HomeMy WebLinkAbout11 WTR REVENUE BONDS 08-04-03AGENDA REPORT
11
Agenda Item
Reviewed: ~
City Manager
Finance Director
MEETING DATE: AUGUST 4, 2003
TO:
FROM:
SUBJECT:
WILLIAM A. HUSTON, CITY MANAGER
RONALD A. NAULT, FINANCE DIRECTOR
RESOLUTION NO. 03-100 AUTHORIZING THE ISSUANCE AND SALE
OF CITY OF TUSTIN 2003 REFUNDING WATER REVENUE BONDS
SUMMARY:
The City's Financial Advisor, Gardner, Underwood & Bacon LLC, has completed a full
evaluation of the proposed refunding. After viewing the existing Enterprise debt in context with
the future capital needs of the Water System as identified in the current seven-year Capital
Improvement Budget, they have suggested that by restructuring the debt, refunding all
outstanding bonds and notes and extending the maturities, the future capital needs of the
System can be met with minor impact on Water rates. Staff reviewed the proposed
restructuring with the City's Audit Committee at their July 17 meeting, where they approved of
the restructuring and supported taking it to the City Council for final approval.
RECOMMENDATION:
Adopt Resolution No. 03-100 authorizing the issuance and sale of City of Tustin 2003 Refunding
Water Revenue Bonds, approving an Indenture of Trust, an Escrow Agreement, a Notice of
Sale and a Preliminary Official Statement, and authorizing and directing the execution thereof
and authorizing actions related thereto.
FISCAL IMPACT:
No immediate fiscal impact will be realized from the restructuring, but it will have a positive
impact on future rate considerations.
DISCUSSION:
At their meeting of June 16, the City Council authorized staff to proceed with a current refunding
of the outstanding 1993 Water System Revenue Certificates of Participation and several
conjunctive use notes we have with the Orange County Water District. They also approved the
selection of Bond Counsel, Trustee/Escrow Agent, etc., and Gardner, Underwood & Bacon LLC
as the Financial Advisor (FA).
After completing their analysis, which included a review of the future capital needs of the
System, the Financial Advisor determined that the coverage requirements of the proposed
refunding and the need for future debt financing to complete the Water System capital program
would require significant increases to the current Water consumption rates. They suggested
that by restructuring the outstanding Water System debt, treating it like a new issue by
extending the maturities, we can take advantage of current Iow interest rates and increase our
debt capacity to accommodate the capital needs of the Water System, with minor impact on
future water rates.
Annual debt service is one of the components of all utility rate structures. By reviewing
outstanding debt when considering the issuance of new debt, an analysis can be made of the
impact of the new debt on the current rates. We always consider the consolidation of
outstanding debt with new debt to try and minimize the impact on consumer rates. In most
cases the analysis will suggest that by "restructuring" the outstanding debt into the new debt,
you will maintain your coverage requirement with minimal impact on existing consumer rates.
Our analysis concludes that by restructuring the current debt of the Water System we can take
advantage of current market rates, consolidate several smaller notes at various rates, increase
our capacity for additional debt to meet the future capital needs of the Water System, and
minimize the impact on future consumer rates.
Representatives from Gardner, Underwood & Bacon LLC will be available to answer questions
from the City Council.
Ronald A. Nault
Finance Director
Attachments
RAN:RefundingWaterRevenueBonds2003StaffReport.doc
RESOLUTION NO. 03-100
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA,
AUTHORIZING THE ISSUANCE AND SALE OF ITS CITY OF TUSTIN 2003
REFUNDING WATER REVENUE BONDS, APPROVING AN INDENTURE OF
TRUST, AN ESCROW AGREEMENT, A NOTICE OF SALE AND A PRELIMINARY
OFFICIAL STATEMENT, AND AUTHORIZING AND DIRECTING THE EXECUTION
THEREOF AND AUTHORIZING ACTIONS RELATED THERETO
WHEREAS, the City has entered into an agreement entitled "Orange County
Well Construction Program Agreement," dated as of February 18, 1992, by and
between the Orange County Water District (the "District") and the City (the "Vandenberg
Well Agreement"), for the purpose of financing certain improvements to the City's
municipal water enterprise (the "Enterprise"); and
WHEREAS, the City has also entered into an agreement entitled "Agreement
between Orange County Water District and the City of Tustin for the Construction,
Operation and Acquisition of a Groundwater Desalter Project," dated as of February 18,
1992, as supplemented on May 13, 1992, as amended on June 16, 1993, and as further
amended on October 18, 2000 (the "District Desalter Agreement"), for the purpose of
financing certain improvements to the Enterprise; and
WHEREAS, the City has also entered into an agreement entitled "Tustin Desalter
Project Joint Participation Agreement for Recovery and Utilization of Contaminated
Groundwater between the Metropolitan Water District of Southern California, the
Municipal Water District of Orange County, the Orange County Water District, the East
Orange County Water District and the City of Tustin," dated as of December 8, 1992
(the "State Desalter Agreement"), for the purpose of financing certain improvements to
the Enterprise; and
WHEREAS, the City has also caused to be executed and delivered its
$11,500,000 City of Tustin, Orange County, California, Water System Revenue
Certificates of Participation, 1993 Series (the "1993 Certificates"), for the purpose of
financing and refinancing certain improvements to the Enterprise; and
WHEREAS, the 1993 Certificates represent undivided, fractional interests in
purchase payments (the "1993 Purchase Payments") made by the City under an
installment purchase agreement, dated as of April 1, 1993, by and between the City of
Tustin Water Corporation and the City (the "1993 Agreement"); and
WHEREAS, the City has also entered into an agreement entitled "Orange County
Well Construction Program Agreement," dated as of October 21, 1996, by and between
the District and the City (the "Well #'!. Agreement"), for the purpose of financing certain
improvements to the Enterprise; and
WHEREAS, interest rates are currently at historically Iow levels and the City can
eliminate the administrative burden of maintaining multiple agreements by providing for
the prepayment of its obligations under the Vandenberg Well Agreement, the District
Desalter Agreement, the State Desalter Agreement, the 1993 Agreement (and thereby
providing for the refunding of the 1993 Certificates) and the Well ~4 Agreement; and
WHEREAS, section 53570 et seq. of the California Government Code (the
"Refunding Bond Law") authorizes the City to issue its refunding revenue bonds for the
purpose of refunding revenue obligations of the City such as the Vandenberg Well
Agreement, the District Desalter Agreement, the State Desalter Agreement, the 1993
Agreement and the Well ¢f.4 Agreement; and
WHEREAS, the City, after due investigation and deliberation, has determined
that it is in the interests of the City at this time to provide for the issuance of bonds
under the Refunding Bond Law to provide for the prepayment of its obligations under
the Vandenberg Well Agreement, the District Desalter Agreement, the State Desalter
Agreement, the 1993 Agreement (and thereby providing for the refunding of the 1993
Certificates) and the Well ~4 Agreement; and
WHEREAS, to that end, the City has determined to issue its City of Tustin
(Orange County, California) 2003 Refunding Water Revenue Bonds (the "2003 Bonds"),
pursuant to an indenture of trust (the "Indenture"), by and between the City and U.S.
Bank National Association, as trustee (the "Trustee"); and
WHEREAS, the Council has duly considered such transactions and wishes at
this time to approve said transactions in the public interests of the City;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Tustin
as follows:
SECTION 1. Determination to Carry Out Refunding. The Council hereby
determines to carry out the issuance and sale of the 2003 Bonds to provide for the
prepayment of its obligations under the Vandenberg Well Agreement, the District
Desalter Agreement, the State Desalter Agreement, the 1993 Agreement (and thereby
providing for the refunding of the 1993 Certificates) and the Well ~, Agreement.
SECTION 2. Issuance of the 2003 Bonds; Approval of Indenture. The Council
hereby authorizes the issuance of the 2003 Bonds. The maximum aggregate principal
amount of the 2003 Bonds shall not exceed $15,000,000. The 2003 Bonds shall be
issued pursuant to the Indenture. The Council hereby approves the Indenture in
substantially the form on file with the City Clerk, together with such non-material
additions thereto and changes therein as the Mayor, the City Manager or the Finance
Director (the "Designated Officers") shall deem necessary, desirable or appropriate, the
execution of which by the City shall be conclusive evidence of the approval of any such
non-material additions and changes. The Designated Officers, each acting alone, are
hereby authorized and directed to execute, and the City Clerk is hereby authorized and
directed to attest to, the final form of the Indenture for and in the name and on behalf of
the City. The Council hereby authorizes the delivery and performance of the Indenture.
SECTION 3. Approval of Escrow Agreement. The Council hereby approves the
escrow agreement, by and between the City and U.S. Bank National Association, as
escrow bank and as trustee for the 1993 Certificates (the "Escrow Agreement"), in
substantially the form of the Escrow Agreement on file with the City Clerk, together with
such non-material additions thereto and changes therein as a Designated Officer shall
deem necessary, desirable or appropriate, the execution of which by the City shall be
conclusive evidence of the approval of any such non-material additions and changes.
The Designated Officers, each acting alone, are hereby authorized and directed to
execute, and the City Clerk is hereby authorized and directed to attest to, the final form
of the Escrow Agreement for and in the name and on behalf of the City. The City
hereby authorizes the delivery and performance of the Escrow Agreement.
SECTION 4. Continuing Disclosure Certificate. The City hereby approves a
continuing disclosure certificate (the "Continuing Disclosure Certificate"), in substantially
the form on file with the City Clerk, together with such non-material additions thereto
and changes therein as a Designated Officer shall deem necessary, desirable or
appropriate, the execution of which by the City shall be conclusive evidence of the
approval of any such non-material additions and changes. The Designated Officers,
each acting alone, are hereby authorized and directed to execute, and the City Clerk is
hereby authorized and directed to attest to, the final form of the Continuing Disclosure
Certificate for and in the name and on behalf of the City. The City hereby authorizes the
delivery and performance of the Continuing Disclosure Certificate.
SECTION 5. Official Statement. The Council hereby approves and deems final
within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934 except for
permitted omissions, a preliminary form of official statement describing the Bonds (the
"Preliminary Official Statement") in the form on file with the City Clerk. Distribution of
the Preliminary Official Statement to prospective purchasers of the Bonds is hereby
approved. The Designated Officers are hereby authorized to execute a final form of
official statement (the "Final Official Statement"), including as it may be modified by
such additions thereto and changes therein as the Designated Officer shall deem
necessary, desirable or appropriate, and the execution of the Final Official Statement by
a Designated Officer shall be conclusive evidence of the approval of any such additions
and changes. The City hereby authorizes the distribution of the Final Official Statement.
The Final Official Statement shall be executed in the name and on behalf of the City by
a Designated Officer.
SECTION 6. Sale of the Bonds. The Council hereby approves the sale of the
Bonds by competitive sale pursuant to and as described in an official notice of sale for
the Bonds (the "Notice of Sale"), in substantially the form on file with the City Clerk,
together with such non-material additions thereto and changes therein as a Designated
Officer shall deem necessary, desirable or appropriate. The Bonds shall be awarded to
the bidder who submits the highest responsible bid (lowest true interest cost) to be
determined in accordance with the Notice of Sale.
The Designated Officers are hereby delegated the authority to accept the highest
responsible bid (lowest true interest cost) for the purchase of the Bonds, determined in
accordance with the Notice of Sale. The Designated Officers are hereby authorized and
directed to accept such bid, for and in the name of the City, by notice to the successful
bidder. In the event two or more bids setting forth identical interest rates and premium
or discount, if any, are received for the Bonds, the Designated Officer may exercise his
or her own discretion and judgment in making the award and may award the Bonds on a
pro rata basis in such denominations as he or she shall determine. The Designated
Officer may, in his or her discretion, reject any and all bids and waive any irregularity or
informality in any bid. The Designated Officer shall award the Bonds, or reject all bids
not later than 26 hours after the expiration of the time prescribed for the receipt of
proposals unless such time of award is waived by a successful bidder.
The City's bond counsel is hereby authorized and directed, pursuant to section
53692 of the California Government Code, to publish a notice of intention to sell the
Bonds, in the form thereof on file with the City Clerk, in The Bond Buyer, a financial
publication generally circulated throughout the State of California. The City's bond
counsel is hereby authorized and directed, pursuant to section 8855 of the California
Government Code, to cause notice of the City's intent to sell the Bonds to be given to
the California Debt and Investment Advisory Commission ("CDIAC"), substantially in the
form required by CDIAC.
SECTION 7. Official Actions. The Mayor, the City Manager, the Finance
Director, the City Clerk and any and all other officers of the City are hereby authorized
and directed, for and in the name and on behalf of the City, to do any and all things and
take any and all actions, including execution and delivery of any and all assignments,
certificates, requisitions, agreements, notices, consents, instruments of conveyance,
warrants and other documents, which they, or any of them, may deem necessary or
advisable in order to consummate the lawful issuance and sale of the 2003 Bonds and
the consummation of the transactions as described herein.
SECTION 8. Employment of Consultants.
(a) The financial advisory firm of Gardner, Underwood & Bacon, LLC, Los
Angeles, California, is hereby employed as financial advisor to the City in connection
with the sale and issuance of the 2003 Bonds. The Designated Officers hereby
authorized and directed to execute an agreement, in form acceptable to the Designated
Officer, for the services of such firm.
(b) The law firm of Quint & Thimmig LLP, San Francisco, California, is hereby
employed as bond counsel and disclosure counsel to the City in connection with the
sale and issuance of the 2003 Bonds. The Designated Officers hereby authorized and
directed to execute an agreement, in form acceptable to the Designated Officer, for the
services of such firm.
- 4-
SECTION 9. Effective Date. This Resolution shall take effect from and after the
date of its passage and adoption.
PASSED AND ADOPTED at a regular meeting of the City Council of the
City of Tustin, California, held on the 4th day of August, 2003.
Tracy Wills Worley
Mayor
AFl-EST:
Pamela Stoker
City Clerk
RES:ResolutionNo.03-100RefundingWaterRevenueBonds.doc
CITY OF TUSTIN
RESOLUTION CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF ORANGE )SS
CITY OF TUSTIN )
RESOLUTION NO. 03-100
Pamela Stoker, City Clerk and ex-officio Clerk of the City Council of the City of
Tustin, California, does hereby certify that the whole number of the members of the
City Council is five; that the above and foregoing Resolution was duly and regularly
passed and adopted at a regular meeting of the City Council held on the 4th day of
August, 2003, by the following vote:
COUNCILMEMBER AYES:
COUNCILMEMBER NOES:
COUNCILMEMBER ABSTAINED:
COUNCILMEMBER ABSENT:
Pamela Stoker
City Clerk
RES:ResolutionNo03-1OORefundingWaterRevenueBonds,doc
- 6-
PRELIMINARY OFFICIAL STATEMENT DATED JULY 10, 2003
NEW ISSUE--FULL BOOK-ENTRY RATINGS:
Moody's "Aaa" ( )
S&P: "AAA" ( )
(See "RATINGS" herein)
In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions,
and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded ffom gross income for federal income tax purposes under
Section 103 of the Internal Revenue Code of 1986, and is exempt from California personal income taxes. In the further opinion of Bond Counsel, interest on the
Bonds is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes, although Bond Counsel observes that it is included
in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax
consequences caused by the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See "TAX MATTERS" herein.
CITY OF TUSTIN
(Orange County, California)
Refunding Water Revenue Bonds, Series 2003
Dated: As of Date of Delivery Due: April 1, as shown below
The Refunding Water Revenue Bonds, Series 2003 (the "Bonds"), are being issued by the City of Tustin, California (the "City"), in fully registered
form without coupons and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York,
New York ("DTC"). Payments of the principal of, premium, if any, and interest on the Bonds will be made by U.S. Bank National Association, as
trustee for the Bonds (the "Trustee"), to DTC, which is obligated in turn to remit such principal, premium, if any, and interest to DTC participants for
subsequent disbursement to the beneficial owners of the Bonds. The Bonds are being issued pursuant to an Indenture, dated as of August 1, 2003 (the
"Indenture"), by and between the City and the Trustee. Interest on the Bonds will be payable semi-annually on each April 1 and October 1,
commencing on October 1, 2003.
The Bonds are being issued to provide funds to (i) defease the Water System Revenue Certificates of Participation, 1993 Series, executed and delivered
for the benefit of the City, to finance improvements to the City's municipal water enterprise (the "Enterprise"), which are outstanding in the
aggregate principal amount of $7,575,000, (ii) prepay certain outstanding indebtedness of the City incurred to finance improvements to the Enterprise,
(iii) fund a reserve fund, and (iv) pay the costs of issuing the Bonds.
The Bonds are payable from the net revenues (the "Net Revenues") of the Enterprise, derived primarily from charges and revenues received by the
City from the operation of the Enterprise, less the costs of the operation and maintenance of the Enterprise, and the Net Revenues are pledged, as a
first and prior lien thereon, to pay the prlncipal of and premium, if any, and interest on the Bonds and any parity obligations issued or incurred by the
City in accordance with the Indenture, as described therein (the "Parity Obligations"). The City has covenanted, to the maximum extent permitted by
law, to set rates and charges for the service and facilities of the Enterprise sufficient to provide Net Revenues each year equal to at least 1.__ times the
aggregate annual amount ot principal of and interest due on the Bonds and all Parity Obligations.
The Bonds are subject to redemption prior to maturity as described herein. See "THE BOND~ptional and Mandatory Redemption."
Payment of the principal of and interest on the Bonds when due will be insured by a municipal bond insurance policy to be issued by
simultaneously with the delivery of the Bonds.
[MUNICIPAL BOND INSURER LOGO TO BE INSERTED]
NEITHER THE BONDS NOR THE OBLIGATION TO PAY PRINCIPAL OF OR INTEREST THEREON CONSTITUTES A DEBT OR A LIABILITY OF
THE CITY, THE STATE OF CALIFORNIA OR ANY OF 1TS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL
LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. THE BONDS ARE SECURED SOLELY BY
THE PLEDGE OF NET REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE BONDS ARE NOT SECURED BY A PLEDGE
OF THE TAXING POWER OF THE CITY.
MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES OR YIELDS*
CUSIP Prefix:
$___ Serial Bonds
Maturity Principal Interest Price or CUSIP Maturity Principal Interest Price or CUSIP
April 1 Amount Rate Yield Suffix April 1 Amount _R~ ~e Yield Suffix
$__ __% Term Bonds maturing April 1, ; Price: %, to Yield %; CUSIP __
THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE OF
BONDS. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN
INFORMED INVESTMENT DECISION WITH RESPECT TO THE PURCHASE OF THE BONDS.
The Bonds are offered when, as and if issued and received by the Underwriter and subject to the approval as to their legality by Quint & Thimmig LLP, San
Francisco, California, Bond Counsel. Certain legal matters will also be passed upon for the City by Quint & Thimmig LLP, San Francisco, California, as Disclosure
Counsel. Certain legal matters will be passed upon for the City by the City Attorney. It is anticipated that the Bonds will be delivered in definitive form through
DTC on or about August 7, 2003.
Dated: August ~ 2003
*Preliminary, subject to change.
CITY OF TUSTIN
300 Centennial Way
Tustin, CA 92780
www.tustinca.org
CITY COUNCIL
Tracy Wills Worley, Mayor
Tony Kawashima, Mayor Pro Tem
Lou Bone, Councilmember
Doug Davert, Councilmember
Jeffery M. Thomas, Councilmember
CITY EXECUTIVE STAFF AND OFFICIALS
William A. Huston, City Manager
Christine A. Shingleton, Assistant City Manager
Pamela Stoker, City Clerk
George Jeffries, City Treasurer
Ronald A. Nault, Director of Finance
Tim Serlet, Director of Public Works
Elizabeth Binsack, Director of Community Development
Steve Foster, Chief of Police
Pat Sanchez, Director of Parks & Recreation Services
Arlene Marks, Human Resources Director
PROFESSIONAL SERVICES
CITY ATTORNEY
Woodruff, Spradlin & Smart
Orange, California
FINANCIAL ADVISOR
Gardner, Underwood & Bacon LLC
Los Angeles, California
BOND COUNSEL AND DISCLOSURE COUNSEL
Quint & Thimmig LLP
San Francisco, California
TRUSTEE / ESCROW BANK
U.S. Bank National Association
Los Angeles, California
VERIFICATION AGENT
Grant Thornton LLP
Minneapolis, Minnesota
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
Use of Official Statement. This Official Statement is submitted in connection with the sale of the
Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.
This Official Statement is not to be construed as a contract with the purchasers of the Bonds.
Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure
by the City, in any press release and in any oral statement made with the approval of an authorized
officer of the City, the words or phrases "will likely result," "are expected to", "will continue", "is
anticipated", "estimate", "project," "forecast", "expect", "intend" and similar expressions identify
"forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. Any forecast is subject to such
uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and
unanticipated events and circumstances may occur. Therefore, there are likely to be differences between
forecasts and actual results, and those differences may be material. The information and expressions of
opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor
any sale made hereunder shall, under any circumstances, give rise to any implication that there has been
no change in the affairs of the City since the date hereof.
Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City
or the Underwriter to give any information or to make any representations other than those contained
herein and, if given or made, such other information or representation must not be relied upon as having
been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in
which it is unlawful for such person to make such an offer, solicitation or sale.
Limited Scope of Information. The City has obtained certain information set forth herein from
sources which are believed to be reliable, but such information is neither guaranteed as to accuracy or
completeness, nor to be construed as a representation of such by the City. The information and
expressions of opinions herein are subject to change without notice and neither delivery of this Official
Statement nor any sale made hereunder shall under any circumstances, create any implication that there
has been no change in the affairs of the City since the date hereof. All summaries of or references to the
documents referred to in this Official Statement are made subject to the provisions of such documents
and do not purport to be complete statements of any or all of such provisions. All capitalized terms used
herein, unless noted otherwise, shall have the meanings prescribed in the Indenture.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS
CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES LAWS OF ANY STATE.
TABLE OF CONTENTS
INTRODUCTION ................................................................ 1
THE BONDS ......................................................................... 4
Authority for Issuance ................................................... 4
General Provisions .......................................................... 4
Redemption ...................................................................... 5
Book-Entry Only System ............................................... 6
THE REFUNDING PLAN ................................................. 6
ESTIMATED SOURCES AND USES OF FUNDS ......... 8
DEBT SERVICE REQUIREMENTS .................................. 8
SECURITY FOR THE BONDS .......................................... 8
Pledge and Assignment; Gross Revenue Fund;
Revenue Fund .................................................................. 9
Allocation of Net Revenues ......................................... 10
Application of Interest Account ................................. 10
Application of Principal Account .............................. 10
Application of Bond Reserve Account ...................... 10
Rate Covenant ................................................................ 11
Limitations on Future Obligations Secured by
Net Revenues ................................................................. 12
MUNICIPAL BOND INSURANCE ............................... 13
THE ENTERPRISE ............................................................ 13
History ............................................................................. 13
Management .................................................................. 14
Service Area .................................................................... 14
Water Supply ................................................................. 14
Water Storage ................................................................. 14
Distribution System ...................................................... 15
Budgetary Process ......................................................... 15
Rate Setting Process ...................................................... 15
Rates ................................................................................. 15
Water Consumption, Services and Collections ....... 16
Water Users .................................................................... 16
APPENDIX A:
APPENDIX B:
APPENDIX C:
APPENDIX D:
APPENDIX E:
APPENDIX F:
APPENDIX G:
Capital Improvement Program ................................... 17
Financial Statements ..................................................... 17
Financial Information ................................................... 18
Historical Revenues, Expenditures and Debt
Service Coverage ........................................................... 20
Projection of Revenues, Expenditures and Debt
Service Coverage ........................................................... 20
BOND OWNERS' RISKS .................................................. 20
Net Revenues; Rate Covenant ..................................... 21
Enterprise Demand and Growth ................................ 21
Enterprise Expenses ...................................................... 21
Future Land Use Regulations ..................................... 21
Limitations on Remedies Available to
Bondowners .................................................................... 21
Loss of Tax-Exemption ................................................. 22
Proposition 218 .............................................................. 22
Other Constitutional Provisions ................................. 24
Environmental Regulation ........................................... 25
Secondary Market for Bonds ....................................... 26
Parity Obligations .......................................................... 26
TAX MATTERS .................................................................. 26
CERTAIN LEGAL MATTERS ......................................... 27
LITIGATION ...................................................................... 27
RATINGS ............................................................................. 27
FINANCIAL ADVISOR .................................................... 27
CONTINUING DISCLOSURE ........................................28
VERIFICATION REPORT ................................................ 28
UNDERWRITING ............................................................. 28
MISCELLANEOUS ............................................................ 28
SUMMARY OF THE INDENTURE
AUDITED FINANCIAL STATEMENTS OF THE CITY
FOR THE FISCAL YEAR ENDED JUNE 30,2002
FORM OF CONTINUING DISCLOSURE CERTIFICATE
GENERAL INFORMATION REGARDING THE CITY OF TUSTIN
FORM OF OPINION OF BOND COUNSEL
SPECIMEN MUNICIPAL BOND INSURANCE POLICY
BOOK-ENTRY ONLY SYSTEM
A-1
B-1
C-1
D-1
E-1
F-1
G-1
OFFICIAL STATEMENT
CITY OF TUSTIN
(Orange County, California)
2003 Refunding Water Revenue Bonds
INTRODUCTION
General. This Official Statement, which includes the cover page and appendices hereto,
provides information in connection with the sale of 2003 Refunding Water Revenue Bonds (the
"Bonds"), being issued .by the City of Tustin, California (the "City"), in the aggregate principal
amount of $
This Introduction is not a summary of this Official Statement. It is only a brief
description of and guide to, and is qualified by, more complete and detailed information
contained in the entire Official Statement, including the cover page and appendices hereto, and
the documents summarized or described herein. A full review should be made of the entire
Official Statement. The offering of the Bonds to potential investors is made only by means of the
entire Official Statement.
Capitalized terms used, but not otherwise defined herein, shall have the meanings
assigned thereto as set forth in APPENDIX A--'SUMMARY OF THE INDENTURE--Certain
Definitions."
The City. The City is located in Orange County (the "County"), approximately __ miles
south of the City of Los Angeles and approximately miles north of the City of San Diego.
Incorporated in , the City operates as a general law city with a Council-Manager form of
government. The Mayor is selected by the City Council from among its members. For certain
information with respect to the City, see APPENDIX D--"GENERAL INFORMATION
REGARDING THE CITY OF TUSTIN.'
The Enterprise. Tustin Water Service ("TWS"), a department of the City, provides water
service to most of the City as well as an area outside the City limits. The Enterprise 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. See "THE ENTERPRISE" herein.
Purpose of the Bonds. The Bonds are being issued to provide funds to (i) defease the City
of Tustin, Orange County, California, Enterprise Revenue Certificates of Participation, 1993
Series (the "1993 Certificates"), which are outstanding in the aggregate principal amount of
$. (the "1991 Certificates"), (ii) prepay various obligations of the City secured by the net
revenues (the "Net Revenues") of the City's municipal water system (the "Enterprise") (iii) fund
a bond reserve fund, and (iv) pay the costs of issuing the Bonds. See "THE REFUNDING
PLAN" herein.
Authority for Issuance. The Bonds are authorized pursuant to the provisions of section
53570 et seq. of the California Government Code, a resolution adopted by the City Council of the
City on July 7, 2003 (the "City Resolution"), and an Indenture of Trust (the "Indenture"), dated
as of August 1, 2003, between the City and U.S. Bank National Association, as trustee (the
"Trustee").
*Preliminary, subject to change.
Pledge of Net Revenues. The Bonds are payable from and secured by a (i) first pledge of
and lien on Net Revenues received from the operation of the Enterprise.
The Indenture defines "Enterprise" as the any and all facilities, properties and
improvements at any time controlled or operated by the City used or pertaining to the supply of
water, consisting of the entire water production and distribution enterprise of the City,
including all additions, extensions, expansions, improvements and betterments thereto and
equippings thereof and any necessary lands, rights of way and other real and personal property
useful in connection therewith, but exclusive of any portion of the existing system not required
for the continued operation thereof; provided, however, that to the extent the City is not the sole
owner of an asset or property, or lessee thereof from the City, only the City's ownership interest
in such asset or property or leasehold interest therein from the City, shall be considered a part
of the Enterprise
The Indenture defines "Net Revenues" as, with respect to any period, the amount of the
Gross Revenues received during such period less the amount of Maintenance and Operation
Costs becoming payable during such period.
The Indenture defines "Gross Revenues" as all gross charges received for, and all other
gross income and revenues derived by the City from, the operation of the Enterprise or
otherwise arising from the Enterprise, including but not limited to (a) all fees and charges
received by the City for the services of the Enterprise, (b) charges received by the City for water
connections, and (c) all receipts derived from the investment of such income or revenues.
The Indenture defines "Maintenance and Operation Costs" as the reasonable and
necessary costs of maintaining and operating the Enterprise, calculated based upon accounting
principles consistently applied, including (among other things) the reasonable expenses of
management, personnel, services, equipment, repair and other expenses necessary to maintain
and preserve the Enterprise in good repair and working order, and reasonable amounts for
administration, overhead, insurance, taxes (if any) and other similar costs, but excluding in all
cases depreciation and obsolescence charges or reserves therefor and amortization of
intangibles or other bookkeeping entries of a similar nature.
See "SECURITY FOR THE BONDS~Pledge of Net Revenues."
Rate Covenant. Under the Indenture, the City has covenanted to fix, prescribe, revise and
collect rates, fees and charges for the services and facilities furnished by the Enterprise during
each Fiscal Year which are sufficient to yield Net Revenues, including connection charges
together with other funds accumulated in the City's Water Fund and which are lawfully
available to the City for payment of the debt service on the Bonds, at least equal to one hundred
__ percent (1__%) of the principal of and interest on the Outstanding Bonds becoming due
and payable during such Fiscal Year, including all Mandatory Sinking Account payments
during such Fiscal Year. See "SECURITY FOR THE BONDS~Rate Covenant."
Additional Obligations. Additional obligations and bonds issued or incurred on a parity
with or subordinate to the Bonds may be issued pursuant to the Indenture provided that certain
conditions are met. See "SECURITY FOR THE BONDS--Parity Obligations" and
"--Subordinate Obligations."
Payment. Principal of the Bonds will be payable in each of the years and in the amounts
set forth on the cover page hereof at the office of the Trustee. Interest on the Bonds will be paid
by check or draft of the Trustee mailed by first class mail to the person entitled thereto. See
"THE BONDS--General". Initially, interest on and principal and premium, if any, of the Bonds
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will be payable when due by wire of the Trustee to The Depository Trust Company, New York,
New York ("DTC"), which will in turn remit such interest, principal and premium, if any, to
DTC Participants (as defined herein), which will in turn remit such interest, principal and
premium, if any, to Beneficial Owners (as defined herein) of the Bonds. See "THE
BONDS~Book-Entry Only System."
Redemption. The Bonds are subject to optional redemption, extraordinary redemption
and mandatory sinking fund redemption prior to their stated maturity dates, as provided
herein. See "THE BONDS-~Dptional, Extraordinary and Mandatory Redemption".
Form of Bonds. The Bonds will be dated as of their date of delivery and will be issued in
fully registered form, without coupons, in the minimum denominations of $5,000 or any
integral multiple thereof. Any Bond may, in accordance with its terms, be transferred or
exchanged, pursuant to the provisions of the Indenture. See "THE BONDS General".
Book-Entry System. The Bonds 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 securities
depository for the Bonds. Ownership interests in the Bonds may be purchased in
denominations of $5,000 or any integral multiple thereof, in book-entry form only. Upon receipt
of payments of principal, prepayment premium, if any, and interest with respect to the Bonds,
DTC will in turn remit such principal, prepayment premium, if any, and interest to the
participants in DTC for subsequent disbursement to the beneficial owners of the Bonds. See
"THE BONDS--Book-Entry Only System" below and APPENDIX G--'BOOK-ENTRY ONLY
SYSTEM."
Municipal Bond Insurance Policy. Payment of principal of and interest on the Bonds as the
same shall become due will become secured by a financial guaranty insurance policy (the
"Municipal Bond Insurance Policy") to be issued simultaneously with the issuance of the Bonds
by __ (the "Municipal Bond Insurer"). See "MUNICIPAL BOND INSURANCE POLICY"
herein and APPENDIX F--'SPECIMEN MUNICIPAL BOND INSURANCE POLICY."
Risks of Investment. The Bonds are repayable only from certain money available to the
City from the Enterprise. For a discussion of some of the risks associated with the purchase of
the Bonds, see "BONDOWNERS' RISKS" herein.
NEITHER THE BONDS NOR THE OBLIGATION TO PAY PRINCIPAL OF OR
INTEREST THEREON CONSTITUTES A DEBT OF THE CITY, THE STATE OF CALIFORNIA
OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY
CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL
FAITH AND CREDIT OF THE CITY. THE BONDS ARE SECURED SOLELY BY THE PLEDGE
OF NET REVENUES OF THE CITY AND CERTAIN FUNDS HELD UNDER THE
INDENTURE.
Continuing Disclosure. The City has covenanted, for the benefit of the owners and
beneficial owners of the Bonds, to provide certain financial information and operating data
relating to the Enterprise by not later than nine months following the end of each Fiscal Year
(currently June 30), and to provide notices of the occurrence of certain enumerated events, if
material. See "CONTINUING DISCLOSURE" herein and APPENDIX C--'FORM OF
CONTINUING DISCLOSURE CERTIFICATE."
Additional Information. Additional information regarding this Official Statement may be
obtained by contacting Mr. Ronald A. Nault, Director of Finance, City of Tustin, 300 Centennial
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Way, Tustin, CA 92780, Telephone: (714) 573-3061; Fax: (714) 838-1602; E-mail:
rnault@tustinca.org
THEBONDS
Authority for Issuance
The Bonds are authorized pursuant to the provisions of section 53570 et seq. of the
California Government Code, a resolution adopted by the City Council of the City on July 7,
2003, and the Indenture.
General Provisions
The Bonds will be dated as of their date of delivery and issued in fully registered form
without coupons in denominations of $5,000 or any integral multiple thereof, so long as no
Bond shall have more than one maturity date. The Bonds will mature in the amounts and on the
dates, and bear interest at the rates per annum, set forth on the cover page of this Official
Statement.
Repayment of the Bonds. Interest on the Bonds will be payable on April 1 and October 1 in
each year, beginning October 1, 2003 (each an "Interest Payment Date") to the person whose
name appears on the Bond Registration Books as the Owner thereof as of the Record Date
immediately preceding each such Interest Payment Date, such interest to be paid by check or
draft of the Trustee mailed by first class mail to the Owner or, at the option of any Owner of at
least $1,000,000 aggregate principal amount of the Bonds 'with respect to which written
instructions have been filed with the Trustee prior to the Record Date, by wire transfer, at the
address of such Owner as it appears on the Bond Registration Books. In the event there exists a
default in payment of interest due on such Interest Payment Date, such interest will be payable
on a payment date established by the Trustee to the persons in whose names the Bonds are
registered at the close of business on a special record date for the payment of such defaulted
interest established by notice mailed by the Trustee to the registered Owners of the Bonds not
less than 15 days preceding such special record date. Principal of and premium (if any) on any
Bond will be paid upon presentation and surrender thereof at the Principal Corporate Trust
Office of the Trustee in Los Angeles, California. Both the principal of and interest and premium
(if any) on the Bonds will be payable in lawful money of the United States of America.
The Bonds will bear interest based on a 360-day year comprised of twelve 30-day
months from the Interest Payment Date next preceding the date of authentication thereof,
unless said date of authentication is an Interest Payment Date, in which event such interest is
payable from such date of authentication, and unless said date of authentication is prior to
September 15, 2003, in which event such interest is payable from their date of delivery;
provided, however, that if, as of the date of authentication of any Bond, interest thereon is in
default, such Bond will bear interest from the date to which interest has previously been paid or
made available for payment thereon in full.
