HomeMy WebLinkAbout22- Water CITY OF SAN BERNARDINO REQUEST FOR COUNCIL ACTION
From: Stacey Aldstadt Subject: RESOLUTION APPROVING LEGAL DOCU-
Deputy General Manager MENTS AND AUTHORIZING CERTAIN TO THE SALE
Dept: Water 1 , 1998 ORIGINAL CERTOIFICATESTOFF PARTICIPATIONF
Date: June
Synopsis of Previous Council action:
NOT APPLICABLE.
Recommended motion:
ADOPT RESOLUTION
Signature
De Rut
Contact person: Stacey Aldstadt, GeierXl Manager Phone: 384-7210
Supporting data attached: YeS Ward: N/A
FUNDING REQUIREMENTS: Amount: N/A
Source: (Acct. No.)
(Acct. Description)
Finance:
Council Notes:
75-0262 Agenda Item No.
CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
STAFF REPORT
BACKGROUND:
In February 1992, the Water Department financed improvements to the wastewater treatment plant with
$41.3 million certificates of participation (COPs) which were issued through the San Bernardino Public
Safety Authority (PSA). Since that time, interest rates have dropped considerably.
At the March 17 meeting of the Board of Water Commissioners, they discussed the possibility of refunding
the 1992 COPs to take advantage of today's lower interest rates. At current rates,the savings would be$1.2
million or more. The Board indicated interest in proceeding and requested additional information and
recommendations.
On May 18, 1998,Water Department staff and the financial consultant made a presentation to two of the four
members of the Public Safety Authority board. Those members indicated that they would support the refund.
On May 19, 1998, the Board of Water Commissioners approved a recommendation to the Mayor and
Common Council to go forward with processing the refund of the PSA COPs, contingent on certain
parameters.
THE 1992 COPs
The COPs were dated February 1, 1992 and mature annually through February 1, 2017. The outstanding
balance is$36,795,000. The COPs which mature through 2001 cannot be called (prepaid). Those which
mature on or after February 1, 2002 can be called on any date on or after February 1, 2001, at a call
premium of not more than 2.0 percent of the amount of COPs called. COPs which mature in 1999 through
2001 bear interest at 9.25 percent. The interest rate on those maturing after 2001 is 6.25 percent. The
COPS are insured and, based on the insurance, are rated AAA.
CURRENT INTEREST RATES
The most common indicator of interest rates on municipal bonds is the Bond Buyer Index. The revenue
bond index,the one most comparable to the COPs,was 6.76 percent when the COPs were sold. The index
was 5.52 percent on April 30, 1998. If the COPs were sold today, we would expect interest rates of about
5.25 percent on the longest maturities.
REFUNDING PROCESS
While the outstanding COPs cannot be called until February 1,2002,they can be prepaid through a process
called"advance refunding." In this process, new bonds or COPS are reissued, and the proceeds of the new
issue are deposited in an escrow fund. The escrow fund is used to pay debt service until the first call date,
then to call the outstanding issue.
Advance refunding is subject to a number of complex provisions of federal tax law, including the following:
• Bonds originally issued since 1985 may only be advance refunded once.
• The escrow fund can only be invested in federal securities,generally special securities called State
and Local Government Series (SLGS) which are purchased directly from the U.S. Treasury in
amounts and maturities specific to an individual escrow.
• The yield on the escrow fund investments cannot exceed the interest rate on the new refunding
issue.
Page 1 of 4
COMPLEXITIES OF REFUNDING THE 1992 COPs
There are several details of the outstanding issue which make its refunding more complex than most
refunding:
• Refunding:A portion of the proceeds of the 1992 COPs were used to advance refund the balance
of revenue bonds issued in 1986. These bonds cannot be refunded again with tax-exempt bonds.
• Reserve Fund Investment Contract: The 1992 issue included a debt service reserve fund in the
amount of maximum annual debt service, about$3.8 million. This reserve fund is invested in an
investment contract with a very favorable rate of interest. If the COPs are refunded,the Department
will lose this investment contract as of the date of defeasance.
• Board Actions: Proceeding with the refunding will require actions by the Board of Water
Commissioners, the City Council, and the PSA.
The use of a crossover refunding in this case will minimize the impacts of the first two complexities. Careful
scheduling will enable the various governing boards to consider the refunding in an efficient manner.
TYPES OF REFUNDINGS
There are two types of refunding which can be used in a situation such as this one: a defeasance and a
crossover refunding. In a defeasance, the escrow fund pays debt service on the refunded (old) issue until
the call date and the issuer pays debt service on the new issue immediately. Ina crossover refunding, the
escrow pays debt service on the refunding(new)issue and the issuer continues to pay debt service on the
old issue until the call date. They the debt service obligation "crosses over" to the new issue.
A crossover refunding offers two advantages in this case:
• The February 1, 2001 call date is after the 1986 revenue bonds would have matured, and the
necessity to include taxable bonds related to the refunding on the 1986 portion is avoided.
• With a crossover refunding,the old issue remains outstanding until the call date,so the reserve fund
investment contract will survive until February 1, 2001.
With a crossover refunding, the savings are paid as a lump sum, up-front payment. Debt service does not
change. The up-front payment must be used for capital projects.
REFUNDING OBJECTIVES
Because a bond issue can only be advance refunded once,the savings from the refunding mustjustify using
the one refunding opportunity. While today's rates are substantially lower than the rates on the outstanding
issue, rates have been increasing recently. Today's rates are 10 to 20 basis points (0.1% to 0.2%) higher
than the lowest rates in 1998. At today's rates, the up-front savings would be a little over$1 million. A 10
basis point improvement in interest rates would increase up-front savings to almost$1.3 million. All of these
take into account the interest earnings on investment of the reserve fund.
We recommend that the Council establish a target for minimum up-front savings of$1.25 million. This level
will provide sufficient funds for two projects which would add capacity at the City of San Bernardino
Municipal Water Department's Water Reclamation Plant at minimum cost — corrections to the hydraulic
capacity by getting rid of a bottleneckand the addition of one Dissolved Air Flotation Unit. Realizing enough
cash from the refunding to complete these projects will give the wastewater utility a very concrete benefit
in terms of additional capacity.
Page 2 of 4
METHOD OF SALE
The 1992 COPs were sold by competitive sale. The issue was structured and the official statement prepared
and circulated, prospective underwriters submitted bids with their interest rates to purchase the issue, and
the issue was sold to the bidder offering to purchase at the lowest overall interest cost. A refunding is much
more complex and time sensitive than a"new money"bond issue,and this refunding is particularly complex.
Refundings are very sensitive to interest rates—the interest rates on the outstanding bonds, as well as the
interest rates on the new bonds and on the investment of the escrow. The documents for the refunding must
be prepared so that the refunding can proceed, bu the issue shouldn't be sold until the savings target can
be met.
Because the refunding will be complex and time-sensitive, we believe that it will be easier to meet the
financial objectives with a negotiated sale. We recommend that the firm of Piper Jaffray Inc. be selected as
underwriter for this issue. The firm has done a substantial amount of work to date and understands the
complexities of this issue. Piper Jaffray has agreed to an underwriting fee of$5.75 per$1,000 of bonds
(0.575 percent), which is a reasonable fee for this issue. The fee is paid as a discount from the par value
of the issue.
We also recommend that the firm of Stradling Yocca Carlson & Rauth be selected as bond counsel and
disclosure counsel. This firm served as bond counsel on the 1992 issue as well as on the recent water bond
refunding.
The underwriter and bond counsel are paid from the proceeds of the bond issue, and their fees are
contingent upon the sale of the bonds. The savings, or cash back, of$1.25 million are not proceeds, after
payment of all underwriters, bond counsel and financial consultant fees.
SCHEDULE AND PROCESS
As mentioned earlier, the refunding will require actions by the Board of Water Commissioners, the City
Council, and the Public Safety Authority board, as follows:
• Board of Water Commissioners: Has reviewed and approved the entire refunding proposal,
including recommended savings, financing team, and documents; adopted resolution that City
Council proceed with refunding as proposed.
• City Council: Reviews proposal, adopts resolution that requests PSA to take actions necessary to
sell refunding issue within recommended parameters.
• PSA: Adopts resolution approving documents, authorizing sale of bonds within specified
parameters, designates authorized representative(s) to sell bonds.
Following action by the City Council on June 1, and by the PSA on June 2, 1998, the documents can be
completed,bond ratings and/or insurance procured,the preliminary official statement printed and distributed.
The bonds can then be priced as soon as the target savings can be realized.
FINANCIAL ANALYSIS
The financial consultant has recommended that the Board of Water Commissioners, Common Council and
PSA take the following actions:
• Authorize proceeding with refunding the 1992 COPs as a crossover refunding.
• Establish minimum savings levels of an up-front cash payment of$1.25 million and no increase in
debt service over the life of the issue.
Page 3 of 4
• Maintain the same maturity, payment dates, and basic structure as the outstanding issue.
• Name Piper Jaffray Inc. as underwriter at a discount of not to exceed $5.75 per$1,000 of bonds
issued.
• Name Stradling Yocca Carlson & Rauth as bond counsel and disclosure counsel.
• Adopt authorizing resolution which approves the legal documents and authorizes sale of the
refunding issue within specific parameters.
RECOMMENDATION
The Board of Water Commissioners hereby recommends that the Council approve the refunding of the
Certificates of Participation; that the Council approve the Installment Purchase Agreement, the Trust
Agreement, the Escrow Agreement and all documents necessary for furthering the refunding of the
Certificates of Participation; and that the Council adopt the Resolution of the City of San Bernardino
Approving Legal Documents and Authorizing Certain Actions Related to the Sale of Certificates of
Participation.
Page 4 of 4
r
CITY OF SAN BERNARDINO
INTEROFFICE MEMORANDUM
TO: James F. Penman, City Attorney
FROM: Leslie E. Murad, II, Deputy City Attorney Om
DATE: May 21, 1998
RE: Resolution of the City of San Bernardino Approving Legal Documents and
Authorizing Certain Actions Related to the Sale of Certificates of Participation
for the Refinancing of Certificates of Participation for the Water Department
Attached is a Resolution, Staff Report and related documentation regarding the refinancing
of certificates of participation(COPS)which were issued through the San Bernardino Public Safety
Authority (PSA). Staff report indicates that in February of 1992 the Water Department financed
improvements to the wastewater treatment plant with $41.3 million in COPs. Since that time,
interest rates have dropped considerably and it was determined by way of recommendation through
financial consultants,bond counsel and underwriting consultants that it would be appropriate at this
time to refinance the COPS.
At the March 17, 1998 meeting of the Board of Water Commissioners, the consultants
discussed the possibility of refunding the 1992 COPS to take advantage of today's lower interest
rates. At the current rates, the saving represented would be $1.2 million or more. The Board
indicated interest in proceeding and requesting additional information and recommendations.
The Staff Report indicates that on May 18, 1998, Water Department staff and the financial
consultants made a presentation to two of the four members of the Public Safety Authority Board.
Those members indicated they would be supportive of the refunding in order to take advantage of
the savings.
On May 19, 1998,the Board of Water Commissioners approved a recommendation to the
Mayor and Common Council to go forward with processing the refund of the PSA,COPS,contingent
upon certain parameters. Those parameters are outlined in the Staff Report attached to the
Resolution.
We are relying upon the advise of bond counsel, Mr. Sean M. Tierney, Esq., of Stradling
Yocca Carlson & Rauth; and financial advisors Bartle Wells Associates, by Lora J. Stovall,
Principal,and Mr.Richard G. Kiss,Manager Director of the underwriter Pipper Jaffray Incorporated
with regard to advise on the refinancing of the COPs. Based upon their advice we can go forward
with the recommendation that the Resolution go forward with the attached documents and as is
referred to in the Staff Report prepared by Deputy General Manager Stacey R. Aldstadt.
COPT
1 RESOLUTION NO.
2
3 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING LEGAL DOCUMENTS
AND AUTHORIZING CERTAIN ACTIONS RELATED TO THE SALE OF CERTIFICATES
4 OF PARTICIPATION.
5 WHEREAS, the City of San Bernardino (the "City" ) has the
6 authority to acquire sewer facilities; and
7 WHEREAS, the City and the County of San Bernardino formed the
8 San Bernardino Public Safety Authority (the "Authority" ) , for the
9 purpose, among others, of financing and refinancing the
10 construction of various sewer facilities for the benefit of the
11 City; and
12 WHEREAS, the City desires to refund all or a portion of the
13 1992 Sewer Certificates of Participation (the "1992 Certificates" )
14 which financed capital improvements to the City' s sewer enterprise,
15 including a primary hydraulic reliability project, design of a
16 secondary treatment expansion project and a water reclamation
17 office and lab (the "1992 Sewer Project" ) ; and
18 WHEREAS, the refinancing structure for the 1992 Sewer Project
19 contemplates the City purchasing such facilities from the Authority
20 pursuant to the Installment Purchase Agreement to be dated as of
21 June 1, 1998 , by and between the City and the Authority (the
22 "Installment Purchase Agreement" ) , with the concurrent assignment
23 of the Authority' s right in such Installment Purchase Agreement to
24 a trustee, (the "Trustee" ) pursuant to an Assignment Agreement
25 dated as of June 1, 1998 , by and between the Authority and the
26 Trustee (the "Assignment Agreement" ) ; and
27 WHEREAS, 1998 Refunding Sewer Revenues Certificates of
28 Participation (the "Certificates" ) will be executed pursuant to the
June 1, 1998 1
1 terms set forth in the Trust Agreement to be dated as of June 1,
2 1998 , by and between the Authority, the City and Trustee (the
3 "Trust Agreement" ) in an aggregate principal amount necessary to
4 refund all or a portion of the 1992 Certificates and pay certain
5 costs of issuance; and
6 WHEREAS, the Certificates will be secured by the installment
7 payments to be made pursuant to the Installment Purchase Agreement;
8 and
9 WHEREAS, the financing structure for the Certificates
10 contemplates a "cross-over refunding" whereby the net proceeds of
11 the Certificates will be held in a special escrow fund (the
12 "Special Escrow Fund" ) by the Trustee and used to pay the interest
13 and principal payments with respect to the Certificates until the
14 prepayment date of the 1992 Certificates on February 1, 2001 . On
15 such prepayment date the proceeds of the Certificates will be used
16 to prepay the 1992 Certificates and the City will become obligated
17 to begin paying the installment payments evidenced by the
18 Certificates from the net revenues of the sewer system. Prior to
19 February 1, 2001, the 1992 Certificates will remain outstanding and
20 will evidence installment payments to be paid by the City from said
21 net revenues; and
22 WHEREAS, the Common Council desires to approve the Installment
23 Purchase Agreement, the Trust Agreement and certain other related
24 documents described herein (the "Financing Documents" ) ; and
25 WHEREAS, copies of the Financing Documents have been presented
26 to the Common Council ;
27 WHEREAS, all acts, conditions and things required by the City
28 Charter and Constitution and laws of the State to exist, to have
June 1, 1998 2
1 happened and to have been performed precedent to and in connection
2 with the consummation of the refinancing authorized hereby do
3 exist , have happened and have been performed in regular and due
4 time, form and manner as required by law, and the City is now duly
5 authorized and empowered, pursuant to each and every requirement of
6 law, to approve and authorize such refinancing for the purpose, in
7 the manner and upon the terms herein provided; and
8 NOW, THEREFORE, the Mayor and Common Council of the City of
9 San Bernardino do hereby resolve, determine and order as follows :
10 SECTION 1 . Findinas . The Mayor and Common Council hereby
11 specifically finds and declares that the actions authorized hereby
12 constitute and are true and correct with respect to the municipal
13 affairs of the City, and that the statements and findings and
14 determinations of the Mayor and Common Council set forth in the
15 preambles of the documents approved herein are true and correct,
16 and the Mayor and Common Council hereby declares its intention of
17 entering into the Installment Purchase Agreement described in
18 Section 3 hereof .
19 SECTION 2 . Authorization of Certificates . The Mayor and
20 Common Council hereby expresses its intention of refunding all or
21 a portion of the outstanding principal amount of the 1992
22 Certificates through the preparation, sale and delivery of
23 Certificates under the terms set forth in this Resolution.
24 SECTION 3 . Installment Purchase Agreement . The form of the
25 Installment Purchase Agreement between the City and the Authority
26 (the "Installment Purchase Agreement" ) , presented to this meeting
27 and on file with the Clerk of the Council (the "Clerk" ) is hereby
28 approved. The General Manager of the Municipal Water Department
June 1, 1998 3
1 (the "General Manager" ) or Deputy General Manager are authorized to
2 execute said document with such changes as may be necessary to
3 carry out the purposes of the refinancing.
4 section 4 . Trust Agreement . The form of the Trust Agreement
5 (the "Trust Agreement" ) , among the City, the Authority and the
6 trustee to be named herein (the "Trustee" ) , presented to this
7 meeting and on file with the Clerk, is hereby approved. The
8 General Manager or Deputy General Manager are authorized to execute
9 said document with such changes as may be necessary to carry out
10 the purposes of the refinancing.
11 SECTION 5 . Contract of Purchase . The form of Contract of
12 Purchase (the "Contract of Purchase" ) between the City and Piper
13 Jaf fray Inc . , as underwriter (the "Underwriter" ) , presented to this
14 meeting and on file with the Clerk is hereby approved; provided
15 that the aggregate principal amount of the Certificates shall not
16 exceed $ 39 , 000 , 000 (Thirty-Nine Million Dollars) , the net interest
17 rate on the Certificates shall not exceed 5% (Five Percent) , the
18 transaction will be consummated with a savings of not less than
19 $1, 250 , 000 (One Million Two Hundred and Fifty Thousand Dollars) to
20 be characterized as new money for deposit in the Construction Fund
21 established by the Trust Agreement and the Underwriter' s discount
22 on the sale of the Certificates (exclusive of original issue
23 discount or premium) shall not exceed . 575% . The term of the
24 Certificates will not extend past 2017 and the annual payments on
25 the Certificates will not exceed the annual payment on the 1992
26 Certificates . The General Manager or Deputy General Manager are
27 authorized to execute said document with such changes as may be
28 necessary to carry out the purposes of the refinancing.
