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Home My WebLink AboutOB 1 RES 93-19 03-01-93A ran 1: KI n L p OLD BUSINESS NO. 1 3-1-93 MA �.. cw�s, DATE: FEBRUARY 23 1993 Inter-COCYl % TO: WILLIAM HUSTON, CITY MANAGER FROM: RONALD A. NAULT, FINANCE DIRECTOR CITY OF TUSTIN RESOLUTION #93-19, AUTHORIZING THE LIMITATION SUBJECT: OF PROPOSALS FOR THE PURCHASE OF NOT TO EXCEED $12,000,000 AGGREGATE PRINCIPAL AMOUNT OF CERTIFICATES OF PARTICIPATION Recommendation Adopt City of Tustin Resolution #93-17 authorizing the invitation of proposals for the purchase of not to exceed $12,000,000 aggregate principal amount of certificates of participation of said city; approving the notice inviting bids and the notice of intention to sell certificates; and authorizing the delivery of the preliminary official statement and the publication of the Notice of Intention To Sell Certificates and the Notice Inviting Bids. Discussion In August of 1992 the City Council received a report describing certain storage capacity and distribution system deficiencies in the City's water system. A public workshop was held to review the engineer's report and evaluate a Rate Study and financing Plan that was prepared to accomplish the goals recommend by staff and the consulting engineers. A public hearing wasMeld in September, where the City Council adopted certain rate increases to be effective November 1 of 1993, 1994 and 1995. The City Council further directed staff to proceed with recommendations regarding the issuance of bonded debt as detailed in the financing plan. Staff has been proceeding according to the revised schedule for sale of bonds that is attached to this report. The City's financial Advisor, Lora Stovall, of Bartle Wells and Associates, has prepared a summary of the analysis that was made to review the issues of negotiated vs. competitive sale and variable rate vs. fixed rate interest rate modes. That report is also attached. February 23, 1993 Memo to William Huston, City Manager (cont'd.) Other documents attached for your review and approval are the Notice of Intention To Sell; Notice Inviting Bids; the draft preliminary Official Statement; the draft Installment Purchase Agreement; the draft Trust Agreement; the draft Assignment Agreement; and the draft Escrow Agreement. Staff will be making presentations to the bond rating agencies in early March with the intent of accepting bids and presenting a recommendation for award of bonds for City Council consideration at the meeting of April 5. The final closing and receipt of funds will be scheduled for the week of April 19. In addition the Notice Staff will questions. RAN: ab Att. (9) to signing Resolution 93-17, the Mayor should also sign of Intention To Sell and the Notice Inviting Bids. be available at the Council meeting to respond to 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 2i 2E CITY OF TUSTIN RESOLUTION NO. 93-17 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA AUTHORIZING THE INVITATION OF PROPOSALS FOR THE PURCHASE OF ,NOT TO EXCEED $12,0000,000 AGGREGATE PRINCIPAL AMOUNT OF CERTIFICATES OF PARTICIPATION OF SAID CITY; APPROVING THE NOTICE INVITING BIDS AND THE NOTICE OF INTENTION TO SELL CERTIFICATES; AND AUTHORIZING THE DELIVERY OF THE PRELIMINARY OFFICIAL STATEMENT AND THE PUBLICATION OF THE NOTICE OF INTENTION TO SELL CERTIFICATES AND THE NOTICE INVITING BIDS WHEREAS, this City Council deems it necessary and proper that proposals be invited for the purchase of not to exceed $12,000,000 aggregate principal amount of City of Tustin,.Water System Revenue Certificates of Participation, 1993 Series (the "Certificates") of the City of Tustin, California (the "City"),, and that the Certificates be sold in the manner described below; NOW, THEREFORE, the City Council of the City of Tustin, California, DOES HEREBY RESOLVE, DETERMINE AND ORDER as follows: SECTION 1. Sealed proposals for the purchase of the Certificates shall be received by the Director of Finance of the City or his designee (the "Director of Finance") at the date, time and place provided for in the Notice Inviting Bids as hereinafter approved or at such other dates and times as shall be determined by the Director of Finance. SECTION 2. The form, terms and provisions of the Notice Inviting Bids, as submitted to this meeting, are hereby approved and adopted as part of this Resolution. The City Clerk is hereby authorized and directed to cause such notice to be published once, at least fifteen (15 ) days prior to the earliest date for receiving proposals provided for therein, in The Tustin News, the official newspaper of the City, with such changes, insertions and omissions as the Director of Finance or the City Clerk shall approve, such approval to be conclusively evidenced by such publication of the Notice Inviting Bids. 1I 1: 1` 1� 19 1F lE li 18 19 2C 21 22 23 24 25 26 27 28 Page 21 Resolution No. 93-17 SECTION 3. The form, terms and provisions of the Notice of Intention to Sell Certificates, as submitted to this meeting, are hereby approved and adopted as part of this Resolution. The City Clerk is hereby authorized and directed to cause such notice to be published once, at least fifteen 15 days ' y prior to the earliest date forreceiving proposals stated therein, in The Bond Buyer, a financial publication circulated throughout California, with such changes, insertions and omissions as the Director of Finance or the City Clerk shall approve, such approval to be conclusively evidenced by such publication of the Notice of Intention to Sell Certificates. SECTION 4. The Director of Finance may withdraw or modify the Notice Inviting Bids and the Notice of Intention to Sell Certificates, or either, at any time by notice published via Munifacts wire or other means determined by the Director of Finance to be reasonably calculated to reach potential bidders for Certificates. If the Director of Finance should withdraw the Notice Inviting Bids and the Notice of Intention to Sell Certificates at any time before the Certificates are awarded, and should at a later date determine that it is desirable to receive bids for the Certificates, then the City Clerk is hereby authorized to republish the Notice Inviting Bids and the Notice of Intention to Sell Certificates with such modifications or revisions as are approved by the Director of Finance. SECTION S. The Director of Finance is hereby authorized to approve a Preliminary Official Statement relating to the Certificatessuch approval pproval to be conclusively evidenced by the delivery thereof) (the "Preliminary Official Statement") and the City Council hereby approves the use of the Preliminary Official Statement in connection with the offering and sale of the Certificates. The Director of Finance is authorized to deem the Preliminary Official Statement to be final within the meaning of Securities and Exchange Commission Rule 15c2-12 subject to the completion of those items permitted by said Rule. SECTION 6. The City Clerk and the Director of Finance are authorized and directed to cause to be furnished to prospective bidders for the Certificates, upon their request, a reasonable number of copies of the Notice Inviting bids and the Preliminary Official Statement. SECTION 7. The Mayor, Director of Finance, Treasurer, City Clerk, Deputy City Clerk and other appropriate officers of the City are hereby further authorized and directed to execute and deliver any and all documents and instruments and to carry out the transactions contemplated by the Preliminary Official Statement or this Resolution. -- 1 Page 3, Resolution No. 93-17 2 PASSED AND ADOPTED by the City Council of the City of Tustin at a regular meeting held on the 1st 3 day of March, 1993. 4 Leslie Pontious, Mayor 6 Mary E. Wynn, City Clerk 7 t 8 STATE OF CALIFORNIA ) 9 COUNTY OF ORANGE ) SS CITY OF TUSTIN 10 CERTIFICATION FOR RESOLUTION NO. 93-17 11 Mary E. Wynn, City Clerk and ex-off icio Clerk of the City Council of the City of Tustin, California, 12 does hereby certify that the whole number of the members of the City Council is five;' that the above 13 and foregoing Resolution was duly and regularly passed and adopted at a regular meeting of the City 14 Council held on the 1st day of March, 1993 by the 15 following vote: 16 COUNCILMEMBER AYES: COUNCILMEMBER NOES: 17 COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: 18 Mary E. Wynn, City Clerk 19 20 21 22 23 24 25 26 27 28 Memo To: City of Tustin From: Lora J. Stovall Subject: Issuance of Water Certificates of Participation Date: February 23, 1993 Bartle Wells Associates 1636 Bush Street San Francisco 94109 415/775-3113 FAX 415/775-41,- Charter 15/775-41,Charter member National Association of Independent Public Finance Advisors The material to be considered by the City Council at its March 1 meeting in- cludes the documents necessary for the issuance of certificates of participation for the water system improvements. This memo discusses the recommended ap- proach to selling the certificates, the schedule of activities, and the documents submitted to the Council. The Certificates The amount of the recommended certificate issue is $11.5 million, maturing over 20 years, with approximately equal annual payments. Proceeds of the certifi- cates will be used as follows: New water projects .......................... $ 513422000 Refund 1983 water bonds ...................... 3,860,000 Repay loan to OCWD ......................... 1,388,000 Create reserve fund .......................... 1,065,000 Costs of issuing certificates ..................... 295,000 Total ....................... $11,500,000 Annual debt service is expected to be about $1,040,000. The debt service on the 1983 water bonds is about $550,000 per year; the reduction in interest rate from the refunding will reduce the cost of that debt by about $200,000 per year. Method of Sale At its meeting of September 21, 1992, the Council approved the recommended water rates and the issuance of certificates of participation to finance water sys- tem improvements. .There was some discussion at that meeting as to whether the certificates should be sold by competitive or negotiated sale. Bartle Wells Associates recommends that the certificates be sold by competitive sale, and the proposed resolution and other documents implement that recom- mendation. We believe, based on our professional experience, that the cost to the City on this issue, both in interest rate and issuance costs, will be lower with a competitive sale. The size of the issue is moderate and well suited to competi- tive bidding. The certificates will be secured by water revenues; the water rates needed to pay debt service are in place; the projects do not depend on growth. All of these characteristics make this a strong and straightforward issue which will sell readily by competitive sale, and save the City money. We would recommend serious consideration of a negotiated sale at this time if the issue were not secured by utility revenues. In California today, bonds that are secured by land or development, such as assessment or Mello Roos or rede- velopment agency bonds, need special explanation, and should probably be sold 4 _ City of Tustin February 23, 1993 Page 2 by negotiation. Bonds that are secured by the Cites general fund, in the face of the state's actions reducing local revenues, also require special marketing and the extra costs of a negotiated sale would be justified. This is not the case with a utility revenue issue, such as the water certificates. Council Actions The resolution which the Council will consider authorizes staff (and its advisors) to proceed with the actions necessary to sell the certificates, and specifically does the following things: ■ calls for sealed bids on the certificates as provided in the Notice Inviting Bids; ■ calls for the publication of two notices which invite bids on the certificates; ■ approves a preliminary official statement and authorizes its distribution; ■ authorizes designated officials to take the actions necessary to sell the certificates. Following adoption of the resolution, the preliminary official statement will be printed and distributed to 200 to 300 potential underwriters, investors, rating agencies, and credit analysts. Schedule The notices call for the receipt of sealed bids at 11 a.m. on Monday, April 5, 1993 at the offices of Mudge Rose Guthrie Alexander & Ferdon, in Los Angeles. The bids will be presented to the Council at its meeting that evening. Assuming satisfactory bids, Council will be asked to consider a resolution awarding the cer- tificates to the low bidder. A schedule of the remaining activities leading up to the sale is attached. Basic Documents ■ Preliminary Official Statement: The official statement is the basic disclosure and marketing document about a new bond issue. It should contain all of the information a potential investor needs to know when purchasing the certifi- cates, such as descriptions of the issue, the legal documents, the water system and the project, revenues and sources of funds available- to pay debt service, and information on the City and the economy of the area. This document is a preliminary official statement prior to the issuance of the certificates. Follow- ing receipt of bids for the certificates, it will be finalized with details on the actual interest rates and payments on the certificates, to produce the official statement and provided to the underwriter for distribution to bond purchasers. ■ Notice of Sale and Notice of Intention: These attachments to the resolution are the official advertisements for the certificates, which provide information to bidders on the certificates and the terms of sale. City of Tustin February 23, 1993 Page 3 ■ Installment Purchase Agreement: This is an agreement between the City of Tustin Water Corporation and the City, under which the Corporation agrees to acquire and construct the project for sale to the City. As agent of the Corpo- ration, the City will enter into contracts for the construction of the project. In the agreement, the City agrees to make payments for the project, and cove- nants to establish and maintain water rates and charges which will produce net revenues of not less than 120 percent of annual debt service. ■ Trust Agreement: This is an agreement between the, City, the Corporation, and the Trustee (Bank of America) under which the Trustee agrees to issue the certificates. The Trust Agreement specifies the terms and conditions of the certificates, the flow of funds, covenants, and other details. ■ Assignment Agreement: Under this agreement between the Corporation and the Trustee, the Corporation assigns its rights under the Installment Purchase Agreement to the Trustee for the benefit of the certificate holders. Under this agreement, -the City will make debt service payments directly to the Trustee. ■ Escrow Agreement: This an agreement between the Corporation and Bank of America under which B of A agrees to take the actions necessary to refund the Corporation's outstanding bonds. LJS:mt ` Enc. CITY OF TUSTIN SCHEDULE FOR SALE OF BONDS SALE DATE: APRIL 511992 RESPONSIBLE COMPLETION ACTION PARTY DATE Authorization to proceed .............................. City Meeting w/city staff re: data collection, financial status, issue size & structure ................................ BWA Terms and conditions to bond counsel ..................... BWA Draft legal documents ................................. MR Draft preliminary official statement (POS) circulated for review .... BWA Meeting to review POS and legal documents ................. All Revisions to POS draft ............................... BWA POS to city for council packet for March 1 meeting ........... BWA Council consideration of actions leading to sale of bonds:....... Council ■ Resolution approving official statement & calling for bids Final correction date .................................. All Official statement production (typography/printing) completed ..... BWA Mail official statement ................................ BWA Ratings available ................................... -- Bids for bonds received and evaluated ..................... BWA Council consideration of award of bonds to low bidder ......... Council ■ Resolution awarding bonds and approving execution of legal documents Predose.......................................... All Closing........................................... All KEY: City . - City. of Tustin Council - Tustin City Council BWA - Bartle Wells Associates MR - Mudge Rose Guthrie Alexander & Ferdon City council meetings: 1st & 3rd Mondays Council meeting packet distribution: Noon Wednesday of preceding week December 21 January 14 January 18 January 29 February 1 February 8 February 8 February 24 March 1 March 5 March 19 March 19 March 31 April 5 April 5 April 20 April 21 BARTLE WELLS ASSOCIATES 2/23/93 NOTICE OF INTENTION TO SELL $11,500,000 CITY OF TUSTIN WATER SYSTEM REVENUE CERTIFICATES OF PARTICIPATION 1993 SERIES NOTICE IS HEREBY GIVEN that the above Certificates will be offered for public sale on Monday, April 5, 1993, at 11:00 a.m. Pacific Time, at the offices of Mudge Rose Guthrie Alexander & Ferdon, 333 South Grand Avenue, 21st floor, Los Angeles, CA 90071-1525 (telephone 213/613-1112), and cop- ies of the Notice Inviting Bids (along with a Preliminary Official Statement relating to the Certificates) will be furnished upon request to Bartle Wells Associates, 1636 Bush Street, San Francisco, California 94109 (telephone 415/775-3113). Dated: March 1, 1993 Mayor City of Tustin NOTICE INVITING BIDS $11,500,000 CITY OF TUSTIN WATER SYSTEM REVENUE CERTIFICATES OF PARTICIPATION 1993 SERIES NOTICE IS HEREBY GIVEN that sealed bids will be received by the City of Tustin (the "City") for the purchase of $11,500,000 principal amount of the City's Water System Certificates of Participation, 1993 Series ("Certificates"), more particularly described. below, at the place and up to the time below specified: Time: 11:00 a.m. Pacific Time Monday, April 5, 1993 Place: At the offices of Mudge Rose Guthrie Alexander & Ferdon 333 South Grand Avenue, 21st floor Los Angeles CA 90071-1525 213/613-1112 Mailed Bids Addressed to: City of Tustin c/o Mudge Rose Guthrie Alexander & Ferdon 333 South Grand Avenue, 21st floor Los Angeles CA 90071-1525 Faxed Bids: 213/680-1358 Opening of Bids and Award of Certificates: The bids will be opened at 11:00 a.m. Pacific Time on Monday, April 5, 1993, at the above -stated location, and will be presented at a meeting of the Tustin City Council to be held later that day. Late bids will be returned unopened. Date: The Certificates will be dated April 1, 1993. Interest Payment: Interest will be paid on April 1 and October 1 of each year, beginning October 1, 1993. Maturities: The Certificates will mature on April 1 in each year, as follows: DUE DATE PRINCIPAL DUE AMOUNT DATE PRINCIPAL AMOUNT 1994 ....... • • • • • • ... $275,000 2004 ................ $ 5502000 1995 ................. 300,000 2005 ................ 600,000 1996 .................. 325,000 2006 ................ 625,000 1997 ................. 350,000 2007 .... • • • • • .... • • • 675,000 1998 ................. 375,000 2008 ................ 725,000 1999 ................. 400,000 2009 ...... • • . • • • • • • • 775,000 2000 ................. 425,000 2010 ................ 825,000 2001 ................. 450,000 2011 ................ 875,000 2002 ................. 500,000 2012 ................ 925,000 2003 ................. 525,000 2013 ................ 1,000,000 1 Redemption: Certificates maturing 1994 through 2003 are not callable. Certificates maturing 2004 through 2013 are callable at the option of the City as a whole or in part as selected by the City in integral multiples of $5,000 on any date on or after April 1, 2003, together with accrued interest thereon. The prepayment price is ex- pressed as a percentage of the principal amount of Certificates to be prepaid as follows: PREPAYMENT DATE PREPAYMENTPRICE April 1, 2003 through March 31, 2004 102% April 1, 2004 through March 31, 2005 ...................... 101 April 1, 2005 and thereafter ............................. 100 Interest Payment: Interest on the Certificates will be payable on April 1 and October 1 of each year, beginning October 1, 1993. Purpose of Issue: Proceeds of the Certificates will be used to refund all of the outstanding lease revenue bonds of the City of Tustin Water Corporation; to repay a loan to the Orange County Water District; to construct water system improvements, including storage reservoirs, well improvements, and distribu- tion facilities; to acquire land and rights-of-way; to reimburse costs advanced by the City; and to pay engineering design expenses. Security: Each Certificate represents a direct, undivided proportional interest in the right to receive Purchase Payments made by the City under the Install- ment Purchase Agreement. Purchase Payments have been assigned to Bank of America National Trust and Savings Association, as Trustee. The obligation of the City to make Purchase Payments is a special obligation of the City, payable from net revenues of the Water Fund, as described in the In- stallment Purchase Agreement and the Trust Agreement. The City's obligation to pay the Purchase Payments from the Water Fund is absolute and unconditional, whether or not the project or any part thereof is operating or operable. The payments are not subject to abatement or reduction for any cause whatsoever. The obligation of the City to make Purchase Payments does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or .restriction, and does not constitute an obligation for which the City is obli- gated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The City will fund from proceeds of the Cer- tificates a Reserve Account in an amount equal to the least of maximum annual debt service, 125% of average annual debt service, or 10% of the proceeds of the Certificates to secure the City's obligation to pay Purchase Payments under the Installment Purchase Agreement. The City will covenant to maintain water revenues sufficient to produce net revenues in each fiscal year of at least 1.2 times debt service with respect to such fiscal year. Net revenues are calculated as gross revenues from water ser- vice charges and all other income derived by the City from ownership, opera- tion, use, or service of the water system, less maintenance and operation ex- penses of the water system. 2 Book -Entry -Only: The Certificates when initially executed and delivered will be registered in the name of Cede & Co., as registered owners and nominee for the Depository Trust Company, New York New York ("DTC"), and will be avail- able to ultimate purchasers in book -entry form only in denominations of $5,000, or any integral multiple thereof. Purchasers of the Certificates will not receive certificates representing their interest in the Certificates. Trustee: Bank of America National Trust and Savings Association, Los Ange- les California, as Trustee, will act as agent of the City for payment of the in- terest and principal and prepayment premiums, if any, evidenced and repre- sented by, and for the registration and execution of, the Certificates. Tax -Exempt Status: The legal opinion of Mudge Rose Guthrie Alexander & Ferdon, Los Angeles, California, and Rourke, Woodruff & Spradlin, a Profes- sional Corporation, Orange, California, Co -Special Counsel, that the portion of the Purchase Payments comprising interest, assuming compliance with certain covenants, is excluded from gross income for federal income-tax purposes and is exempt from present State of California personal income taxes, will be fur- nished to the successful bidder. TERMS OF SALE Interest Rate: Bidders must specify the rate or rates of interest per annum, and -- the same rate or rates may be repeated as often as desired; provided, however: ■ Interest rate may not exceed twelve percent (12%) per annum. ■ Each interest rate specified must be in a multiple of 1/20th of one percent. ■ No Certificate shall bear more than one rate of interest. ■ Each Certificate shall bear interest from its date to its stated maturity date at the interest rate specified in the bid. ■ All Certificates of the same maturity shall bear the same rate of interest. ■ For the period beginning April 1, 2004, and terminating April 1, 2013, the interest rate specified for the Certificates maturing in each year in such period shall not be less than the interest rate or rates specified for the Certificates maturing in all prior years within such period. ■ The difference between the highest and lowest interest rates bid shall not exceed three percent (3%). Basis of Award: The Certificates will be awarded on the basis of the lowest net interest cost including premium or discount offered on the bids. No bid for less than ninety-nine percent (99%) of par, and accrued interest (which interest shall be computed on a 360 -day year, 30 -day month basis) will be accepted. The lowest net interest cost will be determined by computing the total amount of interest payable on the Certificates from April 1, 1993 to their respective maturity dates, calculated solely on the basis of the Certificates offered in this Notice, and deducting from such total the amount of the premium offered, if any, or adding to such total the amount of the discount offered, if any. In the event two or more bids setting forth identical interest rates, premium, if any, and discount, if any, are received, the City reserves the right to exercise its own discretion and judgment in making the award and may award the Certifi- cates on a pro rata basis in such denominations as the City shall determine. 3 Right of Rejection: The City reserves the fight, in its discretion, to reject any and all bids and to waive any irregularity or informality in any bid. Prompt Award: The City will take action awarding the Certificates or rejecting all bids not later than 48 hours after the expiration of the time herein pre- scribed for the receipt of bids, unless such time of award is waived by the suc- cessful bidder. Delivery and Payment: It is estimated that delivery of the Certificates will be made to the successful bidder on or about April 21, 1993. Payment of the pur- chase price (less the amount of the bid check mentioned below) must be made in funds immediately available to the City. The cost of printing the Certifi- cates will be borne by the City. Right of Cancellation: The successful bidder shall have the right at its option to withdraw its bid if the City shall fail to issue the Certificates and tender the same for delivery within sixty (60) days from the date of sale thereof, and in such event, the successful bidder shall be entitled to the return of the deposit . accompanying his bid. Form of Bid: The bids must be for all of the Certificates and for not less than ninety-nine percent (99%) of the principal amount thereof plus accrued interest to the date of delivery. Each bid, together with the bid check, must be en- closed in a sealed envelope addressed to the City of Tustin, c/o Mudge Rose Guthrie Alexander & Ferdon, 333 South Grand Avenue, 21st floor, Los Ange- les, CA 90071-1525, and endorsed "Bid for City of Tustin Water System Cer- tificates of Participation, 1993 Series." Each bid must be in accordance with the terms and conditions set forth herein. Telefax Bid: Bidders may submit their bid by telefax providing that the good faith deposit (described below) and an original signed bid form and envelope endorsed as stated above have been received by the City's financial advisor, Bartle Wells Associates, before the time specified for the opening of bids. Neither the City nor Mudge Rose Guthrie Alexander & Ferdon takes any re- sponsibility for any difficulties in receiving fax transmittals prior to the dead- line for receipt of bids. The fax number to be used for this purpose is 213/680-1358. Good Faith Deposit: Each bid must be accompanied by a good faith deposit in the form of a certified check or cashier's check or a financial surety bond in the amount of $100,000 payable to the order of the City of Tustin to secure the City from any loss resulting from the failure of the bidder to comply with the terms of its bid. Checks of the unsuccessful bidders will be returned by the City promptly after the date fixed for the receipt of bids. No interest will be paid on the good faith deposit made by any bidder. The good faith deposit of the successful bidder will, immediately upon acceptance of its bid, become the property of the City, and may be cashed by the City. The amount of the good faith deposit will be credited upon the purchase price of the Certificates at the time of delivery thereof. If the purchase price is not paid in full upon tender of the Certificates, the successful bidder shall have no right to the Certificates or to the recovery of its good faith deposit, or to any allowance or credit by reason of such deposit, unless it shall appear that the Certificates would not be validly issued if delivered to the purchaser in the form and manner proposed, and in the event of such nonpayment the City reserves any and all rights it An 01 may have to recover the agreed purchase price of the Certificates and in addi- tion any damages suffered by it. If a financial surety bond is used, it must be from an insurance company li- censed to issue such a bond in the State of California, and such bond must be submitted to the City or its financial advisor prior to the opening of the pro- posals. The financial surety bond must identify each proposer whose deposit is guaranteed by such financial surety bond. If the Certificates are awarded to a proposer utilizing a financial surety bond, then that purchaser is required to submit its deposit to the City in the form of a cashier's check (or wire transfer such amount as instructed by the City or its financial advisor) not later than 3:30 p.m. Pacific Time on the next business day following the award. If such deposit is not received by that time, the financial surety bond may be drawn by the City to satisfy the deposit requirement. No interest on the deposit will accrue to the purchaser. The deposit will be applied to the purchase price of the Certificates. In the event the purchaser fails to honor its accepted pro- posal, the deposit will be retained by the City. Estimate of Net Interest Cost: Bidders are requested (but not required) to supply an estimate of the total net interest cost on the basis of their respective bids, which shall be considered as informative only and not binding on either the bidder or the City. CUSIP Numbers: It is anticipated that CUSIP numbers will be printed on the Certificates, but neither the failure to print such numbers on any Certificates nor any error with respect thereto shall constitute cause for a failure or refusal by the successfulbidder to accept delivery of and pay for the Certificates. All expenses in relation to the assigning and the printing of CUSIP numbers on the Certificates shall be paid for by the City. California Debt Advisory Commission Fee: All bidders are advised that, pur- suant to Section 8856 of the California Government Code, it will be the re- sponsibility of the successful bidder to pay the statutory fee to the California Debt Advisory Commission. Certificate Concerning Official Statement: At the time of delivery of the Cer- tificates, the purchaser will receive a certificate signed by an officer of the City, confirming to the purchaser that, to the best of the knowledge of said officer, the Official Statement, as of the date of sale of the Certificates and as of the date of delivery of the Certificates, did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No -Litigation Certificate: The City will furnish to the purchaser a non -litiga- tion certificate, stating that there is no litigation pending, threatened, or in progress concerning the validity of the Certificates. Non Arbitrage Certificate: The City will furnish to the purchaser a certificate signed by a responsible officer of the City certifying, that, on the basis of the facts, estimates, and circumstances in effect at the tune of delivery of the Cer- tificates, it is not expected that the proceeds of the Certificates will be used in a manner that will cause the Certificates to be an arbitrage bond within the meaning of the Internal Revenue Code of 1986, as amended. 5 Information Available: Requests for information concerning the City or the Certificates should be addressed to the City's financial advisor: Bartle Wells Associates, 1636 Bush Street, San Francisco, California 94109, Telephone 415/775-3113, Telefax 415/775-4123. Official Statement: The City has certified that the preliminary Official State- ment is deemed final within the meaning of Rule 15c2-12 of the Securities and Exchange Commission. The City will provide to the successful bidder within seven (7) business days of award of the Certificates up to 200 copies of the official statement will be furnished to the successful bidder at the City's ex- pense. Additional copies will be printed at the expense of the purchaser. Blue -Sky Laws: The successful bidder will be responsible for the clearance or exemption with respect to the status of the Certificates for sale under the secu- rities or "blue-sky" laws of the several states and the preparation of any sur- veys or memoranda in connection therewith. Reoffering Price: At or before delivery of the Certificates, the successful bidder will furnish to the City a written statement in form and substance acceptable to Co -Special Counsel: (a) stating the initial reoffering prices on each matu- rity of the Certificates to the general public and the reoffering, prices of each maturity of the Certificates, if any, reoffered to institutional or other investors with concessions or at discounts from the reoffering prices to the general pub- lic; (b) certifying that a bona fide offering of the Certificates has by such date been made to the public (excluding bond houses, brokers, and other interme- diaries); (c) stating the price at which each Certificate was sold, or will be sold, to institutional or other investors with concessions or at a discount from the prices at which Certificates were, or will be, sold to the general public; and (d) stating the prices at which at least 10 percent of the remainder of each maturity of the Certificates were sold, or will be sold, to the public (excluding bond houses, brokers, and other intermediaries) prior to the sale of any Certif- icates of each maturity at other prices. Open Market Securities: The City intends to purchase U.S. Treasury open mar- ket securities to be deposited in the Escrow Account in the approximate amount of $3.9 million. The successful purchaser of the Certificates will be given the first opportunity to sell such securities to the City. The purchaser must agree to warehouse such securities one day prior to the closing date (estimated to be April 21, 1993) and must certify that the sale complies with federal income tax requirements. Dated: March 1, 1993 Mayor City of Tustin Lei SUGGESTED FORM OF PROPOSAL FOR PURCHASE OF CERTIFICATES April 5, 1993 City of Tustin c/o Mudge Rose Guthrie Alexander & Ferdon 333 South Grand Avenue - 21st floor Los Angeles CA 90071-1525 For $11,500,000 Water System Certificates of Participation, 1993 Series, as described in the Notice Inviting Bids, which is incorporated herein and made a part of this proposal, we will pay the sum of $ and interest to the date of their delivery for certificates to bear interest at the annual rates set forth below: Maturity Date (Oct. 1) Principal Amount Interest Rate Maturity Date (Oct. 1) Principal Amount Interest Rate 1994 ....... $2751000 % 2004 ..... $ 550,000 % 1995 ....... 300,000 % 2005 ..... 600,000 % 1996 ....... 325,000 % 2006 ..... 6251000 % 1997 ....... 350,000 % 2007 ..... 6751000 % 1998 ....... 375,000 % 2008 ..... 725,000 % 1999 ....... 400,000 % 2009 ..... 7753,000 0/0 2000 ....... 425,000 % 2010 ..... 825;000 % 2001 ....... 450,000 % 2011 ..... 875,000 % 2002 ....... 500,000 % 2012 ..... 925,000 0/0 2003 ....... 525,000 % 2013 ..... 1,0003,000 % A bid deposit in the form of a financial surety bond or a certified or cashier's check in the amount of $100,000 payable to the order of the City of Tustin is enclosed. For information only (not part of proposal) : Interest payable from 4/1/93 thru 4/1/2013 $ Plus discount Net interest payable $ Address for return of check: NET Ild1'E1ES"I' COSI' ....... A list of the members of our underwriting group is attached. $11,500,000 City of Tustin '-)range County, California 'Vater System Certificates New Issue Sale Date: March 15, 1993 of Participation, 1993 Series Ratings: Moody's Investors Service Standard & Poor's Corporation The certificates of participation described in this Official Statement represent the direct and proportional inter- ests of the registered owners in purchase payments to be made by the City of Tustin under an Installment Pur- chase Agreement dated as of April 1, 1993 between the City, the purchaser, and the City of Tustin Water Cor- poration (the "Corporation"), the seller. The Corporation has assigned its interest in the purchase payments to the Bank of America National Trust and Savings Association, Los Angeles, as trustee.. Proceeds of the Certifi- cates will be used to finance construction of water system improvements, repay a loan to Orange County Water District, reimburse the City for a part of that loan which it has paid- and refund all of the outstanding lease revenue bonds of the Corporation. The Certificates are payable from net revenues of the water enterprise. Certificates Dated: April 1, 1993 Denomination: $5,000 or integral multiple thereof Due: April 1, as shown below: Year Amount Rate Yield Year Amount Rate Yield 1994 ............. $275,000 2004 2005 ............ $ 550,000 600,000 1995 1996 .............. 300,000 325,000 2006 ............. ............. 625,000 1997 .............. .............. 350,000 2007 2008 ............. 675,000 725,000 1998 --.1999 .............. 375,000 4001000 2009 ............. .............. 775,000 ;000 .............. 425,000 2010 ............. 825,000 .2-001 .............. .............. 450,000 2011 2012 ..... • • • • • • • • 875,000 925,000 2002 2003 .............. 500,000 .............. 5251000 2013 ............. ............. 1,000,000 The Certificates will be issued as fully registered certificates and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as se- curities depository for the Certificates. Individual purchases of the Certificates will be made in book -entry form only, in principal amounts of $5,000 or any integral multiple thereof. Payments of principal of, redemption price, if applicable, and interest on the Certificates are to be made to purchasers by DTC through the DTC par- ticipants (as such term is herein defined). Purchasers will not receive physical delivery of Certificates pur- chased by them. Interest is payable semiannually on April 1 and October 1, beginning October 1, 1993, by check or draft mailed to the registered owner. The Certificates are subject to redemption prior to maturity as set forth herein. The obligation of the City to make purchase payments does not constitute a debt of the State of California or of any other political subdivision of the State, within the meaning of any constitutional or statutory limitation. The Certificates are offered when, as, and if issued, subject to the legal opinion of Mudge Rose Guthrie Alex- ander & .Ferdon, Los Angeles, California, and Rourke, Woodruff & Spradlin, Orange, California, co -special counsel, approving the validity of the Certificates and stating that, under existing statutes, regulations, rulings, and judicial decisions, and assuming certain representations and compliance with certain covenants and require- ments described herein, the portion of each purchase payment designated as and comprising interest is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculat- ing the federal alternative minimum tax imposed on individuals and corporations, and that, in the further opinion of co -special counsel, the portion of each purchase payment designated as and comprising interest is w exempt from State of California personal income taxes. See "The Certificates—Tax Exemption." ;his Preliminary Official Statement is deemed final by the City as of the date hereof for purposes of compliance ,Kith Rule 15c2-12 of the Securities and Exchange Commission. This page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. This Preliminary Official Statement is dated February 16, 1993. T } T Official Statement y_ City of Tustin Water Service 15222 Del Amo Avenue Tustin, California 92680 City of Tustin City Council Leslie Anne Pontious, Mayor Jim Potts, Mayor Pro Tem Charles E. Puckett Thomas R. Saltarelli Jeffery M. Thomas City of Tustin Water Corporation H. Rex Combs, Jr., President Lloyd W. Robbins, Secretary Dee Ann Hunter Walter S. Kowalik Thomas D. Mulcahy City Staff William Huston, City Manager James G. Rourke, City Attorney Ronald. A. Nault"Finance Director Robert S. Ledendecker, Public Works Director Gary Veeh, Manager, Tustin Water Service Professional Services Mudge Rose Guthrie Alexander & Ferdon, Los Angeles, Co -Special Counsel Rourke, Woodruff & Spradlin, Orange, Co -Special Counsel Bartle Wells Associates, San Francisco, Financial Advisor Bank of America National Trust and Savings Association, Los Angeles, Trustee This Official Statement provides information about the City, its water system, and the Certificates. The Official Statement includes: 1. data supplied by the City of Tustin and others, as indicated herein; 2. estimates or projections which may or may not be realized and which should not be construed as assertions of fact; and 3. summaries and descriptions of legal and financial documents, or their contents, which do not purport to describe such documents completely and which are made expressly subject to the full provisions of the docu- ments cited. This Official Statement does not constitute a recommendation, express or implied, to purchase or not to purchase these certificates or any other previous obligations of the City. Prepared on behalf of the City by: Bartle Wells Associates Independent Public Finance Advisors 1636 Bush Street, San Francisco 94109 Tel. 415/775-3113 Fax 415/775-4123 THE CERTIFICATES Description of the Certificates Name: $11,500,000 City of Tustin Water System Certificates of Participation 1993 Series Date: April 1, 1993 Denomination: $5,000 or any integral multiple thereof Interest: Interest is payable semiannually on April 1 and October 1, beginning October 1, 1993 Purchase Payment Schedule: Year Interest Ending Estimated Pri nci pal Total Oct. 1 at 6.51 Payment Payment 1994 ........................... $ 7473,500 1995 ........................... 729,625 1996 ........................... 710,125 1997 ........................... 689,000 1998 ........................... 666,250 1999 ........................... 641,875 2000 ........................... 6153,875 2001 ........................... 588,250 2002 ........................... 559,000 2003 ........................... 526,500 2004 ........................... 492,375 2005 ........................... 456,625 2006 ........................... 4171,625 2007 ............................ 377,000 2008 ........................... 3333,125 2009 ........................... 286,000 2010 ............................ 2351,625 2011 ........................... 1823,000 2012 ........................... 125,125 2013 ........................... 65,000 Total ........................... $9,444,500 $ 2759000 $ 19022,500 300,000 1,0299625 3259000 190359125 350,000 110399000 3759000 19041,250 4009000 190419875 425,000 190409875 450,000 19038,250 500,000 1,059,000 525,000 11051,500 55090002 11,042,375 600,0002 1,056,625 625,0002 17042,625 675,0002 190529000 725,0002 190582125 775,0002 19061,000 825,0002 190609625 875,0002 110579000 925,0002 19050,125 1,000,0002 1,065,000 $11,500,000 $20,944,500 1 - Interest has been estimated at the annual rate shown. Actual inter- est rates will be set by competitive bid, and are likely to vary from the annual rate estimated. As a result, both interest and total payments are expected to differ from the amounts estimated. 2 -'Callable on any date on or after April 1, 2003. 3 TUSTIN: DRAFT OF 2/10/93 Redemption: Certificates maturing 1994 through 2003 are not callable. Cer- tificates maturing 2004 through 2013 are callable at the option of the Cite as a whole or in part as selected by the City in integral multiples of $5,000 on any date on or after April 1, 2003, together with accrued interest thereon. The prepayment price is expressed as a percentage of the principal amount of Certificates to be prepaid as follows: Prepayment Prepayment Date Price April 1, 2003 through March 31, 2004 ......................... 102% April 1, 2004 through March 31, 2005 ......................... 101 April 1, 2005 and thereafter ................................. 100 Security for the Certificates Each Certificate represents a proportional undivided interest in the right to re- ceive purchase payments made by the City under the Installment Purchase Agreement. In the assignment agreement, the Corporation assigns its rights to receive purchase payments to the Trustee for the benefit of the owners of the Certificates. The obligation of the Cit -yr to make purchase payments from water revenues is absolute and unconditional. The City will not discontinue or suspend any pur- chase payments whether or not the project is operable or has been completed or for any cause whatsoever. Reserve Account The Reserve Account established by the Trust Agreement is required to be funded in an amount equal to the least of 10 percent of the proceeds of the Certificates, maximum annual debt service, or 125 percent of average annual debt service. The Reserve Account will be held by the Trustee. Prior to com- pletion of the project, interest earned on the Reserve Account in excess of the reserve requirement will be transferred to the Construction Account on the first business day of each month; after completion of the project, such interest earned will be transferred to the Purchase Payment Account on each purchase payment date. Rates and Charges The City covenants in the Installment Purchase Agreement that it will pre- scribe, revise, and collect charges for the services and facilities of the water 4 TUSTIN: DRAFT OF 2/10,193 system in each fiscal year sufficient that net revenues will be at least equal to 1.2 times purchase . payments and 1.0 times all other payments required to be made from gross revenues in that fiscal year. Flow of Funds The Installment Purchase Agreement establishes the following requirements for the application of gross revenues. Gross revenues of the water system are de- posited by the City as received in the Revenue Fund and, by the twentieth day of each month, will be allocated to the following accounts and funds in the priority indicated: ■ First, to the Maintenance and Operation Account, an amount sufficient to pay maintenance and operation expenses; ■ Second, to the Qualified Obligations Account, an amount equal to the sum of 1/12 of the next succeeding principal component and 1/6 of the next succeeding interest payment; ■ Then, to the Surplus Revenue Account; all moneys in the Surplus Account may be used for any lawful purpose of the City. Estimated Sources and Uses of Funds The proceeds of the Certificates, together with certain other funds, will be allo- cated as shown below to pay the design and construction costs of water sys- tem improvements, defease all of the outstanding Corporation lease revenue bonds, repay a loan from Orange County Water District, reimburse certain funds advanced by the City, establish a Reserve Account, and pay the costs associated with issuance of the Certificates. Sources of Funds Principal amount of Certificates .........................