DTC as Registered Owner. The Bonds will initially be issued in book-entry only form,
registered in the name of Cede & Co., as nominee of DTC. Purchasers of the Bonds will not
receive certificates representing their interests therein, which will be held at DTC. See "THE
BONDS--Book-Entry Only System".
Redemption
Optional Redemption. The Bonds maturing on or before April 1, , are not subject to
optional redemption prior to maturity. The Bonds maturing on or after April 1, , are subject
to redemption prior to their respective maturity dates, at the option of the City, as a whole or in
part on any date, in any order directed by the City, and if the City fails to direct the order, pro
rata among maturities, and by lot within a maturity, on any date on or after April 1, , from
any source of available funds, at the following respective Redemption Prices (expressed as
percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon
to the date of redemption:
Redemption Date
(both dates inclusive)
April 1, through March 31, __
April 1, through March 31, __
April 1, and thereafter
Redemption
Premium
The City is required to give the Trustee written notice of its intention to optionally
redeem Bonds and deposit all amounts required for such redemption with the Trustee at least
one (1) day prior to the date fixed for such redemption.
Sinking Account Redemption. The Bonds maturing on April 1, , are subject to
mandatory sinking fund redemption in part by lot on April 1 in each year as set forth in the
tables below, from Sinking Account payments made by the City pursuant to the Indenture at a
redemption price equal to the principal amount thereof to be redeemed together with accrued
interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased
in whole or in part as described below, in the aggregate respective principal amounts and on
the respective dates as set forth in the following tables; provided, however, that if some but not
all of the Bonds have been optionally redeemed, the total amount of all future Sinking Account
payments shall be reduced by the aggregate principal amount of Bonds so redeemed, to be
allocated among the Sinking Account payments as are thereafter payable on a pro rata basis in
integral multiples of $5,000 as determined by the City (notice of which determination shall be
given by the Agency to the Trustee).
Sinking Account
Redemption Date
(April 1)
Principal Amount
To Be Redeemed
or Purchased
Maturity
Special Mandatory Redemption From Insurance or Condemnation Proceeds. The Bonds are
also subject to redemption as a whole or in part on any date, in any order directed by the City,
and if the City fails to direct the order, pro rata among maturities, and by lot within a maturity,
to the extent of the Net Proceeds of hazard insurance not used to repair or rebuild the
Enterprise or the Net Proceeds of condemnation awards received with respect to the Enterprise
to be used for such purpose pursuant to the Indenture, at a Redemption Price equal to the
principal amount of the Bonds plus interest accrued thereon to the date fixed for redemption,
without premium.
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Notice of Redemption. Unless waived by any Owner of Bonds to be redeemed, notice of
any redemption of Bonds shall be given, at the expense of the City, by the Trustee by mailing a
copy of a redemption notice by first class mail at least 30 days and not more than 60 days prior
to the date fixed for redemption to the Owner of the Bond or Bonds to be redeemed at the
address shown on the Bond Registration Books; provided, that neither the failure to receive
such notice nor any immaterial defect in any notice shall affect the sufficiency of the
proceedings for the redemption of the Bonds.
All notices of redemption are required to include (i) the redemption date, (ii) the
Redemption Price, (iii) if fewer than all Outstanding Bonds are to be redeemed, the
identification (and, in the case of partial redemption, the respective principal amounts) of the
Bonds to be redeemed, (iv) that on the redemption date the Redemption Price will become due
and payable with respect to each such Bond or portion thereof called for redemption, and that
interest with respect thereto shall cease to accrue from and after said date, and the place or
places where such Bonds are to be surrendered for payment of the Redemption Price, which
places of payment may include the Principal Corporate Trust Office of the Trustee.
Book-Entry Only System
The Bonds will be registered in the name of Cede & Co., as registered owner and
nominee of DTC. DTC will act as securities depository for the Bonds so purchased. Individual
purchases will be made in book-entry form. One fully registered Bond certificate will be issued
for each series and maturity of the Bonds having the same interest rate, in the aggregate
principal amount of such maturity and will be deposited with DTC. Purchasers will not receive
a certificate representing their beneficial ownership interest in Bonds. So long as Cede & Co. is
the registered owner of the Bonds, as nominee of DTC, references herein to the Bondowners or
registered owners shall mean Cede & CO. as aforesaid, and shall not mean the "Beneficial
Owners" of the Bonds. In this Official Statement, the term "Beneficial Owner" shall mean the
person for whom a DTC Participant acquires an interest in the Bonds. See APPENDIX
G---'BOOK-ENTRY ONLY SYSTEM."
So long as Cede & Co. is the registered owner of the Bonds, principal of and interest on
the Bonds are payable by wire transfer of same day funds by the Trustee to Cede & Co., as
nominee for DTC. DTC is obligated, in turn, to remit such amounts to the DTC Participants for
subsequent disbursement to the Beneficial Owners. See APPENDIX G--'BOOK-ENTRY ONLY
SYSTEM."
THE REFUNDING PLAN
General. The Bonds are being issued for the purpose of providing funds which, among
other things, will be used to (a) defease the 1993 Certificates, and (b) prepay the outstanding
agreements described below.
Defeasance of the 1993 Certificates. A portion of the proceeds of the Bonds will be used to
defease the 1993 Certificates. Under terms of an escrow deposit and trust agreement, dated as of
the date of delivery of the Bonds (the "Escrow Agreement"), by and between the City and U.S.
Bank National Association, as escrow bank (the "Escrow Bank"), an escrow fund will be
established. At closing, such net proceeds, together with certain 1993 Certificates fund balances,
will be used to purchase escrow securities, or will remain in cash, in an amount sufficient to pay
the principal and interest with respect to the 1993 Certificates to and including September 15,
2003, and to redeem the 1993 Certificates in full on September 15, 2003, at a redemption price
equal to 102% of the principal amount thereof.
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The mathematical accuracy of the calculation as to the sufficiency of anticipated receipts
from the escrow securities and cash in the escrow fund to meet the debt service and redemption
requirements of the 1993 Certificates and the calculation of the yield with respect to the Bonds
will be verified by Grant Thornton LLP, accountants and management consultants. See
"VERIFICATION REPORT" herein.
Prepayment of Outstanding Agreements. The City has entered into the following
agreements, all secured by the Net Revenues:
An agreement entitled "Orange County Well Construction Program Agreement," dated
as of February 18, 1992, by and between the Orange County Water District (the
"District") and the City (the "Vandenberg Well Agreement"), for the purpose of
financing certain improvements to the Enterprise;
An agreement entitled "Agreement between Orange County Water District and the City
of Tustin for the Construction, Operation and Acquisition of a Groundwater Desalter
Project," dated as of February 18, 1992, as supplemented on May 13, 1992, as amended on
June 16, 1993, and as further amended on October 18, 2000 (the "District Desalter
Agreement"), for the purpose of financing certain improvements to the Enterprise;
An agreement entitled "Tustin Desalter Project Joint Participation Agreement for
Recovery and Utilization of Contaminated Groundwater between the Metropolitan
Water District of Southern California, the Municipal Water District of Orange County,
the Orange County Water District, the East Orange County Water District and the City of
Tustin,' dated as of December 8, 1992 (the "State Desa!ter Agreement"), for the purpose
of financing certain improvements to the Enterprise; and
An agreement entitled "Orange County Well Construction Program Agreement," dated
as of October 21, 1996, by and between the District and the City (the "Well #4
Agreement"), for the purpose of financing certain improvements to the Enterprise.
A portion of the proceeds of the Bonds will be used to prepay, on the date of delivery of
the Bonds, the Vandenberg Well Agreement, the District Desalter Agreement, the State Desalter
Agreement and the Well #4 Agreement
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ESTIMATED SOURCES AND USES OF FUNDS
The estimated sources and uses of funds are as follows:
Sources:
Principal Amount of Bonds
Less: Underwriter's Discount
Less: Original Issue Discount
Plus Released Funds Relating to the 1993 Certificates
TOTAL SOURCES
Uses:
Deposit to Escrow Fund (1)
Prepayment of the Vandenberg Well Agreement
Prepayment of the District Desalter Agreement
Prepayment of the State Desalter Agreement
Prepayment of the Well #4 Agreement
Deposit to Costs of Issuance Fund (2)
TOTAL USES
(1) Amounts deposited in the Escrow Fund will be used to provide for the defeasance of the 1993 Cerfificates. See
"THE REFUNDING PLAN--Defeasance of the 1993 Cerfificates" herein.
(2) Costs of Issuance include legal fees, premiums for the Municipal Bond Insurance Policy, printing costs, rating
agency fees and other miscellaneous expenses.
below.
DEBT SERVICE REQUIREMENTS
Annual debt service on the Bonds (assuming no redemptions of the Bonds) is presented
Year Sinking Fund
Ending or Principal
April 1 Installment
Interest Total
SECURITY FOR THE BONDS
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The general fund of the City is not liable and the credit or taxing power of the City is not pledged
for the payment of the principal or Redemption Price of and interest on the Bonds. The Owners of the
Bonds may not compel the exercise of the taxing power by the City or the forfeiture of its property. The
principal of and interest on the Bonds are not a debt of the City, nor a legal or equitable pledge, charge,
lien or encumbrance, upon any of its property, or upon any of its income, receipts, or revenues except the
Net Revenues of the Enterprise.
Pledge and Assignment; Gross Revenue Fund; Revenue Fund
Pursuant to the Indenture, there are pledged to secure the payment of the principal of
and interest on the Bonds, all of the Net Revenues and any other amounts (including proceeds
of the sale of Bonds) held in any fund or account established pursuant to the Indenture, other
than amounts in the Costs of Issuance Fund and the Maintenance and Operation Fund. Said
pledge shall constitute a lien on and security interest in such assets and shall attach, be
perfected and be valid and binding from and after delivery by the Trustee of the Bonds, without
any physical delivery thereof or further act.
The City pledges, and to the extent permitted by law, grants a security interest to the
Trustee and the holders of Parity Obligations in, the Gross Revenue Fund to secure the payment
of the principal of and interest on the Bonds, any payment required with respect to Parity
Obligations.
Amounts in the Costs of Issuance Fund and the Maintenance and Operation Fund are
not pledged as security for the Bonds.
The City agrees that, so long as any of the Bonds remain Outstanding, all of the Gross
Revenues shall be deposited as soon as practicable upon receipt in a fund or funds, collectively
designated as the "Gross Revenue Fund" which the City shall establish and maintain at such
banking or financial institution or institutions as the City shall from time to time designate for
such purpose. The City may commingle amounts in said fund with other monies of the City for
investment purposes, so long as it maintains accounting records which at all times identify the
amount therein and any investment gains or losses thereon.
The City shall deposit in the Maintenance and Operation Fund (which the City shall
establish and maintain hereunder), on or before the first Business Day of each month, an
amount which, together with any other available amounts then on deposit therein, is required
to pay the Maintenance and Operation Costs which are budgeted or estimated by the City to
become due and payable during such month. Amounts in the Maintenance and Operation Fund
shall be applied by the City solely for the purpose of paying the Maintenance and Operation
Costs when and as such Maintenance Costs become due and payable. The City may commingle
amounts in said fund with other monies of the City for investment purposes, so long as it
maintains accounting records which at all times identify the amount therein and any investment
gains or losses thereon.
On or before the fifteenth (15th) Business Day preceding each Interest Payment Date and
as long as any of the Bonds remain Outstanding, the City shall pay to the Trustee for deposit
into the Revenue Fund such amount as is required to pay debt service on the Bonds. Each
transfer by the City to the Trustee hereunder shall be in lawful money of the United States of
America and paid to the Trustee at its Trust Office. All such moneys shall be promptly
deposited by the Trustee upon receipt thereof in a special fund designated as the "Revenue
Fund" which the Trustee shall establish, maintain and hold in trust. All moneys deposited with
-9-
the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in
this Indenture.
Allocation of Net Revenues
On or before the fifth (5th) Business Day preceding each Interest Payment Date, the
Trustee shall transfer from the Revenue Fund and deposit into the following respective
accounts (each of which the Trustee shall establish and maintain within the Revenue Fund), the
following amounts, in the following order of priority, the requirements of each such account
(including the making up of any deficiencies in any such account resulting from lack of Net
Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied
before any transfer is made to any account subsequent in priority:
First: to the Interest Account, the aggregate amount of interest becoming due and
payable on the next succeeding Interest Payment Date on all Bonds then Outstanding,
until the balance in said account is equal to said aggregate amount of interest;
Second: to the Principal Account, one-half (1/2) of the aggregate amount of
principal becoming due and payable on the Outstanding Serial Bonds plus the aggregate
amount of Mandatory Sinking Account Payments required to be paid into the respective
Sinking Accounts for Outstanding Term Bonds, in each case on the next succeeding
Principal Payment Date, until the balance in said account is equal to said aggregate
amount of such principal and Mandatory Sinking Account Payments; and
Third: to the Bond Reserve Account, the aggregate amount of each prior
withdrawal from the Bond Reserve Account for the purpose of making up a deficiency
in the Interest Account or Principal Account; provided that no deposit need be made
into the Bond Reserve Account so long as the balance in said account shall be at least
equal to the Bond Reserve Account Requirement.
Any moneys remaining in the Revenue Fund after the foregoing transfers shall be
transferred to the City.
Application of Interest Account
All amounts in the Interest Account shall be used and withdrawn by the Trustee solely
for the purpose of paying interest on the Bonds as it shall become due and payable (including
accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to this
Indenture).
Application of Principal Account
All amounts in the Principal Account shall be used and withdrawn by the Trustee solely
for the purposes of paying the principal of the Bonds when due and payable, except that all
amounts in the Sinking Account shall be used and withdrawn by the Trustee solely to purchase
or redeem or pay at maturity Term Bonds, as provided herein.
Application of Bond Reserve Account
All amounts in the Bond Reserve Account shall be used and withdrawn by the Trustee
solely for the purpose of making up any deficiency in the Interest Account or Principal Account,
or (together with any other moneys available therefor) for the payment or redemption of all
Bonds then Outstanding. On the fifteenth (15th) Business Day preceding each Interest Payment
-10-
Date, any amount in the Bond Reserve Account in excess of the Bond Reserve Account
Requirement shall be transferred to the Revenue Fund.
Amounts in the Bond Reserve Account shall be valued by the Trustee not less often than
semi-annually. If, on any date of computation, moneys and securities on deposit in the Bond
Reserve Account are less than the Bond Reserve Account Requirement (unless such deficiency
is a result of a transfer therefrom), the City covenants and agrees that it will, within twelve
months thereof, increase the amount therein to the Bond Reserve Account Requirement. If such
deficiency is a result of a transfer therefrom, the City covenants and agrees that it will, within
twenty-four months thereof, increase the amount therein to the Bond Reserve Account
Requirement.
The City shall have the right at any time to direct the Trustee to release funds from the
Bond Reserve Account, in whole or in part, by tendering to the Trustee: (1) a Qualified Bond
Reserve Account Credit Instrument, and (2) an opinion of Bond Counsel stating that such
release will not, of itself, cause interest with respect to the Bonds to become includable in gross
income for purposes of federal income taxation. Upon tender of such items to the Trustee, the
Trustee shall transfer such funds from the Bond Reserve Account to the City for deposit by the
City in a segregated account maintained by the City and used exclusively for the acquisition,
construction and installation of improvements to the Enterprise. Prior to the expiration of any
Qualified Bond Reserve Account Credit Instrument, the City shall be obligated either (a) to
replace such Qualified Bond Reserve Account Credit Instrument with a new Qualified Bond
Reserve Account Credit Instrument, or (b) to remit or cause to be remitted to the Trustee for
deposit in the Bond Reserve Account an amount of moneys equal to the Bond Reserve Account
Requirement, to be derived from Net Revenues; provided, however, that if the City shall fail to
replace an expiring Qualified Bond Reserve Account Credit Instrument or to deposit moneys
equal to the Bond Reserve Account Requirement, the Trustee shall draw on such Qualified
Bond Reserve Account Credit Instrument before such expiration and deposit the proceeds of
such draw in the Bond Reserve Account.
Rate Covenant
The City shall fix, prescribe, revise and collect rates, fees and charges for the services and
facilities furnished by the Enterprise during each Fiscal Year which (together with other funds
accumulated from Gross Revenues and which are lawfully available to the City for payment of
any of the following amounts during such Fiscal Year) are at least sufficient, after making
allowances for contingencies and error in the estimates, to pay the following amounts in the
following order:
(a) all Maintenance and Operation Costs estimated by the City to become due and
payable in such Fiscal Year;
(b) the principal of and interest on the Outstanding Bonds becoming due and payable
during such Fiscal Year, including all Mandatory Sinking Account payments during such Fiscal
Year;
(c) all other payments required for compliance with this Indenture and the instruments
pursuant to which any Parity Obligations shall have been issued;
(d) all payments required to meet any other obligations of the City which are charges,
liens, encumbrances upon or payable from the Gross Revenues or the Net Revenues; and
(e) any other lawful purposes of the City.
-11-
In addition, the City shall fix, prescribe, revise and collect rates, fees and charges for the
services and facilities furnished by the Enterprise during each Fiscal Year which are sufficient to
yield Net Revenues, including connection charges together with other funds accumulated in the
City's Water Fund and which are lawfully available to the City for payment of the debt service
on the Bonds, at least equal to one hundred __ percent (1__%) of the amounts payable
under the preceding paragraph (b) in such Fiscal Year.
Limitations on Future Obligations Secured by Net Revenues
No Obligations Superior to Bonds or Parity Obligations. In order to protect further the
availability of the Net Revenues and the security for the Bonds and any Parity Obligations, the
City hereby covenants that no additional bonds or other obligations shall be issued or incurred
having any priority in payment of principal or interest out of the Net Revenues over the Bonds
or such Parity Obligations.
Parity Obligations. The City further covenants that, except for obligations issued or
incurred to refund the Bonds, the City shall not issue or incur any Parity Obligations unless:
(i) The City is not in default under the terms of this Indenture; and
(ii) Net Revenues, calculated on sound accounting principles, as shown by the
books of the City for the latest Fiscal Year or any more recent twelve (12) month period
selected by the City ending not more than sixty (60) days prior to the adoption of the
resolution pursuant to which instrument such Parity Obligations is issued or incurred,
as shown by the books of the City, plus, at the option of the City, the additional
allowance described below, shall have amounted to at least 1. times Maximum
Aggregate Annual Debt Service immediately subsequent to the incurring of such
additional obligations.
Either or both of the following items may be added to such Net Revenues for the
purpose of applying the restriction contained herein:
(A) An allowance for revenues from any additions to or improvements or
extensions of the Enterprise to be constructed with the proceeds of such
additional obligations, and also for Net Revenues from any such additions,
improvements or extensions which have been constructed from any source of
funds but which, during all or any part of such Fiscal Year, were not in service,
all in an amount equal to 70% of the estimated additional average annual Net
Revenues to be derived from such additions, improvements and extensions for
the first 36-month period following issuance of the proposed Parity Obligations,
all as shown by the certificate or opinion of a qualified independent consultant
employed by the City, may be added to such Net Revenues for the purpose of
applying the restriction contained above.
(B) An allowance for earnings arising from any increase in the charges
made for service from the Enterprise which has become effective prior to the
incurring of such additional obligations but which, during all or any part of such
Fiscal Year, was not in effect, in an amount equal to 100% 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 such Fiscal Year and any period prior to
the incurring of such additional obligations, as shown by the certificate or
opinion of a qualified independent engineer employed by the City.
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associated with the purchase of any Bonds and does not necessarily reflect the relative importance of the
various risks. Potential investors in the Bonds are advised to consider the following special factors along
with all other information in this Official Statement in evaluating the Bonds. There can be no assurance
that other considerations will not materialize in the future.
Net Revenues; Rate Covenant
Net Revenues are dependent upon the demand for water sales, which can be affected by
population factors, more stringent drinking water regulations, or problems with the City's
treatment facilities. There can be no assurance that water service demand will be consistent with
the levels contemplated in this Official Statement. A decrease in the demand for water could
require an increase in rates or charges in order to comply with the rate covenant. The City's
ability to meet its rate covenant is dependent upon its capacity to increase rates without driving
down demand to a level insufficient to meet debt service on the Bonds.
Enterprise Demand and Growth
There can be no assurance that the local demand for the services provided by the
Enterprise will be maintained at levels described in this Official Statement under the heading
"THE ENTERPRISE." Reduction in the level of demand could require an increase in rates or
charges in order to produce Net Revenues sufficient to comply with the City's rate covenant in
the Indenture. There can be no assurance that any other entity with regulatory authority over
the Enterprise will not adopt further restrictions on operation of the Enterprise.
Enterprise Expenses
There can be no assurance that the City's expenses for the Enterprise will be consistent
with the levels described in this Official Statement. Changes in technology, new regulatory
requirements, increases in the cost of energy or other expenses would reduce Net Revenues,
and could require substantial increases in water service charges in order to comply with the rate
covenant. Such rate increases could increase the likelihood of nonpayment, and could also
decrease demand.
Future Land Use Regulations
Development within the City's service area is contingent upon the future construction
and acquisition of a number of public improvements such as arterial streets, water distribution
facilities, sewage collection and transmission facilities, drainage facilities and street lighting, as
well as the necessary local in-tract improvements. The installation of the necessary
infrastructure improvements and the construction of the residential development are subject to
the receipt of discretionary approvals from a number of public agencies concerning the layout
and design of the development, the nature and extent of the improvements, land use, health
and safety requirements and other matters. The failure to obtain any such approval could
adversely affect the planned land development within the City.
In addition, there can be no assurance that land development operations within the City
will not be adversely affected by future government policies, including, but not limited to,
governmental policies to restrict or control development.
Limitations on Remedies Available to Bondowners
The ability of the City to comply with its covenants under the Indenture and to generate
Net Revenues sufficient to pay principal of and interest on the Bonds may be adversely affected
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by actions and events outside of the control of the City, and may be adversely affected by
actions taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees
and charges. See "Proposition 218" below. Furthermore, any remedies available to the owners
of the Bonds upon the occurrence of an event of default under the Indenture are in many
respects dependent upon judicial actions, which are often subject to discretion and delay and
could prove both expensive and time consuming to obtain.
In addition to the limitations on Bondholder remedies contained in the Indenture, the
rights and obligations under the Bonds and the Indenture may be subject to the following: the
United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or affecting the enforcement of creditors' rights
generally, now or hereafter in effect; usual equity principles which may limit the specific
enforcement under State law of certain remedies; the exercise by the United States of America of
the powers delegated to it by the Federal Constitution; and the reasonable and necessary
exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the
State of California and its governmental bodies in the interesk of serving a significant and
legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or
state government, if initiated, could subject the Owners of the Bonds to judicial discretion and
interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of
delay, limitation or modification of their rights.
Loss of Tax-Exemption
As discussed under the caption "TAX MATTERS" herein, interest on the Bonds could
become includable in gross income for purposes of federal income taxation retroactive to the
date the Bonds were issued, as a result of future acts or omissions of the City in violation of its
covenants in the Indenture. Should such an event of taxability occur, the Bonds are not subject
to special redemption and will remain Outstanding until maturity or until redeemed under
other provisions set forth in the Indenture.
Proposition 218
On November 5, 1996, the voters of the State approved Proposition 218, the so-called
"Right to Vote on Taxes Act." Proposition 218 adds Articles XIIIC and XIIID to the State
Constitution which affect the ability of local governments to levy and collect both existing and
future taxes, assessments, fees and charges. Proposition 218, which became effective on
November 6, 1996 (although application of some of its provisions was deferred until July 1,
1997) changes, among other things, the procedure for the imposition of new or increased fees or
charges. Specifically, Article XIII C requires that all new local taxes be submitted to the
electorate for approval before such taxes become effective. General taxes, imposed for general
governmental purposes of the City, require a majority vote, and special taxes, imposed for
specific purposes require a two-thirds vote. Under Proposition 218, the City can only continue
to collect taxes that were imposed after January 1, 1995 if they are approved by the voters by
November 6, 2002.
Under Article XIIID, revenues derived from a "fee" or "charge" (defined as "any levy
other than an ad valorem tax, a special tax or an assessment, imposed by a [local government]
upon a parcel or upon a person as an incident of property ownership, including user fees or
charges for a property related service") may not exceed the funds required to provide the
"property-related service" and may not be used for any purpose other than that for which the
fee or charge was imposed. Further, the amount of a "fee" or "charge" may not exceed the
proportional cost of the service attributable to the parcel, no "fee" or "charge" may be imposed
for a service unless that service is actually used by, or is immediately available to, the owner of
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the property in question and no "fee" or "charge" may be imposed for general governmental
services where the service is "available to the public at large in substantially the same manner
as it is to the property owners." All new and existing property-related fees and charges must
conform to specific requirements and prohibitions set forth in the Article. Further, before any
property-related fee or charge may be imposed or increased, written notice must be given to the
record owner of each parcel of land affected by such fee or charge. The City must then hold a
hearing upon the proposed imposition or increase, and if written protests against the proposal
are presented by a majority of the owners of the identified parcels, the City may not impose or
increase the fee or charge. Moreover, except for fees or charges for sewer, water and refuse
collection services (or fees for electrical and gas service, which are not treated as "property-
related" for purposes of Article XIIID), no property-related fee or charge may be imposed or
increased without majority approval by the property owners subject to the fee or charge or, at
the option of the local agency, two-thirds voter approval by the electorate residing in the
affected area.
The City has concluded that Proposition 218 does not apply to its existing system of
water service charges because the service charges are not imposed upon a parcel of land as an
"incident of ownership", but instead are a commodity-based charge based upon the user's
consumption of a measurable commodity. Moreover, the City believes the service charges are
sized only to recover the City's reasonable or actual costs in providing water service.
Accordingly, the City has not followed the procedures described in the previous paragraph
when increasing its water rates and charges. Although the California Attorney General has
similarly concluded that a water rate based upon the level of consumption is not governed by
Proposition 218 (see 97 Cal. Op. Atty. Gen. No. 302 (July 14, 1997)), it should be noted that no
court has addressed the issue and the principal drafters of Proposition 218 have publicly
challenged the condusion of the Attorney General.
Proposition 218 also provides that the constitutional initiative power shall not be
prohibited or otherwise limited in matters of reducing or repealing any local taxes, assessments,
fees and charges. This provision with respect to the initiative power is not limited to taxes
imposed on or after November 6, 1996, the effective date of Proposition 218. However, on July 1,
1997, a bill was signed into law by the Governor of the State enacting Government Code 5854,
which states:
Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5,
1996 general election, shall not be construed to mean that any owner or beneficial owner of a
municipal security, purchased before or after that date, assumes the risk of, or in any way
consents to, any action by initiative measure that constitutes an impairment of contractual
rights protection by Section 10 of Article I of the United States Constitution.
However, there can be no assurance that the voters of the City will not, in the future,
approve an initiative which attempts to reduce water rates or curtail their increase.
In addition, Proposition 218 requires that all new local taxes be submitted to the
electorate before they become effective. Taxes for general governmental purposes of the City
require a majority vote and taxes for specific purposes require a two-thirds vote. New local
taxes for general governmental purposes may only be submitted to the electorate of the City at
general elections in which members of the City Council are elected, which currently occurs
every two years. The voter approval requirements reduce the City Council' flexibility to deal
with fiscal problems by raising revenue and no assurance can be given that the City will be able
to raise taxes in the future to meet increased expenditure requirements.
The provisions of Proposition 218 have not been interpreted by any court. The City is
unable to predict how Article XIIIC and Article XIIID will be interpreted by the courts and
what, if any, implementing legislation will be enacted. Bond Counsel has advised that there can
be no assurance that Article XIIIC and Article XIIID will not limit the ability of the City to
impose, levy, charge and collect fees and charges sufficient to enable the City to comply with its
covenants under the Indenture or that the ability of the City to generate Net Revenues sufficient
to pay principal of and interest on the Bonds will not be adversely affected. Further, in such
event, there can be no assurance of the availability of remedies to protect fully the interests of
the holders of the Bonds.
Other Constitutional Provisions
Certain provisions of Article XIIIA of the California Constitution (a) limit ad valorem
property taxes on all real property to 1 percent of the full cash value of the property; (b) exempt
certain classes of voter-approved bonded indebtedness from the 1 percent limitation; (c) define
"full cash value" as the Assessor's appraised value of real property as of March 1, 1975,
adjusted by changes in the Consumer Price Index, not to exceed 2 percent per year; (d) permit
establishment of a new "full cash value" when there is new construction or a change in
ownership; (e) permit the reassessment, up to the March 1, 1975, value, of property which was
not current on the 1975-76 assessment roll; (f) require counties to collect the 1 percent property
tax and to apportion according to law to the cities within the counties; (g) prohibit new ad
valorem taxes on real property, or sale taxes, or transaction taxes, on the sale of real property;
(h) permit the imposition of special taxes by local agencies, other than those prohibited, by a
two-thirds (2/3) vote of the "qualified electors" of such agencies; and (i) require a two-thirds
(2/3) vote of all members of both houses of the Legislature for any changes in State taxes which
would result in increased revenues.
Legislation has been enacted and amended a number of times since 1978 to implement
Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any
property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically
levied by the county and distributed according to a formula among taxing agencies. The
formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to
1979, but is subject to legislative change at any time.
Increases of assessed valuation resulting from reappraisals of property due to new
construction, change in ownership or from the 2% annual adjustment are allocated among the
various jurisdictions in the "taxing area" based upon their respective "situs." Any such
allocation made to a local agency continues as part of its allocation in future years.
An initiative constitutional amendment entitled "Limitation of Government
Appropriations" and known as the "Garm Initiative" was approved by California voters in
1979. Under the amendment, which added Article XIIIB to the California Constitution, state and
local government agencies are subject to an annual "appropriations limit", and are prohibited
from spending "appropriations subject to limitation" above that limit. "Appropriations subject
to limitation" consist of tax revenues, state subventions, and certain other funds. The
amendment does not affect the appropriation of money excluded from the definition of
"appropriations subject to limitation", such as debt service on indebtedness existing or
authorized by January 1, 1979, or subsequently authorized by the voters and appropriations
mandated by a court. The amendment also excludes from limitation the appropriation of
proceeds from regulatory licenses, user charges, or other fees to the extent that such proceeds
equal "the costs reasonably borne by such entity in providing the regulation, product, or
service".
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In general terms, the amendment provides that the appropriations limit will be based on
certain 1978-79 expenditures and will be adjusted annually to reflect changes in cost of living,
population, and transfer of financial responsibility of providing services from one governmental
unit to another. The amendment also provides that if an agency's revenues which constitute
"proceeds of taxes" in any year exceed the amount which is appropriated by such agency in
compliance with the amendment, the excess must be returned during the next two fiscal years
by revising tax rates or fee schedules. The City believes it is presently fulfilling all obligations
under Article XIIIB of the California Constitution.
In 1988, Proposition 90 ("Proposition 90") was approved by the California voters which
allows the California Legislature (the "Legislature") to authorize each county board of
supervisors, after consultation with affected agencies within the county, to adopt an ordinance
allowing persons over the age of 55 years who purchase a dwelling within the county for his or
her principal residence in replacement for one of equal or greater value located in another
county, to transfer the base year value for property tax purposes (the "Tax Value") of the
previous dwelling to the replacement dwelling. The Tax Value of the residential property
subject to the provisions of Proposition 90 would be lower than the Tax Value of such property
if it were not subject to Proposition 90. If implemented by the Legislature, Proposition 90 could
lower property tax revenues in cities if the City of Tustin chooses to participate in the program
and if persons who qualify for the reduced Tax Value purchase replacement dwellings within
the City of Tustin. It is not possible to determine with certainty the impact that Proposition 90
will have on the City, if any.
In 1986, California voters approved Proposition 62, an initiative statute adding sections
53720 to 53730, inclusive, to the California Government Code. Proposition 62 confirmed the
distinction between a general tax and special tax, established by the State Supreme Court in
1982 in City and County of San Francisco v. Farrell, by defining a general tax as one imposed for
general governmental purposes and a special tax as one imposed for specific purposes.
Proposition 62 further provided that (i) a general tax may not be imposed without prior
approval of the electorate by majority vote or (ii) a special tax may not be imposed without such
prior approval by two-thirds vote. It further provided that if any such tax is imposed without
such prior approval, the amount thereof must be withheld from the levying entity's allocation
of annual property taxes for each year that the tax is collected. By its terms, Proposition 62
applies only to general and special taxes imposed on or after August 1, 1985. Proposition 62 was
generally upheld in Santa Clara County Local Transportation Authority v. Guardino, a California
Supreme Court decision filed September 28, 1995.
Environmental Regulation
The kind and degree of water treatment which is effected through the Enterprise is
regulated, to a large extent, by the federal government and the State of California. Treatment
standards set forth in federal and state law control the operations of the Enterprise and mandate
its use of technology. In the event that the federal government, acting through the
Environmental Protection Agency, or the State of California, acting through the Department of
Health Services, or additional federal or state legislation, should impose stricter water quality
standards upon the Enterprise, the City's expenses could increase accordingly and rates and
charges would have to be increased to offset those expenses. It is not possible to predict the
direction federal or state regulation will take with respect to drinking water quality standards,
although it is likely that both will impose more stringent standards with attendant higher costs.
-25-
Secondary Market for Bonds
There can be no guarantee that there will be a secondary market for the Bonds or, if a
secondary market exists, that any Bonds can be sold for any particular price. Occasionally,
because of general market conditions or because of adverse history or economic prospects
connected with a particular issue, secondary marketing practices in connection with a particular
issue are suspended or terminated. Additionally, prices of issues for which a market is being
made will depend upon then-prevailing circumstances. Such prices could be substantially
different from the original purchase price.
Parity Obligations
As described in "SECURITY FOR THE BONDS--Parity Obligations" above, the
Indenture permits the City to issue Parity Obligations, its obligations under which would be
payable on a parity with the payment of debt service of the Bonds. In the event of a decline in
Net Revenues available to pay debt service on the Bonds, the existence of Parity Bonds could
adversely affect the City's ability to pay debt service on the Bonds.
TAX MATTERS
In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, based
on an analysis of existing statutes, regulations, rulings, and court decisions, and assuming,
among other matters, compliance with certain covenants, interest on the Bonds is excluded from
gross income for federal income tax purposes under secfion 103 of the Internal Revenue Code of
1986 (the "Code") and is exempt from State of California personal income taxes. Bond Counsel
is of the further opinion that interest on the Bonds is not a specific preference item for purposes
of federal individual or corporate alternative minimum taxes, although Bond Counsel observes
that interest on the Bonds is included in adjusted current earnings when calculating federal
corporate alternative taxable income. A copy of the proposed opinion of Bond Counsel is set
forth in Appendix E hereto.
The Code imposes various restrictions, conditions and requirements relating to the
exclusion from gross income for federal tax purposes of interest on obligations such as the
Bonds. The City has covenanted to comply with certain guidelines designed to assure that
interest on the Bonds will not become includable in federal gross income. Failure to comply
with these covenants may result in interest on the Bonds being included in federal gross
income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes
compliance with these covenants. Bond Counsel has not undertaken to determine, or to inform
any person, whether actions taken, or omitted, or whether events occurring, or not occurring,
after the date of issuance of the Bonds may affect the value of, or tax status of, interest on the
Bonds.
Certain agreements, requirements and procedures contained or referred to in the
Indenture, the Tax Certificate and other relevant documents may be changed and certain
actions may be taken or not taken, under the circumstances and subject to the terms and
conditions set forth in such documents, upon the advice or with the approving opinion of
nationally recognized bond counsel. Bond Counsel expresses no opinion as to any Bond or the
interest thereon if any such change occurs or action is taken or not taken upon the advice or
approval of bond counsel other than Jones Hall, A Professional Law Corporafion.
Although Bond Counsel has rendered an opinion that interest on the Bonds is excluded
from federal gross income, the ownership or disposition of, or the accrual or receipt of interest
-26-
on, the Bonds may otherwise affect an Owner's tax liability. The nature and extent of these
other tax consequences will depend upon the Owner's particular tax status and the Owner's
other items of income or deduction. Bond Counsel expresses no opinion regarding any such
other tax consequences caused by the ownership or disposition or the accrual or receipt of
interest on, the Bonds.