June 1, 1998 4
1 SECTION 6 . Preliminary Official Statement . The form of
2 Preliminary Official Statement (the "Preliminary Official
3 Statement" ) relating to the Certificates, presented to this meeting
4 and on file with the City Clerk, is hereby approved. The
5 Preliminary Official Statement in final form, shall hereinafter be
6 referred to as the "Official Statement . " The Underwriter is hereby
7 authorized to distribute copies of the Preliminary Official
8 Statement and the Official Statement to persons who may be
9 interested in the purchase of the Certificates, and is further
10 directed to deliver copies of any final Official Statement to all
11 actual purchasers of the Certificates . The General Manager or
12 Deputy General Manager are authorized to deem the Preliminary
13 Official Statement final within the meaning of SEC Rule 15c2-12 and
14 to execute the Official Statement with such changes as may be
15 necessary to carry out the purposes of the refinancing.
16 SECTION 7 . Continuing Disclosure Certificate . The form of
17 the Continuing Disclosure Certificate (the "Continuing Disclosure
18 Certificate" ) , presented to this meeting and on file with the
19 Clerk, is hereby approved. The General Manager or Deputy General
20 Manager are authorized to execute said document with such changes
21 as may be necessary to carry out the purposes of the refinancing.
22 SECTION 8 . Other Actions . The City Clerk is hereby authorized
23 to attest to all documents and certificates approved in this
24 Resolution. The General Manager and Deputy General Manager are
25 each hereby authorized and directed, jointly and severally, to do
26 any and all things and to execute and deliver any and all documents
27 which they deem necessary or advisable in order to consummate the
28 sale, execution and delivery of the Certificates and otherwise to
June 1, 1998 5
1 carry out , give effect to and comply with the terms and intent of
2 this Resolution, the Certificates, the Installment Purchase
3 Agreement, the Trust Agreement, the Contract of Purchase, the
4 Preliminary Official Statement, the Official Statement, and the
5 Continuing Disclosure Certificate; including but not limited to
6 changes in the dates of the Financing Documents, revisions to the
7 forms of the Financing Documents (including changes to the
8 financial requirements of the rate covenant and additional debt
9 tests) , negotiations necessary or desirable in connection with the
10 purchase of municipal bond insurance and any actions which may be
11 necessary or desirable to carry out the cross-over refunding
12 structure . Such actions heretofore taken by such officers or
13 designees are hereby ratified, confirmed and approved.
14 SECTION 9 . Effect . This Resolution shall take effect
15 immediately upon its passage .
16
17
18
19
20
21
22
23
24
25
26
27
28
June 1, 1998 6
1 I HEREBY CERTIFY that the foregoing resolution was duly
2 adopted by the Mayor and Common Council of the City of San
3 Bernardino at a meeting thereof, held
4 on the day of 1998 ,
5 by the following vote to wit :
6 COUNCIL MEMBERS: AYES NAYS ABSTAIN ABSENT
7 ESTRADA
8 LIEN
9 1 ARIAS
10 SCHNETZ
11 DEVLIN
12 ANDERSON
13 MILLER
14
Rachel Clark, City Clerk
15
16 The foregoing resolution is hereby approved this
17 day of 1998 •
18
19 Judith Valles, Mayor
City of San Bernardino
20 APPROVED AS TO FORM
AND LEGAL CONTENT
21
22 JAMES F . PENMAN
City P�gtorney
23 1
By:
:
24
25
26
27
28
June 1, 1998 7
1 RESOLUTION NO. 545
2
3 RESOLUTION OF THE BOARD OF WATER COMMISSIONERS OF THE SAN
BERNARDINO MUNICIPAL WATER DEPARTMENT APPROVING LEGAL DOCUMENTS AND
4 AUTHORIZING CERTAIN ACTIONS RELATED TO THE SALE OF CERTIFICATES OF
PARTICIPATION.
5
6 WHEREAS, the Board of Water Commissioners (the "Board") of the
7 City of San Bernardino Municipal Water Department (the
8 "Department") has the authority to acquire sewer facilities; and
9 WHEREAS, the City of San Bernardino (the "City") and the
10 County of San Bernardino formed the San Bernardino Public Safety
11 Authority (the "Authority") , for the purpose, among others, of
12 financing and refinancing the construction of various sewer
13 facilities for the benefit of the City; and
14 WHEREAS, the City desires to refund all or a portion of the
15 1992 Sewer Certificates of Participation (the 111992 Certificates")
16 which financed capital improvements to the City' s sewer enterprise,
17 including a primary hydraulic reliability project, design of a
18 secondary treatment expansion project and a water reclamation
19 office and lab (the "1992 Sewer Project") ; and
20 WHEREAS, 1998 Refunding Sewer Revenues Certificates of
21 Participation (the "Certificates") will be executed pursuant to the
22 terms set forth in the Trust Agreement to be dated as of June 1,
23 1998, by and between the Authority, the City and Trustee (the
24 "Trust Agreement") in an aggregate principal amount necessary to
25 refund all or a portion of the 1992 Certificates and pay certain
26 costs of issuance; and
27 WHEREAS, the Certificates will be secured by the installment
28 payments to be made pursuant to the Installment Purchase Agreement;
1
1 and
2 WHEREAS, the refinancing structure for the 1992 Sewer Project
3 contemplates the City purchasing such facilities from the Authority
4 pursuant to the Installment Purchase Agreement to be dated as of
5 June 1 , 1998, by and between the City and the Authority (the
6 "Installment Purchase Agreement") , with the concurrent assignment
7 of the Authority' s right in such Installment Purchase Agreement to
8 a trustee, (the "Trustee") pursuant to an Assignment Agreement
9 dated as of June 1, 1998 by and between the Authority and the
10 Trustee (the "Assignment Agreement") ; and
11 WHEREAS, the financing structure for the Certificates
12 contemplates a "cross-over refunding" whereby the net proceeds of
13 the Certificates will be held in a special escrow fund (the
14 "Special Escrow Fund") by the Trustee and used to pay the interest
15 and principal payments with respect to the Certificates until the
16 prepayment date of the 1992 Certificates on February 1, 2001 . On
17 such prepayment date the proceeds of the Certificates will be used
18 to prepay the 1992 Certificates and the City will become obligated
19 to begin paying the installment payments evidenced by the
20 Certificates from the net revenues of the sewer system. Prior to
21 February 1, 2001, the 1992 Certificates will remain outstanding and
22 will evidence installment payments to be paid by the City from said
23 net revenues; and
24 WHEREAS, all acts, conditions and things required by the City
25 Charter and Constitution and laws of the State to exist, to have
26 happened and to have been performed precedent to and in connection
27 with the consummation of the refinancing authorized hereby do
28 exist, have happened and have been performed in regular and due
2
1 time, form and manner as required by law, and the Department is now
2 duly authorized and empowered, pursuant to each and every
3 requirement of law, to approve and authorize such refinancing for
4 the purpose, in the manner and upon the terms herein provided.
5 NOW, THEREFORE, the Board of Water Commissioners of the City
6 of San Bernardino Municipal Water Department does hereby resolve,
7 determine and order as follows :
8 SECTION 1 . Findings . The Board hereby specifically finds and
9 declares that the actions authorized hereby constitute and are true
10 and correct with respect to the public affairs of the Department,
11 and that the statements, findings and determinations of the Board
12 set forth in the preambles of the documents approved herein are
13 true and correct, and the Board hereby declares its intention of
14 entering into the Installment Purchase Agreement described in
15 Section 3 hereof .
16 SECTION 2 . Authorization of Certificates . The Board hereby
17 expresses its recommendation that the Mayor and Common Council
18 authorize the refunding of all or a portion of the outstanding
19 principal amount of the 1992 Certificates through the preparation,
20 sale and delivery of Certificates under the terms set forth in this
21 Resolution.
22 SECTION 3 . Install men Purchase Agreement . The form of the
23 Installment Purchase Agreement between the City and the Authority
24 (the "Installment Purchase Agreement") , presented to this meeting
25 and on file with the Clerk of the Board (the "Clerk") is hereby
26 approved. The General Manager or Deputy General Manager is
27 authorized to execute said document with such changes as may be
28 necessary to carry out the purposes of the refinancing.
3
1 SECTION 4 . Trust Agreement. The form of the Trust Agreement
2 (the "Trust Agreement") , among the City, the Authority and the
3 trustee to be named therein (the "Trustee") , presented to this
4 meeting and on file with the Clerk, is hereby approved. The
5 General Manager or Deputy General Manager is authorized to execute
6 said document with such changes as may be necessary to carry out
7 the purposes of the refinancing.
8 SECTION S . Esc -ow Agreement . The form of the Escrow Agent
9 (the "Escrow Agreement") , by and between the City and the escrow
10 agent to be named therein (the "'Escrow Agent") , presented to this
11 meeting and file with the Clerk, is hereby approved. The General
12 Manager or Deputy General Manager is authorized to execute said
13 document with such changes as may be necessary to carry out the
14 purposes of refinancing.
15 SECTION 6. Contract of Purchase . The form of Contract of
16 Purchase (the "Contract of Purchase") between the City and Piper
17 Jaffray Inc. , as underwriter (the "Underwriter") , presented to this
18 meeting and on file with the Clerk is hereby approved; provided
19 that the aggregate principal amount of the Certificates shall not
20 exceed $39, 000, 000, the net interest rate on the Certificates shall
21 not exceed 5%, the transaction will be consummated with a savings
22 of not less than $1, 250, 000 to be characterized as new money for
23 deposit in the Construction Fund established by the Trust Agreement
24 and the Underwriter' s discount on the sale of the Certificates
25 (exclusive of original issue discount or premium) shall not exceed
26 . 575% . The term of the 1998 Certificates will not extend past
27 2017 and the annual payments on the 1998 Certificates will not
28 exceed the annual payment on the 1992 Certificates . The General
4
1 Manager or Deputy General Manager is authorized to execute said
2 document with such changes as may be necessary to carry out the
3 purpose of the refinancing.
4 SECTION 7 . Preliminary Official Statement . The form of
5 Preliminary Official Statement (the "Preliminary Official
6 Statement") relating to the Certificates, presented to this meeting
7 and on file with the Clerk, is hereby approved. The Preliminary
8 Official Statement in final form, shall hereinafter be referred to
9 as the "Official Statement." The Underwriter is hereby authorized
10 to distribute copies of the Preliminary Official Statement and the
11 Official Statement to persons who may be interested in the purchase
12 of the Certificates, and is further directed to deliver copies of
13 any final Official Statement to all actual purchasers of the
14 Certificates . The General Manager or Deputy General Manager is
15 authorized to deem the Preliminary Official Statement final within
16 the meaning of SEC Rule 15c2-12 and to execute the Official
17 Statement with such changes as may be necessary to carry out the
18 purposes of the refinancing.
19 SECTION 8 . Continuing Disclosure Certificate. The form of
20 the Continuing Disclosure Certificate (the "Continuing Disclosure
21 Certificate") , presented to this meeting and on file with the
22 Clerk, is hereby approved. The General Manager or Deputy General
23 Manager is authorized to execute said document with such changes as
24 may be necessary to carry out the purposes of the refinancing.
25 SECTION 9 . other Actions . The General Manager and Deputy
26 General Manager of the Department are each hereby authorized and
27 directed, jointly and severally, to do any and all things and to
28 execute and deliver any and all documents which they may deem
5
1 necessary or advisable in order to consummate the sale, execution
2 and delivery of the Certificates and otherwise to carry out, give
3 effect to and comply with the terms and intent of this Resolution,
4 the Certificates, the Installment Purchase Agreement, the Trust
5 Agreement, the Contract of Purchase, the Preliminary Official
6 Statement, the Official Statement, and the Continuing Disclosure
7 Certificate; including but not limited to changes in the dates of
8 Financing Documents, revisions to the forms of the Financing
9 Documents (including changes to the financial requirements of the
10 rate covenant and additional debt test) , negotiations necessary or
11 desirable in connection with the purchase of municipal bond
12 insurance and any actions which may be necessary or desirable to
13 carry out the cross-over refunding structure. Such actions
14 heretofore taken by such officers or designees are hereby ratified,
15 confirmed and approved.
16 SECTION 10 . Effect . This Resolution shall take effect
17 immediately upon its passage.
18 I HEREBY CERTIFY that the foregoing resolution was duly
19 adopted by the Board of Water Commissioners, City of San Bernardino
20 at a regular meeting thereof, held on the 19th day of
21 May 1998, by the following vote, to wit :
22
23 AYES : COMMISSIONERS Willis, Urata, Cocke, Matich
24 NAYS : None
25 ABSENT : Commissioner Garrett
26 (Seal)
27
Marjor e A. Hover and
28 Deputy City Clerk & Ex-Officio Secretary
6
Stradling Yocca Carlson & Rauth
Draft of 5/13/98
INSTALLMENT PURCHASE AGREEMENT
by and between
SAN BERNARDINO PUBLIC SAFETY AUTHORITY
and
CITY OF SAN BERNARDINO
Dated as of June 1, 1998
relating to
SAN BERNARDINO PUBLIC SAFETY AUTHORITY
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
1998 REFUNDING SEWER REVENUE CERTIFICATES OF PARTICIPATION
7466.2\DCasnocha\22759.0004
TABLE OF CONTENTS
Section
Parties.........................................................................................................................................................................I
RECITALS....................................................................................................................................................................1
ARTICLE I
DEFINITIONS
SECTION1.OLDEFI NITIONS.....................................................................................................................................2
ARTICLE II
REPRESENTATIONS AND WARRANTIES: OPINIONS OF COUNSEL
SECTION 2.01.RFPRESENTATIONS BY THE CITY......................................................................................................7
SECTION 2.02.REPRFSENTATIONS AND WARRANTIES BY THE AUTHORITY.............................................................7
SECTION 2.03.0PINION OF COUNSEL FOR THE CITY................................................................................................8
SECTION 2.04.OPINION OF C01 JNSEL FOR THE AUTHORITY.....................................................................................8
ARTICLE III
THE 1992 SEWER PROJECT
SECTION 3.01 PijgcHACE AND SALE OF 1992 SEWER PROJECT..............................................................................8
SECTION 3.02.CHANGEs TO THE 1992 SEWER PROJECT..........................................................................................8
ARTICLE IV
SERIES 1998 INSTALLMENT PAYMENTS
SECTION4.01 TURCHASE PRICE. ............................................................................................................................9
ARTICLE V
SECURITY
SECTION 5.01.PLFDGE OF NET REVENUES.............................................................................................................10
SECTION 5.02.ALLOCATION OF RFVENUES...........................................................................................................
SECTION 5.03.ADDiTIONAL CONTRACTS AND BONDS...........................................................................................11
SEC'T'ION 5.04.INVESTMENTS................................................................................................................................12
ARTICLE VI
COVENANTS OF THE CITY
SECTION 6.01.COMPLIAN E WITH INSTALLMENT PuRcHAsF AGREEMENT AND ANC u.LARY AGREEMENTS........12
SECTION 6.02.AGAINST ENCUMBRANCES.............................................................................................................13
SECTION 6.04.AGAiNST CompamvF FACILITIES................................................................................................13
SECTION6.05.TAX COVENANTS...........................................................................................................................13
SECTION6.06.M A TNTE i A NcE AND OPERATION OF THE ENTERPRISE....................................................................14
SECTION 6.07.PAYMENT OF CL AIMS.....................................................................................................................14
SECTION6.08.INSURANCE....................................................................................................................................14
SECTION 6.09.ACCOUNTING RECORDS'FINANCIAL STATEMENTS AND OTHER REPORTS.....................................15
SECTION 6.1 O.PROTECTION OF SECURITY AND RIGHTS OF THE AUTHORITY.........................................................15
SECTION 6.1 LPAYMENT OF TAXES AND CompI IANrE WITH GOVERNMENTAL REGULATIONS ............................15
SECTION 6.12.AMOUNT OF RATES AND CHARGES................................................................................................15
SECTION 6.14.COVENANT TO BUDGET..................................................................................................................15
SECTION6.15.FuRTH R ASSURANCES..................................................................................................................16
7466.2\DCasnocha\22759.0004 i
SECTION 6.17, CONTINUING DISCLOSURE............................................................................................................16
ARTICLE VII
PREPAYMENT OF SERIES 1998 INSTALLMENT PAYMENTS
SECTION7.0l.PREPAYMENT.................................................................................................................................16
SECTION 7.02.METHOD OF PREPAYMENT.............................................................................................................17
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF THE AUTHORITY
SECTION 8.0l.EVENTS OF DEFA ILT AND ACCELERATION OF MATURITIES..........................................................17
ARTICLE IX
DISCHARGE OF OBLIGATIONS
SECTION 9.0l.DiscHARGE of OBLIGATIONS ........................................................................................................20
ARTICLE X
MISCELLANEOUS
SECTION 10.0l.LiABILiTY of CiTy LIMITED TO REVENUES..................................................................................21
SECTION 10.02.BENFFITS OF INSTALLMENT r MENT Pt TRCHASE AGREEMENT LIMITED TO PARTIES.................................21
SECTION 10.03.SuccESSOR IS DEEMED INCLUDED IN ALL REFERENcEs To PREDECESSOR.................................21
SECTION 10.04.WAIVER OF PERSONAL LIABILITY................................................................................................21
SECTION 10.05.ARTicr E AND SECTION HEADINGS GENDER AND REFERENCES..................................................21
SECTION 10.06.PARTIAL INVALIDITY...................................................................................................................22
SECTION10.07.ASSIGNMENT................................................................................................................................22
SECTION10.08.NET CONTRACT............................................................................................................................22
SECTION10.09.CAL1FoRNiA LAw.........................................................................................................................22
SECTION10.10.NOTICES.......................................................................................................................................22
SECTION10.1 LEFFECTIVE DATE..........................................................................................................................22
SECTION 10.12.EXECUTION iN COUNTERPARTS....................................................................................................22
SECTION 10.13.INDEMNiFICATION OF AiI_mp iTY...............................................................................................23
SECTION 10.14.AMENDMENTs PERMI TTED...........................................................................................................23
ARTICLE XI
CROSS-OVER REFUNDING PROVISIONS
SECTION 11.01.CROSS-OVER REFUNDING PROVISIONS.......................................................................................24
ExhibitA—Purchase Site ..................................................................................................................A-1
Exhibit B—Description of 1992 Sewer Project.................................................................................B-1
ExhibitC—Purchase Price.................................................................................................................0-1
7466.2\DCasnocha\22759.0004 11
INSTALLMENT PURCHASE AGREEMENT
This INSTALLMENT PURCHASE AGREEMENT, made and entered into as of June 1,
1998, by and between SAN BERNARDINO PUBLIC SAFETY AUTHORITY, a joint exercise of
powers authority formed and existing under the laws of the State of California (the "Authority"), and
CITY OF SAN BERNARDINO, a municipal corporation and Charter City organized and existing
under the laws of the State of California(the "City").