$11,500,000 Reserve fund,'Corporation bonds ..........................450,000 Total sources of funds ................................... 11,950,000 Uses of Funds Construction Account deposit ......:..................... 61730,000 Escrow Account deposit .................................. 3,860,000 Reserve Account deposit ................................. 1,0653,000 Underwriter's discount allowance (1%) .................... 115,000 Issuance cost allowance .................................. 180,000 Total uses of funds......................................$11,950,000 5 TUSTIN: DRAFT OF 2/10/93 Plan of Refunding Prior to or concurrent with the delivery of the Certificates, the Corporation will enter into an Escrow Agreement with respect to its outstanding bonds (the "Bonds"). Under the Escrow Agreement, a portion of the proceeds of the Cer- tificates paid to the Corporation by the City to purchase the water system pur- suant to the Installment Purchase Agreement, together with other moneys, will be deposited into an Escrow Account to be held by the escrow agent. Moneys in the Escrow Account will be used to purchase non -callable direct obligations of the United States of America. Such securities held in trust in the Escrow Account, including subsequent investment earnings therefrom, will be in an amount sufficient to pay principal and interest on the Bonds due on October 1, 1993 and to redeem the outstanding Bonds on October 1, 1993. When the Bonds are retired or redeemed, the escrow bank will be required im- I mediately to transfer to the City any moneys remaining in the Escrow Account and submit 'a final report with respect to the Bonds to the City. Moneys deposited in the Escrow Account to refund the Corporation's Bonds in no way secure the Certificates. Verification Grant -Thornton, Inc., an independent firm of certified public accountants, will verify certain mathematical computations as to the sufficiency of the refunding securities deposited into the Escrow Account to pay, when due on certain dates designated for prior redemption, the principal of, interest on, and premiums in connection with the Bonds, and as to the yield on the Certificates and the re- funding securities purchased with proceeds of the Certificates and deposited in the Escrow Account. Book -Entry -Only System The Depository" Trust Company (DTC), New York, N.Y., will act as securities depository for the Certificates. The ownership of one fully registered Certifi- cate for each maturity as set forth on the cover page hereof, each in the aggre- gate principal amount of such maturin,, will be registered in the name of Cede & Co., as nominee for DTC. DTC is a limited -purpose trust company organized under the laves of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provi- sions of Section 17A of the Securities Exchange Act of 1934, as amended. 6 TUSTIN: DRAFT OF 2/10/93 DTC was created to hold securities of its participants (the "DTC Participants") and to facilitate the clearance and settlement of securities transactions among DTC Participants in such securities through electronic book -entry changes in accounts of the DTC Participants, thereby eliminating the need of physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organization, some of whom (and/or their representatives) own DTC. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the "Indirect Participants") . The DTC Participants shall receive a credit balance in the records of DTC. The ownership interest of each actual purchaser of each Certificate (the "Beneficial Owner") will be recorded through the records of the DTC Participant. Benefi- cial Owners are expected to receive a written confirmation of their purchase providing details- of the Certificate acquired. Transfers of ownership interests in the Certificates will be accomplished by book entries made by DTC and, in turn, by the DTC Participants who act on behalf of the Beneficial Owners. Beneficial Owners will not receive Certificates representing their ownership interest in the Certificates, except as specifically provided in the Trust Agreement. DTC may determine to discontinue providing its service with respect to the Certificates at any time by giving notice to the City and discharging its respon- sibilities with respect thereto under applicable. law. Under such circumstances, Certificates are required to be delivered as described in the Trust Agreement. The Beneficial Owner, upon registration of Certificates held in the Beneficial Owner's name, will become the registered owner of the Certificates. The City may determine that continuation of the system of book -entry transfer through DTC (or a successor securities depository) is not in the best interests of the Beneficial Owners. In such event, Certificates will be delivered as de- scribed in the Trust Agreement. Conveyance of notices and other communications by DTC to DTC Participants, by DTC Participants to Indirect Participants, and by DTC Participants and Indi- rect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory and regulatory requirements as may be in effect from time to time. 7 TUSTIN: DRAFT OF 2/10/93 Principal, sinking fund, and interest payments on the Certificates will be made to DTC or its nominee, Cede & Co., as registered owner of the Certificates. Upon receipt of moneys, DTC's current practice is to immediately credit the accounts of the DTC Participants in accordance with their respective holdings shown on the records of DTC. Payments by DTC Participants and Indirect Participants to Beneficial Owners will be governed by standing instructions and customary prac- tices, as is now the case with municipal securities held for the accounts of cus- tomers in bearer form or registered in "street name," and will be the responsi- bility of such DTC Participant or Indirect Participant and not of DTC, the paying agent or the City, subject to any statutory and regulatory requirements as may be in effect from time to time. Legal Opinion Legal matters incident to the authorization, "issuance, and sale of the Certifi- cates are subject to the unqualified approving opinion of Mudge Rose Guthrie Alexander & Ferdon, Los Angeles, California, and Rourke, Woodruff & Sprad- lin, a Professional Corporation, Orange, California, co -special counsel. Said opinion will be delivered at the time of delivery of the Certificates. The legal opinion of co -special counsel is not intended to be nor is it to be interpreted or relied upon as a disclosure document or a disclosure opinion or an express of implied recommendation as to the investment quality of the Certificates. For a further description of the opinion of co -special counsel, see "Tax Exemption" below. James G. Rourke, Esq., of Rourke, Woodruff & Spradlin, serves as City Attor- ney to the City. Certain legal matters will be passed upon for the City and the Corporation by the City Attorney. Tax Exemption The Internal Revenue Code of 1986, as amended (the "Code"), establishes cer- tain requirements which must be met subsequent to the initial execution and delivery of the Certificates for the interest component of purchase payments re- ceived by the owners of the Certificates to be and remain excluded from gross income for federal income tax purposes. Noncompliance with such require- ments could cause the interest component of purchase payments received by the owners of the Certificates to be included in gross income for federal in- come tax purposes retroactive to the date of initial execution and delivery of the Certificates. The City has covenanted in the Installment Purchase Agree- ment and the Trust Agreement to maintain the exclusion of the interest com- 8 TUSTIN: DRAFT OF 2/' 0/93 ponent of purchase payments received by the owners of the Certificates from gross income for federal income tax purposes pursuant to Section 103(a) of the Code. In the opinion of Mudge Rose Guthrie Alexander & Ferdon, Los Angeles, Cali- fornia, and Rourke, Woodruff & Spradlin, a Professional Corporation, Orange, California, co -special counsel, under existing law, interest on the Certificates is exempt from personal income taxation of the State of California and, assum- ing compliance with the aforementioned covenant, the interest component of purchase payments received by the owners of the Certificates is excluded from gross income for federal income tax purposes. Co -special counsel are also of the opinion that the Installment Purchase Agreement and, therefore, the Cer- tificates do not represent an interest in "specified private activity bonds" within the meaning of Section 57(a) (5) of the Code and, therefore, the interest com- ponent of purchase payments received by the owners of the Certificates will not be treated as a specific preference item for purposes of computing the al- ternative minimum tax imposed by Section 55 of the Code. The interest com- ponent of purchase payments with respect to Certificates received by corpora- tions will, however, be taken into account in determining the alternative mini- mum tax imposed by Section 55 of the Code on 75 percent of adjusted cur- rent earnings over alternative minimum taxable income (determined without regard to this adjustment and the alternative tax net operating loss deduction). Co -special counsel have not undertaken to advise in the future whether any .events after the date of execution and delivery of the Certificates may affect the tax status of the interest component of purchase payments received by the owners of the Certificates. Furthermore, co -special counsel express no opinion as to any federal, state, or local tax law consequences with respect to the Cer- tificates or the interest component of purchase payments received by owners of the Certificates if any action is taken with respect to the Certificates or the proceeds thereof upon the advice or approval of counsel other than co -special counsel. Finally, no assurance can be given that future legislation, or amend- ments to the Code, if enacted into law, will not contain provisions which would directly or indirectly reduce the benefit of the exclusion of the interest component of purchase payments received by owners of the Certificates from gross income for Federal income tax purposes. - Although co -special counsel will render, at the time of delivery of the Certifi- cates, an opinion that the interest component of purchase payments received by the owners of the Certificates is excluded from gross income for Federal 9 TUSTIN: DRAFT OF 2/10/93 income tax purposes, an owner's Federal tax liability may be otherwise affected by the ownership or disposition of the Certificates. The nature and extent of such other tax consequences will depend on the owner's other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Certificates should be aware that (i) Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to pur- chase or carry the Certificates or, in the case of a financial institution, that portion of an owner's interest expense allocated to the interest component of purchase payments, (ii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b) (5) (B) (i) reduces the de- duction for loss reserves by 15 percent of the sum of certain items, including the interest component of purchase payments, (iii) the interest component of purchase payments earned by some corporation could be subject to the envi- ronmental tax imposed by Section 59A of the Code, (iv) the interest compo- nent of purchase payments earned by certain foreign corporations doing busi- ness in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (v) passive investment income, including the interest component of purchase payments, may be subject to Federal income taxation under Section 1375 of the Code for Subchapter S corporations that have Sub- chapter C earnings and profits at the close of the taxable year if greater that 25 percent of the gross receipts of such Subchapter S corporation is passive investment income, and (vi) Section 86 of the Code requires recipients of cer- tain Social Security and certain Railroad Retirement benefits to take into ac- count, in determining the taxability of such benefits, receipts or accruals of the interest component of purchase payments. co -special counsel have expressed no opinion regarding any such other tax consequences. Closing Documents At the time of delivery of the Certificates to the successful bidder, the follow- ing documents will be furnished: ■ Signature and No -Litigation Certificates: Certificates of the City and the Corporation stating that the signatures on the Installment Purchase Agree- ment and the Trust Agreement are authentic and duly authorized and that no litigation is pending, threatened, or in progress affecting the validity of the certificates. ■ Certificate Concerning Official Statement: A certificate, signed by a re- sponsible official representing the City, to the effect that to the best of his knowledge and belief, and after reasonable investigation: (a) neither the 10 TUSTIN: DRAT OF 2/10/93 Official Statement nor any amendment or supplement thereto contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (b) since the date of the Official Statement no event has occurred which should have been set forth in an amendment or supplement to the Official Statement which has not been so set forth; and (c) there has been no material adverse change in the operation or financial affairs of the City since - the date of such Official Statement. ■ Non -Arbitrage Certificate: A certificate of a responsible officer of the City certifying that, on the basis of the facts, estimates, and circumstances in effect at the time of delivery of the Certificates, it is not expected that the proceeds of the Certificates will be used in a manner that will cause the Certificates to be arbitrage bonds within the meaning of the Code. ■ Receipt for Certificates: The receipt of the City showing that the purchase price of the Certificates including interest accrued to the date of delivery (if any), has been received by the City and/or the Trustee. Miscellaneous The quotations from, and summaries and explanations of the Installment Pur- chase Agreement, the Trust Agreement, the Certificates, and other statutes and documents contained herein do not purport to be complete, and reference is made to such documents and statutes for full and complete statements of their provisions. This Official Statement is submitted only in connection with the sale of the Certificates by the Corporation and the City. All estimates, assumptions, sta- tistical information, and other statements contained herein, while taken from sources considered reliable, are not guaranteed by the Corporation or the City. The information contained herein should not beconstrued as representing all conditions affecting the Corporation, the City, or the Certificates. All informa- tion contained in this Official Statement pertaining to the City and the Corpo- ration has been furnished by the City and the Corporation, and the execution and delivery of this Oficial Statement has been duly authorized by the City and the Corporation. 11 TUSTIN: DRAFT OF 2/10/93 Official Statement nor any amendment or supplement thereto contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (b) since the. date of the Official Statement no event has occurred which should have been set forth in an amendment or supplement to the Official Statement which has not been so set forth; and (c) there has been no material adverse change in the operation or financial affairs of the City since the date of such Official Statement. ■ Non -Arbitrage Certificate: A certificate of a responsible officer of the City certifying that, on the basis of the facts, estimates, and circumstances in effect at the time of delivery of the Certificates, it is not expected that the proceeds of the Certificates will be used in a manner that will cause the Certificates to be arbitrage bonds within the meaning of the Code. ■ Receipt for Certificates: The receipt of the City showing that the purchase price of the Certificates including interest accrued to the date of delivery (if any), has been received by the City and/or the Trustee... Miscellaneous ' The quotations from, and summaries and explanations of the Installment Pur- chase Agreement, the Trust Agreement, the Certificates, and other statutes and documents contained herein do not purport to be complete, and reference is made to such documents and statutes for full and complete statements of their provisions. This Official Statement is submitted only in connection with the sale of the Certificates by the Corporation and the City. All estimates, assumptions, sta- tistical information, and other statements contained herein, while taken from sources considered reliable, are not guaranteed by the Corporation or the City. The information contained herein should not be construed as representing all conditions affecting the Corporation, the City, or the Certificates. All informa- tion contained in this Official Statement pertaining to the City and the Corpo- ration has been furnished by the City and the Corporation, and the execution and delivery of this Official Statement has been duly authorized by the City and the Corporation. 11 TUSTIN: DRAFT OF 2/10/x'3 Ratings Moody's Investors Service and Standard & Poor's Corporation have assigned ratings of and respectively, to the Certificates. Such ratings reflect only the views of such organizations and any desired explana- tion of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody's Investors Service, 99 Church Street, New York, New York 10007; Standard & Poor's Corporation, 25 Broadway, New York, New York 10004. Generally a rating agency bases its rating on the information and materials furnished to it and on investigations, studies, and assumptions of its own. There is no assurance that such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. /s/ Mayor 12 TUSTIN: DRAFT OF 2/10/93 CITY OF TUSTIN WATER CORPORATION City of Tustin Water Corporation was incorporated on March 3, 1980 under the nonprofit corporation law of the State of California. Its purpose is to pro- vide financial assistance to the City by acquiring, constructing, and operating or providing for the operation of water facilities. The Corporation has no cap- ital stock or stockholders, but has irrevocably dedicated all of its property and assets to the City. In 1983 the Corporation issued $4.5 million Lease Revenue Bonds, Series A, the outstanding balance of which are being refunded with this issue. Proceeds of the Bonds were used to acquire water facilities of Tustin Water Works, a private company, and to reimburse the City for money advanced to the Corpo- ration. Pursuant to a lease between the City and the Corporation, the City makes annual lease payments to the Corporation, which are used to pay debt service on the Bonds. The lease will terminate upon the issuance of the Cer- tificates. Proceeds of the Certificates will be used, among other purposes, to _ purchase the water system from the Corporation. The Corporation has a five -member board of directors appointed by the Tustin City Council. ■ H. Rex Combs, Jr., President, has served on the Corporation board since 1989 and has lived in the area for 10 years. He is employed as a municipal in- dustry valve products specialist. Mr. Combs is a member of the Marine Base Closure Task Force. He is past president of the board of directors of the Tustin Meadows Community Association, where he is still a board member. ■ Lloyd W. Robbins, Secretary, has lived in the Tustin area for over 20 years. He has served on the Corporation board since 1981 and is a manager of a homeowners' association. Mr. Robbins is a member of the City of Tustin Planning Commission. ■ Dee Ann Hunter has recently joined the Tustin Water Corporation board and has seated one year. She has lived in the area for five years and is a preschool owner and director. Ms. Hunter is on the Board of Directors of the Tustin Chamber of Commerce. ■ Walter S. Kowalik is a mechanical engineer and has resided in the area for over 20 years. He has served on the Corporation board for eight years. �- ■ Thomas D. Mulcahy is a certified public accountant (CPA). He began his service on the board in 1990. He is a past director of the National Associa- tion of Accountants. Mr. Mulcahy is a member of the California CPA soci- ety, the World Trade Center Association, and the Panel of Arbitrators of the American Arbitration Association. 13 TUSTIN: DRAFT OF 2/10/93 CITY OF TUSTIN WATER SERVICE Tustin Water Service (TWS), a department of the City, provides water service to most of Tustin as well as an area outside the City limits. The water system was begun as Tustin Water Works, a privately owned water utility, and was acquired in 1980. TWS has operated the water system since that time. The water system's facilities include transmission and distribution lines, stor- age reservoirs, and wells. The City has recently completed, in conjunction with Orange County Water District, a desalter which removes excess nitrates from groundwater. This facility is helping the City toward its goal of increas- ing the use of groundwater and reducing reliance on more expensive imported water. Water Supply and Use TWS has two sources of water—imported water and groundwater. In a typ- ical year, about 30 percent of the City's water is imported and supplied by the Metropolitan Water District through East Orange County Water District. The remaining 70 percent comes from City -owned wells. Actual water supply from each source varies from year to year. Table shows TWS's water supply and use for 1989/90 through 1991/92. The amounts in the table are in hundred cubic feet (hcf), which is TWS's basic billing unit. Supply and use has varied over the last three fiscal years due to conservation during drought conditions. Water consumption is expected to remain at about S million hcf annually. Over one-half of the annual water sales are to single-family residences. Other customer classes include multiple -family, commercial, industrial, public agen- cies, and landscaping. Table shows annual water sales for 1989/90, 1990/91, and 1991/92 by customer class. ----- [TEXT TO COME: Future Water Supply] 14 TUSTIN: DRAFT OF 2/10/93 Water Customers TWS serves approximately 13,550 water consumers, of which about 9,000 are within the City and the remaining 4,550 are outside. The service area is fully developed, and the number of water customers has been essentially stable since 1980. No significant growth within the TWS service area is anticipated. The areas of the City not served by TWS receive water service from Irvine Ranch Water District, a public agency. Table shows the active service connections by, customer class. About 85 percent of the total customers are single-family residential. Tustin Unified School District is the largest water customer, with about 2 per- cent of total water usage. The largest consumers in terms of annual water use are listed in Table . The top 100 users account for about one- quarter of total water consumption. Water Rates In September 1992 the City Council approved new water rates, which appear in Table . The City Council adopted water charges for three fiscal years, 1992/93, 1993/94, and 1994/95. The first rate change became effec- tive in November 1992 for water used beginning in September 1992, and fu- ture rate changes will occur on November 1, 1993 and November 1, 1994. The new water rates were based on a Water Rate Studv and Financing Plan prepared by Bartle Wells Associates in July 1992. The water rate structure consists of meter, charges and volume charges. Meter charges vary by size of meter and are designed to generate about one-third of the annual revenue. This approach is designed to reduce fluctuations in water revenue and to recover a portion of fixed costs, such as debt service. Meter charges differ by meter size and are based on the relative flow capacity of. different -sized meters. All single-family residential customers have a 5/8 -inch meter and it is the most common meter size in the water system. Volume charges consist of ascending block rates per hcf of water consumption. The rate structure is designed to encourage conservation through the use of ascending block rates, that is, as a customer's water use increases, the rate for additional water also increases. Four block rates are employed; the initial rate applies to minimum "lifeline" usage. The blocks at 40 and 60 hcf are based on average residential usage for 5/8 -inch and 1 -inch meters, respectively. 15 TUSTIN: DRAFT OF 2/10/93 A typical residential customer with a 5/8 -inch meter using 40 hcf of water in a bimonthly period has a current bimonthly bill of $42.00. This bill is based on the recently approved water rates for 1992/93. The bill for the same usage under prior rates was $35.89. The new water rates increase the bimonthly bill for a typical residential customer by 17 percent from the prior level. Capital Improvement Program The City's water supply and storage facilities were originally constructed by the privately owned Tustin Water Works in the 1960s. In October 1990, Daniel Boyle Engineering prepared a Water System Storage Evaluation Study, which identified numerous shortcomings in the City's water storage system. The shortcomings were categorized into two major groups: (1) structural deficien- cies and (2) inadequate storage volume. The engineering report recommended improvements to existing storage facilities, drilling of two new wells and con- struction of a new reservoir. In response to, the recommendations made in the Daniel Boyle report, the City staff developed a schedule of proposed capital improvement projects. The City staff also prepared a schedule of proposed distribution system improvements. Reservoir improvements consist of the following: Main Street Reservoir: Design and construct a new 2.2 -million -gallon Main Street reservoir. Rawlings Reservoir: Rehabilitate existing reservoir by constructing new retain- ing walls, install access stairway, and conducting a structural analysis of roof and support system; repair roof or expand reservoir. Foothill Reservoir: Remove topsoil and conduct structural analysis and site evaluation of existing reservoir. Design and construct replacement reservoir. Simon Reservoir: Remove topsoil and conduct structural analysis. Design and replace roof. Other capital improvements include construction of a Zone II booster pump station, purchase of portable generator at the Columbus Tustin well, and new wells and a desalter project on existing wells. The well projects will enable the City to increase its use of groundwater from the current average of 70 per- cent of annual water supply to SS percent of water supply by 2000. This will 16 TUSTIN: DRAFT or 2/10193 lower the cost of water because the cost of groundwater is substantially below the cost of imported water, the City's alternate water source. The City also has an ongoing capital improvement program (CIP) for the water distribution system. The CIP projects include replacement and installation of water mains, hydrants, services, and related landscaping. Table lists the capital projects and their costs for supply, storage, and distribution systems for 1992 through 1996. A portion of these capital projects will be financed by the Certificates. Certificate Project Proceeds of the Certificates will be used to finance the design and construction of certain supply, storage, and distribution improvements identified in the cap- ital improvement program. Table summarizes project cost estimates for the projects to be funded from the Certificates. The project elements include the following. ■ Design and site planning for the Main Street reservoir ■ Design and construction of improvements at the Rawlings reservoir ■ Structural analysis and site evaluation at the Foothill reservoir ■ Structural analysis and site plan at the Simon reservoir ■ Site evaluation for the Zone II booster station ■ Purchase of portable generator at the Columbus Tustin well ■ Design and construction of water mains and related distribution facilities The above project elements are being designed. For distribution system facil- ities the City plans to award design contracts to outside consultants during April through June 1993 and anticipates completion of construction of the CIP distribution facilities by November 1994. The project also includes repayment of a loan from Orange County Water Dis- trict, the proceeds of which were used to finance a desalter on the Main Street well. 17 TUSTIN: DRAFT OF 2/10/93 Water Finances The City of Tustin accounts for water service operations as a water enterprise fund. Financial data, such as balance sheet, revenue and expense statement, and cash flow statement, are prepared for the water enterprise fund as part of the comprehensive annual financial report for the City. The water .enterprise fund accounts for operations that are financed in a man- ner similar to private business enterprises in that the costs of providing service to the general public are recovered through user charges. Financial statements for the Enterprise Fund use the accrual basis of accounting, in which revenues are recognized when earned and expenses are recorded when the liability is incurred. Property and equipment acquired by the Enterprise Fund are capi- talized at cost at time of purchase. Assets acquired from gifts or contributions are recorded at fair market value at the time received or, in the case of water distribution assets, at the City Council acceptance date. Depreciation on water system assets is calculated with the straight-line method over the estimated useful lives. Table shows the revenues, expenses, and changes in retained earn- ings for fiscal years 1990 through 1992. Charges for service include all water sales revenue and all water charges. Operating revenues from water charges decreased over the last three fiscal years. This decrease has been due to man- datory rationing in the spring of 1991 and voluntary conservation since that time, which resulted in decreases in water sales. The City has adopted rate in- creases, which are described under "Water Rates." In 1992, nonoperating revenues included an intergovernmental grant of $473,022 from Caltrans for reimbursement of City expenditures for water im- provements in conjunction with freeway construction. Table shows cash flows for fiscal years 1990 through 1992. Net cash provided by operating activities has increased from 1990 to 1992. How- ever, uses of cash flow have increased more than annual net cash from opera- tion, as cash has been applied to the acquisition and construction of capital improvements. Table shoves the 1992/93 water fund budget adopted by the City Council. The budgeted amount shown in this table for water charge revenue does not reflect the rate increases the Council approved in September 1992. Total revenues do, however, include all -other sources, which consist of meter 18 TUSTIN: DRAFT OF 2110193 charges, demand charges, and other fees. The newly enacted water rates are expected to increase water revenues in 1992/93 to abput $5.4 million. Table is the water fund balance sheet as of June 30, 1990 through 1992. Water Debt The City of Tustin Water Corporation issued $4.5 million of lease revenue bonds in 1983 for expenses related to the acquisition of Tustin Water Works; the water facilities were leased to the City. Water revenues are applied to lease payments to the Corporation. A portion of the proceeds of the Certifi- cates will be used to purchase the water system from the Corporation. The Corporation will apply the funds received to refund all of the outstanding bonds. The City has also entered into lease purchase agreements with Orange County Water District (OCWD) for desalters. Proceeds of the Certificates will be used to repay the balance of the agreement related to the Main Street desalter. An additional desalter is under development, and lease agreements in connection with this desalter are expected to begin in 1994/95. The City expects to finance new wells with low-cost loans through OCWD's conjunctive use program. This program provides low-interest loans to finance construction or rehabilitation of wells in order to promote greater conjunctive use of imported and local water supplies. Prospective participants must satisfy certain criteria. Under the program, OCWD will make loans to water pro- ducers at an interest rate of 3.5 percent for a term of up to 20 years. OCWD's funding limits are $750,000 per well and three wells per participant. The City has applied to OCWD for funding of its well projects. Projected Revenues and Expenses Table - projects revenues and expenses for TWS for 1992/93 through 1997/98. The table shows all operating revenues and expenses, ex- pected purchase payments for the Certificates and for future issues, capital ex- penditures, consideration of transfers to other funds, and coverage ratios. The assumptions and calculations used in the table are detailed as follows. Beginning Balance: A beginning balance in the water fund is shown for each fiscal year; the July 1, 1992 balance is the sum of the amounts available in the City's water fund at the start of the current fiscal year. 19 TUSTIN: DRAFT OF 21110/93 Water Charges: The 1992/93 revenue from water charges take into account the new rates the City Council approved in September 1992, which went into effect in November 1992. Revenues for 1993/94 and 1994/95 are based on the rates approved by the City Council for those two fiscal years. Future reve- nues are increased as necessary to produce water revenue to cover all pro- jected expenses and satisfy coverage ratios and fund balance requirements. Interest Income: Interest income is calculated on the each fiscal year's average balance at an assumed investment rate of 5 percent. O&M Expenses: O&M expenses include the costs for personnel, water supply, facilities maintenance, and other miscellaneous items. The O&M costs for 1992/93 are based on six months of operation and maintenance of the water system during 1992/93. For future years, water supply costs are based on TWS's forecasts of expected increases in costs for groundwater and imported water. All other, O&M expenses are escalated at 5 percent per year. Debt Service: Projected debt service includes expected purchase payments on the Certificates, repayment of loans to OCWD, and purchase payments on future certificate issues in 1994/95 and 1996/97. The actual timing and size of future certificates will depend on actual project costs and construction scheduling. All installment payments are based on a 20 -year term and an interest rate of 6.5 percent. The OCWD loans finance the three new wells and an additional desalter. Capital Expenditures: Capital expenditures include the project to be financed with the Certificates, other capital items budgeted for 1992/93, and future cap- ital improvements to reservoirs, wells, and distribution facilities. In April 1993, the City will use proceeds of the Certificates to pay OCWD the balance remaining on the loan associated with the nitrate plant and reimburse other City reserves used to make the initial payment in October 1992. Transfers to Other Funds: Transfers to the general fund are based on the 1992/93 budget, plus 5 percent per year. Ending Balance: The ending balance is calculated as a fiscal year's total reve- nue less total expenses and then added to that year's beginning balance. The City has adopted a policy of maintaining balance in the water fund of not less 20 TUSTIN: DRAFT OF 2/10/93 than 5 percent of annual operating expenses plus 10 percent of plant value. The ending balances shown in the table satisfy this policy. Coverage Ratios: Table shows coverage ratios for the Certificates as well as additional parity certificates when issued. The coverage ratios in the table range from as low of 1.78 times in 1994/95 to as high of 2.64 times in 1995/96. Funding for Additional Projects The financing plan approved by the City Council anticipates the need for addi- tional borrowing for the projects shown for 1994/95 and 1995/96 in Table through the issuance of additional certificates. 21 TUSTIN: DRAFT OF 2/10/93 THE CITY OF TUSTIN The City of Tustin covers approximately 11.2 square miles in central Orange County in Southern California. Tustin is bounded by the Cities of Orange to the north, Santa Ana to the west, and Irvine to the south. The City is approx- imately 37 miles southeast of Los Angeles and 88 miles north of San Diego. It has a temperate climate with a mean average temperature of 67 degrees and average annual rainfall of 14.5 inches. The City of Tustin was founded in 1868 by Columbus Tustin, when he and his partner, Nelson Stafford, purchased 1,300 acres of Rancho Santiago de Santa Ana, originally a Spanish land grant. Tustin and Stafford divided their pur- chase, and Tustin starred Tustin City on his portion. The orange industry (hence the name of the county) in Tustin began in 1875, when the first sizeable grove was planted. Tustin was soon surrounded by orange, walnut, and apricot orchards. Between 1900 and 1950 the orange groves gradually took over from the other crops and processing citrus fruits was the City's primary industry. In the 1950s Tustin's urban development began in earnest. The City became primarily a residential and commercial community, which is its current development. Municipal Government Tustin is a general law city, incorporated on September 21, 1927. The City operates under a council-manager form of government. Five City Council members are elected at large for overlapping four-year terms; the Council elects one of its member as mayor. The City Manager is appointed by the Council and serves as the administrative head of the City. The City Manager implements Council directives and policies and manages the operational func- tions of the Ciry. The City staff is organized into departments, which provide police, community development, maintenance, general administration, community service, and capital improvements. The City has 250 full-time positions. Tustin Water Ser- vice has 21.5 full-time staff. 22 TUSTIN: DRAFT OF 2/10/93 Biographical information of members of the City Council and senior manage- ment follows. City Council. ■ Leslie Anne Pontious, Mayor, has served on the City Council for three years. Her term ends in 1994. She is a travel agent and has lived in the Tustin area for 17 years. Ms. Pontious is also a member of the Tustin Planning Commission and in 1992 with the Soroptomist Woman of the Year. ■ Jim Potts, Mayor Pro Tem, has lived in Tustin since 1988 and has served on the City Council for two -and -one-half years. His term ends in 1996. He is a public safety supervisor for the City of Irvine and co-owns a manufactur- ing corporation. Mr. Potts is the City's representative to the League of Cali- fornia Cities and the Santa Ana/Tustin Joint Powers Agency. ■ Charles E. Puckett has been -a council member for two and one-half years. He has served as mayor and was Tustin's "Man of the Year" in 1986. Mr. Puckett's term ends in 1994. He has lived in the area for 18 years and is a senior developmeAt manager for Hunt -Wesson, Inc. He is a director of the Orange County Sanitation Districts, Chairman of District No. 7, and Chair- man of the Fiscal Policy Committee. ■ Thomas R. Saltarelli is a lawyer and his firm, Saltarelli & Steponovich, spe- cializes in business and real estate litigation. He has lived in the area for 23 years and his term on the council ends in 1996. ■ Jeffery M. Thomas has served one year on the City Council; his term ends in 1996. He has lived in the area for three years and his occupation is in sales. - He is a member of the Regional Council for Southern California As- sociation of Governments and serves on the board of directors of the Tustin Community Foundation. In 1992 Mr. Thomas was listed in Who's u/fio in Finance and, Indttstry. Staff: ■ William Huston, City Manager, has been with the City of Tustin for 11 years. He has 10 years of additional experience with two other cities; at the City of Simi Valley, he was assistant to the City Manager, and at the City of Millbrae, he was City Administrator. Mr. Huston has lived in the Tustin area for 11 years. 23 TUSTIN: DRAFT OF 2110193 ■ Robert S. Ledendecker, Public 141"orks Director, has been with the City since 1973. He is a civil engineer, with a bachelor of science in civil engineering for the University of Southern California. Mr. Ledendecker has previously worked for the City of Orange for nine years. He has lived in the Tustin area for 25 years. City of Tustin General Fund For financial reporting purposes, the City of Tustin has adopted the provisions of Statement No. 1 of the Governmental Accounting Standards Board and fol- lows the generally accepted accounting principles applicable to state and local governments. The City groups its accounts according to types of funds. For governmental funds the City uses a modified accrual basis of accounting. Under this method, revenues are recorded when measurable and available to fi- nance expenditures of the current period. Expenditures, other than principal and interest on long-term debt and employee -compensated absences, are re- corded when the liability is incurred. The City's funds and account groups are independently audited each year. Table 4.5 summarizes the revenues, expenditures, and changes in fund balances for general fund for fiscal years 1990, 1991, and 1992. The general fund's largest revenue source has been sales taxes. In 1992, sales taxes reve- nue was approximately 40 percent of total revenues. In 1990, it was 36 per- cent of total revenues. ------ [TEX7 TO COME: Impact of State Budget] The City's general fund accounts for all financial resources not accounted for in other funds. Table 14— compares the general fund's balance sheet for June 30, 1990, 1991, and 1992. Direct and Overlapping Bonded Debt Table details direct and overlapping debt for the City of Tustin as of April 2, 1992. The table shows for Tustin Water Corporation the outstand- ing lease revenue bonds to be refunded. 24 TUSTIN: DRAFT OF 2'10/93 Assessed Valuation Property taxes in California are levied according to Article MIIA of the State Constitution. Property is assessed at 100 percent of full cash value. It is as- sessed at its market value when constructed or upon change of ownership. If real property is improved, assessed value may increase relative to the improve- ment. The value of property that does not change ownership may be adjusted annually by not more than 2 percent. A county assessment roll does not pur- port to be proportional to market value. California law also provides property tax exemptions for owner -occupied resi- dences and for business inventories. Revenues lost to public agencies due tp these two exemptions are fully reimbursed by the state. California counties, such as Orange County, levy ageneral property tax of 1 percent of assessed valuation. The levy is allocated to the county, cities, and special districts in accordance with state law. Property taxes greater than the 1 percent levy may be levied on properties in individual jurisdictions to pay debt service on general obligation bonds and for certain other voter -approved purposes. In accordance with California law, the Orange County Tax Collector collects taxes and periodically remits them to Tustin, according to an established schedule. Table / 5� shows assessed value of taxable property within the City for 88 through 1991/92. Data is shown for real and personal property. Total assessed value grew from $2.0 billion in 1987/88 to $3.0 billion in 1991/92, at an average annual growth rate of 11 percent. Table lists the principal taxpayers for June 30, 1992. .The Irvine Company was the largest property owner, property valued at almost 10 per- cent of the City's total assessed valuation. The ten largest taxpayers account for 15 percent of the City's assessed valuation for fiscal year 1992. Tax Levies and Delinquencies Table / shows for the City a five-year history of tax levies, tax col- lections, percent of levy collected and delinquent tax collections. For each of the last five fiscal years, tax delinquencies have been less than S percent of the tax levy. 25 TUSTIN: DRAFT OF 2/10193 PropeM,, tax revenue is recognized in the fiscal year for which taxes have been levied. The property tax calendar is as follows: One-half of taxes are due on November 10 and become delinquent on Decem- ber 11. The second half is due on February 10 and are delinquent on April 11. A 10 percent penalty is added to any late payment. On June 30, delinquent properties are sold to the State. Property owners may redeem property upon payment of delinquent taxes and penalties. Properties sold to the State incur a redemption penalty of 1.5 per- celit of the taxes due per month. Properties may be redeemed under an installment plan by paying current taxes plus 20 percent of delinquent taxes for five years. Interest accrues at 1.5 per- cent per month on the unpaid balance. If no payments have been made on delinquent taxes at the end of five fiscal years, the property is deeded to the State. Such properties may thereafter by conveyed by the county tax collector as provided by law. Population Tustin grew along with all of Orange County during the economic boom of the 1960s. From a population of 2,006 in the 1960 U.S. census, the City grew to 21,178 in 1970, 32,073 in 1980, and 50,689 in 1990. According to State Department of Finance estimates, Tustin's population in 1992 was 54,700. The 1992 population estimate represents a 70 percent increase from 1980, or an average annual increase of 6 percent. Table / shoves the City's and Orange Countys population from 1980 through 1992 and each year's per- centage change. Tustin's population is approximately 2 percent of the total population of Orange County. As Table It indicates, Tustin's annual percentage changes were greater than for the county as a whole in almost all years. Orange County's population increased 30 percent from 1980 to 1992, an aver- age annual increase of 2.5 percent. Over the same period, Tustin grew at a faster rate of 4.6 percent per year. Construction Activity Table i y presents the construction activity within Tustin for the fiscal years 2.988 through 1992. The value of building permits increased from 1988 26 TUSTIN: DRAFT OF 2/10/93 through 1990 for commercial and residential construction. They decreased in 1991 and 1992, reflecting the economic downturn occurring throughout the U.S. Housing According to the Tustin Chamber of Commerce, there were approximately 20,200 households in Tustin in 1991. About 40 percent of homes are owner - occupied. Data on housing sales and median sale price is not available specifically for Tustin. Data is, however, compiled for eastern Orange County, which includes Tustin as well as the cities of Orange and Santa Ana. Table 2U shows number of housing sales and median sales prices for 1990, 1991, and 1992 for east Orange County. Sales of single-family residences were 2,088 in 1990 and 2,165 in 1992. The median sales price of single-family residences increased from $218,333 in 1990 to $221,675 in 1992. Retail Trade Taxable sales have increased from 1987 through 1991, as shown in Table 2/ _ . Approximately three-quarters of the sales are made by retail stores. Retail sales tax permits have also increased from 507 in 1987 to 635 in 1991. The primary retail area is located in central Tustin and includes commercial property owned by Larwin Square Limited, the fourth largest taxpayer in Tustin. Income Table 2'2.._ compares median household effective buying income (EBI) for the City of -Tustin, Orange County, the State of California, and the U.S. Sales and Marketing Management magazine reports EBI for different cities and counties within the U.S. The magazine defines EBI as personal income less personal tax and non -tax payments, such as social security deductions, and is often referred to as disposable or after-tax income. Tustin's EBI increased by -- almost 10 percent between 1990 and 1991. 