CERTAIN LEGAL MATTERS
Quint & Thimmig LLP, San Francisco, California, Bond Counsel, will render an opinion
with respect to the validity of the Bonds, the form of which opinion is set forth in Appendix E.
Bond Counsel has assumed no responsibility for the accuracy, completeness or fairness of the
Official Statement. Certain legal matters will also be passed upon for the City by Quint &
Thimmig LLP, San Francisco, California, as Disclosure Counsel. Certain legal matters will be
passed upon for the City by the City Attorney. Payment of the fees and expenses of Bond Counsel
and Disclosure Counsel is contingent upon issuance of the Bonds.
LITIGATION
To the best knowledge of the City, there is no action, suit, proceeding or investigation at
law or in equity before or by any court or governmental agency or body pending or threatened
against the Agency to restrain or enjoin the authorization, execution or delivery of the Bonds, or
the pledge of the Net Revenues or the collection of the payments to be made pursuant to the
Indenture, or in any way contesting or affecting validity of the Bonds, the Indenture or the
agreement for the sale of the Bonds, or in any way contesting or affecting the transactions
described in this Official Statement.
RATINGS
Moody's Investors Service ("Moody's") and Standard & Poor's Ratings Services, A
Division of The McGraw-Hill Companies, Inc. ("S&P"), have assigned the ratings of "Aaa" and
"AAA," respectively, to the Bonds, with the understanding that upon delivery of the Bonds, the
Municipal Bond Insurance Policy will be issued by the Municipal Bond Insurer. In addition,
S&P has assigned its underlying rating to the Bonds of "A'. Such ratings reflect only the views
of such organizations and an explanation of the significance of such ratings may be obtained
from them as follows: Moody's, 99 Church Street, New York, NY 10007, (212) 553-0300 and S&P,
55 Water Street, New York, NY 10041, (212) 438-2124. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised downward or
withdrawn entirely by a rating agency, if in the judgment of such rating agency, circumstances
so warrant. Any downward revision or withdrawal of either of such ratings may have an
adverse effect on the market price of the Bonds.
FINANCIAL ADVISOR
The City has retained Gardner, Underwood & Bacon, LLC, Los Angeles, California, as
Financial Advisor in connection with the authorization and delivery of the Bonds. The fees of
the Financial Advisor are contingent upon the sale and delivery of the Bonds. Gardner,
Underwood & Bacon, LLC is an independent advisory firm and is not engaged in the business
of underwriting, trading or distributing municipal or other public securities.
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CONTINUING DISCLOSURE
The City has covenanted for the benefit of owners of the Bonds to provide certain
financial information and operating data relating to the City and the Enterprise by not later than
nine months after the end of the City's fiscal year (which is currently June 30) in each year
commencing with the report for the 2002-2003 fiscal year (the "Annual Report") and to provide
notices of the occurrence of certain enumerated events, if material. The Annual Report will be
filed by the City, as Dissemination Agent, with each Nationally Recognized Municipal
Securities Information Repository. The notices of material events will be filed by the City with
the Municipal Securities Rulemaking Board. These covenants have been made in order to assist
the Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the
"Rule"). The specific nature of the information to be contained in the Annual Report or the
notices of material events by the City is set forth in "APPENDIX C--FORM OF CONTINUING
DISCLOSURE CERTIFICATE." The City has not previously defaulted on any obligation to
provide an annual report in accordance with the Rule with respect to any bond issue of the City.
VERIFICATION REPORT
Grant Thornton LLP, independent accountants, upon delivery of the Bonds, will deliver
a report on the mathematical accuracy of certain computations, contained in schedules provided
to them on behalf of the City, relating to (a) the sufficiency of the anticipated receipts from the
securities deposited into the Escrow Fund to pay, when due, the principal, interest and
redemption premium requirements with respect to the 1993 Certificates.
UNDERWRITING
The Bonds were purchased at competitive sale by by (the "Purchaser").
The Purchaser has agreed to purchase the Bonds at a price of $. (which price is
equal to the aggregate principal amount of the Bonds, less net original issue discount of
$ and less an Underwriter's discount of $ ), plus accrued interest.
The Purchaser has agreed to purchase all of the Bonds if any are purchased, the obligation to
make such purchase being subject to certain terms and conditions, including the approval of
certain legal matters by counsel and certain other conditions.
The Purchaser intends to offer the Bonds to the public at the offering prices set forth on
the cover page of this Official Statement. The Purchaser may offer and sell to certain dealers and
others at a price lower than the offering prices stated on the cover page hereof. The offering
price may be changed from time to time by the Purchaser.
MISCELLANEOUS
So far as any statements made in this Official Statement involve matters of opinion,
assumptions, projections, anticipated events or estimates, whether or not expressly stated, they
are set forth as such and not as representations of fact, and actual results may differ
substantially from those set forth herein. Neither this Official Statement nor any statement
which may have been made verbally or in writing is to be construed as a contract with the
owners of the Bonds.
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The summaries of certain provisions of the Bonds, statutes and other documents or
agreements referred to in this Official Statement do not purport to be complete, and reference is
made to each of them for a complete statement of their provisions. Copies are available for
review by making requests to the City.
The Appendices are an integral part of this Official Statement and must be read together
with all other parts of this Official Statement. The audited financial statements of the City,
including a summary of significant accounting policies, for the fiscal year ended June 30, 2001
are contained in Appendix B.
The execution of this Official Statement and its delivery have been authorized by the
City Council of the City.
CITY OF TUSTIN
By
Director of Finance
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APPENDIX A
SUMMARY OF THE LEGAL DOCUMENTS
[TO COME]
Appendix A
APPENDIX B
AUDITED FINANCIAL STATEMENTS OF THE CITY
FOR FISCAL YEAR ENDING JUNE 30, 2002
[HAVE BEEN SCANNED; WILL BE INSERTED FO PRINTING]
Appendix A
Page 1
APPENDIX C
FORM OF THE CONTINUING DISCLOSURE CERTIFICATE
This CONTINUING DISCLOSURE CERTIFICATE (the "Disclosure Certificate") is executed and
delivered by the CITY OF TUSTIN (the "City") in connection with the issuance of $. aggregate
principal amount of the City's 2003 Refunding Water Revenue Bonds (the "Bonds"). The Bonds are being
issued pursuant to an indenture of trust, dated as of August 1, 2003 (the "Indenture"), by and between
the City and U.S. Bank National Association, as trustee (the "Trustee"). The City covenants and agrees as
follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and
delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to
assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).
Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any
capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the
following capitalized terms shall have the following meanings:
"Annual Report" shall mean any Annual Report provided by the City pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
"Dissemination Agent" shall mean U.S. Bank National Association, or any successor Dissemination
Agent designated in writing by the City and which has filed with the City and the Trustee a written
acceptance of such designation.
"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.
"National Repository" shall mean any Nationally Recognized Municipal Securities Information
Repository for purposes of the Rule.
"Participating Underwriter" shall mean the original underwriter of the Bonds required to comply
with the Rule in connection with offering of the Bonds.
"Repository" shall mean each National Repository and each State Repository.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as the same may be amended from time to time.
"State Repository" shall mean any public or private repository or entity designated by the State of
California as a state repository for the purpose of the Rule and recognized as such by the Securities and
Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.
Section 3. Provision of Annual Reports.
(a) The City shall, or upon written direction shall cause the Dissemination Agent to, not later than
March 31 of each year (being the last day of the ninth month after the end of the City's fiscal year which
ends on June 30), commencing with the report for the 2002-2003 fiscal year, provide to each Repository an
Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate with a
copy to the Trustee. Not later than fifteen (15) Business Days prior to said date, the City shall provide the
Annual Report to the Dissemination Agent (if other than the City). The Annual Report may be submitted
as a single document or as separate documents comprising a package, and may include by reference
other information as provided in Section 4 of this Disclosure Certificate; provided that the audited
financial statements of the City may be submitted separately from the balance of the Annual Report, and
later than the date required above for the filing of the Annual Report if not available by that date. If the
City's fiscal year changes, it shall give notice of such change to the Municipal Securities Rulemaking
Board and each State Repository with a copy to the Trustee. The City shall provide a written certification
*Preliminary, subject to change. Appendix C
Page 1
with each Annual Report furnished to the Dissemination Agent and the Trustee to the effect that such
Annual Report constitutes the Annual Report required to be furnished by the City hereunder. The
Dissemination Agent and the Trustee shall have no duty or obligation to review such Annual Report.
(b) If the City is unable to provide to the Repositories an Annual Report by the date required in
subsection (a), the City shall send a notice to the Municipal Securities Rulemaking Board and each State
Repository in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual Report the name and
address of each National Repository and each State Repository, if any; and
(ii) if the Dissemination Agent is other than the City, file a report with the City certifying
that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date
it was provided and listing all the Repositories to which it was provided.
Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by
reference the following:
(a) Audited Financial Statements prepared in accordance with generally accepted accounting
principles as promulgated to apply to governmental entities from time to time by the Governmental
Accounting Standards Board. If the City's audited financial statements are not available by the time the
Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited
financial statements in a format similar to the financial statements contained in the final Official
Statement, and the audited financial statements shall be filed in the same manner as the Annual Report
when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or prior to the annual
filing deadline for Annual Reports provided for in Section 3 above, financial information and operating
data with respect to the City for preceding fiscal year, substantially similar to that provided in the
corresponding tables and charts in the official statement for the Bonds:
[(i) Rates for Water Service;
(ii) Water Consumption and Collections;
(iii) Number of Services; and
(iv) Ten Largest Users of Water.]
Any or all of the items listed above may be included by specific reference to other documents,
including official statements of debt issues of the City or related public entities, which have been
submitted to each of the Repositories or the Securities and Exchange Commission. If the document
included by reference is a final official statement, it must be available from the Municipal Securities
Rulemaking Board. The City shall clearly identify each such other document so included by reference.
(c) In addition to any of the information expressly required to be provided under this Disclosure
Certificate, the City shall provide such further material information, if any, as may be necessary to make
the specifically required statements, in the light of the circumstances under which they are made, not
misleading.
Section 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of
the occurrence of any of the following events with respect to the Bonds, if material:
(i) Principal and interest payment delinquencies.
(ii) Non-payment related defaults.
(iii) Unscheduled draws on debt service reserves reflecting financial difficulties.
(iv) Unscheduled draws on credit enhancements reflecting financial difficulties.
Appendix C
Page 2
(v) Substitution of credit or liquidity providers, or their failure to perform.
(vi) Adverse tax opinions or events affecting the tax-exempt status of the security.
(vii) Modifications to rights of security holders.
(viii) Contingent or unscheduled bond calls.
(ix) Defeasances.
(x) Release, substitution, or sale of property securing repayment of the securities.
(xi) Rating changes.
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as
soon as possible determine if such event would be material under applicable Federal securities law. The
Dissemination Agent shall have no responsibility for such determination and shall be entitled to
conclusively rely on the City's determination.
(c) If the City determines that knowledge of the occurrence of a Listed Event would be material
under applicable Federal securities law, the City shall promptly file a notice of such occurrence with the
Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice
of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any
earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to
the Indenture.
Section 6. Termination of Reporting Obligation. The City's obligations under this Disclosure
Certificate shall terminate upon the earlier of the legal defeasance, prior prepayment or payment in full of
all of the Bonds or the termination of the Indenture as set forth therein. If such termination occurs prior to
the final maturity of the Bonds, the City shall promptly file a notice of such occurrence with the
Municipal Securities Rulemaking Board and each State Repository with a copy to the Trustee.
Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may
discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent.
The initial Dissemination Agent shall be U.S. Bank National Association Any Dissemination Agent may
resign by providing ninety days' written notice to the City and the Trustee.
Section 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure
Certificate may be waived, provided that the following conditions are satisfied (provided no amendment
or waiver affecting the Dissemination Agent or the Trustee may be made without such parties' written
consent):
(a) if the amendment or waiver relates to the provisions of Sections 3(a) or 4, it may only be made
in connection with a change in circumstances that arises from a change in legal requirements, change in
law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type
of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of
nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the
primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule,
as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the
manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii)
does not, in the opinion of nationally recognized bond counsel materially impair the interests of the
holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is
amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto
containing the amended operating data or financial information shall explain, in narrative form, the
reasons for the amendment and the impact of the change in the type of operating data or financial
information being provided.
Appendix C
Page 3
If an amendment is made to the undertaking specifying the accounting principles to be followed
in preparing financial statements, the annual financial information for the year in which the change is
made shall present a comparison between the financial statements or information prepared on the basis
of the new accounting principles and those prepared on the basis of the former accounting principles. The
comparison shall include a qualitative discussion of the differences in the accounting principles and the
impact of the change in the accounting principles on the presentation of the financial information, in
order to provide information to investors to enable them to evaluate the ability of the City to meet its
obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change
in the accounting principles shall be sent to the Municipal Securities Rulemaking Board and each State
Repository with a copy to the Trustee.
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to
prevent the City from disseminating any other information, using the means of dissemination set forth in
this Disclosure Certificate or any other means of communication, or including any other information in
any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this
Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of
occurrence of a Listed Event in addition to that which is specifically required by this Disclosure
Certificate, the City shall have no obligation under this Disclosure Certificate to update such information
or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the City to comply with any provision of this
Disclosure Certificate the Trustee, at the written direction of any Participating Underwriter or the holders
of at least 25% aggregate principal amount of Outstanding Bonds, shall, but only to the extent moneys or
other indemnity, satisfactory to the Trustee, has been furnished to the Trustee to hold it harmless from
any loss, costs, liability or expense, including fees and expenses of its attorneys and any additional fees of
the Trustee, or any holder or beneficial owner of the Bonds may, take such actions as may be necessary
and appropriate, including seeking mandate or specific performance by court order, to cause the City to
comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate
shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this
Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate
shall be an action to compel performance.
Section 11. Duties, Immunities and Liabilities of Dissemination Agent. All of the immunities,
indemnities and exceptions from liability in the Indenture, insofar as they relate to the Trustee, shall
apply to the Dissemination Agent in this Disclosure Certificate. The Dissemination Agent and the Trustee
shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to
indemnify and save the Dissemination Agent and the Trustee, their officers, directors, employees and
agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the
exercise or performance of its powers and duties hereunder, including the costs and expenses (including
attorneys fees) of defending against any claim of liability, but excluding liabilities due to the
Dissemination Agent's or the Trustee's respective negligence or willful misconduct. The Dissemination
Agent shall be paid compensation by the City for its services provided hereunder in accordance with its
schedule of fees as amended from time to time and all expenses, legal fees and advances made or
incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination
Agent and the Trustee shall have no duty or obligation to review any information provided to it by the
City and shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders or any
other party. The obligations of the City under this Section 11 shall survive resignation or removal of the
Dissemination Agent and payment of the Bonds.
Appendix C
Page 4
Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City,
the Trustee, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners
from time to time of the Bonds, and shall create no rights in any other person or entity.
Date: [Closing Date]
CITY OF TUSTIN
ACKNOWLEDGED:
U.S. BANK NATIONAL ASSOCIATION, as
Dissemination Agent
By
Name
Title
By
Authorized Officer
Appendix C
Page 5
EXHIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD AND EACH STATE REPOSITORY OF
FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Tustin
Name of Issue:
City of Tustin (Orange County, California) 2003 Refunding Water Revenue
Bonds
Date of Issuance: [Closing Date]
NOTICE IS HEREBY GIVEN that the City of Tustin (the "Issuer") has not provided an Annual
Report with respect to the above-named Bonds as required by Section 6.17 of that certain Indenture,
dated as of August 1, 2003, by and between the Issuer and the U.S. Bank National Association, as trustee.
The Issuer anticipates that the Annual Report will be filed by
Dated:
CITY OF TUSTIN
cc:Trustee
By
Name
Title
Append~ C
Page 6
APPENDIX D
GENERAL INFORMATION REGARDING THE CITY OF TUSTIN
The information in this section of the Official Statement is presented as general background
data. The Bonds are payable solely from the revenues of the City's Water Fund and other sources as
described in the Official Statement. The taxing power of the City, the State of California, or any
political subdivision thereof is not pledged to the payment of the Bonds.
The economic and demographic information provided below has been collected from sources
which the City deems to be reliable. Because it is difficult to obtain timely regional economic and
demographic information, the impact on the City of the recent recession and the recovery from the
recession may not be fully apparent in all of the publicly available regional economic statistics
provided herein.
Introduction
The City of Tustin (the "City") covers approximately 10.8 square miles in central Orange
County (the "County"), Califomia. The City is bounded by the cities of Orange to the north, Santa Ana
to the west and Irvine to the south. It has a temperate climate, with a mean average temperature of 63
degrees and average annual rainfall of 13 inches.
In 1868 Columbus Tustin, the City's Founder and namesake, purchased with a partner 1,300 acres
of Rancho Santiago de Santa Ana, originally with a Spanish land grant. Tustin started "Tustin City" cn
his portion of the property. The orange industry began in Tustin City in 1875, when the first sizeable
grove was planted. The City was soon surrounded by orange, walnut and apricot orchards. Between 1900
and 1950 the production of oranges gradually became the City's major agricultural crop, and processing
citrus fruits was the City's most important industry. The rate of agriculture in the City has diminished
since the early 1960's as the City has diversified its economic base.
Municipal Government
The City is a general law city and was incorporated in 1927. The City has a council-manager
form of municipal government. The city Council is composed of five members elected biannually at large
to four-year alternating terms. The Mayor is selected by the City Council from among its members. The
City Manager is appointed by the City Council and serves as the administrative head of the City. The
City Manager implements City Council directives and policies and manages the operational functions
of the City. The City staff is organized into departments, which provide police, community
development, maintenance, general administration, community service and capital improvements. The
City employs a staff of approximately 250 full-time employees under the direction of the City
Manager. All full-time City employees re covered by the Public Employee's Retirement System, which
is administered by the State.
The City has its own police force and the Orange County Fire Department provides fire
protection services on a contractual basis. Sewer maintenance, trash collection, street sweeping, park
maintenance and building inspection are provided by the City. The City cooperates with the County in
the provisions and maintenance and building inspection are provided by the City. The City cooperates
with the County in the provisions and maintenance of flood control facilities.
Two other legal entities are financially related to the City--the Tustin Community
Redevelopment Agency (the "Agency") and the City of Tustin Water Corporation (the "Water
Corporation"). The Agency was formed in 1976 to eliminate blighted areas by encouraging residential,
Appendix D
Page I
commercial, industrial and recreational development. The Agency is discussed in an earlier section of
this Official Statement.
The County's library system services both the residential and industrial community of Tustin
from a branch library facility within Tustin. The system contains over 124,195 volumes, and a collection
of recordings, tapes and films. The Tustin Unified School District operates 13 elementary schools and 1
high school located within City limits.
Population
The City grew along with all of the county during the population boom of the 1960's. From a
population of 2,006 in the 1960 census the City expanded to 21,178 in 1970. According to the 1990 census,
the City's population was approximately 50,600. The 1990 census figure represents an average annual
increase of 5.8% from the 1980 census. Growth rates in the 1960's and 1970's averaged 27.2% and 4.2 per
year, respectively.
The following table represents the population for the City and for Orange County for the years
1990 and 2000, and the annual estimates for years 2001 through 2003:
Population
(in thousands)
City Percent County of Percent
Year of Tustin Change Orange Change
1990 50.7 --- 2,411 ---
1991 51.3 1.2 2,443 1.3
1992 54.0 5.3 2,488 1.8
1993 57.0 5.6 2,533 1.8
1994 59.1 3.7 2,569 1.4
1995 61.5 4.1 2,597 1.1
1996 63.8 3.7 2,632 1.3
1997 65.7 3.0 2,677 1.7
1998 66.4 1.1 2,722 1.7
1999 66.8 2,803
2000 68.3 2,846
2001 69.2 2,881
2002 69.1 2,931
2003 69.8 2,979
Source: California State Department of Finance, Demographic Research Unit.
Appendix D
Page 2
Building Activity
Building activity in the City for the past six years is set forth below.
Total Building Permit Valuation
(dollars in thousands)
Non-
Residential Residential Residential
Year Permits Valuations Valuations
1992 411 $ 73,169 $14,901
1993 339 69,795 21,655
1994 455 112,310 9,866
1995 182 44,671 3,843
1996 280 49,765 1,643
1997 403 107,271 731
Source: City of Tustin Building Depa~ hx~ent.
Employment
As of April, 1998, the civilian labor force for the City was approximately 29,570 of whom
28,770 were employed. The unadjusted unemployment rate as of April, 1998, was 2.7%. Civilian labor
force, employment and unemployment statistics for the County, the State and the nation for the years
1992 through 1996 are shown in the following table:
Civilian Labor Force, Employment and Unemployment
Annual Averages
Civilian Unemployment
Year Area Labor Force Employed Unemployed Rate
1998 City of Tustin 30,300 29,410 890 2.9%
Orange County 1,435,100 1,393,700 41,400 2.9%
California 16,336,500 15,367,500 969,000 5.9%
United States 137,674,700 131,470,700 6,204,000 4.5%
1999 City of Tustin 31,010 30,230 840 2.7%
Orange County 1,471,700 1,432,700 39,000 2.6%
California 16,596,400 15,731,700 864,700 5.2%
United States 139,380,000 133,501,000 5,879,000 4.2%
2000 City of Tustin 31,710 30,890 820 2.6%
Orange County 1,502,100 1,463,900 38,200 2.5%
California 17,090,800 16,245,600 845,200 4.9%
United States 140,866,300 135,214,700 5,651,600 4.0%
2001 City of Tustin 32,520 31,510 1,010 3.1%
Orange County 1,540,200 1,493,300 46,900 3.0%
California 17,362,300 16,435,200 927,100 5.3%
United States 142,122,200 135,042,900 6,779,300 4.8%
2002 City of Tustin 32,960 31,570 1,390 7.3%
Orange County 1,560,700 1,496,100 64,600 4.1%
California 17,661,000 16,574,000 1,087,000 6.2%
United States 142,878,000 135,237,000 7,640,000 5.3%
Source: California Department of Employment Development; United States Bureau of Labor Statistics.
Append~ D
Page3
The following tables list the major employers (manufacturing and non-manufacturing) in the
City as of June __
Manufacturing Employment
Employer Product Employment
Source: City of Tustin Economic Development Department.
Non-Manufacturing Employment
Employer Product
Employment
Source: City of Tustin Economic Development Deparh'nent.
The table below summarizes the State Department of Employment's estimated average annual
employment of nonagricultural wage and salary workers in the Los Angeles-Long Beach labor market
area, between 1998-2002.
The services sector has been the major employment sector in the County through 2002,
employing __ of the nonagricultural wage and salary workers in the County (separate figures for
the City are not maintained). Manufacturing at % is the second highest employment sector in the
County, followed closely by wholesale and retail trade, which employs % of the nonagricultural
wage and salary workers in the County. From 1998-2002, total employment for nonagricultural wage and
salary workers increased by approximately %.
Appendix D
Page 4
Orange County
Estimated Average Annual Employment
Nonagricultural Wage and Salary Workers
(in thousands)
1998 1999 2000 2001 2002
Natural Resources & Mining 1,000 800 600 600 500
Construction 65,300 72,200 77,000 80,700 79,200
Durable Goods 153,400 151,300 153,400 147,800 133,000
Nondurable Goods 61,100 62,000 63,300 60,700 57,000
Wholesale Trade 78,800 81,400 80,800 83,900 81,300
Retail Trade 139,600 143,700 147,800 150,100 152,400
Transportation, Warehousing & 27,700 28,600 30,400 30,400 28,500
Utilities
Information 34,600 36,500 41,500 40,200 36,000
Finance, Insurance & Real Estate 99,400 100,700 100,800 105,900 110,600
Professional & Business Services 220,300 235,700 248,800 248,400 249,200
Management of Companies & 36,100 37,300 38,800 39,700 36,300
Entertainment
Administrative & Support and 104,400 111,300 118,300 114,500 119,600
Waste
Educational & Health Services 107,700 110,300 112,800 114,600 117,800
Leisure and Hospitality 131,900 137,900 140,700 154,300 156,400
Other Services 42,100 42,900 44,200 45,200 45,900
Government 136,400 141,100 146,600 150,900 155,100
Source: California State Board of Equalization.
~come
"Effective Buying Income" is defined as money income less personal tax and nontax payments, a
number often referred to as "disposable" or "after-tax" income. Income and all income-related fields are
benchmarked to the 1990 Census. Money income is the aggregate of wages and salaries, net farm and
nonfarm self-employment income, interest, dividends, net rental and royalty income, Social Security
and railroad retirement income, public assistance income, unemployment compensation, Veterans
Administration payments, alimony and child support, military family allotments, net winnings from
gambling, and other periodic income. Deducted from this total money income are personal income taxes
(federal, state and local), personal contributions to social insurance (Social Security and federal
retirement payroll deductions), and taxes on owner-occupied nonbnsiness real estate. Receipts form
other sources are not included as money income: money received form the sale of property (unless the
recipient is engaged in the business of selling property); the value of income "in kind" from food stamps,
public housing subsidies, medial care, employer contributions for person, etc.; withdrawal of bank
deposits; money borrowed; tax refunds; exchange of money between relatives living in the same
household; gifts and lump-sum inheritances, insurance payments, and other types of lump-sum receipts.
Appendix D
Page 5
The following table summarizes the total effective buying income for the City, the County, the
State and the United States for the period 1997 through 2001.
MEDIAN HOUSEHOLD EFFECTIVE BUYING INCOME
City of County of State of
Year Tustin Orange California United States
1997 37,343 $42,715 $35,483 $34,518
1998 37,689 45,176 37,091 35,377
1999 40,141 48,773 39,402 37,233
2000 45,302 55,262 44,464 39,129
2001 53,302 53,277 43,532 38,365
Source:
"Survey of Buying Power," Sales and Marketing Management.
Tax Receipts
Taxes received by the City include Property Taxes, Sales Taxes, Motor Vehicle In-Lieu Taxes,
Franchise Fees, Property Transfer Taxes, Business License Taxes and Transient Occupancy Taxes. Of such
taxes, Property Taxes and Sales Taxes constitute the major sources of revenues. Certain general taxes
imposed by the City may be affected by a September 28, 1995, California Supreme Court decision
upholding Proposition 62 (the "Guardino Decision") or Proposition 218, which was approved by the
California voters at the November 1996 General Election. See "LIMITATIONS ON
REVENUES~Proposition 218."
The following table sets forth tax revenues received by the City, by source, for Fiscal Years
1996-97 through 2000-01:
Tax Revenues by Source
Source 1997 1998
Property Tax $ 3,583,553
Sales Tax 13,831,926
Motor Vehicle In-Lieu 2,507,501
Franchise Fees 988,273
Property Transfer Tax 203,180
Business License Tax 245,051
Transient Occupancy Tax 115,725
1999 2000 2001
Source: City of Tustin Finance Department
Property Taxes
Property tax receipts provide the largest tax revenue source for the City, contributing
% of general fund tax revenues during fiscal year
Ad Valorem Property Taxes. Taxes are levied for each fiscal year on taxable real and personal
property which is situated in the City as of the preceding March 1. For assessment and collection
purposes, property is classified either as "secured" or "unsecured," and is listed accordingly on separate
parts of the assessment roll. The "secured roll" is that part of the assessment roll, the taxes on which
are a lien on real property sufficient to secure payment of the taxes. Other property is assessed on the
"unsecured roll." See "Constitutional and Statutory Limitations on Taxes and Appropriations."
Appendix D
Page 6
County Tax Loss Reserve Fund ("Teeter Plan"). The Board of Supervisors of the County adopted
the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the
"Teeter Plan") in fiscal year 1993-94, as provided for in Section 4701 et seq. of the California Revenue
and Taxation Code. Taxes and assessment installments under the 1915 Act are collected by the County
and distributed pursuant to the Teeter Plan. Under the Teeter Plan, each entity levying property taxes
in the County may draw on the amount of uncollected secured taxes credited to its fund, in the same
manner as if the amount credited had been collected. Unsecured taxes are not normally covered under
the Teeter Plan.
The Teeter Plan is to remain in effect unless the Board of Supervisors orders its discontinuance or
unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the
Board of Supervisors shall receive a petition for its discontinuance joined in by resolutions adopted by
two-thirds of the participating revenue districts in the County, in which event the Board of
Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the
subsequent fiscal year. The Board of Supervisors may, by resolution adopted not later than July 15 of the
fiscal year for which it is to apply, after holding a public hearing on the matter, discontinue the
procedures under the Teeter Plan with respect to any tax levying agency or assessment levying agency in
the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of
all taxes and assessments levied on the secured rolls for that agency.
So long as the Teeter Plan remains applicable with respect to the City, the City will receive
100% of the annual tax levies without regard to actual collections in the City. However, under the
statute creating the Teeter Plan, the Board of Supervisors could under certain circumstances terminate
the Teeter Plan in its entirety.
The City uses the services of the County for assessment and collection of property taxes. City
property taxes are assessed and collected at the same time and on the same rolls as are county, school
and special district property taxes. Assessed valuations are based upon 100% of value as defined by
Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property
taxation for certain classes of property such as property owned by churches, colleges, non-profit
hospitals and charitable institutions.
State law also exempts $7,000 of the full cash value of an owner-occupied dwelling, but this
exemption does not result in any loss of revenue to local agencies, since the State reimburses local
agencies for the value of the exemptions.
The following table represents a five-year history of assessed valuations within the City's
boundaries, including State-reimbursed exemptions:
Year
1997-98
1998-99
1999-00
2000-01
2001-02
Assessed Valuations
Local Total After
Secured Utility Unsecured Rdv. Incre.
$3,014,196,836 3,062,369 318,112,678 $3,335,371,883
Source: California Municipal Statistics, Inc.; County of Orange
Appendix D
Page 7
Below are secured tax charges and delinquencies for the City during the past five fiscal years.
Secured Tax Charges and Delinquencies
Secured Amount Del. % Del.
Tax Charge(l) lune 30(2) Iune 30
Year
1996-97
1997-98
1998-99
1999-00
2000-01
Source: California Municipal Statistics, Inc.; County of Orange
(1) 1% General Fund apportionment
(2) Orange County utilizes the Teeter Plan for assessment levy and distribution. This method guarantees distribution
of 100% of the assessments levied to the taxing entity, with the County retaining all penalties and interest.
Principal Taxpayers
The following table sets forth the major taxpayers in the City in terms of their 2002-2003
secured assessed valuation:
Largest 2001-2002 Local Secured Taxpayers
2002-2003
Primar.v Land Use Assessed Valuation
%of
Total(1)
Proper .ty Owner
1. %
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
%
Source: California Municipal Statistics, Inc.
(1) 2002-2003 Local Secured Assessed Valuation: $
Appendix D
Page 8
Taxable Transactions
A five-year history of taxable transactions for the County and the City are shown in the
following tables.
Orange County
Calendar Years 1997 through 2001
(in thousands of dollars)
1997 1998 1999 2000 2001
Apparel stores
General merchandise stores
Specialty stores
Food stores
Packaged liquor stores
Eating & drinking establishments
Home furnishings & appliances
Building materials
Automotive group
Total retail outlets
1,364,366
4,334887
5,119,964
1,509,744
3,535,316
1,486,155
2,013,714
Z378,529
742,314
2Z484,989
Business and personal service
All other outlets
Total all outlets
2,625,459
14.352.012
44462,460
Source: State Board of Equalization
City of Tustin
Calendar Years 1997 through 2001
(in thousands of dollars)
Type of Business
Retail Stores
Apparel
General Merchandise
Food Stores
Eating & Drinking Places
Home Furnishing & Appliances
Bldg Materials & Farm
Implements
Auto Dealers & Suppliers
Service Stations
Other Retail Stores
Retail Stores Total
All Other Outlets
Total All Outlets
Source :California State Board of Equalization.
Direct and Overlapping Bonded Debt
1997 1998 1999 2000 2001
3Z520
136,594
42,575
108,958
104,953
81,210
390,185
60,175
232.553
1,194,723
373.411
1,568,134
Contained within the City's boundaries are numerous overlapping agencies providing public
services. These agencies may have issued outstanding bonds in the form of general obligation, special
Appendix D
Page 9
assessment, special tax and lease revenue bonds. Direct debt constitutes debt directly issued by the City
while overlapping debt constitutes that portion issued by different agencies within the same tax code
areas. The Direct and Overlapping Bonded Debt Statement of the City as of .......... 2003 (except
as noted in footnotes to the Statement) is shown below:
Statement of Direct and Overlapping Debt
[TO BE PROVIDED]
Source: California Municipal Statistics, Inc.
Recreation
The City operates Clifton C. Miller Community Center and the Tustin Area Senior Center. City
residents are offered the use of the City's facilities for handball, racquetball and tennis, as well as a
completely equipped gymnasium. In addition, the City is centrally located for a wide variety of
entertainment and recreational activities, including, among many others, Disneyland and Knott's Berry
Farm. The mountains to the north and east provide other kinds of outdoor recreational activities,
including hiking, lake recreation, and winter skiing.
Transportation
The Santa Ana Freeway (Interstate 5), a major northwest-southeast corridor, crosses through
the central section of the City, the Costa Mesa Freeway (State Route 55) crosses north-south along the
western edge of the City and the Eastern Transportation Corridor (State route 267), a toll road is being
constructed just east of the eastern edge of the City. The City is also within minutes of the San Diego
Freeway (Interstate 405), traveling north to the Los Angeles International airport) the riverside
Freeway (Star Route 91, traveling east-west) to the north and the Orange Freeway (State Route 57,
traveling north-south) to the west and the San Joaquin Toll Road.
Air cargo and passenger flight services are provided at several nearby facilities, including John
Wayne Airport in Orange County (5 miles southwest) and the Ontario International Airport (50 miles
northeast).
The Orange County Transportation Authority (OCTA) also serve the area. Greyhound Bus Lines
provides service to other local areas and additional transcontinental service.
Commercial and passenger rail services are provided by Union Pacific and an Amtrak passenger
station is located approximately two miles from the City. Trucking services are provided through
numerous common and contract carriers.
Appendix D
Page 10
The Port of Long Beach is approximately 45 miles to the northwest and the Port of Los Angeles
is approximately 50 miles northwest of the City. Both ports are within easy freeway access.
Appendix D
Page 11
APPENDIX E
FORM OF BOND COUNSEL OPINION
[Letterhead of Quint & Thimmig LLP]
[Closing Date]
City Council
City of Tustin
300 Centennial Way
Tustin, California 92780
OPINION:
$ * City of Tustin (Orange County, California) 2003 Refunding Water
Revenue Bonds
Members of the City Council:
We have acted as bond counsel in connection with the issuance by the City of Tustin (the "City")
of its $ 2003 Refunding Water Revenue Bonds (the "Bonds"), under the provisions of section
53570 et seq. of the California Government Code (the "Law"), an Indenture of Trust, dated as of August 1,
2003 (the "Indenture"), by and between the City and U.S. Bank National Association, as trustee (the
"Trustee"), and Resolution No. ~ adopted by the City Council of the City on July 7, 2003 (the
"Resolution"). We have examined the law and such certified proceedings and other papers as we deem
necessary to render this opinion.
As to questions of fact material to our opinion, we have relied upon representations of the City
contained in the Resolution and in the Indenture and in the certified proceedings and certifications of
public officials and others furnished to us, without undertaking to verify such facts by independent
investigation.
Based upon the foregoing, we are of the opinion, under existing law, that:
1. The City is a duly created and validly existing municipal corporation and general law
city with the power to enter into the Indenture and to perform the agreements on its part contained
therein.
2. The Indenture has been duly authorized, executed and delivered by the City and is valid,
binding and enforceable against the City in accordance with its terms.
3. The Bonds constitute valid and binding special obligations of the City payable solely
from Net Revenues of the Enterprise (as such terms are defined in the Indenture) and certain other
amounts held under the Indenture, as described in the Indenture.