W1TNlES-S ETH_
WHEREAS, pursuant to Section 4 of the Joint Exercise of Powers Agreement between the
City of San Bernardino and the County of San Bernardino creating the San Bernardino Public Safety
Authority, dated as of April 1968, as amended, the Authority is authorized to assist the City in
acquiring a site or sites for acquiring, constructing, maintaining, operating and leasing sanitary sewer
facilities. To accomplish this purpose, the City conveyed to the Authority its interest in the certain
real property owned by the City and the City and the Authority entered into an Installment Purchase
Agreement, dated as of February 1, 1992 (the "1992 Agreement"), by and between the City and the
Authority to provide that the Authority would construct or cause to be constructed the improvements
to the City's sewage treatment plant, cause to be completed the plans and specifications for its
Phase 3A, secondary sewer project, renovate a City property for its wastewater reclamation project
office and laboratory and to purchase certain City property the proceeds of which will be used by the
City to refund its City of San Bernardino, California, Sewer Revenue Refunding Bonds, and to sell
said improvements, real property and plans and specifications to the City in consideration of the
payment by the City of installments of principal and interest on the unpaid purchase price. The
purpose of this Agreement is to refinance a portion of said transaction by setting forth the terms and
conditions relating thereto;
WHEREAS, this Agreement is for the benefit of the public and is in furtherance of the public
purposes of the City and the Authority;
WHEREAS, the Authority and the City acknowledge that the Authority, on the date hereof is
entering into an Assignment Agreement with , as Trustee, that pursuant to said
Assignment Agreement, the Authority is assigning and transferring to the Trustee all of its rights
under this Agreement;
WHEREAS, the City and the Authority have duly authorized the execution of this
Agreement;
WHEREAS, all acts, conditions and things required by law to exist, to have happened and to
have been performed precedent to and in connection with the execution and delivery of this
Installment Purchase Agreement do exist, have happened and have been performed in regular and
due time, form and manner as required by law, and the parties hereto are now duly authorized to
execute and enter into this Installment Purchase Agreement;
NOW, THEREFORE, IN CONSIDERATION OF THESE PREMISES AND OF THE
MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER
VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS
FOLLOWS:
7466.2\DCasnoc ha\22759.0004
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Unless the context otherwise requires, the terms defined in
this section shall for all purposes hereof and of any amendment hereof or supplement hereto and of
any report or other document mentioned herein or therein have the meanings defined herein, the
following definitions to be equally applicable to both the singular and plural forms of any of the
terms defined herein. All capitalized terms used herein and not defined herein shall have the
meanings ascribed thereto in the Trust Agreement.
1992 Agreement. The term "1992 Agreement" means the Installment Purchase Agreement,
dated as of February 1, 1992, by and between the City and the Authority, as originally executed and
as it may from time to time be amended or supplemented in accordance herewith.
Accountant's Report. The term "Accountant's Report" means a report signed by an
Independent Certified Public Accountant.
Adjustment. The term "Adjustment" means:
(i) adjustments to Net Revenues due to changes in fees, charges or taxes which have
been adopted prior to the date of issuance of the Bonds or date of the Contract, as the case may be;
(ii) adjustments to Net Revenues due to customers added to the Sewer System prior to
the date of issuance of the Bonds or date of the Contract, as the case may be;
(iii) additions to Net Revenues which will result from the connection of existing
residences or businesses to the Sewer System within one year following completion of any project to
be funded from the proceeds resulting from such Contract or Bonds; and
(iv) the estimated change in Net Revenues which will result from services provided under
any long-term guaranteed contract for service entered into prior to the date of issuance of the Bonds
or date of the Contract, as the case may be.
Agreement. The term "Agreement" means this Agreement by and between the City and the
Authority, dated as of June 1, 1998, as originally executed and as it may from time to time be
amended or supplemented in accordance herewith.
Authori ty. The term "Authority" means San Bernardino Public Safety Authority.
Bonds. The term "Bonds" means all revenue bonds or notes of the City authorized,
executed, issued and delivered by the City, the payments of which are on a parity with the Series
1992 Installment Payments and Series 1998 Installment Payments and which are secured by a pledge
of and lien on the Revenues.
Business Day. The term "Business Day" means a day other than a Saturday or Sunday or a
day on which (i) banks located in the city in which the principal corporate trust office of the Trustee
7466.2\DCasnocha\22759.0004 2
is located are required or authorized to remain closed, and (ii) on which The New York Stock
Exchange is closed.
Certificates. The term "Certificates" means the certificates of participation delivered by
Trustee pursuant to the Trust Agreement, and which evidence an undivided right to receive a
proportionate share of the Series 1998 Installment Payments made under the Agreement.
City. The term "City" means the City of San Bernardino and includes where applicable the
San Bernardino Municipal Water Department (the "Department").
harter. The term "Charter" means the Charter of the City.
Continuing Disclosure Certificate. The term "Continuing Disclosure Certificate" means
Continuing Disclosure Certificate executed by the City with respect to the Certificates.
Contracts. The term "Contracts" means this Installment Purchase Agreement and any
amendments and supplements hereto, the 1992 Agreement, and all contracts of the City authorized
and executed by the City, the Installment Payments under which are on a parity with the Installment
Payments and which are secured by a pledge and lien on the Revenues, including [the lease
payments to be paid pursuant to the "Sewage Treatment Plant Sublease" dated as of August 1, 1970,
by and between the Authority and City (the "Sublease")], but excluding [contracts entered into for
operation and maintenance of the Enterprise and the contract with the Santa Ana Watershed
Planning Agency providing for payment to the State of California for the tertiary treatment
demonstration project (the "SAWPA Payments")].
Cost of Issuance. The term "Cost of Issuance" means all items of expense directly or
indirectly payable by or reimbursable to the Authority or the City which are related to the
authorization, execution and delivery of the Trust Agreement and this Agreement and the related
sale of the Certificates, including, but not limited to, costs of preparation and reproduction of
documents, costs of rating agencies and costs to provide information required by them, filing fees,
initial fees and charges of the Trustee, fees and charges of the Authority, legal fees and charges, fees
and expenses of the financial advisor, fees and charges for preparation, execution, delivery and safe
keeping of the Certificates, the premium for any policy of municipal bond insurance applicable to
Certificates, and any other charge, cost or fee in connection with the original sale, execution and
delivery of the Certificates.
Date of Operation. The term "Date of Operation" means, with respect to any uncomplete
component of the Project, the estimated date by which such component will have been completed
and, in the opinion of an engineer, will be ready for operation by or on behalf of the City.
Debt Service. The term "Debt Service" means, for any Fiscal Year, the sum of (1) the
interest accruing during such Fiscal Year on all outstanding Bonds, assuming that all outstanding
serial Bonds are retired as scheduled and that all outstanding term Bonds are prepaid or paid from
sinking fund payments as scheduled (except to the extent that such interest is to be paid from the
proceeds of sale of any Bonds), (2) those portions of the principal amount of all outstanding serial
Bonds maturing in such Fiscal Year and in the next succeeding Fiscal Year accruing during such
Fiscal Year, in each case computed as if such principal amounts were deemed to accrue daily during
such Fiscal Year in equal amounts, (3) those portions of the principal amount of all outstanding term
7466.2\DCasnocha\22759.0004 3
Bonds required to be prepaid or paid in such Fiscal Year and during the next succeeding Fiscal Year
accruing during such Fiscal Year, in each case computed as if such principal amounts were deemed
to accrue daily during such Fiscal Year in equal amounts, and (4) those portions of the Installment
Payments required to be made during such Fiscal Year and during the next succeeding Fiscal Year
accruing during such Fiscal Year, in each case computed as if such Installment Payments were
deemed to accrue daily during such Fiscal Year in equal amounts (except to the extent the interest
evidenced and represented thereby is to be paid from the proceeds from the sale of Contracts or
certificates of participation therein), but minus (5) the earnings to be derived from the investment of
moneys on deposit in the Reserve Fund;.provided that, as to any such Bonds or Installment Payments
bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt
Service shall, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of(i)
9.2%, and (ii) the highest variable rate borne over the preceding 24 months by outstanding variable
rate Bonds and Contracts or, if no such variable rate Bonds and Contracts are at the time outstanding
by variable rate debt for which the interest rate is computed by reference to an index comparable to
that to be utilized in determining the interest rate for the debt then proposed to be issued; and
provided further that if any series or issue of such Bonds or Installment Payments have twenty-five
percent(25%) or more of the aggregate principal amount of such series or issue due in any one year,
Debt Service shall be determined for the Fiscal ear of determination as if the principal of and interest
on such series or issue of such Bonds or Installment Payments were being paid from the date of
incurrence thereof in substantially equal annual amounts over a period of twenty-five (25) years
from the date of calculation; and provided further that, as to any such Bonds or Installment Payments
or portions thereof bearing no interest but which are sold at a discount and which discount accretes
with respect to such Bonds or Installment Payments or portions thereof, such accreted discount shall
be treated as interest in the calculation of Debt Service; and provided further that the amount on
deposit in a debt service reserve fund on any date of calculation of Debt Service shall be deducted
from the amount of principal due at the final maturity of the Bonds and Contracts for which such
debt service reserve fund was established and in each preceding year until such amount is exhausted.
Department. The term "Department" means the San Bernardino Municipal Water
Department.
Enterprise. The term "Enterprise" means the entire sewer system (including all buildings,
systems, plants, works, facilities or undertakings used for or useful in the collection, treatment or
disposal of sewage and the reclamation of effluent therefrom) of the City of San Bernardino as such
system now exists, together with all improvements and extensions to said system later constructed or
acquired.
Escrow Bank. The term "Escrow Bank" means
Escrow Fund. The term "Escrow Fund" means the fund held by the Escrow Bank in an
amount sufficient to defease a portion of the obligations under the 1992 Agreement.
Event of Default. The term "Event of Default" means an event described in Section 8.01.
Fiscal Year. The term "Fiscal Year" means the period beginning on July 1 of each year and
ending on the last day of June of the next succeeding year, or any other twelve-month period
selected and designated as the official Fiscal Year of the City.
7466.2\DCasnocha\22759.0004 4
Independent Certified Public Accountant. The term Independent Certified Public
Accountant" means any firm of certified public accountants appointed by the City, each of whom is
independent of the City and the Authority pursuant to the Statement on Auditing Standards No. 1 of
the American Institute of Certified Public Accountants.
Independent Financial Consultant. The term Independent Financial Consultant" means a
financial consultant or firm of such consultants appointed by the City, and who, or each of whom:
(1) is in fact independent and not under domination of the City or the Authority;
(2) does not have any substantial interest, direct or indirect, with the City or the
Authority; and
(3) is not connected with the City or the Authority as an officer or employee thereof, but
who may be regularly retained to make reports thereto.
Installment Pa nt Date: Series 1998 Installment Payment Date. The term "Installment
Payment Date" means each date on which Installment Payments are scheduled to be paid by the City
under and pursuant to any Contract. The term "Series 1998 Installment Payment Date" means the
fifth Business Day prior to each Interest Payment Date.
Installment Payments* Series 1998 Installment Paymgn_ts. The term "Installment Payments"
means the installment payments of interest and principal scheduled to be paid by the City under and
pursuant to the Contracts. The term "Series 1998 Installment Payments" means the Installment
Payments scheduled to be paid by the City under and pursuant to this Agreement.
Interest Pa en ate. The term "Interest Payment Date" means February 1 and August 1 of
each year, commencing August 1, 1998.
Net Revenues. The term "Net Revenues" means, for any Fiscal Year, the Revenues for such
Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year.
Qperation and Maintenanc osts. The term "Operation and Maintenance Costs" means
costs spent or incurred for maintenance and operation of the Enterprise calculated in accordance
with generally accepted accounting principles, including (among other things) the reasonable
expenses of management and repair and other expenses necessary to maintain and preserve the
Enterprise in good repair and working order, and including administrative costs of the City that are
charged directly or apportioned to the Enterprise, including but not limited to salaries and wages of
employees, payments to the Public Employees Retirement System, overhead, insurance, taxes (if
any), fees of auditors, accountants, attorneys, consultants or engineers and insurance premiums, and
including all other reasonable and necessary costs of the City or charges (other than Debt Service
payments) required to be paid by it to comply with the terms of the Certificates or of this Agreement
or any Contract or of any resolution or indenture authorizing the issuance of any Bonds or of such
Bonds, but excluding in all cases depreciation, replacement and obsolescence charges or reserves
therefor and amortization of intangibles or other bookkeeping entries of a similar nature.
Projects 1992 Sewer Proiect. The term "Project" means any additions, betterments,
extensions or improvements to the Enterprise designated by the Department as a Project, the
5
7466.2\DCasnocha\22759.0004
acquisition and construction of which is to be paid for with the proceeds of any Contracts or Bonds.
The term "1992 Sewer Project" means the capital improvements described in Exhibit B attached
hereto.
Purchase Price. The term "Purchase Price" means the principal amount plus interest thereon
owed by the City to the Authority under the terms hereof as provided in Section 4.01.
[Purchase Site. The term "Purchase Site" means the real property, as described in Exhibit A
hereof, conveyed by the City to the Authority, and improved by the Authority by the construction of
a portion of the Project on the Purchase Site.]
Revenues. The term "Revenues" means all income, rents, rates, fees, charges, and other
moneys derived from the ownership or operation of the Enterprise, including, without limiting the
generality of the foregoing, (1) all income, rents, rates, fees, charges, connection fees, business
interruption insurance proceeds or other moneys derived by the City from the furnishing and
supplying of the sewer or other services, facilities' and commodities furnished or supplied through
the facilities of or in the conduct or operation of the business of the Enterprise, but excluding in all
cases customer deposits or any other deposits or advances subject to refund until such deposits or
advances have become the property of the City plus sewer availability charges and plus the earnings
on and income derived from the investment of said amounts, and (2) amount remaining in the Sewer
Fund after full compliance with the terms of this Agreement and the Trust Agreement.
rRight of Entry Sites. The term "Right of Entry Sites" means the Sewage Treatment Plant
site and the City's property to be renovated as described in Exhibit A hereof.]
Series 1998 Reserve Fund Rea it m n . The term "Series 1998 Reserve Fund Requirement"
means, as of any date of calculation, an amount equal to the lesser of(i) ten percent (10%) of the
original proceeds of the Certificates or (ii) maximum Series 1998 Installment Payments due in the
then current or any subsequent Fiscal Year or (iii) one hundred twenty-five percent (125°/x) of the
average annual Series 1998 Installment Payments.
Sewer Fund. The term "Sewer Fund" means the fund by that name established pursuant to
Section 5.02 hereof.
Trust Agreement. The term "Trust Agreement" means the Trust Agreement dated as of
June 1, 1998 by and among the City, the Authority and the Trustee, as originally executed and as it
may from time to time be amended or supplemented in accordance with its terms.
Trustee. The term "Trustee" means acting in its capacity as Trustee
under and pursuant to the Trust Agreement, and its successors and assigns.
Written Consent of the Authority or City Written Order of the Authority or CiZL.Written
Request of the Authority or City_,Written Requisition of the Authority or City.
The terms "Written Consent of the Authority or City," "Written Order of the Authority or
City," "Written Request of the Authority or City," and "Written Requisition of the Authority or City"
mean, respectively, a written consent, order, request or requisition signed by or on behalf of(i) the
Authority by its Chairman or a Vice Chairman or (ii) the City by the Mayor or the General Manager
7466.2\DCasnocha\22759.0004 6
or Finance Director of the Department or by any person who are specifically authorized by
resolution, of the City (a certified copy of which has been delivered to the Trustee) to sign or execute
such a document on its behalf.
ARTICLE II
REPRESENTATIONS AND WARRANTIES: OPINIONS OF COUNSEL
SECTION 2.01. Representations by the City. The City makes the following
representations:
(a) The City is a municipal corporation and charter city duly organized and existing
under and pursuant to the laws of the State of California.
(b) The City has full legal right, power and authority to enter into this Agreement and
carry out its obligations hereunder, to carry out and consummate all other transactions contemplated
by this Agreement, and the City has complied with the provisions of the law in all matters relating to
such transactions.
(c) By proper action, the City has duly authorized the execution, delivery and due
performance of this Agreement.
(d) The City will not take or, to the extent within its power,permit any action to be taken
which results in the interest paid for the installment purchase of the 1992 Sewer Project under the
terms of this Agreement being included in the gross income of the Authority or its assigns for
purposes of federal or State of California income taxation.
(e) The City has determined that it is necessary and proper for City uses and purposes
within the terms of the Law that the City acquire the 1992 Sewer Project in the manner provided for
in this Agreement, in order to provide essential services and facilities to persons residing in the City.