27 TUSTIN: DRAFT OF 2/10/93 Employment Employment data is not available for the City; information is, however, avail- able for Orange County. Tustin is included within the Anaheim -Santa Ana - Garden Grove Metropolitan Statistical Area (MSA), which encompasses all of Orange County. Table 2-B shows data on employment and unemploy- ment in Orange County. While the unemployment rate for Orange County in- creased from 1990 to 1992, it remained lower than for all of California and the U.S. For example, the October 1992 unemployment rate for Orange County was 6.6 percent, but for California it was 9.3 percent and for the U.S. it was 6.8 percent. Table shows wage and salary employment in Orange County by major industry: agriculture, goods -producing, and service -producing. Most employment in Orange County is related to the service industry and its relative percentage has been increasing. Agriculture and manufacturing employment has declined, while service employment has grown over the 1987-1992 period. Table 7 -Sr lists major employers within Tustin. The Marine Corps Air Station is the City's largest employer, with 4,000 employees. The air station's population is approximately 1,250 personnel. The air station is scheduled to be closed in 1997, but its housing will remain. The City and the federal gov- ernment are studying what to do with the property. Transportation Interstate 5 and State Route 55 both pass through Tustin. Three other free- ways are within five miles of the City. Orange County (John: Wayne) Airport is located five miles from Tustin. Eleven scheduled airlines provide daily service. Santa Fe Railroad provides freight ser- vice through Tustin on scheduled daily stops, and an Amtrak passenger station is located two miles away in Santa Ana. Orange County Transit provides bus service within Tustin. Community Facilities Tustin Unified School District provides primary and secondary public education through nine elementary schools, three middle schools, and three senior high schools. In addition, the district includes 20 parochial and private schools. Regarding higher education, the Saddleback Junior College District includes Tustin, the University of California at Irvine is located seven miles from Tustin, and California State University at Fullerton is nearby. 28 TUSTIN: DRAFT OF 2/10;93 TABLE / ■ City of Tustin Water Service Water Supply and Use (hcf) 1989/90 1990/91 1991/92 Water Supply Purchased .......................... 3,4703,836 2,525,203 113089368 Pumped ............................. 2,378,249 2,977,013 3,655,337 Total supply ........................ 598493,085 595029216 499633,705 Water use .......................... 5,425,489 5,066,520 49685,560 Source: City of Tustin Water Service. BARTLE WELLS ASSOCIATES 2/10/93 TABLEI ■ City of Tustin Water Service Annual Water Sales (hcf) Percent Of Total 1992 User 1989/90 1990/91* 1991/92 Sales Single-family ............... 2,987,612 217829959 293849508 51% Multiple -family .............. 11,2413,878 19189,976 19248,737 27 Commercial .................. 566,446 562,706 520,509 11 Industrial .................. 210,940 1829515 189,469 4 Public agencies .............. 240,770 191,869 192,909 4 Landscaping ................. 1541,709 1439191 143,407 3 Nursery & farms .............. 23,134 13,304 6,021 - Totals ...................... 5,4252489 5,0660520 426859560 100% *Mandatory rationing effective April 22, 1991 required overall 15?,.- reduc- tion in usage. Source: City of Tustin Water Service BARTLE WELLS ASSOCIATE; 2;?0/93 TABLE,_ ■ City of Tustin Water Service Active Service Connections by Customer Class, 1991/92 Single-family 11,505 ................................................ Multiple -family 881 ............................................... Commercial................................................... 771 Industrial................................................... 53 Public agencies ............................................... 89 Landscaping.................................................. 187 Nursery & farms ............................................... 7 Subtotal..................................................... 13,493 Fire......................................................... 144 Total........................................................ 133,637 Source: City of Tustin Water Service. BARTLE WELLS ASSOCIATES 2/10/93 TABLE 1 ■ City of Tustin Water Service Largest Water Users, 1991/92 Customer Consumption (hcf) Steelcase, Inc.......... .............................. 115,721 Tustin Unified School District ............................. 94,216 City of Tustin ............................................ 42,017 Regency West ....................................... 393,064 S. F. Shea Apartments ...................................... 37,271 Park Place Apartments ............................ 6,126 Total..................................................... 334,415 Source: Top 100 user report dated . BARTLE WELLS ASSOCIATES 21,10/93 TABLE .E ■ City of Tustin Water Service Water Rates Meter Size Bimonthly Charge 1992/93 1993/94 1994/95 5/8" x 3/4" ...............................$ 11.00 $ 13.00 $ 16.00 1" ..................................... 27.50 32.50 40.00 1-1/211 ................................... 55.00 65.00 80.00 241 ....................................... 88.00 104.00 128.00 311 ....................................... 165.00 195.00 240.00 4" ....................................... 275.00 325.00 400.00 6" ....................................... 550.00 650.00 800.00 Multiple dwelling units ................... 80% of the 5/8" meter charge Block 4 per unit 1.10 1.20 BARTLE WELLS ASSOCIATES 2/10193 Rates per hcf Volume Block 1992/93 1993/94 1994/95 Block 1 ......................0-6 hcf $0.35 $0.35 $0.35 Block 2 ......................7-40 hcf 0.85 0.97 1.12 Block 3 ......................41-60 hcf 1.00 1.10 1.20 Block 4 ......................Over 60 hcf 1.10 1.20 1.32 Source: City of Tustin BARTLE WELLS ASSOCIATES 2/10193 TABLE fp ■ City of Tustin Water Service Capital Project Costs, 1992-1996 1992/93 1993/94 1994/95 1995/96 Reservoirs: Main Street ..................... $ 160,000 $ 6009000 $2,700,000 $ 860,000 Rawlings ........................ 367,300 5009000 -- -- Foothill ........................ 110,000 -- -- 150,000 Simon........................... 35.000 -- -- Total reservoirs . . •............... 6729300 1,100,000 2,700,000 1,010,000 Zone II booster station ........... -- 275,000 -- -- Portable generator at well ........ 1201,000 -- -- -- Distribution system improvements... Total ............................. 1,019,600 $1,811,900 2 365,000 3,740,000 1.475.000 4,175,000 1000 000 $2,0103,000 Source: City of Tustin Water Service BARTLE WELLS ASSOCIATES 2/1C'.-31 TABLE Z ■ City of Tustin Water Service 1993 Project Cost Estimate Reservoirs: Main Street ............................................ $ 760,000 Rawlings............................................... 867,000 Foothill............................................... 110,000 Simon.................................................. 35,000 Total reservoirs .......................................... 197729000 Zone II booster station ................................... 275,000 Main Street nitrate plant loan repayment .................. 1,3882000 Portable generator at Columbus -Tustin well ................. 1209000 Distribution system improvements .......................... 3,385,000 Total project cost ........................................ $6,9409000 Source: City of Tustin Water Service BARTLE WELLS ASSOCIATES 2/10/93 I TABLE,. ■ City of Tustin Water Service Statement of Revenues, Expenses, and Changes in Retained Earnings, June 30 1990 1991 1992 Operating Revenues Charges for services .................. $ 5,477,119 $ 5,076,853 $ 4,867,984 Operating Expenses Personal services ..................... 5639149 19010,692 1,109,029 Purchased water & power ............... 195349617 1,1210425 8769781 Maintenance & operations .............. 13,297,922 1,328,268 1,3001226 Depreciation & amortization ........... 322,729 350,069 382,752 Other ................................. 102,641 468,359 85,919 Total operating expenses .............. 33,8219058 4,278,813 3,754,707 Operating income .................. 11656,061 7982040 1,113,277 Nonoperating Revenues (Expenses) Interest income ....................... 448,394 4069047 4159724 Interest expense ...................... (451,333 (416,425) (359,836 Loss from sale of assets .............. (1,394 (569272) (118,199 Intergovernmental grants .. ...... .. -- -- 473,022 Total nonoperating revenues (expenses).. 49333) 663,650) 4109711 Operating transfers out ............... (375,000) (3893,000) (558,000) Net income ............................ 1,2763,728 3422390 9652988 Retained earnings: Beginning of year ................... 9,270,195 10,546,923 10,889,313 End of year ......................... $10,546,923 $10,889,313 $11,8553,301 Source: Prepared by Bartle Wells Associates from financial statements of the city. BAR TLE WELLS ASSOCIATES 1/28/93. TABLE el ■ City of Tustin Water Service Statement of Cash Flow, June 30 1990 1991 1992 Cash Flows from Operating Activities Operating income ............................ $1,6569061 $ 7989040 $19113,277 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation & amortization ............... 3223,729 3500069 382,752 Loss on sale of assets .................... (19394) (56,272) (1189199) Intergovernmental grants .................. -- -- 473,022 Change in assets & liabilities ............ (312,970) 224,349 (62,650) Total adjustments ........................... 81365 518,146 6740925 Net cash provided by operating activities ................................ 13,6641,426 193169186 19788,202 Operating transfer out to other funds ....... (3759000) (3890000) (5589000) Cash Flows from Capital and Related Financing Activities Decrease in long-term debt .................. 18,049 (443;372) 40,201) B59,836) Interest expense ............................ P R513,333) (416,425) Acquisition and construction of capital assets ............................ (490,487) (657,057) (1,479,260) Net cash used for capital and related financing activities .............. (1,059,869) (1,516,854) (1,979,297) Interest income ............................. 4487394 406,047 415,724 Net increase (decrease) in cash and cash equivalents ...................... 6772951 (183,621) (333,371) Cash and cash equivalents: Beginning of year ......................... 5,562,016 6,239,967 6,056,346 End of year ............................... $6,2393,967 $69056,346 $5,722,975 Source: Prepared by Bartle Wells Associates from financial statements 'of the city. BARTLE WELLS ASSOCIATES 1/28/93 TABLE 1 O ■ City of Tustin Water Service 1992/93 Adopted Budget Revenue Water charges ............................................. $4,9693,000 Interest income .:......................................... 71,400 All other sources 2,159,100 Capital improvement fund .................................. 388,000 Total revenue ............................................ 7,5930500 Expenditures Operating: Personnel .............................................. 1,1009209 Purchased water ......................................... 19166,000 Maintenance and operations .............................. 11,986,932 Other.................................................. 269.605 Total operating............ ............................... 43,522,746 Capital: Supply and storage ...................................... 11,6369500 Distribution CIP................................... 1,518,995 Total capital ............................................ 3,1551,495 Total expenditures ........................................ $73,6789241 Source: City of Tustin, Program and Financial Plan for 1992/93. BARTLE WELLS ASSMATES 2/2/93 TABLE 11 ■ City of Tustin Water Service Balance Sheet, June 30 Current liabilities: Accounts payable & accrued expenses... 1990 1991 1492 Assets 200,000 441,370 210,234 570410 -- 44,980 Current assets: Cash & investments .................. $ 51,5949597 $ 5,3569467 $ 499689687 Accounts receivable ................. 1,026,046 -- 731,036 18,400 777,945 33,000 Deposits ............................ Total current assets .................. 6,620,643 69105,903 59779,632 Restricted assets ..................... Property, & equipment (net) ...... 6459370 9,469,183 6999879 9,960,568 7549288 11,081,819 plant Total assets .......................... 16,7359196 1697669350 17,615,739 Liabilities & Fund Equity Current liabilities: Accounts payable & accrued expenses... 4481,116 3729581 594,104 Due to other funds ................. 200,000 441,370 210,234 570410 -- 44,980 Deposits'... ... .......... ...... Current portion of long-term debt..... 500,345 182,529 201,103 Total current liabilities ............. 1,1929831 8229754 8409187 Long-term debt, net of current portion ..................... 3,811,520 3,685,964 3,527,189 Total liabilities ..................... 510049351 495089718 49367,376 Fund Equity Contributed capital ................... 111833,922 1,3682319 1,3939062 Retained earnings: Reserved for debt service ........... 8549628 699,879 7549288 Unreserved 9,692,295 10,189,434 11,101,013 .......................... Total fund equity ..................... 111,7303,845 1292579632 13,248,363 Total liabilities & fund equity .•....... $16,735,196 $16,766,350 $17,615,739 Source: Prepared by Bartle Wells Associates from audited financial statements of the city. 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L O C O F•- M-- W U r -r N M N TABLE C ■ City of Tustin General Fund Income Statement, June 30 1990 1991 1992 Revenue Property taxes .......................$ 420219072 $ 495569781 $ 418900189 Sales taxes ......................... 81,1190088 99300,457 90178,468 Other taxes ......................... 1,4971,115 2,163,086 191049250 Licenses, fines, interest & rentals.... 2,432,891 2,0999949 19567,891 Intergovernmental revenue ............ 21,1859001 2,726,690 213859880 Chares for services ................. 1,525,193 11531,978 197249155 Deve?oper fees ....................... -- -- 1,184,516 Other ............................... 2,812,162 2,085,613 1,743,108 Total revenue ....................... 22,592,522 24,464,554 23,778,457 Expenditures General government ................... 3,1873,811 2,771,785 29784,922 Public safety ....................... 9,247,518 10,647,621 11,982,825 Public works ........................ 4,654,133 594719841 504409981 Community services... .................. 9719579 914,022 1,1079690 Nondepartmental ...................... 7709391 192379946 1,296,116 Capital expenditures ................. -- -- 1,184,516 Total expenditures ................... 183,8319432 2190439215 239797,050 Excess (deficiency) .................. 3,761,090 3,421,339 (189593) Other fi.nancing sources (uses) ....... (49553.,834) (2,511,852) (19554,984) Excess (deficiency) .................. (792,744) 909,487 (195739577) Fund balance: Beginning of year.......... 9,074,424 8,2819680 9,191,167 End of year .......................$ 8,281,680 $ 9,191,167 $ 7,617,590 Source: Prepared by Bartle Wells Associates from audited financial statements of the city. BARTLE WELLS ASSOCIATES 2/2193 TABLE ]"ta City of Tustin General Fund Balance Sheet, June 30 Liabilities: 1990 1991 1992 Assets 1,794,129 21,1403,485 1,892,059 Cash and investments .................. $ 53,6970427 $ 7,544,329 $ 89157,601 Taxes receivable ............ 675,310 890,671 746,510 Accrued interest receivable ........... 310,808 2709931 270,856 Accounts receivable .................... 1983,977 191,895 192,371 Due from other governments ............ 75,184 154,129 723,242 Due from other funds .................. 3,503,267 2,562,989 675,954 Advance to other funds ................ 2,012,000 2,052,000 391529000 Deposits ............................. Total assets ......................... -- 12,472,973 284,250 1399519194 277,623 1395450157 Liabilities and Fund Balance Liabilities: Accounts payable .................... 1,794,129 21,1403,485 1,892,059 Due to other funds .................. -- 679053 19185,758 Deposits ........................... Deferred 2,279,377 2,4009486 2,420,128 revenue .................... Total liabilities ..................... 117,787 4,191,293 152,000 4,7609024 429,622 59927,567 Fund balance: Reserved for long-term receivables.... 2,012,000 2,0529000 3,152,000 Unreserved: - Designated for capital outlay...... 2,258,086 2,608,668 2,936,876 - Designated for self-insurance...... 1,029,714 1,251,077 1,219,029 - Designated for contingencies....... -- 909,487 309,685 Undesignated .................... 2,981,880 2,369,935 -- Total fund balance .................... 89281,680 93,191,167 7,617,590 Total liabilities & fund balance ......$12,472,973 $13,951,191 $13,545,157 Source: Prepared by Bartle Wells Associates from audited financial statements of the city. BARTLE WELLS ASSOCIATES 2/2/93 i TABLE !S ■ City of Tustin Assessed Value of Taxable Property Fi scal Real Personal Percent Year Property Property Total Change 1987/88 .......$1,847,958,123 $19292859868 $29040,2439991 1988/89 ....... 2,183,696,494 3019646,937 2,485,343,431 21.82 1989/90 ....... 224139175,256 3299176,611 2,74293519867 10.34 1990/91 ....... 295609822,523 35094029084 2,9119224,607 6.16' 1991/92 ....... 2,6129038,983 35794109126 2,969,449,109 2.00 Source: Orange County Assessor's Office. BARTLE WELLS ASSOCIATES 1/28/93 TABLE Ib■ City of Tustin Principal Taxpayers, June 30, 1992 Taxpayer Percent 1992 of Total Type of Business Valuation Valuation The Irvine Company .............. residential and ............... $276,139,578 9.30% commercial property Steel case ........................... manufacturing .................. 90, 528, 010 3.05 Basic Four Corporation......... manufacturing ..................41,190, 974 1.39 Larwi n Square Ltd. .............. commerci al property .......... 201,203,470 0.68 Eddy & Violet Meredith......... commercial property ......... 13,077,591 0.04 Malta Properties Inc ........... commercial property ......... 190500076 0.04 Fireman's Fund ..................... off ce/commerci al ............ 964v785 0.03 Courtyard Center ................. commerci al property ......... 820r751 0.03 Tustin Business Venture ....... commercial property ......... 718934' 0.02 Reef IV, Inc. ...................... commerci al property ......... 636.581 0.02 433,330,159 14.59% Source: Orange County Assessor's Office. BARTLE WELLS ASSOCIATES 1;29;93 TABLE ■ City of Tustin Property Tax Levies and Collections Percent Delinquent Fiscal Total Current Tax of Levy Tax Year Tax Levy Collections Collected Collections 1987/88 ............$6,785,490 $6,5293,677 96.230 $ 58,431 1988/89 ............ 7,139,369 69803,105 95.29 87,918 1989/90 ............ 81094,978 7,9109339 95.18 81,833 1990/91 ............ 99269,103 9,0809606 97.97 78,932 1991/92 ............ 99704,763 995009394 97.89 1679617 Source: Orange County auditor -controller's office. Includes assessments for Assessment Districts Nos. 85-1 and 86-2. BARTLE WELLS ASSOCIATES 2/2/93 TABLE /b ■ Population Orange County City of Tustin Percent Percent Year Population Change Population Change 1980 .................. 19931,570 -- % 323,073 -- 1981 .................. 1,951,300 1.0 37,264 16.2 1982 .................. 21002,200 2.6 38,650 3.7 1983 .................. 2,036,400 1.7 40,200 4.0 1984 .................. 290669500 1.5 40,250 0.1 1985 .................. 2,088,400 1.1 40,800 1.4 1986 .................. 2,145,700 2.7 42,750 4.8 1987 .................. 2,193,600 2.2 43,100 0.8 1988 .................. 2,2383,700 2.1 453,750 6.2 1989 .................. 2,280,400 1.9 46,800 2.3 1990 .................. 21410,556 5.7 50,689 8.3 1991 .................. 2,453,300 1.8 523,100 2.8 1992 .................. 2,512,200 2.4 540700 5.0 Source: U.S. Census and State Department of Finance. BARTLE WELLS ASSOCIATES 1/29/93 TABLE � 9 ■ City of Tustin Construction Activity Fiscal Year 1988 1989 1990 1991 1992 Permi t Val uati on ($000) Commercial construction...... $ 34,580 $ 67,982 $ 75,360 $ 153,081 $ 13,929 Residential construction..... Total ....................... 80,732 $115,312 91,823 $159,715 90.023 $165,383 130,225 115.684 $145,306 1299613 Number of Perini is Commercial ................. 98 114 127 318 225 Residential ................. Total 422 533 520 995 876 ....................... 520 647 647 1,313 1,101 Source: City of Tustin Community Development Department. BARTLE WELLS ASSOCIATES 1/22/93 TABLE■ East Orange County* Housing Sales 1990 1991 1992 Number of Sales Single-family residences ..................2,088 1,920 2,165 Condominiums .............................1,022 814 670 Total ....................................3,110 2,734 23,835 Median Sales Price Single-family residences ............... $2181,333 $219,875 $221,675 Condominiums .......................... 131,866 1320958 1417408 Overall median ........................ 186,750 191,608 1999775 *East Orange County includes the cities of Tustin, Orange, and Santa Ana. Source: East Orange Association of Realtors. BARTLE WELLS ASSOCIATES 2:10/93 TABLE. - ■ City of Tustin Taxable Sales and Trade Outlets 1987 1988 1989 1990 1993 Taxable Sales ($000) Retail stores ........... $3629049 $3849231 $5079285 $5999950 $6159733 All other outlets........ Total 194 532 $5563,581 183t962210 568,193 716 7189001 _194,725 $794,675 191,478 ................... $807,211 Sales Tax Permits Retail stores ........... 507 537 566 627 635 All other outlets........ 1,124 1,144 1,190 1,222 1,179 Total ................... 1,631 1,681 1,756 1,849 1,814 5ourc.e: State Board of Equalization. BARTLE WELLS ASSOCIATES 1/29193 TABLE*' i Median Household Effective Buying Income' 1987 19882 1989 1990 1991 City of Tustin $ n/a 379532 $ n/a 37,096 $ n/a 379614 $360198 419179 $390296 46,655 Orange County ............ California average........ 30,537 259888 309008 240488 303,713 25,976 33,342 27,912 36,943 32,072 U.S. average ............. 1 - Effective buying income is defined as income remaining after with- holding taxes and social security deductions. 2 - Marketing statistics have excluded certain items from this year's calculation of EBI, resulting in a reduction in .total income at the national level of approximately 11%. Source: Sales and Marketing Management, "Survey of Buying Power." BARTLE WELLS ASSOCIATES 1122/93 TARLEZ�; Orange County Employment and Unemployment (in thousands) 1987 1988 1989 1990 1991 1992* Civilian labor force......... 1,294.2 1,396.7 1,409.9 1,371.4 1,345.8 19364.7 Employment .................. 1,252.0 1,328.9 1,368.4 1,326.4 1,281.5 1,274.7 Unemployment ................ 42.2 40.8 41.5 45.0 64.3 90.0 Unemployment rate ........... 3.3% 3.0% 2.9% 3.3% 4.8% 6.6% *Data for October 1992 only; all other data are annual averages. Source: State Employment Development Department. -d BARTLE WELLS ASSOCIATES 2/10/93 TABLE ■ Orange County Wage and Salary Employment by Industry (thousands) 1987 1988 1989 1990 1991 1992* Agriculture ....................... 8.6 8.2 7.8 6.6 7.1 4.7 Goods -producing industries: Manufacturing ................... 248.8 258.9 256.6 250.3 236.4 222.1 Mining & construction ........... 65.2 69.0 73.8 67.5 56.2 52.0 Total ............................. 314.0 327.9 330.4 317.8 292.6 274.1 Service -producing industries: Retail trade .................... 206.5 215.2 220.5 219.3 203.3 193.3 Services ........................ 266.5 289.0 . 310.0 322.4 322.2 322.8 Government ...................... 114.8 117.8 120.5 126.1 128.7 128.5 Other ........................... 190.1 199.6 209.1 219.4 212.8 211.3 Total ............................. 777.9 821.6 860.1 887.2 867.0 855.9 Total, all industries .............1,100.5 1,157.7 13,198.3 13,211.6 19166.7 1,134.7 *Data for October 1992 only; all other data are annual averages. Source: State Employment Development Department. BARTLE WELLS ASSOCIATES 2/10/93 "A TABLE. _ ■ City of Tustin Direct and Overlapping Bonded Debt FBARTLE WELLS ASSOCIATES 2/2/93 Percent Debt Applicable 4/2/93 Orange County ...................... 2.042% $ 20,01? Orange County building authorities ..................... 2.042 51,8273,061 Orange County Flood Control District ......... 2.044 679145 Metropolitan Water District ........................ 0.411 2,728,814 MWD of Orange County Water Facilities Corporation ....... 3.126 2,849,505 Saddleback Community College District COPS .............. 5.674 1,5489435 Tustin Unified School District.CFD No. 88-1 .:........... Tustin Union High School District 100.000 14,800,000 ...................... Irvine Unified School District ....................... 10.212 0.300 103,212 46,170 Irvine Unified School District CFD No. 86-1............. 0.760 2739220 Other school districts and authorities ................. various 3,450 City of Tustin ......................... City of Tustin Water Corporation ....................... 100.000 100.000 3000000 3,675,000' Orange County SD Nos. -1, 2, 3, 5, 6, 73, and 11.COPs...... 1.904 1,875,440 Orange County SD Nos. 1 and 14 COPs..................... various 1849343 Orange County SD No. 7 COPs............................ Orange County Water District COPs ...................... 12.033 3.047 29582,311 39893,121 East Orange County Water District COPs ................. 28.773 925,052 Irvine Ranch Water District COPS ..... .... .......... 10.201 691209600 Irvine Ranch Water District Improvement Districts ....... various 389369,840 City of Tustin 1915 Act Bonds ................. 100.000 128,653,198 Total gross direct and overlapping bonded debt .......... $2149752,9292 Less: MWDOC Water Facilities Corporation (100% self-supporting) ................... 2,8493,505 City of Tustin Water Corporation (100% self-supporting) ......................... 3,675,000 Total net direct and overlapping bonded debt............ $208,228,424 Ratios to Assessed Valuation ($392449925,611) Gross direct debt ($3,975,000) ............ 0.12% Net direct debt ($300,000) .......................................... 0.01 Total gross debt ........................ 6.62 Totalnet debt ..................................................... 6.42 1 - Excludes refunding certificates of participation to be sold. 2 - Excludes revenue, mortgage revenue, and tax allocation bonds; and non -bonded capital lease obligations. Source: Compiled in cooperation with California Municipal Statistics, Inc. FBARTLE WELLS ASSOCIATES 2/2/93 TABLE._ a City of Tustin Largest Employers imp 1 oy e r Employment Marine Corp Air Station ....................................... 43,000 19300 Ricoh Electronics ............................................ 1,221 Steelcase Inc. .............................................. District 1,100 Tustin Unified School ............................... 19010 MAI Basic Four, Inc.. ........................................ 825 Silicon Systems Inc... ....................................... 484 Healthcare Medical Center .................................... 400 LH Research, Inc. ............................................ 400 CMS Enhancements Inc. ........................................ 380 CAL -TECH Cabinet, Inc . ....................................... 350 Universal Building Maintenance ............................... 350 Dynachem Electronic Materials ................................ 300 Cherokee International, Inc. ................................. 250 Cityof Tustin .............................................. 200 E1 Dorado Bank ...... ................ ..................... 179 KTBN Channel 40 - Trinity .................................... 175 Safeguard Business Systems, Inc. ............................. 170 Fireman's Fund Insurance Co . ................................. 160 Williamson & Schmid .......................................... 140 Ricoh Corporation ............................................ 104 Consolidated Beverage Distributors ........................... Source: Tustin Chamber of Commerce, 1992. LB!AfLTLE WELLS ASSOCIATES 1129/93 RECEIVED FEB 0 5 1993 Draft of 2/4/93 FINANCE DEPT, TRUST AGREEMENT among CITY OF TUSTIN WATER CORPORATION and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as Trustee and THE CITY OF TUSTIN Dated as of April 1, 1993 TABLE OF CONTENTS TITLE Page ARTICLE I DEFINITIONS AND EXHIBITS SECTION 1.01. Definitions 1 SECTION 1.02. Exhibit . . . . . • . • • . ' ' ' ' ' ' ' 9 ARTICLE II DECLARATION OF TRUST SECTION 2.01. Declaration of Trust by Trustee . . . . . 10 10 SECTION 2.02. Deposit of Moneys . . . . . . Precedent Satisfied . . . . . . . . . 11 SECTION 2.03. Conditions ARTICLE III B:\TRSTAGR4.DOC i t CERTIFICATES, TERMS AND PROVISIONS SECTION 3.01. Preparation of 1993 Certificates . . . . . 11 SECTION 3.02. Payments from Trust Estate Only; 11 Distribution of Trust Estate . . • . ' • • SECTION 3.0.3. The 1993 Certificates • • • • ' ' ' ' . ' 12 13 SECTION 3.05. Execution . . . . • • . • • • ' ' ' ' ' 13 SECTION SECTION 3.06. 3.07. Exchange. . Negotiability, Transfer and Registry 14 SECTION 3.08. Certificate Registration Books . . . . . . 14 SECTION 3.09. Regulations with Respect to Exchanges and Transfers• . . • • • • ' ' ' ' 14 SECTION 3.10. Certificates Mutilated, Destroyed, Stolen . . 15 or Lost . 15 SECTION 3.11. Temporary Certificates 16 SECTION 3.12. Cancellation of Certificates . . . . ' • • 16 SECTION 3.13. Reservation of Book -Entry Format . • ' ' ' 16 SECTION SECTION 4.01. 4.02. Prepayment . . . . . . . . . . . . . . . . Selection of CertificatesforPrepayment 17 SECTION 4.03. 4.04. Notice of Prepayment . • . Payment of Certificates Upon Prepayment 18 SECTION SECTION 4.05. Partial Prepayment of Certificates . . . . 19 SECTION 4.06. Effect of Prepayment . . . . . . . . 19 B:\TRSTAGR4.DOC i t ARTICLE V ESTABLISHMENT AND ADMINISTRATION OF CERTAIN FUNDS AND ACCOUNTS SECTION 5.01. Establishment of Project Trust Fund 19 SECTION 5.03. Reserve Account . . . . . . . . . . . . . 21 SECTION 5.04. Construction Account . . . . . . . . . . . 22 SECTION 5.05. Deposits of Money . . . . . . . . . . . . 24 SECTION 5.06. Valuation and Sale of Investments . . . . 24 SECTION 5.07. Investment of Certain Accounts . . . . . . 24 ARTICLE VI THE TRUSTEE AND PAYING AGENT SECTION 6.01. Duties, Immunities and Liabilities of Trustee . . . . . . . . . . . . . . . . 25 SECTION 6.02. Right of Trustee to Rely upon Documents, Etc. . . . . . . . . . . . . . . . 26 SECTION 6.03. Trustee Not Responsible for Recitals 27 SECTION 6.04. Right of Trustee to Acquire Certificates . . . . . . . . . . . . . . . 27 SECTION 6.05. Moneys Received by Trustee to be Held in Trust. . . . . . . . . . . . . . . . . . 27 SECTION 6.06. Compensation and Indemnification of Trustee . . . . . . SECTION 6.07. Qualifications of Trustee . . . . . . . 28 SECTION 6.08. Resignation and Removal of Trustee and Appointment of Successor Trustee . . . . . 29 SECTION 6.09. Acceptance of Trust by Successor Trustee . 30 SECTION 6.10. Merger or Consolidation of Trustee . . . . 31 SECTION 6.11. Obligations of Trustee . . . . . . . . . . 31 SECTION 6.12. Paying Agent for Certificates . . . . . . 31 SECTION 6.13. Resignation or Removal of Paying Agent; Appointment of Successor . . . . . . . . . 32 ARTICLE VII DEFEASANCE SECTION 7.01. Certificates Deemed Paid; Discharge of Trust Agreement . . . . . . . . . . . . 32 SECTION 7.02. Application of Trust Money . . . . . . . . 34 B:\TRSTAGR4.D0C ii ARTICLE VIII AMENDMENTS SECTION 8.01. Mailing . . . . . . . . . . . . . . . . . 34 SECTION 8.02. Powers of Amendment . . . . . . . . . . . 34 SECTION 8.04. Exclusion of Certificates . . . . . . . . 37 SECTION 8.05. Notation on Certificates . . . . . . . . . 37 SECTION 8.06. Additional Certificates . . . . . . . . . 37 ARTICLE IX COVENANTS SECTION 9.01. Power to Enter into Trust Agreement, ARTICLE X EVENTS OF DEFAULT AND REMEDIES SECTION 10.01. Installment Purchase Agreement and 43 SECTION 10.02. Assignment Agreement . . . . . . . . . . . 40 SECTION 9.02. Valid and Binding Obligations . . . . . . 40 SECTION 9.03. Extension of Payment . . . . . . . . . . . 40 SECTION 9.04. Encumbrances . . . . . . . . . . . . . . . 40 SECTION 9.05. Tax Covenants . . . . . . . 40 SECTION 9.06. Account Records and Statements 42 SECTION 9.07. Recording and Filing . . . . . . . . . . . 42 SECTION 9.08. Amendment of Installment Purchase Agreement. . . . . . . . . . . . . . . . 42 SECTION 9.09. Enforcement . . . . . . . . . . . . . . . 43 SECTION 9.10. Further Assurances . . . . . . . . . . . . 43 ARTICLE X EVENTS OF DEFAULT AND REMEDIES SECTION 10.01. Events of Default . . . . 43 SECTION 10.02. Institution of Legal Proceedings byTrustee . . . . . . . . . . . . . . . 43 SECTION 10.03. Distribution of Proceeds of Remedies 44 SECTION 10.04. Suit By Owners . . . . . . . . . . . . . 44 SECTION 10.05. Effect of Delay or Omission to Pursue Remedy . . . . . . . . . . . . . . . . . 45 SECTION 10.06. Remedies Cumulative . . . . . . . . . . . 45 ARTICLE XI MISCELLANEOUS SECTION 11.01. Payment of Purchase Payments; Unclaimed Moneys . . . . . . . . . . . . . . . . . 45 SECTION 11.02. Evidence of Signatures of Owners and Ownership of Certificates . . . . . . . . 46 B: \TRGR4 . DOC i i i SECTION 11.03. Moneys Held for Particular Certificates 47 SECTION 11.04. Publication of.Notice; Suspension of Publication . . . . . . . . 47 SECTION 11.05. Severability of Invalid Provisions 47 SECTION 11.06. Notices . . . . . . . . . . . . . . . . 47 SECTION 11.07. California Law . . . . . . . . . . . ... 48 SECTION 11.08. Binding on Successors . . . . . . . . . . 48 SECTION 11.09. Headings . . . . . . . . . . . . . . . . 48 SECTION 11.10. Execution in Counterparts . . . . . . . . 48 SECTION 11.11. Consent of Parties . . . . . . . . . . . 49 ARTICLE XII CERTIFICATE FORM SECTION 12.01. Certificate Form . . . . . . . . . . . . 49 SIGNATURES AND SEALS . . . . . . . . . . . . . . . . . . . . 60 EXHIBIT A Initial Deposits to Funds -and Accounts . . . . A-1 B:\TRSTAGR4.DOC iv THIS TRUST AGREEMENT, dated as of April 1, 1993 (the "Trust Agreement"), by and among CITY OF TUSTIN WATER CORPORATION, BANK OF AMERICA a California nonprofit public benef CIATION rata onnational banking NATIONAL TRUST AND SAVINGS ASSO association organized and existing under the laws of the United States, as trustee, and the CITY OF TUSTIN. W I T N E S S E T H: WHEREAS, effective on the Delivery Date the Corporation will sell the Project to the City and the City will be obligate Purchase make Purchase Payments pursuant to Che Inst Agreement; and WHEREAS, the Corporation will establishattrust pursuant r uand to this Trust Agreement and direct the Trustee deliver 1993 Certificates representing proportionate 1interests in the Principal components and Interestof the maturity or prepayment components of se Payments to and including the earlier of all of such 1993 Certificates. NOW, THEREFORE, for and in consideration of the mutual covenants hereinafter contained, the parties her agree follows: ARTICLE I DEFINITIONS AND EXHIBITS SECTION 1.01. Definitions. The terms defined in this Section 1.01 shall have the meanings ascribed tot m in this the Section 1.01 for all purposes of this Trust Agree context clearly indicates some other meaning• Installment All capitalized terms used herein which are defined in the Agreement and not defined herein shall have the meanings specified in the Installment Purchase Agreement. "Assignment Agreement" shall mean that tee ain Assted n ent of Agreement between the Corporation and the Tru April 1, 1993, pursuant to which the Corporation assigns sther1993 rights to the Trustee for the benefit of the Own Certificates, as originally entered into and as it may from time to time be amended, modified or supplemented. "Authorized City Representative" s of the Tustin Water Service] and any person by the [Manager of the Tustin Water Service] on behalf of the City by a Written Request of the Tustin Water Service] and delivered t that, in matters involving the investment B:\TRSTAGR4.DOC ;hall mean the [Manager or persons designated and authorized to act signed by the [Manager :o the Trustee; except, of funds and related matters, the [Treasurer] of the City (or his or her designee) shall act as the Authorized City Representative. I'Authorized Corporation Representativell shall mean the President of the Corporation or any other person or persons designated by the President or Board of Directors of the Corporation and authorized to act on behalf of the Corporation by a Written Request signed by the President of the Corporation or by a certified resolution adopted by the Board of Directors of the Corporation and delivered to the Trustee. "Authorized Newspapers' shall mean The Daily Bond Buyer or any other newspaper specializing in financial matters, customarily published at least once a day for at least five days (other than legal holidays) in each -calendar week, printed in the English language, and of general circulation in the Borough of Manhattan, County and State of New York and a newspaper customarily published .at least once a day for at least five days (other than legal holidays) in each calendar week, printed in the English language, and of general circulation in the City. "Authorized officer of the Trustee" shall mean and include the chairman of the board of directors, the president, every vice president, every assistant vice president, every trust officer and every officer and assistant officer of the Trustee. "Business Day" shall mean a day other than ( i) a Saturday or Sunday or (ii) a day on which commercial banks in the city in which the trustee maintains its corporate trust office are authorized or required by law or executive order to close, (iii) a day on which the New York Stock Exchange is closed, (iv) a day on which the issuer of the Credit Facility, if any, is authorized or required by law or executive order to close or (v) a day on which the issuer of the Reserve Account Policy, if any, is authorized or required by law or executive order to close. "certificate" or #'Certificates" shall mean the 1993 Certificates executed and delivered by the Trustee pursuant to this Trust Agreement, together with any additional certificates of participation executed and delivered pursuant hereto. "City" shall mean the City of Tustin, California. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Corporate Trust Office,, shall mean, with respect to the Trustee, the office which is the principal corporate trust office of the Trustee situated in San Francisco, California. "Corporation" shall mean the City of Tustin Water Corporation, a California nonprofit public benefit corporation, or B:\TRSTAGR4.DOC 2 its successors or assigns appointed in accordance with this Trust Agreement. ,,Costs of Issuance" shall mean any costs or expenses paid or incurred in connection with the preparation, execution and delivery of the 1993 Certificates, including but not limited to fees and expenses of the Trustee and its counsel, printing costs, word processing costs, special counsel and other legal fees and expenses, rating agency fees, accounting fees, legal fees and other expenses incurred by the City or the Corporation in connection with qualification or registration, or determining the exemption from registration or qualification, of the 1993 Certificates under the "Blue Sky" laws of any jurisdiction, and fees payable to any other consultants or experts retained in connection with such preparation, execution and delivery. "Counsel" shall mean an attorney at law, or firm of attorneys, of recognized standing and who are qualified to pass on the legality of the particular matter. "Credit Facility" shall mean at irrevocable and unconditional letter of credit, a standby purchase agreement, a line of credit or other similar credit arrangement issued by a Qualified Bank to satisfy all or a portion of the Reserve Requirement. "Escrow Account". shall mean the account so designated established pursuant to the Escrow Agreement. $Escrow Agent" shall mean the Escrow Agent which is a party to the Escrow Agreement. "Escrow Agreement" shall mean the Escrow Agreement, dated as of April 1, 1993, between the City and the Escrow Agent. "Event of Default's shall mean any of the events specified in Section 10.01 hereof. IlGovernment obligations" shall mean any of the following, to the extent noncallable by the issuer thereof: (i) obligations of, including specified portions thereof (which may consist of specified portions of the interest thereon), or obligations, including specified portions thereof (which may consist of specified portions of the interest thereon), the payment ,of the principal of and interest on which are unconditionally guaranteed by, the United States of America; (ii) bonds, debentures or notes issued by any of the following Federal Agencies: Banks for B:\TRSTAGR4.DOC 3 Cooperatives, Federal Land Banks, Federal Financing Bank, or Federal National Mortgage Association (including participation certificates); (iii) public housing bonds, temporary notes or preliminary loan notes, fully secured by contracts with the United States of America; (iv) bonds, debentures or notes issued by any Federal agency hereafter created by an act of Congress, the payment of the principal of and interest on which are unconditionally guaranteed by the United States of America; and (v) direct general obligations of, or obligations the payment of the principal of and interest on which are unconditionally guaranteed by the State or local agencies thereof. "Information services" shall mean Financial Information, Int.