4. The interest on the Bonds is excluded from gross income for federal income tax purposes
and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on
individuals and corporations; it should be noted, however, that for the purpose of computing the
alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such
interest is taken into account in determining certain income and earnings. The opinions set forth in the
preceding sentence are subject to the condition that the City comply with all requirements of the Internal
Revenue Code of 1986 that must be satisfied subsequent to the delivery of the Bonds in order that such
interest be, or continue to be, excluded from gross income for federal income tax purposes. The City has
covenanted to comply with each such requirement. Failure to comply with certain of such requirements
may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be
*Preliminary, subject to change. Appendix E
Page 1
retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax
consequences arising with respect to the Bonds.
5. The interest on the Bonds is exempt from personal income taxation imposed by the State
of California.
The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture may
be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting
creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial
discretion in appropriate cases.
Respectfully submitted,
Appendix E
Page 2
APPENDIX F
SPECIMEN MUNICIPAL BOND INSURANCE POLICY
[TO COME]
Appendix F
Page 3
APPENDIX G
BOOK-ENTRY ONLY SYSTEM
The information in this Appendix G has been provided by The Depository Trust Company ("DTC'), New
York, NY, for use in securities offering documents, and the City takes no responsibility for the accuracy or
completeness thereof. The City cannot and does not give any assurances that DTC, DTC Participants or Indirect
Participants will distribute the Beneficial Owners either (a) payments of interest, principal or premium, if any, with
respect to the Bonds or (b) certificates representing ownership interest in or other confirmation of ownership interest
in the Bonds, or that they will so do on a timely basis or that DTC, DTC Direct Participants or DTC Indirect
Participants will act in the manner described in this Official Statement.
1. DTC will act as securities depository for the Bonds (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee)
or such other name as may be requested by an authorized representative of DTC. One fully-registered
Security certificate will be issued for each maturity of the Securities, in the aggregate principal amount of
such issue, and will be deposited with DTC.
2. DTC, the world's largesf depository, is a limited purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of the New York Banking
Law, 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 provisions of Section
17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million
issues of U.S. and non-U.S, equity issues, corporate and municipal debt issues, and money market
instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC.
DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities
transactions in deposited securities, through electronic computerized book-entry transfers and pledges
between Direct Participants' accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S, securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of
The Depository Trust & Clearing Corporation ("DTCC'). DTCC, in turn, is owned by a number of Direct
Participants of DTC and Members of the National Securities Clearing Corporation, Government
Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing
Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York
Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S, securities
brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC
has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with
the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
3. Purchases of Securities under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of
each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their
purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the
Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Securities, except in the event that use of the book-entry system for the Securities is
discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with
DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be
requested by an authorized representative of DTC. The deposit of Securities with DTC and their
registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial
Appendix G
Page 1
ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect
only the identity of the Direct Participants to whose accounts such Securities are credited, which may or
may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by
Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue
are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with
respect to Securities unless authorized by a Direct Participant in accordance with DTC's Procedures.
Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the
record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts Securities are credited on the record date (identified in a listing attached
to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be
made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC.
DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding
detail information from the issuer or the paying agent or bond trustee, on payable date in accordance
with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and will be the responsibility of
such Participant and not of DTC nor its nominee, the paying agent or bond trustee, or the issuer, subject
to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption
proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be
requested by an authorized representative of DTC) is the responsibility of the issuer or the paying agent
or bond trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC,
and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and
Indirect Participants.
9. DTC may discontinue providing its services as depository with respect to the Securities
at any time by giving reasonable notice to the issuer or the paying agent or bond trustee. Under such
circumstances, in the event that a successor depository is not obtained, Security certificates are required
to be printed and delivered.
10. The issuer may decide to discontinue use of the system of book-entry transfers through
DTC (or a successor securities depository). In that event, Security certificates will be printed and
delivered.
Appendix G
Page 2
Quint & Thimmig LLP 06/18/03
CONTINUING DISCLOSURE CERTIFICATE
This CONTINUING DISCLOSURE CERTIFICATE (the "Disclosure Certificate") is
executed and delivered by the CITY OF TUSTIN (the "City") in connection with the issuance of
$. aggregate principal amount of the City's 2003 Refunding Water Revenue Bonds
(the "Bonds"). The Bonds are being issued pursuant to an indenture of trust, dated as of
August 1, 2003 (the "Indenture"), by and between the City and U.S. Bank National
Association, as trustee (the "Trustee"). The City covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being
executed and delivered by the City for the benefit of the holders and beneficial owners of the
Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-
12(b)(5).
Section 2. Definitions. In addition to the definitions set forth in the Indenture, which
apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in
this Section 2, the following capitalized terms shall have the following meanings:
"Annual Report" shall mean any Annual Report provided by the City pursuant to, and
as described in, Sections 3 and 4 of this Disclosure Certificate.
"Dissemination Agent" shall mean U.S. Bank National Association, or any successor
Dissemination Agent designated in writing by the City and which has filed with the City and
the Trustee a written acceptance of such designation.
"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure
Certificate.
"National Repository" shall mean any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule.
"Participating Underwriter" shall mean the original underwriter of the Bonds required to
comply with the Rule in connection with offering of the Bonds.
"Repository" shall mean each National Repository and each State Repository.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as the same may be amended from time
to time.
"State Repository" shall mean any public or private repository or entity designated by the
State of California as a state repository for the purpose of the Rule and recognized as such by
the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is
no State Repository.
Section 3. Provision of Annual Reports.
(a) The City shall, or upon written direction shall cause the Dissemination Agent to, not
later than March 31 of each year (being the last day of the ninth month after the end of the
20015.03
City's fiscal year which ends on June 30), commencing with the report for the 2002-2003 fiscal
year, provide to each Repository an Annual Report which is consistent with the requirements of
Section 4 of this Disclosure Certificate with a copy to the Trustee. Not later than fifteen (15)
Business Days prior to said date, the City shall provide the Annual Report to the
Dissemination Agent (if other than the City). The Annual Report may be submitted as a single
document or as separate documents comprising a package, and may include by reference other
information as provided in Section 4 of this Disclosure Certificate; provided that the audited
financial statements of the City may be submitted separately from the balance of the Annual
Report, and later than the date required above for the filing of the Annual Report if not
available by that date. If the City's fiscal year changes, it shall give notice of such change to the
Municipal Securities Rulemaking Board and each State Repository with a copy to the Trustee.
The City shall provide a written certification with each Annual Report furnished to the
Dissemination Agent and the Trustee to the effect that such Annual Report constitutes the
Annual Report required to be furnished by the City hereunder. The Dissemination Agent and the
Trustee shall have no duty or obligation to review such Annual Report.
(b) If the City is unable to provide to the Repositories an Annual Report by the date
required in subsection (a), the City shall send a notice to the Municipal Securities Rulemaking
Board and each State Repository in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual Report the
name and address of each National Repository and each State Repository, if any; and
(ii) if the Dissemination Agent is other than the City, file a report with the City
certifying that the Annual Report has been provided pursuant to this Disclosure
Certificate, stating the date it was provided and listing all the Repositories to which it
was provided.
Section 4. Content of Annual Reports. The City's Annual Report shall contain or
incorporate by reference the following:
(a) Audited Financial Statements prepared in accordance with generally accepted
accounting principles as promulgated to apply to governmental entities from time to time by the
Governmental Accounting Standards Board. If the City's audited financial statements are not
available by the time the Annual Report is required to be filed pursuant to Section 3(a), the
Annual Report shall contain unaudited financial statements in a format similar to the financial
statements contained in the final Official Statement, and the audited financial statements shall
be filed in the same manner as the Annual Report when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or prior to the
annual filing deadline for Annual Reports provided for in Section 3 above, financial information
and operating data with respect to the City for preceding fiscal year, substantially similar to
that provided in the corresponding tables and charts in the official statement for the Bonds:
[(i) Rates for Water Service;
(ii) Water Consumption and Collections;
(iii) Number of Services; and
(iv) Ten Largest Users of Water.]
Any or all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues of the City or related public
entities, which have been submitted to each of the Repositories or the Securities and
-2-
Exchange Commission. If the document included by reference is a final official
statement, it must be available from the Municipal Securities Rulemaking Board. The
City shall clearly identify each such other document so included by reference.
(c) In addition to any of the information expressly required to be provided under this
Disclosure Certificate, the City shall provide such further material information, if any, as may
be necessary to make the specifically required statements, in the light of the circumstances under
which they are made, not misleading.
Section 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given,
notice of the occurrence of any of the following events with respect to the Bonds, if material:
(i) Principal and interest payment delinquencies.
(ii) Non-payment related defaults.
(iii) Unscheduled draws on debt service reserves reflecting financial difficulties.
(iv) Unscheduled draws on credit enhancements reflecting financial difficulties.
(v) Substitution of credit or liquidity providers, or their failure to perform.
(vi) Adverse tax opinions or events affecting the tax-exempt status of the security.
(vii) Modifications to rights of security holders.
(viii) Conffngent or unscheduled bond calls.
(ix) Defeasances.
(x) Release, substitution, or sale of property securing repayment of the securities.
(xi) Rating changes.
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City
shall as soon as possible determine if such event would be material under applicable Federal
securities law. The Dissemination Agent shall have no responsibility for such determination and
shall be entitled to conclusively rely on the City's determination.
(c) If the City determines that knowledge of the occurrence of a Listed Event would be
material under applicable Federal securities law, the City shall promptly file a notice of such
occurrence with the Municipal Securities Rulemaking Board and each State Repository.
Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and
(ix) need not be given under this subsection any earlier than the notice (if any) of the underlying
event is given to holders of affected Bonds pursuant to the Indenture.
Section 6. Termination of Reporting Obligation. The City's obligations under this
Disclosure Certificate shall terminate upon the earlier of the legal defeasance, prior prepayment
or payment in full of all of the Bonds or the termination of the Indenture as set forth therein. If
such termination occurs prior to the final maturity of the Bonds, the City shall promptly file a
notice of such occurrence with the Municipal Securities Rulemaking Board and each State
Repository with a copy to the Trustee.
Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate,
and may discharge any such Dissemination Agent, with or without appointing a successor
Dissemination Agent. The initial Dissemination Agent shall be U.S. Bank National Association
Any Dissemination Agent may resign by providing ninety days' written notice to the City and
the Trustee.
Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure
-3-
Certificate may be waived, provided that the following conditions are satisfied (provided no
amendment or waiver affecting the Dissemination Agent or the Trustee may be made without
such parties' written consent):
(a) if the amendment or waiver relates to the provisions of Sections 3(a) or 4, it may
only be made in connection with a change in circumstances that arises from a change in legal
requirements, change in law, or change in the identity, nature, or status of an obligated person
with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the
opinion of nationally recognized bond counsel, have complied with the requirements of the Rule
at the time of the primary offering of the Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in
the manner provided in the Indenture for amendments to the Indenture with the consent of
holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair
the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual
Report is amended pursuant to the provisions hereof, the first annual financial information filed
pursuant hereto containing the amended operating data or financial information shall explain,
in narrative form, the reasons for the amendment and the impact of the change in the type of
operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be
followed in preparing financial statements, the annual financial information for the year in
which the change is made shall present a comparison between the financial statements or
information prepared on the basis of the new accounting principles and those prepared on the
basis of the former accounting principles. The comparison shall include a qualitative discussion
of the differences in the accounting principles and the impact of the change in the accounting
principles on the presentation of the financial information, in order to provide information to
investors to enable them to evaluate the ability of the City to meet its obligations. To the extent
reasonably feasible, the comparison shall be quantitative. A notice of the change in the
accounting principles shall be sent to the Municipal Securities Rulemaking Board and each State
Repository with a copy to the Trustee.
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed
to prevent the City from disseminating any other information, using the means of dissemination
set forth in this Disclosure Certificate or any other means of communication, or including any
other information in any Annual Report or notice of occurrence of a Listed Event, in addition to
that which is required by this Disclosure Certificate. If the City chooses to include any
information in any Annual Report or notice of occurrence of a Listed Event in addition to that
which is specifically required by this Disclosure Certificate, the City shall have no obligation
under this Disclosure Certificate to update such information or include it in any future Annual
Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the City to comply with any provision of
this Disclosure Certificate the Trustee, at the written direction of any Participating Underwriter
or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall, but only
to the extent moneys or other indemnity, satisfactory to the Trustee, has been furnished to the
Trustee to hold it harmless from any loss, costs, liability or expense, including fees and
expenses of its attorneys and any additional fees of the Trustee, or any holder or beneficial
owner of the Bonds may, take such actions as may be necessary and appropriate, including
-4-
seeking mandate or specific performance by court order, to cause the City to comply with its
obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall
not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this
Disclosure Certificate in the event of any failure of the City to comply with this Disclosure
Certificate shall be an action to compel performance.
Section 11. Duties, Immunities and Liabilities of Dissemination Agent. All of the
immunities, indemnities and exceptions from liability in the Indenture, insofar as they relate to
the Trustee, shall apply to the Dissemination Agent in this Disclosure Certificate. The
Dissemination Agent and the Trustee shall have only such duties as are specifically set forth in
this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent
and the Trustee, their officers, directors, employees and agents, harmless against any loss,
expense and liabilities which they may incur arising out of or in the exercise or performance of
its powers and duties hereunder, including the costs and expenses (including attorneys fees) of
defending against any claim of liability, but excluding liabilities due to the Dissemination
Agent's or the Trustee's respective negligence or willful misconduct. The Dissemination Agent
shall be paid compensation by the City for its services provided hereunder in accordance with
its schedule of fees as amended from time to time and all expenses, legal fees and advances
made or incurred by the Dissemination Agent in the performance of its duties hereunder. The
Dissemination Agent and the Trustee shall have no duty or obligation to review any information
provided to it by the City and shall not be deemed to be acting in any fiduciary capacity for the
City, the Bond holders or any other party. The obligations of the City under this Section 11 shall
survive resignation or removal of the Dissemination Agent and payment of the Bonds.
-5-
Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of
the City, the Trustee, the Dissemination Agent, the Participating Underwriter and holders and
beneficial owners from time to time of the Bonds, and shall create no fights in any other person
or entity.
Date: August 7, 2003
CITY OF TUSTIN
ACKNOWLEDGED:
U.S. BANK NATIONAL ASSOCIATION,
as Dissemination Agent
By
Name
Title
By
Authorized Officer
-6-
EXHIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD AND EACH
STATE REPOSITORY OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer:
Name of Issue:
Date of Issuance:
City of Tustin
$_ City of Tustin (Orange County, California) 2003 Refunding
Water Revenue Bonds
August 7, 2003
NOTICE IS HEREBY GIVEN that the City of Tustin (the "Issuer") has not provided an
Annual Report with respect to the above-named Bonds as required by Section 6.17 of that
certain Indenture, dated as of August 1, 2003, by and between the Issuer and the U.S. Bank
National Association, as trustee. The Issuer anticipates that the Annual Report will be filed by
Dated:
CITY OF TUSTIN
cc: Trustee
By
Name
Title
Quint & Thinunig LLP 06 / 18 / 03
FORM OF FINAL OPINION OF BOND COUNSEL
[Letterhead of Quint & Thimmig LLP]
August 7, 2003
City Council
City of Tustin
300 Centennial Way
Tustin, California 92780
OPINION: $ .... City of Tustin (Orange County, California) 2003 Refunding Water
Revenue Bonds
Members of the City Council:
We have acted as bond counsel in connection with the issuance by the City of Tustin
(the "City") of its $.__ 2003 Refunding Water Revenue Bonds (the "Bonds"), under the
provisions of section 53570 et seq. of the California Government Code (the "Law"), an Indenture
of Trust, dated as of August 1, 2003 (the "Indenture"), by and between the City and U.S. Bank
....... ' h it
National Association, as trustee (the Trustee ), and Resolution No. , adopted by t e C y
Council of the City on July 7, 2003 (the "Resolution"). We have examined the law and such
certified proceedings and other papers as we deem necessary to render this opinion.
As to questions of fact material to our opinion, we have relied upon representations of
the City contained in the Resolution and in the Indenture and ir: the certified proceedings and
certifications of public officials and others furnished to us, without undertaking to verify such
facts by independent investigation.
Based upon the foregoing, we are of the opinion, under existing law, that:
1. The City is a duly created and validly existing municipal corporation and general
law city with the power to enter into the Indenture and to perform the agreements on its part
contained therein.
2. The Indenture has been duly authorized, executed and delivered by the City and is
valid, binding and enforceable against the City in accordance with its terms.
3. The Bonds constitute valid and binding special obligations of the City payable solely
from Net Revenues of the Enterprise (as such terms are defined in the Indenture) and certain
other amounts held under the Indenture, as described in the Indenture.
4. The interest on the Bonds is excluded from gross income for federal income tax
purposes and is not an item of tax preference for purposes of the federal alternative minimum
tax imposed on individuals and corporations; it should be noted, however, that for the purpose
20015.03
City Council August 7, 2003
City of Tustin Page
of computing the alternative minimum tax imposed on corporations (as defined for federal
income tax purposes), such interest is taken into account in determining certain income and
earnings. The opinions set forth in the preceding sentence are subject to the condition that the
City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied
subsequent to the delivery of the Bonds in order that such interest be, or continue to be,
excluded from gross income for federal income tax purposes. The City has covenanted to
comply with each such requirement. Failure to comply with certain of such requirements may
cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to
be retroactive to the date of issuance of the Bonds. We express no opinion regarding other
federal tax consequences arising with respect to the Bonds.
5. The interest on the Bonds is exempt from personal income taxation imposed by the
State of California.
The rights of the owners of the Bonds and the enforceability of the Bonds and the
Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to
the exercise of judicial discretion in appropriate cases.
Respectfully submitted,
Quint & Thimmig LLP 06/18/03
FORM OF FINAL OPINION OF DISCLOSURE COUNSEL
[Letterhead of Quint & Thimmig LLP]
August 7, 2003
City of Tustin
300 Centennial Way
Tustin, California 92780
[UNDERWRITER]
[MUNICIPAL BOND INSURER]
Re: $___ City of Tustin (Orange County, California) 2003 Refunding Water Revenue Bonds
Ladies and Gentlemen:
We have acted as disclosure counsel in connection with the issuance by the City of
Tustin (the "City"), of its $ City of Tustin (Orange County, California) 2003 Refunding
Water Revenue Bonds, dated August 7, 2003 (the "Bonds"), pursuant to the provisions of
section 53570 et seq. of the California Government Code (the "Law"), an Indenture of Trust,
dated as of August 1, 2003 (the "Indenture"), by and between the City and U.S. Bank National
Association, as trustee (the "Trustee"), and Resolution No. , adopted by the City Council of
the City on July 7, 2003 (the "Resolution"). We have examined the law and such certified
proceedings and other papers as we deem necessary to render this opinion. All capitalized
terms used and not defined herein shall have the meanings assigned to such terms in the
Indenture.
The Bonds are being sold by the City to , as underwriter (the "Underwriter"),
pursuant to competitive sale. This letter is being delivered in our capacity as disclosure counsel
to the City and not as counsel to the Underwriter.
In our capacity as disclosure counsel, we have examined the Official Statement of the
City, dated July 22, 2003, relating to the Bonds (the "Official Statement"), the Continuing
Disclosure Certificate of the City, dated August 7, 2003 (the "Continuing Disclosure
Certificate"), and originals, or copies certified or otherwise identified to our satisfaction as being
true copies of the originals, of such proceedings of the City, certificates of the City and others
and such other documents as we have deemed necessary for the purposes of this letter.
As to questions of fact material to our opinion, we have relied upon representations of
the City contained in the Indenture and in the certified proceedings and other certifications of
public officials furnished to us, without undertaking to verify the same by independent
investigation.
20015.03
City of Tustin
[UNDERWRITER]
[MUNICIPAL BOND INSURER]
August 7, 2003
Page 2
Based upon our examination we are of the opinion, under existing law, that:
(i) although we are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of any of the statements contained in the Official Statement
and make no representation that we have independently verified the accuracy, completeness or
fairness of any such statements, during the course of serving as Disclosure Counsel in
connection with the issuance of the Bonds, no information came to our attention which caused
us to believe that the Official Statement, as of its date (except for any financial or statistical or
engineering data or forecasts, numbers, charts, estimates, projections, assumptions or
expressions of opinion or any information about book-entry or The Depository Trust Company
or , as municipal bond insurer, included therein, as to which no opinion or view is
expressed), contained any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii)
amended;
it is not necessary to register the Bonds under the Securities Act of 1933, as
(iii) the Indenture is exempt from qualification under the Trust Indenture Act of 1939,
as amended; and
(iv) the provisions of the Continuing Disclosure Certificate comply with the
requirements of Rule 15c2-12 promulgated under the Securities Act of 1934.
This letter is intended for the information solely of the addressees hereof and solely for
the purposes of the transactions contemplated by the Official Statement and is not to be relied
upon by any other person or entity, or for any other purpose, or quoted in whole or in part, or
otherwise referred to, in any document, or to be filed with any governmental or other
administrative agency or other person or entity for any purpose without our prior written
consent.
We do not undertake to advise you of matters which may come to our attention
subsequent to the date hereof which may affect our conclusions expressed herein.
Respectfully submitted,
Quint & Thimmig LLP 06/18/03
NOTICE OF INTENTION TO SELL BONDS
(Approximate)
CITY OF TUSTIN
(Orange County, California)
2003 Refunding Water Revenue Bonds
NOTICE IS HEREBY GIVEN, pursuant to section 53692 of the California Government
Code, that electronic and fax proposals will be received by representatives of the City of
Tustin, California (the "City"), at the offices of Gardner, Underwood & Bacon LLC, 12121
Wilshire Boulevard, Suite 207, Los Angeles, CA 90025, on
TUESDAY, JULY 22, 2003
at 10:00 A.M. (Pacific time), for the purchase of $. (approximat,e,) aggregate principal
amount of the City's 2003 Refunding Water Revenue B---~nds (the "Bonds ). The Bonds will be
dated as of their date of delivery, and will be payable as to interest from their date at the rate
or rates to be fixed upon the sale thereof. The City has caused to be prepared an Official Notice
of Sale and a Preliminary Official Statement for the Bonds, copies of which will be furnished on
request made to the financial advisor to the Agency, Gardner, Underwood & Bacon LLC, 12121
Wilshire Boulevard, Suite 207, Los Angeles, CA 90025, Telephone: (310) 442-1200; Telecopier:
(310) 442-1208. The City may postpone the date or change the time of sale to any subsequent
date or any other time by providing notification through the Bond Buyer Wire, 24 hours prior to
the scheduled date.
Dated: July 10, 2003
[To be published in The Bond Buyer on Monday, July 7, 2003,
to be arranged by Quint & Thimmig LLP]
20015.03
Quint & Thinunig LLP 06 / 18 / 03
OFFICIAL NOTICE OF SALE
$
(Approximate)
CITY OF TUSTIN
(Orange County, California)
2003 Refunding Water Revenue Bonds
NOTICE IS HEREBY GIVEN that proposals will be received by representatives of the
City of Tustin, California (the "City"), for the purchase of $. (approximate, subject to
change) aggregate principal amount of the City's 2003 Refunding Water Revenue Bonds (the
"Bonds"), more particularly described below.
DATE AND TIME OF BID: Tuesday, July 22, 2003, at 10:00 A.M. (Pacific Time).
PLACE OF BIDS: Offices of Gardner, Underwood & Bacon LLC, 12121 Wilshire
Boulevard, Suite 207, Los Angeles, California.
SUBMISSION OF BIDS: Bids may be submitted (for receipt not later than the time set
forth above):
(1) by telecopy to the City's financial advisor at (310) 442-1208; or
(2) electronically through the I-Deal LLC BiDCOMP/PARITY<) system.
See "FORM OF BID" herein. All bids must be accompanied by a good faith deposit as
more fully described below under the caption "GOOD FAITH DEPOSIT."
This Official Notice of Sale is not a part of the POS (defined below). The inclusion of this
Official Notice of Sale as an attachment to the POS is for purposes of convenience only.
RIGHT OF CANCELLATION OF SALE BY CITY: The City reserves the right, in its
sole discretion, at any time to cancel the public sale of the Bonds. In such event, the City shall
cause notice of cancellation of this invitation for bids and the public sale of the Bonds to be
communicated through Bond Buyer Wire as promptly as practicable. However, no failure to
publish such notice or any defect or omission therein shall affect the cancellation of the public
sale of the Bonds.
RIGHT TO MODIFY OR AMEND: The City reserves the right, in its sole discretion, to
modify or amend this Official Notice of Sale including, but not limited to, the right to adjust and
change the principal amount and principal amortization schedule of the Bonds being offered,
however, such modifications or amendments shall be made not later than 10:00 A.M., California
time, on the business day prior to the bid opening and communicated through Bond Buyer Wire.
RIGHT OF POSTPONEMENT BY CITY: The City reserves the right, in its sole
discretion, to postpone, from time to time, the date established for the receipt of bids. Any such
20015.03
Quint & Thimmig LLP 06/18/03
INDENTURE OF TRUST
by and between the
CITY OF TUSTIN
and
U.S. BANK NATIONAL ASSOCIATION, as Trustee
Dated as of August 1, 2003
Relating to the
$.
City of Tustin
(Orange County, California)
2003 Refunding Water Revenue Bonds
20015.03
TABLE OF CONTENTS
Section 1.01.
Section 2.01.
Section 2.02.
Section 2.03.
Section 2.04.
Section 2.05.
Section 2.06.
Section 2.07.
Section 2.08.
Section 2.09.
Section 2.10.
Page
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION; EQUAL SECURITY
Definitions ............................................................................................................................................. 3
ARTICLE II
THE BONDS
Authorization of the Bonds..... ......................................................................................................... 12
Terms of the Bonds ............................................................................................................................ 12
Form of Bonds .................................................................................................................................... 13
Execution of Bonds ............................................................................................................................ 13
Transfer of Bonds ............................................................................................................................... 13
Exchange of Bonds ............................................................................................................................. 13
Temporary Bonds ............................................................................................................................... 13
Bond Registration Books ................................................................................................................... 14
Bonds Mutilated, Lost, Destroyed or Stolen ................................................................................. 14
Book-Entry System ............................................................................................................................. 14
ARTICLE III
ISSUE OF BONDS; APPLICATION OF PROCEEDS; COSTS OF ISSUANCE FUND
Section 3.01. Issuance of Bonds ............................................................................................................................... 17
Section 3.02. Application of Proceeds of Bonds ................................................................................................... 17
Section 3.03. Establishment and Application of Costs of Issuance Fund ........................................................ 17
Section 3.04. Validity of Bonds ................................................................................................................................ 18
Section 4.01.
Section 4.02.
Section 4.03.
Section 4.04.
Section 4.05.
ARTICLE IV
REDEMPTION OF BONDS
Terms of Redemption ........................................................................................................................ 19
Selection of Bonds for Redemption ................................................................................................. 19
Notice of Redemption ........................................................................................................................ 20
Partial Redemption of Bonds ........................................................................................................... 21
Effect of Redemption ......................................................................................................................... 21
Section 5.01.
Section 5.02.
Section 5.03.
Section 5.04.
Section 5.05.
Section 5.06.
Section 5.07.
ARTICLE V
GROSS REVENUES; NET REVENUES
Pledge and Assignment; Gross Revenue Fund; Revenue Fund ................................................ 22
Allocation of Net Revenues .............................................................................................................. 23
Application of Interest Account ...................................................................................................... 23
Application of Principal Account .................................................................................................... 23
Application of Bond Reserve Account ........................................................................................... 25
Application of Redemption Fund ................................................................................................... 26
Investment of Moneys in Funds and Accounts ............................................................................ 26
Section 6.01.
Section 6.02.
Section 6.03.
ARTICLE VI
COVENANTS OF THE AUTHORITY; SPECIAL TAX COVENANTS
Punctual Payment .............................................................................................................................. 28
Extension of Payment of Bonds ....................................................................................................... 28
Discharge of Claims ........................................................................................................................... 28
-i-
Section 6.04.
Section 6.05.
Section 6.06.
Section 6.07.
Section 6.08.
Section 6.09.
Section 6.10.
Section 6.11.
Section 6.12.
Section 6.13.
Section 6.14.
Section 6.15.
Section 6.16.
Section 6.17.
Section 7.01.
Section 7.02.
Section 7.03.
Section 7.04.
Section 7.05.
Section 7.06.
Section 8.01.
Section 8.02.
Section 8.03.
Section 8.04.
Section 8.05.
Section 8.06.
Section 8.07.
Section 8.08.
Section 8.09.
Section 8.10.
Section 9.01.
Section 9.02.
Section 9.03.
Section 9.04.
Section 9.05.
Section 9.06.
Section 9.07.
Section 10.01.
Section 10.02.
Section 10.03.
Section 10.04.
Operation of Enterprise in Efficient and Economical Manner ................................................... 28
Against Encumbrance ....................................................................................................................... 28
Records and Accounts ....................................................................................................................... 29
Rates and Charges .............................................................................................................................. 29
Limitations on Future Obligations Secured by Net Revenues .................................................. 30
Further Assurances ............................................................................................................................ 31
Waiver of Laws ................................................................................................................................... 31
Private Activity Bond Limitation .................................................................................................... 31
Private Loan Financing Limitation ................................................................................................. 32
Federal Guarantee Prohibition ........................................................................................................ 32
Rebate Requirement ........................................................................................................................... 32
No Arbitrage ....................................................................................................................................... 32
Maintenance of Tax-Exemption ....................................................................................................... 32
Continuing Disclosure ....................................................................................................................... 32
ARTICLE VII
MAINTENANCE, TAXES, INSURANCE AND CONDEMNATION
Maintenance and Operation of the Enterprise .............................................................................. 33
Taxes, Assessments, Other Governmental Charges and Utility Charges ................................ 33
Insurance Required ............................................................................................................................ 33
Worker's Disability Compensation Act ......................................................................................... 34
Insurers; Policy Forms and Loss Payees ........................................................................................ 34
Disposition of Insurance and Condemnation Proceeds .............................................................. 35
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF BONDOWNERS
Events of Default ................................................................................................................................ 36
Acceleration of Maturities ................................................................................................................ 36
Application of Net Revenues and Other Funds After Default .................................................. 37
Trustee to Represent Bondowners .................................................................................................. 38
Bondowners' Direction of Proceedings .......................................................................................... 38
Limitation on Bondowners' Right to Sue ....................................................................................... 38
Absolute Obligation of City ............................................................................................................. 39
Termination of Proceedings ............................................................................................................. 39
Remedies Not Exclusive .................................................................................................................... 39
No Waiver of Default ........................................................................................................................ 39
ARTICLE IX
THE TRUSTEE
Appointment of Trustee; Duties, Immunities and Liabilities of Trustee ................................. 40
Merger or Consolidation ................................................................................................................... 41
Liability of Trustee ............................................................................................................................. 41
Right of Trustee to Rely on Documents ......................................................................................... 42
Preservation and Inspection of Documents .................................................................................. 43
Compensation of Trustee .................................................................................................................. 43
Indemnification ................................................................................................................................... 43
ARTICLE X
MODIFICATION OR AMENDMENT OF THE INDENTURE
Amendments Permitted .................................................................................................................... 44
Effect of Supplemental Indenture ................................................................................................... 45
Endorsement of Bonds; Preparation of New Bonds .................................................................... 45
Amendment of Particular Bonds ..................................................................................................... 45
-ii-
Section 11.01.
Section 11.02.
Section 11.03.
Section 11.04.
ARTICLE XI
DEFEASANCE
Discharge of Indenture ...................................................................................................................... 46
Discharge of Liability on Bonds ...................................................................................................... 46
Deposit of Money or Securities with Trustee ................................................................................ 46
Payment of Bonds After Discharge of Indenture ......................................................................... 47
ARTICLE XII
MUNICIPAL BOND INSURANCE PROVISIONS
Section 13.01.
Section 13.02.
Section 13.03.
Section 13.04.
Section 13.05.
Section 13.06.
Section 13.07.
Section 13.08.
Section 13.09.
Section 13.10.
Section 13.11.
Section 13.12.
Section 13.13.
Section 13.14.
Section 13.15.
ARTICLE XIII
MISCELLANEOUS
Liability of City Limited to Net Revenues ..................................................................................... 49
Successor Is Deemed Included in All References to Predecessor ............................................. 49
Limitation of Rights to Parties and Bondowners ......................................................................... 49
Waiver of Notice ................................................................................................................................. 49
Destruction of Bonds ......................................................................................................................... 49
Severability of Invalid Provisions ................................................................................................... 49
Notice to City and Trustee ................................................................................................................ 49
Evidence of Rights of Bondowners ................................................................................................. 50
Disqualified Bonds ............................................................................................................................. 50
Money Held for Particular Bonds ................................................................................................... 50
Funds and Accounts .......................................................................................................................... 50
Article and Section Headings and References .............................................................................. 51
Waiver of Personal Liability ............................................................................................................. 51
Execution in Several Counterparts ................................................................................................. 51
Governing Law ................................................................................................................................... 51
EXHIBIT A - FORM OF BOND
-iii-
INDENTURE OF TRUST
THIS INDENTURE OF TRUST, is dated of August 1, 2003, by and between the CITY OF
TUSTIN, a municipal corporation and general law city organized and existing under the
constitution and laws of the State of California (the "City"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association organized and existing under the laws of the
United States of America, with a corporate trust office in Los Angeles, California, and being
qualified to accept and administer the trusts hereby created (the "Trustee");
WITNESSETH:
WHEREAS, the City has entered into an agreement entitled "Orange County Well
Construction Program Agreement," dated as of February 18, 1992, by and between the Orange
County Water District (the "District") and the City (the "Vandenberg Well Agreement"), for the
purpose of financing certain improvements to the City's municipal water enterprise (the
"Enterprise");
WHEREAS, the City has also entered into an agreement entitled "Agreement between
Orange County Water District and the City of Tustin for the Construction, Operation and
Acquisition of a Groundwater Desalter Project," dated as of February 18, 1992, as supplemented
on May 13, 1992, as amended on June 16, 1993, and as further amended on October 18, 2000 (the
"District Desalter Agreement"), for the purpose of financing certain improvements to the
Enterprise;
WHEREAS, the City has also entered into an agreement entitled "Tustin Desalter Project
Joint Participation Agreement for Recovery and Utilization of Contaminated Groundwater
between the Metropolitan Water District of Southern California, the Municipal Water District of
Orange County, the Orange County Water District, the East Orange County Water District and
the City of Tustin,' dated as of December 8, 1992 (the "State Desalter Agreement"), for the
purpose of financing certain improvements to the Enterprise;
WHEREAS, the City has also caused to be executed and delivered its $11,500,000 City of
Tustin, Orange County, California, Water System Revenue Certificates of participation, 1993
Series (the "1993 Certificates"), for the purpose of financing and refinancing certain
improvements to the Enterprise;
WHEREAS, the 1993 Certificates represent undivided, fractional interests in purchase
payments (the "1993 Purchase Payments") made by the City under an installment purchase
agreement, dated as of April 1, 1993, by and between the City of Tustin Water Corporation and
the City (the "1993 Agreement");
WHEREAS, the City has also entered into an agreement entitled "Orange County Well
Construction Program Agreement," dated as of October 21, 1996, by and between the District
and the City (the "Well #4 Agreement"), for the purpose of financing certain improvements to
the Enterprise;
WHEREAS, interest rates are currently at historically low levels and the City can reduce
its aggregate debt service obligations under the Vandenberg Well Agreement, the District
Desalter Agreement, the State Desalter Agreement, the 1993 Agreement and the Well #4
Agreement and can eliminate the administrative burden of maintaining multiple agreements by
providing for the prepayment of its obligations under the Vandenberg Well Agreement, the
District Desalter Agreement, the State Desalter Agreement, the 1993 Agreement (and thereby
providing for the reftmding of the 1993 Certificates) and the Well #4 Agreement;
WHEREAS, section 53570 et seq. of the California Government Code (the "Refunding
Bond Law") authorizes the City to issue its refunding revenue bonds for the purpose of
refunding revenue obligations of the City such as the Vandenberg Well Agreement, the District
Desalter Agreement, the State Desalter Agreement, the 1993 Agreement and the Well #4
Agreement;
WHEREAS, the City, after due investigation and deliberation, has determined that it is
in the interests of the City at this time to provide for the issuance of bonds under the Refunding
Bond Law to provide for the prepayment of its obligations under the Vandenberg Well
Agreement, the District Desalter Agreement, the State Desalter Agreement, the 1993 Agreement
(and thereby providing for the refunding of the 1993 Certificates) and the Well #4 Agreement,
by providing for the issuance of its City of Tustin (Orange County, California), 2003 Refunding
Water Revenue Bonds (the "Bonds") under the Refunding Bond Law to for such purposes;
WHEREAS, in order to provide for the authentication and delivery of the Bonds, to
establish and declare the terms and conditions upon which the Bonds are to be issued and
secured and to secure the payment of the principal thereof and premium (if any) and of the
interest thereon, the City Council of the City has authorized the execution of this Indenture;
WHEREAS, all Bonds issued under this Indenture will be secured by a pledge of the Net
Revenues, as defined herein, and certain other moneys and securities held by the Trustee
hereunder; and
WHEREAS, all acts and proceedings required by law necessary to make the Bonds,
when executed by the City, authenticated and delivered by the Trustee and duly issued, the
valid, binding and legal special obligations of the City, and to constitute this Indenture a valid
and binding agreement for the uses and purposes herein set forth, in accordance with its terms,
have been done and taken; and the execution and delivery of this Indenture have been in all
respects duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the
payment of the principal of and premium (if any) and interest on all Bonds at any time issued
and Outstanding under this Indenture, according to their tenor, and to secure the performance
and observance of all the covenants and conditions therein and herein set forth, and to declare
the terms and conditions upon and subject to which the Bonds are to be issued and received,
and in consideration of the premises and of the mutual covenants herein contained and of the
purchase and acceptance of the Bonds by the owners thereof, and for other valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the City does
hereby covenant and agree with the Trustee, for the benefit of the respective owners from time
to time of the Bonds, as follows:
-2-
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION; EQUAL SECURITY
Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this
Section 1.01 shall for all purposes of this Indenture and of any Supplemental Indenture and of
any certificate, opinion, request or other documents herein mentioned, have the meanings
herein specified, to be equally applicable to both the singular and plural forms of any of the
terms herein defined.