SECTION 2.02. RRpresenrations and Warranties by the Authori ty. The Authority makes
the following representations and warranties:
(a) The Authority is a joint exercise of powers authority duly organized pursuant to
Article 1, Chapter 5, Division 7, Title 1 of the Government Code of the State of California
(commencing with Section 6500) (the "Act"), has full legal right, power and authority to enter into
this Agreement and to carry out and consummate all transactions contemplated by this Agreement
and by proper action has duly authorized the execution and delivery and due performance of this
Agreement.
(b) The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated will not violate any provision of law, any order of any court or
other agency of government, or any indenture, material agreement or other instrument to which the
Authority is now a party or by which it or any of its properties or assets is bound, or be in conflict
with, result in a breach of or constitute a default (with due notice or the passage of time or both)
under any such indenture, agreement or other instrument, or result in the creation or imposition of
7466.2\DCasnocha\22759.0004 7
any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the properties or
assets of the Authority.
(c) The Authority will not take or permit any action to be taken which results in interest
paid for the installment purchase of the 1992 Sewer Project under the terms of this Agreement being
included in the gross income of the Authority or its assigns for purposes of federal or State of
California income taxation.
SECTION 2.03. Opinion of Counsel for the City. Concurrently with the execution and
delivery of this Agreement, the City shall provide the Authority with an opinion of the City
Attorney, satisfactory in form and substance to the Authority, to the same effect as the
representations of the City set forth in subsections (a), (b) and (c) of Section 2.01 hereof and to the
effect that this Agreement has been duly authorized, executed and delivered by the City and that
assuming this Agreement constitutes a legal, valid and binding obligation of the Authority, it is a
legal, valid and binding obligation of the City enforceable in accordance with its terms except as
such enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors remedies generally or the application of equitable principles when equitable remedies are
sought, or except as rights of indemnity may be limited by principles of public policy.
SECTION 2.04. Opinion of Counsel for the Authority. Concurrently with the execution
and delivery of this Agreement, the Authority shall provide the City an opinion of counsel for the
Authority, satisfactory in form and substance to the City, to the same effect as the representations of
the Authority set forth in subsections (a) and (b) of Section 2.02 hereof and to the effect that this
Agreement has been duly authorized, executed and delivered by the Authority and that assuming this
Agreement constitutes a legal, valid and binding obligation of the City, it is a legal, valid and
binding obligation of the Authority enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors remedies generally or the application of equitable principles when equitable remedies are
sought, or except as rights of indemnity may be limited by principles of public policy.
ARTICLE III
THE 1992 SEWER PROJECT
SECTION 3.01. Purchase and Sale of 1992 Sewer Proiect. The Authority hereby agrees
to sell the 1992 Sewer Project to the City. The City hereby agrees to purchase the 1992 Sewer
Project from the Authority.
SECTION 3.02. Changes to the 1992 Sewer Project. The City may substitute other
improvements for those listed as components of the 1992 Sewer Project in Exhibit A hereto, but only
if the City first files with the Authority and the Trustee a Statement of the City:
(a) identifying the improvements to be substituted and the improvements to City
facilities they replace in the 1992 Sewer Project; and
(b) stating that the estimated costs of construction, acquisition and installation of the
substituted improvements are not less than such costs for the improvements previously planned.
7466.2\DCasnocha\22759.0004 8
ARTICLE IV
SERIES 1998 INSTALLMENT PAYMENTS
SECTION 4.01. Purchase Price.
(a) The Purchase Price to be paid by the City hereunder to the Authority is the sum of
the principal amount of the City's obligations hereunder plus the interest to accrue on the unpaid
balance of such principal amount from the effective date hereof over the term hereof, subject to
prepayment as provided in Article VII.
(b) The principal amount of the payments to be made by the City hereunder on each
Series 1998 Installment Payment Date is set forth in Exhibit C hereto.
(c) The interest to accrue on the unpaid balance of such principal amount is as specified
in Section 4.02 and Exhibit C hereto, and shall be paid by the City as and constitute interest paid on
the principal amount of the City's obligations hereunder.
SECTION 4.02. Series 1998 Installment Payments. The City shall, subject to any rights
of prepayment provided in Article VII, pay the Authority the Purchase Price in installment payments
of interest and principal in the amounts and on the Series 1998 Installment Payment Dates as set
forth in Exhibit C hereto.
Each Series 1998 Installment Payment shall be paid to the Authority in lawful money of the
United States of America. In the event the City fails to make any of the payments required to be
made by it under this Section, such payment shall continue as an obligation of the City until such
amount shall have been fully paid; and the City agrees to pay the same with interest accruing thereon
at the rate or rates of interest then applicable to the remaining unpaid principal balance of the Series
1998 Installment Payments if paid in accordance with their terms.
The obligation of the City to make the Series 1998 Installment Payments is absolute and
unconditional, and until such time as the Purchase Price shall have been paid in full (or provision for
the payment thereof shall have been made pursuant to Article IX), the City will not discontinue or
suspend any Series 1998 Installment Payments required to be made by it under this Section when
due, whether or not the 1992 Sewer Project or any part thereof is operating or operable, or its use is
suspended, interfered with,reduced or curtailed or terminated in whole or in part, and such payments
shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the
performance or nonperformance by any party to any agreement for any cause whatsoever.
ARTICLE V
SECURITY
SECTION 5.01. Pledge of Net Revenues. All Net Revenues are hereby irrevocably
pledged to the payment of the Series 1998 Installment Payments as provided herein; and the Net
Revenues shall not be used for any other purpose while any of the Series 1998 Installment Payments
remain unpaid; provided that out of the Net Revenues there may be apportioned such sums for such
purposes as are expressly permitted herein. This pledge together with the City's obligation to pay any
7466.2\DCasnocha\22759.0004 9
Bonds or Contracts shall constitute a first and exclusive lien on Net Revenues and, subject to
application of amounts on deposit therein as permitted herein, the Sewer Fund and other funds and
accounts created hereunder for the payment of the Series 1998 Installment Payments and all other
Contracts and Bonds in accordance with the terms hereof and the Trust Agreement.
SECTION 5.02. Allocation of Revenues. In order to carry out and effectuate the pledge
and lien contained herein, the City agrees and covenants that all Revenues shall be received by the
City in trust hereunder and shall be deposited when and as received in the special fund of the City
known as the [Sewer Utility Enterprise Fund] and hereunder designated as the "Sewer Fund", which
fund the City agrees and covenants to maintain and to hold separate and apart from other funds so
long as any Installment Payments, Bonds or Contracts remain unpaid. Moneys in the Sewer Fund
shall be used and applied by the City as provided in this Agreement. Investment earnings received
by the Trustee from the investment of moneys on deposit in the Certificate Payment Fund and the
Reserve Fund are to be retained by the Trustee and applied by it as provided for in the Trust
Agreement.
The City shall, from the moneys in the Sewer Fund, pay all Operation and Maintenance
Costs (including amounts reasonably required to be set aside in contingency reserves for Operation
and Maintenance Costs, the payment of which is not then immediately required) as they become due
and payable. All remaining moneys in the Sewer Fund shall be set aside by the City at the following
times for the transfer to the following respective special funds in the following order of priority; and
all moneys in each of such funds shall be held in trust and shall be applied, used and withdrawn only
for the purposes set forth in this Section.
(a) Certificate Payment Fund. On or before each Series 1998 Installment Payment Date
until the Certificates have been paid or provision for their payment has been made as provided in
Section 10.01 of the Trust Agreement, the City shall, from the moneys in the Sewer Fund, transfer to
the Trustee for deposit in the Certificate Payment Fund the Series 1998 Installment Payment due and
payable on that Series 1998 Installment Payment Date. The City shall also, from the moneys in the
Sewer Fund, transfer to the Trustee for deposit in the respective payment fund,without preference or
priority, and in the event of any insufficiency of such moneys ratably without any discrimination or
preference, any other Debt Service in accordance with the provisions of any Bond or Contract.
No deposit need be made in the Certificate Payment Fund if the amount in the Certificate
Payment Fund is at least equal to the amount of the Series 1998 Installment Payment due and
payable on said Series 1998 Installment Payment Date.
All money in the Certificate Payment Fund shall be used and withdrawn by the Trustee in
accordance with the Trust Agreement.
(b) Reserve Fund. On or before each Series 1998 Installment Payment Date until the
Certificates have been paid or provision for their payment has been made as provided in Section
10.01 of the Trust Agreement, the City shall, from the remaining moneys in the Sewer Fund,
thereafter, without preference or priority, and in the event of any insufficiency of such moneys
ratably without any discrimination or preference, transfer to the Trustee as provided in Sections 5.04
and 5.05 of the Trust Agreement for deposit in the Reserve Fund and such other reserve funds and/or
accounts, if any, as may have been established in connection with Bonds or Contracts other than this
7466.2\DCasnocha\22759.0004 10
Agreement, that sum, if any, necessary to restore the Reserve Fund to an amount equal to the Series
1998 Reserve Fund Requirement and/or such other reserve funds or accounts to an amount equal to
the amount required to be maintained therein; provided, however, that the City may provide for the
Reserve Fund by means other than cash and Qualified Investments pursuant to Section 5.05 of the
Trust Agreement.
Qualified Investments shall be valued by the Trustee but not less often than annually, at the
market value thereof, exclusive of accrued interest. Investments purchase with funds on deposit in
the Reserve Fund shall have a term to maturity not greater than five years.
No transfer of moneys for deposit to the Reserve Fund in connection with the Series 1998
Installment Payments need be made if the amount contained therein is at least equal to the Series
1998 Reserve Fund Requirement.
(c) Surplus. Moneys on deposit in the Sewer Fund on each Series 1998 Installment
Payment Date not necessary to make any of the payments required above, may be expended by the
City at any time for any sewer purpose permitted by law.
SECTION 5.03. Additional Contracts and Bonds. The City may at any time execute any
Contract or issue any Bonds, as the case may be, in accordance herewith; provided:
(1) The Net Revenues for the most recent audited Fiscal Year or other 12 month
period within the 18 months preceding the date of adoption by the City of the resolution
authorizing the issuance of such Bonds or the date of the execution of such Contract, as the
case may be, as evidenced by both a calculation prepared by the City and a special report
prepared by an Independent Certified Public Accountant or an Independent Financial
Consultant on such calculation on file with the City, shall have produced a sum equal to at
least one hundred and ten percent(110%) of the Debt Service for such Fiscal Year; and
(2) The Net Revenues for the most recent audited Fiscal Year or other 12 month
period within the 18 months preceding the date of the execution of such Contract or the date
of adoption by the City of the resolution authorizing the issuance of such Bonds, as the case
may be, including Adjustments to give effect as of the first day of such Fiscal Year to
increases or decreases in rates and charges for the sewer service approved and in effect as of
the date of calculation, as evidenced by both a calculation prepared by the City and a special
report prepared by an Independent Certified Public Accountant or an Independent Financial
Consultant on such calculation on file with the City, shall have produced a sum equal to at
least one hundred and ten percent (110%) of the Debt Service for such Fiscal Year plus the
Debt Service which would have accrued had such Contract been executed or Bonds been
issued at the beginning of such Fiscal Year; and
(3) The estimated Net Revenues for the then current Fiscal Year or other 12
month period within the 18 months and for each Fiscal Year thereafter to and including the
first complete Fiscal Year after the latest Date of Operation of any uncompleted Project to be
financed from proceeds of such Contracts or Bonds, as evidenced by a certificate of the
General Manager of the Department on file with the City, including (after giving effect to the
completion of all such uncompleted Projects) an allowance for estimated Net Revenues for
7466.2\DCasnocha\22759.0004 11
each of such Fiscal Years arising from any increase in the income, rents, fees, rates and
charges estimated to be fixed, prescribed or received for the sewer service and which are
economically feasible and reasonably considered necessary based on projected operations for
such period, as evidenced by a certificate of.the General Manager on file with the
Department, shall produce a sum equal to at least one hundred and ten percent (110%) of the
estimated Debt Service for each of such Fiscal Years, after giving effect to the execution of
all Contracts and the issuance of all Bonds estimated to be required to be executed or issued
to pay the costs of completing all uncompleted Projects within such Fiscal Years, assuming
that all such Contracts and Bonds have maturities, interest rates and proportionate principal
repayment provisions similar to the Contract last executed or then being executed or the
Bonds last issued or then being issued for the purpose of acquiring and constructing any of
such uncompleted Projects; and
(4) The Project to be financed from the proceeds of such Contract or such Bonds
is technically feasible and the estimated cost of the acquisition and construction thereof is
reasonable, as evidenced by a certificate (prepared at the time of the execution of such
Contract or Bonds, as the case may be) of the General Manager of the Department, which
certificate shall be filed with the City.
(5) The City shall deposit in the Reserve Fund or in a similar fund or provide for
an alternate security as provided in Section 5.05 of the Trust Agreement an amount sufficient
to equal the lesser of the reserve requirement (calculated in the same manner as the Series
1998 Reserve Fund Requirement was calculated) for the Bond or Contract or the maximum
reserve requirement permitted by law or governmental regulators.
Nothing herein shall preclude the City from issuing any bonds or installment purchase
contracts which are subordinate to any Bonds or Contracts of the City.
SECTION 5.04. Investments. All moneys held by the City in the Sewer Fund shall be
invested in Qualified Investments and the investment earnings thereon shall remain on deposit in
such fund, except as otherwise provided herein.
ARTICLE VI
COVENANTS OF THE CITY
SECTION 6.01. Compliance with Installment Purchase Agreement and Ancillary
Agreements. The City will punctually pay the Series 1998 Installment Payments in strict conformity
with the terms hereof, and will faithfully observe and perform all the agreements, conditions,
covenants and terms contained herein required to be observed and performed by it, and will not
terminate this Agreement for any cause including, without limiting the generality of the foregoing,
any acts or circumstances that may constitute failure of consideration, destruction of or damage to
the 1992 Sewer Project, commercial frustration of purpose, any change in the tax or other laws of the
United States of America or of the State of California or any political subdivision of either or any
failure of the Authority to observe or perform any agreement, condition, covenant or term contained
herein required to be observed and performed by it, whether express or implied, or any duty, liability
or obligation arising out of or connected herewith or the insolvency, or deemed insolvency, or
7466.2\DCasnocha\22759.0004 12
bankruptcy or liquidation of the Authority or any force majeure, including acts of God, tempest,
storm, earthquake, war, rebellion, riot, civil disorder, acts of public enemies, blockade or embargo,
strikes, industrial disputes, lock outs, lack of transportation facilities, fire, explosion, or acts or
regulations of governmental authorities.
The City will faithfully observe and perform all the agreements, conditions, covenants and
terms contained in the Trust Agreement required to be observed and performed by it; and it is
expressly understood and agreed by and between the parties to this Agreement that, subject to
Section 10.06 hereof, each of the agreements, conditions, covenants and terms contained in each of
this Agreement and the Trust Agreement is an essential and material term of the purchase of and
payment for the 1992 Sewer Project by the City pursuant to, and in accordance with, and as
authorized under, the Law.
The City will faithfully observe and perform all the agreements, conditions, covenants and
terms required to be observed and performed by it pursuant to all outstanding Contracts and Bonds
as such may from time to time be executed or issued, as the case may be.
SECTION 6.02. Against Encumbrances. The City will not make any pledge of or place
any lien on Revenues or the moneys in the Sewer Fund except as provided herein. The City may at
any time, or from time to time, issue evidences of indebtedness or incur other obligations for any
lawful purpose which are payable from and secured by a pledge of and lien on Revenues or any
moneys in the Sewer Fund as may from time to time be deposited therein (as provided in Section
5.02),provided that such pledge and lien shall be subordinate in all respects to the pledge of and lien
thereon provided herein.
SECTION 6.03. Against Sale or Other Disposition of Propertv. The City will not enter
into any agreement or lease which impairs the operation of the Enterprise or any part thereof
necessary to secure adequate Revenues for the payment of the Series 1998 Installment Payments, or
which would otherwise impair the rights of the Authority hereunder or the operation of the
Enterprise. Any real or personal property which has become nonoperative or which is not needed for
the efficient and proper operation of the Enterprise, or any material or equipment which has become
worn out, may be sold if such sale will not impair the ability of the City to pay the Series 1998
Installment Payments and if the proceeds of such sale are deposited in the Sewer Fund.
Nothing herein shall restrict the ability of the City to sell any portion of the Enterprise if such
portion is immediately repurchased by the City and if such arrangement cannot by its terms result in
the purchaser of such portion of the Enterprise exercising any remedy which would deprive the City
of or otherwise interfere with its right to own and operate such portion of the Enterprise.
SECTION 6.04. Against Competitive Facilities. To the extent that it can so legally
obligate itself, the City covenants that it will not acquire, construct, maintain or operate and will not,
to the extent permitted by law and within the scope of its powers, permit any other public or private
agency, corporation, district or political subdivision or any person whomsoever to acquire, construct,
maintain or operate within the City any sewer system competitive with the Enterprise.
SECTION 6.05. Tax Covenants. The City hereby covenants that, notwithstanding any
other provision of this Agreement, it will make no use of the proceeds of the Certificates or of any
7466.2\DCasnocha\22759.0004 13
other amounts, regardless of the source, or of any property or take any action, or refrain from taking
any action, that would cause the Certificates to be "arbitrage bonds" within the meaning of Section
148 of the Internal Revenue Code of 1986, as amended (the "Code").
The City will not use or permit the use of the 1992 Sewer Project or any portion thereof by
any person other than a governmental unit, as such term is used in Section 141 of the Code, in such
manner or to such extent as would result in the loss of exclusion from gross income for federal
income tax purposes of the portion of the Series 1998 Installment Payments constituting interest
under Section 103 of the Code.