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302 Attention: Editor; Kenn Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, New York 10006; Moody's "Municipal and Govern- ment," 99 Church Street 8th Floor, New York, New York 10007 Attention: Municipal News Reports; and Standard & Poor's "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; or, in accordance with the then current guidelines of the Securities and Exchange Commission, to such other addresses and/or such other services providing information with respect to called bonds as the City may designate. "Installment Purchase Agreement" shall mean the Install- ment Purchase Agreement between the City and the Corporation, dated as of April 1, 1993, as amended or supplemented from time to time. "Interest Component" shall mean any Purchase Payment, or portion thereof, which is designated and paid as interest pursuant to the terms of the Installment Purchase Agreement; the Interest Component of a Certificate is the proportionate interest in the Interest Component of the Purchase Payments which is evidenced b such Certificate. Y "Interest Component Payment Date" shall mean October 1 and April 1 of each year (beginning, with respect to the 1993 certificates, October 1, 1993, and ending on the f inal maturit date of such Certificates). y 111993 Certificates" shall mean all the certificates of participation authorized by Section 3.03 of this Trust Agreement and designated as City of Tustin, water System Certificates of Participation, 1993 Series." B:\TRSTAGR4.DOC 4 vindin ," when used with reference toCeortthereupon Outsta g mean as of any date, Certificates • theretofore Trust Agreement except: shall , prepared, executed and delivered under this (a) Certificates cancelled by the Trustee or delivered to the Trustee for cancellation a or prior to such date; Certif i- onions of (b) Certificates (or P ct to Section 7 . O1 hereof; ates) deemed paid pursuan and Certificates in lieu of or in substi- tution _ for which other Certificates shall have been prepared, executed and delivered pursuant to Article III hereof. egisteredowner of any 'Owner" shall mean the own on the Certificate register to Certificate or Certificates as ursuant to Section 3.08 hereof. be maintained by the Trustee p of the following IsPermitted Investments" shall mean any of the State: except to the extent not permitted y the (i) Government Obligations; (ii) any of the following by the United obligations of federal agencies not guaranteed- debentures issued by the States of America: (a) anticipation Federal Housing Administration; (b) P the certificates or senior debt obligations or Farm cMortgage Corporation Federal Home Loan of Federal Land Banks, Credit Banks (consisting Banks for Federal Intermediate Credit Banks federal home loan (c) bonds of any fed Cooperatives); bonds, bank established under said act he obligations of debentures, participations and of or issued by the Federal National Mortgage Association, the Student Loan Marketing Association, -he Government National oa Mortgage Association and the Federal Home obligations Coriand bondsthe Interna notes ° ther t onalBank for P issued or assumed by Reconstruction and Development; (iii)interest-bearing demand or time dfederas f deposit) i , certificates of including the banks or banking associt-ions chartered banks, Trustee) or State of Californ s and loan provided that (a) in the case de aosits shall be association, such demand or timep s and Loan fully insured by the Federal Saving 5 B:\TRSTAGR4.D0C Insurance Corporation, or the unsecured obligations of -such savings and loan association shall be rated in one of the two highest rating categories of a Rating Agency, and (b) in the case of a bank, such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation, or the unsecured long-term obligations of such bank (or the unsecured obligations of the parent bank holding company of which such bank is the lead bank) shall be rated in one of the two highest rating categories of a Rating Agency; (iv) repurchase agreements entered into with financial institutions such as banks or trust companies organized under State law or national banks or banking associations, insurance companies or government bond dealers reporting to, trading with, and recognized as a primary dealer by, the Federal Reserve Bank of New York and a member of the Securities Investors' Protection'Corporation or with a dealer or parent holding company provided that: (a) the unsecured obligations of any financial institution shall be rated in one of the two highest rating categories of a Rating Agency, or such financial institution shall be the lead bank of a banking holding company whose unsecured long-term obligations are rated in one of the two highest rating categories of a Rating Agency; (b) the most recent reported combined capital, surplus and undivided profits of such financial institution shall be not less than $100 million; (c) the repurchase obligation under any such repurchase obligation shall be required to be performed in not more than thirty (30) days; and (d) the entity holding such securities as described in clause (c) shall have a valid and perfected first security interest therein for the benefit of the Trustee under the California Commercial Code or pursuant to the book entry procedures described by 31 C.F.R. 306.1 et seq. or 31 C.F.R. 850.0 et seq. and are rated in one of the two highest rating categories of a Rating Agency; (v) bankers acceptances endorsed and guaran- teed by banks described in clause (iv) above; (vi) obligations, the interest on which is excluded from federal income taxation under Section 103 of the Code and which are rated in the one of the two highest rating categories of a Rating Agency; B:\TRSTAGR4.DOC 6 (vii) money market or mutual funds which invest solely in Government_ Obligations or in obligations described in the preceding clause (ii) of this definition or money market fun b which arg rated in the highest rating category Y Agency (viii) units of a taxable government money market portfolio comprised solely of obligations listed in ( i) , ( i i) , or (iv) above; (ix) any investment which is a e legal invest- ment for proceeds ofCertificates, tan agreement between which investment is made pursuant to the City or the Trustee or any successor Trustee ubody and a financial institution are rated in one of the whose long-term obligationsAgency; two highest rating categories of a Rating (x) commercial paper of "prime,, quality of the highest ranking or of the highest letter and numerical rating as provided for by a Rating nized Agency, of issuing corporations that areghaving and operating within the United States and total assets in excess of five hundredinion dollars ($500,000,000) and having debenan tures 11 or higher or other rating for the issuer's d other than long-term unsecured obligations, a Rating commercial paper, as provided for by Agency and provided that purchases of eligible commercial paper may not exceed 180 days maturity nor represent more than 10 percent of outstanding paper of an issuing corporation; (xi) any general obligation insurance company whose long-term debt obligations are rated in one of the two highest rating categories of a Rating Agency; or (xii) any other lawful investment f r CJ4% California under the Government Code of the State of amended from time to time. '?Prepayment Datell means the date fixed for n optiooaltor mandatory prepayment, as the case may be, prior to Y Certificates. ,'Prepayment Price" shall mean a price equal to the Interest Principal Component represented by a Certificate, P the reeves Component accrued to the applicable Prepayment Date, p P if applicable. 7 b:\TRSTAGR4.DOC s'Principal component" shall mean with respect to a Purchase Payment, the portion thereof which is designated and paid as principal pursuant to the terms of f ha (Certificate is the Agreement; the Principal Component o .proportionate interest in the Principal Component of the Purchase Payments which is evidenced by such Certificate. "Principal Component Payment Date" shall mApril aApr f each year (beginning, with respect to the 1993 Certificates, il 1, 19 and ending on April 11 20 •) •oQualified Bank" shall mean a state or national bank or trust company or savings and loan association or a foreign nk with a domestic branch or agency which is organized and in good standing under the laws of the United States or any state surplushe eof or any foreign country, which has a capital $25,000,000 or more and which has a short-term debt ting f the highest ranking or of the highest letter and numerical as provided by Moody's or by S&P. ('Rating Agency" shall mean Moody's or S&P (together, the "Rating Agencies"). "Record Date" shall mean with respect to any Interest Component Payment Date for a Certificate the fifteenth dayof the calendar month immediately preceding each Int erestent Payment Date. "Reserve Account Policy" shall mean a policy of insurance or surety bond issued by a municipal bond insurer, hich bligathetions insured by which have a rating by moody's and S&P said Rating tme of issuance is the highest rating then issued bg Agency, to satisfy all or a portion of the ReserveRequirement. IlReserve Requirement" shall mean, at any date of determination and as computed by the City the least of (i) an amount equal to the maximum amount of Purchasof e Payments y year due eron any April 1 and the next succeeding Oct a e amnount equal to 10% of the ect to Outstanding Certificates, (l ) proceeds (within the meaning of Section 148 of teq euCode)al to of all Certificates then Outstanding, or (iii) an amount of the average annual Purchase Payments due with respect to Outstanding Certificates; provided, howev rthat b such one Reserve erve Requirement or a portion thereof may be pr yby Reserve Account Policies or Credit Facilities upon the use the of such the City with the Trustee of writtenevidence Facilities to satisfy the Reserve Account Policies or Cr Reserve Requirement or any portion thereof will not by itself result in the downgrading or withdrawal of any credit rating then in effect with respect to the Certificates. B:\TRSTAGR4.DOC 8 "Securities Depositories', shall mean The Depositcry Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax -(516) 227-4039 or 4190; Midwest Securities Trust Company, Capital Structures -Call Notification, 440 South LaSalle Street, Chicago, Illinois 60605, Fax -(312) 663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond Department, Dex-(215) 496-5058; or, in accordance with then current guidelines of the Securities Exchange Commission, to such other addresses and/or such other securities depositories as the City may designate. I'Series'l shall mean all Certificates designated by descriptive title or otherwise as a series and prepared, executed and delivered in a simultaneous transaction, and any Certificates thereafter prepared, executed and delivered in lieu of or in exchange or substitution for such Certificates, pursuant to the provisions of this Trust Agreement, regardless of variations in maturity, interest rate, prepayment or other provisions. ItSpecial Counsel', shall mean a nationally recognized law firm specializing in the area of tax-exempt municipal finance appointed by the City. "State,, shall mean the State of California. "Supplemental Trust Agreement" shall mean any agreement supplemental to or amendatory of this Trust Agreement. "Trust Agreement" shall mean this Trust Agreement, dated as of April 1, 1993, entered into by and among the Trustee, the Corporation and the City, as originally executed and entered into and as it may from time to time be amended or supplemented in accordance herewith. "Trust Estate" shall mean all estate, right, title and interest of the Trustee in and to the Purchase Payments and the proceeds of the Certificates and all rights to enforce the Purchase Payments. under the Installment Purchase Agreement, including, without limitation all amounts from time to time deposited in the funds, accounts and subaccounts created pursuant to this Trust Agreement and, to the extent set forth herein, investment earnings thereon. "Written Request" shall mean a written instrument signed by an Authorized City Representative or an Authorized Corporation Representative, as the case may be. SECTION 1.02. Exhibit. The following Exhibit is attached to and by this reference made a part of this Trust Agreement: Exhibit A: Delivery Date Deposits to Accounts. B:\TRSTAGR4.DOC 9 ARTICLE II DECLARATION OF TRUST SECTION 2.01. Declaration of Trust by Trustee. The Corporation hereby establishes a trust and he Trust eereby antThecTrustee assigns and transfers the Trust Estate to hereby declares that it holds and will hold the Trust Estate upon use and benefit of the the trusts hereinafter set fortand forthfor herein. Owners, as more particularly SECTION 2.02. Deposit of Moneys. In order to induce the City to enter into the Installment Purchases greement, an ration insure that the Project will be available for r the is entering into this Trust Agreement and will cause the Trustee to execute and deliver the 1993 Certificates, and fromthe proceeds eels of the sale of the 1993 Certificates (including the following deposits shall st received) and the following transfers, be made by the Trustee: (i) to the Purchase Payment Account, from the proceeds of the sale of the 1993 Certificates, the' amount set forth with respect thereto Exhibit hereto, constituting accrued interest on e 1993 payment of Certificates, to be applied toward the payor the Interest Component of the 1993 Purchase Payment due on October 11 1993; (ii) to the Reserve Account, from the proceeds of the sale of the 1993 Certificate, Aeheretot set forth with respect thereto in Exhibit constituting an amount equal to the Reserve Requirement on the Delivery Date with respect to the 1993 Certificates; -(iii) to the Escrow Account, from the l983 the Reserve Account and the proceeds of the sale of 1993 Certificates, the amount set forth with respect thereto in Exhibit A hereto, to acquire direct obligations of or guaranteed by the United the principal of and intere will provide moneys sufficient to pay the principal and interest when due and the redemption price, on October 1, 1993, of the Corporation's $3,475,000 outstanding City of Tustin Water Corporation Lease Revenue Bonds, Series A; and (iv) to the Construction Account, from the proceeds of the sale of the 1993 Certificates, the amount set forth with respect thereto sufficient Exhibit to hereto, constituting (a) an amount pay Costs of Issuance with respect to the 1993 B:\TRSTAGR4.DOC 10 Certificates, (b) an amount sufficient to repay a loan in the amount of $ made to the City by the Orange County Water District, the proceeds of which were used for the benefit of the Water System, and (c) the balance of the proceeds of the sale of the 1993 Certificates. SECTION 2.03. Conditions Precedent Satisfied. Each party hereto represents that all acts, conditions and things required of it by law to exist, happen and be performed by it precedent to and in connection with the execution and entering into of this Trust Agreement have happened and have been performed in regular and due time, form and manner as required by law, and each party hereto represents that it is now duly empowered to execute and enter into this Trust Agreement. ARTICLE III CERTIFICATES, TERMS AND PROVISIONS SECTION 3.01. Preparation of 1993 Certificates. The City is hereby directed to prepare and the Trustee is directed to execute and deliver 1993 Certificates evidencing direct and proportionate interests in the Purchase Payments to be paid by the City under the Installment Purchase Agreement. Each Certificate shall represent a direct and proportionate interest both in the Principal Components of Purchase Payments due and payable on the maturity date thereof or any Prepayment Date of the 1993 Certificates and in the Interest Components of Purchase Payments due and payable on Interest Component Payment Dates, to and including such maturity date or Prepayment Date. SECTION 3.02. Payments from Trust Estate Only; Distribution of Trust Estate. (a) Except as otherwise expressly provided herein, all amounts payable by the Trustee with respect to the Certificates pursuant to this Trust Agreement shall be paid only from the income of and proceeds from the Trust Estate and only to the extent that the Trustee shall have actually received sufficient income or proceeds from the Trust Estate to make such payments in accordance with the terms of this Article III. Each Owner agrees, except as otherwise expressly provided herein, to look solely to the income of. and the proceeds from the Trust Estate to the extent available for distribution to such Owner as herein provided and that the Trustee is not personally liable to any Owner for any amounts payable under this Trust Agreement. (b) So long as the Installment Purchase Agreement shall be in effect, all Purchase Payments shall be paid directly to the Trustee from the Treasurer of the City for distribution, in accordance with this Trust Agreement. B:\TRSTAGR4.DOC 11 SECTION 3.03. The 1993 Certificates. There are hereby authorized -1993 Certificates__to be designated as ,City of Tustin, Water System Certificates of Participation, 1993 Series." The 1993 Certificates evidence direct and proportionate be in interests aggregate right to receive Purchase Payments, shall Principal component of dollars ($ ) and shall contain Interest Components accruing from the dates set forth below. The 1993 Certificates shall be prepared in the form of fully registered certificates in denominations of five thousand dollars ($51000) or any integral multiple thereof. The interest, principal, and prepayment premiums, if any, due with respect to the 1993 Certificates shall be payable in lawful money of the United States of America. The interest due with respect to the 1993 Certificates shall be payable on their Interest Component Payment Dates by check or draft mailed on the applicable Interest Payment Date by the Trustee to the respective Owners thereof at their addresses as they appear in the books required to be kept by the Trustee pursuant to the provisions of Section 3.07 hereof on the Record Date with respect to each Interest Component Payment Date. The principal and prepayment premiums, if any, due with respect to the 1993 Certificates shall be payable by check or draft upon surrender thereof at the Corporate -Trust Office of the Trustee. The 1993 Certificates shall be dated April 1, 1993. Interest with respect to the 1993 Certificates shall accrue on overdue principal at the same rate borne by the particular 1993 Certificates. Interest with respect to each 1993 Certificate shall accrue from the April 1 or October 1 next preceding the date of execution thereof unless (i) it is executed on an April 1 or October 1, in which event interest shall accrue from the date of execution thereof; (ii) it is executed on or prior to October 1, 1993 in which event interest shall accrue from April 1, 1993; or (iii) it is executed after a Record Date and prior to the next succeeding Interest Component Payment Date, in which case interest shall accrue from the next succeeding Interest Component Payment Date; provided, however, that if, at the time of execution of any Certificate, interest is in default on Outstanding Certificates, the Trustee shall establish a special record date for payment of any interest in default hereunder and interest with respect to such Certificate shall accrue from the date to which interest has previously been paid in full or made available for payment on such Outstanding Certificates. Interest Components with respect to the Certificates will be computed on the basis of a 360 -day year of twelve 30 -day months. SECTION 3.04. Payment Dates. The interest respect to the 1993 Certificates shall become due and each Interest Component Payment Date from the date B:\TRSTAGR4.DOC 12 due with payable on determined pursuant to Section 3.03 hereof to maturity or the Prepayment Date prior thereto, and shall evidence and represent the Interest Component of the Purchase Payments becoming due on each such Interest Component Payment Date. The Principal Component evidenced and represented by the 1993 Certificates shall become due and payable in the amounts and on April 1 in the years, and the interest due with respect to the 1993 Certificates shall be payable at the rates, as set forth below. PRINCIPAL PRINCIPAL AMOUNT OF AMOUNT OF MATURITY 1993 MATURITY 1993 (APRIL 1) CERTIFICATES RATE (APRIL 1) CERTIFICATES RATE 1994 $ % 2004 $ o 1995 2005 1996 2006 1997 2007 1998 2008 1999 2009 2000 2010 2001 2011 2002 2012 2003 2013 SECTION 3.05. Execution. The Certificates shall be executed by the Trustee as registrar under this Trust Agreement, by the manual signature of an authorized signatory of the Trustee. In case any authorized signatory of the Trustee who shall have executed any of the Certificates shall cease to be an authorized signatory of the Trustee before the Certificates so executed shall have been delivered, such Certificates may nevertheless be delivered and, upon such delivery, shall be as binding as though such authorized signatory of the Trustee had continued to be an authorized signatory of the Trustee and also any Certificate may be executed on behalf of the Trustee by any person who at the actual date of the execution of such Certificate shall be an authorized signatory of the Trustee although at the nominal date of such Certificate_ any such person shall not have been an authorized signatory of the Trustee. SECTION 3.06. Exchange. Certificates, upon surrender thereof at the Corporate Trust Office of the Trustee, may, at the option of the Owner and upon payment by such Owner of any charges which the Trustee may make as provided in Section 3.09 hereof, be exchanged for an equal aggregate principal amount of registered Certificates of the same maturity, tenor and Series of any other authorized denominations. B :.\TRSTAGR4 . DOC 13 SECTION 3.07. Negotiability, Transfer and Registry. (a) Each Certificate shall be transferable only upon the books of the Trustee which shall be kept f or that purpose at the Corporate Trust Office of the Trustee, by the Owner in person or by his or her attorney duly authorized in writing, upon surrender thereof together with a written instrument of transfer satisfactory to the Trustee duly executed by the Owner or his or her duly authorized attorney and upon payment of such Owner of any charges which the Trustee may make as provided in Section 3.09 hereof. Upon the transfer of any such Certificate the Trustee shall execute and deliver in the name of the transferee a new Certificate or Certificates of the same Principal Component, Series, tenor and maturity as the surrendered Certificate. (b) The Trustee may deem and treat the person in whose name any Certificate shall be registered upon the books of the Trustee as the absolute Owner of such Certificate, whether such Certificate shall be overdue or not, for the purpose of receiving payment of, or on account of, the Principal Component and premium, if any, and Interest Component with respect to such Certificate and for all -other purposes, and all such payments so made to any such Owner or, upon his or her order shall be valid and effectual to satisfy and discharge the liability upon such Certificate to the extent of the sum or sums so paid, and the Trustee shall not be affected by any notice to the contrary. (c) The Trustee shall not be required to transfer or exchange (i) any Certificate in the fifteen days prior to selection of Certificates for prepayment (whether or not such Certificate is thereafter selected for prepayment) and (ii) any Certificate selected for prepayment in whole or in part. SECTION 3.08. Certificate Registration Books. The Trustee will keep at -its Corporate Trust office sufficient books for the registration of the ownership, transfer and exchange of the Certificates, which books shall be available for inspection by the City and its designated agent or any Owner or his or her agent duly authorized in writing at reasonable hours and under reasonable conditions; and upon presentation for such purpose the Trustee shall, under such reasonable regulations - as it may prescribe, register the ownership, transfer or exchange of the Certificates in such books as hereinabove provided. The ownership of any Certificates may be proved by the books required to be kept by the Trustee pursuant to the provisions of this Section 3.08. SECTION 3.09. Regulations with Respect to Exchanges and Transfers. In all cases in which the privilege of exchanging Certificates or transferring Certificates is exercised, the Trustee shall execute and deliver Certificates in accordance with the provisions of this Trust Agreement. All Certificates surrendered in any such exchanges or transfers shall forthwith be cancelled by the Trustee and destroyed, and the Trustee shall certify as to B:\TRSTAGR4.DOC 14 their destruction. For every such exchange or transfer of Certificates-;- whether -temporary or definitive, the Trustee may make a charge to the Owners thereof sufficient to reimburse it for any tax, fee or charge required to be paid with respect to such exchange or transfer. SECTION 3.10. Certificates Mutilated, Destroyed, Stolen or Lost. In case any Certificate shall become mutilated or be destroyed, stolen or lost, the Trustee shall execute and deliver a new Certificate of like maturity, Series and Principal Component as the Certificate so mutilated, destroyed, stolen or lost, in exchange and substitution for such mutilated Certificate, upon surrender and cancellation of such mutilated Certificate, or in lieu of and substitution for the Certificate destroyed, stolen or lost, upon filing with the Trustee evidence satisfactory to the Trustee that such Certificate has been destroyed, stolen or lost and proof of ownership thereof, and upon furnishing the Trustee with indemnity satisfactory to the Trustee and complying with such other reasonable regulations as the Trustee may prescribe and paying such expenses as the Trustee may incur. All Certificates so surrendered to the Trustee shall be cancelled by it and destroyed, and the Trustee shall certify in writing as to their destruction. Any such new Certificates issued pursuant to this Section 3.10 in substitution for Certificates alleged to be destroyed, stolen or lost shall be entitled to equal and proportionate benefits, with all other Certificates delivered under this Trust Agreement, in any moneys or security held by the Trustee for the benefit of the Owners. SECTION 3.11. Temporary Certificates. (a) Until definitive Certificates are prepared, the Corporation or the City may direct the Trustee to execute and deliver, in the same manner as is provided in this Article III, in lieu of definitive Certificates, one or more temporary Certificates substantially of the tenor of the definitive Certificates in lieu of which such temporary Certificate or Certificates are issued, in denominations authorized hereunder, so long as no such Certificate shall have its Principal Component becoming payable in more than one year, and with such omissions, insertions and variations as may be appropriate to temporary Certificates. At the expense of the City, the City shall prepare and the Trustee shall execute and, upon the surrender of such temporary Certificates and the cancellation of such surrendered temporary Certificates, the Trustee shall without charge to the Owner thereof, in exchange therefor, deliver definitive Certificates, of the same Principal Component, Series and maturity as the temporary Certificates surrendered. Until so exchanged, the temporary Certificates shall in all respects be entitled to the same benefits and security as definitive Certificates executed and delivered pursuant to this Trust Agreement. B:\TRSTAGR4.DOC 15 (b) If the City shall request the execution and delivery of temporary -Certificates in more than --one _ denomination, the Owner of any temporary Certificate or Certificates may, at his or her option, surrender the same to the Trustee in exchange for another temporary Certificate or Certificates of like Principal Component, Series and maturity of any other authorized denomination or denominations, and thereupon the Trustee shall execute and deliver, in exchange for the temporary Certificate or Certificates so surrendered and upon payment of the taxes, fees and charges provided for in Section 3.09 hereof, a temporary Certificate or Certificates of like aggregate Principal Component, Series and maturity in such other authorized denomination or denominations as shall be requested by such Owner. (c) All temporary Certificates surrendered in exchange either for another temporary Certificate or Certificates or for a definitive Certificate or Certificates shall be forthwith cancelled by the Trustee and destroyed, and the Trustee shall certify in writing as to their destruction SECTION 3.12. Cancellation of Certificates. All Certificates paid or prepaid, either at or before maturity, shall be delivered to the Trustee when such payment or prepayment is made and such Certificates shall thereupon be promptly cancelled and - destroyed, and the Trustee shall certify in writing -as to their destruction. SECTION 3.13. Reservation of Book -Entry Format. No provision of this Trust Agreement shall preclude the City, the Corporation, the Trustee or any transfer agents selected by any of them from entering into any arrangements relating to the registration, transfer and exchange of the 1993 Certificates in book -entry format from time to time. ARTICLE IV PREPAYMENT OF 1993 CERTIFICATES SECTION 4.01. Prepayment. (a) Optional Prepayment. The 1993 Certificates maturing on or after [April 1, 2004, are subject to prepayment at the option of the City at any time on or after April 1, 2003 in integral multiples of $5,000, at the Principal Component thereof together with any applicable premium, and the related Interest Components due on the date fixed for such prepayment, from any source of funds, upon notice as provided herein. The prepayment price (expressed as a percentage of the total principal amount prepaid) upon prepayment is set forth below: B:\TRSTAGR4.DOC 16 Period -During Which Prepaid Prepayment (both dates inclusive) Price April 1, 2003 through March 31, 2004 102% April 1, 2004 through March 31, 2005 101 April 11 2005 and thereafter 100] (b) Revised Schedule of 1993 Purchase Payments. Upon prepayment pursuant to Section 4.01(a), the City shall provide the Trustee and the Corporation with a revised schedule of 1993 Purchase Payments which schedule shall take into account such prepayment. [Lora and Ron: confirm that there will be no mandatory prepayment provisions.] SECTION 4.02. Selection of Certificates for Prepayment. In the case of prepayment of less than all Outstanding Certificates, the Trustee shall select the Certificates representing the Principal Components to be prepaid to correspond to the Principal Components of Purchase Payments prepaid by the City in conformance with Section 5.6 of the Installment Purchase Agreement. [Add additional selection provisions if we have mandatory prepayment provisions.] Any selection of the Certificates by the Trustee shall be binding upon the Owners. When Principal Components represented by the Certificates are to be prepaid at the option of the City as set forth in Subsection 4.01(a) above, the City shall give written notice to the Trustee of the exercise of such option at least forty-five (45) days but not more than ninety (90) days prior to the proposed Prepayment Date. Such notice shall state the proposed Prepayment Date, the aggregate Principal Component of the Certificates to be prepaid and the maturity or maturities from which each prepayment shall be made. SECTION 4.03. Notice of Prepayment. Notice of prepayment shall be mailed by the 'Trustee by first-class mail postage prepaid, not less than thirty (30) nor more than sixtv (60) days prior to the Prepayment Date to (i) the respective Owners of any Certificates representing Principal Components designated for prepayment at their addresses appearing on the Certificate registration books of the Trustee and (ii) each Information Service. Notice of prepayment shall also be given by telecopy, certified, registered or overnight mail to the Securities Depositories on the day of the mailing of notice of prepayment to the Owners and the Information Services. Each notice of prepayment shall state the date of such notice, the Prepayment Date, the Prepayment Price, the place or places of prepayment (including the name and appropriate address or addresses of the Trustee), the B:\TRSTAGR4.DOC 17 CUSIP number, if any, of the maturity or maturities to be prepaid and, - if- less than all -of--such maturity, the distinctive- _certificate_ numbers of the Certificates of such maturity to be prepaid and, in the case of Certificates representing Principal Components to be prepaid in part only, the respective portions of the Principal Component represented thereby to be prepaid. Each such notice shall also state that on said date there will become due and payable with respect to each of said Certificates the Prepayment Price thereof or of said specified portion of the Principal Component represented thereby in the case of a Certificate to be prepaid in part only, and that from and after such Prepayment Date, the related Interest Component due with respect thereto shall cease to accrue, and shall require that such Certificates be then surrendered at the address or addresses of the Trustee specified in the prepayment notice. Notwithstanding anything herein to the contrary, the Trustee shall not give notice of any prepayment pursuant to Section 4.01 hereof until and unless the Trustee has received and has available from all sources sufficient funds to pay the Prepayment Price represented by all Certificates to be prepaid. Notice of prepayment of Certificates shall be given by the Trustee, at the expense of the City, for and on behalf of the City. Failure by the Trustee to give notice pursuant to this Section 4.03 to any one or more of the Information Services or Securities Depositories shall not affect the sufficiency of the proceedings for prepayment. Failure by the Trustee to mail notice of prepayment pursuant to this Section 4.03 to any one or more of the respective owners of any Certificates representing Principal Components designated for prepayment.shall affect the sufficiency of the proceedings for prepayment only with respect to the Owner or Owners to whom such notice was not mailed. An affidavit of an Authorized Officer of the Trustee that notice of prepayment was mailed to the Owners of the Certificates shall be conclusive evidence of the mailing of such notice. SECTION 4.04. Payment of Certificates Upon Prepayment. Prior to each Prepayment Date, the Trustee shall make provision for the payment of the Principal Components to be prepaid on such date by setting aside from moneys available therefor and holding in trust, an amount within the Purchase Payment Account sufficient to pay the Prepayment Price of such Certificates. Upon presentation and surrender of any such Certificate at the Corporate Trust Office of the Trustee on or after the Prepayment Date, the Trustee shall pay the Prepayment Price of such Certificate only to the extent that moneys are set aside for such purpose. The Trustee shall be responsible only to prepay Principal Components to the extent of available moneys and shall not be liable or responsible for, and shall be indemnified by the City against, failure to prepay Principal Components to the extent that no moneys are available therefor. B:\TRSTAGR4.DOC 18 SECTION 4.05. Partial Prepayment of Certificates. upon surrender of any Certificate representing Principal Components to be prepaid in part only, the Trustee shall execute and deliver to the Owner thereof a new Certificate or Certificates representing Principal Components equal to the unprepaid Principal Component of the Certificate surrendered of the same maturity. SECTION 4.06. Effect of Prepayment. If notice of prepayment has been duly given as aforesaid and funds for the payment of the Prepayment Price of the Certificates to be prepaid are held by the Trustee on the designated Prepayment Date, then on the Prepayment Date designated in such notice, the Prepayment Price of the Certificates representing Principal Components so called for prepayment shall become payable as specified in such notice; and from and.after the date so designated Interest Components due with respect to the Principal Components of the Certificates or portions thereof so called for prepayment shall cease to accrue, such Certificates shall cease to be entitled to any benefit, protection or security hereunder and the Owners of such Certificates shall have no rights in respect thereof except to receive payment of the Prepayment Price. The Trustee shall, upon surrender for payment of any of the Certificates to be prepaid on their Prepayment Dates, pay such Certificates at the Prepayment Price. All Certificates representing Principal Components prepaid in whole or in part pursuant to the provisions of this article shall be cancelled by the Trustee and destroyed, and the Trustee shall certify in writing as to their destruction. ARTICLE V ESTABLISHMENT AND ADMINISTRATION OF CERTAIN FUNDS AND ACCOUNTS SECTION 5.01. Establishment of Project Trust Fund. There is hereby established with the Trustee a special trust fund for the 1993 Certificates, which special trust fund shall be designated as the 111993 Project Trust Fund." The Trustee shall keep the 1993 Project Trust Fund separate and apart from all other funds and moneys held by it. Within the 1993 Project Trust Fund, there are hereby established the Purchase Payment Account and the Reserve Account. SECTION 5.02. Purchase Payment Account. (a) The Trustee shall deposit in the Purchase Payment Account the following: (i) on the Delivery Date, the amount representing accrued interest on the 1993 Certificates, set forth with respect to the Purchase Payment Account in Exhibit A hereto; and b:\TRSTAGR4.D0C 19 (ii) when received, Purchase Payments made by the City pursuant to Section 5.2 of the Installment Purchase Agreement; and (iii) from time to time, moneys transferred from the Construction Account pursuant to Sections 5.04(d) and 5.04(e)(iv) hereof, which moneys shall be used as provided in such Sections; and (iv) from time to time, moneys transferred from the Reserve Account pursuant to Section 5.03(b) hereof; and (v) amounts delivered to the Trustee by the City for the payment of the premium portion of the Prepayment Price to be paid pursuant to Section 4.01(a) hereof; and (vi) all other moneys received by the Trustee under and pursuant to the provisions of the Installment Purchase Agreement which are required to be or which are accompanied by directions that such moneys are to be paid into the Purchase Payment Account. (b) The Trustee shall withdraw moneys from the Purchase Payment Account at such times and in such amounts as are necessary to make payments of Principal Components, Interest Components or premium, if any; provided, however, that such payments shall be deemed made first from investment income, if any, transferred to the Purchase Payment Account from the Reserve Account pursuant to Section 5.03(d) hereof and investment income received with respect to moneys deposited to the Purchase Payment Account pursuant to Section 5.02(a)(i) hereof. (c) The amounts deposited in the Purchase Payment Account pursuant to subsection 5.02(a)(i) hereof, and the investment income therefrom, shall be applied toward the payment of the Interest Component of the 10.0.3 Purchase Payment due on October 1, 1993. (d) After the Completion Certificate is filed with respect to the Project, if, on the day after any Purchase Payment Date (i) all Principal Components, premium and Interest Components which became due and payable on or before such date have been paid in full, and (ii) there are moneys on deposit in the Purchase Payment Account, other than that required for prepayment of Certificates, and (iii) the amount on deposit in the Reserve Account is less than the Reserve Requirement, then the Trustee shall transfer from the Purchase Payment Account to the Reserve Account the lesser of ( i) an amount which, when added to the amount on deposit in the Reserve Account, will equal the Reserve B:\TRSTAGR4.DOC 20 Requirement, or (ii) all amounts on deposit in the Purchase Payment .Account . -- - (e) After the Completion Certificate is filed with respect to the Project, if, on the day after any Purchase Payment Date (i) all transfers have been made pursuant ;.o Section 5.02(d) hereof, and (ii) there are moneys on deposit in the Purchase Payment Account other than that required for prepayment of Certificates and other than excess Construction Account moneys transferred pursuant to Section 5.04(d) hereof, then the Trustee shall (i) at the request of the City, transfer such funds to the City or (ii) apply such funds to reduce the next succeeding Purchase Payment payable by the City. SECTION 5.03. Reserve Account. (a) The Trustee shall deposit in the Reserve Account the following: (i) on the Delivery Date,, from the proceeds of the sale of the 1993 Certificates, the amount set -forth with respect to such Account in Exhibit A hereto, constituting an amount equal to the Reserve Requirement with respect to the 1993 Certificates on the Delivery Date; and (ii) from time to time, any Purchase Payment, or portion thereof, made after the appropriate Purchase Payment Date in an amount equal to the amount transferred from the Reserve Account to the Purchase Payment Account on such Purchase Payment Date pursuant to subsection 5.03(b) hereof; and (iii) from time to time, moneys transferred from the Purchase Payment Account pursuant to Section 5.02(d) hereof. (b) If, on any Purchase Payment Date, the amount available in the Purchase Payment Account is less than the amount necessary to pay the Principal Component or the Interest Component to be paid on such date with respect to any Certificate, then the Trustee shall transfer from the Reserve Account to the Purchase Payment Account the lesser of: (i) an amount sufficient to enable the Trustee to pay the Principal Component and Interest Component with respect to such Certificate from the Purchase Payment Account, or (ii) all amounts on deposit in the Reserve Account. In the event of such transfer, the Trustee shall, within five (5) days after making such transfer, provide written notice to the City and the Corporation of the amount and date of such transfer. (c) Until the Completion Certificate is filed for the Project, the Trustee shall, on the first Business Day of each month, transfer to the Treasurer for deposit in the Construction Account moneys in the Reserve Account in excess of the Reserve B:\TRSTAGR4.DOC 21 Requirement, to the extent that such moneys constitute investment -- - income ---received at or prior to the end of the immediately preceding month. (d) After the Completion Certificate is filed for the Project, the Trustee shall, on each Purchase Payment Date, transfer to the Purchase Payment Account moneys in the Reserve Account in excess of the Reserve Requirement, to the extent that such moneys constitute investment income received since the immediately preceding Purchase Payment Date. SECTION 5.04. Construction Account. (a) There is hereby established with the Treasurer the Construction Account, which Account shall be kept separate and apart from all other funds and moneys held by the City. The Treasurer shall deposit in the Construction Account the following: (i) on the Delivery Date , ' f rom the proceeds of the sale of the 1993 Certificates, the amount set forth with respect to the Construction Account in Exhibit A hereto; and (ii) from time to time, moneys transferred by the Trustee from the Reserve Account pursuant to subsection 5.03(c) hereof. (b) Costs of Issuance shall be paid from amounts on deposit in the Construction Account. The Treasurer shall make such payments in the amounts, at the times, in the manner, and on the other terms and conditions set forth herein. No such payment shall be made until the Treasurer shall have received a requisition signed by an Authorized City Representative stating with respect to each payment to be made: (1) the requisition number, (2) the name and address of the person, firm, corporation or agency to which payment is due or has been made, (3) the amount to be paid, (4) identification of the item to which such payment is to be applied, (5) that each obligation mentioned therein is a proper charge against the Construction Account and has not been the basis of any previous withdrawal from the Construction Account. In addition, each requisition shall have attached a copy of each invoice, statement or other billing documentation for which payment is claimed. (c) The Cost of the Project shall be paid from the amounts on deposit in the Construction Account. The Treasurer shall make such payments in the amounts, at the times, in the manner, and on terms and conditions as set forth in this subsection (c). No such payment shall be made until the Treasurer shall have received a requisition signed by an Authorized City Representative setting forth with respect to each payment to be made: (1) the requisition number, (2) the name and address of the person, firm, corporation or agency to whom payment is due or has been made, (3) B:\TRSTAGR4.DOC 22 the amount to be paid, (4) the item to which such payment is to be applied, and (5) that such payment obligation has ---been properly incurred, is an item of Cost of the Project, is a proper charge against the Construction Account and has not been the basis of any previous withdrawal from the Construction Account. (d) Notwithstanding any of the other provisions of this Section 5.04, to the extent that other moneys are not available therefor, amounts in the Construction Account shall be withdrawn and transferred to the Trustee for deposit in the Purchase Payment Account and applied by the Trustee to the payment of the Principal Component or Interest Component with respect to the Certificates. (e) After the Completion Certificate is filed for the Project, the Authorized City Representative will direct the Treasurer to transfer any moneys held in the Construction Account and not required for the payment of any remaining part of the Cost of the Project, as stated in the Completion Certificate to the Trustee for deposit in the Reserve Account to the extent the amount on deposit in the Reserve Account is less than the Reserve Requirement, and, thereafter the Authorized City Representative will direct the Treasurer to apply such moneys, at the City's discretion, to (i) the expansion or enlargement of the Project, (ii) the betterment or improvement of the Project, (iii) the expansion, enlargement or improvement of the Water System, or (iv) the Purchase Payment Account held by the Trustee for (1) the payment of Interest Components, (2) the prepayment of Principal Components represented by the Certificates no later than the first Interest Component Payment Date following the date of said transfer where prepayments may be made at the option of the City pursuant to Section 4.01(a) hereof, provided, however, that to the extent prepayments of Principal Components may be made without premium, the City shall direct the Trustee to make such prepayments without premium prior to directing the Trustee to prepay any Principal Components with premium, (3) the purchase of Certificates on the open market, to the extent such Certificates are available for purchase at a purchase price no greater than one hundred percent (100%) of the Principal Component thereof plus accrued interest to the date of such purchase, or (v) any combination of the foregoing (i) through (iv). No payment pursuant to clauses (i), (ii) or (iii) of this Section 5.04(e) shall be made until the Treasurer shall have received a requisition signed by an Authorized City Representative setting forth with respect to each payment to be made: (1) the requisition number, (2) the name and address of the person, firm, corporation or agency to whom payment is due or has been made, (3) the amount to be paid, (4) the time to which such payment is to be applied, and (5) that such payment obligation has been properly incurred, is a proper charge against the Construction Account and has not been the basis of any previous withdrawal from the Construction Account. In addition, each requisition shall have attached a copy of each invoice, statement or other billing documentation for which payment is claimed. B:\TRSTAGR4.DOC 23 SECTION 5.05. Deposits of Money. All moneys held by or deposited- with the Trustee or the City- under_ the -provisions of this Trust Agreement shall be held 'in trust and applied only in accordance with the provisions of this Trust Agreement, and the 1993 Project Trust Fund established by this Trust Agreement shall be a trust fund for the purposes thereof. All moneys deposited with the Trustee and the.City shall be credited to the particular account to which such moneys belong. SECTION 5.06. Valuation and Sale of Investments. Obligations purchased as an investment of moneys in any account created under the provisions of this Trust Agreement shall be deemed at all times to be a part of such account or subaccount and any profit realized from the liquidation of such investment and any income or interest received on account of such investment, except as otherwise provided in Sections 5.03(c) and 5.03(d) with respect to interest earnings, shall be credited to, and any loss resulting from the liquidation of such investment shall be charged to, such account. In computing the amount in any account created under the provisions of this Trust Agreement for any purpose provided in this Trust Agreement, obligations purchased as an investment of moneys therein shall be valued at [the lower of cost or par of such obligations (including accrued interest)]. Except as otherwise provided in this Trust Agreement, the Trustee shall sell at the best price obtainable or present for prepayment or transfer as provided in the next sentence any obligation so purchased as an investment whenever it shall be requested in writing by an Authorized City Representative to do so or whenever it shall be necessary in order to provide moneys