"Authorized Representative" means, with respect to the City, the City Manager, the
Finance Director or any other person designated as an Authorized Representative of the City by
a Certificate of the City signed by the City Manager or the Finance Director and filed with the
Trustee.
"Bond Registration Books" means the books maintained by the Trustee pursuant to
Section 2.08 for the registration and transfer of ownership of the Bonds.
"Bond Reserve Account" means the account by that name in the Revenue Fund so
designated and established pursuant to Section 5.02.
"Bond Reserve Account Requirement" means, as of any date of calculation, Maximum
Aggregate Annual Debt Service on the Bonds.
"Bonds" means the City's 2003 Refunding Water Revenue Bonds, issued and at any time
Outstanding hereunder.
"Bond Year" means any twelve-month period commencing on April 2 in a year and
ending on the next succeeding April 1, both dates inclusive; provided, however, that the first
Bond Year shall commence on the Closing Date relating to the Bonds and shall end on April 1,
2004.
"Business Day" means a day of the year on which banks in Los Angeles, California, are
not required or authorized to remain closed and on which The New York Stock Exchange is not
closed.
"Certificate," "Statement," "Request," "Requisition" and "Order" of the City mean,
respectively, a written certificate, statement, request, requisition or order signed in the name of
the City by an Authorized Representative of the City. 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.
"City" means the City of Tustin, a municipal corporation and general law city organized
and existing under the constitution and laws of the State, and any successor thereto.
"City Council" means the City Council of the City.
"Closing Date" means the date upon which there is an exchange of the Bonds for the
proceeds representing the purchase of the Bonds by the Original Purchaser thereof.
-3-
"Code" means the Internal Revenue Code of 1986 as in effect on the Closing Date, or as it
may be amended to apply to obligations issued on the Closing Date, together with applicable
temporary and final regulations promulgated under the Code.
"Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate
executed by the City and dated the date of issuance and delivery of the Bonds, as originally
executed and as it may be amended from time to time in accordance with the terms thereof.
"Costs of Issuance" means all expenses directly or indirectly payable by the City and
related to the authorization, issuance, sale and delivery of Bonds, including but not limited to
advertising and printing costs, costs of preparation and reproduction of documents, filing and
recording fees, initial fees and charges of the Trustee, compensation, fees and expenses of the
City and the Trustee and their respective counsel, compensation to any financial consultants or
underwriters, legal fees and expenses, rating agency fees, bond insurance fees, fees and charges
for preparation, execution, transportation and safekeeping of Bonds, and any other cost, charge
or fee in connection with the original issuance of Bonds.
"Costs of Issuance Fund" means the fund so designated and established pursuant to
Section 3.03.
"Debt Service" means, during any period of computation, the amount obtained for such
period by totaling the following amounts:
(a) The principal amount of all Outstanding Serial Bonds coming due and payable by
their terms in such period;
(b) The minimum principal amount of all Outstanding Term Bonds scheduled to be
redeemed by operation of Mandatory Sinking Account Payments in such period, together with
any premium thereon; and
(c) The interest which would be due during such period on the aggregate principal
amount of Bonds which would be Outstanding in such period if the Bonds are retired as
scheduled, but deducting and excluding from such aggregate amount the amount of Bonds no
longer Outstanding.
"Defeasance Obligations" means: (a) cash; (b) non-callable Federal Securities (including
State and Local Government Securities); (c) direct obligations of the United States of America
which have been stripped by the Department of the Treasury' of the United States of America;
(d) CATS, TIGRS and similar securities; (e) bonds, debentures, notes or other evidence of
indebtedness issued or guaranteed by any of the following federal agencies and provided such
obligations are backed by the full faith and credit of the United States of America: (i) direct
obligations or fully guaranteed certificates of beneficial ownership of the U.S. Export-Import
Bank; (ii) certificates of beneficial ownership of the Farmers Home Administration; (iii)
obligations of the Federal Financing Bank; (iv) participation certificates of the General Services
Administration; (v) guaranteed Title XI financings of the U.S. Maritime Administration; (vii)
New Communities debentures; (vii) U.S. government guaranteed public housing notes and
bonds; and (viii) project notes and local authority bonds of the U.S. Department of Housing and
Urban Development; and (f) pre-refunded municipal bonds rated "Aaa" by Moody's and
"AAA" by S&P; provided, however, pre-refunded municipal bonds rated by S&P only (i.e., no
Moody's rating) are acceptable if such pre-refunded municipal bonds were pre-refunded with
cash, direct U.S. or U.S. guaranteed obligations or AAA rated pre-refunded municipal bonds.
"District" means the Orange County Water District.
-4-
"District Desalter Agreement" means that certain agreement entitled "Agreement between
Orange County Water District and the City of Tustin for the Construction, Operation and
Acquisition of a Groundwater Desalter Project," dated as of February 18, 1992, as supplemented
on May 13, 1992, as amended on June 16, 1993, and as further amended on October 18, 2000,
relating to the financing certain improvements to the Enterprise.
"Enterprise" means any and all facilities, properties and improvements at any time
controlled or operated by the City used or pertaining to the supply of water, consisting of the
entire water production and distribution enterprise of the City, including all additions,
extensions, expansions, improvements and betterments thereto and equippings thereof and any
necessary lands, rights of way and other real and personal property useful in connection
therewith, but exclusive of any portion of the existing system not required for the continued
operation thereof; provided, however, that to the extent the City is not the sole owner of an
asset or property, or lessee thereof from the City, only the City's ownership interest in such
asset or property or leasehold interest therein from the City, shall be considered a part of the
Enterprise.
"Escrow Agreement" means the Escrow Deposit and Trust Agreement, dated the Closing
Date, by and between the City and the Escrow Bank, with respect to the establishment and
administration of the Escrow Fund for the purpose of providing for payment of the principal of,
interest on and redemption premium due with respect to the 1993 Certificates.
"Escrow Bank" means U.S. Bank National Association, a national banking association
organized and existing under and pursuant to the laws of the United States of America.
"Escrow Fund" means the Escrow Fund established and held by the Escrow Bank
pursuant to the Escrow Agreement.
"Event of Default" means any of the events of default described in Section 8.01.
"Federal Securities" means direct and general obligations of the United States of America,
or those which are unconditionally guaranteed as to principal and interest by the same.
"Fiscal Year" means the period commencing on July 1 of each year and terminating on
the next succeeding June 30.
"Gross Revenue Fund" means the fund by that name established and held by the City
pursuant to Section 5.01(b).
"Gross Revenues" means all gross charges received for, and all other gross income and
revenues derived by the City from, the operation of the Enterprise or otherwise arising from the
Enterprise, including but not limited to (a) all fees and charges received by the City for the
services of the Enterprise, (b) charges received by the City for water connections, and (c) all
receipts derived from the investment of such income or revenues.
"Indenture" means this Indenture of Trust, as originally executed or as it may from time
to time be supplemented, modified or amended by any Supplemental Indenture pursuant to the
provisions hereof.
"Independent Accountant" means any certified public accountant or firm of such
accountants appointed and paid by the City, and who, or each of whom:
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(a) is in fact independent and not under domination of the City or the City;
(b) does not have any substantial interest, direct or indirect, with the City or the City;
and
(c) is not connected with the City or the City as an officer or employee of the City or the
City, but who may be regularly retained to make annual or other audits of the books of or
reports to the City or the City.
"Information Services" means Financial Information, Inc.'s "Daily Called Bond Service,"
30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor;
Mergent/FIS, Inc., 5250-77 Center Drive, Charlotte, North Carolina 28217, Attention: Called
Bond Dept.; Kenny S&P, 55 Water Street, New York, New York 10041, Attention: Notification
Department; and, in accordance with then current guidelines of the Securities and Exchange
Commission, such other addresses and/or such other services providing information with
respect to called bonds as the City may designate in a Certificate of the City delivered to the
Trustee.
"Insurance and Condemnation Proceeds Fund" means the fund by that name established
pursuant to Section 7.06.
"Insurance Consultant" means a person (which may be the City's or the City's insurance
agent or broker) having experience and a favorable reputation in consulting on the insurance
requirements of water utilities in the State of the general size and character of the Enterprise,
selected by the City.
"Interest Account" means the account by that name in the Revenue Fund established
pursuant to Section 5.02.
"Interest Payment Date" means April 1 and October 1 in each year, beginning October 1,
2003, and continuing so long as any Bonds remain Outstanding.
"Maintenance and Operation Costs" means the reasonable and necessary costs of
maintaining and operating the Enterprise, calculated based upon accounting principles
consistently applied, including (among other things) the reasonable expenses of management,
personnel, services, equipment, repair and other expenses necessary to maintain and preserve
the Enterprise in good repair and working order, and reasonable amounts for administration,
overhead, insurance, taxes (if any) and other similar costs, but excluding in all cases
depreciation and obsolescence charges or reserves therefor and amortization of intangibles or
other bookkeeping entries of a similar nature.
"Maintenance and Operation Fund" means the fund by that name established and held by
the City pursuant to Section 5.01(c).
"Mandatory Sinking Account Payment" means the amount required by this Indenture or
any Supplemental Indenture to be paid by the City on any single date for the retirement of
Term Bonds.
"Maximum Aggregate Annual Debt Service" means, as of the date of calculation, the
maximum amount of Debt Service for the current or any future Bond Year with respect to all
Bonds and any Parity Obligations Outstanding.
"Moody's" means Moody's Investors Service, New York, New York, or its successors.
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"Municipal Bond Insurance Policy" means the municipal bond insurance policy issued by
the Municipal Bond Insurer insuring the payment, when due, of the principal of and interest on
the Bonds as provided therein.
"Municipal Bond Insurer" means
"Net Proceeds" means the par amount of the Bonds plus accrued interest and premium, if
any, less the amount of any underwriter's and original issue discount, less the proceeds applied
to pay Costs of Issuance, and less the amount of proceeds deposited in the Bond Reserve
Account.
"Net Revenues" means, with respect to any period, the amount of the Gross Revenues
received during such period less the amount of Maintenance and Operation Costs becoming
payable during such period.
"1993 Agreement" means that certain installment purchase agreement, dated as of April
1, 1993, by and between the City and the Corporation.
"1993 Certificates" means $11,500,000 Water System Revenue Certificates of Participation,
1993 Series, representing interests in the installment payments to be made by the City under the
1993 Agreement.
"1993 Trust Agreement" means that certain trust agreement, dated as of April 1, 1993, by
and among the City, the Corporation and Bank of America National Trust and Savings
Association, as trustee, relating to the 1993 Certificates.
"Optional Redemption Account" means the account by that name in the Redemption Fund
established pursuant to Section 5.06.
"Original Purchaser" means the first purchaser of the Bonds from the City.
"Outstanding," when used as of any particular time with reference to Bonds, means all
Bonds theretofore executed, issued and delivered by the City under this Indenture except:
(a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for
cancellation;
(b) Bonds paid or deemed to have been paid within the meaning of Section 11.01; and
(c) Bonds in lieu of or in substitution for which other Bonds shall have been executed,
issued and delivered by the City pursuant to this Indenture or any Supplemental Indenture.
"Owner" or "Bond Owner", when used with respect to any Bond, means the person in
whose name the ownership of such Bond shall be registered on the Bond Registration Books.
"Parity Obligations" means indebtedness or other obligations of the City (including leases
and installment sale agreements) hereafter issued or incurred and secured by a pledge of and
lien on Net Revenues equally and ratably with the Bonds.
"Participating Underwriter" shall have the meaning ascribed thereto in the Continuing
Disclosure Certificate.
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"Permitted Investments" means any of the following which at the time of investment are
legal investments under the laws of the State for the moneys proposed to be invested therein
and are consistent with the City's investment policies, but only to the extent that the same are
acquired at Fair Market Value (provided the Trustee may rely upon the Request of the City
directing investment hereunder as a determination that such investment is a Permitted
Investment):
(a) Federal Securities;
(b) bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by
any of the following federal agencies and provided such obligations are backed by the full faith
and credit of the United States of America (stripped securities are only permitted if they have
been stripped by the agency itself): (i) direct obligations or fully guaranteed certificates of
beneficial ownership of the U.S. Export-Import Bank (Eximbank), (ii) certificates of beneficial
ownership of the Farmers Home Administration; (iii) obligations of the Federal Financing Bank,
(iv) debentures of the Federal Housing Administration (FHA); (v) participation certificates of
the General Services Administration; (vi) guaranteed mortgage-backed bonds or guaranteed
pass-through obligations (participation certificates) of the Government National Mortgage
Association (GNMA); (vii) guaranteed Title XI financings of the U.S. Maritime Administration;
and (viii) project notes, local authority bonds, new communities debentures (U.S. government
guaranteed debentures) or U.S. public housing notes and bonds (U.S. government guaranteed
public housing notes and bonds) of the U.S. Department of Housing and Urban Development
(HUD);
(c) bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by
any of the following non-full faith and credit U.S. government agencies (stripped securities are
only permitted if they have been stripped by the agency itself): (i) senior debt obligations of the
Federal Home Loan Bank System; (ii) participation certificates or senior debt obligations of the
Federal Home Loan Mortgage Corporation (FHLMC); (iii) mortgaged-backed securities and
senior debt obligations of the Federal National Mortgage Association (FNMA); (iv) senior debt
obligations of the Student Loan Marketing Association (SLMA); (v) obligations of the
Resolution Funding Corporation (REFCORP), and (v) consolidated systemwide bonds and
notes of the Farm Credit System;
(d) money market funds registered under the Federal Investment Company Act of 1940,
whose shares are registered under the Federal Securities Act of 1933, and having a rating by
S&P of "AAAm-G' or "AAAm" and, if rated by Moody's, having a rating by Moody's of
"Aaa." including money market funds from which the Trustee or its affiliates derive a fee for
investment advisory or other services to the fund;
(e) certificates of deposit secured at all times by collateral described in (a) or (b) above,
issued by commercial banks, savings and loan associations or mutual savings banks (such
collateral must be held by a third party and the Trustee must have a perfected first security
interest in such collateral);
(f) certificates of deposit, savings accounts, deposit accounts or money market deposits
which are fully insured by the Federal Deposit Insurance Corporation, including those of the
Trustee or its affiliates;
(g) commercial paper rated, at the time of purchase, "Prime-l" by Moody's and "A-l+'
or better by S&P;
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(h) bonds or notes issued by any state or municipality which, at the time of purchase, are
rated by Moody's and S&P in one of the two highest long term rating categories assigned by
such agencies;
(i) federal funds or bankers acceptances with a maximum term of one year of any bank
which has an unsecured, uninsured and unguaranteed obligation rating of "Prime-l" or "A3"
or better by Moody's and "A-I+" or better by S&P;
(j) The Local Agency Investment Fund of the State of California, created pursuant to
section 16429.1 of the California Government Code, to the extent the Trustee is authorized to
register such investment in its name; and
(k) any other investments permitted in writing by the Municipal Bond Insurer.
"Principal Account" means the account by that name in the Revenue Fund established
pursuant to Section 5.02.
"Principal Payment Date" means April 1 in each year, beginning April 1, 2004, and
continuing so long as any Bonds remain Outstanding.
"Qualified Bond Reserve Account Credit Instrument" means an irrevocable standby or
direct-pay letter of credit or surety bond issued by a commercial bank or insurance company
and deposited with the Trustee pursuant to Section 5.05, provided that all of the following
requirements are met as of the time of delivery thereof to the Trustee: (a) the long-term credit
rating of such bank or insurance company is in the highest rating category by Moody's or S&P,
or the claims paying ability of such insurance company is rated in the highest rating category by
A.M. Best & Company; (b) such letter of credit or surety bond has a term of at least twelve (12)
months; (c) such letter of credit or surety bond has a stated amount at least equal to the portion
of the Bond Reserve Account Requirement with respect to which funds are proposed to be
released pursuant to Section 5.05; and (iv) the Trustee is authorized pursuant to the terms of
such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies
which may exist from time to time in the Interest Account or the Principal Account for the
purpose of making payments required pursuant to Sections 5.03 and 5.04.
"Record Date" means the fifteenth (15th) calendar day of the month immediately
preceding an Interest Payment Date.
"Redemption Fund" means the fund by that name established pursuant to Section 5.06.
"Redemption Price" means, with respect to any Bond (or portion thereof) the principal
amount of such Bond (or portion) plus the applicable premium, if any, payable upon
redemption thereof pursuant to the provisions of such Bond and this Indenture.
"Refunding Bond Law" means section 53570 et seq. of the California Government Code, as
in effect on the Closing Date or as thereafter amended in accordance with its terms.
"Revenue Fund" means the fund by that name established pursuant to Section 5.01.
"S&P' means Standard & Poor's Ratings Services, New York, New York, or its
successors.
"Securities Depositories" means The Depository Trust Company, 55 Water Street, 50th
Floor, New York, NY 10041-0099, Attention: Call Notification Department, Fax (212) 855-7232;
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and, in accordance with then current guidelines of the Securities and Exchange Commission,
such other addresses and/or such other securities depositories as the City may designate in a
Certificate of the City delivered to the Trustee.
"Serial Bonds" means all Bonds other than Term Bonds.
"Sinking Accounts" means the subaccounts in the Principal Account so designated and
established pursuant to Section 5.04.
"Special Record Date" means the date established by the Trustee pursuant to Section 2.02
as a record date for the payment of defaulted interest on Bonds.
"Special Redemption Account" means the account by that name in the Redemption Fund
established pursuant to Section 5.06.
"State" means the State of California.
"State Desalter Agreement" means that certain agreement entitled "Tustin Desalter Project
Joint Participation Agreement for Recovery and Utilization of Contaminated Groundwater
between the Metropolitan Water District of Southern California, the Municipal Water District of
Orange County, the Orange County Water District, the East Orange County Water District and
the City of Tustin," dated as of December 8, 1992, relating to the financing certain
improvements to the Enterprise.
"Supplemental Indenture" means any indenture hereafter duly authorized and entered
into between the City and the Trustee, amendatory of or supplemental to this Indenture, but
only if and to the extent that such Supplemental Indenture is specifically authorized hereunder.
"Term Bonds" means the Bonds maturing on April 1, .
"Trust Office" means the principal corporate trust office of the Trustee in Los Angeles,
California; provided, however, that the Trustee may from time to time designate other offices
for purposes of payment, transfer, exchange or registration of Bonds; provided such office for
the Bonds shall be initially the corporate trust operations office of the Trustee in St. Paul,
Minnesota.
"Trustee" means U.S. Bank National Association, appointed by the City to act as trustee
hereunder pursuant to Section 9.01, and its assigns or any other corporation or association
which may at any time be substituted in its place, as provided in Section 10.01.
"Vandenberg Well Agreement" means that agreement entitled "Orange County Well
Construction Program Agreement," dated as of February 18, 1992, by and between the District
and the City relating to the financing certain improvements to the Enterprise.
"Water Fund" means the fund by that name established and held by the City for
purposes of accounting for the revenues and expenditures of the Enterprise.
"Well #4 Agreement" means that certain agreement entitled "Orange County Well
Construction Program Agreement," dated as of ,1996, by and between the District
and the City, relating to the financing certain improvements to the Enterprise.
Section 1.02. Rules of Construction. All references in this Indenture to "Articles,"
"Sections," and other subdivisions are to the corresponding Articles, Sections or subdivisions of
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this Indenture; and the words "herein, .... hereof, .... hereunder," and other words of similar
import refer to this Indenture as a whole and not to any particular Article, Section or
subdivision hereof.
Section 1.03. Equal Security. In consideration of the acceptance of the Bonds by the
Owners thereof, this Indenture shall be deemed to be and shall constitute a contract between the
City and the Owners from time to time of the Bonds; and the covenants and agreements herein
set forth to be performed on behalf of the City shall be for the equal and proportionate benefit,
security and protection of all Owners of the Bonds without preference, priority or distinction as
to security or otherwise of any of the Bonds over any of the others by reason of the number or
date thereof or the time of sale, execution or delivery thereof, or otherwise for any cause
whatsoever, except as expressly provided therein or herein.
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ARTICLE II
THE BONDS
Section 2.01. Authorization of the Bonds. At any time after the adoption, execution and
delivery of this Indenture, the City may execute and the Trustee, upon Request of the City, shall
authenticate and deliver Bonds in the aggregate principal amount of dollars
($. .).
Section 2.02. Terms of the Bonds. The Bonds shall be issued in fully registered form
without coupons in denominations of $5,000 or any integral multiple thereof, so long as no
Bond shall have more than one maturity date. The Bonds shall be dated as of their date of
delivery, shall mature on April 1 in each of the years and in the amounts, and shall bear interest
at the rates, as follows:
Maturity Maturity
Date Principal Interest Date Principal Interest
(April 1) Amount Rate (April 1) Amount Rate
Interest on the Bonds shall be payable on each Interest Payment Date to the person
whose name appears on the Bond Registration Books as the Owner thereof as of the Record
Date immediately preceding each such Interest Payment Date, such interest to be paid by check
or, at the option of any Owner of at least $1,000,000 aggregate principal amount of Bonds and
upon written notice received by the Trustee prior to the Record Date, by wire transfer, at the
Owner's address as it appears on the Bond Registration Books or to such account as shall have
been identified by the Owner in the notice requesting payment by wire transfer. Interest on the
Bonds shall be computed on the basis of a year consisting of 360 days and twelve 30-day
months. Principal of and premium (if any) on any Bond shall be paid upon presentation and
surrender thereof at the Trust Office of the Trustee. Both the principal of and interest and
premium (if any) on the Bonds shall be payable in lawful money of the United States of
America.
Each Bond shall bear interest from the Interest Payment Date next preceding the
authentication thereof, unless (a) it is authenticated after a Record Date and on or before the
following Interest Payment Date, in which event it shall bear interest from such Interest
Payment Date; or (b) it is authenticated on or before September 15, 2003, in which event it shall
bear interest from its date of delivery; provided, however, that if, as of the date of
authentication of any Bond, interest thereon is in default, such Bond shall bear interest from the
Interest Payment Date to which interest has previously been paid or made available for
payment thereon.
Any such interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Owner on such Record Date and shall be paid to the person in whose name the
Bond is registered at the close of business on a Special Record Date for the payment of such
defaulted interest to be fixed by the Trustee, notice whereof being given to the Owners not less
than ten (10) days prior to such Special Record Date.
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The Bonds shall be subject to redemption as provided in Article IV.
Section 2.03. Form of Bonds. The Bonds, the form of Trustee's certificate of
authentication, and the form of assignment to appear thereon, shall be substantially in the
respective forms set forth in Exhibit A attached hereto and by this reference incorporated
herein, with necessary or appropriate variations, omissions and insertions, as permitted or
required by this Indenture.
Section 2.04. Execution of Bonds. The Bonds shall be signed in the name and on behalf of
the City with the facsimile signature of its Mayor and attested by the facsimile signature of its
City Clerk under the seal of the City. Such seal may be in the form of a facsimile of the City's
seal and shall be reproduced, imprinted or impressed upon the Bonds. The Bonds shall then be
delivered to the Trustee for authentication by it. In case any officer who shall have signed any of
the Bonds shall cease to be such officer before the Bonds so signed shall have been
authenticated or delivered by the Trustee or issued by the City, such Bonds may nevertheless be
authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be
as binding upon the City as though the individual who signed the same had continued to be
such officer of the City. Also, any Bond may be signed on behalf of the City by any individual
who on the actual date of the execution of such Bond shall be the proper officer although on the
nominal date of such Bond such individual shall not have been such officer of the City.
Only such of the Bonds as shall bear thereon a certificate of authentication in
substantially the form set forth in Exhibit A, manually executed by the Trustee, shall be valid or
obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of
the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly
authenticated and delivered hereunder and are entitled to the benefits of this Indenture.
Section 2.05. Transfer of Bonds. Any Bond may, in accordance with its terms, be
transferred, upon the Bond Registration Books, by the person in whose name it is registered, in
person or by his duly authorized attorney, upon surrender of such Bond for cancellation,
endorsed or accompanied by delivery of a written instrument of transfer in a form acceptable to
the Trustee, duly executed. Every Bond so surrendered to the Trustee shall be canceled by it and
destroyed. Whenever any Bond shall be surrendered for transfer, the City shall execute and the
Trustee shall thereupon authenticate and deliver to the transferee a new Bond or Bonds of like
maturity and aggregate principal amount of authorized denominations. The Trustee shall
require the Owner requesting such transfer to pay any tax or other charge required to be paid
with respect to such transfer. No Bond, the notice of redemption of which has been mailed
pursuant to Section 4.03, shall be subject to transfer pursuant to this Section 2.05. No transfer
shall be required during the period established by the Trustee for the selection of Bonds for
redemption.
Section 2.06. Exchange of Bonds. Bonds may be exchanged at the Trust Office of the
Trustee, for a like aggregate principal amount of Bonds of other authorized denominations of
the same maturity. The Trustee shall require the Owner requesting such exchange to pay any
tax or other charge required to be paid with respect to such exchange. No Bond, the notice of
redemption of which has been mailed pursuant to Section 4.03, shall be subject to exchange
pursuant to this Section 2.06. No exchange of Bonds shall be required during the period
established by the Trustee for the selection of Bonds for redemption.
Section 2.07. Temporary Bonds. The Bonds may be issued initially in temporary form
exchangeable for definitive Bonds when ready for delivery. Any temporary Bond may be
printed, lithographed or typewritten, shall be of such denomination as may be determined by
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the City and may contain such reference to any of the provisions of this Indenture as may be
appropriate. A temporary Bond may be in the form of a single registered bond payable in
installments, each on the date, in the amount and at the rate of interest established for the Bonds
maturing on such date. Every temporary Bond shall be executed by the City and by the Trustee
upon the same conditions and in the same manner as the definitive Bonds. If the City issues
temporary Bonds, it will execute and deliver definitive Bonds as promptly thereafter as
practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, in
exchange therefor at the Trust Office of the Trustee, and the Trustee shall authenticate and
deliver in exchange for such temporary Bonds an equal aggregate principal amount of
definitive Bonds of authorized denominations of the same maturity or maturities. Until so
exchanged, the temporary Bonds shall be entitled to the same benefits under this Indenture as
definitive Bonds authenticated and delivered hereunder.
Section 2.08. Bond Registration Books. The Trustee will keep or cause to be kept at its
Trust Office sufficient books for the registration and transfer of the Bonds, which shall at all
times during regular business hours be open to inspection by the City; and, upon presentation
for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe,
register or transfer or cause to be registered or transferred, on said books, Bonds as hereinbefore
provided.
Section 2.09. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become
mutilated, the City shall execute, and the Trustee shall thereupon authenticate and deliver, a
new Bond of like tenor and authorized denomination in exchange and substitution for the Bond
so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated
Bond so surrendered to the Trustee shall be canceled by it and destroyed and the Trustee shall
provide evidence of such destruction to the City. If any Bond issued hereunder shall be lost,
destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the City and
the Trustee and, if such evidence be satisfactory to the Trustee and indemnity for the City and
the Trustee satisfactory to the Trustee shall be given, the City, at the expense of the Bond
Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of
like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such
Bond shall have matured or shall have been called for redemption, instead of issuing a
substitute Bond, the Trustee may pay the same without surrender thereof upon receipt of the
aforementioned indemnity). The City may require payment of a reasonable fee for each new
Bond issued under this Section 2.09 and of the expenses which may be incurred by the City and
the Trustee in connection therewith. Any Bond issued under the provisions of this Section 2.09
in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original contractual
obligation on the part of the City whether or not the Bond alleged to be lost, destroyed or stolen
be at any time enforceable by anyone, and shall be equally and proportionately entitled to the
benefits of this Indenture with all other Bonds secured by this Indenture.
Section 2.10. Book-Entry System. Notwithstanding any provision of this Indenture to the
contrary:
(a) At the request of the Original Purchaser, the Bonds shall be initially issued registered
in the name of "Cede & Co.," as nominee of The Depository Trust Company, the depository
designated by the Original Purchaser, and shall be evidenced by one certificate maturing on
each of the maturity dates set forth in Section 2.02 hereof to be in a denomination corresponding
to the total principal therein designated to mature on such date. Registered ownership of such
Bonds, or any portions thereof, may not thereafter be transferred except:
(i) to any successor of The Depository Trust Company or its nominee, or of any
substitute depository designated pursuant to paragraph (ii) of this subsection (a)
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("substitute depository"); provided that any successor of The Depository Trust
Company or substitute depository shall be qualified under any applicable laws to
provide the service proposed to be provided by it;
(ii) to any substitute depository designated in a written request of the City, upon
(i) the resignation of The Depository Trust Company or its successor (or any substitute
depository or its successor) from its functions as depository or (ii) a determination by
the City that The Depository Trust Company or its successor is no longer able to carry
out its functions as depository; provided that any such substitute depository shall be
qualified under any applicable laws to provide the services proposed to be provided by
it; or
(iii) to any person as provided below, upon (A) the resignation of The Depository
Trust Company or its successor (or any substitute depository or its successor) from its
functions as depository or (B) a determination by the City that The Depository Trust
Company or its successor is no longer able to carry out its functions as depository;
provided that no substitute depository which is not objected to by the City and the
Trustee can be obtained.
(b) In the case of any transfer pursuant to paragraph (i) or paragraph (ii) of subsection
(a) of this Section 2.10, upon receipt of all Outstanding Bonds by the Trustee, together with a
written request of an Authorized Representative of the City to the Trustee, a single new Bond
shall be issued, authenticated and delivered for each maturity of such Bond then outstanding,
registered in the name of such successor or such substitute depository or their nominees, as the
case may be, all as specified in such written request of an Authorized Representative of the City.
In the case of any transfer pursuant to paragraph (iii) of subsection (a) of this Section 2.10, upon
receipt of all Outstanding Bonds by the Trustee together with a written request of an
Authorized Representative of the City, new Bonds shall be issued, authenticated and delivered
in such denominations and registered in the names of such persons as are requested in a written
request of the City provided the Trustee shall not be required to deliver such new Bonds within
a period less than sixty (60) days from the date of receipt of such a written request of an
Authorized Representative of the City.
(c) In the case of partial redemption or an advance refunding of any Bonds evidencing
all of the principal maturing in a particular year, The Depository Trust Company shall, at the
City's expense, deliver the Bonds to the Trustee for cancellation and re-registration to reflect the
amounts of such reduction in principal.
(d) The City and the Trustee shall be entitled to treat the person in whose name any
Bond is registered as the absolute Owner thereof for all purposes of this Indenture and any
applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City;
and the City and the Trustee shall have no responsibility for transmitting payments to,
communication with, notifying or otherwise dealing with any beneficial owners of the Bonds.
Neither the City nor the Trustee will have any responsibility or obligations, legal or otherwise,
to the beneficial owners or to any other party including The Depository Trust Company or its
successor (or substitute depository or its successor), except for the registered owner of any
Bond.
(e) So long as all outstanding Bonds are registered in the name of Cede & Co. or its
registered assign, the City and the Trustee shall reasonably cooperate with Cede & Co., as sole
registered Owner, or its registered assign in effecting payment of the principal and redemption
premium, if any, and interest due with respect to the Bonds by arranging for payment in such
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manner that funds for such payments are properly identified and are made immediately
available on the date they are due.
(f) So long as all Outstanding Bonds are registered in the name of Cede & Co. or its
registered assigns (hereinafter, for purposes of this paragraph (f), the "Owner"):
(i) All notices and payments addressed to the Owners shall contain the Bonds'
CUSIP number.
(ii) Notices to the Owner shall be forwarded in the manner set forth in the form
of blanket issuer letter of representations (prepared by The Depository Trust Company)
executed by the City and received and accepted by The Depository Trust Company.
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ARTICLE III
ISSUE OF BONDS; APPLICATION OF PROCEEDS; COSTS OF ISSUANCE FUND
Section 3.01. Issuance of Bonds. At any time after the adoption, execution and delivery
of this Indenture, the City may execute and the Trustee, upon Request of the City, shall
authenticate and deliver Bonds in the aggregate principal amount of dollars
($. .).
Section 3.02. Application of Proceeds of Bonds. The proceeds received from the sale of
the Bonds shall be deposited in trust with the Trustee, who shall forthwith set aside such
proceeds as follows:
(a) The Trustee shall deposit to the Costs of Issuance Fund the sum of $
(b) The Trustee shall deposit to the Bond Reserve Account the sum of $ ;
(c) The Trustee shall transfer to the Escrow Bank, for deposit by the Escrow Bank in the
Escrow Fund, the sum of $ ;
(d) The Trustee shall on behalf of the City, transfer the sum of $.__
below to satisfy the City's obligations under the Vandenberg Well Agreement:
as set forth
[WIRE INSTRUCTIONS FOR PREPAYMENT TO COME]
(e) The Trustee shall, on behalf of the City, transfer the sum of $
below to satisfy the City's obligations under the District Desalter Agreement:
[WIRE INSTRUCTIONS FOR PREPAYMENT TO COME]
as set forth
(f) The Trustee shall, on behalf of the City, transfer the sum of $__
below to satisfy the City's obligations under the State Desalter Agreement:
[WIRE INSTRUCTIONS FOR PREPAYMENT TO COME]
as set forth
(g) The Trustee shall, on behalf of the City, transfer the sum of $
below to satisfy the City's obligations under the Well #4 Agreement:
[WIRE INSTRUCTIONS FOR PREPAYMENT TO COME]
as set forth
The Trustee may establish temporary funds or accounts on its records to facilitate such
transfers.
Section 3.03. Establishment and Application of Costs of Issuance Fund.
(a) The Trustee shall establish, maintain and hold in trust a separate fund designated as
the "Costs of Issuance Fund." The moneys in the Costs of Issuance shall be used and withdrawn
by the Trustee to pay Costs of Issuance upon receipt by the Trustee of a Requisition of the City
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stating the person to whom payment is to be made, the amount to be paid, the purpose for
which the obligation was incurred and that such payment is a proper charge against said
account.