The City will not make any use of the proceeds of the Certificates or any other funds of the
City, or take or omit to take any other action, that would cause the obligation provided herein to be
"federally guaranteed" within the meaning of Section 149(b) of the Code or "private activity bonds"
within the meaning of Section 141 of the Code. To that end, so long as any Series 1998 Installment
Payments are unpaid, the City, with respect to such proceeds and such other funds, will comply with
all requirements of such Sections and all regulations of the United States Department of the Treasury
issued thereunder and under Section 103 of the Internal Revenue Code of 1954, as amended, to the
extent such requirements are, at the time, applicable and in effect.
SECTION 6.06. Maintenance and Operation of the Entemrise. The City will maintain and
preserve the Enterprise in good repair and working order at all times and will operate the Enterprise
in an efficient and economical manner and will pay all Operation and Maintenance Costs as they
become due and payable.
SECTION 6.07. Payment of Claims. The City will pay and discharge any and all lawful
claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the
funds or accounts created hereunder or under the Trust Agreement or on any funds in the hands of
the City pledged to pay the Series 1998 Installment Payments or to the Owners prior or superior to
the lien of the Series 1998 Installment Payments or which might impair the security of the Series
1998 Installment Payments.
SECTION 6.08. Insurance.
(a) The City will procure and maintain or cause to be procured and maintained insurance
on the Enterprise with responsible insurers in such amounts and against such risks (including
damage to or destruction of the Enterprise) as are usually covered in connection with facilities
similar to the Enterprise, so long as such insurance is available from reputable insurance companies
and obtainable at a reasonable cost.
(b) The City will procure and maintain such other insurance as it shall deem advisable or
necessary to protect its interests, which insurance shall afford protection in such amounts and against
such risks as are usually covered in connection with municipal sewer systems similar to the
Enterprise
(c) Any insurance required to be maintained by paragraph (a) above and, if the City
determines to procure and maintain insurance pursuant to paragraph (b) above, such insurance, may
be maintained under a self-insurance program so long as such self-insurance is maintained in the
7466.2\DCasnocha\22759.0004 14
amounts and manner usually maintained in connection with sewer systems similar to the Enterprise
and is, in the opinion of an accredited actuary, actuarially sound.
All policies of insurance required to be maintained herein shall provide that the Authority
shall be given thirty (30) days written notice of any intended cancellation thereof or reduction of
coverage provided thereby.
SECTION 6.09. Accounting Records: Financial Statements and Other Reports.
(a) The City will keep appropriate accounting records in which complete and correct
entries shall be made of all transactions relating to the Enterprise, which records shall be available
for inspection by the Authority, and the Trustee at reasonable hours and under reasonable conditions.
(b) The City will prepare and file with the Authority and the Certificate Insurer annually
within one hundred eighty (180) days after the close of each Fiscal Year (commencing with the
Fiscal Year ending June 30, 1998) financial statements of the Sewer Fund of City for the preceding
Fiscal Year prepared in accordance with generally accepted accounting principles, together with an
Accountant's Report thereon.
SECTION 6.10. Protection of Security and Rights of the Authority. The City will
preserve and protect the security hereof and the rights of the Authority to the Series 1998 Installment
Payments hereunder and will warrant and defend such rights against all claims and demands of all
persons.
SECTION 6.11. Payment of Taxes and Compliance with Governmental Regulations. The
City will pay and discharge all taxes, assessments and other governmental charges which may
hereafter be lawfully imposed upon the Enterprise, or any part thereof or upon the Revenues when
the same shall become due. The City will duly observe and conform with all valid regulations and
requirements of any governmental authority relative to the operation of the Enterprise, or any part
thereof, but the City shall not be required to comply with any regulations or requirements so long as
the validity or application thereof shall be contested in good faith.
SECTION 6.12. Amount of Rates and Charges. The City shall fix, prescribe and collect
rates, fees, charges and connection fees for sewer service which will be at least sufficient to yield
during each Fiscal Year Net Revenues equal to one hundred ten percent (110%) of Debt Service for
such Fiscal Year. The City may make adjustments from time to time in such rates, fees, charges and
connection fees and may make such classification thereof as it deems necessary, but shall not reduce
the rates and charges then in effect unless the Net Revenues from such reduced rates, fees, charges
and connection fees will at all times be sufficient to meet the requirements of this Section.
SECTION 6.13. Covenant to Budget. The City covenants that it will include in its annual
budget for the following Fiscal Year the Installment Payments due in that Fiscal Year. The City will
furnish to the Trustee and the Certificate Insurer, as assignee of Authority, copies of each proposed
budget of the City within twenty (20) days after it is filed and of each final budget of the City by
September 1 of each year. The covenants on the part of the City herein contained are deemed by the
City to be duties imposed by law and it shall be the duty of each and every public official of the City
to take such action and do such things as are required by law in the performance of the official duty
7466.2\DCasnocha\22759,0004 15
of such officials to enable the City to carry out and perform the covenants and agreements in this
Agreement agreed to be carried out and performed by the City.
SECTION 6.14. Further Assurances. The City will adopt, deliver, execute and make any
and all further assurances, instruments and resolutions as-may be reasonably necessary or proper to
carry out the intention or to facilitate the performance hereof and for the better assuring and
confirming unto the Authority of the rights and benefits provided to it herein.
SECTION 6.15. Lien on Revenues. The City will not pledge or otherwise create any lien
on or encumbrance of Revenues or any portion thereof to secure any debt, contract, or other
obligation other than as provided herein.
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 this Agreement, failure of the City to comply with the
Continuing Disclosure Certificate shall not be considered an Event of Default; however, any
Participating Underwriter (as defined in the Continuing Disclosure Certificate) or any holder or
beneficial owner of the Certificates may take such actions as described under the Continuing
Disclosure Certificate to cause the City to comply with its obligations under this Section.
ARTICLE VII
PREPAYMENT OF SERIES 1998 INSTALLMENT PAYMENTS
SECTION 7.01. Prepayment. The City, at its option, may prepay all or any part of the
principal portion of the Series 1998 Installment Payments due on or after January 26, 20_, as a
whole or in part on any date on and after January 26, 20_, from any available funds. The principal
amount of the unpaid Series 1998 Installment Payments is payable at a prepayment price (expressed
as a percentage of the principal amount of the Series 1998 Installment Payments to be prepaid) plus
accrued interest thereon to the date of prepayment, when prepaid on the Series 1998 Installment
Payment Dates in the prepayment periods as set forth below:
Prepavment Perio Prepayment Price
January 26, 20_through January 25, 20_ 102%
January 26, 20_through January 25, 20_ 101
January 26, 20_and thereafter 100
Notwithstanding any such prepayment, the City shall not be relieved of its obligations
hereunder, including its obligations under Article IV, until the Purchase Price shall nave been fully
paid (or provision for payment thereof shall nave been provided to the written satisfaction of the
Authority).
7466.2\DCasnocha\22759.0004 16
SECTION 7.02. Method of Prepayment. Before making any prepayment pursuant to
Section 7.01, the City may, within five (5) days following the event permitting the exercise of such
right to prepay or creating such obligation to prepay, give written notice to the Authority and the
Trustee describing such event and specifying the date on which the prepayment will be paid, which
date shall be not less than seventy-five (75) days from the date such notice is given, unless such
prepayment must occur on a Series 1998 Installment Payment Date, in which case such date shall be
the next Series 1998 Installment Payment Date with respect to which notice of prepayment may be
timely given pursuant to the Trust Agreement.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF THE AUTHORITY
SECTION 8.01. Events of Default and Acceleration of Maturities. If one or more of the
following Events of Default shall happen, that is to say -
(1) if default shall be made in the due and punctual payment of any Series 1998
Installment Payment or any Contract or Bond when and as the same shall become due and
payable;
(2) if default shall be made by the City in the performance of any of the
agreements or covenants required herein or in any Contract or Bond to be performed by it,
and such default shall have continued for a period of sixty (60) days after the City shall have
been given notice in writing of such default by the Authority;
(3) if the City shall file a petition or answer seeking arrangement or
reorganization under the federal bankruptcy laws or any other applicable law of the United
States of America or anv state therein, or if a court of competent jurisdiction shall approve a
petition filed with or without the consent of the City seeking arrangement or reorganization
under the federal bankruptcy laws or any other applicable law of the United States of
America or any state therein, or if under the provisions of any other law for the relief or aid
of debtors any court of competent jurisdiction shall assume custody or control of the City or
of the whole or any substantial part of its property; or
(4) if payment of the principal of any Contract or Bond is accelerated in
accordance with its terms;
then and in each and every such case during the continuance of such Event of Default
specified in clauses (3) and (4) above, the Authority shall, with the prior written consent of the
Certificate Insurer and for any other such Event of Default the Authority may, by notice in writing to
the City, with the prior written consent of the Certificate Insurer declare the entire principal amount
of the unpaid Series 1998 Installment Payments and the accrued interest thereon to be due and
payable immediately, and upon any such declaration the same shall become immediately due and
payable, anything contained herein to the contrary notwithstanding. This subsection however, is
subject to the condition that if at any time after the entire principal amount of the unpaid Series 1998
Installment Payments and the accrued interest thereon shall have been so declared due and payable
and before any judgment or decree for the payment of the moneys due shall have been obtained or
7466.2\DCasnocha\22759,0004 17
entered the City shall deposit with the Authority a sum sufficient to pay the unpaid principal amount
of the Series 1998 Installment Payments and/or the unpaid payment of anv other Contract or Bond
referred to in clause (1) above due prior to such declaration and the accrued interest thereon, with
interest on such overdue installments, at the rate or rates applicable to the remaining unpaid principal
balance of the Series 1998 Installment Payments or such Contract or Bond if paid in accordance with
their terms, and the reasonable expenses of the Authority, and any and all other defaults known to
the Authority (other than in the payment of the entire principal amount of the unpaid Series 1998
Installment Payments and the accrued interest thereon due and payable solely by reason of such
declaration) shall have been made good or cured to the satisfaction of the Authority or provision
deemed by the Authority to be adequate shall have been made therefor, then and in every such case
the Authority, by written notice to the City, and with the prior consent of the Certificate Insurer may
rescind and annul such declaration and its consequences; 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 8.02. Application of Funds Upon Acceleration. Upon the date of the declaration of
acceleration as provided in Section 8.01, all Revenues thereafter received shall be applied in the
following order:
First, to the payment, without preference or priority, and in the event of any insufficiency of
such moneys ratably without any discrimination or preference, of the fees, costs and expenses of the
Authority and Trustee, if any, including reasonable compensation to its accountants and counsel,
Second, to the payment of the Operation and Maintenance Costs; and
Third, to the payment of the entire principal amount of the unpaid Series 1998 Installment
Payments and the unpaid principal amount of all Bonds and Contracts and the accrued interest
thereon, with interest on the overdue installments at the rate or rates of interest applicable to the
Series 1998 Installment Payments and such Bonds and Contracts if paid in accordance with their
respective terms.
Section 8.03. Other Remedies of the Authori ty. The Authority shall have the right
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its
rights against the City or any director, officer or employee thereof, and to compel the City or any
such director, officer or employee to perform and carry out its or his duties under the Act and the
agreements and covenants required to be performed by it or him contained herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights
of the Authority; or
(c) by suit in equity upon the happening of an Event of Default to require the City and its
directors, officers and employees to account as the trustee of an express trust.
Notwithstanding anything contained herein, the Authority shall have no security interest in
or mortgage on the 1992 Sewer Project or the Enterprise, and no default hereunder shall result in the
loss of the 1992 Sewer Project or the Enterprise.
7466.2`.DCasnocha\22759.0004 is
Section 8.04. Non-Waiver. Nothing in this article or in any other provision hereof shall
affect or impair the obligation of the City, which is absolute and unconditional, to pay the Series
1998 Installment Payments to the Authority at the respective due dates or upon prepayment from the
Net Revenues, the Sewer Fund and the other funds herein pledged for such payment, or shall affect
or impair the right of the Authority, which is also absolute and unconditional, to institute suit to
enforce such payment by virtue of the contract embodied herein.
A waiver of any default or breach of duty or contract by the Authority shall not affect any
subsequent default or breach of duty or contract or impair any rights or remedies on any such
subsequent default or breach of duty or contract. No delay or omission by the Authority to exercise
any right or remedy accruing upon any default or breach of duty or contract shall impair any such
right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract
or an acquiescence therein, and every right or remedy conferred upon the Authority by Act or by this
article may be enforced and exercised from time to time and as often as shall be deemed expedient
by the Authority.
If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or
determined adversely to the Authority, the City and the Authority and the Certificate Insurer shall be
restored to their former positions, rights and remedies as if such action, proceeding or suit had not
been brought or taken.
Section 8.05. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the
Authority or the Certificate owners, or as provided in the Trust Agreement, is intended to be
exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or under the Trust Agreement or now or hereafter existing in
law or in equity or by statute or otherwise and may be exercised without exhausting and without
regard to any other remedy conferred by the Act or any other law.
If any remedial action is discontinued or abandoned, the Trustee and Certificate owners shall
be restored to their former positions.
Section 8.06. Action on Default or Termination. Upon the occurrence of an Event of
Default(as that term is defined in this Installment Purchase Agreement), which event shall constitute
a default hereunder, and in each and every such case during the continuance of such Event of
Default, the Trustee at the direction of the Owners of not less than a majority in aggregate principal
amount of Certificates at the time Outstanding with the written consent of the Certificate Insurer
shall be entitled, upon notice in writing to the Authority, to accelerate the unpaid Series 1998
Installment Payments under this Installment Purchase Agreement and to exercise the remedies
provided to the Authority in this Installment Purchase Agreement.
7466.2\DCasnocha\22759.0004 19
ARTICLE IX
DISCHARGE OF OBLIGATIONS
SECTION 9.01. Discharge of Obligations. When
(a) all or any portion of the Series 1998 Installment Payments shall have become due
and payable in accordance herewith or a written notice of the City to prepay all or any portion of the
Series 1998 Installment Payments shall have been filed with the Trustee; and
(b) there shall have been deposited with the Trustee at or prior to the Series 1998
Installment Payment Dates or date (or dates) specified for prepayment, in trust for the benefit of the
Authority or its assigns and irrevocably appropriated and set aside to the payment of all or any
portion of the Series 1998 Installment Payments, sufficient moneys and non-callable Qualified
Investments, issued by the United States of America and described in clause (i) of the definition
thereof, the principal of and interest on which when due will provide money sufficient to pay all
principal, prepayment premium, if any, and interest of such Series 1998 Installment Payments to
their respective Series 1998 Installment Payment Dates or prepayment date or dates as the case may
be; and
(c) provision shall have been made for paying all fees and expenses of the Trustee,
then and in that event, if an opinion of Bond Counsel is filed with the Trustee to the effect
that the actions authorized by and taken pursuant to this Article IX shall not adversely affect the tax
exempt status of the interest portion of the Series 1998 Installment Payments, the right, title and
interest of the Authority herein and the obligations of the City hereunder shall, with respect to all or
such portion of the Series 1998 Installment Payments as have been so provided for, thereupon cease,
terminate, become void and be completely discharged and satisfied (except for the right of the
Trustee and the obligation of the City to have such moneys and such Qualified Investments applied
to the payment of such Series 1998 Installment Payments).
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 total
or partial discharge and satisfaction, as the case may be, and, in the event of a total discharge and
satisfaction, the Trustee shall pay over to the City, after payment of all amounts due the Trustee
pursuant to the Trust Agreement, as an overpayment of Series 1998 Installment Payments, all such
moneys or such Qualified Investments held by it pursuant hereto other than such moneys and such
Qualified Investments as are required for the payment or prepayment of the Series 1998 Installment
Payments, which moneys and Qualified Investments shall continue to be held by the Trustee in trust
for the payment of the Series 1998 Installment Payments and shall be applied by the Trustee to the
payment of the Series 1998 Installment Payments of the City.
7466.2\DCasnocha\22759.0004 20
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Liability of City Limited to Revenues. Notwithstanding anything
contained herein, the City shall not be required to advance any moneys derived from any source of
income other than the Revenues, the Sewer Fund and the other funds provided herein and in the
Trust Agreement for the payment of the Series 1998 Installment Payments or for the performance of
any agreements or covenants required to be performed by it captained herein. The City may,
however, advance moneys for any such purpose so long as such moneys are derived from a source
legally available for such purpose and may be legally used by the City for such purpose.
The obligation of the City to make the Series 1998 Installment Payments is a special
obligation of the City payable solely from Net Revenues, the Sewer Fund and other funds described
in this Installment Purchase Agreement and in the Trust Agreement, and does not constitute a debt of
the City or of the State of California or of any political subdivision thereof in contravention of any
constitutional or statutory debt limitation or restriction.
SECTION 10.02. Benefits of Installment Purchase Agreement Limited to Parties. Nothing
contained herein, expressed or implied, is intended to give to any person other than the City or the
Authority any right, remedy or claim under or pursuant hereto, and any agreement or covenant
required herein to be performed by or on behalf of the City or the Authority shall be for the sole and
exclusive benefit of the other party.
SECTION 10.03. Successor Is Deemed Included in all References to Predecessor.
Whenever either the City or the Authority is named or referred to herein, such reference shall be
deemed to include the successor to the powers, duties and functions that are presently vested in the
City or the Authority, and all agreements and covenants required hereby to be performed by or on
behalf of the City or the Authority shall bind and inure to the benefit of the respective successors
thereof whether so expressed or not.
SECTION 10.04. Waiver of Personal Liability. No councilmember, commissioner, officer
or employee of the City shall be individually or personally liable for the payment of the Series 1998
Installment Payments, but nothing contained herein shall relieve any director, officer or employee of
the City from the performance of any official duty provided by any applicable provisions of law or
hereby.
SECTION 10.05. Article and Section Headings. Gender and References. The headings or
titles of the several articles and sections hereof and the table of contents appended hereto shall be
solely for convenience of reference and shall not affect the meaning, construction or effect hereof,
and words of any gender shall be deemed and construed to include all genders. All references herein
to "Articles," "Sections" and other subdivisions or clauses are to the corresponding articles, sections,
subdivisions or clauses hereof; and the words "hereby", herein, hereof, hereto, herewith an
other words of similar import refer to this Agreement as a whole and not to any particular article,
section, subdivision or clause hereof.