to meet any payment or transfer from any account held by it. In lie of such sale or presentment for prepayment, the Trustee may, in making the payment or transfer from any account mentioned in the preceding sentence, transfer such investment obligations or interest appertaining thereto at its acquisition cost if such investment obligations shall mature or be collectable at or prior to the time the proceeds thereof shall be needed, and such transfer of investment obligations may be made in book entry form. The Trustee shall not be liable or responsible for making any such investment in the manner provided above or for any loss resulting from any such investment. The Trustee may act as principal or agent in the acquisition or disposition of any investment. The Trustee shall hold all investments in its name as trustee. SECTION 5.07. Investment of Certain Accounts. (a) Mon- eys in the Construction Account and the Purchase Payment Account shall be invested and reinvested by the City and the Trustee, respectively, to the fullest extent practicable in Permitted Investments which mature not later than such times as shall be necessary to provide moneys when needed for payments to be made B:\TRSTAGR4.DOC 24 from such accounts and in any event not later than the final maturity of the Certificates. Notwithstanding the foregoing, moneys deposited in the Purchase Payment Account pursuant to Section 5.02(a)(i) hereof shall be held in cash by the Trustee or shall be invested and reinvested by the Trustee in obligations described in clauses (i) through (iv) of the definition of Government Obligations. Moneys in the Reserve Account shall be invested and reinvested by the Trustee to the fullest extent practicable in Permitted Investments which mature or are available not more than [ fifteen] years from the date of investment. The Trustee shall make all such investments of moneys held by it in accordance with instructions, confirmed in writing, received from an Authorized City Representative. The Authorized City Representative may instruct the Trustee at least two Business Days prior to making any investment in any Permitted Investments with moneys in any account established under this Trust Agreement, to combine such moneys with moneys in any other account, but solely for purposes of making such investment in such Permitted Investments. The Trustee shall account for investments in accordance with the funds and accounts to which they are credited. In the absence of instruction from the Authorized City Representative, the Trustee shall invest only in Permitted Investments described in subparagraph (vii) of the definition of Permitted Investments. The Trustee shall not be liable for losses on investments made in accordance with this Section 5.07. (b) If the City or the Corporation or both enter into one or more interest rate swap agreements corresponding to the interest payable with respect to one or more Series of Certificates or any portion thereof, the amounts received by the Corporation or the City, if any, pursuant to such a swap agreement may be applied to the deposits required hereunder. (c) Nothing in this Trust Agreement shall prevent any Government Obligations acquired as investments of funds held under the Trust Agreement from being issued or held in book -entry form on the books of the Department of the Treasury of the United States of America. ARTICLE VI THE TRUSTEE AND PAYING AGENT SECTION 6.01. Duties, Immunities and Liabilities of Trustee. The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Trust Agreement. The Trustee shall, during the existence of any Event of Default (which has not been cured), exercise such of the rights and powers vested in it by this Trust Agreement, and use the same degree of care and skill in their B:\TRSTAGR4.DOC 25 exercise, as a prudent man would exercise or use under the circumstances in--the-conduct of his own affairs. No provision of this Trust Agreement (including particularly Section 3.02 hereof) shall be construed to relieve the Trustee from liability for its own willful misconduct or negligence, except that: (a) prior to such an Event of Default hereunder and after the curing of all Events of Default which may have occurred and in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificate or opinion furnished to the Trustee conforming to the requirements of this Trust Agreement; but in the case -of any such certificate or opinion which by any provisions hereof is specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not it conforms to the requirements of this Trust Agreement; and (b) at all times, regardless of whether or not any Event of Default shall exist: (1) the Trustee shall not be liable for any error of judgment made in good faith by an Authorized Officer or Officers of the Trustee unless it shall be proved that the Trustee was negligent in ascertaining and/or failing to ascertain the pertinent facts; and (2) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of Outstanding Certificates representing not less than a majority of the Principal Components relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Trust Agreement. None of the provisions contained in this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur individual financial liability in the performance of any- of its duties or in the exercise of any of its rights or powers if there shall be reasonable grounds for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 6.02. Right of Trustee to Rely upon Documents, Etc. Except as otherwise provided in Section 6.01 hereof: (a) the Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, certificate or other paper B:\TRSTAGR4.DOC 26 or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any notice, request, direction, election, order or demand of the Corporation or the City mentioned herein shall be sufficiently evidenced by an instrument signed in the name of the Corporation or of the City by an Authorized Corporation Representative or an Authorized City Representative, respectively; (c) the Trustee may consult with Counsel (who may be Counsel for the Corporation or the City) and the opinion of such Counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such Counsel; and (d) whenever in the administration of,the trusts of this Trust Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate of an Authorized City Representative or an Authorized Corporation Representative, as appropriate; and such certificate shall be full warrant to the Trustee for any action taken or suffered by it under the provisions of this Trust Agreement upon the faith thereof. SECTION 6.03. Trustee Not Responsible for Recitals. The recitals contained herein and in the Certificates shall be taken as the statements of the Corporation and the City, and the Trustee assumes no responsibility for the validity or correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Trust Agreement or of the Certificates. The Trustee shall not be accountable for the use or application of any of the Certificates delivered hereunder or of the proceeds of such Certificates except as provided herein. SECTION 6.04. Right of Trustee to Acquire Certificates. The Trustee and its officers and directors may acquire and hold, or become the pledgee of, Certificates and otherwise deal with the Corporation and the City in the manner and to the same extent and with like effect as though it were not the Trustee hereunder. SECTION 6.05. Moneys Received by Trustee to be Held in Trust. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other trust funds except to the extent specifically required by this Trust Agreement or required by law. The Trustee shall be obligated to invest all moneys received by it hereunder in accordance with Section 5.07 hereof. Any interest allowed on any such moneys shall be deposited in the account to which such moneys are credited. B:\TRSTAGR4.DOC 27 SECTION 6.06. Compensation and Indemnification of Trustee. ----The City covenants to cause __the_ -Trustee_ to be -paid -from from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee pursuant to any agreement entered into between the City and the Trustee, which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust, and the City will cause the Trustee to be paid or reimbursed, upon request of the Trustee for all reasonable expenses and disbursements incurred or made by the Trustee in accordance with any of the provisions of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its Counsel and of all persons not regularly in its employ). The City also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability, expense or advance incurred or made without negligence or willful misconduct on the part of the Trustee, arising out of or in connection with (i) the acceptance or administration of this trust, (ii) the condition, management, maintenance or use of or from any work or thing done in connection with the Project by the City, (iii) any act of negligence or willful misconduct of the City or the Corporation or any of their agents, contractors, employees, invitees, licensees or officers in connection with the Project, (iv) the delivery or sale of the Certificates and the carrying out of any of the transactions contemplated by the Certificates, this Trust Agreement, the Assignment Agreement or the Installment Purchase Agreement, other than those transactions to be performed by the Trustee hereunder or thereunder, as the case may be; and (v) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading in any official statement or other disclosure document utilized in connection with the delivery or sale of the Certificates including the fees, costs and expenses of defending itself against any claim of liability. The obligations of the City under this Section 6.06 and Section 6.12 hereof to cause the Trustee to be compensated for services and to be paid or reimbursed for expenses, disbursements and liabilities shall constitute additional obligations hereunder. Such addi-ional obligations shall have priority over the Certificates in respect of all property and funds held or collected by the Trustee as such, except funds held by the Trustee for the benefit of the Owners of particular Certificates and except funds held in the Purchase Payment Account. Notwithstanding any contrary provision hereof, this covenant shall remain in full force and effect, even though all obligations secured hereby may have been fully paid and satisfied and this Trust Agreement may have been released and discharged. SECTION 6.07. Qualifications of Trustee. There shall at all times be a trustee hereunder which shall be a bank or trust B:\TRSTAGR4.DOC 28 company organized and doing business under the laws of the United States or any of the states of the United States, authorized under such laws to, exercise corporate trust powers, subject to supervision or examination by federal or state authority and, if required by law, qualified to do business in the State. Any successor Trustee to Bank of America National Trust and Savings Association shall have a combined capital and surplus of at least seventy-five million dollars ($75,000,000). If such bank or trust company publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section 6.07, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.07, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.08 hereof. SECTION 6.08. Resignation and Removal of Trustee and Appointment of Successor Trustee. (a) The Trustee may at any time resign by giving written notice to the City and by giving to the Owners of the Certificates notice by mail of such resignation. Upon receiving such notice of resignation, the City, with the written approval of the Corporation (which approval shall not be unreasonably withheld), shall promptly appoint a successor trustee by an instrument in writing executed by an Authorized City Representative. If no successor trustee shall have been so appointed and shall have accepted appointment within sixty (60) days after the mailing of such notice of resignation, the resigning trustee may at the expense of the City petition any court of competent jurisdiction for the appointment of a successor trustee, or any Owner may, on behalf of himself or herself and others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case any of the following shall occur (1) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.07 hereof and shall fail to resign after written request therefor by the City or by any Owner who has been a bona fide Owner of a Certificate for at least six months, (2) the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or substantially all of its property shall be appointed, or any public officer shall take charge or control of the Trustee or substantially all of its property or affairs B:\TRSTAGR4.DOC 29 for the purpose of rehabilitation, conservation or liquidation,_ __or _ (3) at such time as there is no Event of Default hereunder, the Corporation shall determine to remove the Trustee then, in any such case, the City, with the written approval of the Corporation (which approval shall not be unreasonably withheld), may remove the Trustee and appoint a successor trustee by an instrument in writing executed by an Authorized City Representative, or any such Owner may, on behalf of himself or herself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The Owners of Outstanding Certificates representing a majority in aggregate Principal Component may at any time remove the Trustee and appoint a successor trustee by an instrument or concurrent instruments in writing signed by such Owners. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 6.08 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 6.09 hereof. SECTION 6.09. Acceptance of Trust by Successor Trustee. Any successor trustee appointed as provided in Section 6.08 hereof shall execute, acknowledge and deliver to the Corporation, the City and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, duties and obligations of its predecessor in the trusts hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written request of the Corporation executed by an Authorized Corporation Representative or of the City executed by an Authorized Citi Representative or on the request of the successor trustee, the trustee ceasing to act shall execute and deliver an instrument transferring to such successor trustee, upon the trusts herein expressed, all the rights, powers and trusts of the trustee so ceasing to act. Upon request of any such successor trustee, the Corporation and the City shall execute any and all instruments in writing necessary or desirable for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and duties. B:\TRSTAGR4.DOC 30 No successor trustee shall accept appointment as provided in this section 6.09 unless at the _time _of such acceptance such successor trustee shall be eligible under the provisions of Section 6.07 hereof. Upon acceptance of appointment by a successor trustee as provided in this Section 6.09, notice of the succession of such trustee to the trusts hereunder shall be published the least fails to an Authorized Newspaper. If the Corporation or y publish such notice within ten (10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be published at the expense afCity. the Notice of the succession of such Trustee shall be giver successor trustee by first class mail to each Rating Agency having a rating in effect for the Certificates. SECTION 6.10. Merger or Consolidation of Trustee. Any corporation into which the Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee shall be a party, or any _corporation succeeding to the business of the Trustee, shall be the successor of the Trustee.hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding, provided that such successor trustee shall be eligible under the provisions of Section 6.07 hereof. SECTION 6.11. Obligations of Trustee. Upon payment in full of all Certificates within the meaning of Section 7.01 hereof, the Trustee shall execute any certificate which the Corporation or the City may reasonably request to evidence payment in full under the terms of the Installment Purchase Agreement. SECTION 6.12. Paying Agent for Certificates. The Trustee may appoint a Paying Agent for the Certificates, with the prior consent of the City, which shall be a bank or trust company duly organized under the laws of the United States or any state or territory thereof, having a capital stock and surplus aggregating at least $10,000,000, and willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed by it by this Trust Agreement. The Paying Agent shall perform such duties and only such duties as are specifically authorized by the Trustee and in exercising such duties shall be entitled to the immunities and standard of care applicable to the Trustee prior to an Event of Default and after the curing of an Event of Default. The City covenants to cause the Paying Agent to be paid from time to time, and the Paying Agent shall be entitled to, reasonable compensation for all services rendered by it pursuant to the agreement entered into between the City and the Paying Agent, B:\TRSTAGR4.DOC 31 � subject to the provisions of Section 6.06 hereof, in the exercise and performance __ of any of the powers and duties hereunder of the Paying Agent, which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust, and the City will cause the Paying Agent to be paid or reimbursed, upon request of the Paying Agent for all expenses and disbursements incurred or made by the Paying Agent in accordance with any of the provisions of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its Counsel and of all persons not regularly in its employ) except any such expense or disbursement as may arise from its own negligence or willful misconduct. The City also covenapts to indemnify the Paying Agent for, and to hold it harmless against, any loss, liability, expense or advance incurred or made without negligence or willful misconduct on the part of the Paying Agent, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. SECTION 6.13. Resignation or Removal of Paying Agent; Appointment of Successor. Any Paying Agent may at any time resign and be discharged of the duties and obligations created by this Trust Agreement by giving at least sixty (60) days written notice to the Trustee -and the City. Any Paying Agent may be removed at any time by an instrument filed with such Paying Agent and the Trustee. Any successor Paying Agent shall be appointed by the City, with the approval of the Corporation, and shall be a bank or trust company duly organized under the laws of the United States or any state -or territory thereof, having a capital stock and surplus aggregating at least $10,000,000, and willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by this Trust Agreement. In the event of the resignation or removal of any Paying Agent, such Paying Agent shall pay over, assign and deliver any moneys held by it as Paying Agent to its successor, or if there is no successor, to the Trustee. In the event that for any reason there shall be a vacancy in the office of any Paying Agent, the Trustee shall act as such Paying Agent. ARTICLE VII DEFEASANCE SECTION 7.01. Certificates Deemed Paid; Discharge of Trust Agreement. The Principal Components and Interest Components with respect to any Certificate will be deemed paid for all purposes of this Trust Agreement when (a) Payment of the Principal Component and Interest Component with respect to such Certificate to the due date of such Principal Component and Interest Component (whether at maturity, B:\TRSTAGR4.DOC 32 upon prepayment or otherwise) either has been (1) made in ---accordance with the terms of the Certificates or (2) -provided for by depositing with the Trustee (i) moneys sufficient to make such payment and/or (ii) to the extent permitted by law, Government Obligations maturing as to principal and interest in such amounts and at such times as will, together with any moneys held by the Trustee for such purpose, assure the availability of sufficient moneys to make such payment and any applicable premium thereon; and (b) All compensation and expenses of the Trustee and the Paying Agent, pertaining to each Certificate in respect of which such payment or deposit is made, have been paid or provided for to the Trustee and the Paying Agent's satisfaction. When the Principal Components and Interest Components with respect to a Certificate are deemed paid, such Certificate will no longer be secured by or entitled to the benefits of this Trust Agreement, except for payment from the sources specified in Section 7.01(a) and it may be transferred, exchanged, registered or replaced as provided in Article -III hereof. To assure compliance with clause (2) of Section 7.01(a) hereof, if applicable, the City shall deliver to the Trustee an opinion or report of an independent certified public accountant confirming the availability of sufficient moneys as described therein. The Trustee may conclusively rely upon such opinion or report. Notwithstanding the foregoing, no deposit under clause (2) of Section 7.01(a) shall be deemed a payment of the Principal Components or Interest Components with respect to the Certificates until (1) (a) in the case of any such Certificates that are to be prepaid on any date prior to their maturity, the City shall have given to the Trustee in form satisfactory to the Trustee irrevocable instructions to mail notice of prepayment of such Certificates in accordance with Section 4.03 hereof and (b) in the event such Certificates are not by their terms subject to prepayment within the next succeeding sixty (60) days, the City shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to mail a notice to the Owners of such Certificates that the deposit required by Section 7.01 ( a) (2 ) above has been made with the Trustee and that the Principal Components or Interest Components with respect to the Certificates are deemed to have been paid under this Section 7.01 and stating the maturity or prepayment date upon which moneys are to be available for the payment of the Principal Components of and prepayment premiums, if any, due with respect to such Certificates, or (2) the maturity of the Principal. Component represented by the Certificate. Any notice given under clause (1) of this paragraph with respect to Principal Components constituting fewer than all Principal Components of a maturity shall specify the letter and number or other B:\TRSTAGR4.DOC 33 distinguishing mark of each such Certificate representing Principal Components to be paid. When all Outstanding Certificates are deemed paid under the foregoing provisions of this Section 7. 01, and the requirements of Section 6.4 of the Installment Purchase Agreement have been met, the Trustee will upon request of the City acknowledge the discharge of the Corporation's and City's obligations under this Trust Agreement and the Certificates except for obligations under (i) Article III hereof in respect of the transfer, exchange, registration and replacement of Certificates, (ii) Section 9.05 hereof and (iii) Section 6.06 hereof.. SECTION 7.02. Application of Trust Money. The Trustee shall hold - in trust money or direct obligations of (including obligations issued or held in book entry form on the books of) the Department of the Treasury of the United States of America deposited with it pursuant to Section 7.01 and shall apply the deposited money and the money from such direct obligations in accordance with this Trust Agreement only to the payment of the Principal Components, premium, if any, and Interest Components with respect to the Certificates for which the deposit has been made. ARTICLE VIII AMENDMENTS SECTION 8.01. Mailing. Any provision in this Article VIII for the mailing of a notice or other paper to Owners shall be fully complied with if it is mailed postage prepaid only to each Owner of Certificates then Outstanding at his or her address appearing upon the registration books of the Trustee. SECTION 8.02. Powers of Amendment. This Trust Agreement and the rights and obligations provided hereby may be modified or amended at any time by a Supplemental Trust Agreement, entered into among the Corporation, the City and the Trustee without the consent of any Owners but only (1) to cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in this Trust Agreement, (2) to insert such provisions clarifying matters or questions arising under this Trust Agreement as are necessary or desirable and are not contrary to or inconsistent with this Trust Agreement as theretofore in effect, (3) if, in the opinion of Counsel, such amendment or modification does not materially adversely affect the rights of the Owners of the Certificates or ( 4 ) to provide for the preparation and execution by the Trustee of additional Certificates permitted by Section 8.06 hereof. Any other modification or amendment of this Trust Agreement and of the rights and obligations of the City and of the Owners of the Certificates hereunder, in any particular, may be 1B:\TRSTAGR4.D0C 34 made by a Supplemental Trust Agreement, entered into among the Trustee, the- Corporation and the City and with the written consent - given as provided in Section 8.03 hereof, of the Owners of Outstanding Certificates representing at least a majority cf the aggregate unpaid Principal Component at the time such consent is given; provided, however, that if any such modification or amendment will, by its terms, not take effect so long as any Certificates of any specified maturity remain Outstanding, the consent of the Owners of such Certificates shall not be required and such Certificates shall not be deemed to be Outstanding for the purpose of any calculation of Outstanding Certificates under this Section 8.02. No such modification or amendment shall permit a change in the terms of prepayment or maturity of the Principal Component represented by any Outstanding Certificates or of any Interest Component represented thereby or a reduction in the Principal Component or the Prepayment Price represented thereby or in the rate of interest represented thereby without the consent of the Owner of such Certificate, or shall reduce the percentages or otherwise affect the classes of Certificates the consent of the Owners of which is required to effect any such modification or amendment, or shall change or modify any of the rights or obligations of the Trustee without its written assent thereto. Such amendment shall not be effective unless and until there shall have been filed with the Trustee an opinion of Counsel stating that such Supplemental Trust Agreement has been duly and lawfully entered into by the parties thereto and filed with the Corporation, the City and the Trustee in accordance with the provisions of this Trust Agreement, is authorized or permitted by this Trust Agreement, and is valid and binding upon the parties thereto in accordance with its terms. Notice of any modification or amendment of this Trust Agreement, together with a copy of such modification or amendment, shall be given by first class mail to each Rating Agency having a rating in effect for the Certificates. SECTION 8.03. Consent of Owners. Whenever a modification or amendment requires the consent of the Owners, then the Trustee, the Corporation and the City may at any time enter into a Supplemental Trust Agreement making a modification or amendment permitted by the provisions of Section 8.02 hereof to take effect when and as. provided in this Section 8.03. A copy of such Supplemental Trust Agreement (or brief summary thereof or reference thereto in form approved by the Trustee), together with a request to Owners for their consent thereto in form satisfactory to the Trustee and the City, shall be mailed by the Trustee to the Owners (but failure to mail such copy and request shall not affect the validity of the Supplemental Trust Agreement when consented to as in this Section 8.03 provided). Such Supplemental Trust Agreement shall not be effective unless and until (a) there shall have been filed with the Trustee ( i ) the written consents of Owners of the percentages of Outstanding Certificates specified in Section 8.02 hereof and (ii) an opinion of Counsel stating that such Supplemental Trust Agreement has been duly and lawfully entered B:\TRSTAGR4.DOC 35 into by the parties thereto and filed with the Corporation, the City and the Trustee in accordance__with the provisions of this Trust Agreement, is authorized or permitted by this Trust Agreement, and is valid and binding upcn the parties thereto in accordance with its terms. Each such consent shall be effective only if accompanied by proof of the Owner, at the date of such consent, of the Certificates with respect to which such consent is given, which proof shall be such as is permitted by Section 11.02 hereof. A certificate or certificates executed by the Trustee and filed with the Corporation and the City stating that it has examined such proof and that such proof is suf f icient in accordance with Section 11.02 hereof shall be conclusive that the consents have been given by. the Owners of the Certificates described in such certificate or certificates of the Trustee. Any such consent shall be binding upon the Owner of the Certificates giving such consent and, anything in Section 11.02 hereof to the contrary notwithstanding, upon any subsequent Owner of such Certificates and of any Certificates issued in exchange 'therefor (whether or not such subsequent Owner thereof has notice thereof). At any time after the Owners of the required percentages of Certificates shall have filed their consents to the Supplemental Trust Agreement, the Trustee shall make and file with the Corporation and the City a written statement that the Owners of such required percentages of Certificates have filed such consents. Such written statements shall be conclusive that such consents have been so filed. At any time thereafter, a notice stating in substance that the Supplemental Trust Agreement (which may be referred to as a Supplemental Trust Agreement entered into by the parties thereto on a stated date, a copy of which is on file with the Trustee) has been consented to by the Owners of the required percentages of Certificates and will be effective as provided in this Section 8.03, shall be given to Owners by the Trustee at the expense of the City by mailing such notice to Owners (but failure to mail such notice shall not prevent such Supplemental Trust Agreement from becoming effective and binding as in this Section 8.03 provided). The Trustee shall file with the Corporation and the City proof of the mailing of such notice. A record, consisting of the certificates or statements required or permitted by this Section 8.03 to be made by the Trustee, shall be proof of the matters therein stated. Such Supplemental Trust Agreement making such amendment or modification shall be deemed conclusively binding upon the Corporation, the City and the Trustee and the Owners of all Certificates at the expiration of forty (40) days after the filing by the Trustee of the proof of the mailing of such last mentioned notice, except in the event of a final decree of a court of competent jurisdiction setting aside such Supplemental Trust Agreement in a legal action or equitable proceeding for such purpose commenced within such forty (40) day period; provided, however, that the Trustee, the Corporation and the City during such forty (40) day period and any such further period during which any such action or proceeding may be pending shall be entitled in their absolute discretion to take such action, or to refrain from taking B:\TRSTAGR4.DOC 36 such action, with respect to such Supplemental Trust Agreement as they may -deem expedient. -- --- SECTION 8.04. Exclusion of Certificates. Certificates owned or held by or for the account of the City or the Corporation shall not be deemed Outstanding for the purpose of consent or other action or any calculation of Outstanding Certificates provided for in this Article VIII, and the City and the Corporation shall not be entitled with respect to such Certificates to give any consent or take any other action provided for in this Article VIII. At the time of any consent or other action taken under this Article VIII, the City shall furnish the Trustee a certificate of an Authorized City Representative and an Authorized Corporation Representative, upon which the Trustee may rely, describing all Certificates so to be excluded. SECTION 8.05. Notation on Certificates. Certificates executed and delivered after the effective date of any action taken as in this Article VIII provided may, and if the Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to such action, and in that case upon demand of the Owner of any Certificate Outstanding at such effective date and presentation of his or her Certificate for the purpose at the Corporate Trust Office of the Trustee or upon any transfer or exchange of any Certificate Outstanding at such effective date, suitable notation shall be made on such Certificate or upon any Certificates executed and delivered upon any such transfer or exchange by the Trustee as to any such action. If the City shall so determine, new Certificates so modified as in the opinion of the City to conform to such action shall be prepared by the City and executed and delivered by the Trustee, and upon demand of the Owner of any Certificate then Outstanding shall be exchanged, without cost to such Owner, for Certificates of the same maturity and principal amount then Outstanding, upon surrender of such Certificates. SECTION 8.06. Additional Certificates. Subsequent to the execution and delivery by the Trustee of the 1993 Certificates, the Trustee shall, upon written request or requests of an Authorized City Representative and of an Authorized Corporation Representative, execute and deliver from time to time one or more Series of additional Certificates representing such aggregate Principal Components as may be set forth in such written request or requests, provided that the City shall have delivered to the Trustee a certificate of an Authorized City Representative certifying as to the compliance by the City with all of the conditions set forth in Section 6.6 of the Installment Purchase Agreement which are hereby made conditions precedent to the preparation, execution and delivery of such additional Certificates and compliance with each of the following conditions: B:\TRSTAGR4.DOC 3 (a) The parties to this Trust Agreement shall have ._executed_a Supplemental Trust Agreement setting forth the terms and provisions of such additional Certificates, including the establishment of such funds and accounts, separate and apart from the funds and accounts established hereunder for the 1993 Certificates, as shall be necessary or appropriate; (b) The Principal Components and Interest Components with respect to such additional Certificates and any premium payable upon prepayment of such additional Certificates shall be payable only on Purchase Payment Dates applicable to the 1993 Certificates; (c) The Installment Purchase Agreement shall have been amended by the parties thereto if necessary to (i) increase or adjust the Purchase Payments due and payable on each Purchase Payment Date to an amount sufficient to pay the Principal Components, premium (if any) and Interest Components payable with respect to all Outstanding Certificates, including all additional Certificates as and when such Principal Components and Interest Components mature or become due and payable (except to the extent such Principal Components, premium (if,any) and Interest Components may be payable out of moneys then in the Reserve Account or otherwise on deposit with the Trustee in accordance with this Trust Agreement), (ii) amend the definition of "Project", if necessary, to include as part of the Project all additions, betterments, extensions, improvements or replacements, or such other real or personal property (whether or not located upon the Project as such Project is constituted as of the date of,this Trust Agreement), to be financed, acquired or constructed by the preparation, execution and delivery of such additional Certificates, and (iii) make such other revisions to the Installment Purchase Agreement as are necessitated by the execution and delivery of such additional Certificates (provided, however, that such other revisions shall not prejudice the rights of the Owners of Outstanding Certificates to payments under the terms of this Trust Agreement); (d) There shall have been delivered to the Trustee a —counterpart of the amendments required by Section 8.06(c); (e) The Trustee shall have received a certificate of an Authorized Corporation Representative that there exists on the part of the Corporation no Event of Default; (f) The Trustee shall have received a certificate of an Authorized City Representative that there exists on the part of the City no Event of Default; (g) The Trustee shall have received an opinion of Special Counsel stating to the effect that (i) said Supplemental Trust Agreement and said amendments to the Installment Purchase Agreement comply in all respects with the requirements of this Section 8.06, (ii) said Supplemental Trust Agreement and said amendments to the B:\TRSTAGR4.DOC 38 Installment Purchase Agreement have been duly authorized, executed and delivered by each of therespectiveparties thereto (provided that said opinion of Counsel, in rendering the opinions set forth in this clause (ii), shall be entitled to rely upon one or more other opinions of Counsel, including counsel to any of the respective parties to said Supplemental Trust Agreement or said Installment Purchase Agreement), (iii) assuming that no Event of Default has occurred and is continuing, this Trust Agreement, as amended by said -Supplemental Trust Agreement, and the Installment Purchase Agreement, as amended by the respective amendments thereto, constitute the legal, valid and binding obligations of the respective parties thereto, enforceable against said parties in accordance with their respective terms (except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, moratorium, debt adjustment or other laws affecting creditors' rights generally, and except to the extent that enforcement thereof may be limited by general principles of equity, regardless of whether enforcement is sought in a legal or equitable proceeding) and (iv) the execution of such Supplemental Trust Agreement and said amendments to the Installment Purchase Agreement, and performance by the parties thereunder, does not adversely affect the exclusion from gross income for Federal income tax purposes or the exemption under State law of the Interest Components with respect to any Certificates, including additional Certificates, theretofore prepared, executed and delivered; and (h) Such other conditions shall have been satisfied, and such other instruments shall have been duly executed and delivered to the Trustee, as the Trustee, the City or the Corporation shall have reasonably requested. Upon delivery to the Trustee of the foregoing instruments, the Trustee shall cause to be executed and delivered additional Certificates representing the aggregate Principal Components specified in such Supplemental Trust Agreement, and such additional Certificates shall be equally and ratably secured with all Certificates, including any additional Certificates, theretofore prepared, executed and delivered, all without preference, priority or distinction (other than with respect to maturity, payment, prepayment or sinking fund payments (if any)) of any one Certificate, including additional Certificates, over any other; provided, however, that no provision of this Trust Agreement shall require the City to consent to or otherwise permit the preparation, execution and delivery of additional Certificates, it being understood and agreed that any such consent or other action of the City to permit the preparation, execution and delivery of additional Certificates, or lack thereof, shall be in the sole discretion of the City. B:\TRSTAGR4.DOC 39 ARTICLE IX COVENANTS SECTION 9.01. Power to Enter into Trust Agreement, Installment Purchase Agreement and Assignment Agreement. The Corporation and the City each covenant that each will observe and faithfully perform at all times all of its covenants, undertakings and agreements contained in this Trust Agreement and the Installment Purchase Agreement. The Corporation and the City each represent and covenant that each is duly authorized to enter into this Trust Agreement and the Installment Purchase Agreement and the Corporation represents and covenants that it is duly authorized to enter into the Assignment Agreement; that all action on the part of each for the delivery of Certificates and the execution and delivery of this Trust Agreement has been duly and effectively taken. SECTION 9.02. Valid and Binding Obligations. The obligation of the City to make Purchase Payments under and pursuant to the Installment Purchase Agreement and the provisions of this Trust Agreement shall be legal, valid and binding obligations of the City. The Corporation shall at all times, to the extent permitted by law, defend, preserve and protect said obligations and assignment of all its interest in the Installment Purchase Agreement, and all the rights of the Owners under this Trust Agreement against all claims and demands made thereon. SECTION 9.03. Extension of Payment. Neither the Corpor- ation, the City nor the Trustee shall directly or indirectly extend or assent to the extension of the payment dates of any of the Purchase Payments or the maturity of the Certificates representing an interest therein, or the time of payment of any claims for interest by .the Owners of Certificates. SECTION 9.04. Encumbrances. The Corporation and the City each covenant that each will not create or suffer to be created any lien, encumbrance or charge upon the Project or any improvements thereto except as permitted herein and in the Installment Purchase Agreement. SECTION 9.05. Tax Covenants. ( a ) The Corporation and the City each covenant that, in order to maintain the exclusion from gross income for federal income tax purposes of the Interest Components of the Purchase Payments, and for no other purpose, each will satisfy, or take such actions as may be necessary to cause to be satisfied, each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant, the Corporation and • the City each covenant to comply with the Tax Certificate as, a source of guidance with the requirements of the Code. B:\TRSTAGR4.DOC 40 (b) The Corporation and the City each covenant that no part of the proceeds of the Certificates shall be used,- directly or indirectly, to acquire any "investment property", as defined in Section 148 of the Code, and it shall not take or permit to be taken any other action or actions, which would cause the obligation represented bythe Installment Purchase Agreement to be an "arbitrage bond�� within the meaning of Section 148 of the Code, as in effect from time to time, or under applicable Treasury regulations promulgated thereunder. In order to assure compliance with the rebate requirements of Section 148 of the Code, the Corporation and the City Each further covenant that it will pay or cause to be paid to the United States Treasury Department the amounts necessary to satisfy the requirements of Section 148(f) of the Code, as required in the Tax Certificate, and that it will establish such accounting procedures as are necessary to adequately determine, account for and pay over any such amount or amounts required to be paid to the United States in a manner consistent with the requirements of Section 148 of the Code, such covenant to survive the termination of this Trust Agreement pursuant to Section 7.01 hereof. (c) The Corporation and the City each covenant that it will not take any action or omit to take any action, which action or omission, if reasonably expected on the date of initial execution and delivery of the Certificates, would result in a loss of exclusion from gross income for purposes of federal income taxation, under Section 103(a) of the Code, of Interest Components paid by the City and received by the Owners of the Certificates. (d) The Corporation and the City each covenant that it will not use or permit the use of the Project by any person (other than the City or other state or local governmental unit) in such manner or to such extent as would result in a loss of exclusion of the Interest Components of Purchase Payments from gross income for Federal income tax purposes under Section 103(a) of the Code. (e) Notwithstanding any provision of this Trust Agreement, and except as provided below, the Corporation and the City each covenant that none of the moneys contained in any of the funds or accounts created pursuant to this Trust Agreement shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof, (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation, National Credit Union Administration or any other similar Federally chartered corporation, or (iii) otherwise invested directly or indirectly in obligations guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof); provided, however, that the above restrictions do not apply to: (i) the investment of moneys held in the Purchase Payment Account or any other "bona fide debt service fund" as defined in the Tax Certificate, and in the Reserve Account, (ii) to investments in direct obligations of the United States Treasury, B:\TRSTAGR4.DOC 41 (iii) to investments in obligations guaranteed by the Federal National - Mortgage ---Association,._..Government. National Mortgage Association or the Federal Home Loan Mortgage Corporation, (iv) to investments permitted under regulations issued pursuant to Section 149 (b)(3)(B) of the Code, or (v) to such other investments as, in the opinion of Special Counsel, are investments permitted under this Trust Agreement which do not jeopardize the exclusion from gross income for Federal income tax purposes of the Interest Components with respect to the Certificates. SECTION 9.06. Account Records and Statements. The Trustee shall at all times keep proper accounting records and statements in which complete and correct entries shall be made of all transactions relating to the receipt, deposit and disbursement of the proceeds of the Certificates, the Purchase Payments, and all funds and accounts established pursuant to this Trust Agreement. Such accounting records shall be available for inspection by the Corporation, the City and any Owner of Outstanding Certificates representing at least twenty-five percent (25%) of the aggregate unpaid Principal Component or his or her agent duly authorized in writing"at reasonable hours and under reasonable conditions. Not later than the 15th day of each month commencing on May 15, 1993 and continuing so long as any Certificates remain Outstanding, the Trustee will furnish to the City and any Owner of Outstanding Certificates representing at least twenty-five percent (25%) of the aggregate unpaid Principal Component who may so request (at the expense of such Owner) a complete statement covering the receipts, deposits and disbursements of the proceeds of the Certificates, the Purchase Payments, and all funds and accounts established pursuant to this Trust Agreement for the preceding month. SECTION 9.07. Recording and Filing. The City shall file, record, register, renew, refile and record all documents as may be required by law in order to maintain the Installment Purchase Agreement and this Trust Agreement, in such manner, at such times and in such places as required and to the extent permitted by law in order to fully perfect, preserve and protect the rights and interests of the Owners. SECTION 9.08. Amendment of Installment Purchase Agreement. The Corporation shall not consent to the amendment, alteration or modification, in whole or in part, of the Installment Purchase Agreement except .