(b) At the end of six months from the Closing Date, or upon earlier receipt of a
Certificate of the City stating that amounts in the Costs of Issuance Fund are no longer required
for the payment of Costs of Issuance, the Costs of Issuance Fund shall be closed and any
amounts then remaining in said account shall be transferred to said Revenue Fund.
Section 3.04. Validity of Bonds.
(a) The City has reviewed all proceedings heretofore taken relative to the authorization
of the Bonds and has found, as a result of such review, and hereby finds and determines that all
acts, conditions and things required by law to exist, happen or be performed precedent to and
in the issuance of the Bonds do exist, have happened and have been performed in due time,
form and manner as required by law, and the City is now authorized, pursuant to each and
every requirement of the Bond Law to issue the Bonds in the form and manner provided in this
Indenture and the Bonds shall be entitled to the benefit, protection and security of the
provisions of this Indenture.
(b) From and after the issuance of the Bonds, the findings and determinations of the City
respecting the Bonds shall be conclusive evidence of the existence of the facts so found and
determined in any action or proceeding in any court in which the validity of the Bonds is at
issue, and no bona fide purchaser of any of the Bonds shall be required to see to the existence of
any fact or to the performance of any condition or to the taking of any proceeding required
prior to such issuance or to the application of the proceeds of sale of the Bonds. The recital
contained in the Bonds that the same are issued pursuant to the Bond Law and this Indenture
shall be conclusive evidence of their validity and of the regularity of their issuance and all
Bonds shall be incontestable from and after their issuance. The Bonds shall be deemed to be
issued, within the meaning of this Indenture, whenever the definitive Bonds (or any temporary
Bonds exchangeable therefor) have been delivered to the purchaser thereof and the proceeds of
sale thereof received.
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ARTICLE IV
REDEMPTION OF BONDS
Section 4.01. Terms of Redemption.
(a) The Bonds are subject to redemption prior to their respective stated maturities at the
option of the City as a whole or in part on any date, from moneys required to be deposited in
the Special Redemption Account pursuant to Section 5.06, at the principal amount thereof and
interest accrued thereon to the date fixed for redemption, without premium. Bonds shall be
redeemed by such maturities as are selected by the City (or, if the City fails to designate such
maturities, in inverse order of maturity) and by lot within a maturity.
(b) The Bonds maturing on April 1, __, are also subject to redemption prior to their
stated maturity, in part, by lot, from Mandatory Sinking Account Payments deposited in the
Bonds Term Bonds Sinking Account pursuant to Section 5.04(c), on any April 1 on or after April
1, , at the principal amount thereof and interest accrued thereon to the date fixed for
redemption, without premium.
(c) The Bonds maturing on or after April 1, , are also subject to redemption prior to
their respective stated maturities, from moneys deposited in the Optional Redemption Account
or from any other source of available funds, at the option of the City, in whole on any date, or in
part by such maturities as are selected by the City (or, if the City fails to designate such
maturities, then in inverse order of maturity) and by lot within a maturity on any interest
payment date, on or after April 1, , at a redemption price equal to the principal amount
thereof together with accrued interest thereon to the date fixed for redemption, at the following
redemption prices (expressed as percentages of the principal amount of the Bonds to be
redeemed), together with accrued interest thereon to the date fixed for redemption:
Redemption Period
April 1, , through March 31, __
April 1, , through March 31,
April 1, __, and thereafter
Redemption Price
When Bonds are to be redeemed at the option of the City as set forth in this Section 4.01,
the City shall give written notice to the Trustee of the exercise of such option at least sixty (60)
days prior to the proposed redemption date. Such notice shall state the proposed redemption
date, the principal amount of Bonds to be redeemed and the maturity or maturities from which
such redemption shall be made.
Section 4.02. Selection of Bonds for Redemption. Whenever provision is made in this
Indenture for the redemption of less than all of the Bonds or any given portion thereof, and
unless otherwise specified in Section 4.01, the Trustee shall select the Bonds to be redeemed,
from all Bonds of or such given portion thereof not previously called for redemption, in inverse
order of maturity or, at the election of the City evidenced by a Certificate of the City filed with
the Trustee, on a pro rata basis among maturities, and by lot in any manner which the Trustee
in its sole discretion shall deem appropriate and fair. The Trustee shall promptly notify the City
in writing of the Bonds or portions thereof so selected for redemption.
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Section 4.03. Notice of Redemption.
(a) Unless waived by any Owner of Bonds to be redeemed, notice of any such
redemption shall be given by the Trustee on behalf of the City by mailing a copy of a
redemption notice by first class mail, postage prepaid, at least 30 days and not more than 60
days prior to the date fixed for redemption to the Owner of the Bond or Bonds to be redeemed
at the address shown on the Bond Registration Books.
All notices of redemption shall be dated and shall state: (i) the redemption date, (ii) the
redemption price, (iii) if less than all Outstanding Bonds are to be redeemed, the identification
(and, in the case of partial redemption, the respective principal amounts) of the Bonds to be
redeemed, (iv) that on the redemption date the redemption price will become due and payable
upon each such Bond or portion thereof called for redemption, and that interest thereon shall
cease to accrue from and after said date, and (v) the place where such Bonds are to be
surrendered for payment of the redemption price, which place of payment shall be the Trust
Office of the Trustee.
Notice of redemption having been given as aforesaid, the Bonds or portions of Bonds so
to be redeemed shall, on the redemption date, become due and payable at the redemption price
therein specified, and from and after such date (unless the City shall default in the payment of
the redemption price) interest with respect to such Bonds or portions of Bonds shall cease to
accrue and be payable. Upon surrender of such Bonds for redemption in accordance with said
notice, such Bonds shall be paid by the Trustee at the redemption price. Installments of interest
due on or prior to the redemption date shall be payable as herein provided for payment of
interest. Upon surrender for any partial redemption of any Bond, there shall be prepared for the
Owner a new Bond or Bonds of the same maturity in the amount of the unredeemed principal.
All Bonds which have been redeemed shall be canceled and destroyed by the Trustee and shall
not be reissued.
(b) In addition to the foregoing notice, further notice shall be given by the Trustee as set
out below, but no defect in said further notice nor any failure to give all or any portion of such
further notice shall in any manner defeat the effectiveness of a call for redemption if notice
thereof is given as prescribed in subsection (a) above.
(i) Each further notice of redemption given hereunder shall contain the
information required above for an official notice of redemption plus (A) the CUSIP
numbers of all Bonds being redeemed; (B) the original date of issuance of the Bonds; (C)
the rate of interest payable on each Bond being redeemed; (D) the maturity date of each
Bond being redeemed; and (E) any other descriptive information needed to identify
accurately the Bonds being redeemed.
(ii) Each further notice of redemption shall be sent, at least two (2) days before
the mailing of the official notice, by telecopy, registered, certified or overnight mail to all
Securities Depositories and on the date notice of redemption is sent to the Owners to one
or more of the Information Services.
(iii) Upon the payment of the redemption price to a Securities Depository of
Bonds being redeemed, each check or other transfer of funds issued for such purpose to
each Securities Depository shall bear the CUSIP number identifying, by issue and
maturity, or otherwise identified to the satisfaction of the Securities Depository and the
Trustee, the Bonds being redeemed with the proceeds of such check or other transfer.
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(c) Notice of redemption of Bonds shall be given by the Trustee, at the expense of the
City, for and on behalf of the City.
Section 4.04. Partial Redemption of Bonds. Upon surrender of any Bond redeemed in
part only, the City shall execute and the Trustee shall authenticate and deliver to the Owner
thereof, at the expense of the City, a new Bond or Bonds of authorized denominations, and of
the same maturity, equal in aggregate principal amount to the unredeemed portion of the Bond
surrendered.
Section 4.05. Effect of Redemption. Notice of redemption having been duly given as
aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued
to the redemption date on, the Bonds (or portions thereof) so called for redemption being held
by the Trustee, on the redemption date designated in such notice, the Bonds (or portions
thereof) so called for redemption shall become due and payable at the Redemption Price
specified in such notice plus interest accrued thereon to the redemption date, interest on the
Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease
to be entitled to any benefit or security under this Indenture, and the Owners of said Bonds
shall have no rights in respect thereof except to receive payment of said Redemption Price and
accrued interest.
All Bonds redeemed pursuant to the provisions of this Article IV shall be canceled upon
surrender thereof and destroyed with a certificate of destruction delivered to or upon the Order
of the City.
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ARTICLE V
GROSS REVENUES; NET REVENUES
Section 5.01. Pledge and Assignment; Gross Revenue Fund; Revenue Fund.
(a) Subject only to the provisions of this Indenture permitting the application thereof for
the purposes and on the terms and conditions set forth herein, there are hereby pledged to
secure the payment of the principal of and interest on the Bonds in accordance with their terms
and the provisions of this Indenture, all of the Net Revenues and any other amounts (including
proceeds of the sale of Bonds) held in any fund or account established pursuant to this
Indenture, other than amounts in the Costs of Issuance Fund and the Maintenance and
Operation Fund. Said pledge shall constitute a lien on and security interest in such assets and
shall attach, be perfected and be valid and binding from and after delivery by the Trustee of the
Bonds, without any physical delivery thereof or further act.
Subject only to the provisions of this Indenture permitting the application thereof for the
purposes and on the terms and conditions set forth herein, the City hereby pledges, and to the
extent permitted by law grants a security interest to the Trustee and the holders of Parity
Obligations in, the Gross Revenue Fund to secure the payment of the principal of and interest
on the Bonds, any payment required with respect to Parity Obligations.
Amounts in the Costs of Issuance Fund and the Maintenance and Operation Fund are
not pledged as security for the Bonds.
(b) The City agrees that, so long as any of the Bonds remain Outstanding, all of the Gross
Revenues shall be deposited as soon as practicable upon receipt in a fund or funds, collecfively
designated as the "Gross Revenue Fund" which the City shall establish and maintain at such
banking or financial institution or institutions as the City shall from time to time designate for
such purpose. The City may commingle amounts in said fund with other monies of the City for
investment purposes, so long as it maintains accounting records which at all times identify the
amount therein and any investment gains or losses thereon.
(c) The City shall deposit in the Maintenance and Operation Fund (which the City shall
establish and maintain hereunder), on or before the first Business Day of each month, an
amount which, together with any other available amounts then on deposit therein, is required
to pay the Maintenance and Operation Costs which are budgeted or estimated by the City to
become due and payable during such month. Amounts in the Maintenance and Operation Fund
shall be applied by the City solely for the purpose of paying the Maintenance and Operation
Costs when and as such Maintenance Costs become due and payable. The City may commingle
amounts in said fund with other monies of the City for investment purposes, so long as it
maintains accounting records which at all times identify the amount therein and any investment
gains or losses thereon.
(d) On or before the fifteenth (15th) Business Day preceding each Interest Payment Date
and as long as any of the Bonds remain Outstanding, the City shall pay to the Trustee for
deposit into the Revenue Fund such amount as is required by Section 5.02. Each transfer by the
City to the Trustee hereunder shall be in lawful money of the United States of America and paid
to the Trustee at its Trust Office. All such moneys shall be promptly deposited by the Trustee
upon receipt thereof in a special fund designated as the "Revenue Fund" which the Trustee
shall establish, maintain and hold in trust. All moneys deposited with the Trustee shall be held,
disbursed, allocated and applied by the Trustee only as provided in this Indenture.
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Section 5.02. Allocation of Net Revenues. On or before the fifth (5th) Business Day
preceding each Interest Payment Date, the Trustee shall transfer from the Revenue Fund and
deposit into the following respective accounts (each of which the Trustee shall establish and
maintain within the Revenue Fund), the following amounts, in the following order of priority,
the requirements of each such account (including the making up of any deficiencies in any such
account resulting from lack of Net Revenues sufficient to make any earlier required deposit) at
the time of deposit to be satisfied before any transfer is made to any account subsequent in
priority:
First: to the Interest Account, the aggregate amount of interest becoming due and
payable on the next succeeding Interest Payment Date on all Bonds then Outstanding, until the
balance in said account is equal to said aggregate amount of interest;
Second: to the Principal Account, one-half (1/2) of the aggregate amount of principal
becoming due and payable on the Outstanding Serial Bonds plus the aggregate amount of
Mandatory Sinking Account Payments required to be paid into the respective Sinking Accounts
for Outstanding Term Bonds, in each case on the next succeeding Principal Payment Date, until
the balance in said account is equal to said aggregate amount of such principal and Mandatory
Sinking Account Payments; and
Third: to the Bond Reserve Account, the aggregate amount of each prior withdrawal
from the Bond Reserve Account for the purpose of making up a deficiency in the Interest
Account or Principal Account; provided that no deposit need be made into the Bond Reserve
Account so long as the balance in said account shall be at least equal to the Bond Reserve
Account Requirement.
Any moneys remaining in the Revenue Fund after the foregoing transfers shall be
transferred to the City.
Section 5.03. Application of Interest Account. All amounts in the Interest Account shall
be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as
it shall become due and payable (including accrued interest on any Bonds purchased or
redeemed prior to maturity pursuant to this Indenture).
Section 5.04. Application of Principal Account.
(a) All amounts in the Principal Account shall be used and withdrawn by the Trustee
solely for the purposes of paying the principal of the Bonds when due and payable, except that
all amounts in the Sinking Account shall be used and withdrawn by the Trustee solely to
purchase or redeem or pay at maturity Term Bonds, as provided herein.
(b) The Trustee shall establish and maintain within the Principal Account a separate
subaccount for the Term Bonds of each maturity, designated as the" Sinking
Account," inserting therein the maturity (if more than one such subaccount is established)
designation of such Bonds. On or before the second Business Day preceding each Mandatory
Sinking Account Payment date, the Trustee shall transfer the amount deposited in the Principal
Account pursuant to Section 5.02 for the purpose of making a Mandatory Sinking Account
Payment from the Principal Account to the applicable Sinking Account.
With respect to each Sinking Account, on each Mandatory Sinking Account Payment
date established for such Sinking Account, the Trustee shall apply the Mandatory Sinking
Account Payment required on that date to the redemption (or payment at maturity, as the case
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may be) of Term Bonds of the maturity for which such Sinking Account was established, upon
the notice and in the manner provided in Article IV; provided that, at any time prior to giving
such notice of such redemption, the Trustee upon the Order of the City shall apply moneys in
the Revenue Fund to the purchase of Term Bonds made by the City of such maturity at public
or private sale, as and when and at such prices (including brokerage and other charges, but
excluding accrued interest, which is payable from the Interest Account) as shall be directed by
the City, except that the purchase price (excluding accrued interest) shall not exceed the
Redemption Price that would be payable for such Bonds upon redemption by application of
such Mandatory Sinking Account Payment. If, during the twelve-month period immediately
preceding said Mandatory Sinking Account Payment date, the City has purchased Term Bonds
of such maturity with moneys in such Sinking Account, or, during said period and prior to
giving said notice of redemption, the City has deposited Term Bonds of such maturity with the
Trustee, or Term Bonds of such maturity were at any time purchased by the City or redeemed
by the Trustee from the Redemption Fund and allocable to said Mandatory Sinking Account
Payment, such Bonds so purchased or deposited or redeemed shall be applied, to the extent of
the full principal amount thereof, to reduce said Mandatory Sinking Account Payment. All
Bonds purchased or deposited pursuant to this subsection shall be canceled and destroyed by
the Trustee and the Trustee shall provide evidence of such destruction to the City. Any amounts
remaining in a Sinking Account when all of the Term Bonds for which such account was
established are no longer Outstanding shall be withdrawn by the Trustee and transferred to the
Revenue Fund. All Term Bonds purchased from a Sinking Account or deposited by the City
with the Trustee shall be allocated first to the next succeeding Mandatory Sinking Account
Payment and maturity of Bonds, then pro rata to the remaining Mandatory Sinking Account
Payments required for such maturity of Bonds in proportion to the amount of such Mandatory
Sinking Account Payments. All Bonds purchased or deposited pursuant to this subsection shall
be canceled and destroyed by the Trustee and the Trustee shall provide evidence of such
destruction to the City.
Notwithstanding the foregoing, if some but not all of the Term Bonds have been
theretofore redeemed pursuant to Sections 4.01(a) or (c), the total amount of all future
Mandatory Sinking Account Payments set forth in Section 5.04(c) shall be reduced by the
aggregate principal amount of Term Bonds so redeemed, allocated among such Mandatory
Sinking Account Payments on a pro rata basis in integral multiples of $5,000 as determined by
the City (notice of which determination shall be given to the Trustee).
Any amounts remaining in a Sinking Account when all of the Term Bonds for which
such account was established are no longer Outstanding shall be withdrawn by the Trustee and
transferred to the Revenue Fund.
(c) Subject to the terms and conditions set forth in this Section 5.04 and in Section 4.01(b),
the Bonds maturing on April 1, , shall be redeemed (or paid at maturity, as the case may be)
by application of Mandatory Sinking Account Payments in the amounts and upon the dates
hereby established for the Bonds Term Bonds Sinking Account as follows:
Mandatory
Sinking Account Mandatory
Payment Dates Sinking Account
~April 1) Payments
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Section 5.05. Application of Bond Reserve Account. All amounts in the Bond Reserve
Account shall be used and withdrawn by the Trustee solely for the purpose of making up any
deficiency in the Interest Account or Principal Account, or (together with any other moneys
available therefor) for the payment or redemption of all Bonds then Outstanding. On the
fifteenth (15th) Business Day preceding each Interest Payment Date, any amount in the Bond
Reserve Account in excess of the Bond Reserve Account Requirement shall be transferred to the
Revenue Fund.
Amounts in the Bond Reserve Account shall be valued by the Trustee not less often than
semi-annually. If, on any date of computation, moneys and securities on deposit in the Bond
Reserve Account are less than the Bond Reserve Account Requirement (unless such deficiency
is a result of a transfer there&om), the City covenants and agrees that it will, within twelve
months thereof, increase the amount therein to the Bond Reserve Account Requirement. If such
deficiency is a result of a transfer therefrom, the City covenants and agrees that it will, within
twenty-four months thereof, increase the amount therein to the Bond Reserve Account
Requirement.
The City shall have the right at any time to direct the Trustee to release funds from the
Bond Reserve Account, in whole or in part, by tendering to the Trustee: (1) a Qualified Bond
Reserve Account Credit Instrument, and (2) an opinion of Bond Counsel stating that such
release will not, of itself, cause interest with respect to the Bonds to become includable in gross
income for purposes of federal income taxation. Upon tender of such items to the Trustee, the
Trustee shall transfer such funds from the Bond Reserve Account to the City for deposit by the
City in a segregated account maintained by the City and used exclusively for the acquisition,
construction and installation of improvements to the Enterprise. Prior to the expiration of any
Qualified Bond Reserve Account Credit Instrument, the City shall be obligated either (a) to
replace such Qualified Bond Reserve Account Credit Instrument with a new Qualified Bond
Reserve Account Credit Instrument, or (b) to remit or cause to be remitted to the Trustee for
deposit in the Bond Reserve Account an amount of moneys equal to the Bond Reserve Account
Requirement, to be derived from Net Revenues; provided, however, that if the City shall fail to
replace an expiring Qualified Bond Reserve Account Credit Instrument or to deposit moneys
equal to the Bond Reserve Account Requirement, the Trustee shall draw on such Qualified
Bond Reserve Account Credit Instrument before such expiration and deposit the proceeds of
such draw in the Bond Reserve Account.
In the event that the Bond Reserve Account Requirement shall at any time be
maintained in the form of a combination of cash and a Qualified Bond Reserve Account Credit
Instrument, the Trustee shall apply the amount of such cash to make any payment required to
be made from the of the Bond Reserve Account before the Trustee shall draw any moneys
under such Qualified Bond Reserve Account Credit Instrument for such purpose. In the event
that more than one Qualified Bond Reserve Account Credit Instrument shall be maintained as
all or a portion of the Bond Reserve Account Requirement, and the Trustee is otherwise
required hereunder to draw on such Qualified Bond Reserve Account Credit Instruments, the
Trustee shall draw pro rata on each such Qualified Bond Reserve Account Credit Instrument. In
the event that the Trustee shall at any time draw funds under a Qualified Bond Reserve
Account Credit Instrument to make any payment then required to be made from the Bond
Reserve Account, the Net Revenues thereafter received by the Trustee, to the extent remaining
after making the other deposits (if any) then required to be made pursuant to this Section 5.05,
shall be used to reinstate the Qualified Bond Reserve Account Credit Instrument.
Notwithstanding any other provision of this Indenture, the City need not replace any
Qualified Bond Reserve Account Credit Instrument or deposit cash in the Bond Reserve
Account in the event that the provider of the Qualified Bond Reserve Account Credit
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Instrument is downgraded by S&P or Moody's or fails to honor a draw thereon; it being the
intent of the City that if the Qualified Bond Reserve Account Credit Instrument meets the
requirement of this Indenture at the time it is delivered to the Trustee, it will remain a Qualified
Bond Reserve Account Credit Instrument for its stated term.
The foregoing provisions of this Section 5.05 shall be subject to the provisions of Section
14.05, and in the event of any conflict between the provisions of this Section 5.05 and the
provisions of Section 14.05, the provisions of Section 14.05 shall prevail.
Section 5.06. Application of Redemption Fund. The Trustee shall establish and maintain
within the Redemption Fund (which the Trustee shall establish, maintain and hold in trust) a
separate Optional Redemption Account and a separate Special Redemption Account. The City
may at any time deposit moneys into the Optional Redemption Account for the purposes of
redeeming Bonds in accordance with the terms of Section 4.01(c). The City may at any time
deposit moneys into the Special Redemption Account for the purposes of redeeming Bonds in
accordance with the terms of Section 7.06(b). All amounts deposited in the Optional
Redemption Account and in the Special Redemption Account shall be used and withdrawn by
the Trustee solely for the purpose of redeeming Bonds, in the manner and upon the terms and
conditions specified in Article IV, at the next succeeding date of redemption for which notice
has been given and at the redemption prices then applicable to redemptions from the Optional
Redemption Account and the Special Redemption Account, respectively; provided that, at any
time prior to giving such notice of redemption, the Trustee upon Order of the City shall apply
such amounts to the purchase of Bonds made by the City at public or private sale, as and when
and at such prices (including brokerage and other charges, but excluding accrued interest,
which is payable from the Interest Account) as shall be directed by the City, except that the
purchase price (exclusive of accrued interest) may not exceed the par value of such Bonds. All
Term Bonds purchased or redeemed from the Redemption Fund shall be allocated to applicable
Mandatory Sinking Account Payments in inverse order of their maturity dates.
Section 5.07. Investment of Moneys in Funds and Accounts. All moneys in any of the
funds and accounts established pursuant to this Indenture shall be invested by the Trustee, and,
upon Request of the City provided at least two Business Days prior to the date of investment,
shall be invested as directed by the City Treasurer, solely in Permitted Investments. All
Permitted Investments shall be acquired subject to the limitations as to maturities hereinafter set
forth in this Section 5.07 and such additional limitations or requirements consistent with the
foregoing as may be established by Request of the City Treasurer.
Moneys in the Bond Reserve Account shall be invested in Permitted Investments
maturing prior to the final maturity of the Bonds. Moneys in the remaining funds and accounts
shall be invested in Permitted Investments maturing not later than the date on which it is
estimated that such moneys will be required by the Trustee.
Ail interest, profits and other income received from the investment of moneys in any
other fund or account established pursuant to this Indenture shall be deposited when received
in the Revenue Fund. Notwithstanding anything to the contrary contained in this paragraph, an
amount of interest received with respect to any Permitted Investment equal to the amount of
accrued interest, if any, paid as part of the purchase price of such Permitted Investment shall be
credited to the fund or account for the credit of which such Permitted Investment was acquired.
The Trustee may commingle any of the funds or accounts established pursuant to this
Indenture into a separate fund or funds for investment purposes only, provided that all funds
or accounts held by the Trustee hereunder shall be accounted for separately as required by this
Indenture. The Trustee may act as principal or agent in the making or disposing of any
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investment. The Trustee may sell at the best price obtainable, or present for redemption, any
Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet
any required payment, transfer, withdrawal or disbursement from the fund or account to which
such Permitted Investment is credited, and, subject to the provisions of Section 9.03, the Trustee
shall not be liable or responsible for any loss resulting from such investment.
The City acknowledges that, to the extent regulations of the Comptroller of the Currency
or other applicable regulatory entity grants the City the right to receive brokerage confirmations
of security transactions as they occur, the City specifically waives receipt of such confirmations
to the extent permitted by law. The Trustee will furnish the City periodic cash transaction
statements which include detail for all investment transactions made by the Trustee hereunder.
The Trustee may make any investments hereunder through its own bond or investment
department or trust investment department, or those of its parent or any affiliate.
The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection
with any investments made by the Trustee hereunder.
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ARTICLE VI
COVENANTS OF THE AUTHORITY; SPECIAL TAX COVENANTS
Section 6.01. Punctual Payment. The City shall punctually pay or cause to be paid the
principal or Redemption Price and interest to become due in respect of all the Bonds, in strict
conformity with the terms of the Bonds and of this Indenture, according to the true intent and
meaning thereof, and shall punctually pay or cause to be paid all Mandatory Sinking Account
Payments, but only out of Net Revenues and other assets pledged for such payment as
provided in this Indenture.
Section 6.02. Extension of Payment of Bonds. The City shall not directly or indirectly
extend or assent to the extension of the maturity of any of the Bonds or the time of payment of
any of the claims for interest by the purchase or funding of such Bonds or claims for interest or
by any other arrangement and in case the maturity of any of the Bonds or the time of payment
of any such claims for interest shall be extended, such Bonds or claims for interest shall not be
entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the
prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for
interest thereon which shall not have been so extended. Nothing in this Section 6.02 shall be
deemed to limit the right of the City to issue Bonds for the purpose of refunding any
Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of
maturity of Bonds.
Section 6.03. Discharge of Claims. The City covenants that in order to fully preserve and
protect the priority and security of the Bonds the City shall pay from the Net Revenues and
discharge all lawful claims for labor, materials and supplies furnished for or in connection with
the Enterprise which, if unpaid, may become a lien or charge upon the Net Revenues prior or
superior to the lien of the Bonds and impair the security of the Bonds. The City shall also pay
from the Net Revenues all taxes and assessments or other governmental charges lawfully levied
or assessed upon or in respect of the Enterprise or upon any part thereof or upon any of the Net
Revenues therefrom.
Section 6.04. Operation of Enterprise in Efficient and Economical Manner. The City
covenants and agrees to operate, or cause to be operated, the Enterprise in an efficient and
economical manner and to operate, maintain and preserve the Enterprise in good repair and
working order.
Section 6.05. Against Encumbrance. Except as provided herein, the City covenants that
the property, facilities and improvements of the Enterprise shall not be mortgaged or otherwise
encumbered, leased, pledged, any charge placed thereon, or disposed of as a whole or
substantially as a whole unless: (a) the City shall cause to be filed with the Trustee written
evidence from Moody's, if Moody's is rating the Bonds, and/or S&P, if S&P is rating the Bonds,
that such sale or other disposition will not cause a reduction or withdrawal of the rating then
assigned to the Bonds by each such rating agency; and (b) such sale or other disposition shall be
so arranged as to provide for a continuance of payments into the Revenue Fund sufficient in
amount to permit payment therefrom of the principal of and interest on and premiums, if any,
due upon the call and redemption thereof, of the Outstanding Bonds, and also to provide for
such payments into the funds as are required under the terms of this Indenture.
Notwithstanding the foregoing, the City may lease real property constituting a portion of the
Enterprise; provided that the lease payments shall be considered Gross Revenues hereunder.
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The City further covenants that the Net Revenues or any other funds pledged or
otherwise made available to secure payment of the principal of and interest on the Outstanding
Bonds 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 Indenture. The City further
covenants that it will not enter into any agreement which impairs the operation of the
Enterprise or any part of it necessary to secure adequate Net Revenues to pay the principal and
interest of the Bonds or which otherwise would impair the rights of the Bond Owners with
respect to the Net Revenues. If any substantial part of the Enterprise is sold the payment
therefor shall either be used for the acquisition and/or construction of improvements and
extensions of the Enterprise or shall be deposited with the Trustee in the Redemption Fund and
shall be used to pay or redeem the Outstanding Bonds on a pro rata basis.
Section 6.06. Records and Accounts. The City covenants that it shall keep proper books
of record and accounts of the Enterprise, separate from all other records and accounts, in which
complete and correct entries shall be made of all transactions relating to the Enterprise. Said
books shall upon reasonable request, be subject to the inspection of the Owners of not less than
ten percent (10%) of the Outstanding Bonds or their representatives authorized in writing.
The City covenants that it will cause the books and accounts of the Enterprise to be
audited annually by an Independent Accountant and will make available for inspection by the
Bond Owners at the Trust Office of the Trustee, upon reasonable request, a copy of the report of
such Independent Accountant. Any such audit may be combined with and be a part of the
general audit of the City's financial records.
The City covenants that it will cause to be prepared annually, not more than two
hundred ten (210) days after the close of each Fiscal Year a summary statement showing the
amount of Gross Revenues and the amount of all other funds collected which are required to be
pledged or otherwise made available as security for payment of principal of and interest on the
Bonds, the disbursements from the Gross Revenues and other funds in reasonable detail, and a
general statement of the financial and physical condition of the Enterprise. The City shall
furnish a copy of the statement to any Bond Owner upon written request.
Section 6.07. Rates and Charges. The City shall fix, prescribe, revise and collect rates, fees
and charges for the services and facilities furnished by the Enterprise during each Fiscal Year
which (together with other funds accumulated from Gross Revenues and which are lawfully
available to the City for payment of any of the following amounts during such Fiscal Year) are
at least sufficient, after making allowances for contingencies and error in the estimates, to pay
the following amounts in the following order:
(a) all Maintenance and Operation Costs estimated by the City to become due and
payable in such Fiscal Year;
(b) the principal of and interest on the Outstanding Bonds becoming due and payable
during such Fiscal Year, including all Mandatory Sinking Account payments during such Fiscal
Year;
(c) all other payments required for compliance with this Indenture and the instruments
pursuant to which any Parity Obligations shall have been issued;
(d) all payments required to meet any other obligations of the City which are charges,
liens, encumbrances upon or payable from the Gross Revenues or the Net Revenues; and
(e) any other lawful purposes of the City.
In addition, the City shall fix, prescribe, revise and collect rates, fees and charges for the
services and facilities furnished by the Enterprise during each Fiscal Year which are sufficient to
yield Net Revenues, including connection charges together with other funds accumulated in the
City's Water Fund and which are lawfully available to the City for payment of the debt service
on the Bonds, at least equal to one hundred __ percent (1__%) of the amounts payable
under the preceding paragraph (b) in such Fiscal Year.
Section 6.08. Limitations on Future Obligations Secured by Net Revenues.
(a) No Obligations Superior to Bonds or Parity Obligations. In order to protect further the
availability of the Net Revenues and the security for the Bonds and any Parity Obligations, the
City hereby covenants that no additional bonds or other obligations shall be issued or incurred
having any priority in payment of principal or interest out of the Net Revenues over the Bonds
or such Parity Obligations.
(b) Parity Obligations. The City further covenants that, except for obligations issued or
incurred to refund the Bonds, the City shall not issue or incur any Parity Obligations unless:
(i) The City is not in default under the terms of this Indenture; and
(ii) Net Revenues, calculated on sound accounting principles, as shown by the
books of the City for the latest Fiscal Year or any more recent twelve (12) month period
selected by the City ending not more than sixty (60) days prior to the adoption of the
resolution pursuant to which instrument such Parity Obligations is issued or incurred,
as shown by the books of the City, plus, at the option of the City, the additional
allowance described below, shall have amounted to at least 1. times Maximum
Aggregate Annual Debt Service immediately subsequent to the incurring of such
additional obligations.
Either or both of the following items may be added to such Net Revenues for the
purpose of applying the restriction contained herein:
(A) An allowance for revenues from any additions to or improvements or
extensions of the Enterprise to be constructed with the proceeds of such
additional obligations, and also for Net Revenues from any such additions,
improvements or extensions which have been constructed from any source of
funds but which, during all or any part of such Fiscal Year, were not in service,
all in an amount equal to 70% of the estimated additional average annual Net
Revenues to be derived from such additions, improvements and extensions for
the first 36-month period following issuance of the proposed Parity Obligations,
all as shown by the certificate or opinion of a qualified independent consultant
employed by the City, may be added to such Net Revenues for the purpose of
applying the restriction contained in this subsection (b)(ii).
(B) An allowance for earnings arising from any increase in the charges
made for service from the Enterprise which has become effective prior to the
incurring of such additional obligations but which, during all or any part of such
Fiscal Year, was not in effect, in an amount equal to 100% 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 such Fiscal Year and any period prior to
the incurring of such additional obligations, as shown by the certificate or
opinion of a qualified independent engineer employed by the City.
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(iii) A reserve fund shall be funded or a Qualified Reserve Fund Credit
Instrument shall be established for such Parity Obligations, with cash or Permitted
Investments, which is at least equal to the lesser of the maximum annual payments to be
made with respect to such Parity Obligations or 125% of the average annual payments to
be made with respect to such Parity Obligations or 10% of the principal amount of such
Parity Obligations.
(c) Subordinate Obligations. The City further covenants that the City shall not issue or
incur any Subordinate Obligations unless Net Revenues, calculated on sound accounting
principles, as shown by the books of the City for the latest Fiscal Year or any more recent twelve
(12) month period selected by the City ending not more than sixty (60) days prior to the
adoption of the resolution pursuant to which instrument such Subordinate Obligations are
issued or incurred, as shown by the books of the City shall, after deducting all amounts
required for the payment of the Bonds and any Parity Obligations, have amounted to at least 1.0
times the sum of the maximum annual debt service on all Subordinate Obligations outstanding
immediately subsequent to the incurring of such additional obligations. An allowance for
earnings arising from any increase in the charges made for service from the Enterprise which
has become effective prior to the incurring of such additional obligations but which, during all
or any part of such Fiscal Year, was not in effect, may be added in an amount equal to 100% 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 such Fiscal Year and any period prior to the incurring of
such additional obligations, as shown by the certificate or opinion of a qualified independent
engineer employed by the City.
(d) Calculating Debt Service on Variable Rate Debt. For all purposes, variable rate
indebtedness shall be assumed to bear interest at the highest of: (i) the actual rate on the date of
calculation, or if the indebtedness in not yet outstanding, the initial rate (if established and
binding), (ii) if the indebtedness has been outstanding for at least twelve months, the average
rate over the twelve months immediately preceding the date of calculation, and (iii) (A) if
interest on the indebtedness is excludable from gross income under the applicable provisions of
the Code, the most recently published Bond Buyer "Revenue Bond Index" (or comparable index
if no longer published) plus 50 basis points, or (B) if interest is not so excludable, the interest
rate on direct U.S. Treasury Obligations with comparable maturities plus 50 basis points;
provided, however, that for purposes of any rate covenant measuring actual debt service
coverage during a test period, variable rate indebtedness shall be deemed to bear interest at the
actual rate per annum applicable during the test period.
Section 6.09. Further Assurances. The City will adopt, make, execute and deliver any
and all such further resolutions, instruments and assurances as may be reasonably necessary or
proper to carry out the intention or to facilitate the performance of this Indenture, and for the
better assuring and confirming unto the Owners of the Bonds of the rights and benefits
provided in this Indenture.
Section 6.10. Waiver of Laws. The City shall not at any time insist upon or plead in any
manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now
or at any time hereafter in force that may affect the covenants and agreements contained in this
Indenture or in the Bonds, and all benefit or advantage of any such law or laws is hereby
expressly waived by the City to the extent permitted by law.
Section 6.11. Private Activity Bond Limitation. The City shall assure that the proceeds of
the Bonds are not so used as to cause the Bonds to satisfy the private business tests of Section
141(b) of the Code.
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Section 6.12. Private Loan Financing Limitation. The City shall assure that the proceeds
of the Bonds are not so used as to cause the Bonds to satisfy the private loan financing test of
Section 141(c) of the Code.