7466.2\DCasnocha\22759.0004 21
SECTION 10.06. Partial Invalidity. If any one or more of the agreements or covenants or
portions thereof required hereby to be performed by or on the part of the City or the Authority shall
be contrary to law, then such agreement or agreements, such covenant or covenants or such portions
thereof shall be null and void and shall be deemed separable from the remaining agreements and
covenants or portions thereof and shall in no way affect the validity hereof. The City and the
Authority hereby declare that they would have executed this Agreement, and each and every other
article, section, paragraph, subdivision, sentence, clause and phrase hereof irrespective of the rack
that any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or phrases hereof
or the application thereof to any person or circumstance may be held to be unconstitutional,
unenforceable or invalid.
SECTION 10.07. Assignment. This Agreement and any rights hereunder may be assigned
by the Authority, as a whole or in part, without the necessity of obtaining the prior consent of the
City.
SECTION 10.08. Net Contract. This Agreement shall be deemed and construed to be a net
contract, and the City shall pay absolutely net during the term hereof the Series 1998 Installment
Payments and all other payments required hereunder, free of any deductions and without abatement,
diminution or set-off whatsoever.
SECTION 10.09. California Law. THE INSTALLMENT PURCHASE AGREEMENT
SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.
SECTION 10.10. Notices. All written notices to be given hereunder shall be given by mail
to the party entitled thereto at its address set forth below, or at such other address as such party may
provide to the other party in writing from time to time, namely:
If to the City: San Bernardino Municipal Water Department
P.O. Box 710
San Bernardino, CA 92402
Attention: General Manager
If to the Authority: San Bernardino Public Safety Authority
385 N. Arrowhead Avenue
San Bernardino, CA 92415-0110
Attention: Secretary
SECTION 10.11. Effective Date. This Agreement shall become effective upon its
execution and delivery, and shall terminate when the Purchase Price shall have been fully paid (or
provision for the payment thereof shall have been made to the written satisfaction of the Authority).
SECTION 10.12. Execution in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall constitute but one and
the same instrument.
7466.2\DCasnocW22759.0004 22
SECTION 10.13. Indemnification of Authority. The City hereby agrees to indemnify and
hold harmless the Authority if and to the extent permitted by law, from and against all claims,
advances, damages and losses, including legal fees and expenses, arising out of or in connection with
the acceptance or the performance of its duties hereunder, under the Trust Agreement, and the
Assignment Agreement; provided that no indemnification will be made for willful misconduct,
negligence or breach of an obligation hereunder, under the Trust Agreement or the Assignment
Agreement by the Authority.
SECTION 10.14. Amendments Permitted. (a) This Agreement and the rights and
obligations of the Authority, the City, the Owners of the Certificates and of the Trustee may be
modified or amended at any time by an amendment hereto which shall become binding when the
written consents of the Owners of a majority in aggregate principal amount of the Certificates then
Outstanding, exclusive of Certificates disqualified as provided in Section 12.04 of the Trust
Agreement, and the written consent of the Certificate Insurer shall have been filed with the Trustee
provided.No such modification or amendment shall
(1) extend the stated maturities of the Certificates, or reduce the rate of interest
represented thereby, or extend the time of payment of interest, or reduce the amount of
principal represented thereby, or reduce any premium payable on the prepayment thereof,
without the consent of the Owner of each Certificate so affected; or
(2) reduce the aforesaid percentage of Owners of Certificates whose consent is
required for the execution of any amendment or modification of this Agreement.
(b) This Agreement and the rights and obligations of the Authority, the City and of the
Owners of the Certificates may also be modified or amended at any time by an amendment hereto
which shall become binding upon adoption, without the consent of the Owners of any Certificates,
but only to the extent permitted by law and only for any one or more of the following purposes-
(1) to add to the covenants and agreements of the Authority or the City contained
in this Agreement other covenants and agreements thereafter to be observed or to surrender
any right or power herein reserved to or conferred upon the Authority or the City, and which
shall not materially adversely affect the interests of the Owners of the Certificates;
(2) to cure, correct or supplement any ambiguous or defective provision
contained in this Agreement or in regard to questions arising under this Agreement, as the
Authority or the City may deem necessary or desirable and which shall not materially
adversely affect the interests of the Owners of the Certificates; and
(3) to make such other amendments or modifications as may be in the best
interests of the Owners of the Certificates.
No amendment without consent of the Owners may modify any of the rights or obligations of
the Trustee without its written consent thereto.
Any rating agency rating the Certificates must receive notice of each amendment and a copy
thereof at least 15 days in advance of its execution or adoption. The Certificate Insurer shall provide
7466.2\DCasnocha\22759.0004 23
with a full transcript of all proceedings relating to the execution of any such supplement or
amendment.
ARTICLE XI
CROSS-OVER REFUNDING PROVISIONS
SECTION 11.01. Cross-Over Refunding Provisions. Notwithstanding anything to the
contrary herein, on and prior to the Cross-Over Date the Series 1998 Installment Payments shall be
paid solely from the Special Escrow Fund to be held by the Trustee. After the Cross-Over Date all
of the provisions contained herein relating to payment of the Series 1998 Installment Payments shall
be in full force and effect. In the event of any conflict between the provisions of this Article XI and
the other provisions of this Agreement, the provisions of this Article XI shall control.
7466.2\DCasnocha\22759.0004 24
IN WITNESS WHEREOF, the parties hereto have executed and attested this Agreement by
their officers "hereunto duly authorized as of the day and year first written above.
CITY OF SAN BERNARDINO
General Manager of
the Municipal Water Department
ATTEST:
City Clerk
SAN BERNARDINO PUBLIC SAFETY
AUTHORITY
Chairman
ATTEST:
Secretary
APPROVED AS TO FORM AND LEGAL APPROVED AS TO FORM
CONTENT
By /�� -� By
City Attorney County Counsel
7466.2\DCasnocha\22759.0004 25
EXHIBIT A
PURCHASE SITE
7466.2\DCasnocha\22759.0004 A-1
EXHIBIT B
DESCRIPTION OF 1992 SEWER PROJECT_
The 1992 Sewer Project comprises the following described improvements to the City's
Enterprise.
Primary Hydraulic Reliability Project
Design of Phase 3A Secondary Treatment Expansion Project
Water Reclamation Office and Lab
7466.2\DCasnocha\22759.0004 B-1
EXHIBIT C
PURCHASE PRICE
1. The principal amount of payments to be made by the City hereunder is $
2. The installment payments of principal and interest are payable in the amounts and on the
Installment Payment Dates as
Series 1998 Installment
Payment Date Preceding Amount Amount
each of the following Attributable Attributable
Interest Payment Dates to Principal to Interest
7466.2\DCasnocha\22759.0004 C-1
TRUST AGREEMENT
THIS TRUST AGREEMENT, made and entered into as of June 1, 1998 (the "Agreement"),
by and among as trustee (the "Trustee"), a national banking association
authorized to conduct a trust business, duly organized and existing under the laws of the United
States of America, the SAN BERNARDINO PUBLIC SAFETY AUTHORITY, a joint exercise of
powers authority formed and existing under the laws of the State of California (the "Authority") and
the CITY OF SAN BERNARDINO, a municipal corporation and charter city organized and existing
under the laws of the State of California (the "City");
WITNESSETH;
In consideration of the mutual covenants herein contained and for other valuable
consideration,the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION; CONTENTS OF CERTIFICATES AND
OPINIONS; RECITALS
SECTION 1.01. Definitions. Unless the context otherwise requires, the terms defined in
this section shall for all purposes hereof and of any amendment hereof or supplement hereto and of
any report or other document mentioned herein or therein have the meanings defined herein, the
following definitions to be equally applicable to both the singular and plural forms of any of the
terms defined herein. All capitalized terms used herein and not defined herein shall have the
meanings ascribed thereto in the Installment Purchase Agreement.
1992 Certificates. The term "1992 Certificate" means the San Bernardino Public Safety
Authority, City of San Bernardino Municipal Water Department 1992 Sewer Certificates of
Participation, dated February 1, 1992.
1992 Trust Agreement. The term "1992 Trust Agreement" means that certain Trust
Agreement, dated February 1, 1992, by and among the City, the Authority, and
as Trustee thereunder.
Agreement, Agreement. The terms "Agreement" or "Trust Agreement" means this
Trust Agreement, as originally executed or as it may from time to time be amended as provided for
herein.
Assignment Agreement. The term "Assignment Agreement" means that certain Assignment
Agreement dated as of June 1, 1998 by and between the Authority and the Trustee, as originally
executed or as it may from time to time be amended or supplemented in accordance with its terms.
Authority. The term "Authority" means San Bernardino Public Safety Authority, a joint
exercise of powers authority formed and existing under the laws of the State of California.
Bond Counsel. The term 'Bond Counsel" means an attorney at law or a firm of attorneys
selected by the City of nationally recognized standing in matters pertaining to the tax-exempt nature
7476.2\STiemey\22759.0004
of interest on certificates issued by states and their political subdivisions duly admitted to the
practice of law before the highest court of any state of the United States of America or the District of
Columbia.
Business Day. The term "Business Day" means d day other than: a Saturday or Sunday or a
day on which (i) banks located in the city in which the principal corporate trust office of the Trustee
is located are required or authorized to remain closed, and (ii) on which The New York Stock
Exchange is closed.
Certificates. The term "Certificates" means the certificates of participation executed and
delivered by the Trustee pursuant to this Agreement
Certificate Insurer. The term "Certificate Insurer" means , a New York
stock insurance company, or any successor thereto.
Certificate Payment Fund. The term "Certificate Payment Fund" means the fund by that
name established in Section 5.02 hereof.
Certificate Year. The term "Certificate Year" means the period beginning on the Delivery
Date and ending on the Interest Payment Date that is closest to the date that is twelve months
subsequent to the Delivery Date and each successive twelve month (or shorter) period thereafter
until there are no longer any Certificates Outstanding.
City. The term "City" means the City of San Bernardino, a charter city and municipal
corporation of the State of California and includes, where applicable, the San Bernardino Municipal
Water Department.
Code. The term "Code" means the Internal Revenue Code of 1986, as amended, and any
regulations, rulings,judicial decisions, and notices, announcements, and other releases of the United
States Treasury Department or Internal Revenue Service interpreting and construing it.
Construction Fund. The term "Construction Fund" means the fund by that name established
and maintained by the Trustee pursuant to Section 3.03 of the Trust Agreement.
Cross-Over Date. The term "Cross-Over Date" means February 1, 2001.
Deliver? Date. The term "Delivery Date" means, with respect to the Certificates, the date on
which such Certificates were executed and delivered to the original purchaser thereof.
Department. The term "Department" means the San Bernardino Municipal Water
Department.
Escrow Agreement. The term "Escrow Agreement" means the Escrow Agreement dated as of
June 1, 1998, by and between the City and , the Escrow Bank.
Escrow Bank. The term "Escrow Bank" means
7476.2\STicmcy\22759.0004 2
Escrow Fund. The term "Escrow Fund" means the fund held by the Escrow Bank in an
amount sufficient to defease a portion of the San Bernardino Public Safety Authority, City of San
Bernardino Municipal Water Department 1992 Sewer Certificates of Participation (the "1992
Certificates").
Information Services. The term "Information Services" means Financial Information, Inc.'s
"Daily Called Bond Service," 3G Montgomery Street, 10th Floor, Jersey City, New Jersey 07302,
Attention: Editor; Kenny Information Services "Called Bond Service," 65 Broadway, 16th Floor,
New York, New York 10006; Moody's Investors Service Municipal and Government," 99 Church
Street, 8th Floor, New York, New York 10007, Attention' Municipal News Reports; Standard and
Poor's Corporation "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004;
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 certificates as
the City may designate in a Written Request of the City delivered to the Trustee.
Installment Payments. The term "Installment Payments means the installment payments
payable by the City pursuant to the Installment Purchase Agreement and in the amounts and at the
times set forth in the Installment Purchase Agreement.
Installment Payment Date. The term "Installment Payment Date means each date on which
Installment Payments are scheduled to be paid by the City pursuant to the Installment Purchase
Agreement.
Installment Purchase Agreement. The term "Installment Purchase Agreement" means the
Installment Purchase Agreement dated as of June 1, 1998 by and between the City and the Authority,
as originally executed or as it may from time to time be amended in accordance with its terms.
Interest Payment Date. The term "Interest Payment Date" means February 1 and August 1 of
each year, commencing August 1, 1998.
Outstanding. The term "Outstanding," when used as of any particular time with reference to
Certificates, means (subject to the provisions of Section 11.04) all Certificates theretofor or
thereupon executed and delivered by the Trustee except
(1) Certificates cancelled by the Trustee or delivered to the Trustee for
cancellation;
(2) Certificates paid or deemed to have been paid within the meaning of Section
10.01; and
(3) Certificates in lieu of or in substitution for which other Certificates shall have
been executed and delivered by the Trustee pursuant to Section 2.10.
Owner. The term "Owner" or "Certificate Owner" or "Owner of Certificates" or any similar
term, when used with respect to the Certificates, means any person who shall be the registered owner
of any Outstanding Certificate as shown on the registration books maintained by the Trustee
pursuant to Section 2.08.
7476.2\STiemey\22759.0004 3
Prepayment Price. The term "Prepayment Price" means, with respect to any Certificate (or
portion thereof), the principal amount with respect to such Certificate (or portion thereof) plus the
applicable premium, if any, payable upon prepayment thereof pursuant to the provisions of such
Certificate and this Agreement.
Qualified Investments. The term "Qualified Investments" means any of the following:
(1) direct obligations of the United States of America and securities fully and
unconditionally guaranteed as to the timely payment of principal and interest by the United States of
America, provided that the full faith and credit of the United States of America must be pledged to
any such direct obligation or guarantee ("Direct Obligations");
(2) direct obligations and fully guaranteed certificates of beneficial interest of the
Export-Import Bank of the United States; senior debt obligations of the Federal Home Loan Banks;
debentures of the Federal Housing Administration; guaranteed mortgage-backed bonds and
guaranteed pass-through obligations of the Government National Mortgage Association; guaranteed
Title XI financing of the U.S. Maritime Administration, mortgage-backed securities and senior debt
obligations of the Federal National Mortgage Association; and participation certificates and senior
debt obligations of the Federal Home Loan Mortgage Corporation (collectively, "Agency
Obligations"); provided, however, not more than 10% of the unexpended Certificate proceeds may
be invested in Agency Obligations;
(3) direct obligations of any state of the United States of America or any subdivision or
agency thereof whose unsecured general obligation debt is rated "Aa" or better by Moody's Investors
Service and "AA" or better by Standard & Poor's Corporation, or any obligation fully and
unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation
debt is rated "Aa" or better by Moody's Investors Service and "AA" or better by Standard & Poor's
Corporation.
(4) commercial paper rated "Prime-1" by Moody's Investors Se-vice and "AA" or better
by Standard & Poor's Corporation;
(5) deposits, federal funds or bankers acceptances of any domestic bank, including the
Trustee and including a branch office of a foreign bank which branch office is located in the United
States, provided if it is a branch of a foreign bank, legal opinions are received to the effect that full
and timely payment of such deposit or similar obligation is enforceable against the principal office
or any branch of such foreign bank,which:
(a) has an unsecured, uninsured and unguaranteed obligation rated "Prime-1" or
"Aa" or better by Moody's Investors Service and a "AA" or better by Standard & Poor's
Corporation, or
(b) is the lead bank of a parent bank holding company with an uninsured,
unsecured and unguaranteed obligation meeting the rating requirements in (a) above;
(6) deposits of any bank or savings and loan association which has combined capital,
surplus and undivided profits of not less than $3 million, including the Trustee and provided such
deposits are fully insured by the Federal Deposit Insurance Corporation;
7476.2\STiemey\22759.0004 4
(7) investments in a money-market fund rated "Am" or Am-G" or better by Standard &
Poor's Corporation and "Aa" or better by Moody's Investors Service, if such funds are rated by
Moody's Investors Service;
(8) repurchase agreements with a term of one year or less with any institution with debt
rated "AA" by Standard & Poor's Corporation and "Aa" by Moody's Investors Service or commercial
paper rated "AA" by Standard Poor's Corporation and "Aa" by Moody's Investors Service;
(9) repurchase agreements collateralized by Direct Obligations or Agency Obligations
with any registered broker/dealer subject to .the Securities Investors' Protection Corporation
jurisdiction or any commercial bank, if such unguaranteed obligation is rated "Prime-1" or "Aa" or
better by Moody's Investors Service, and "AA" or better by Standard & Poor's Corporation,
provided:
a. a master repurchase agreement or specific written, repurchase agreement
governs the transaction; and
b. the securities are held by the Trustee or an independent third party acting
solely as agent for the Trustee free and clear of any lien, and such third party is (i) a Federal
Reserve Bank, (ii) a bank which is a member of the Federal Deposit Insurance Corporation
and which has combined capital, surplus and undivided profits of not less than $95 million;
and
C. a perfected first security interest under the Uniform Commercial Code, or
book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such
securities, is created for the benefit of the Trustee; and
d. the repurchase agreement has a term of thirty days or less, and the Trustee or
third party agent will value the collateral securities no less frequently than monthly and will
liquidate the collateral securities if any deficiency in the required collateral percentage is not
restored within two business days of such valuation; and
e. the repurchase agreement matures at least ten days (or other appropriate
liquidation:period) prior to a debt service payment date, and
f. the fair market value of the securities in relation to the amount of the
repurchase obligation, including principal and interest, is equal to at least 103%; and
(10) investment agreements with a bank, insurance or financial institution company which
has an unsecured and uninsured obligation (or claims-paying ability) rated "Aa" or better by
Moody's Investors Service and "AA" or better by Standard & Poor's Corporation, or is the lead bank
of a parent bank holding company with an uninsured, unsecured and unguaranteed obligation
meeting such rating requirements, provided:
a. interest is paid at least semiannually at a fixed rate during the entire term of
the agreement, consistent with Interest Payment Dates, and
7476.2\STiemey\22759.0004 5
b. moneys invested thereunder may be withdrawn without any penalty,
premium, or charge upon notice (provided such notice may be amended or canceled at any
time prior to the withdrawal date), and
C. the agreement is not subordinated"to any other investment agreements of such
insurance company or bank, and
d. the same guaranteed interest rate will be paid on any future deposits made to
restore the reserve to its required amount, and
e. the Trustee received an opinion of counsel that such agreement is an
enforceable obligation of such insurance company or bank.