(a) to the extent such amendment, alteration or modification shall cure an ambiguity, supply an omission, or cure or correct a defect or inconsistent provision therein, (b) to the extent such amendment, alteration or modification shall insert such provisions clarifying matters or questions arising thereunder as are necessary or desirable and are not contrary to or inconsistent with the Trust Agreement, (c) if, in the opinion of Counsel, such amendment, alteration or modification does not materially adversely affect the rights of the Owners of the Certificates, (d) as may be necessary in connection B:\TRSTAGR4.DOC 42 with the issuance of additional Certificates pursuant to the provisions of this -Trust .Agreement_, or (e) with the written consent of the Owners of a majority in aggregate Principal Component of the Certificates then outstanding, exclusive of Certificates owned by the Corporation or the City. Any such written consent shall be obtained in the manner provided in Article VIII hereof for amendments to the'Trust Agreement. No such amendment, alteration or modification shall be effective unless and until there shall have been filed with the Trustee an opinion of Counsel stating that such amendment, alteration or modification has been duly and lawfully entered into by the parties thereto, is, authorized or permitted by this Trust Agreement and is valid and binding upon the parties thereto in accordance with its terms. For purposes of this Trust Agreement, no change or revision of Exhibit A made pursuant to Section 4.1(a) of the Installment Purchase Agreement shall constitute an amendment, alteration or modification of the Installment Purchase Agreement. SECTION 9.09. Enforcement. The Trustee shall promptly collect all amounts due pursuant to the Installment Purchase Agreement subject at all times to' Article VI hereof, and upon default hereunder, shall enforce, take all steps, actions and proceedings reasonably necessary to protect and preserve all rights and interests of the Trustee and the Owners under the Installment Purchase Agreement and this Trust Agreement as provided in Article X. SECTION 9.10. Further Assurances. The Corporation and the City each covenant that each shall promptly execute and deliver or cause to be executed and delivered all other and further assurances, documents or instruments and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to carry out the purposes and intentions of this Trust Agreement and for preserving and protecting the rights and interests of the Owners. ARTICLE X EVENTS OF DEFAULT AND REMEDIES SECTION 10.01. Events of Default. The existence of an Event of Default under the Installment Purchase Agreement is hereby declared an Event of Default under this Trust Agreement. SECTION 10.02. Institution of Legal Proceedings by Trustee. If an Event of Default shall happen and be continuing, the Trustee in its discretion may, and upon the written request of the Owners of Outstanding Certificates representing not less than twenty-five percent (25%) of the aggregate unpaid Principal Component, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Owners of Certificates under this Trust Agreement by a suit in equity or action at law, either for the specific performance of any B:\TRSTAGR4.DOC 43 covenant or agreement contained herein or in the Installment Purchase__Agreement, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties hereunder. SECTION 10.03. Distribution of Proceeds of Remedies. All moneys received by the Trustee pursuant to remedies taken under this Trust Agreement or held in any fund or account established by this Trust Agreement are to be applied, after the payment of all fees and expenses of the Trustee, as follows, in the following order: First: To the payment to the persons entitled thereto of all Interest Components then due in the order of the due date thereof, and, if the amount available shall not be sufficient to pay in full any Interest Component maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto; - Second: To the payment to the persons entitled thereto of the unpaid Principal Component with respect to any Certificates which shall have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue Principal Component at the rate borne by the respective Certificates, and, if the amount available shall not be sufficient to pay in full all the Certificates due on any date, then to the payment thereof ratably, according to the amounts of Principal Component due on such date to the persons entitled thereto, without any discrimination or preference; and Third: If there shall exist any remainder after the foregoing payments, such remainder shall be paid to the City. SECTION 10.04. Suit By Owners. No Owner has any right, remedy or power to institute any suit, action or proceeding for the enforcement of this Trust Agreement, the Installment Purchase Agreement or the Certificates, for the execution of any trust, or exercise of any other right, remedy or power under such agreements or instruments, unless (a) there has occurred and is continuing an Event of Default of which the Trustee has been notified; (b) the Owners of Outstanding Certificates representing at least twenty-five percent (25%) of the aggregate unpaid Principal Component shall have made a written request to the Trustee and shall have afforded the Trustee a reasonable opportunity to proceed to exercise the rights, remedies and powers or to institute the suit, action or proceeding in its own name, and shall have offered indemnification to the Trustee as provided in this Trust Agreement; and (c) the Trustee shall have failed or refused thereafter to exercise the rights, remedies and powers or to institute the suit, action or proceeding in its own name. B:\TRSTAGR4.DOC 44 SECTION 10.05. Effect of Delay or Omission to Pursue Remedy. No delay or omission- of --the Trustee or of any Owner to exercise any right or power arising from any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every power and remedy given by this Article X to the Trustee or to the Owners may be exercised from time to time, and as often as shall be deemed expedient. In case the Trustee shall have proceeded to enforce any right under this Trust Agreement and such proceedings shall have been discontinued or abandoned because of waiver or for any other reasons, or shall have been determined adversely to the Trustee, then and in every such case the Trustee and the Owners, severally and respectively, shall be restored to their former positions and rights hereunder; and all remedies, rights and powers of the Trustee and the Owners shall continue as though no such proceedings had been taken. SECTION 10.06. Remedies Cumulative. No remedy herein conferred upon or reserved to the Trustee or to any Owner is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise; and the exercise by the Trustee or by any Owner or any remedy hereunder shall not limit or impair the exercise of any other remedy given hereunder. ARTICLE XI MISCELLANEOUS SECTION 11.01. Payment of Purchase Payments; Unclaimed Moneys. (a) If and when the Principal Components and Interest Components with respect to the Certificates delivered pursuant hereto shall become due and payable in accordance with their terms, or shall become subject to prepayment and have been called for prepayment in accordance with Section 4.01 hereof, all amounts payable to the Trustee and the Paying Agent have been paid and the whole amount of the Principal Component and Interest Component due and payable with respect to all of the Certificates shall have been paid or set aside for payment with the Trustee or a Paying Agent, then and in that case, the right, title and interest of the Trustee under this Trust Agreement shall thereupon cease, terminate and become void, and the Trustee shall convey all property, other than money held by the Trustee or Paying Agent for the payment of unpresented Certificates, and interest therein which it obtained under this Trust Agreement free and clear of all liens thereon which. the Trustee may have. (b) Anything in this Trust Agreement to the contrary notwithstanding, any moneys held by the Trustee in trust for the payment and discharge of the Principal Component, Prepayment Price, if applicable, and Interest Component with respect to any of the B:\TRSTAGR4.DOC 45 Certificates which remain unclaimed for one (1) year after the date ---when--the payment shall have become due_ -and payable,_shall, at the Written Request of the City be repaid by the Trustee to the City, as its absolute property and free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the City for the payment of such Certificates; provided, however, that before making any such payment to the City, the Trustee shall, at the expense of the City, cause to be published at least twice, at an interval of not less than seven (7) days between publication, in an Authorized Newspaper, a notice that said moneys remain unclaimed and that, after a date named in said notice, which date shall not be less than thirty ( 3 0 ) days after the date of the first publication of such notice, the balance of such moneys then unclaimed will be returned to the City. SECTION 11.02. Evidence of Signatures of Owners and Ownership of Certificates. (a) Any request, consent, revocation of consent or other instrument which this Trust Agreement may require or permit to be signed and executed by the Owners may be in one or more instruments of similar tenor, and shall be signed or executed by such Owners in person or by their attorneys appointed in writing. Proof of the execution of any such instrument, or of an instrument appointing any such attorney shall be sufficient for any _ purpose, of this Trust Agreement (except as otherwise therein expressly provided) if made in the following manner, or in any other manner satisfactory to the Trustee, which may nevertheless in its discretion require further or other proof in cases where it deems the same desirable: the fact and dateof the execution by any Owner or his or her attorney of such instruments may be proved by a guarantee of the signature thereon by a bank or trust company or by the certificate of any notary public or other officer authorized to take acknowledgments of deeds, that the person signing such request or other instrument acknowledged to him or her the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. Where such execution is by an officer of a corporation or association or a member of a partnership, on behalf of such corporation, association or partnership, such signature guarantee, certificate or affidavit shall also constitute sufficient proof of his or her authority. (b) The ownership of Certificates and the amount, numbers and other identification, and date of holding the same shall be proved by the registration books. (c) Any request or consent by the Owner of any Certificate shall bind all future Owners of such Certificate in respect of anything done or suffered to be done by the Corporation, the City or the Trustee in accordance therewith. B:\TRSTAGR4.DOC 146 SECTION 11.03. Moneys Held for Particular Certificates. The amounts held by the Trustee for the payment of the Interest Component, Principal Component or premium, if any, due on any date with respect to particular Certificates shall, on and after such date and pending such payment, be set aside on its books, held in trust by it for the Owners of the Certificates entitled thereto, and shall not be invested by the Trustee and the Trustee shall not be held liable for interest thereon. SECTION 11.04. Publication of Notice; Suspension of Publication. (a) Any publication to be made under the provisions of this Trust Agreement in successive weeks or on successive dates may be made in each instance upon any Business Day of the week and need not be made in the same Authorized Newspaper for any or all of the successive publications but may be made in different Authorized Newspapers. (b) If, because of the temporary or permanent suspension of the publication or general circulation of one or more Authorized Newspapers, or for any other reason, it is impossible or impractical to publish any notice pursuant to this Trust Agreement in the manner herein provided, then such publication in lieu thereof as shall be made with the approval of the City shall constitute a sufficient publication of such notice. SECTION 11.05. Severability of Invalid Provisions. If any one or more of the covenants or agreements provided in this Trust Agreement on the part of the City or the Corporation to be performed should -be contrary to law, then such covenant or covenants or agreement or agreements shall be deemed severable from the remaining covenants and agreements, and shall in no way affect the validity of the other provisions of this Trust Agreement. SECTION 11.06. Notices. Except as expressly set forth herein, all notices, certificates, requests or other communications (other than payments by the City) hereunder shall be in writing and shall be sufficiently given and shall be deemed given when delivered or mailed by first class mail, postage prepaid, to the parties at their respective places of business. All notices or other communications required by the provisions hereof required to be given by telephone, telex or other high-speed means of communication shall be given to the numbers indicated below. With respect to the City, notices shall be directed to: [City Clerk] [Treasurer] Citi- of Tustin 15222 Del Amo Avenue Tustin, California 92680 and B:\TRSTAGR4.DOC 4 Tustin Water Service 235 East Main Street Tustin, California 9,2680 Attn: Manager With respect to the Corporation, notices shall be directed to: to: City of Tustin 15222 Del Amo Avenue Tustin, California 92680 Attn: Secretary, City of Tustin Water Corporation With respect to the Trustee, notices shall be directed Bank of America National Trust and Savings Association Corporate Trust Document Review '#H23-80 333 South Hope Street 23rd Floor Los Angeles, California 90071 Any such notice, certificate, request or other communication given to the Corporation shall specify whether the same shall be retained by the Corporation and the length of time of such retention. Any of the foregoing persons may, by notice given under this Section 11.06, designate any further or different addresses, telephone numbers or telex numbers to which subsequent notices, certificates, requests or other communications shall be directed. SECTION 11.07. California Law. This Trust Agreement shall be construed and governed in accordance with the laws of the State of California. SECTION 11.08. Binding on Successors. This Trust Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. SECTION 11.09. Headings. Headings preceding the text of the several Articles and Sections hereof, and the table of contents, are solely for convenience of reference and shall not constitute a part of this Trust Agreement or affect its meaning, construction or effect. SECTION 11.10. Execution in Counterparts. This Trust Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. B:\TRSTAGR4.DOC 48 SECTION 11.11. Consent of Parties. Whenever the consent or approval of any party to this Trust Agreement is required by the terms of this Trust Agreement, the consent or approval of such party shall not be unreasonably withheld. ARTICLE XII CERTIFICATE FORM SECTION 12.01. Certificate Form. The 1993 Certificates to be issued under this Trust Agreement, the form of assignment and the provisions for registration are to be in substantially the following form, respectively, with necessary and appropriate variations, omissions and insertions as permitted or required by this Trust Agreement: . B:\TRSTAGR4.DOC 49 NO. ____._ . _ WATER SYSTEM INTEREST RATE: REGISTERED OWNER: PRINCIPAL COMPONENT: S CITY OF TUSTIN CERTIFICATE OF PARTICIPATION 1993 SERIES MATURITY DATE: CUSIP DOLLARS THIS IS TO CERTIFY that the registered owner (the "Owner") named above, or registered assigns, of this Certificate of Participation, one of an issue of the City of Tustin, Water System Certificates of Participation, 1993 . Series (the 111993 Certificates") in an aggregate initial amount of $ , is the Owner of a direct and proportionate interest in the right to receive certain Purchase Payments (the "Purchase Payments") to be made by the City of Tustin (the "City") pursuant to an Installment Purchase Agreement dated as of April 1, 1993 (the "Installment Purchase Agreement") between the City and the City of Tustin Water Corporation (the "Corporation"). The Owner of this 1993 Certificate is entitled to receive, subject to the terms of the Installment Purchase Agreement and any rights of prepayment as set forth in the Trust Agreement dated as of April 1, 1993 (the "Trust Agreement") among the Corporation, the City and Bank of America National Trust and Savings Association, as Trustee (the "Trustee") (i) upon surrender of this 1993 Certificate to the Trustee on the maturity date specified above or on the Prepayment Date, the principal component specified above, representing the Owner's proportionate share of the Purchase Payments designated and paid as principal (the "Principal Component"), due and payable on the maturity date specified above or on such Prepayment Date, and (ii) on each April 1 and October 1, commencing October 1, 1993, as set forth herein, the interest component, representing the Owner's proportionate share of each Purchase Payment designated and paid as interest due and payable (the "Interest Component") to and including the date of maturity or prepayment. Interest with respect to this 1993 Certificate will accrue from the April 1 or October 1 next preceding the date of execution thereof unless (i) it is executed on an April 1 or October 1, in which event interest will accrue from the date of execution hereof; (ii) it is executed on or prior to October 1, 1993, in which event interest will accrue from April 1, 1993, or (iii) it is executed after a Record Date and prior to the next succeeding Interest Component Payment Date, in which case B:\TRSTAGR4.DOC 50 interest will accrue from the next succeeding Interest Component Payment Date; provided, however, that if, at' the time of execution of this 1993 Certificate, interest is in default on Outstanding 1993 Certificates, the Trustee will establish a special record date for the payment of any interest in default under the Trust Agreement, and interest with respect to such 1993 Certificate will accrue from the date to which interest has previously been paid in full or made available for payment on such Outstanding 1993 Certificates. The Interest Component will be payable by check or draft mailed to the Owner of this 1993 Certificate at the address shown on the registration records maintained by the Trustee as of the Record Date. The Principal Component and prepayment premiums, if any, due with respect to this 1993 Certificate shall be payable by check or draft upon surrender thereof at the Corporate Trust office of the Trustee. All capitalized undefined terms used herein which are def ined in the Trust Agreement and the Installment Purchase Agreement shall have the meanings specified in the Trust Agreement and the Installment Purchase Agreement. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS 1993 CERTIFICATE SET FORTH ON THE REMAINING PAGES HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH HERE. B:\TRSTAGR4.DOC 51 Period During -Which Prepaid (both dates inclusive) April 1, 2003 through March 31, 2004 April 1, 2004 through March 31, 2005 April 1, 2005 and thereafter Prepayment Price 102% 101 100] [Confirm: no mandatory prepayment provisions.] In the case of prepayment of less than all Outstanding 1993 Certificates, the Trustee will select the 1993Certificates i representing the Principal Components to be prepaid n such manner as it shall determine. is reasonable, in conformance with the Installment Purchase Agreement. [Add additional selection provisions if have mandatory prepayment.] When prepayment of 1993 Certificates is to be made, the Trustee will give notice of the prepayment of such Certificates, which notice will specify the date of such notice, the Prepayment Price, the Prepayment Date, the place or places of prepayment, the CUSIP number, if any, of the maturity or maturities and, if less than all of such maturity, the distinctive certificate numbers of the 1993 Certificates of such maturity to be prepaid and, in the case of 1993 Certificates to be prepaid in part only, such notice will also specify the respective portions of the Principal Component represented thereby to be prepaid. Such notice will further state that on such date there will become due and payable with respect to each 1993 Certificate to be prepaid the Prepayment Price thereof, or the Prepayment Price of the specified portions of the Principal Component thereof in the case of 1993 Certificates to be prepaid in part only, and that from and after such Prepayment Date, the related Interest Component due with respect thereto will cease to accrue and will require that such 1993 Certificates be then surrendered at the address or addresses of the Trustee specified in the prepayment notice. As provided in the Trust Agreement, notice of prepayment will be given by mail, first class postage prepaid, not less than 30 nor more than 60 days prior to the Prepayment Date, to the respective Owners of any 1993 Certificates representing Principal Components which are to be prepaid, at their addresses appearing upon the registration books. Failure by the Trustee to mail notice of prepayment as specified in the Trust Agreement to any one or more of the respective Owners of any 1993 Certificates designated for prepayment will affect the sufficiency of the proceedings for prepayment only with respect to the Owner or Owners to whom such notice was not mailed. If notice of prepayment has been duly given as aforesaid and funds for the payment of the Prepayment Price of the 1993 Certificates to be prepaid are held by the Trustee on the designated Prepayment Date, then on the Prepayment Date designated in such notice, the Prepayment Price of the 1993 Certificates so B:\TRSTAGR4.DOC 54 called for prepayment will becomepayableas specified -in such notice; and from and after the date so designated Interest Components due with respect to the Principal Components of the 1993 Certificates or portions thereof so called for prepayment shall cease to accrue, such Certificates shall cease to be entitled to any benefit, protection or security under the Trust Agreement and the Owners of such Certificates shall have no rights in respect thereof except to receive payment of the Prepayment Price. If a 1993 Certificate is prepaid in part only, the Trustee will execute and deliver, upon the surrender of such Certificate, a new 1993 Certificate or Certificates representing Principal Components equal to the unprepaid Principal Component of the 1993 Certificate surrendered of the same maturity. Additional terms and conditions and procedures governing prepayments are specified in the Trust Agreement. Upon compliance with certain terms and conditions set forth in the Trust Agreement, the Trustee may execute and deliver additional Certificates payable from Gross Revenues in the Qualified Obligations Account. This 1993 Certificate is transferable only upon the books of the Trustee kept for that purpose at the Corporate Trust Office of the Trustee by the Owner in person or by the Owners's attorney duly authorized in writing, upon surrender hereof together with a written instrument of transfer satisfactory to the Trustee duly executed by the Owner or the Owner's duly authorized attorney. Upon the transfer of any 1993 Certificate the Trustee will execute and deliver in the name of the transferee a new 1993 Certificate or Certificates of the same Principal Component, tenor and maturity as the surrendered 1993 Certificate. The Trustee may deem and treat the person in whose name any 1993 Certificate is registered upon the books of the Trustee as the absolute Owner of such 1993 Certificate, whether such 1993 Certificate is overdue cr not, for the purpose of receiving payment of, or on account of, the Principal Component and premium, if any, and Interest Component with respect to such 1993 Certificate and for all other purposes, and all such payments so made to any such Owner or upon such Owner's order will be valid and effectual to satisfy and discharge the liability upon such 1993 Certificate to the extent of the sum or sums so paid, and the Trustee will not be affected by any notice to the contrary. The Trustee will not be required to transfer or exchange (i) any 1993 Certificate in the fifteen days prior to selection of 1993 Certificates for prepayment (whether or not such Certificate is thereafter selected for prepayment) and (ii) any 1993 Certificate selected for prepayment in whole or part. To the extent and in the manner permitted by the terms of the Trust Agreement, the provisions of the Trust Agreement may be modified or amended by the parties thereto, but no such modification or amendment will (1) permit a change in the terms of B:\TRSTAGR4.DOC 55 prepayment _or maturity of the Principal Component represented Y hereb or of any Interest Component represented hereby or o the reduction in the amount of the P�rnln the componental or in of interest Prepayment Price represented hereby represented hereby, without the prior written nsent 1993 Certifiof the Ocates wner hereof , or ( 2 ) reduce the percentage of owners of whose consent is required to effect any modification or amendment of the Trust Agreement, or (3) modify any rights or ero ligations of the Trustee without its prior written consent the The Trustee has no obligation or liability to t owner nor to make payments of Principal Components, Interest Components premium with respect to the 1993 Certificates, except from amounts on deposit for such purposes with the Trustee. The Trustee's sole obligations are to administer for, the benefit the the Agreement owners the various funds and accounts established under Agreement, to enforce its and, to the extent provided in the g rights under the Installment Purchase Agreement. B:\TRSTAGR4.DOC 56 ASSIGNMENT For value received, the undersigned do(es) hereby sell, assign and transfer unto the within 1993 Certificate and do(es) hereby irrevocably constitute and appoint attorney to transfer such Certificate on the register of the Trustee, with full power of substitution in the premises. Dated: Note: The signature(s) of this Assignment must correspond with name(s) as written on the face of the within Certificate in every particular, without alteration or enlargement or any change whatsoever. B:\TRSTAGR4.D0C 57 IN WITNESS WHEREOF, the parties have executed and attested this Trust Agreement by their officers thereunto duly authorized as of the date and year first written above. CITY OF TUSTIN WATER CORPORATION By. • President ATTEST: Secretary [SEAL] ATTEST: City Clerk THE CITY OF TUSTIN By. Mayor BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: Vice President B:\TRSTAGR4.DOC 58 EXHIBIT A DELIVERY DATE DEPOSITS TO ACCOUNTS Aggregate Principal Component ................ Less: Original Issue Discount ............... Less: Underwriter's Discount ................ Plus: Accrued Interest Received ............. Plus: Balance from 1998 Reserve Account............................... Proceeds of 1993 Certificates and 1983 Reserve Account ................ Less Delivery Date Deposits: Deposit to Purchase Payment Account.......... Deposit to Reserve Account ................... Deposit to Construction Account .............. Deposit to Escrow Account .................... Total Deposits .......................... B:\TRSTAGR4.DOC 59 RECEIVED _ _- .-- - FEB 0 5 1993 Draft of 2/4/93 - FINANCE DEPT. INSTALLMENT PURCHASE AGREEMENT BETWEEN CITY OF TUSTIN WATER CORPORATION, as Seller and THE CITY OF TUSTIN, as Purchaser 41 Dated as of April 1, 1993 1993 Certificates b:\IPA2.DOC Table of 'Contents b:\IPA2.DOC i Page ARTICLE I DEFINITIONS AND EXHIBITS SECTION 1.1. Definitions . . . . . . . . . . . . . . . 2 SECTION 1.2. Content of Statements and Opinions . . . 5 SECTION 1.3. Exhibits . . . . 6 ARTICLE II REPRESENTATIONS AND WARRANTIES SECTION 2.1. Representations and Warranties of the City . . . . . . . . . . . . . . . . . . 6 SECTION 2.2. Representations, Warranties and Covenant of the Corporation . . . . . . . . . . . 8 ARTICLE III PURCHASE AND SALE OF THE PROJECT; AGENT; FUNDS AND ACCOUNTS; SECURITY FLOW. OF REVENUES; SECTION 3.1. Purchase and Sale of the Project . . . . 10 SECTION 3.2. Agent . . . . . . . 10 SECTION 3.3. Purchase Payment Account . . . . . . . . 11 SECTION 3.4. Construction Account . . . . . . . . . . 11 SECTION 3.5. Reserve Account . . . . . . . . . . . . . 11 SECTION 3.6. Funds and Accounts . . . . . . . . . . . 11 SECTION 3.7. * Flow of Grosv Revenues . . . . . . . . . 12 SECTION 3.8. Security for the Purchase Payments . . . 12 ARTICLE IV THE PROJECT; PROHIBITED USES;. DISBURSEMENTS SECTION 4.1. Acquisition and Construction of the Project . . . . . . . . . . . . . . . . . 13 SECTION 4.2. Disbursements from the Construction Account. . . . . . . . . . . . . . . . . 13 b:\IPA2.DOC i ARTICLE V EFFECTIVE DATE OF THIS AGREEMENT; DURATION; PAYMENT PROVISIONS; LIABILITY SECTION 5.1. Effective Date of this Installment • 6.1. Purchase Agreement; Duration . . . . . . 14 SECTION 5.2. -*-Purchase Price; 1993 Purchase Payments 14 SECTION 5.3. ►"Additional Purchase Payments . . . . . . 15 SECTION 5.4. 1 -,Source for City Payments . . . . . . . . 17 SECTION 5.5. Obligations of the City Unconditional; 20 SECTION 6.5. Net Contract; Obligations of Corporation Unconditional . . . . . . . . . . . . 17 SECTION 5.6. Prepayment of 1993 Purchase Payments 19 SECTION 5.7. Termination of Installment Purchase Agreement.. . . . . . . . . . . . . . . . 19 SECTION 5.8. City's Liability . . . . . . . . . . . . 20 ARTICLE VI PARTICULAR COVENANTS SECTION 6.1. Limitation on Encumbrances; Against . . . 25 SECTION 8.2. Sale. . . . . . . . . . . . . . . . . . 20 SECTION 6.2. Accounting Records . . . . . . . . . . . 20 SECTION 6.3. 4 -Rates and Charges . . . . . . . . . . . . 20 SECTION 6.4. Tax Covenants . . . . . . . . . . . . . . 20 SECTION 6.5. Provisions and Restrictions with Respect to Defeasance . . . . . . . . . . . . . . 22 SECTION 6.6. -�. Limits on Bonds and Obligations . . . . . 23 ARTICLE VII MAINTENANCE AND INSURANCE SECTION 7.1. Maintenance and Operation of the Water System. . . . . . . . . . . . . . . . . 25 SECTION 7.2.-g- Insurance . . . . . . . . . . . . . . . . 25 ARTICLE VIII NON -LIABILITY OF CORPORATION; EXPENSES; INDEMNIFICATION SECTION 8.1. Non -Liability of Corporation . . . . . . 25 SECTION 8.2. Expenses . . . . . . . . . . . . . . . . 26 SECTION 8.3. Indemnification . . . . . . . . . . . . . 26 SECTION 8.4. Survive Termination . . . . . . . . . . . 27 b:\IPA2.DOC i i ARTICLE X MISCELLANEOUS SECTION 10.1. ARTICLE IX . . 30 SECTION 10.2. DEFAULTS AND REMEDIES . . 30 SECTION 9.1. Events of Default . . . . . . . . . . ... 27 SECTION 9.2. Remedies on Default . . . . . . . . . . . 28 SECTION 9.3. Remedies Not Exclusive; No Waiver of . . 31 SECTION 10.6. Rights . . .. . . . . . . . . . . . . . . 2 9 SECTION 9.4. Expenses on Default . . . . . . . . . . . 29 SECTION 9.5. Notice of Default . . . . . . . . . . . . 30 ARTICLE X MISCELLANEOUS SECTION 10.1. Further Assurances . . . . . . . . . . . 30 SECTION 10.2. Notices . . . . . . . . . . . . . . . . . 30 SECTION 10.3. Governing Law . . . . . . . . . . . . . . 30 SECTION 10.4. Binding Effect . . . . . . . . . . . . . 30 SECTION 10.5. Severability of Invalid Provisions . . . 31 SECTION 10.6. Article and Section Headings and References . . . . . . . . . . . . . . . 31 SECTION 10.7. Amendments . . . . . . . . . . . . . . . 31 SECTION 10.8. Disclaimer of Warranties . . . . . . . . 31 SECTION 10.9. Claims; Warranties, etc . . . . . . . . . 32 SECTION 10.10. Waiver of Personal Liability . . . . . . 32 SECTION 10.11. Termination of Lease. . . . . . . 0 32 SECTION 10.12. Execution of Counterparts . . . . . . . . 32 EXHIBIT A - DESCRIPTION OF PROJECT . . . . . . . . . A-1 EXHIBIT B - SCHEDULE OF 1993 PURCHASE PAYMENTS . . . B-1 c:\IPA2.D0C i i i INSTALLMENT PURCHASE AGREEMENT THIS INSTALLMENT PURCHASE AGREEMENT, dated as of April 1, 1993 (the "Installment Purchase Agreement"), between the CITY OF TUSTIN WATER CORPORATION, a California nonprofit public benefit corporation (hereinafter referred to as the "Corporation"), as seller, and the CITY OF TUSTIN (hereinafter referred to as the "City"), as purchaser. WI TNES S E T H: WHEREAS, the Corporation was organized, among other things, to assist the City in the financing of costs related to capital improvements; and WHEREAS, the City has the power to purchase real and personal property; and WHEREAS, the Corporation will assist the City by further constructing and improving the Project; and WHEREAS, the Corporation will sell the Project to the City and the City will purchase the Project from the Corporation and perform the other covenants contained herein; and WHEREAS, the City will make Purchase Payments to the Corporation (or its assignee) and Additional Purchase Payments pursuant to this Installment Purchase Agreement; and • WHEREAS, the Corporation will establish a trust pursuant to the Trust Agreement and direct the Trustee to execute and deliver certificates of participation representing proportionate interests in the Principal Components and Interest Components of the Purchase Payments to be made by the City pursuant to this Installment Purchase Agreement; and WHEREAS, the Corporation will grant, assign and transfer to the Trustee all of the right, title and interest of the Corporation in and to the Purchase Payments and all rights to enforce the payment of Purchase Payments under this Installment Purchase Agreement; and WHEREAS, the City and the Corporation have duly authorized the execution and delivery of this Installment Purchase Agreement; and NOW, THEREFORE, for and in consideration of the premises and the material covenants hereinafter contained, the parties _n hereto mutually agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS SECTION 1.1. Definitions. The following terms shall, for all purposes of this Installment Purchase Agreement, have the respective meanings ascribed to them. Words in the singular shall include the plural and words in the plural shall include the singular where the context so requires. All capitalized terms used herein which are defined in the Trust Agreement and not defined herein shall have the meanings specified in the Trust Agreement. "Accountant" shall mean any independent certified public accountant or firm of such accountants selected by the City. $'Additional Purchase Payments" shall mean the payments so designated and required to be made by the City pursuant to Section 5.3 hereof. "Ave .rage Annual Qualified Obligation Servicell shall mean, as of any date, the average amount of Qualified Obligation Service payable in the then current or in any subsequent Fiscal Year. "Bond" shall mean any revenue bond, revenue note, warrant or other evidence of indebtedness issued, incurred or delivered for the financing or refinancing of extensions of, additions to, repairs and replacements to, renewals of, and improvements of the Water System, designated by the City at the initial delivery thereof as payable from Gross Revenues in the Qualified Obligations Account, to the extent the payments under such revenue bond, revenue note, warrant or other evidence of indebtedness are payable from Gross Revenues in the Qualified Obligations Account. "Bond" shall not include any Obligation or 1993 Certificate. "Completion Certificate" shall mean, with respect to the Project, a certificate of an Authorized City Representative, (i) stating that the acquisition of the Project has been completed and all costs of such acquisition have been paid except as identified in clause (iii), below, (ii) setting forth the Completion Date, (iii) setting forth the amount, if any, required, in the opinion of the signer cr signers, f or the payment of any remaining part of the Cost of the Project and (iv) giving such further directions as required by Section 5.04(e) of the Trust Agreement. "Completion Date', shall mean, with respect to the Project, the date on which the Project has been completed. "Cost" shall mean all costs of acquisition or financing of any component of the Project, whether incurred prior to or after the date of this Installment Purchase Agreement, including, but not limited to, (i) administrative costs and capital expenditures relating to acquisition or financing, inspection costs, filing and b:\IPA2.D0C 2 recording costs, printing costs,_ reproduction and binding costs, fees and charges of the Trustee and its counsel pursuant to the Trust Agreement, costs of financing documents, Costs of Issuance, legal fees and charges, financial, accounting and other professional consultant fees, costs of rating agencies or credit ratings, and fees for the printing, execution, transportation and safekeeping of the Certificates; (ii) all other costs which the City or the Corporation shall be required to pay under the terms of any contract or contracts for the acquisition or financing of the Project, including, but not limited to the cost of insurance; (iii) such other expenses not specified herein as may be necessary for or incidental to any of the foregoing; and (iv) any sums required to reimburse the City or the Corporation for advances made for any of the above items. Cost as defined herein shall also include the cost and expenses incurred by any agent of the City or the Corporation for any of the above items. 'Delivery Date,, shall mean the date on which the 1993 Certificates are delivered by the Trustee pursuant to the Trust Agreement to the original purchaser or purchasers thereof. - $'Fiscal Year$$ shall mean the twelve month fiscal period of the City which commences on July 1 in every year and ends on June 30 of the succeeding year, or any other twelve-month, or fifty-two week, period hereafter selected and designated as the official fiscal year period of the City. "Gross Revenues1l shall mean all rates, fees and charges for providing water service to persons and real property and all other fees, rents and charges and other income derived by the City, from the ownership, operation, use or services of the Water System. "Maintenance and Operation Expensest' shall mean the reasonable and necessary current expenses of maintaining, repairing and operating the Water System, including City administrative expenses directly attributable to Water System functions, but excluding depreciation, interest and amortization, all computed in accordance with sound accounting principles and consistent with existing accounting practices of the City. "Moody's" shall mean Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a statistical rating organization, any other nationally recognized securities rating agency designated by the City, with the approval of the Corporation by notice to the Trustee. "Net Revenues" shall mean the Gross Revenues less the Maintenance and Operation Expenses. b:\IPA2.D0C 3 111993 -Purchase Payments" shall mean the -payments so designated and required to be made by the City pursuant to Section 5.2 hereof. $'Obligation'# shall mean any contract, instrument or other agreement for the purchase, acquisition or lease of facilities, properties, structures or equipment for the water System, designated by the City at the initial delivery thereof as payable from Gross Revenues in the Qualified Obligations Account, to the extent the payments under such contract, instrument or agreement are payable from Gross Revenues in the Qualified Obligations Account, and the final payments under which are due more than one year following the incurrence thereof. "Obligation" shall not include any Bond. "Opinion of Counsells shall mean a written opinion of counsel selected by the City. If and to the extent required by the provisions of Section 1.2 hereof, each Opinion of Counsel shall. include the statements provided for in Section 1.2 hereof. "Person" shall mean an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or Political subdivision thereof. 1,11Project" shall mean the improvements and facilities described in Exhibit A attached hereto, as said Exhibit A may be revised from time to time in accordance with Section 4. 