Section 6.13. Federal Guarantee Prohibition. The City shall not take any action or permit
or suffer any action to be taken if the result of the same would be to cause any of the Bonds to
be "federally guaranteed" within the meaning of Section 149(b) of the Code.
Section 6.14. Rebate Requirement. The City shall take any and all actions necessary to
assure compliance with Section 148(f) of the Code, relating to the rebate of excess investment
earnings, if any, to the federal government.
Section 6.15. No Arbitrage. The City shall not take, or permit or suffer to be taken by the
Trustee or otherwise, any action with respect to the proceeds of the Bonds which, if such action
had been reasonably expected to have been taken, or had been deliberately and intentionally
taken, on the Closing Date would have caused the Bonds, to be "arbitrage bonds" within the
meaning of Section 148 of the Code.
Section 6.16. Maintenance of Tax-Exemption. The City shall take all actions necessary to
assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds
to the same extent as such interest is permitted to be excluded from gross income under the
Code as in effect on the Closing Date.
Section 6.17. Continuing Disclosure. The City hereby covenants and agrees that it will
comply with and carry out all of the provisions of the Continuing Disclosure Certificate.
Notwithstanding any other provision of the Indenture, failure of the City to comply with the
Continuing Disclosure Certificate shall not be considered an event of default; however, any
holder or beneficial owner of the Bonds may take such actions as may be necessary and
appropriate to compel performance, including seeking mandate or specific performance by
court order.
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ARTICLE VII
MAINTENANCE, TAXES, INSURANCE AND CONDEMNATION
Section 7.01. Maintenance and Operation of the Enterprise. The City covenants and
agrees that it will operate and maintain the Enterprise in accordance with all applicable
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.
Section 7.02. Taxes, Assessments, Other Governmental Charges and Utility Charges. The
City covenants and agrees that it will pay and discharge all taxes, assessments, governmental
charges of any kind whatsoever, and utility charges which may be or have been assessed or
which may have become liens upon the Enterprise or the interest therein of the Trustee or of the
Owners of the Bonds, and will make such payments or cause such payments to be made,
respectively, in due time to prevent any delinquency thereon or any forfeiture or sale of the
Enterprise or any part thereof, and upon request, will furnish to the Trustee receipts for all such
payments, or other evidence satisfactory to the Trustee; provided, however, that the City shall
not be required to pay any tax, assessment, rate or charge as herein provided as long as it shall
in good faith contest the validity thereof, provided that the City shall have set aside adequate
reserves with respect thereto.
Section 7.03. Insurance Required.
(a) The City covenants and agrees that, subject to subsection (b) of this Section 7.03, it
will keep the Enterprise and all of the operations of the City adequately insured at all times and
carry and maintain such insurance in amounts which are customarily carried and against such
risks as are customarily insured against in connection with the ownership and operation of
facilities of similar character and size in the State. The City further covenants and agrees that,
except as otherwise permitted by subsection (b) of this Section 7.03, it will carry and maintain,
or cause to be carried and maintained, and will pay or cause to be paid in timely fashion the
premiums for, at least the following insurance with respect to the Enterprise when and as such
insurance is available:
(i) Insurance, on all properties constituting the Enterprise, against loss or damage
by fire, lightning, vandalism, malicious mischief and all other perils covered by the
extended coverage insurance endorsement then in use in the State, subject to a
deductible of not more than $100,000 per loss, with a coverage amount equal to the full
replacement value of the property insured or the aggregate principal amount of
Outstanding Bonds, whichever is the lower of the two. During the course of construction
of any substantial addition, extension, alteration or improvement to the Enterprise, the
City may, at its option, require the contractor to obtain builder's risk insurance in the
amount of the full completed value of such construction work, subject to deductibles of
not more than $100,000 per loss (except that higher deductibles may apply to earthquake
and/or flood insurance), covering loss by fire, lightning and removal from the premises
endangered by fire and lightning, and all other risks covered by the extended coverage
endorsement then in use in the State.
(ii) Boiler insurance providing coverage of pressure vessels, auxiliary piping,
pumps and compressors, refrigeration systems, transformers and miscellaneous
electrical apparatus in the Enterprise which present significant potential for loss, in an
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amount not less than $2,000,000, subject to deductibles not exceeding $100,000 per
occurrence.
(iii) Automobile liability insurance in the minimum amount of $1,000,000
combined single limit (CSL) for bodily injury and/or property damage arising out of
any one accident. This shall include non-owned and hired auto liability.
(iv) Comprehensive general liability and professional errors and omissions
liability insurance, in the minimum amount of $5,000,000 as to any one occurrence.
(v) Crime coverage/fidelity bonds or other insurance guarantees on all City
officers and employees who collect or have custody of or access to revenues, receipts or
income of the Enterprise, in such amounts as are ordinarily carried by organizations
engaged in like activities and with gross revenues comparable to those of the Enterprise.
(b) Notwithstanding anything in this Section 7.03 to the contrary, the City shall have the
right, without giving rise to an Event of Default solely on such account, (1) to maintain
insurance coverage below or deductibles above that required by subsection (a) of this Section
7.03, if the City furnishes to the Trustee a certificate provided by an Insurance Professional that
the amount of insurance is not commercially and financially affordable at rates which in the
judgment of such Insurance Professional are considered reasonable by industry standards, or
(2) to adopt alternative insurance/risk transfer programs, in lieu of the policies described in
subsection (a) of this Section 7.03, which the City Council determines to be reasonable
including, without limitation, to self-insure, in whole or in part, to participate in programs of
captive insurance companies, to participate with other entities in mutual or other cooperative
insurance or other risk management programs, to participate in state or federal insurance
programs or to establish or participate in other alternative risk management programs, all as
may be approved as reasonable and appropriate risk management by an Insurance Professional.
Section 7.04. Worker's Disability Compensation Act. The City will at all times comply
with the Worker's Disability Compensation Act of the State of California, or any successor
statute or statutes.
Section 7.05. Insurers; Policy Forms and Loss Payees. Each insurance policy required by
Section 7.03(a) shall be carried by stock or mutual insurance companies authorized to do
business in the State which are financially responsible and capable of fulfilling the requirements
of such policies. Ail such policies and policies permitted by Section 7.03(b) (except liability
policies), if insurance policies are purchased, shall name the Trustee as an additional insured
party, beneficiary and/or loss payee as its interest may appear. Each policy shall be in such
form and contain such provisions as are generally considered standard for the type of insurance
involved and shall contain a provision to the effect that the insurer shall not cancel or
substantially modify the policy provisions without first giving at least sixty (60) days written
notice thereof to the City and the Trustee. In lieu of separate policies, the City may maintain
package policies which cover one or more risks required to be insured against so long as the
minimum coverages required herein are met. The City shall provide the Trustee annually (on or
before April 1 in each year) evidence of the policies of insurance maintained pursuant to this
Indenture, the names of the insurers and insured parties (including copies of actual additional
insured endorsements), the amounts of such insurance and applicable deductibles, the risks
covered thereby and the expiration dates thereof and a description of any alternative risk
management programs adopted pursuant to Section 7.03(b). The City shall also file with the
Trustee, upon written request, a copy of any insurance review or recommendations received by
the City from an Insurance Professional pursuant to Section 7.03.
Section 7.06. Disposition of Insurance and Condemnation Proceeds.
(a) The proceeds of the insurance carried pursuant to clauses (i) and (ii) of Section 7.03(a)
and the proceeds of any condemnation awards with respect to the Enterprise shall, to the extent
that they are in excess of $25,000 with respect to any occurrence, be paid immediately upon
receipt by the City or other named insured parties to the Trustee for deposit in a special fund
which the Trustee shall establish and maintain and hold in trust, when required, to be known as
the "Insurance and Condemnation Proceeds Fund." Proceeds with respect to any occurrence in
an amount equal to or less than $25,000 may be retained by the City and used for any lawful
purpose of the City. In the event the City elects to repair or replace the property damaged,
destroyed or taken in accordance with said plans, moneys in the Insurance and Condemnation
Proceeds Fund shall be disbursed by the Trustee for the purpose of repairing or replacing the
property damaged, destroyed or taken in the manner and subject to the conditions set forth in
Section 3.03 with respect to disbursements from the Costs of Issuance Fund to the extent the
provisions of said Section 3.03 may reasonably be made applicable.
(b) In the event the City shall elect not to repair or replace the property damaged,
destroyed or taken, as provided in subsection (a) of this Section 7.06, the Trustee shall transfer
all amounts in the Insurance and Condemnation Proceeds Fund on account of such damage,
destruction or condemnation to the Special Redemption Account; provided that if any Parity
Obligations are then outstanding, any such transfer from the Insurance and Condemnation
Proceeds Fund shall be deposited, as directed by the City in writing, in part in the Special
Redemption Account and in part in such other fund or account as may be appropriate (and
used for the retirement of such Parity Obligations) in the same proportion which the aggregate
principal amount of Outstanding Bonds then bears to the aggregate unpaid principal amount of
such Parity Obligations.
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ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF BONDOWNERS
Section 8.01. Events of Default. The following events shall be Events of Default:
(a) default in the due and punctual payment of the principal of any Bond when and as
the same shall become due and payable, whether at maturity as therein expressed, by
proceedings for redemption, by declaration or otherwise, or default in the redemption from any
Sinking Account of any Term Bonds in the amounts and at the times provided therefor;
(b) default in the due and punctual payment of any installment of interest on any Bond
when and as such interest installment shall become due and payable;
(c) default by the City in the observance of any of the covenants, agreements or
conditions on its part in this Indenture or in the Bonds contained (other than as referred to in
subsections (a) or (b) of this Section 8.01), if such default shall have continued for a period of
sixty (60) days after written notice thereof, specifying such default and requiring the same to be
remedied, shall have been given to the City by the Trustee, or to the City and the Trustee by the
Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds
at the time Outstanding;
(d) abandonment by the City of the Enterprise, or any substantial part thereof, and such
abandonment shall continue for a period of sixty (60) days after written notice thereof shall
have been given to the City by the Trustee, or to the City and the Trustee by the Owners of not
less than twenty-five percent (25%) in aggregate principal amount of the Bonds at the time
Outstanding, unless the City shall have assumed all of the City's obligations hereunder; or
(e) the City's filing 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
making an assignment for the benefit of creditors, or admitting in writing to its insolvency or
inability to pay debts as they mature, or consenting in writing to the appointment of a trustee or
receiver for itself or for the whole or any substantial part of the Enterprise.
Section 8.02. Acceleration of Maturities. Subject to the consent of the Municipal Bond
Insurer, if an Event of Default shall occur, then, and in each and every such case during the
continuance of such Event of Default, the Trustee or the Owners of not less than a majority in
aggregate principal amount of the Bonds at the time Outstanding shall be entitled, upon notice
in writing to the City, to declare the principal of all of the Bonds then Outstanding, and the
interest accrued thereon, to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything in this Indenture or
in the Bonds contained to the contrary notwithstanding.
Subject to the consent of the Municipal Bond Insurer, any such declaration, however, is
subject to the condition that if, at any time after such declaration and before any judgment or
decree for the payment of the moneys due shall have been obtained or entered, the City shall
deposit with the Trustee a sum sufficient to pay all the principal or Redemption Price of and
installments of interest on the Bonds payment of which is overdue, with interest on such
overdue principal at the rate borne by the respective Bonds, and the reasonable charges and
expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the
payment of principal of and interest on the Bonds due and payable solely by reason of such
declaration) shall have been made good or cured to the satisfaction of the Trustee or provision
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deemed by the Trustee to be adequate shall have been made therefor, then, and in every such
case, the Owners of not less than a majority in aggregate principal amount of the Bonds then
Outstanding, by written notice to the City and the Trustee, or the Trustee if such declaration
was made by the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul
such declaration and its consequences and waive such default; but no such rescission and
annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any
right or power consequent thereon.
Section 8.03. Application of Net Revenues and Other Funds After Default. If an Event of
Default shall occur and be continuing, all Net Revenues and any other funds then held or
thereafter received by the Trustee under any of the provisions of this Indenture (subject to
Section 13.10) shall be applied by the Trustee as follows and in the following order:
(a) To the payment of any expenses necessary in the opinion of the Trustee to protect the
interests of the Owners of the Bonds and payment of reasonable charges and expenses of the
Trustee (including, but not limited to, reasonable fees and disbursements of its counsel)
incurred in and about the performance of its powers and duties under this Indenture;
(b) To the payment of the principal or Redemption Price of and interest then due on the
Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only
partially paid, or surrender thereof if fully paid) subject to the provisions of this Indenture
(including Section 6.02), as follows:
(i) Unless the principal of all of the Bonds shall have become or have been
declared due and payable,
First: To the payment to the persons entitled thereto of all installments of
interest then due in the order of the maturity of such installments, and, if the
amount available shall not be sufficient to pay in full any installment or
installments maturing on the same date, then to the payment thereof ratably,
according to the amounts due thereon, to the persons entitled thereto, without
any discrimination or preference; and
Second: To the payment to the persons entitled thereto of the unpaid
principal or Redemption Price of any Bonds which shall have become due,
whether at maturity or by call for redemption, in the order of their due dates,
with interest on the overdue principal at the rate borne by the respective Bonds,
and, if the amount available shall not be sufficient to pay in full all the Bonds due
on any date, together with such interest, then to the payment thereof ratably,
according to the amounts of principal or Redemption Price due on such date to
the persons entitled thereto, without any discrimination or preference.
(ii) If the principal of all of the Bonds shall have become or have been declared
due and payable, to the payment of the principal and interest then due and unpaid upon
the Bonds, with interest on the overdue principal at the rate borne by the respective
Bonds, and, if the amount available shall not be sufficient to pay in full the whole
amount so due and unpaid, then to the payment thereof ratably, without preference or
priority of principal over interest, or of interest over principal, or of any installment of
interest over any other installment of interest, or of any Bond over any other Bond,
according to the amounts due respectively for principal and interest, to the persons
entitled thereto without any discrimination or preference.
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Section 8.04. Trustee to Represent Bondowners. The Trustee is hereby irrevocably
appointed (and the successive respective Owners of the Bonds, by taking and holding the same,
shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful
attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on
their behalf such rights and remedies as may be available to such Owners under the provisions
of the Bonds, this Indenture, the Bond Law and applicable provisions of any other law. Upon
the occurrence and continuance of an Event of Default or other occasion giving rise to a right in
the Trustee to represent the Bondowners, the Trustee in its discretion may, and upon the
written request of the Owners of not less than twenty-five percent (25%) in aggregate principal
amount of the Bonds then Outstanding (or, if more than one such request is received, the
written request executed by the Owners of the greatest percentage of Bonds then Outstanding
in excess of twenty-five percent (25%)), and upon being indemnified to its satisfaction therefor,
shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate
action, suit, mandamus or other proceedings as it shall deem most effectual to protect and
enforce any such right, at law or in equity, either for the specific performance of any covenant
or agreement contained herein, or in aid of the execution of any power herein granted, or for the
enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or
in such Owners under this Indenture, the Bond Law or any other law; and upon instituting such
proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of
the Net Revenues and other assets pledged under this Indenture, pending such proceedings. All
rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced
by the Trustee without the possession of any of the Bonds or the production thereof in any
proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee
shall be brought in the name of the Trustee for the benefit and protection of all the Owners of
such Bonds, subject to the provisions of this Indenture (including Section 6.02).
Section 8.05. Bondowners' Direction of Proceedings. Anything in this Indenture to the
contrary notwithstanding but subject to the consent of the Municipal Bond Insurer, the Owners
of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right,
by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to
direct the method of conducting all remedial proceedings taken by the Trustee hereunder,
provided that such direction shall not be otherwise than in accordance with law and the
provisions of this Indenture, and that the Trustee shall have the right to decline to follow any
such direction which in the opinion of the Trustee would be unjustly prejudicial to Bondowners
not parties to such direction or would expose the Trustee to liability for which it has not been
indemnified to its satisfaction.
Section 8.06. Limitation on Bondowners' Right to Sue. No Owner of any Bond shall have
the right to institute any suit, action or proceeding at law or in equity, for the protection or
enforcement of any right or remedy under this Indenture, the Bond Law or any other applicable
law with respect to such Bond, unless (1) such Owner shall have given to the Trustee written
notice of the occurrence of an Event of Default; (2) the Owners of not less than twenty-five per
cent (25%) in aggregate principal amount of the Bonds then Outstanding (or, if more than one
such request is received, the written request executed by the Owners of the greatest percentage
of Bonds then Outstanding in excess of twenty-five percent (25%)) shall have made written
request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit,
action or proceeding in its own name; (3) such Owner or said Owners shall have tendered to the
Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request; and (4) the Trustee shall have refused or omitted to comply with
such request for a period of sixty (60) days after such written request shall have been received
by, and said tender of indemnity shall have been made to, the Trustee.
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Such notification, request, tender of indenmity and refusal or omission are hereby
declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any
remedy hereunder or under law; it being understood and intended that no one or more Owners
of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or
prejudice the security of this Indenture or the rights of any other Owners of Bonds, or to enforce
any right under this Indenture, the Bond Law, the Government Code of the State or other
applicable law with respect to the Bonds, except in the manner herein provided, and that all
proceedings at law or in equity to enforce any such right shall be instituted, had and maintained
in the manner herein provided and for the benefit and protection of all Owners of the
Outstanding Bonds, subject to the provisions of this Indenture (including Section 6.02).
Section 8.07. Absolute Obligation of City. Nothing in Section 8.06 or in any other
provision of this Indenture, or in the Bonds, contained shall affect or impair the obligation of the
City, which is absolute and unconditional, to pay the principal or Redemption Price of and
interest on the Bonds to the respective Owners of the Bonds at their respective dates of
maturity, or upon call for redemption, as herein provided, but only out of the Net Revenues and
other assets herein pledged therefor, or affect or impair the right of such Owners, which is also
absolute and unconditional, to enforce such payment by virtue of the contract embodied in the
Bonds.
Section 8.08. Termination of Proceedings. In case any proceedings taken by the Trustee
or any one or more Bondowners on account of any Event of Default shall have been
discontinued or abandoned for any reason or shall have been determined adversely to the
Trustee or the Bondowners, then in every such case the City, the Trustee and the Bondowners,
subject to any determination in such proceedings, shall be restored to their former positions and
rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the
City, the Trustee and the Bondowners shall continue as though no such proceedings had been
taken.
Section 8.09. Remedies Not Exclusive. No remedy herein conferred upon or reserved to
the Trustee or to the Owners of the Bonds is intended to be exclusive of any other remedy or
remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative
and in addition to any other remedy given hereunder or now or hereafter existing at law or in
equity or otherwise.
Section 8.10. No Waiver of Default. No delay or omission of the Trustee or of any Owner
of the Bonds to exercise any right or power arising upon the occurrence of 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 power and remedy given by this Indenture to the Trustee or to
the Owners of the Bonds may be exercised from time to time and as often as may be deemed
expedient.
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ARTICLE IX
THE TRUSTEE
Section 9.01. Appointment of Trustee; Duties, Immunities and Liabilities of Trustee.
(a) U.S. Bank National Association is hereby appointed to serve as Trustee under this
Indenture. By execution hereof, the Trustee accepts such appointment.
(b) The Trustee shall, prior to an Event of Default, and after the curing or waiver of all
Events of Default which may have occurred, perform such duties and only such duties as are
specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of
Default (which has not been cured or waived), exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent
person would exercise or use under the circumstances in the conduct of his or her own affairs.
(c) Subject to the consent of the Municipal Bond Insurer, the City may remove the
Trustee at any time unless an Event of Default shall have occurred and then be continuing, and
shall remove the Trustee if at any time requested to do so by an instrument or concurrent
instruments in writing signed by the Owners of not less than a majority in aggregate principal
amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at
any time the Trustee shall cease to be eligible in accordance with sUbsection (f) of this Section
9.01, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or its property shall be appointed, or any public officer shall take control
or charge of the Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, in each case by giving written notice of such removal to the Trustee,
and thereupon shall appoint a successor Trustee by an instrument in writing.
(d) The Trustee may at any time resign by giving ninety days prior written notice of
such resignation to the City and by giving the Bondowners notice of such resignation by mail to
the addresses shown on the Bond Registration Books. Subject to the consent of the Municipal
Bond Insurer, upon receiving such notice of resignation, the City shall promptly appoint a
successor Trustee by an instrument in writing.
(e) Any removal or resignation of the Trustee and appointment of a successor Trustee
shall become effective upon acceptance of appointment by the successor Trustee. If no successor
Trustee shall have been appointed and have accepted appointment within forty-five (45) days of
giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any
Bondowner (on behalf of himself and all other Bondowners) may petition any court of
competent jurisdiction for the appointment of a successor Trustee, and such court may
thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee.
Any successor Trustee appointed under this Indenture, shall signify its acceptance of such
appointment by executing and delivering to the City and to its predecessor Trustee a written
acceptance thereof, and thereupon such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts,
duties and obligations of such predecessor Trustee, with like effect as if originally named
Trustee herein; but, nevertheless at the Request of the City or the request of the successor
Trustee, such predecessor Trustee shall execute and deliver any and all instruments of
conveyance or further assurance and do such other things as may reasonably be required for
more fully and certainly vesting in and confirming to such successor Trustee all the right, title
and interest of such predecessor Trustee in and to any property held by it under this Indenture
and shall pay over, transfer, assign and deliver to the successor Trustee any money or other
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property subject to the trusts and conditions herein set forth. Upon request of the successor
Trustee, the City shall execute and deliver any and all instruments as may be reasonably
required for more fully and certainly vesting in and confirming to such successor Trustee all
such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance
of appointment by a successor Trustee as provided in this subsection, the City shall mail a
notice of the succession of such Trustee to the trusts hereunder to the Bondowners at the
addresses shown on the registration books maintained by the Trustee. If the City fails to mail
such notice within fifteen (15) days after acceptance of appointment by the successor Trustee,
the successor Trustee shall cause such notice to be mailed at the expense of the City.
(f) Any Trustee appointed under the provisions of this Section 9.01 in succession to the
Trustee shall be a trust company or bank having the powers of a trust company having a
corporate trust office in the State, having a combined capital and surplus of at least fifty million
dollars ($50,000,000), and subject to supervision or examination by federal or state authority. If
such bank or trust company publishes a report of condition at least annually, pursuant to law or
to the requirements of any supervising or examining authority above referred to, then for the
purpose of this subsection the combined capital and surplus of such bank or trust company
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 subsection (f), the Trustee shall resign immediately in the manner
and with the effect specified in this Section 9.01.
Section 9.02. Merger or Consolidation. Any company or association into which the
Trustee may be merged or converted or with which it may be consolidated or any company or
association resulting from any merger, conversion or consolidation to which it shall be a party
or any company or association to which the Trustee may sell or transfer all or substantially all of
its corporate trust business, provided such company or association shall be eligible under
subsection (f) of Section 9.01, shall be the successor to such Trustee, as the case may be, without
the execution or filing of any paper or any further act, anything herein to the contrary
notwithstanding.
Section 9.03. Liability of Trustee.
(a) The recitals of facts herein and in the Bonds contained shall be taken as statements of
the City, and the Trustee assumes no responsibility for the correctness of the same, or makes
any representations as to the validity or sufficiency of this Indenture or of the Bonds, or shall
incur any responsibility in respect thereof, other than in connection with the duties or
obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however,
be responsible for its representations contained in its certificate of authentication on the Bonds.
The Trustee shall not be liable in connection with the performance of its duties hereunder,
except for its own negligence or willful misconduct. The Trustee may become the owner of
Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by
law, may act as depository for and permit any of its officers or directors to act as a member of,
or in any other capacity with respect to, any committee formed to protect the rights of
Bondowners, whether or not such committee shall represent the Owners of a majority in
principal amount of the Bonds then Outstanding.
(b) The Trustee shall not be liable for any error of judgment made in good faith by a
responsible officer, unless the Trustee was negligent in ascertaining the pertinent facts.
(c) 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 not less than twenty-five
percent (25%) in aggregate principal amount of the Bonds at the time Outstanding relating to
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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 Indenture.
(d) The Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Indenture at the request, order or direction of any of the Bondowners,
pursuant to the provisions of this Indenture, unless such Bondowners shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
(e) The Trustee shall not be liable for any action taken by it in good faith and believed by
it to be authorized or within the discretion or rights or powers conferred upon it by this
Indenture.
(f) No provision in this Indenture shall require the Trustee to risk or expend its own
funds or otherwise incur any financial liability in the performance of any of its duties hereunder
if repayment of such funds or adequate indemnity against such risk or liability is not assured to
it. The Trustee shall provide the City with seven days' notice prior to making any advance of its
own funds hereunder, and, if the City does not provide moneys in the amount needed, the
Trustee shall be entitled to interest on the amounts advanced at a rate equal to the then 3-month
certificates of deposit rate (by reference to the Wall Street Journal); provided that no such prior
notice shall need be given and such interest on amounts advanced shall accrue from the date of
any such advance following the occurrence of an Event of Default hereunder.
(g) The Trustee makes no representation, express or implied as to the title, value, design,
compliance with specifications or legal requirements, quality, durability, operation, condition,
merchantability or fitness for any particular purpose or fitness for the use contemplated by the
City of the Enterprise.
(h) The Trustee shall not be deemed to have knowledge of an Event of Default
hereunder unless and until it shall have actual knowledge thereof.
(i) The Trustee shall have no responsibility with respect to any information, statement or
recital in any official statement, offering memorandum or other disclosure material prepared or
distributed with respect to the Bonds.
(j) The immunities extended to the Trustee also extend to its directors, officers,
employees and agents.
(k) The permissive right of the Trustee to do things enumerated in this Indenture shall
not be construed as a duty.
(1) The Trustee may execute any of the trusts or powers hereof and perform any of its
duties through attorneys, agents and receivers and shall not be answerable for the same if
appointed by it with reasonable care.
Section 9.04. Right of Trustee to Rely on Documents. The Trustee shall be protected in
acting upon any notice, resolution, request, requisition, consent, order, certificate, report,
opinion, note or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties. The Trustee may consult with counsel, who may be
counsel of or to the City, with regard to legal questions, 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 therewith.
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Whenever in the administration of the trusts imposed upon it by this Indenture 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 the City, and such Certificate shall be full warrant to the Trustee for any action
taken or suffered in good faith under the provisions of this Indenture in reliance upon such
Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such
matter or may require such additional evidence as to it may seem reasonable.
Section 9.05. Preservation and Inspection of Documents. All documents received by the
Trustee under the provisions of this Indenture shall be retained in its possession and shall be
subject during regular business hours with reasonable prior notice to the inspection of the City
and any Bondowner, and their agents and representatives duly authorized in writing, at the
Trust Office of the Trustee and under reasonable conditions.
Section 9.06. Compensation of Trustee. The City covenants to pay to the Trustee from
time to time, from available moneys of the City, and the Trustee shall be entitled to, reasonable
compensation for all services rendered by it in the exercise and performance of any of the
powers and duties hereunder of the Trustee, and the City will pay or reimburse the Trustee
upon its request, from available moneys of the City, for all expenses, disbursements and
advances incurred or made by the Trustee in accordance with any of the provisions of this
Indenture (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, disbursement
or advance as may arise from its negligence or bad faith.
Section 9.07. Indemnification. The City covenants to indemnify the Trustee and to hold it
harmless against any loss, liability, expenses or advance, including fees and expenses of counsel
and other experts, incurred or made without negligence or bad faith on the part of the Trustee,
in the exercise and performance of any of the powers and duties hereunder by the Trustee,
including the costs and expenses of defending itself against any claim of liability arising under
this Indenture. Such indemnification shall survive the termination or discharge of this
Indenture.
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ARTICLE X
MODIFICATION OR AMENDMENT OF THE INDENTURE
Section 10.01. Amendments Permitted.
(a) Subject to the consent of the Municipal Bond Insurer, this Indenture and the rights
and obligations of the City and of the Owners of the Bonds and of the Trustee may be modified
or amended from time to time and at any time by a Supplemental Indenture, which the City
and the Trustee may execute when the written consent of the Owners of a majority in aggregate
principal amount of the Bonds then Outstanding shall have been filed with the Trustee;
provided that if such modification or amendment will, by its terms, not take effect so long as
any Bonds of any particular maturity remain Outstanding, the consent of the Owners of such
Bonds shall not be required and such Bonds shall not be deemed to be Outstanding for the
purpose of any calculation of Bonds Outstanding under this Section 10.01. No such modification
or amendment shall (1) extend the fixed maturity of any Bond, or reduce the amount of
principal thereof, or extend the time of payment or reduce the amount of any Mandatory
Sinking Account Payment provided in this Indenture for the payment of any Bond, or reduce
the rate of interest thereon, or extend the time of payment of interest thereon, or reduce any
premium payable upon the redemption thereof, without the consent of the Owner of each Bond
so affected, or (2) reduce the aforesaid percentage of Bonds the consent of the Owners of which
is required to effect any such modification or amendment, or permit the creation of any lien on
the Net Revenues and other assets pledged under this Indenture prior to or on a parity with the
lien created by this Indenture, or deprive the Owners of the Bonds of the lien created by this
Indenture on such Net Revenues and other assets (except as expressly provided in this
Indenture), or terminate the insurance of the Bonds, without the consent of the Owners of all of
the Bonds then Outstanding. It shall not be necessary for the consent of the Bondowners to
approve the particular form of any Supplemental Indenture, but it shall be sufficient if such
consent shall approve the substance thereof. Promptly after the execution by the City and the
Trustee of any Supplemental Indenture pursuant to this subsection (a), the Trustee shall mail a
notice, setting forth in general terms the substance of such Supplemental Indenture to the
Bondowners at the addresses shown on the Bond Registration Books. Any failure to give such
notice, or any defect therein, shall not, however, in any way impair or affect the validity of any
such Supplemental Indenture.
(b) This Indenture and the rights and obligations of the City, of the Trustee and of the
Owners of the Bonds may also be modified or amended from time to time and at any time by a
Supplemental Indenture, which the City and the Trustee may execute without the consent of
any Bondowners, but only to the extent permitted by law and only for any one or more of the
following purposes:
(i) to add to the covenants and agreements of the City in this Indenture contained
other covenants and agreements thereafter to be observed, to pledge or assign additional
security for the Bonds (or any portion thereof), or to surrender any right or power herein
reserved to or conferred upon the City, provided, that no such covenant, agreement,
pledge, assignment or surrender shall materially adversely affect the interests of the
Owners of the Bonds;
(ii) to make such provisions for the purpose of curing any ambiguity,
inconsistency or omission, or of curing or correcting any defective provision, contained
in this Indenture, or in regard to matters or questions arising under this Indenture, as
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the City may deem necessary or desirable and not inconsistent with this Indenture, and
which shall not materially adversely affect the interests of the Owners of the Bonds;
(iii) to make such additions, deletions or modifications as may be necessary to
assure exclusion from gross income for purposes of federal income taxation of interest
on the Bonds.
(c) No such Supplemental Indenture shall modify any of the rights or obligations of the
Trustee without its prior written consent thereto; nor shall the Trustee be required to consent to
any such Supplemental Indenture which affects its rights or obligations hereunder.
Section 10.02. Effect of Supplemental Indenture. From and after the time any
Supplemental Indenture becomes effective pursuant to this Article X, this Indenture shall be
deemed to be modified and amended in accordance therewith, and the respective rights, duties
and obligations under this Indenture of the City, the Trustee and all Owners of Bonds
Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modification and amendment, and all the terms and conditions of any such
Supplemental Indenture shall be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
Section 10.03. Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after
any Supplemental Indenture becomes effective pursuant to this Article X 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 any modification or amendment provided for in such
Supplemental Indenture, and, in that case, upon demand of the Owner of any Bond
Outstanding at the time of such execution and presentation of his Bond for the purpose at the
Trust Office of the Trustee or at such additional offices as the Trustee may select and designate
for that purpose, a suitable notation shall be made on such Bond. If the Supplemental Indenture
shall so provide, new Bonds so modified as to conform, in the opinion of the City and the
Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be
prepared and executed by the City and authenticated by the Trustee, and upon demand of the
Owners of any Bonds then Outstanding shall be exchanged at the Trust Office of the Trustee,
without cost to any Bondowner, for Bonds then Outstanding, upon surrender for cancellation of
such Bonds, in equal aggregate principal amounts of the same maturity.
Section 10.04. Amendment of Particular Bonds. The provisions of this Article X shall not
prevent any Bondowner from accepting any amendment as to the particular Bonds held by him,
provided that due notation thereof is made on such Bonds.
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ARTICLE XI
DEFEASANCE
Section 11.01. Discharge of Indenture. Bonds may be paid by the City in any of the
following ways; provided that the City also pays or causes to be paid any other sums payable
hereunder by the City:
(a) by paying or causing to be paid the principal or Redemption Price of and interest on
Bonds Outstanding, as and when the same become due and payable;
(b) by depositing with the Trustee, in trust, at or before maturity, money or Defeasance
Obligations in the necessary amount (as provided in Section 11.10) to pay or redeem Bonds
Outstanding; or
(c) by delivering to the Trustee, for cancellation by it, Bonds Outstanding.
If the City shall pay all Bonds Outstanding and shall also pay or cause to be paid all
other sums payable hereunder by the City, then and in that case, at the election of the City
(evidenced by a Certificate of the City, filed with the Trustee, signifying the intention of the City
to discharge all such indebtedness and this Indenture), and notwithstanding that any Bonds
shall not have been surrendered for payment, this Indenture and the pledge of Net Revenues
and other assets made under this Indenture and all covenants, agreements and other obligations
of the City under this Indenture shall cease, terminate, become void and be completely
discharged and satisfied, except only as provided in Section 12.02. In such event, upon Request
of the City, the Trustee shall cause an accounting for such period or periods as may be
requested by the City to be prepared and filed with the City and shall execute and deliver to the
City all such instruments as may be necessary or desirable to evidence such discharge and
satisfaction, and the Trustee shall pay over, transfer, assign or deliver to the City all moneys or
securities or other property held by it pursuant to this Indenture which are not required for the
payment or redemption of Bonds not theretofore surrendered for such payment or redemption.
Section 11.02. Discharge of Liability on Bonds. Upon the deposit with the Trustee, in
trust, at or before maturity, of money or securities in the necessary amount (as provided in
Section 11.10) to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or
the redemption date of such Bond), provided that, if such Bond is to be redeemed prior to
maturity, notice of such redemption shall have been given as in Article IV provided or
provision satisfactory to the Trustee shall have been made for the giving of such notice, then all
liability of the City in respect of such Bond shall cease, terminate and be completely discharged,
except only that thereafter the Owner thereof shall be entitled to payment of the principal of
and interest to the maturity or redemption date on such Bond by the City, and the City shall
remain liable for such payment, but only out of such money or securities deposited with the
Trustee as aforesaid for such payment, provided further, however, that the provisions of Section
11.04 shall apply in all events.
The City may at any time surrender to the Trustee for cancellation by it any Bonds
previously issued and delivered which the City may have acquired in any manner whatsoever,
and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.
Section 11.03. Deposit of Money or Securities with Trustee. Whenever in this Indenture it
is provided or permitted that there be deposited with or held in trust by the Trustee money or
Defeasance Obligations in the necessary amount to pay or redeem any Bonds, the money or
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Defeasance Obligations so to be deposited or held may include money or Defeasance
Obligations held by the Trustee in the funds and accounts established pursuant to this
Indenture and shall be:
(a) lawful money of the United States of America in an amount equal to the principal
amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of
Bonds which are to be redeemed prior to maturity and in respect of which notice of such
redemption shall have been given as in Article IV provided or provision satisfactory to the
Trustee shall have been made for the giving of such notice, the amount to be deposited or held
shall be the principal amount or Redemption Price of such Bonds and all unpaid interest
thereon to the redemption date; or
(b) Defeasance Obligations the principal of and interest on which when due will provide
money sufficient to pay the principal or Redemption Price of and all unpaid interest to
maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as
such principal or Redemption Price and interest become due, provided that, in the case of
Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall
have been given as in Article IV provided or provision satisfactory to the Trustee shall have
been made for the giving of such notice; provided, in each case, that the Trustee shall have been
irrevocably instructed (by the terms of this Indenture or by Request of the City) to apply such
money to the payment of such principal or Redemption Price and interest with respect to such
Bonds.