Rebate Regulations. The term "Rebate Regulations" means the Proposed and Temporary
Treasury Regulations issued under Section 148(f) of the Code.
Record Date. The term "Record Date" means, with respect to any Interest Payment Date for
the Certificates, the fifteenth (15th) day of the calendar month preceding such Interest Payment Date
whether or not such day is a Business Day.
Reserve Fund. The term "Reserve Fund" means the fund by that name established in Section
5.05 hereof.
Securities Depositories. The term "Securities Depositories means: The Depository Trust
Company, 711 Stewart Avenue, Garden City, New York 11530, Fax (516) 227-4039 or 4190;
Midwest Securities Trust Company, Capital Structures Call Notification, 440 South LaSalle Street,
Chicago, Illinois 60605, Fax (312) 663-2343; Philadelphia Depository Trust Company,
Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond
Department, Dex (215) 496-5058; and, in accordance with then current guidelines of the Securities
and Exchange Commission, such other addresses as such depositories may specify and/or such other
securities depositories as the City may designate in a Written Request of the City delivered to the
Trustee.
Series 1998 Reserve Fund Requirement. The term "Series 1998 Reserve Fund Requirement'
means, as of any date of calculation, an amount equal to the lesser of(i) ten percent (10%) of the
original proceeds of the Certificates or (ii) maximum Series 1998 Installment Payments due in the
then current or any subsequent Fiscal Year or (iii) one hundred twenty-five percent (125%) of the
average annual Series 1998 Installment Payments.
Six-month Period. The term "Six-month Period" means, with respect to the Certificates, the
period of time beginning on the Delivery Date and ending six consecutive months thereafter, and
each six-month period thereafter until the latest maturity date of the Certificates (and any
Certificates that refund the Certificates).
Special Escrow Fund. The term "Special Escrow Fund" means the Special Escrow Fund
created under Section 14.1 hereof.
State. The term "State" means the State of California.
7476.2\STiemey\22759.0004 6
Statement of the Authority or City. The term "Statement of the Authority or City" means a
statement signed by or on behalf of (i) the Authority by its Chairman or a Vice Chairman or
Secretary or (ii) by the City by the Mayor or the General Manager or Finance Director of the
Department or by any person who is specifically authorized by resolution of the Common Council of
the City (a certified copy of which has been delivered to the Trustee) to sign or execute such a
document on its behalf. If and to the extent required by the provisions of Section 1.03, each
Statement of the Authority or City shall include the statements provided for in Section 1.03.
Tax Certificate. The term "Tax Certificate" means that certain tax certificate executed on the
Delivery Date by the City in connection with the execution and delivery of the Certificates.
Trustee. The term "Trustee" means . a national banking association,
duly organized and existing under and by virtue of the laws of the United States of America having a
principal corporate trust office in Los Angeles, California, or its successor as Trustee hereunder.
Value or value. The term "Value" or "value" means that the value of any investments shall be
calculated as follows:
a) as to investments the bid and asked prices of which are published on a regular basis
in The Wall Street Journal (or, if not there, then on Bloomberg) the average of the
bid and asked prices for such investments so published on or most recently prior to
such time of determination;
b) as to investments the bid and asked prices of which are not published on a regular
basis in The Wall Street Journal or The New York Times: the average bid price at
such time of determination for such investments by any two nationally recognized
government securities dealers (selected by the City in its absolute discretion) at the
time making a market in such investments, or the bid price published by a nationally
recognized pricing service; and
C) as to certificates of deposit and bankers acceptances: the face amount thereof, plus
accrued interest.
Written Consent of the Authority or City Written Order of the Authority or Citv. Written
Request of the Authority or City Written Requisition of the Authority or City. The terms "Written
Consent of the Authority or City," "Written Order of the Authority or City," "Written Request of the
Authority or City," and "Written Requisition of the Authority or City" mean, respectively, a written
consent, order, request or requisition signed by or on behalf of(i) the Authority by its Chairman or a
Vice Chairman or its Secretary or (ii) the City by the Mayor or the General Manager or Finance
Director of the Department or by any person who is specifically authorized by resolution of the
Common Council of the City (a certified copy of which has been delivered to the Trustee) to sign or
execute such a document on its behalf.
SECTION 1.02. Rules of Construction. Words of any gender shall be deemed and
construed to include all genders, and words importing persons shall include corporations and
associations, including public bodies, as well as natural persons. Unless the context otherwise
indicates, words importing the singular number shall include the plural number and vice versa.
7476.2\STiemey\22759.0004 7
SECTION 1.03. Content of Statements and Opinions. Every statement or opinion with
respect to compliance with a condition or covenant provided for in this Agreement, including each
Statement of the Authority, shall include (a) a statement that the person or persons making or giving
such statement or opinion have read such covenant or condition and the definitions herein relating
thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such statement o opinion are based; (c) a statement
that, in the opinion of the signers, they have made or caused to be made such examination or
investigation as is necessary to enable them to express an informed opinion as to whether or not such
covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of
the signers, such condition or covenant has been complied with.
Any such statement or opinion made or given by an officer of the Authority may be based,
insofar as it relates to legal or accounting matters, upon a statement or opinion of or representations
by counsel or accountants, unless such officer knows, or in the exercise of reasonable care should
have known, that the statement or opinion or representations with respect to the matters upon which
his statement or opinion may be based, as aforesaid, are erroneous. Any such statement or opinion
made or given by counsel or accountants may be based, insofar as it relates to factual matters, upon
information with respect to which is in the possession of the Authority! or upon the statement or
opinion of or representations by an officer or officers of the Authority, unless such counsel,
accountant or consultant knows, or in the exercise of reasonable care should have known, that the
statement or opinion or representations with respect to the matters upon which his opinion may be
based as aforesaid are erroneous.
SECTION 1.04. Recitals.
(a) Installment Purchase Agreement. The Authority and the City have entered into the
Installment Purchase Agreement whereby the Authority has agreed to sell to the City the 1992 Sewer
Project, and the City has agreed to purchase the 1992 Sewer Project from the Authority.
(b) Installment Payments. Under the Installment Purchase Agreement, the City is
obligated to pay to the Authority or its assigns Installment Payments for the purchase of the 1992
Sewer Project.
(c) Assignment Agreement. For the purpose of obtaining the moneys required to be
deposited by the Authority with the Trustee, and for the purpose of securing the obligations of the
Authority hereunder, the Authority has assigned and transferred certain of its rights under the
Installment Purchase Agreement to the Trustee, pursuant to the Assignment Agreement; and in
consideration of such assignment and the execution of this Agreement, the Trustee has agreed to
execute and deliver the Certificates, each evidencing an interest in the Installment Payments in an
aggregate amount equal to the aggregate principal amount of Certificates so executed and delivered.
(d) Conditions Precedent Satisfied. The City and the Authority hereby certify that all
acts, conditions and things required by law to exist, happen and be performed precedent to and in
connection with the execution and entering into of this Agreement have happened and have been
performed in regular and due time, form and manner as required by law, and the parties hereto are
now duly empowered to execute and enter into this Agreement.
7476.2\STiemey\22759.0004 8
ARTICLE II
CERTIFICATES; TERMS AND PROVISIONS
SECTION 2.01. Preparation of Certificates. The Trustee is hereby authorized to execute
certificates of participation, to be designated "San Bernardino Public Safety Authority, City of San
Bernardino Municipal Water Department, 1998 Refunding Sewer Revenue Certificates of
Participation" in an aggregate principal amount of ($ )
evidencing undivided interests in the Installment Payments to be paid by the City under the
Installment Purchase Agreement.
SECTION 2.02. Denominations; Medium and Place of Pavment; Datiniz. The Certificates
shall be delivered in the form of fully registered Certificates in the denomination of$5,000 each or
any Integral multiple thereof; provided that no Certificate shall have principal represented thereby
maturing on more than one year. The Certificates shall be payable in lawful money of the United
States of America.
The principal and Prepayment Price with respect to all Certificates shall be payable upon
presentation and surrender thereof at the principal corporate trust office of the Trustee. Interest with
respect to Certificates shall be payable by check of the Trustee mailed by first class mail on. the
Interest Payment Date of such Certificates to the respective Certificate Owners of record thereof as
of the close of business on the Record Date at the addresses shown on the books required to be kept
pursuant to Section 2.08, or, upon the request of an Owner of at least $1,000,000 in aggregate
principal amount of Certificates, by wire transfer in immediately available funds to an account
designated by such Owner in writing to the Trustee at least fifteen Business Days prior to the Interest
Payment Date, except in each case, that, if and to the extent that there shall be a default in the
payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to
the Owners in whose names any such Certificates are registered at the close of business on a special
record date as determined by the Trustee.
The Certificates shall be dated June 1, 1998. Interest with respect to Certificates shall be
payable from the Interest Payment Date preceding their date of execution, unless such date shall be
after a Record Date and on or before the succeeding Interest Payment Date, in which case interest
shall be payable from such Interest Payment Date, or unless such date shall be on or before the first
Record Date, in which case interest shall be payable from June 1, 1998, provided, however, that if,
as shown by the records of the Trustee, interest represented by the Certificates shall be in default,
Certificates executed in exchange for Certificates surrendered for transfer or exchange shall
represent interest from the last date to which interest has been paid in full or duly provided for with
respect to the Certificates, or, if no interest has been paid or duly provided for with respect to the
Certificates, from June 1, 1998.
SECTION 2.03. Payment of Principal and Interest with Respect to Certificates.
7476.2\STierney\22759.0004 9
(a) Certificates shall become payable on February I in the years and in the amounts and
with an interest component as provided in subsection (b) below at the rates, as follows:
Payment Due Principal Interest
February I Amount Rate
Principal or Prepayment Price due with respect to the Certificates at maturity or prepayment
thereof shall, to the extent of the aggregate principal amount stated upon the Certificates, represent
the sum of those portions of the Installment Payments designated as principal coming due on the
Installment Payment Dates immediately preceding February Ist in each year.
(b) Interest with respect to the Certificates shall be payable on each Interest Payment
Date to and including the date of maturity or prior prepayment. Said interest shall represent the sum
of those portions of the Installment Payments designated as interest coming due on the Installment
Payment Dates, at the rates set forth in subsection (a) above.
SECTION 2.04. Form of Certificates. The Certificates and the form of assignment to
appear thereon shall be in substantially the form set forth in Exhibit A hereto with necessary or
appropriate variations, omissions and insertions as permitted or required by this Agreement.
SECTION 2.05. Execution. The Certificates shall be executed by and in the name of the
Trustee, as trustee under this Agreement, by the manual signature of an authorized officer or
signatory of the Trustee.
SECTION 2.06. Transfer of Certificates. Any Certificate may, in accordance with its
terms, be transferred, upon the books required to be kept pursuant to the provisions of Section 2.08,
by the person in whose name it is registered, in person or by such person's duly authorized attorney,
upon surrender of such Certificate for cancellation at the corporate trust office of the Trustee,
accompanied by delivery of a duly executed written instrument of transfer in a form approved by the
Trustee.
Whenever any Certificate or Certificates shall be surrendered for transfer, the Trustee shall
execute and deliver a new Certificate or Certificates of the same maturity for a like aggregate
principal amount. The Trustee may require the payment by any Certificate Owner requesting any
such transfer of any tax or other governmental charge required to be paid with respect to such
transfer. Following any transfer of Certificates the Trustee shall cancel and destroy the Certificates it
has received.
SECTION 2.07. Exchange of Certificates. Certificates may be exchanged upon surrender
thereof at the corporate trust office of the Trustee, for a like aggregate principal amount of
Certificates of other authorized denominations of the same maturity. The Trustee may require the
payment by the Owner requesting such exchange of any tax or other governmental charge required
to be paid with respect to such exchange. Following any exchange of Certificates the Trustee shall
cancel and destroy the Certificates it has received.
7476.2\STiemey\22759.0004 10
The Trustee shall not be required to register the exchange, or transfer pursuant to Section
2.06 hereof, of any Certificate (i) within 15 days preceding selection of Certificates for prepayment
or(ii) selected for prepayment.
SECTION 2.08. Certificate Registration Books." The Trustee will keep or cause to be kept,
at its corporate trust office, sufficient books for the registration and transfer of the Certificates,
which shall upon reasonable prior notice and at all reasonable times be open to inspection by the
Authority or 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, Certificates as hereinbefore provided.
The person in whose name any Certificate shall be registered shall be deemed the Owner
thereof for all purposes hereof, and payment of or on account of the interest on and principal of and
Prepayment Price, represented by such Certificate shall be made only to or upon the order in writing
of such registered Owner, which payments shall be valid and effectual to satisfy and discharge
liability upon such Certificate to the extent of the sum or sums so paid.
SECTION 2.09. Temporary Certificates. The Certificates may be initially delivered in
temporary form exchangeable for definitive Certificates when ready for delivery. The temporary
Certificates may be printed, lithographed or typewritten, shall be of such denominations as may be
determined by the Trustee, shall be in registered form and may contain such reference to any of the
provisions of this Agreement as may be appropriate. Every temporary Certificate shall be executed
by the Trustee upon the same conditions and in substantially the same manner as the definitive
Certificates. If temporary Certificates are initially delivered, the City will furnish definitive
Certificates without delay, and thereupon the temporary Certificates may be surrendered, for
cancellation, in exchange therefor at the corporate trust office of the Trustee in San Francisco,
California, and the Trustee shall deliver in exchange for such temporary Certificates an equal
aggregate principal amount of definitive Certificates of the same maturity or maturities. Until so
exchanged, the temporary Certificates shall be entitled to the same benefits under this Agreement as
definitive Certificates executed and delivered hereunder.
SECTION 2.10. Certificates Mutilated Lost Destroyed or Stolen. If any Certificate shall
become mutilated, the Trustee shall execute and deliver a new Certificate of like tenor, maturity and
principal amount in exchange and substitution for the Certificate so mutilated, but only upon
surrender to the Trustee at its corporate trust office in San Francisco of the Certificate so mutilated.
Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it and destroyed.
If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft
may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and indemnity
satisfactory to the Trustee shall be given indemnifying the Trustee, the Authority and the City, the
Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of like
tenor, maturity and principal amount, and numbered as the Trustee shall determine, in lieu of and in
substitution for the Certificate so lost, destroyed or stolen. The Trustee may require reasonable
payment from the Owner for preparing each new Certificate executed under this Section and of the
expenses which may be incurred by the Trustee under this Section. Any Certificate executed under
the provisions of this Section in lieu of any Certificate alleged to be lost, destroyed or stolen shall be
equally and proportionately entitled to the benefits of this Agreement with all other Certificates
7476.2\STiemey\22759.0004 11
secured by this Agreement. The Trustee shall not be required to treat both the original Certificate
and any replacement Certificate as being Outstanding for the purpose of determining the principal
amount of Certificates which may be executed hereunder or for the purpose of determining any
percentage of Certificates Outstanding hereunder, but both the original and replacement Certificate
shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of
delivering a new Certificate for a Certificate which has been mutilated, lost, destroyed or stolen and
which has matured or been selected for prepayment, the Trustee may make payment of such
Certificate upon receipt of indemnity satisfactory to the Trustee.
SECTION 2.11. Book-Entry System. (a) The Certificates shall be initially delivered in the
form of a separate single certificated fully registered Certificate for each of the series and maturities
set forth in Section 2.03 hereof. Upon initial delivery, the ownership of each Certificate shall be
registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of
DTC. Except as provided in Section 2.11(d) hereof, all of the Outstanding Certificates shall be
registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of
DTC.
(b) With respect to Certificates registered in the registration books kept by the Trustee in
the name of Cede & Co., as nominee of DTC, the Authority and the Trustee shall have no
responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or
any Participant with respect to any ownership interest in the Certificates,
(ii) the delivery to any Participant or any other person, other than an Owner of a
Certificate, as shown in the registration books kept by the Trustee, of any notice with respect
to the Certificates, including any notice of redemption, or(iii)the payment to any Participant
or any other person, other than an Owner of a Certificate, as shown in the registration books
kept by the Trustee, of any amount with respect to principal of, premium, if any, or interest
on the Certificates. The Authority and the Trustee may treat and consider the person in
whose name each Certificate is registered in the registration books kept by the Trustee as the
holder and absolute owner of such Certificate for the purpose of payment of principal,
premium, if any, and interest with respect to such Certificate, for the purpose of giving
notices of redemption, for the purpose of registering transfers with respect to such
Certificate, and for all other purposes whatsoever. The Trustee shall pay all principal of,
premium, if any, and interest on the Certificates only to or upon the order of the respective
Owners of the Certificates, as shown in the registration books kept by the Trustee, as
provided in Section 2.02 hereof, or their respective attorneys duly authorized in writing, and
all such payments shall be valid and effective to fully satisfy and discharge the Authority's
obligations with respect to payment of principal of, premium, if any, and interest on the
Certificates to the extent of the sum or sums so paid. No person other than an Owner of a
Certificate, as shown in the registration books kept by the Trustee, shall receive a certificated
Certificate evidencing the obligation of the Authority to make payments of principal,
premium, if any, and interest pursuant to this Trust Agreement. Upon delivery by DTC to
the Trustee of written notice to the effect that DTC has determined to substitute a new
nominee in place of Cede & Co., and subject to the provisions herein with respect to Record
Dates, the word "Cede & Co." in this Trust Agreement shall refer to such new nominee of
DTC.