1(a ) hereof . "Purchase Payments" shall mean all payments made or to be made by the City to the Corporation under this Installment Purchase Agreement, excluding Additional Purchase Payments. "Purchase Payment Dates" shall mean the dates on which the Purchase Payments are required to be made as provided in this Installment Purchase Agreement, such dates being each April 1 and October i, commencing October 1, 1993. "Purchase Price,, shall mean the amount to be paid by the City to the Corporation for the Project as specified in Section 5.2 hereof. "Qualified Obligations" shall mean, without duplication, (i) 1993 Purchase Payments; and (ii) Bonds and Obligations which at the time of initial delivery thereof satisfy the covenant set forth in Section 6.6 hereof. "Qualified Obligation Services shall mean, with respect to any period, the amount of principal and interest or other payments accrued or to accrue in such period with respect to all outstanding Qualified Obligations (excluding the amount of proceeds of Qualified Obligations held in any fund or account for the b:\IPA2.D0C 4 payment of Qualified Obligation Service accrued or to accrue during such period). For purposes of accrual under this definition, all payments with respect to Qualified Obligations due in a calendar month shall be deemed due on the first day of such calendar month. "S&P" shall mean Standard & Poor's Corporation, a corporation organized and existing under the laws of the State of New York, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a statistical rating organization, any other nationally recognized securities rating agency designated by the City, with the approval of the Corporation, by notice to the Trustee. "Statement," "Request," "Requisition" or "Orderle of the Corporation or the City shall mean, respectively, a written statement, request, requisition or order signed in the name of the Corporation or the City by an Authorized Representative of the Corporation or the City, as the case may be. Any .such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. If and to the extent required by Section 1.2 hereof, each such instrument shall include the statements provided for in Section 1.2 hereof. IlTax certificate" shall mean the Tax and Non -Arbitrage Certificate and Instructions as to Compliance with the Provisions of Section 103(a) of the Internal Revenue Code of 1986, executed and delivered by the City, on the Delivery Date, as amended or supplemented from time to time. "Treasurer" shall mean the Treasurer of the City. "Trustee" shall mean Bank of America National Trust and Savings Association, a national banking association, organized and existing under the laws of the United States, having its principal corporate trust office in San Francisco, California, or its successor, as trustee under the Trust Agreement, and any Co -Trustee appointed under the Trust Agreement. "Water Systeme shall mean the entire water system of the Corporation hereby acquired by the City pursuant to this Installment Purchase Agreement, including the Project and all improvements later constructed or acquired. SECTION 1.2. Content of Statements and Opinions. Every statement or opinion provided for in this Installment Purchase Agreement with respect to compliance with any provision hereof shall include (1) a statement that the person making or giving such statement or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and b:\IPA2.D0C 5 -scope of the examination or investigationuponwhich the statement or opinion is based; ( 3 ) a statement ( a ) that, in the opinion of such person, he or she has made or caused to be made such examination or investigation as is necessary to enable him or her to express an informed opinion with respect to the subject matter or (b) that he or she has made or caused to be made his or her examination or investigation with respect to the subject matter in accordance with specified professional standards; and (4) a statement as to whether, in the opinion of such person, such provision has been complied with. Any such statement or opinion made or given by an officer of the Corporation or the City may be based, insofar as it relates to legal, accounting or City matters, upon a statement or opinion of or representation by counsel or an Accountant, unless such officer knows, or in the exercise of reasonable care should have known, that the statement, opinion or representation with respect to the matters upon which such statement or statements may be based, as aforesaid, is erroneous. Any such statement or opinion made or -given by counsel or an Accountant may be based, insofar'as it relates to factual matters (with respect to which information is in the possession of the Corporation or the City, as the case may be) upon a statement or opinion of or representation by an officer of the Corporation or the City, unless such counsel or accountant knows, or in the exercise of reasonable care should have known, that the statement or opinion or representation with respect to the matters upon which such person's statement or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the Corporation or the City, or the same counsel or Accountant, as the case may be, need not certify to all of the matters required to be certified under any provision of this Installment Purchase Agreement, but different officers, counsel or Accountants may certify to different matters, respectively. SECTION 1.3. Exhibits. The following Exhibits are attached to and by this reference made a part of this Installment Purchase Agreement: Exhibit A: Description of the Project. Exhibit B: Schedule of 1993 Purchase Payments. ARTICLE II REPRESENTATIONS AND WARRANTIES SECTION 2.1. Representations and Warranties of the City. The City makes the following representations and warranties to the Corporation as of the date of the execution and delivery of this Installment Purchase Agreement and as of the Delivery Date (such representations and warranties to remain operative and in full force and effect regardless of delivery of the Certificates or.any b:\IPA2.DOC 6 investigations by or on behalf of the Corporation or the results thereof) : _ - (i) The City is a municipal corporation duly organized and existing, has full legal right, power and authority to enter into this Installment Purchase Agreement and the Trust Agreement, and to carry out and consummate all transactions contemplated by this Installment Purchase Agreement and the Trust Agreement, and by proper action has duly authorized the execution and delivery of this Installment Purchase Agreement and the Trust Agreement. (ii) The officers of the City executing this Installment Purchase Agreement and the Trust Agreement are duly and properly in office and fully authorized to execute the same. (iii) Each of this Installment Purchase Agreement and the Trust Agreement has been duly authorized, executed and delivered by the City, and constitutes a legal, valid and binding agreement of the City enforceable against the City in accordance with its terms. (iv) The execution and delivery of this Installment Purchase Agreement and the Trust Agreement, the consummation of the transactions herein and therein contemplated and the fulfillment of or compliance with the terms and conditions hereof and thereof, will not in any material respect conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both), under statutory law or any indenture, mortgage, deed of trust, agreement, lease, contract or other agreement or instrument to which the City is a party or by which it or its properties are otherwise subject or bound, or any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any trust agreement, mortgage, deed of trust, loan agreement, lease, contract or other agreement to which the City is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the City, which conflict, violation, breach, default, lien, charge or encumbrance might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Installment Purchase Agreement or the Trust Agreement, or the financial condition, assets, properties or operations of the City. b:\IPAiDOC 7 ---(v) -No- consent or approval of any -trustee or -holder of any indebtedness of the City or any other Person, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery of this Installment Purchase Agreement or the Trust Agreement, or the consummation of any transaction herein or therein contemplated, or the fulfillment of or compliance with the terms and conditions hereof or thereof, except as have been obtained or made and as are in full force and effect and except such other permits as the City contemplates obtaining in due course. (vi) There are no easements, encumbrances or interests with respect to the Project which prohibit or materially impair the execution, delivery and performance of this Installment Purchase Agreement or the acquisition or use of*the Project. SECTION 2.2. Representations, Warranties and Covenant of the Corporation. (a) The Corporation makes the following representations and warranties to the City as of the date of the execution and delivery of this Installment Purchase Agreement and as of the Delivery Date (such representations and warranties to remain operative and in full force and effect regardless of delivery of the Certificates or investigations by or on behalf of the City or the results thereof): (i) The Corporation is a nonprofit public benefit corporation duly organized and existing under and pursuant to the laws of the State of California, has full legal right, power and authority to enter into this Installment Purchase Agreement, the Assignment Agreement and the Trust Agreement and to carry out and consummate all transactions contemplated by this Installment Purchase Agreement, the Assignment Agreement and the Trust Agreement, and by proper action has duly authorized the execution and delivery of this Installment Purchase Agreement, the Assignment Agreement and the Trust Agreement. (ii) The officers of the Corporation executing this Installment Purchase Agreement, the Assignment Agreement and the Trust Agreement are duly and properly in office and fully authorized to execute the same. (iii) Each of this Installment Purchase Agreement, the Assignment Agreement and the Trust Agreement has been duly authorized, executed and delivered by the Corporation, and constitutes a legal, valid and binding b:\IPA2.D0C 8 agreement of the Corporation enforceable against the Corporation in accordance with its terms. (iv) The execution and delivery of this Installment Purchase Agreement, the Assignment Agreement and the Trust Agreement, the consummation of the transactions herein and therein contemplated and the fulfillment of or compliance with the terms and conditions hereof and thereof, will not in any material respect conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both), under the Articles of Incorporation of the Corporation or the Bylaws of the Corporation or any indenture, mortgage, deed of trust, agreement, lease, contract or other agreement or instrument to -which the Corporation is a party or by which it or its properties are otherwise subject or bound, or any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any trust agreement, mortgage, deed of trust, loan agreement, lease, contract or other agreement to which the Corporation is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Corporation, which conflict, violation, breach, default, lien, charge or encumbrance might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Installment Purchase Agreement, the Assignment Agreement or the Trust Agreement, or the financial condition, assets, properties or operations of the Corporation. (v) No consent or approval of any trustee or holder of any indebtedness of the Corporation or any other Person, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery of this Installment Purchase Agreement, the Assignment Agreement or the Trust Agreement, or the consummation of any transaction herein or therein contemplated, or the fulfillment of or compliance with the terms and conditions hereof or thereof, except as have been obtained or made and as are in full force and effect and except such other permits as the City or the Corporation contemplates obtaining in due course. (vi) There are no easements, encumbrances or interests with respect to the Project which prohibit or materially impair the execution, delivery and performance of this Installment Purchase Agreement, the Assignment b:\IPA2.DOC 9 Agreement or the Trust Agreement or the acquisition or use of the Project. (vii) The Corporation has determined that (i) it is necessary and proper for the Corporation to assist the City in financing the Project in the manner provided for in this Installment Purchase Agreement in order to provide, among other things, water facilities for the City and (ii) this Installment Purchase Agreement, the Assignment Agreement and the Trust Agreement and the transactions contemplated hereby and thereby are just and reasonable as to the Corporation. (b) The Corporation covenants that it will not intentionally take or consent to be taken any action which results in the interest paid on the Interest Components of the Purchase Payments being included in the gross income of the recipient thereof for purposes of federal or state income taxation. ARTICLE III PURCHASE AND SALE OF THE PROJECT; AGENT; FUNDS AND ACCOUNTS; t. FLOW OF REVENUES; SECURITY SECTION 3.1. Purchase and Sale of the Project. (a) The Corporation agrees to sell, and hereby sells, to the City, and the City agrees to purchase, and hereby purchases, from the Corporation, the Project at the Purchase Price (payable in installments) specified in Section 5.2 hereof and otherwise in the manner and in accordance with the provisions of this Installment Purchase Agreement. The Corporation hereby transfers and assigns to the City all of the Corporation's right, title and interest to all or any portion of the Project; provided, that, title to all or any portion of the Project shall pass [whenever the City takes physical possession thereof]. (b) From time to time, at the request of the City, the Corporation shall promptly deliver to the City any instruments necessary to confirm the rights of the City to the Project. SECTION 3.2. Agent. The Corporation hereby appoints the City as its agent for the purpose of acquisition and construction of the Project, and the City hereby agrees to enter into such contracts as may be necessary, as agent for the Corporation, to provide for the complete acquisition and construction of the Project. The City hereby agrees that as such agent it will cause the acquisition and construction of the Project to be diligently completed. Notwithstanding the foregoing, it is hereby expressly understood and agreed that the Corporation shall be under no liability of any kind or character whatsoever for the payment of any costs or expenses incurred by the City for the acquisition and construction of the Project and that all such costs and expenses b:\IPA2.D0C 10 shall be paid by the City, regardless of whether the funds deposited in the ---Construction Account --are sufficient -to -cover -all such costs. SECTION 3.3. Purchase Payment Account. The Corporation shall create, or cause to be created, under the Trust Agreement a Purchase Payment Account into which it shall deposit or cause to be deposited on the Delivery Date the amount specified in Exhibit A to the Trust Agreement with respect to the Purchase Payment Account. The Corporation shall cause the Trustee to make deposits to and payments from the Purchase Payment Account in accordance with the terms of this Installment Purchase Agreement and the Trust Agreement. SECTION 3.4. Construction Account. (a) The Corporation shall create, or cause to be created, under the Trust Agreement, a Construction Account into which it shall deposit or cause to be deposited on the Delivery Date the amount specified in Exhibit A to the Trust Agreement with respect to the Construction Account. (b) On and after the Delivery Date, the Treasurer shall make payments from the Construction Account to pay the Cost of an item of the Project upon the receipt of a requisition signed by an Authorized City Representative conforming to the requirements of Section 5.04(c) of the Trust Agreement. (c) Within thirty days after the Completion Date, an Authorized City Representative shall file a Completion Certificate with respect to the Project with the Treasurer. (d) Following delivery of the Completion Certificate for the Project, any moneys remaining in the Construction Account shall be applied by the Treasurer as provided in the Trust Agreement. SECTION 3.5. Reserve Account. The Corporation shall create, or cause to be created, under the Trust Agreement, a Reserve Account into which it shall deposit or cause to be deposited on the Delivery Date, the amount specified in Exhibit A to the Trust Agreement with respect to the Reserve Account. The Corporation shall cause the Trustee to make deposits to and payments from the Reserve Account in accordance with the terms of this Installment Purchase Agreement and the Trust Agreement. SECTION 3.6. Funds and Accounts. The following funds and accounts are hereby created, each of which is to be held by the Treasurer: (i) Water System Revenue Fund (the "Revenue Fund"); (ii) Qualified Obligations Account (the "Qualified Obligations Account"); b:\IPA2.D0C 11 (iii) Water System Maintenance and Operation Account--- (the "M & O Account") ; and - - - ---- - -�(iv) Water System Surplus Revenue Fund (the "Surplus Revenue Fund"). SECTION 3.7.Y Flow of Gross Revenues. Treasurer shall deposit the Gross Revenues of the Water System as received in the Revenue Fund. On or before the twentieth day of each calendar month, the Finance Director of the City shall withdraw the entire amount on deposit in the Revenue Fund and shall allocate and deposit such amount in the indicated priority to the following accounts and funds: First, so long as any of the Certificates are Outstanding, there shall be transferred to the M & O Account an amount sufficient for the payment of Maintenance and Operation Expenses as said expenses become due and payable; * Second, so long as any of the Certificates are Outstanding, there shall be transferred to the Qualified Obligations Account the amount of Qualified Obligation Service with respect to such calendar "month (to the extent not already transferred to such Account in such month) , or the entire amount of Gross Revenues then available for transfer to the Qualified Obligations Account, whichever is less; and Third, all remaining Gross Revenues remaining in the Revenue Fund after the above transfers have been made shall be transferred to the Surplus Revenue Fund. Moneys in the Surplus Revenue Fund at any time may be used for any lawful purpose of the Revenue Fund, provided, that, moneys remaining on deposit in the Surplus Revenue Fund at any time shall be transferred as needed, to the Qualified Obligations Account, in the amount necessary (or all available moneys in the Surplus Revenue Fund if less than the amount necessary) to make up any deficiency therein. SECTION 3.8. Security for the Purchase Payments. The Purchase Payments and all other payments with respect to Qualified Obligations shall be secured by a pledge, charge and lien upon the Gross Revenues in the Qualified Obligations Account and shall be paid from Gross Revenues in the Qualified Obligations Account unless otherwise paid from other sources of legally available funds. Purchase Payments and all other payments with respect to Qualified Obligations shall be equally secured by the Gross Revenues in the Qualified Obligations Account without priority for number or date of incurrence of such Qualified Obligations. The. Gross Revenues in the Qualified Obligations Account shall be held in trust by the Treasurer of the City for the benefit of the holders of the Certificates and any other Qualified Obligations. b:\1PA2.D0C 12 ARTICLE IV THE PROJECT; PROHIBITED USES; DISBURSEMENTS SECTION 4.1. Acquisition and Construction of the Proj ect. (a) The Project, as constituted on the Delivery Date (including the design and improvements financed from the proceeds of the 1993 Certificates), is described in Exhibit A to this Installment Purchase Agreement. The City, as agent of the Corporation, shall have the right to make any changes to the composition and description of the Project or of any component thereof, whenever the City deems such changes to be necessary and appropriate; provided, however, that any such change shall not alter the essential nature of the Project, or impair the ability of the City to make Purchase Payments under this Installment Purchase Agreement; and provided further that, prior to expending any moneys from the Construction Account with respect to any changes to the Project, the City shall file with the Corporation and the Trustee a revised Exhibit A reflecting such change and a certificate of an Authorized City Representative certifying that such change (i) is necessary and appropriate, (ii) does not impair the essential nature of the Project, and (iii) does not impair the ability of the City to make Purchase Payments. (b) The City agrees that from and after the Delivery Date, it will be responsible for the letting of contracts for the acquisition and construction of the Project and supervising the acquisition and construction of the Project. The City agrees that it will use its best efforts to cause the design work and improvements financed from the proceeds of the 1993 Certificates (which work and improvements are designated as such in Exhibit A hereto) to be completed and acquired on or before , 1994. SECTION 4.2. Disbursements from the Construction Account. Disbursements will be made from the Construction Account established for the Project to pay the Cost of the Project, in the manner and subject to the terms and conditions set forth in the Trust Agreement. In the event that amounts in the Construction Account are not sufficient to pay the Cost of the Project in full, the City nevertheless shall pay all Costs of the Project in excess of the amounts available in the Construction Account from its own funds, without diminution or postponement of amounts due to the Corporation or the Trustee, including any Purchase Payment or Additional Purchase Payment, and without any right of reimbursement from the Corporation. b:\1PA2.D0C 13 ARTICLE V EFFECTIVE DATE OF THIS AGREEMENT; DURATION; PAYMENT PROVISIONS; LIABILITY SECTION 5.1. Effective Date of this Installment Purchase Agreement; Duration. This Agreement shall become effective upon its execution and delivery, and shall expire on suchdate as shall be determined in accordance with Section 5.7 her SECTION 5.2'4� Purchase Price; 1993 Purchase yments . (a ) P The City agrees to pay the Purchase Price for the • e Y ing installment payments, referred to herein as 111993 Purchase Payments," in the respective amounts and at the the times shown ho en as in Exhibit B hereto, which the City agrees to pay t e assignee of the Corporation, for deposit in the Purchase Payment Account held by the Trustee and which, in the aggregate, shall be in an amount sufficient for the payment in full of all obligations to the Owners of the 1993 Certificates from time to time - Outstanding under the Trust Agreement, including () the total Interest Components due and payable with respect components of such 1993 Purchase Payments, (ii) the total Principal Comp Purchase Payments, and ( iii) the prepayment premiums, Certificates fany, , that shall be payable on the prepayment of the 199 rior to their respective stated payment dates; less the amount of other funds available for such payment as provided in the Trust Agreement. The Purchase Price is payable r allperiod of or part of any years, subject to prepayment. In lieu of 1993 Purchase Payment due on any Purchase Payment Tessate, the City than 45 days may deliver to the Trustee for cancellation (n in advance of such Purchase Payment Date) 1993 hase Payment.t aths tes representing an interestsubject 1993 shall be reduced by the amount of such 1993 Purchase Payment aggregate amount of the Principal Component and Interest component represented by the 1993 Certificates so dell For purposes of income taxation, any original issue discount arising as a result of this Installment Purchase Agreement and the sale of certificates of participation herein shall be construed to be interest for the purposes of, and to the extent permitted under, such income tax law. In addition, as the balance of the Purchase Price for orof Project, the City agrees to apply [$3r525,938] from the proceeds the 1993 Certificates to refund all of the Corporation's $3F4751000 outstanding City of Tustin Water Corporation Lease Revenue Bonds, Series A. (b) On or before the Business Day immediately preceding the last Business Day of March and September in each year, the City shall transfer from the Qualified Obligations Account to the Trustee for deposit in the Purchase Payment Account the amount of the 1993 Purchase Payments due on the next succeeding April 1, and b:\IPA2.D0C 14 October 1, respectively. Any amount required to be so transferred for any period shall be --reduced by -the amount, if any, with .__respect _ to that period set forth in Exhibit B to the Trust Agreement. (c) Each 1993 Purchase Payment hereunder shall be paid by the City in funds available on the due date in lawful money of the United States of America to the Trustee at its Corporate Trust Office, and held, invested, disbursed and applied as provided in the Trust Agreement. In the event the City fails to make any of the payments required by paragraph (a) of this Section 5.2, the installment so in default shall continue as an obligation of the City payable from Gross Revenues until the amount in default shall have been fully paid with interest thereon 'at a rate of interest equal to the highest rate of interest applicable to any then unpaid Principal Component. (d) The City shall make other Purchase Payments as and when required by any amendment to this Installment Purchase Agreement executed in accordance with Section 9.08 of the Trust Agreement. For purposes of determining the amount to be deposited into the Qualified Obligations Account with respect to the 1993 Certificates in any month, (i) each Principal Component of Purchase Payments shall accrue ratably over the twelve (12) months immediately preceding the Principal Component Payment Date on which such Principal Component is due and (ii) each Interest Component of Purchase Payments shall accrue ratably over the six (6) months immediately preceding the Interest Component Payment Date on which such Interest Component is due. SECTION 5.3. Additional Purchase Payments. (a) In addition to 1993 Purchase Payments, the City shall also pay to the Corporation, the Trustee or to the United States Treasury Department, as the case may be, "Additional Purchase. Payments," as follows: (i) All taxes and assessments of any type or character charged to the Corporation or to the Trustee affecting the amount available to the Corporation or the Trustee from payments to be received hereunder or in any way arising due to the transactions contemplated hereby (including taxes and assessments assessed or levied by any public agency or governmental authority of whatsoever character having power to levy taxes or assessments) but excluding franchise taxes based upon the capital and/or income of the Trustee and taxes based upon or measured by the net income of the Trustee; provided, however, that the City shall have the right to b:\IPA2.D0C 15 protest any such taxes or assessments and to -- - - - - require the Corporation or the Trustee at the City's expense, to protest and contest any such taxes or assessments levied upon them and the City shall have the right to withhold payment, of any such taxes or assessments pending disposition of any such protest or contest unless such withholding, protest or contest would adversely affect the rights or interests of the Corporation or the Trustee; (ii) Any taxes which may be imposed on the sale, resale, use, possession or ownership of the Project pursuant to this Installment Purchase Agreement; (iii) All reasonable fees, charges and expenses of the Trustee, as and when the same become due and payable; (iv) The reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Corporation or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under this Installment Purchase Agreement or the Trust Agreement; (v) The reasonable costs and expenses of the Corporation as provided herein in connection with this Installment Purchase Agreement, the Certificates or the Trust Agreement, including any and all expenses incurred in connection with the authorization, sale and delivery of any such Certificates or in connection with any litigation which may at any time be instituted involving this Installment Purchase . Agreement, the Certificates or the Trust Agreement or any of the other documents contemplated hereby or thereby; and (vi) Any amount required to be paid to the United States Treasury Department pursuant to Section 6.4 hereof. (b) Such Additional Purchase Payments to the Corporation or the Trustee shall be billed to the City by the Corporation or the Trustee, as the case may be, from time to time, together with a statement certifying that the amount billed has been incurred or paid by the Corporation or the Trustee, for one or more of the b:\IPA2.DOC 16 above items. After such a demand, amounts so billed shall be paid by the City within thirty (30) days after_ receipt_ of the bill by the City. SECTION 5.4. Source for City Payments. (a) The City shall be obligated to make Purchase Payments hereunder solely from the Gross Revenues in the Qualified Obligations Account. (b) Notwithstanding Section 5.4 (a) hereof, 1993 Purchase Payments shall not be made from Gross Revenues in the Qualified Obligations Account to the extent (i) the proceeds of the sale of the 1993 Certificates deposited in the Purchase Payment Account, . in the amounts, and at the times set forth in Exhibit B to the Trust Agreement, or (ii) other moneys transferred to or deposited in, the Purchase Payment Account' pursuant to Section 5.02 of the Trust Agreement. (c) The City shall be obligated to make Additional Purchase Payments hereunder solely from the Gross Revenues in the Surplus Revenue Fund. Subject to the foregoing provisions of this Section 5.4, nothing herein shall preclude the City from making Purchase Payments and Additional Purchase Payments from other lawfully available moneys of the City. SECTION 5.5. Obligations of the City Unconditional; Net Contract; Obligations of Corporation Unconditional. (a) Subject to Section 5.4 hereof, the obligations of the City to make the Purchase Payments. and Additional Purchase Payments required hereunder and to perform and observe the other agreements on its part contained herein shall be absolute and unconditional, and shall not be abated, rebated, set-off, reduced, abrogated, terminated, waived, diminished, postponed,or otherwise modified in any manner or to any extent whatsoever, while any Purchase Payments or Additional Purchase Payments remain unpaid, regardless of any contingency, act of God, event or cause whatsoever, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, the taking by eminent domain or destruction of or damage to the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either or in the rules or regulations of any governmental authority, or any failure of the Corporation or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Installment Purchase Agreement or the Trust Agreement. This Installment Purchase Agreement shall be deemed and construed to be a "net contract," and the City shall pay absolutely net the Purchase Payments, Additional Purchase Payments and all b:\IPA2.DOC 17 other payments required hereunder, regardless of any rights of set-off, recoupment, abatement or counterclaim that the City might otherwise have against the Corporation or the Trustee or any other party or parties. The Corporation and the City understand, agree and intend that the obligation of the City to make Purchase Payments and to pay Additional Purchase Payments hereunder shall not in any way be construed to be a debt of the City, or the State of California, or any political subdivision thereof, in contravention of any applicable constitutional or statutory limitation or requirement concerning the creation of indebtedness by the City, the State of California, or any political subdivision thereof, nor shall anything contained herein constitute a pledge of general revenues, funds or moneys of the City or an obligation of the Citi• for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. (b) The City covenants to take such action as may be necessary to include and maintain the applicable Purchase Payments and Additional Purchase Payments due hereunder in its budget for the appropriate Fiscal Year or pursuant to separate resolution of the City Council and further shall make the necessary appropriations for all such Purchase Payments and Additional Purchase Payments required herein. The covenant on the part of the City contained in this subsection (b) shall be deemed to be and shall be construed to be ministerial duties and it shall be the ministerial duty of each and every public official of the City to take such action and do such things as are required by law in the performance of such official duty of such officials to enable the City to carry out and perform such covenant. (c) The obligation of the Corporation to perform and observe the agreements on its part contained. herein shall be absolute and unconditional and, until such time as all of the Purchase Payments shall have been fully paid (or provision for the payment thereof shall have been made in accordance with Article VII of the Trust Agreement), the Corporation (i) will perform and observe all of its agreements contained in this Installment Purchase Agreement and (ii) will not terminate this Installment Purchase Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either or in the rules or regulations of any governmental authority or any failure of the City to perform --and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Installment Purchase Agreement. b:\IPA2.DOC 18 Nothing contained in this Section 5.5(c) shall be _ construed_ _to release the City from the performance of any of _ the agreements on its part herein contained; and in the event the City should fail to perform any such agreement, the Corporation may institute such action against the City as the Corporation may deem necessary to compel performance or recover its damages for nonperformance so long as such action shall not violate the agreements of the Corporation contained in the first paragraph of this Section 5.5(c). SECTION 5.6. Prepayment of 1993 Purchase Payments. 1993 Purchase Payments are subject to prepayment as provided in this Section 5.6. All prepayments of 1993 Purchase Payments shall be made in funds immediately available on the Prepayment Date. (a) Optional Prepayment. The City shall have the option to prepay, with respect to 1993 Certificates, remaining Principal Components of 1993 Purchase Payments at any time (in the principal amount of $5,000, or any integral multiple thereof), on or after [April 1, 2003], by paying the Prepayment Price with respect thereto on or before the Prepayment Date. The City shall give the Trustee written notice of its intention to exercise its option to prepay not more than ninety (90) and not less than forty-five (45) days in advance of the date of such prepayment. (b) Effect of Prepayment. In the event that the City prepays the 1993 Purchase Payments with respect to the 1993 Certificates in whole, the amount paid shall be applied to the prepayment in full of the Principal Components and Interest Components with respect to the 1993 Certificates in accordance with the Trust Agreement. In the event that the City prepays the 1993 Purchase Payments with respect to the 1993 Certificates in part but not in whole, such prepayment shall be applied to the prepayment of the 1993 Purchase Payments as follows: (i) the City shall designate which Principal Components are being prepaid, and to what extent, and the Principal Component of each remaining 1993 Purchase Payment shall be reduced accordingly, in each case in integral multiples of $5,000; and (ii) the Interest Component of each remaining 1993 Purchase Payment shall be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the 1993 Certificates thereby prepaid pursuant to the Trust Agreement. SECTION 5.7. Termination of Installment Purchase Agreement. Except as otherwise specifically provided herein, this Installment Purchase Agreement shall terminate upon the earlier of the following events: (i) the payment by the City of all remaining Purchase Payments as provided in Section 5.2 hereof and all other amounts to be paid by the City hereunder (including any Additional Purchase Payments which are b:\IPA2.O0C 19 then due or will become due) and the retirement of all Certificates; or (ii) all Certificates have been paid, or deemed paid, in accordance with Section 7.01 of the Trust Agreement. SECTION S.B. City's Liability. As between the Corporation and the City, the City assumes liability for all risks of loss during the construction and acquisition of the Project. ARTICLE VI PARTICULAR COVENANTS SECTION 6.1. Limitation on Encumbrances; Against Sale. The City covenants and agrees that it will not create, assume or suffer to exist any mortgage, deed of trust, pledge, security interest, encumbrance, lien or charge of any kind (including the charge upon property purchased under conditional sales or other title retention agreements) upon the Water System which impairs the ability of the City to comply with its covenant set forth in Section 6.3 hereof. The City covenants that the Project shall not be sold, leased or disposed of as a whole or substantially as a whole if such sale, lease or disposal would impair the ability of the City to comply with its covenant set forth in Section 6.3 hereof. SECTION 6.2. Accounting Records. The City covenants and agrees at all times to keep, or cause to be kept, proper books of record and account, prepared in accordance with generally accepted accounting principles, in which complete and accurate entries shall be made of all transactions of or in relation to the business, properties and operations of the Water System. Such books of record and account shall be available for inspection by the Trustee at reasonable hours and under reasonable circumstances. SECTION 6.3. Rates and Charges. The City shall prescribe, revise and collect such charges for the services and facilities of the Water System so that, in each Fiscal Year, the Net Revenues shall at least equal the sum of: (i) 1.20 times the amount of Qualified Obligation Service with respect to such Fiscal Year; and (ii) 1.0 0 times a l l other payments required to be made from Gross Revenues in such Fiscal Year. SECTION 6.4. Tax Covenants. (a) The Corporation and the City each covenant that, in order to maintain the exclusion from gross income for federal income tax purposes .of the Interest Components of the Purchase Payments, and for no other purpose, each b:\IPA2.D0C - 20 will satisfy, or take such actions as may be necessary to cause to be satisfied, each provision -of the Code necessary to maintain such exclusion. In furtherance 6f 'this covenant, the Corporation and the City each covenant to comply with the Tax Certificate as a source of guidance with the requirements of the Code. (b) The Corporation and the City each covenant that no part of the proceeds of the Certificates shall be used, directly or indirectly, to acquire any "investment property", as defined in Section 148 of the Code, and it shall not take or permit to be taken any other action or actions, which would cause the obligation represented by this Installment Purchase Agreement to be an "arbitrage bond" within the meaning of Section 148 of the Code, as in effect from time to time, or under applicable Treasury regulations promulgated thereunder. In order to assure compliance with the rebate requirements of Section 148 of the Code, the Corporation and the City each further covenant that it will pay or cause to be paid to the United States Treasury Department the amounts necessary to satisfy the requirements of.Section 148(f) of the Code, as required in the Tax Certificate, and that it will establish such accounting procedures as are necessary to adequately determine,account for and pay over any such amount or amounts required to be paid to the United States in a manner consistent with the requirements of Section 148 of the Code, such covenant to survive the termination of this Installment Purchase Agreement pursuant to Section 5.7 hereof and the expiration of the Trust Agreement pursuant to Section 7.01 thereof. (c) The Corporation and the City each covenant that it will not take any action or omit to take any action, which action or omission, if reasonably expected on the date of initial execution and delivery of the Certificates, would result in a loss of exclusion from gross income for purposes of Federal income taxation, under Section 103(a) of the Code, of Interest Components paid by the City and received by the Owners of the Certificates. (d) The Corporation and the City each covenant that it will not use or permit the use of the Project by any person (other than the City or other state or local governmental unit) in such manner or to such extent as would result in a loss of exclusion of the Interest Components of Purchase Payments from gross income for Federal income tax purposes under Section 103(a) of the Code. (e) Notwithstanding any provision of this Installment Purchase Agreement, and except as provided below, the Corporation and the City each covenant that none of the moneys contained in any of the funds or accounts created pursuant to the Trust Agreement shall be: ( i ) used in making loans guaranteed by the United States (or any agency or instrumentality thereof), (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation, National Credit Union Administration or any other similar Federally chartered corporation, or (iii) b:\IPA2.D0r 21 otherwise invested directly or indirectly in obligations guaranteed (in whole or in part) by the United States- (or any agency or instrumentality thereof); provided, however, that the above restrictions do not apply to: (i) the investment of moneys held in the Purchase Payment Account or any other "bona fide debt service fund" as defined. in the Tax Certificate, and in the Reserve Account, (ii) investments in direct obligations of the United States Treasury, (iii) investments in obligations guaranteed by the Federal National Mortgage Association, Government National Mortgage Association or the Federal Home Loan Mortgage Corporation, (iv) investments permitted under regulations issued pursuant to Section 149 (b)(3)(B) of the Code, or (v) such other investments as, in the opinion of Special Counsel, are investments permitted under the Trust Agreement which do not jeopardize the exclusion from gross income for Federal income tax purposes of the Interest _Com.ponento with respect to the Certificates. SECTION 6.5. Provisions and Restrictions with Respect to Defeasance. (a) In the event the City shall seek, prior to the date of payment or provision for payment thereof, to pay or cause to be paid, within -the meaning and with the effect expressed in Section 7.01 of the Trust Agreement, all Purchase Payments and the provisions of Section 6.4 herein shall then be of any force or effect, then, notwithstanding the provisions of Section 7.01 of the Trust Agreement, such Purchase Payments shall not be deemed to have been paid within the meaning and with the effect expressed in Section 7.01 of the Trust Agreement unless, in addition to all other requirements of Section 7.01 of the Trust Agreement hereof: (i) The City shall have delivered to the Trustee a certificate of an Authorized City Representative to the effect that: (A) the City is then in compliance with Section 6.4 herein; (B) the City has irrevocably deposited with the Trustee such moneys, securities, documents and other things and issued such irrevocable instructions to the Trustee so that any remaining and continuing applicable requirements of the Code, with respect to the Purchase Payments, from compliance with which the City has not theretofore been relieved under the provisions of Section 7.01 of the Trust Agreement, are ministerial and reportorial in nature; and (C) the City has irrevocably authorized the Trustee, and delegated to the Trustee the authority, to perform such remaining and b:\IPA2.D0C 22 continuing applicable requirements on the City'_s_ behalf., -and such _Trustee has undertaken so to do. (ii) There shall have been delivered to the Trustee an opinion of Special Counsel to the effect that based upon the matters set forth in the certificate described in (i) above and assuming compliance by the Trustee with its undertaking described in ( i) (C) above, no further action by or on the part of the City will be required under the applicable requirements of the Code to maintain the Federal income tax exclusion from gross income of the Interest Component of the Purchase Payments. (b) In the event the.City shall seek, prior to the date of payment or provision for payment thereof, to pay or cause to be paid, within the meaning and with the effect expressed in this Installment Purchase Agreement, less than all of the Purchase Payments, and the provisions of Section 6.4 hereof shall then be of any force or effect, then, notwithstanding the provisions of Section 7.01 of the Trust Agreement, the Purchase Payments which the City then seeks to pay or cause to be paid shall not be deemed to have been paid within the meaning and with the effect expressed in Section 7.01 of the Trust Agreement unless there shall have been delivered to the Trustee an opinion of a nationally recognized bond counsel firm to the effect that either (i) noncompliance thereafter with the applicable provisions of the Code will not change the then current Federal income tax status of the Interest Component of the Purchase Payments, or (ii) there are no provisions of the Code which must thereafter be complied with by the City in order to maintain the Federal income tax exclusion from gross income of the Interest Component of the Purchase Payments. SECTION 6.6. Limits on Bonds and Obligations. (a) After the Delivery Date, no Bond or Obligation shall be issued, incurred or delivered.unless, at the initial delivery thereof, (i) the Net Revenues calculated on sound accounting principles, as shown by the books of the City for the most recently audited Fiscal Year prior to the adoption of the resolution approving the delivery of such Bonds or Obligations (as shown by an audit certificate or opinion of an independent certified public accountant or firm of certified public accountants employed by the City) , plus, at the option of the City, the allowance for earnings hereinafter set forth in subparagraph (c) of this Section 6.6, shall have amounted to at least 1.20 times the Average Annual Qualified Obligation Service on all Qualified Obligations to be outstanding immediately subsequent to the initial delivery of such Bond or Obligation or (ii) the estimated Net Revenues calculated on sound accounting principles for the first Fiscal Year following the estimated completion date of the portion of the Project to be financed with the proceeds of such Bonds or Obligations, plus, at the option of the City, an allowance for estimated earnings for such Fiscal Year arising from c:\1PA2.o0c 23 any increase in the rates and charges made for service from the Water System-_ -shall amount to -at__-least 1.20 times the Average Annual Qualified Obligation Service on all Qualified Obligations to be outstanding immediately subsequent to the initial delivery of such Bond or Obligation. (b) Subparagraph (a) of this Section 6.6 notwithstanding, Bonds or Obligations may be issued to refund outstanding Qualified Obligations if, after giving effect to the application of the proceeds thereof, either (i) total Qualified Obligation Service will not be increased in any Fiscal Year in which Qualified Obligations (outstanding on the date of issuance or incurrence of such refunding Bonds or Obligations, but excluding such refunding Bonds or Obligations) not being refunded are outstanding, or (ii) the Net Revenues, calculated on sound accounting principles, as shown by the books of the City for each of the two most recently audited Fiscal Years prior to the adoption of the resolution approving the delivery of such Bonds or Obligations (as shown by an audit certificate or opinion of an independent certified public accountant or firm of certified public accountants employed by the City), plus, at the option of the City, the allowance for earnings hereinafter set forth in subparagraph (c) of this Section 6.6, shall have amounted to at least 1.20 times total Qualified Obligation Service in the Fiscal Year next succeeding the Fiscal Year in which such Bond or Obligation is initially delivered. (c) The following may be added to the Net Revenues of the Water System for the purpose of applying the restrictions contained in this Section 6.6: An allowance for earnings arising from any increase in the charges made for service from the Water System which has become effective prior to the initial delivery of such Bond or Obligation but which, during all or any part of said most recently audited Fiscal Year, was not in effect, in an amount equal to 95% of the amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of said most recently audited Fiscal Year, as shown by the certificate or opinion of an independent certified accountant or firm of certified public accountants employed by the City. (d) The City further covenants that the Net Revenues shall not be mortgaged, encumbered, sold, leased, pledged, any charge placed thereon, or disposed of or used except as authorized by the terms of this Installment Purchase Agreement. b:\IPA2.DOC 1 24 ARTICLE VII MAINTENANCE'AND INSURANCE SECTION 7.1. Maintenance and Operation of the Water System. The City covenants and agrees that it will operate and maintain the Water System in accordance with all governmental laws, ordinances, approvals, rules, regulations and requirements including, without limitation, such zoning, sanitary, pollution and safety ordinances and laws and such rules and regulations thereunder as may be binding upon the City. The City further covenants and agrees that it will maintain and operate the Water System, and all machinery, apparatus, fixtures, fittings and equipment of any kind in or that shall be placed in any building or structure now or hereafter at any time constituting part of the Water System in good repair, working order and condition, and that it will from time to time make or cause to be made all necessary and proper replacements, repairs, renewals and improvements thereto. SECTION 7.2. Insurance. The City covenants that it shall at all times maintain with responsible insurers all such insurance on the Water System as is customarily maintained by similar water systems with respect to works and properties of like character against accident to, loss of or damage to such works or properties and against loss of revenues. If any useful part of the Water System shall -be damaged or destroyed such part shall be restored to use. The money collected from insurance against accident, loss or damage shall be used for repairing or rebuilding the lost, damaged or destroyed works and properties, and to the extent not so applied, shall be applied to the retirement of outstanding Qualified Obligations and for such purpose paid into the appropriate funds or accounts. The money collected from any loss of revenues insurance shall be deposited in the Revenue Fund. The City shall also maintain with responsible insurers worker's compensation insurance and insurance against public liability and property damage to the extent reasonably necessary and obtainable. Notwithstanding the foregoing, the City may provide any insurance required by this covenant through a self-insurance program or it may provide such insurance as part of any blanket coverages maintained by the City. ARTICLE VIII NON -LIABILITY OF CORPORATION; EXPENSES; INDEMNIFICATION SECTION 8.1. Non -Liability