Section 11.04. Payment of Bonds After Discharge of Indenture. Notwithstanding any
provisions of this Indenture, any moneys held by the Trustee in trust for the payment of the
principal or redemption premium of, or interest on, any Bonds and remaining unclaimed for
two years after the principal of all of the Bonds has become due and payable (whether at
maturity or upon call for redemption or by acceleration as provided in this Indenture), if such
moneys were so held at such date, or two years after the date of deposit of such moneys if
deposited after said date when all of the Bonds became due and payable, shall be repaid to the
City free from the trusts created by this Indenture, and all liability of the Trustee with respect to
such moneys shall thereupon cease; provided, however, that before the repayment of such
moneys to the City as aforesaid, the Trustee, as the case may be, may (at the cost of the City)
first mail a notice, in such form as may be deemed appropriate by the Trustee, to the Owners of
the Bonds so payable and not presented and with respect to the provisions relating to the
repayment to the City of the moneys held for the payment thereof.
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ARTICLE )(II
MUNICIPAL BOND INSURANCE PROVISIONS
[TO COME]
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ARTICLE XIII
MISCELLANEOUS
Section 13.01. Liability of City Limited to Net Revenues. Notwithstanding anything
contained in this Indenture or in the Bonds, the City shall not be required to advance any
moneys derived from any source other than the Net Revenues and other assets pledged under
this Indenture for any of the purposes mentioned in this Indenture, whether for the payment of
the principal or Redemption Price of or interest on the Bonds or for any other purpose of this
Indenture.
Section 13.02. Successor Is Deemed Included in All References to Predecessor. Whenever
in this Indenture either the City or the Trustee is named or referred to, such reference shall be
deemed to include the successors or assigns thereof, and all the covenants and agreements in
this Indenture contained by or on behalf of the City or the Trustee shall bind and inure to the
benefit of the respective successors and assigns thereof whether so expressed or not.
Section 13.03. Limitation of Rights to Parties and Bondowners. Except as provided in
Section 14.08, nothing in this Indenture or in the Bonds expressed or implied is intended or shall
be construed to give to any person other than the City, the Trustee and the Owners of the
Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any
covenant, condition or provision therein or herein contained; and all such covenants, conditions
and provisions are and shall be held to be for the sole and exclusive benefit of the City, the
Trustee and the Owners of the Bonds.
Section 13.04. Waiver of Notice. Whenever the giving of notice by mail or otherwise is
required in this Indenture, the giving of such notice may be waived in writing by the person
entitled to receive such notice and in any such case the giving or receipt of such notice shall not
be a condition precedent to the validity of any action taken in reliance upon such waiver.
Section 13.05. Destruction of Bonds. Whenever in this Indenture provision is made for
the cancellation by the Trustee and the delivery to the City of any Bonds, the Trustee may, upon
Request of the City, in lieu of such cancellation and delivery, destroy such Bonds (in the
presence of an officer of the City, if the City shall so require), and deliver a certificate of such
destruction to the City.
Section 13.06. Severability of Invalid Provisions. If any one or more of the provisions
contained in this Indenture or in the Bonds shall for any reason 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 Indenture and such invalidity, illegality or
unenforceability shall not affect any other provision of this Indenture, and this Indenture shall
be construed as if such invalid or illegal or unenforceable provision had never been contained
herein. The City hereby declares that it would have adopted this Indenture and each and every
other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the
Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs,
sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable.
Section 13.07. Notice to City and Trustee. Any notice to or demand upon the Trustee
may be served or presented, and such demand may be made, at the Trust Office of the Trustee,
which at the date of adoption of this Indenture is located at 550 South Hope Street, Suite 500,
Los Angeles, CA 90071, Attention: Corporate Trust Administration, or at such other address as
may have been filed in writing by the Trustee with the City. Any notice to or demand upon the
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City shall be deemed to have been sufficiently given or served for all purposes by being
deposited, postage prepaid, in a post office letter box, addressed to the City of Tustin at 300
Centennial Way, Tustin, CA 92780, Attention: Director of Finance (or such other address as may
have been filed in writing by the City with the Trustee). Notices under this Indenture to the
Municipal Bond Insurer shall be given as provided in Section 12.__.
Section 13.08. Evidence of Rights of Bondowners. Any request, consent or other
instrument required or permitted by this Indenture to be signed and executed by Bondowners
may be in any number of concurrent instruments of substantially similar tenor and shall be
signed or executed by such Bondowners in person or by an agent or agents duly appointed in
writing. Proof of the execution of any such request, consent or other instrument or of a writing
appointing any such agent, or of the holding by any person of Bonds transferable by delivery,
shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the
Trustee and of the City if made in the manner provided in this Section 13.08.
The fact and date of the execution by any person of any such request, consent or other
instrument or writing may be proved by the certificate of any notary public or other officer of
any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying
that the person signing such request, consent or other instrument acknowledged to him the
execution thereof, or by an affidavit of a witness of such execution duly sworn to before such
notary public or other officer.
The ownership of registered Bonds shall be proved by the Bond Registration Books held
by the Trustee.
Any request, consent, or other instrument or writing of the Owner of any Bond shall
bind every future Owner of the same Bond and the Owner of every Bond issued in exchange
therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or
the City in accordance therewith or reliance thereon.
Section 13.09. Disqualified Bonds. In determining whether the Owners of the requisite
aggregate principal amount of Bonds have concurred in any demand, request, direction,
consent or waiver under this Indenture, Bonds which are owned or held by or for the account of
the City or by any other obligor on the Bonds, or by any person directly or indirectly controlling
or controlled by, or under direct or indirect common control with, the City or any other obligor
on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination. Bonds so owned which have been pledged in good faith may be regarded
as Outstanding for the purposes of this Section 13.09 if the pledgee shall establish to the
satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a
person directly or indirectly controlling or controlled by, or under direct or indirect common
control with, the City or any other obligor on the Bonds. In case of a dispute as to such right,
any decision by the Trustee taken upon the advice of counsel shall be full protection to the
Trustee.
Section 13.10. Money Held for Particular Bonds. The mottey held by the Trustee for the
payment of the interest, principal or Redemption Price due on any date with respect to
particular Bonds (or portions of Bonds in the case of registered Bonds redeemed in part only)
shall, on and after such date and pending such payment, be set aside on its books and held in
trust by it without liability for interest thereon for the Owners of the Bonds entitled thereto,
subject, however, to the provisions of Section 11.04.
Section 13.11. Funds and Accounts. Any fund required by this Indenture to be
established and maintained by the Trustee may be established and maintained in the
-50-
accounting records of the Trustee, either as a fund or an account, and may, for the purposes of
such records, any audits thereof and any reports or statements with respect thereto, be treated
either as a fund or as an account; but all such records with respect to all such funds shall at all
times be maintained in accordance with customary standards of the industry, to the extent
practicable, and with due regard for the protection of the security of the Bonds and the rights of
every holder thereof.
Section 13.12. 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 Indenture.
All references herein to "Articles," "Sections" and other subdivisions are to the
corresponding Articles, Sections or subdivisions of this Indenture; the words "herein," "hereof,"
"hereby," "hereunder" and other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or subdivision hereof; and words of the masculine gender
shall mean and include words of the feminine and neuter genders.
Section 13.13. Waiver of Personal Liabili .ty. No member of the City Council, officer, agent
or employee of the City shall be individually or personally liable for the payment of the
principal or Redemption Price of or interest on the Bonds or be subject to any personal liability
or accountability by reason of the issuance thereof; but nothing herein contained shall relieve
any such member of the City Council, officer, agent or employee from the performance of any
official duty provided by law or by this Indenture.
Section 13.14. Execution in Several Counterparts. This Indenture may be executed in any
number of counterparts and each of such counterparts shall for all purposes be deemed to be an
original; and all such counterparts, or as many of them as the City and the Trustee shall
preserve undestroyed, shall together constitute but one and the same instrument.
Section 13.15. Governing Law. This Indenture shall be construed in accordance with and
governed by the Constitution and laws of the State. If this Indenture shall be the subject of
litigation, venue shall reside in the federal or state courts of California.
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IN WITNESS WHEREOF, the CITY OF TUSTIN has caused this Indenture to be signed
in its name by the of the City and attested by the City Clerk, and U.S. BANK
National Association, in token of its acceptance of the trust created hereunder, has caused this
Indenture to be signed in its corporate name by one of its authorized officers, all as of the day
and year first above written.
CITY OF TUSTIN
Attest:
By
Title
City Clerk
U.S. BANK NATIONAL ASSOCIATION, as
Trustee
By
Authorized Officer
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EXHIBIT A
FORM OF BOND
United States of America
State of California
County of Orange
CITY OF TUSTIN
2003 Refunding Water Revenue Bonds
INTEREST RATE MATURITY DATE DATED DATE
% April 1, August 7, 2003
CUSIP
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT:
DOLLARS
The CITY OF TUSTIN, a municipal corporation and general law city duly organized and
existing under the laws of the State of California (the "City"), for value received, hereby
promises to pay to the Registered Owner named above or registered assigns (the "Owner"), on
the Maturity Date stated above (subject to any right of prior redemption hereinafter provided
for), the Principal Amount stated above in lawful money of the United States of America, and to
pay interest thereon in like lawful money from the April 1 or October 1 (each an "Interest
Payment Date") next preceding the date of authentication hereof, unless said date of
authentication is an Interest Payment Date, in which event such interest is payable from such
date of authentication, and unless said date of authentication is prior to September 15, 2003, in
which event such interest is payable from the Dated Date stated above; provided, however, that
if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall
bear interest from the date to which interest has previously been paid or made available for
payment on this Bond in full at the Interest Rate per annum stated above, payable semiannually
on each Interest Payment Date, commencing October 1, 2004. The principal amount of this Bond
is payable at the principal corporate trust office of U.S. Bank National Association, as trustee
(the "Trustee"), in St. Paul, Minnesota, or at such office as the Trustee may designate, upon
presentation and surrender of this Bond to the Trustee. Payment of the interest on this Bond
will be made to the person whose name appears on the bond registration books of the Trustee
as the Owner thereof as of the fifteenth day of the month immediately preceding an Interest
Payment Date whether or not said day is a business day (the "Record Date"), such interest to be
paid by check mailed on the Interest Payment Date to the Owner or, at the option of any Owner
of at least $1,000,000 aggregate principal amount of Bonds and upon written notice received by
the Trustee prior to the Record Date, by wire transfer, at the Owner's address as it appears on
such bond registration books or to such account as shall have been identified by the Owner in
the notice requesting payment by wire transfer.
Capitalized terms used herein and not otherwise defined are used with the meanings
ascribed to them in the Indenture (as hereinafter defined).
This Bond is one of a series of Bonds of various maturities designated as "City of Tustin
2003 Refunding Water Revenue Bonds" (the "Bonds"), issued pursuant to the provisions of
section 53570 et seq. of the California Government Code in the aggregate principal amount of
Appendix A
Page 1
$ , all of like tenor (except for such variations, if any, as may be required to designate
varying numbers, maturities, interest rates or redemption provisions), issued under and
pursuant to an Indenture of Trust (the "Indenture") by and between the City and the Trustee,
dated as of August 1, 2003, and approved by the City by Resolution No. , adopted by the
City Council of the City on July 7, 2003. A copy of the Indenture is on file at the office of the
Trustee, and reference to the Indenture and any and all supplements thereto and modifications
and amendments thereof and to the Bond Law is made for a description of the terms on which
the Bonds are issued, the provisions with regard to the nature and extent of the Net Revenues,
as that term is defined in the Indenture, and the rights of the Owners of the Bonds. All the terms
of the Indenture and the Bond Law are hereby incorporated herein and constitute a contract
between the City and the Owners from time to time of this Bond, and to all the provisions
thereof the Owner of this Bond, by his acceptance hereof, consents and agrees. Each taker and
subsequent Owner hereof shall have recourse to all of the provisions of the Bond Law and the
Indenture and shall be bound by all of the terms and conditions thereof.
The Bonds are issued to provide for the refunding of various outstanding obligations of
the City which are secured by a pledge of the net revenues (the "Net Revenues") of the City's
water system (the "Enterprise"), as more particularly described in the Indenture. The Bonds are
special obligations of the City and are payable, as to interest thereon, principal thereof and any
premiums upon the redemption of any thereof, from the Net Revenues of the Enterprise. All of
the Bonds are equally secured by a pledge of, and charge and lien upon, that portion of the Net
Revenues necessary to pay the principal or redemption price of and interest on the Bonds in any
Fiscal Year, and the Net Revenues constitute a trust fund for the security and payment of the
principal or redemption price of and interest on all of the Bonds. Additional obligations of the
City payable from the Net Revenues may be issued on a parity with the Bonds, but only subject
to the conditions and limitations contained in the Indenture.
The principal or redemption price of and interest on the Bonds are payable solely from
the Net Revenues, and the City is not obligated to pay the Bonds except from the Net Revenues.
The general fund of the City is not liable, and the full faith and credit or taxing power of the
City is not pledged, for the payment of the principal or redemption price of and interest on the
Bonds. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or
encumbrance upon, any of the property of the City or any of its income or receipts, except the
Net Revenues.
The City covenants that, so long as any of the Bonds are outstanding, it will fix,
prescribe and collect charges so as to yield Net Revenues at least equal to the amounts thereof
prescribed by the Indenture and sufficient to pay the principal or redemption price of and
interest on the Bonds in accordance with the provisions of the Indenture.
Bonds maturing on or before April 1, , are not subject to redemption prior to their
respective stated maturities. Bonds maturing on or after April 1, , are subject to redemption
prior to maturity, at the option of the City, from any available source of funds, on any date on
and after April 1, , at a redemption price equal to the principal amount thereof together
with accrued interest thereon to the date fixed for redemption, at the following redemption
prices (expressed as percentages of the principal amount of the Bonds to be redeemed), together
with accrued interest thereon to the date fixed for redemption:
Redemption Period
April 1, , through March 31,
April 1, , through March 31,
April 1, , and thereafter
Redemption Price
Appendix A
Page 2
Bonds maturing April 1, , are subject to mandatory redemption, on April 1 in each
year, commencing April 1, , at a redemption price equal to the principal amount thereof to
be redeemed together with accrued interest thereon to the redemption date, without premium,
from mandatory sinking fund account payments made by the City under the Indenture in the
years and amounts as follows:
Mandatory
Sinking Account Mandatory
Payment Dates Sinking Account
(April 1) Payments
As provided in the Indenture, notice of redemption shall be given by first class mail not
less than thirty days prior to the redemption date to the respective registered Owners of the
Bonds designated for redemption at their addresses appearing on the bond registration books,
but no defect in the notice so mailed shall affect the sufficiency of the proceedings for
redemption.
If this Bond is called for redemption and payment is duly provided therefor as specified
in the Indenture, interest shall cease to accrue hereon from and after the date fixed for
redemption.
If an Event of Default, as defined in the Indenture, shall occur, the principal of all Bonds
may be declared due and payable upon the conditions, in the manner and with the effect
provided in the Indenture, but such declaration and its consequences may be rescinded and
annulled as further provided in the Indenture.
This Bond is transferable, as provided in the Indenture, only upon the books of the City
kept for that purpose at the office of the Trustee, by the Owner hereof in person, or by his
attorney duly authorized in writing, upon the surrender of this Bond together with a written
instrument of transfer satisfactory to the Trustee duly executed by the registered Owner or his
attorney duly authorized in writing, and thereupon a new Bond or Bonds, without coupons,
and in the same aggregate principal amount and of the same maturity, shall be issued to the
transferee in exchange herefor, as provided in the Indenture, and upon the payment of charges,
if any, including, after the first exchange, the cost of preparing new Bonds therein prescribed.
The rights and obligations of the City and of the Owners of the Bonds may be modified
or amended at any time in the manner, to the extent and upon the terms provided in the
Indenture. No such modification or amendment shall permit a change in the terms of
redemption or maturity of the principal of any outstanding Bond or of any installment of
interest thereon or a reduction in the principal amount or the redemption price thereof or in the
rate of interest thereon without the consent of the Owner of such Bond, or shall reduce the
percentages or otherwise affect the classes of Bonds, the consent of the Owners of which is
required to effect any such modification or amendment, all as more fully set forth in the
Indenture.
It is hereby certified that all of the conditions, things and acts required to exist, to have
happened or to have been performed precedent to and in the issuance of this Bond do exist,
have happened or have been performed in due fime, form and manner as required by law and
that the amount of this Bond, together with all other indebtedness of the City, does not exceed
Appendix A
Page 3
any limit prescribed by the Constitution or laws of the State of California, and is not in excess of
the amount of Bonds permitted to be issued under the Indenture.
Unless this Bond is presented by an authorized representative of The Depository Trust
Company, a New York corporation ("DTC'), to the issuer or its agent for registration of
transfer, exchange, or payment, and any Bond issued is registered in the name of Cede & Co. or
in such other name as is requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or to such other entity as is requested by an authorized representative of
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede &
Co., has an interest herein.
IN WITNESS WHEREOF, the City of Tustin has caused this Bond to be executed in its
name and on its behalf with the manual or facsimile signature of its Mayor and the manual or
facsimile signature of its City Clerk and its seal to be reproduced hereon all as of the Bond Date
stated above.
CITY OF TUSTIN
[SEAL]
ATTEST:
By.
Mayor
City Clerk
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Bonds described in the within-mentioned Indenture, which has been
authenticated and registered on
U.S. BANK NATIONAL ASSOCIATION, as
Trustee
By
Authorized Officer
Appendix A
Page 4
STATEMENT OF INSURANCE
[TO COME]
Appendix A
Page 5
ASSIGNMENT
For value received the undersigned hereby sells, assigns and transfers unto
whose address and social security or other tax identifying number is
the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s)
attorney, to transfer the same on the Bond registration books of the Trustee with full power of
substitution in the premises.
Dated:
Signature Guaranteed:
Note: Signature(s) must be guaranteed by an eligible Note: The signature(s) on this Assignment must
guarantor, correspond with the name(s) as written on the face of the
within Bond in every particular without alteration or
enlargement or any change whatsoever.
Appendix A
Page 6
Quint & Thimmig LLP 06 / 18 / 03
ESCROW DEPOSIT AND TRUST AGREEMENT
by and between the
CITY OF TUSTIN
and
U.S. BANK NATIONAL ASSOCIATION, as Escrow Bank
Dated August 7, 2003
Relating to the
$11,500,000
City of Tustin
Water System Revenue
Certificates of Participation, 1993 Series
20015.03
ESCROW DEPOSIT AND TRUST AGREEMENT
This ESCROW DEPOSIT AND TRUST AGREEMENT is dated this 7th day of August,
2003, by and between the CITY OF TUSTIN, a municipal corporation and general law city
organized and existing under the laws of the State of California (the "City"), and U.S. BANK
NATIONAL ASSOCIATION, as successor trustee to Bank of America National Trust and
Savings Association (the "1993 Trustee") as trustee under the 1993 Trust Agreement, as
hereinafter defined, as escrow bank hereunder (the "Escrow Bank");
WITNESSETH:
WHEREAS, the City of Tustin Water Corporation (the "Corporation") and the City have
heretofore entered into that certain installment purchase agreement, dated as of April 1, 1993
(the "1993 Installment Purchase Agreement"), pursuant to which the Corporation sold certain
portions of the City's municipal water enterprise to the City, and the City agreed to make
certain installment payments (the "1993 Installment Payments") to the Corporation;
WHEREAS, pursuant to a Trust Agreement, dated as of April 1, 1993, by and among the
City, the Corporation and the 1993 Trustee (the "1993 Trust Agreement"), the 1993 Trustee
agreed, among other matters, to execute and deliver certificates of participation (the "1993
Certificates") representing direct, undivided fractional interests of the owners thereof in the
1993 Installment Payments and to apply the 1993 Installment Payments to the payment of
principal and interest with respect to the 1993 Certificates, and to administer certain funds and
accounts created by the 1993 Trust Agreement;
WHEREAS, the 1993 Installment Purchase Agreement provides that the City may secure
the payment of the 1993 Installment Payments by a deposit with the 1993 Trustee pursuant to
the 1993 Trust Agreement;
WHEREAS, the City has determined that, as a result of favorable financial market
conditions and for other reasons, it is in the best interests of the City at this time to refinance the
City's obligation to make the 1993 Installment Payments and, as a result thereof, to provide for
the payment of the principal and interest with respect to the 1993 Certificates through October
1, 2003, and to redeem the outstanding 1993 Certificates maturing after October 1, 2003, in full
on October 1, 2003, at the redemption price of 102% of the principal amount thereof, plus
accrued interest;
WHEREAS, the City proposes to provide for the payments described above and to
appoint the Escrow Bank as its agent for the purpose of applying said deposit to provide for the
payment of the 1993 Installment Payments in accordance with the instructions provided by this
Escrow Deposit and Trust Agreement and of applying said 1993 Installment Payments to the
payment of the principal and interest with respect to the 1993 Certificates and the Escrow Bank
desires to accept said appointment;
WHEREAS, to obtain moneys to provide for the payment described above and for other
purposes, the City plans to issue its City of Tustin (Orange County, California) 2003 Refunding
Water Revenue Bonds (the "2003 Bonds"), pursuant to an indenture of trust (the "Indenture"), by
and between the City and U.S. Bank National Association, as trustee (the "Trustee");
WHEREAS, the City proposes to make the deposit of moneys referenced in the 1993
Trust Agreement and to appoint the Escrow Bank for the purpose of applying said deposit to
the payment and redemption of the 1993 Certificates in accordance with the 1993 Trust
Agreement, and the Escrow Bank desires to accept said appointment; and
WHEREAS, under California law, the Escrow Bank has full powers to act with respect to
the irrevocable escrow created herein and to perform the duties and obligations to be
undertaken pursuant to this Escrow Deposit and Trust Agreement:
NOW, THEREFORE, in consideration of the above premises and of the mutual promises
and covenants herein contained, the parties hereto DO HEREBY AGREE as follows:
Section 1. Definitions. Capitalized terms used, but not otherwise defined, herein, shall
have the meanings ascribed thereto in the Indenture or in the 1993 Trust Agreement.
Section 2. Appointment of Escrow Bank. The City hereby appoints the Escrow Bank as
escrow bank for all purposes of this Escrow Deposit and Trust Agreement and in accordance
with the terms and provisions of this Escrow Deposit and Trust Agreement, and the Escrow
Bank hereby accepts such appointment.
Section 3. Establishment of Escrow Fund. There is hereby created by the City with, and
to be held by, the Escrow Bank as security for the payment of the 1993 Installment Payments as
hereinafter set forth, an irrevocable escrow to be maintained in trust by the Escrow Bank on
behalf of the City and for the benefit of the owners of the 1993 Certificates, said escrow to be
designated the "Escrow Fund." All moneys and securities (the "Escrow Securities") deposited in
the Escrow Fund shall be held as a special fund for the payment of the principal and interest
with respect to the 1993 Certificates in accordance with the provisions of this Escrow Deposit
and Trust Agreement. If at any time the Escrow Bank shall receive actual knowledge that the
moneys and Escrow Securities in the Escrow Fund will not be sufficient to make any payment
required by Section 5 hereof, the Escrow Bank shall notify the City of such fact and the City
shall immediately cure such deficiency.
Section 4. Deposit into Escrow Fund; Investment of Amounts. Concurrently with
delivery of the 2003 Bonds, the City shall cause to be transferred to the Escrow Bank for deposit
into the Escrow Fund the amount of $ in immediately available funds, derived as
follows:
(a) $_
derived from the proceeds of sale of the 2003 Bonds;
(b) $ derived from the reserve account created for the 1993 Certificates (the
"1993 Reserve Account"); and
(c) $ derived from the purchase payment account created for the 1993
Certificates (the "1993 Purchase Payment Account").
The Escrow Bank shall invest $. of the moneys deposited into the Escrow
Fund pursuant to the preceding paragraph in the Escrow Securities set forth in Exhibit A
attached hereto and by this reference incorporated herein and shall hold the remaining amount
($. ) in cash, uninvested. The Escrow Securities shall be deposited with and held by the
Escrow Bank in the Escrow Fund solely for the uses and purposes set forth herein.
The Escrow Bank shall not be liable or responsible for any loss resulfing from its full
compliance with the provisions of this Escrow Deposit and Trust Agreement.
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Section 5. Instructions as to Application of Deposit.
(a) The total amount of Escrow Securities and uninvested moneys deposited in the
Escrow Fund pursuant to Section 4 shall be applied by the Escrow Bank for the sole purpose of
paying the principal and interest with respect to the 1993 Certificates as the same shall become
due and payable, all at the times and in the amounts set forth in Exhibit B attached hereto and
by this reference incorporated herein.
(b) The City hereby instructs the Escrow Bank, in its capacity as 1993 Trustee and the
Escrow Bank, as 1993 Trustee, hereby agrees to give notice of redemption of the applicable 1993
Certificates, such notice of redemption to be given timely for redemption of such 1993
Certificates on the applicable redemption date, in accordance with the applicable provisions of
the 1993 Trust Agreement, and to cause the redemption of such 1993 Certificates on the
applicable redemption date, as set forth in Exhibit B attached hereto and by this reference
incorporated herein.
Section 6. Investment of Any Remaining Moneys. The Escrow Bank shall invest and
reinvest the proceeds received from any of the Escrow Securities and the cash originally
deposited into the Escrow Fund, for a period ending not later than the next succeeding interest
payment date with respect to the 1993 Certificates, in Escrow Securities as directed in writing by
the City; provided, however, that such written directions of the City shall be accompanied by a
certification of an independent certified public accountant or firm of certified public
accountants of favorable national reputation experienced in the refunding of obligations of
political subdivisions that the Escrow Securities then to be so deposited in the Escrow Fund,
together with the Escrow Securities then on deposit in the Escrow Fund, together with the
interest to be derived therefrom, shall be in an amount at all times at least sufficient to make the
payments specified in Section 5 hereof. In the event that the City shall fail to file any such
written directions with the Escrow Bank concerning the reinvestment of any such proceeds,
such proceeds shall be held uninvested by the Escrow Bank. Any interest income resulting from
investment or reinvestment of moneys pursuant to this Section 6 and not required for the
purposes set forth in Section 5, as indicated by such verification, and after payment of any
amounts then owed to the Escrow Bank, shall be paid to the City promptly upon the receipt of
such interest income by the Escrow Bank. Any amounts remaining on deposit in the Escrow
Fund after the final payment of all 1993 Certificates in accordance with this Escrow Deposit and
Trust Agreement, shall be transferred by the Escrow Bank to the Trustee for deposit in the
revenue fund created under the Indenture and used for the purposes of such fund.
Section 7. Substitution or Withdrawal of Escrow Securities. The City may, at any time,
direct the Escrow Bank in writing to substitute Escrow Securities for any or all of the Escrow
Securities then deposited in the Escrow Fund, or to withdraw and transfer to the City any
portion of the Escrow Securities then deposited in the Escrow Fund, provided that any such
direction and substitution or withdrawal shall be simultaneous and shall be accompanied by a
certification of an independent certified public accountant or firm of certified public
accountants of favorable national reputation experienced in the refunding of obligations of
political subdivisions that the Escrow Securities then to be so deposited in the Escrow Fund
together with interest to be derived therefrom, or in the case of withdrawal, the Escrow
Securities to be remaining in the Escrow Fund following such withdrawal together with the
interest to be derived therefrom, shall be in an amount at all times at least sufficient to make the
payments specified in Section 5 hereof. In the event that, following any such substitution of
Escrow Securities pursuant to this Section 7, there is an amount of moneys or Escrow Securities
in excess of an amount sufficient to make the payments required by Section 5 hereof, as
indicated by such verification, such excess shall be invested by the Escrow Bank as directed in
-3-
Section 6 hereof. The Escrow Bank shall have no responsibility or obligation to notify or obtain
the consent of any rating agency or insurer to (i) the disbursement of any surplus amounts
hereunder, (ii) the modification or amendment of this Escrow Deposit and Trust Agreement, or
(iii) the substitution of collateral or securities.
Section 8. Application of 1993 Certificates Funds. On the date of original delivery of the
2003 Bonds and the deposit of a portion of the proceeds thereof in the Escrow Fund pursuant to
Section 4, the Escrow Bank, as 1993 Trustee, is hereby directed to (a) withdraw all amounts on
deposit in the 1993 Reserve Account ($ ) and transfer such sum to the Escrow Fund,
and (b) withdraw all amounts on deposit in the 1993 Purchase Payment Account ($.__.) and
transfer such sum to the Escrow Fund.
Any amounts remaining on deposit in any fund or account established under the 1993
Trust Agreement for the 1993 Certificates, including any investment earnings received after the
date of original delivery of the 2003 Bonds, shall be transferred by the Escrow Bank, as 1993
Trustee, to the Trustee for deposit in the Revenue Fund created under the Indenture and used
for the purposes of such fund.
Section 9. Application of Certain Terms of 1993 Trust Agreement. All of the terms of the
1993 Trust Agreement relating to the making of payments of principal and interest with respect
to the 1993 Certificates are incorporated in this Escrow Deposit and Trust Agreement as if set
forth in full herein. The provisions of the 1993 Trust Agreement relating to the limitations from
liability and protections afforded the 1993 Trustee and the resignation and removal of the 1993
Trustee are also incorporated in this Escrow Deposit and Trust Agreement as if set forth in full
herein and shall be the procedure to be followed with respect to any resignation or removal of
the Escrow Bank hereunder.
Section 10. Compensation to Escrow Bank. The City shall pay the Escrow Bank full
compensation for its duties under this Escrow Deposit and Trust Agreement, including out-of-
pocket costs such as publication costs, prepayment or redemption expenses, legal fees and other
costs and expenses relating hereto and, in addition, fees, costs and expenses relating to the
purchase of any Escrow Securities after the date hereof. Under no circumstances shall amounts
deposited in the Escrow Fund be deemed to be available for said purposes.
Section 11. Liabilities and Obligations of Escrow Bank. The Escrow Bank shall have no
obligation to make any payment or disbursement of any type or incur any financial liability in
the performance of its duties under this Escrow Deposit and Trust Agreement unless the City
shall have deposited sufficient funds with the Escrow Bank. The Escrow Bank may rely and
shall be protected in acting upon the written instructions of the City or its agents relating to any
matter or action as Escrow Bank under this Escrow Deposit and Trust Agreement.
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 Escrow Deposit and Trust Agreement, the establishment of the
Escrow Fund, the acceptance of the moneys or any securities deposited therein, the purchase of
the securities to be 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 purposes set forth in Section 5 hereof, or any payment, transfer or other
application of moneys or securities by the Escrow Bank in accordance with the provisions of
this Escrow Deposit and Trust 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
statement of the City, and the Escrow Bank assumes no responsibility for the correctness
-4-
thereof. The Escrow Bank makes no representations as to the sufficiency of the securities to be
purchased pursuant hereto and any uninvested moneys to accomplish the purposes set forth in
Section 5 hereof or to the validity of this Escrow Deposit and Trust Agreement as to the City
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 Escrow Deposit and Trust 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 Escrow Deposit and Trust 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 Escrow Deposit and
Trust Agreement, such matter (except the matters set forth herein as specifically requiring a
certificate of a nationally recognized firm of independent certified public accountants or an
opinion of counsel) may be deemed to be conclusively established by a written certification of
the City.
The City hereby assumes liability for, and hereby agrees (whether or not any of the
transactions contemplated hereby are consummated), to the extent permitted by law, to
indemnify, protect, save and hold harmless the Escrow Bank and its respective successors,
assigns, agents and servants from and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits, costs, expenses and disbursements (including legal
fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by,
or asserted against, at any time, the Escrow Bank (whether or not also indemnified against by
any other person under any other agreement or instrument) and in any way relating to or
arising out of the execution and delivery of this Escrow Deposit and Trust Agreement, the
establishment of the Escrow Fund, the retention of the moneys therein and any payment,
transfer or other application of moneys or securities by the Escrow Bank in accordance with the
provisions of this Escrow Deposit and Trust Agreement, or as may arise by reason of any act,
omission or error of the Escrow Bank made in good faith in the conduct of its duties; provided,
however, that the City shall not be required to indemnify the Escrow Bank against its own
negligence or misconduct. The indemnities contained in this Section 11 shall survive the
termination of this Escrow Deposit and Trust Agreement or the resignation or removal of the
Escrow Bank.
Section 12. Amendment. This Escrow Deposit and Trust Agreement may be modified or
amended at any time by a supplemental agreement which shall become effective when the
written consents of the owners of one hundred percent (100%) in aggregate principal amount of
the 1993 Certificates shall have been filed with the Escrow Bank. This Escrow Deposit and Trust
Agreement may be modified or amended at any time by a supplemental agreement, without the
consent of any such owners, but only (1) to add to the covenants and agreements of any party,
other covenants to be observed, or to surrender any right or power herein or therein reserved to
the City, (2) to cure, correct or supplement any ambiguous or defective provision contained
herein, (3) in regard to questions arising hereunder or thereunder, as the parties hereto or
thereto may deem necessary or desirable and which, in the opinion of counsel, shall not
materially adversely affect the interests of the owners of the 1993 Certificates or the 2003 Bonds,
and that such amendment will not cause interest on the 1993 Certificates or represented by the
2003 Bonds to become subject to federal income taxation. In connection with any contemplated
amendment or revocation of this Escrow Deposit and Trust Agreement, prior written notice
thereof and draft copies of the applicable legal documents shall be provided by the City to each
rating agency then rating the 1993 Certificates.
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Section 13. Severability. If any section, paragraph, sentence, clause or provision of this
Escrow Deposit and Trust Agreement shall for any reason be held to be invalid or
unenforceable, the invalidity or unenforceability of such section, paragraph, sentence clause or
provision shall not affect any of the remaining provisions of this Escrow Deposit and Trust
Agreement. Notice of any such invalidity or unenforceability s}',all be provided to each rating
agency then rating the 1993 Certificates.
Section 14. Notice of Escrow Bank, City and Corporation. Any notice to or demand upon
the Escrow Bank may be served and presented, and such demand may be made, at the Principal
Corporate Trust Office of the Escrow Bank as specified by the Escrow Bank as 1993 Trustee in
accordance with the provisions of the 1993 Trust Agreement. Any notice to or demand upon the
City and the Corporation, respectively, shall be deemed to have been sufficiently given or
served for all purposes by being mailed by first class mail, and deposited, postage prepaid, in a
post office letter box, addressed to such party as provided in the 1993 Installment Purchase
Agreement (or such other address as may have been filed in writing by the City or the
Corporation with the Escrow Bank).
Section 15. Merger or Consolidation of Escrow Bank. Any company into which the
Escrow Bank may be merged or converted or with which it may be consolidated or any
company resulting from any merger, conversion or consolidation to which it shall be a party or
any company to which the Escrow Bank may sell or transfer all or substantially all of its
corporate trust business, provided such company shall be eligible to act as trustee under the
1993 Trust Agreement, shall be the successor hereunder to the Escrow Bank without the
execution or filing of any paper or any further act.
IN WITNESS WHEREOF, the City and the Escrow Bank have each caused this Escrow
Deposit and Trust Agreement to be executed by their duly authorized officers all as of the date
first above written.
CITY OF TUSTIN
Attest:
By
Title
City Clerk
U.S. BANK NATIONAL ASSOCIATION, as
Escrow Bank
By
Authorized Officer
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EXHIBIT A
SCHEDULE OF ESCROW SECURITIES
Security Maturi .ty Principal Rate Price Accrued Cost
Exhibit A
EXHIBIT B
PAYMENT AND REDEMPTION SCHEDULE OF 1993 CERTIFICATES
Payment Maturing Called Call
Date Principal Principal Premium Interest Total
9/15/03 -- $7,575,000 $151,500 $179,443.33 $7,905,943.33
Exhibit B