interest in the Net Proceeds of insurance or condemnation with respect to the Leased Property. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS - Insurance." Abatement The City's obligation to pay Lease Payments will be subject to abatement during any period in which by reason of damage or destruction there is substantial interference with the use and occupancy by the City of the Leased Property or any portion thereof. Such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. State Budget Deficit The State of California is currently experiencing severe financial and budgetary stress, which resulted in an approximate $38 billion State General Fund deficit for fiscal year 2003 -04 at the time the State budget was being prepared. On August 2, 2003, Governor Davis signed the 2003 -04 State Budget into law. The State Budget includes significant cutbacks affecting -16-