of Corporation. The Corporation shall not be obligated to pay Purchase Payments or the Principal Component, and premium, if any, and Interest Component D:\IPA2.D0C 25 with respect to the Certificates. Neither the faith and credit nor the taxing power of the State or any- political -subdivision thereof_ is pledged to the payment of the Principal Component or premium or Interest Component with respect to the Certificates. The City hereby agrees that if the payments to be made hereunder shall ever prove insufficient to pay all Principal Components, and premium, if any, and Interest Components with respect to the Certificates as the same shall become due (whether by maturity, prepayment or otherwise), then upon notice from the Trustee, the City shall, subject to Section revent an f, pay such deficiency such Principal amounts as are required from Componentsy premium or or default in the payment of Interest Components, including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Trustee, the City, the Corporation or any third party. The City, the Trustee and/or the Owners shall have no right to compel the Corporation to pay Principal Components or Interest Components of Purchase Payments or prepayment premiums, if any. SECTION 8.2. Expenses. The City covenants and agrees to pay and to indemnify, defend and hold harmless the Corporation and the Trustee against all costs and charges, includingother reasonabexpertsle of attorneys, accountants, consultants a nd incurred in good faith or arising out of or. in connection with t, this the Installment Purchase Agreement, the Assignment g Certificates or the Trust Agreement. The City shall have the right to select any attorneys employed pursuantt tthis select Section attorneys provided, however, thatif the City fails o pursuant to this Section 8.2 after notice from the Trustee, the Trustee may select such attorneys. SECTION 8.3. Indemnification.' The City agrees, to the extent permitted by law, to indemnify, defend and hold harmless the Corporation and its directors, officers, employees and agents from and against any and all losses, claims, damages, liabilities or expenses, of every conceivable kind, character and nature whatsoever, including, but not limited to, losses, claims, damages, liabilities, or expenses arising out of, resulting from or in any way connected with (1) the Project or the condition, use, possession, conduct or management of, or work done in or about, or from the acquisition of such Project or any part thereof; (2) the execution and delivery of any Certificates and the eng out of any of the transactions contemplated by this Installment se Agreement or the Trust Agreement;any untrue statement or fact or omission or alleged untrue statement of any material alleged omission to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading in any official statement ae sale orother ther offering circular utilized in connection itthe b:\IPA2.DOC 26 Certificates. The City further agrees, to the extent permitted by law.,,. ----to __ pay or_ to__reimburse the Corporation and its officers, employees and agents for any and all costs, reasonable attorneys fees, liabilities or expenses incurred in connection with investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions. However, the City shall not hold harmless or indemnify the Corporation, its directors and officers for any losses which are caused by the bad faith or willful misconduct of the Corporation, its directors or officers. SECTION 8.4. Survive Termination. Notwithstanding Section 5.7 hereof, the provisions of this Article VIII shall survive payment in full of the Purchase Payments and the Certificates, the expiration of the Trust Agreement and the termination of this Installment Purchase Agreement. ARTICLE IX DEFAULTS AND REMEDIES SECTION 9.1. Events of Default. Each of the following events shall be an "Event of Default": (a) If the City shall fail to pay in full any Purchase Payment pursuant to Section 5.2 hereof, Additional Purchase Payment or other payment required to be paid hereunder at the time and in the manner specified herein; (b) If the City shall fail to observe or perform any covenant, condition, agreement or provision in this Installment Purchase Agreement on its part to be observed or performed, other than as referred to in subsection (a) of this Section 9.1, or shall breach any warranty by the City herein contained, for a period of sixty (60) days after written notice, specifying such failure or breach and requesting that it be remedied, has been given to the City by the Corporation or the Trustee; except that, if such failure or breach can be remedied but not within such sixty (60) day period and if the City has taken all action reasonably possible to remedy such failure or breach within such sixty (60) day period, such failure or breach shall not become an Event of Default.for so long as the City shall diligently proceed to remedy same in accordance with and subject to any directions or limitations of time established by the Corporation or the Trustee, as the case may be; (c) Failure by the City to perform or observe any other covenant, agreement or obligation on its part contained in the Trust Agreement, which failure shall b:\IPA2.D0C 27 have continued for a period of sixty (60) days after written--- notice- given to the City by -the Trustee, specifying the failure or default and requesting the same to be remedied, which notice shall be given by the Trustee upon the written request of the Owners of Outstanding Certificates representing not less than twenty-five percent (25%) of the aggregate unpaic Principal Component; provided that the Trustee may agree in writing to a reasonable extension of such period prior to the expiration of such sixty ( 60 ) day period; provided further, however, that if the City shall proceed to take curative action which, if begun and prosecuted with due diligence, cannot be completed within such a period of sixty (60) days, then such period shall be increased without such written extension to such extent as shall be necessary to enable the City to diligently complete such curative action; (d) If the City files a petition in voluntary bankruptcy, for the composition of its affairs or for its corporate reorganization under any state or federal bankruptcy or insolvency law, or makes an assignment for the benefit of creditors, or admits in writing to its insolvency or inability to pay debts as they mature, or consents in writing to the appointment of a trustee or receiver for itself or for the whole or any substantial part of the Water System; (e) If a court of competent jurisdiction shall enter an order, judgment or decree declaring the City an insolvent, or adjudging it bankrupt, or appointing a trustee or receiver of the C'ity or of the whole or any substantial part of the Water System, or approving a petition filed against the City seeking reorganization of the City under any applicable law or statute of the United States of America or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of the entry thereof; or ( f ) If. under the provisions of any other law for the relief or. aid of debtors, any court of competent jurisdiction shall assume custody or control of the City, and such custody or control shall not be terminated within sixty (60) days from the date of assumption of such custody or control. SECTION 9.2. Remedies on Default. If an Event of Default specified in Section 9.1 hereof shall occur, then, and in each and every case during the continuance of such Event of Default: b:\IFA2.D0C 28 (i) The Corporation or the Trustee may take whatever__action, _ at_ l.aw _or__inequity, as may appear necessary or desirable to collect the Purchase Payments, Additional Purchase Payments and any other payments then due and thereafter to become due under this Installment Purchase Agreement or to enforce the performance and observance of any obligation, covenant, agreement or provision contained in this Installment Purchase Agreement or the Trust Agreement to be observed or performed by the City; and (ii) The Corporation or the Trustee may take whatever other legal action may appear necessary or desirable to enforce their rights and the rights of the Owners of the Certificates. SECTION 9.3. Remedies Not Exclusive; No Waiver of Rights.. No remedy herein conferred upon or reserved to the Corporation or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy, to the extent permitted by law, shall be cumulative and shall be in addition to every other remedy given under this Installment Purchase Agreement or now or hereafter existing at law or in equity or otherwise. In order to entitle the Corporation or the Trustee to exercise any remedy, to the extent permitted by law, reserved to it or contained in this Installment Purchase Agreement, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. Such rights and remedies as are given to the Corporation hereunder shall also extend to the Trustee, and the Trustee may exercise any rights under this Installment Purchase Agreement, and the Trustee and the Owners of the Certificates issued under the Trust Agreement shall be deemed third party beneficiaries of all covenants and conditions herein contained. No delay in exercising or omitting to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to. be a waiver of any such default or an acquiescence therein, and every such right and power may be exercised from time to time and as- often as may be deemed expedient. SECTION 9.4. Expenses on Default. In the event the City should default under any of the provisions of this Installment Purchase Agreement and the Corporation or the Trustee should employ attorneys or incur other expenses for the collection of the payments due hereunder, the City agrees that it will on demand therefor pay to the Corporation or the Trustee the fee of such b:\IPA2.D0C 29 attorneys and such other expenses so incurred by the Corporation or the Trustee. SECTION 9.5. Notice of Default. The City agrees that, as soon as is practicable, and in any event within ten (10) days, the City will furnish the Trustee notice of any event which is an Event of Default pursuant to Section 9.1 hereof (other than an Event of Default pursuant to Sections 9.1(d), 9.1(e) or 9.1(f) hereof) which has occurred and is continuing on the date of such notice, which notice shall set forth the nature of such event and the action which the City proposes to take with respect thereto. ARTICLE X MISCELLANEOUS SECTION 10.1. Further Assurances. The City agrees that it will execute and deliver any and all such further agreements, instruments, financing statements or other assurances as may be reasonably necessary or requested by the Corporation or the Trustee to carry out the intention or to facilitate the performance of this Installment Purchase Agreement, including., without limitation, to perfect and continue the security interests herein intended to be created. SECTION 10.2. Notices. All notices or communications herein required or permitted to be given shall be in writing and, if to the City, mailed or delivered to it as follows: [City Clerk] [Treasurer], City of Tustin, 15222 Del Amo Avenue, Tustin, California 92680 [and concurrently therewith, Tustin Water Service, 235 East Main Street, Tustin, California 92680, Attention: Manager]; and, if to the Corporation, mailed or delivered to it as follows: [City of Tustin, 1522 Del Amo Avenue, Tustin, California 92680, Attention: Secretary, City of Tustin Water Corporation] ; and if to the Trustee, mailed or delivered to it as provided in the Trust Agreement. A duplicate copy of each notice or communication given hereunder by either the Corporation or the City to the other shall also be given to the Trustee. The Corporation, the City and the Trustee may, by notice given hereunder, designate any further or different address to which subsequent notices, certificates and other communications shall be sent. SECTION 10.3. Governing Law. This Agreement shall be construed in accordance with and governed by the Constitution and laws of the State. SECTION 10.4. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Corporation, the City and their respective successors and assigns, subject, however, to the limitations contained herein. b:\IPA2.DOC 30 SECTION 10.5. Severability of Invalid Provisions. If any - one ---or --more of the provisions contained___ in_ _this Installment Purchase Agreement shall for -any Ireason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Installment Purchase Agreement and such invalidity, illegality or unenforceability shall not affect any other provision of this Installment Purchase Agreement, and this Installment Purchase Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. The Corporation and the City each hereby declares that it would have entered into this Installment Purchase Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Installment Purchase Agreement may be held illegal, invalid or unenforceable. SECTION 10.6. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Installment Purchase Agreement. All references herein to "Articles," "Sections" and other subsections are to the corresponding Articles, Sections or subsections of this Installment Purchase Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Installment Purchase Agreement as a whole and not to any particular Article, Section or subsection hereof; and words of the masculine gender shall mean and include words of the feminine and neuter genders. SECTION 10.7. Amendments. This Agreement may not be effectively amended, changed, modified, altered or terminated except by the written agreement of the City and the Corporation and the concurring written consent of the Trustee, given in accordance with the provisions of the Trust Agreement. SECTION 10.8. Disclaimer of Warranties. The Corporation makes no warranty or representation, either express or implied, as to the value, design, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the City of the Project, or any portion thereof, or any other representation or warranty with respect to the Project, or any portion thereof. In no event shall the Corporation be liable for incidental, indirect, special or consequential damages, in connection with this Installment Purchase Agreement or the existence, furnishing or functioning of the Project, or the City's or the Corporation's or any other person's use of the Project, except such damages as may arise by reason of the Corporation's breach of this Installment Purchase Agreement. b:\1PA2.D0c 31 SECTION 10.9. Claims; Warranties, etc. The Corporation irrevocably appoints the City as its agent and -attorney-in-fact, so long as the City shall not be in default hereunder, to assert from time to time whatever claims and rights, including warranties with respect to any portion of the Project,which he Corporation o pora i nmay such have against the manufacturer, supplier o portion of the Project. As between the Corporation and the City, the City's sole remedy for the breach sh 11 be any against strantyr the indemnification or representation g manufacturer, supplier or contractor of any portion of the Projec�, and not against the Corporation, nor shall such matter have any effect whatsoever on the rights of the Corporation with respect to this Installment Purchase Agreement, including the rights to receive full and timely payments hereunder. The City expressly acknowledges that neither the Corporation nor the Trustee makes, or has made, any representation or warranty whatsoever as to the existence or availability of such warranties of the manufacturer, supplier or contractor with respect to any item of the Project. SECTION 10.10. Waiver of Personal Liability. No director, officer, agent or employee of the Corporation or member, director, officer, agent or employee of the City shall be individually or personally liable for the payment of Purchase Payments or any other sum hereunder or be subject to any personal liability or accountability by reason of the execution and delivery of this Installment Purchase Agreement; but nothing herein contained shall relieve any such director, member, officer, agent or employee from the performance of any official duty provided by law or by this Installment Purchase Agreement. SECTION 10.11. Termination of Lease. The City and the Corporation hereby agree and acknowledge that upon the execution and delivery of the 1993 Certificates and the deposit of a portion of the proceeds of the 1993 Certificates into the Escrow Account as provided in the Trust Agreement, the Lease between the City and the Corporation, dated as of October 1, 1983, shall terminate immediately in accordance with Article 22 of the Lease. SECTION 10.12. Execution of Counterparts. This Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed to be original and all of which shall together constitute but one and the same instrument. b:\IPA2.DOC 32 IN WITNESS WHEREOF, the Corporation and the City have caused this Installment Purchase Agreement to be executed --in their respective names by their duly authorized representatives, all as of the date first above written. Attest: By THE CITY OF TUSTIN By Mayor City Clerk CITY OF TUSTIN WATER CORPORATION By President By Secretary b:\IPA2.D0C 33 EXHIBIT A DESCRIPTION OF PROJECT At the Delivery Date, the Project consists of the following: [To come. Include in the description of the Project the improvements, etc. to be completed using proceeds of the 1993 certificates.] b:\iPA2.Doc A-1 Date 10/1/93 04/1/94 10/1/94 04/1/95 10/1/95 04/1/96 10/1/96 04/1/97 10/1/97 04/1/98 10/1/98 04/1/99 10/1/99 04/1/00 10/1/00 04/1/01 10/1/O1 04/1/02 10/1/02 04/1/03 10/1/03 04/1/04 10/1/04 04/1/05 10/1/05 04/1/06 10/1/06 04/1/07 10/1/07 04/1/08 10/1/08 04/1/09 10/1/09 04/1/10 10/1/10 04/1/11 10/1/11 04/1/12 10/1/12 04/1/13 10/1/13 D:\iPA2.DOC EXHIBIT B SCHEDULE OF 1993 PURCHASE PAYMENTS Interest Component B-1 Principal Component Total 1993 Purchase Payments DRAFT OF 2/10/93 ESCROW AGREEMENT by and among THE CITY OF TUSTIN and THE CITY OF TUSTIN WATER CORPORATION and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION Dated as of April 1, 1993 c:\1080\tustin\escrow4.doc ESCRONV AGREEMENT THIS ESCROW AGREEMENT is entered into as of April 1, 1993, by and among the City of Tustin (the "City"), the City of Tustin Water Corporation (the "Corporation") and Bank of America National Trust and Savings Association, as Escrow Bank (the "Escrow Bank"). Capitalized terms used herein and not otherwise defined shall have the meanings provided for in Section 1 hereof. WITNESSETH: WHEREAS, there are currently outstanding, under an Indenture, dated as of October 1, 1983, by and between the Corporation and Bank of America National Trust and Savings Association, as successor to Security Pacific National Bank, as Trustee (the "1983 Trustee") (the "Indenture") $3,475,000 aggregate principal amount of City of Tustin Water Corporation Lease Revenue Bonds, Series A (the "Refunded Bonds"); and WHEREAS, the City has determined that a savings in payments will be realized through the issuance of $ aggregate principal amount of City of Tustin, Water System Certificates of Participation, 1993 Series (the "Refunding Certificates"), evidencing proportionate interests of the owners thereof in Installment Payments to be made by the City pursuant to an Installment Purchase Agreement, dated as of April 1, 1993, between the City and the Corporation, for the purpose of providing a portion of the funds necessary to pay, when due, the principal and interest with respect to the Refunded Bonds to and including October 1, 1993 and to redeem the remaining outstanding Refunded Bonds on October 1, 1993 (the "Redemption Date") at the respective redemption price expressed as a percentage of the principal amount thereof (the "Redemption Price") set forth below for the specified maturity of the Refunded Bonds: Refunded Bonds maturing Redemption October 1 P_ 1994 100.25 cl'c 1995 100.50 1996 100.75 1997 101.00 1998 101.25 1999 101.50 2000 101.75 2001 102.00 2002 102.00 200 t 102.00 WHEREAS, in order to obtain the remaining portion of the moneys needed for such purpose, in addition to the funds available from the proceeds of the sale of the Refunding Certificates, the City and the Corporation have authorized the transfer, on the date of execution c:\ 1080\tustin\escrow4.doc and delivery of the Refunding Certificates, of moneys from the Reserve Fund established by the _Indenture _(the "Original Reserve Fund"), which moneys shall be deposited in the Escrow Account; and WHEREAS, the Refunded Bonds are subject to payment or redemption, as the case may be, on the Redemption Date, and the City and the Corporation have determined to provide for the call for redemption on the Redemption Date of the remaining Refunded Bonds outstanding on the Redemption Date; and WHEREAS, upon the deposit of moneys in the Escrow Account and the initial investment thereof as provided herein, the rights of the owners of the Refunded Bonds under the Indenture will be discharged except for the right to receive payment from the Escrow Account which the City and the Corporation have caused to be established hereunder; and NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the City, the Corporation and the Escrow Bank agree as follows: Section 1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Trust Agreement, dated as of April 1, 1993 (the "Trust Agreement"), among the City, the Corporation and Bank of America National Trust and Savings Association, as trustee, a copy of which shall be provided to the Escrow Bank. Section 2. The Escrow Account. (a) There is hereby established an account (the "Escrow Account") to be held in an irrevocably pledged escrow by the Escrow Bank which the Escrow Bank shall keep separate and apart from all other funds and accounts of the City, the Corporation and the Escrow Bank and to be applied solely as provided in this Agreement. The Escrow Account is an irrevocable escrow account. Pending application as provided in this Agreement, amounts on deposit in the Escrow Account are hereby pledged and assigned solely to the payment of (i) the principal of and accrued interest on the Refunded Bonds coming due on the Redemption Date and (ii) the Redemption Price on the Redemption Date, which amounts shall be held in trust by the Escrow Bank for the owners of the Refunded Bonds. Upon the deposit of moneys in the Escrow Account in accordance with the terms of this Agreement, the City and the Corporation shall be obligated to make payments with respect to the Refunded Bonds solely from amounts on deposit in the Escrow Account. (b) Upon the execution and delivery of the Refunding Certificates, there shall be deposited in the Escrow Account the following: (i) $ Certificates; and received from the proceeds of the sale of the Refunding (ii) $ transferred from the Original Reserve Fund. c:\ 1080\tustin\escrow4.doc 1) (c) Upon the deposit of moneys pursuant to Section 2(b), the moneys on deposit in -a - - -t a Escrow Account -will be at least equal to anmount sufficient to purchase the aggregate principal amount of direct noncallable obligations of the United States of America (the "Government Obligations") set forth in Exhibit 1 hereto (the "Exhibit 1 Securities"), which principal, together with all interest due or to become due on such Exhibit 1 Securities, and any uninvested cash held by the Escrow Bank in the Escrow Account, will be sufficient in time and amount to make the payments required by Section 4 hereof. Section 3. Use and Investment of Escrow Account Moneys. (a) The Escrow Bank hereby acknowledges receipt of the moneys described in Section 2(b) and agrees to invest $ of such moneys in the Exhibit 1 Securities upon receipt of certification by a nationally recognized firm of independent certified public accountants that the Exhibit 1 Securities will mature in such principal amounts and earn interest in such amounts and, in each case, at such times, so that sufficient moneys will be available from maturing principal and interest on the Exhibit 1 Securities, together with any uninvested moneys then held by the Escrow Bank in the Escrow Account, to make all payments required by Section 4 hereof. Except as provided in Section 3(b) or Section 3(c), the balance of the moneys described in Section 2 or otherwise held by the Escrow Bank under this Agreement shall be held uninvested in the Escrow Account. (b) Upon the written request of an Authorized City Representative, but subject to the conditions and limitations herein set forth, the Escrow Bank shall purchase substitute Government Obligations for the Government Obligations then held hereunder with the proceeds derived from the sale, transfer or other disposition of Government Obligations then on deposit in the Escrow Account and any uninvested money then held by the Escrow Bank hereunder in accordance with the provisions of this Section 3(b). Such sale, transfer or other disposition of Government Obligations then on deposit in the Escrow Account and substitution of other Government Obligations shall be effected by the Escrow Bank upon the written request of an Authorized City Representative but only by a simultaneous transaction and only upon receipt of: (i) certification by a nationally recognized firm of independent certified public accountants that the Government Obligations to be substituted, together with the Government Obligations which will continue to be held in the Escrow Account, will mature in such principal amounts and earn interest in such amounts and, in each case, at such times so that, without taking into account any reinvestments earned thereon, sufficient moneys will be available from maturing principal and interest on such Government Obligations held in the Escrow Account, together with anv uninvested moneys, to make all payments required by Section 4 hereof which have not previously been made; and (ii) receipt by the Escrow Bank of an opinion of independent counsel to the effect that the sale, transfer or other disposition and substitution of Government Obligations will not adversely affect the exclusion of interest on any Refunded Bonds or Refunding Certificates from gross income for purposes of federal income taxation. (c) Upon the written request of an Authorized City Representative, but subject to the conditions and limitations herein set forth, the Escrow Bank will apply any moneys received from the maturing principal of or interest or other investment income on any Government Obligations held in the Escrow .Account, or the proceeds from any sale, transfer or other disposition of Government Obligations pursuant to Section 3(b), as follows:' (i) to the extent such moneys will not be required at any time for the purpose of making a payment required by Section 4 hereof, as c:\1080\tustin\escrow4.doc certified by a nationally recognized firm of independent certified public accountants delivered to the Escrow _Bank, _such _moneys ---shall be ---paid _-over to the City upon the written request of an Authorized City Representative as received by the Escrow Bank, free and clear of any trust, lien, pledge or assignment securing the Refunded Bonds or otherwise existing hereunder; and (ii) to the extent such moneys will be required for such purpose at a later date, shall, to the extent practicable, be invested or reinvested in Government Obligations maturing at times and in amounts sufficient to make such payment required by Section 4 hereof provided that the amount of the funds to be realized from time to time from such investment or reinvestment shall be certified by a nationally recognized firm of independent certified public accountants delivered to the Escrow Bank by the City and provided that the City shall deliver to the Escrow Bank an opinion of independent counsel to the effect that such investment or reinvestment will not adversely affect the exclusion of interest on any Refunded Bonds or Refunding Certificates from gross income for purposes of federal income taxation, and interest earned from such investments or reinvestments shall be paid over to the City upon the written request of an Authorized City Representative as received by the Escrow Bank, free and clear of any trust, lien, pledge or assignment securing the Refunded Bonds or otherwise existing hereunder. (d) All Government Obligations purchased pursuant to this Section 3 shall be deposited in and held for the credit of the Escrow Account. Except as provided in this Section 3, no moneys or Government Obligations deposited with the Escrow Bank pursuant to this Agreement nor principal of, or interest payments or other investment income on, any such Government Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal, interest and Redemption Price with respect to the Refunded Bonds as provided by Section 4 hereof. (e) The owners of the Refunded Bonds shall have a first lien on the moneys and Government Obligations in the Escrow Account until such moneys and Government Obligations are used and applied as provided in this Agreement. (f) The Escrow Bank shall not be held liable for investment losses resulting from compliance with the provisions of this Agreement. Section 4. Payment of Refunded Bonds. From the maturing principal of the Government Obligations held in the Escrow Account and the investment income and other earnings thereon and any uninvested money then held in the Escrow Account, the Escrow Bank shall on the Redemption Date, pay (i) principal and interest due on the Refunded Bonds on said Redemption Date and (ii) the Redemption Price for the then remaining outstanding Refunded Bonds to the 1983 Trustee in accordance with the terms of the Indenture; provided, however, that, to the extent that the amount on deposit in the Escro%%, Account on the Redemption Date is in excess of the amount necessary to make all such required payments with respect to the Refunded Bonds, as shown in the then applicable escrow verification of the nationally recognized firm of independent certified public accountants, such excess shall be transferred to the City. Section S. Irrevocable Instructions to Publish Notices and Mail Notice. The Corporation hereby irrevocably designates the Refunded Bonds maturing on and after October 1 1994 for prior redemption on the Redemption Date. and hereby irrevocably instructs Bank of -- America National Trust and Savings Association, as 1983 Trustee under the Indenture, to publish notice of redemption, not less than 30 calendar days nor more than 60 calendar days prior to the c:\1080\tustin\escrow4.doc 4 Redemption Date, as provided in Section 4.02 of the Indenture. The form of the notice required to be published pursuant to Section -4:02 of the Indenture is attached hereto as Exhibit 2:- The Corporation also hereby irrevocably instructs Bank of America National Trust and Savings Association, as 1983 Trustee under the Indenture, to mail notice of such redemption to each owner of the Refunded Bonds to be redeemed, as provided in Section 4.02 of the Indenture. The Corporation hereby irrevocably instructs Bank of America National Trust and Savings Association, as 1983 Trustee under the Indenture, to publish, as soon as practicable, a notice to the owners of the Refunded Bonds, in substantially the form attached hereto as Exhibit 3. Such instructions constitute the provisions for the notice that moneys are available for the payment of the Refunded Bonds, as required by Section 10.02 of the Indenture. Section 6. Performance of Duties. The Escrow Bank agrees to perform the duties set forth herein and agrees that the irrevocable instructions to the Escrow Bank herein provided are in a form satisfactory to it. Section 7. Escrow Bank's Authority to Make Investments. The Escrow Bank shall have no power or duty to invest any funds held under this Agreement except as provided in Section 3 hereof. The Escrow Bank shall. have no power or duty to transfer or otherwise dispose of the moneys held hereunder -except as provided in this Agreement. Section 8. Indemnity. To the extent permitted by law, the City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Bank and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees, expenses and disbursements) of whatsoever kind and nature (collectively, the "Liabilities") which may be imposed on, incurred by, or asserted against, the Escrow Bank at an), time (whether or not also indemnified against the same by the Cite or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of this Agreement, the establishment hereunder of the Escrow Account, the acceptance of the funds and securities deposited therein, the purchase of any securities to be purchased pursuant hereto, the retention of such securities or the proceeds thereof and any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Agreement; provided, however, that the Cite shall not be required to indemnify the Escrow Bank against liabilities attributable to the Escrow Bank's own negligence or willful misconduct or the material breach by the Escrow Bank of the terms of this Aereement. In no event shall the City or the Escrow Bank be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this Section 8. The indemnities contained in this Section shall survive the termination of this Agreement. Section 9. Responsibilities of Escrow Bank. The Escrow Bank and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract, or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Account, the acceptance of the moneys or any securities deposited therein, the purchase of the securities to he purchased pursuant hereto, the retention of such securities or the proceeds thereof, the sufficiency of the securities or any uninvested moneys held hereunder to accomplish the payment or redemption of the Refunded Bonds, as the case may be, c:\1080\tustin\escrow4.doc 5 or any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Agreement or by reason of any non -negligent act, non - negligent omission or non -negligent error of the Escrow Bank made in good faith in the conduct of its duties. The recitals of fact contained in the "Whereas" clauses herein shall be taken as the statements of the City and the Corporation, and the Escrow Bank assumes no responsibility for the correctness thereof. The Escrow Bank makes no representation as to the sufficiency of the securities to be purchased pursuant hereto and any uninvested moneys to accomplish the payment or redemption of the Refunded Bonds, as the case may be, pursuant to the Indenture or to the validity of this Agreement as to the City or the Corporation and, except as otherwise provided herein, the Escrow Bank shall incur no liability in respect thereof. The Escrow Bank shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Bank shall be determined by the express provisions of this Agreement. The Escrow Bank may consult with counsel, who may or may not be counsel to the City, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Bank shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter (except the matters set forth herein in specifically requiring a certificate of a nationally recognized. firm of independent certified public accountants or an opinion of independent counsel) may be deemed to be conclusively established by a written certification of the City. Whenever the Escrow Bank shall deem it necessary or desirable that a matter specifically requiring a certificate of a nationally recognized firm of independent certified public accountants or an opinion of independent counsel be proved or established prior to taking, suffering or omitting any such action, such matter may be established only by a certificate signed by a nationally recognized firm of certified public accountants or such opinion of independent counsel. Section 10. Amendments. The City, the Corporation and the Escrow Bank may, Without the consent of, or notice to, such owners, amend this Agreement or enter into such agreements supplemental to this Agreement as shall not adversely affect the rights of the owners of the Refunded Bonds and as shall not be inconsistent with the terms and provisions of this Agreement or the Indenture, for any one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this Agreement; (ii) to grant to, or confer upon, the Escrow Bank for the benefit of the owners of the Refunded Bonds anv additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such owners or the Escrow Bank; and (iii) to include under this Agreement additional funds, securities or properties. The Escrow Bank shall be entitled to rely conclusively upon an opinion of independent counsel with respect to compliance with this Section, including the extent, if any, to which any change, modification, addition or elimination affects the rights of the owners of the Refunded Bonds or that any instrument executed hereunder complies with the conditions and provisions of this Section. Prior written notice of any amendment to this Agreement and drafts of legal documents in connection with any such amendment shall be delivered to Moody's Investors Service and Standard & Poor's Corporation. Notices and documents required to be delivered hereunder to Moody's Investors Service shall be sent to Moody's Investors Service, 99 Church Street, New York, New York 10007, Attn: Public Finance Ratine Desk/Refunded Bonds. Notices and documents required to be delivered hereunder to Standard & Poor's Corporation shall be sent to Standard & Poor's Corporation, 25 Broadway, New York, New York, 10004 Attn: Refunded Bonds. c:\1080\tustin\escrow4.doc 6 Section 11. Term. This Agreement shall commence upon its execution and delivery and, except as provided in Section 8 hereof, shall terminate on the date upon which the Refunded Bonds have been paid in full in accordance with this Agreement. Section 12. Compensation. The City shall, upon the execution hereof by the City, the Corporation and the Escrow Bank will pay or cause to be paid to the Escrow Bank the agreed upon compensation for its services to be rendered hereunder, if any. The City shall from time to time, on demand, reimburse the Escrow Bank for all of its reasonable advances in the exercise and performance of its duties hereunder; provided, however, that under no circumstances shall the Escrow Bank be entitled to any lien whatsoever on any moneys or obligations in the Escrow Account for the payment of fees and expenses for services rendered or expenses incurred by the Escrow Bank under this Agreement, under the Trust Agreement, or otherwise. Section 13. Discharge of Obligations. The Escrow Bank, as 1983 Trustee under the Indenture, acknowledges the discharge of the Corporation's obligations under the Indenture and the Refunded Bonds except for obligations under Article II of the Indenture in respect of the transfer, exchange, registration and replacement of Refunded Bonds. Section 14. Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the City, the Corporation or the Escrow Bank to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or aereements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. The City shall notify Moody's Investors Service and Standard & Poor's Corporation in the event of such severability. Section 15. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as an original but all of which shall constitute and be but one and the same instrument. Section 16. Governing Law. This Agreement shall be construed under the laws of the State of California. Section 17. Assignment. This Agreement shall not be assigned by the Escrow Bank or any successor thereto without the prior written consent of the City and the Corporation. c:\1080\tustin\escrow4.doc 7 II` WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers and attested as of the date first above written. CITY OF TUSTIN U-0 Mayor CITY OFTUSTIN WATER CORPORATION President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Escrow Bank By_ Title: 0 SECURITIES TO BE DEPOSITED IN THE ESCROW ACCOUNT [UNITED STATES TREASURY NOTES AND Principal Purchase Maturitv Amount Price c:\1080\tustin\escrow4.doc EXHIBIT I EXHIBIT 2 NOTICE OF REDEMPTION CITY OF TUSTIN WATER CORPORATION LEASE REVENUE BONDS, SERIES A Maturing on and after October 1, 1994 and bearing the following CUSIP Numbers NOTICE IS HEREBY GIVEN to the owners of the above-mentioned bonds (the "Refunded Bonds") that such Bonds have been called for redemption, prior to maturity, on October 1, 1993, at the respective redemption price expressed as a percentage of the . principal amount thereof (the "Redemption Price") set forth below for the specified maturity of the Refunded Bonds: Refunded Bonds maturing Redemption October 1 Price 1994 100.25% 1995 100.50 1996 100.75 1997 101.00 1998 101.25 1999 101.50 2000 101.75 2001 102.00 2002 102.00 2003 102.00 On October 1, 1993 there shall become due and payable upon presentation and surrender of such Bonds at the office of Bank of America National Trust and Savings Association, _ located at , California, the Redemption Price of said Bonds, together with accrued interest thereon. FROM AND AFTER THE REDEMPTION DATE, ALL INTEREST REPRESENTED ON THE BONDS WILL CEASE TO ACCRUE AND BE PAYABLE. To avoid a 20% backup withholding tax required by the Interest and Dividend Tax Compliance Act of 1983, Bond owners must submit with their Bonds a completed IRS Form W-9. DATED this day of , 1993. c:\ 1080\tustin\escrow4.doc EXHIBIT 3 NOTICE OF REDEMPTION CITY OF TUSTIN WATER CORPORATION LEASE REVENUE BONDS, SERIES A NOTICE IS HEREBY GIVEN to the owners of the City of Tustin Water Corporation Lease Revenue Bonds, Series A (the "Bonds"), that there has been deposited with Bank of America National Trust and Savings Association, as Trustee under the Indenture, dated as of October 1, 1983 between the City of Tustin Water Corporation and Bank of America National Trust and Savings Association, as successor to Security Pacific National Bank (the "Trustee") (the "Indenture"), obligations of or guaranteed as to principal and interest by the United States of America (the "Government Obligations"), the principal and interest on which when due will provide moneys which, together with the monevs, if any, deposited with the Escrow Bank at the same time, shall be sufficient and available (i) to pay when due the principal of and interest with respect to the Bonds to and including October 1, 1993 and (ii) to redeem the remaining outstanding Bonds on October 1, 1993, at the respective redemption price expressed as a percentage of the principal amount thereof (the "Redemption Price") set forth beloA- for the specified maturity of the Refunded Bonds: Refunded Bonds maturin` Redemption October 1 Price 1994 100.25% 1995 100.50 1996 100.75 1997 101.00 1998 101.25 1999 101.50 2000 101.75 2001 102.00 2002 102.00 2003 102.00 The Government Obligations and moneys, if any, are being held for the payment of all Bonds, including the Bonds maturing on or after October 1, 1994 which will be redeemed on October 1, 1993. The Bonds are deemed to have been paid under Section 10.02 of the Indenture. DATED this day of , 1991). BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Trustee and Escrow Bank This ASSIGNMENT AGREEMENT, dated as of April 1, 1993, is entered into by and between CITY OF TUSTIN WATER CORPORATION, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association organized under the laws of the United States, as Trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Corporation and the City of Tustin (the "City") have entered into an Installment Purchase Agreement dated as of April 1, 1993 (as amended and supplemented from time to time, the "Installment Purchase Agreement"), whereby the Corporation sells to the City, and the City purchases from the Corporation, the Project (as defined in the Installment Purchase Agreement); and WHEREAS, the Corporation, the City and the Trustee have entered into a Trust Agreement dated as of April 1, 1993 (as amended and supplemented from time to time, the "Trust Agreement"),, whereby the Trustee will execute..., and deliver certificates of participation evidencing proportionate interests in the Principal Components and Interest Components of the Purchase Payments to be made by the City pursuant to the Installment Purchase Agreement; and WHEREAS, the Corporation and the Trustee have duly authorized the execution and delivery of this Assignment Agreement; NOW, THEREFORE, for and consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows: section 1. Definitions. All capitalized terms used herein and not defined herein shall have the meanings specified in the Trust Agreement or in the Installment Purchase Agreement, as the case may be. section 2. Assignment. The Corporation does hereby absolutely and irrevocably grant, assign and transfer to the Trustee without recourse all estate, right, title and interest of the Corporation in the Installment Purchase Agreement, including the right to receive Purchase Payments from the City under the Installment Purchase Agreement (but not including the right to be indemnified pursuant to the Installment Purchase Agreement and the right of the Corporation to receive notice thereunder), together with any and all of the other rights of the Corporation under the Installment Purchase Agreement as may be necessary to enforce the .n_ payment of such Purchase Payments when due or otherwise to protect the interests of the Owners of the 1993 Certificates. The Purchase Payments shall be applied, and the rights so granted, assigned and B:\93ASSIGN.D-2 1 transferred shall be exercised, by the Trustee as provided in the Trust Agreement and the Installment Purchase Agreement. Section 3. Acceptance of Assignment. The Trustee hereby accepts the assignment made under Section 2 hereof. Section 4. Binding Effect. This Assignment Agreement applies to, inures to the benefit of, and binds each party hereto and its respective successors and assigns. Section 5. Severability. In the event any provision of this Assignment Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 6. Amendments. The terms of this Assignment Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever except by written instrument signed by the Corporation and the Trustee, with the prior written consent of the City. section 7. Execution in counterparts. This Assignment Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 8. Applicable Law. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State. Section 9. captions. The captions or headings in this Assignment Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Assignment Agreement. B:\93ASSIGN.D-2 2 IN WITNESS WHEREOF the parties hereto have executed this Assignment Agreement as of the date first above written. CITY OF TUSTIN WATER CORPORATION President Attest: Secretary BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Trustee By B:\93ASSIGN.D-2 3 R E C E I V E D DRAFT OF 2/4/93 FEB 0 51993 FINANCE DEPT. ASSIGNMENT AGREEMENT by and between CITY OF TUSTIN WATER CORPORATION and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as Trustee Dated as bf April 1, 1993