7476.2\STiemey\22759.0004 12
(c) The delivery of the Representation Letter by the Authority and the Trustee shall not
in any way limit the provisions of Section 2.11(b) hereof or in any other way impose upon the
Authority or the Trustee any obligation whatsoever with respect to persons having interests in the
Certificates other than the Owners of Certificates, as shown on the registration books kept by the
Trustee. The Trustee shall take all action necessary to comply with all representations in the
Representation Letter with respect to the Trustee.
(d) (1) DTC may determine to discontinue providing its services with respect to the
Certificates at any time by giving written notice to the City and the Trustee and discharging
its responsibilities with respect thereto under applicable law.
(ii) The Authority, in its sole discretion and without the consent of any other
person, may terminate the services of DTC with respect to the Certificates if the Authority
determines that:
(A) DTC is unable to discharge its responsibilities with respect to the
Certificates, or
(B) a continuation of the requirement that all of the Outstanding
Certificates be registered in the registration books kept by the Trustee in the name of
Cede & Co., or any other nominee of DTC, is not in the best interest of the beneficial
owners of the Certificates.
(iii) Upon the termination of the services of DTC -with respect to the Certificates
pursuant to subsection 2.1 1(d)(ii)(B) hereof, or upon the discontinuance or termination of the
services of DTC with respect to the Certificates pursuant to subsection 2.11(d)(i) or
subsection 2.11(d)(ii)(A) hereof after which no substitute securities depository willing to
undertake the functions of DTC hereunder can be found which, in the opinion of the
Authority, is willing and able to undertake such functions upon reasonable and customary
terms, the Authority is obligated to deliver the Certificates at the expense of the beneficial
owners of the Certificates, as described in this Trust Agreement and the Certificates shall no
longer be restricted to being registered in the registration books kept by the Trustee in the
name of Cede Co., as nominee of DTC, but may be registered in whatever name or names of
Owners of Certificates transferring or exchanging Certificates shall designate, in accordance
with the provisions of this Trust Agreement.
(e) Notwithstanding any other provisions of this Trust Agreement to the contrary, so
long as any Certificate is registered in the name of Cede & Co., as nominee of DTC, all payments
with respect to principal of, premium, if any, and interest on such Certificate and all notices with
respect to such Certificate shall be made and given, respectively, in the manner provided in the
Representation Letter.
7476.2\STiemev\22759.0004 13
ARTICLE III
DELIVERY OF CERTIFICATES; APPLICATION OF PROCEEDS
SECTION 3.01. Delivery of Certificates. The Trustee is hereby authorized to execute and
deliver Certificates in an aggregate principal amount of$ , upon the Written Order of the
Authority.
SECTION 3.02. Application of Proceeds of Certificates. The proceeds received from the
sale of the Certificates shall be deposited with the Trustee, who shall: (i) set aside in the "San
Bernardino Municipal Water Department Reserve Fund" (the "Reserve Fund") $ ,
being a portion of the Series 1998 Reserve Fund Requirement and (ii) transfer to the Escrow Bank
for deposit in the Escrow Fund $ . The Trustee shall establish and maintain the
Certificate Payment Fund and the Reserve Fund.
SECTION 3.03. Validity of Certificates. The validity of the authorization and
delivery of the Certificates is not dependent on and shall not be affected in any way by any
proceedings taken by the City or the Trustee with respect to or in connection with the Installment
Purchase Agreement. The recital contained in the Certificates that all acts, conditions and things
required by the Constitution and statutes of the State of California and this Agreement to exist, to
have happened and to have been performed precedent to and in the delivery thereof do exist, have
happened and have been performed in due time, form and manner as required by law shall be
conclusive evidence of their validity and of compliance with the provisions of law in their delivery.
ARTICLE IV
PREPAYMENT OF CERTIFICATES
SECTION 4.01. Terms of Prepayment.
(a) The Certificates with stated maturities on or after February 1, 20_, shall further be
subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in
the order of maturity designated by the City in a Written Request of the City provided to the Trustee
at least 75 days prior to the prepayment date, and by lot within each maturity, in integral multiples of
$5,000, on or after February 1, 20_, from amounts prepaid by the City pursuant to Section 7.01 of
the Installment Purchase Agreement at a Prepayment Price (expressed as a percentage of the
principal amount of such certificates to be prepaid) plus interest accrued to the date fixed for
prepayment, as set forth below:
Prepayment Dates Prepayment Price
February 1, 20_through January 31, 20_ 102%
February 1, 20_through January 31, 20_ 101
February 1, 20_and thereafter 100
(b) The Certificates maturing February 1, 20_ are subject to mandatory sinking fund
prepayment, upon notice as hereinafter provided, in part (by lot) on each February 1 on and after
February 1, 20_, in integral multiples of $5,000 at a Prepayment Price of the principal amount
7476.2\STiemey\22759.0004 14
The Trustee shall not be required to register the exchange, or transfer pursuant to Section
2.06 hereof, of any Certificate (i) within 15 days preceding selection of Certificates for prepayment
or(ii) selected for prepayment.
SECTION 2.08. Certificate Registration Books.' The Trustee will keep or cause to be kept,
at its corporate trust office, sufficient books for the registration and transfer of the Certificates,
which shall upon reasonable prior notice and at all reasonable times be open to inspection by the
Authority or 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, Certificates as hereinbefore provided.
The person in whose name any Certificate shall be registered shall be deemed the Owner
thereof for all purposes hereof, and payment of or on account of the interest on and principal of and
Prepayment Price, represented by such Certificate shall be made only to or upon the order in writing
of such registered Owner, which payments shall be valid and effectual to satisfy and discharge
liability upon such Certificate to the extent of the sum or sums so paid.
SECTION 2.09. Temporary Certificates. The Certificates may be initially delivered in
temporary form exchangeable for definitive Certificates when ready for delivery. The temporary
Certificates may be printed, lithographed or typewritten, shall be of such denominations as may be
determined by the Trustee, shall be in registered form and may contain such reference to any of the
provisions of this Agreement as may be appropriate. Every temporary Certificate shall be executed
by the Trustee upon the same conditions and in substantially the same manner as the definitive
Certificates. If temporary Certificates are initially delivered, the City will furnish definitive
Certificates without delay, and thereupon the temporary Certificates may be surrendered, for
cancellation, in exchange therefor at the corporate trust office of the Trustee in San Francisco,
California, and the Trustee shall deliver in exchange for such temporary Certificates an equal
aggregate principal amount of definitive Certificates of the same maturity or maturities. Until so
exchanged, the temporary Certificates shall be entitled to the same benefits under this Agreement as
definitive Certificates executed and delivered hereunder.
SECTION 2.10. Certificates Mutilated Lost Destroyed or Stolen. If any Certificate shall
become mutilated, the Trustee shall execute and deliver a new Certificate of like tenor, maturity and
principal amount in exchange and substitution for the Certificate so mutilated, but only upon
surrender to the Trustee at its corporate trust office in San Francisco of the Certificate so mutilated.
Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it and destroyed.
If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft
may be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and indemnity
satisfactory to the Trustee shall be given indemnifying the Trustee, the Authority and the City, the
Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of like
tenor, maturity and principal amount, and numbered as the Trustee shall determine, in lieu of and in
substitution for the Certificate so lost, destroyed or stolen. The Trustee may require reasonable
payment from the Owner for preparing each new Certificate executed under this Section and of the
expenses which may be incurred by the Trustee under this Section. Any Certificate executed under
the provisions of this Section in lieu of any Certificate alleged to be lost, destroyed or stolen shall be
equally and proportionately entitled to the benefits of this Agreement with all other Certificates
7476.2\STiemey\22759.0004 11
secured by this Agreement. The Trustee shall not be required to treat both the original Certificate
and any replacement Certificate as being Outstanding for the purpose of determining the principal
amount of Certificates which may be executed hereunder or for the purpose of determining any
percentage of Certificates Outstanding hereunder, but both the original and replacement Certificate
shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of
delivering a new Certificate for a Certificate which has been mutilated, lost, destroyed or stolen and
which has matured or been selected for prepayment, the Trustee may make payment of such
Certificate upon receipt of indemnity satisfactory to the Trustee.
SECTION 2.11. Book-Entry System. (a) The Certificates shall be initially delivered in the
form of a separate single certificated fully registered Certificate for each of the series and maturities
set forth in Section 2.03 hereof. Upon initial delivery, the ownership of each Certificate shall be
registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of
DTC. Except as provided in Section 2.1 l(d) hereof, all of the Outstanding Certificates shall be
registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee of
DTC.
(b) With respect to Certificates registered in the registration books kept by the Trustee in
the name of Cede & Co., as nominee of DTC, the Authority and the Trustee shall have no
responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or
any Participant with respect to any ownership interest in the Certificates,
(ii) the delivery to any Participant or any other person, other than an Owner of a
Certificate, as shown in the registration books kept by the Trustee, of any notice with respect
to the Certificates, including any notice of redemption, or (iii) the payment to any Participant
or any other person, other than an Owner of a Certificate, as shown in the registration books
kept by the Trustee, of any amount with respect to principal of, premium, if any, or interest
on the Certificates. The Authority and the Trustee may treat and consider the person in
whose name each Certificate is registered in the registration books kept by the Trustee as the
holder and absolute owner of such Certificate for the purpose of payment of principal,
premium, if any, and interest with respect to such Certificate, for the purpose of giving
notices of redemption, for the purpose of registering transfers with respect to such
Certificate, and for all other purposes whatsoever. The Trustee shall pay all principal of,
premium, if any, and interest on the Certificates only to or upon the order of the respective
Owners of the Certificates, as shown in the registration books kept by the Trustee, as
provided in Section 2.02 hereof, or their respective attorneys duly authorized in writing, and
all such payments shall be valid and effective to fully satisfy and discharge the Authority's
obligations with respect to payment of principal of, premium, if any, and interest on the
Certificates to the extent of the sum or sums so paid. No person other than an Owner of a
Certificate, as shown in the registration books kept by the Trustee, shall receive a certificated
Certificate evidencing the obligation of the Authority to make payments of principal,
premium, if any, and interest pursuant to this Trust Agreement. Upon delivery by DTC to
the Trustee of written notice to the effect that DTC has determined to substitute a new
nominee in place of Cede & Co., and subject to the provisions herein with respect to Record
Dates, the word "Cede & Co." in this Trust Agreement shall refer to such new nominee of
DTC.
74 76.2,STiemey\21 2 7 59.0004 12
(c) The delivery of the Representation Letter by the Authority and the Trustee shall not
in any way limit the provisions of Section 2.11(b) hereof or in any other way impose upon the
Authority or the Trustee any obligation whatsoever with respect to persons having interests in the
Certificates other than the Owners of Certificates, as shown on the registration books kept by the
Trustee. The Trustee shall take all action necessary to comply with all representations in the
Representation Letter with respect to the Trustee.
(d) (i) DTC may determine to discontinue providing its services with respect to the
Certificates at anytime by giving written notice to the City and the Trustee and discharging
its responsibilities with respect thereto under applicable law.
(ii) The Authority, in its sole discretion and without the consent of any other
person, may terminate the services of DTC with respect to the Certificates if the Authority
determines that:
(A) DTC is unable to discharge its responsibilities with respect to the
Certificates, or
(B) a continuation of the requirement that all of the Outstanding
Certificates be registered in the registration books kept by the Trustee in the name of
Cede & Co., or any other nominee of DTC, is not in the best interest of the beneficial
owners of the Certificates.
(iii) Upon the termination of the services of DTC -with respect to the Certificates
pursuant to subsection 2.1 1(d)(ii)(B) hereof, or upon the discontinuance or termination of the
services of DTC with respect to the Certificates pursuant to subsection 2.11(d)(i) or
subsection 2.11(d)(ii)(A) hereof after which no substitute securities depository willing to
undertake the functions of DTC hereunder can be found which, in the opinion of the
Authority, is willing and able to undertake such functions upon reasonable and customary
terms, the Authority is obligated to deliver the Certificates at the expense of the beneficial
owners of the Certificates, as described in this Trust Agreement and the Certificates shall no
longer be restricted to being registered in the registration books kept by the Trustee in the
name of Cede Co., as nominee of DTC, but may be registered in whatever name or names of
Owners of Certificates transferring or exchanging Certificates shall designate, in accordance
with the provisions of this Trust Agreement.
(e) Notwithstanding any other provisions of this Trust Agreement to the contrary, so
long as any Certificate is registered in the name of Cede & Co., as nominee of DTC, all payments
with respect to principal of, premium, if any, and interest on such Certificate and all notices with
respect to such Certificate shall be made and given, respectively, in the manner provided in the
Representation Letter.
7476.2\ST iemey\22759.0004 13
ARTICLE III
DELIVERY OF CERTIFICATES; APPLICATION OF PROCEEDS
SECTION 3.01. Delivery of Certificates. The Trustee is hereby authorized to execute and
deliver Certificates in an aggregate principal amount of$ , upon the Written Order of the
Authority.
SECTION 3.02. Application of Proceeds of Certificates. The proceeds received from the
sale of the Certificates shall be deposited with the Trustee, who shall: (i) set aside in the "San
Bernardino Municipal Water Department Reserve Fund" (the "Reserve Fund") $ ,
being a portion of the Series 1998 Reserve Fund Requirement and (ii) transfer to the Escrow Bank
for deposit in the Escrow Fund $ . The Trustee shall establish and maintain the
Certificate Payment Fund and the Reserve Fund.
SECTION 3.03. Validity of Certificates. The validity of the authorization and
delivery of the Certificates is not dependent on and shall not be affected in any way by any
proceedings taken by the City or the Trustee with respect to or in connection with the Installment
Purchase Agreement. The recital contained in the Certificates that all acts, conditions and things
required by the Constitution and statutes of the State of California and this Agreement to exist, to
have happened and to have been performed precedent to and in the delivery thereof do exist, have
happened and have been performed in due time, form and manner as required by law shall be
conclusive evidence of their validity and of compliance with the provisions of law in their delivery.
ARTICLE IV
PREPAYMENT OF CERTIFICATES
SECTION 4.01. Terms of Prepayment.
(a) - The Certificates with stated maturities on or after February 1, 20_, shall further be
subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in
the order of maturity designated by the City in a Written Request of the City provided to the Trustee
at least 75 days prior to the prepayment date, and by lot within each maturity, in integral multiples of
$5,000, on or after February 1, 20_, from amounts prepaid by the City pursuant to Section 7.01 of
the Installment Purchase Agreement at a Prepayment Price (expressed as a percentage of the
principal amount of such certificates to be prepaid) plus interest accrued to the date fixed for
prepayment, as set forth below:
Prepayment Dates Prepayment Price
February 1, 20_through January 31, 20_ 102%
February 1, 20_through January 31, 20_ 101
February 1, 20_and thereafter 100
(b) The Certificates maturing February 1, 20_ are subject to mandatory sinking fund
prepayment, upon notice as hereinafter provided, in part (by lot) on each February 1 on and after
February I, 20_, in integral multiples of $5,000 at a Prepayment Price of the principal amount
7476.2\STiemey\22759.0004 14
thereof plus accrued interest evidenced and represented thereby to the date fixed for prepayment,
without premium. Such Certificates shall be prepaid in the amounts and upon the dates as follows:
Mandatory Prepayment Dates
(February 1) Amount
(Final Maturity)
provided, however, that if some but not all of the Certificates maturing on February 1, 20_ have
been paid pursuant to Section 4.01(a) above, the total amount of sinking fund payments to be made
subsequent to such optional prepayment will be reduced in an amount equal to the corresponding
reduction in Installment Payments which were paid in integral multiples of$5,000.
(c) The Certificates maturing February 1, 20_ are subject to mandatory sinking fund
prepayment, upon notice as hereinafter provided, in part (by lot) on each February 1 on and after
February 1, 20_, in integral multiples of $5,000 at a Prepayment Price of the principal amount
thereof plus accrued interest evidenced and represented thereby to the date fixed for prepayment,
without premium. Such Certificates shall be prepaid in the amounts and upon the dates as follows:
Mandatory Prepayment Dates
(February I) Amount
(Final Maturity)
provided, however, that if some but not all of the Certificates maturing on February 1, 20_ have
been paid pursuant to Section 4.01(a) above, the total amount of sinking fund payments to be made
subsequent to such optional prepayment will be reduced in an amount equal to the corresponding
reduction in Installment Payments which were paid in integral multiples of$5,000.
SECTION 4.02. Selection of Certificates for Prepayment. Whenever less than all of the
Certificates are called for prepayment as provided in Section 4.01(a) hereof, and if the City does not
select the Certificates to be prepaid the Trustee shall select the Certificates or portions thereof to be
prepaid from the Outstanding Certificates in accordance with Section 4.01(a) hereof. The Trustee
shall promptly notify the City in writing of the numbers of the Certificates or portions thereof so
selected for prepayment. If less than all of the Certificates maturing in the years 20_ or 20_ are
redeemed, the respective mandatory prepayment amounts in Section 4.01(b) anchor 4.01(c) shall be
adjusted pro rata to reflect the amount of Certificates redeemed.
SECTION 4.03. Notice of Prepayment. Notice of prepayment shall be mailed, first class
postage prepaid, to the respective Owners of any Certificates designated for prepayment at their
addresses appearing on the Certificate registration books and to the Information Services and by
7476.2\STiemey\22759.0004 15
registered or certified or overnight mail to the Securities Depositories at least thirty days but not
more than sixty days prior to the prepayment date; provided, however, that notice of prepayment of
Certificates, other than mandatory prepayment specified in Section 4.01(b) herein and any notice
that refers to Certificates that are the subject of a refunding, shall be circulated only if sufficient
funds have been deposited with the Trustee to pay the redemption price of the Certificates to be
redeemed.
Each notice of prepayment shall state the date of notice, the prepayment date, the place or
places of prepayment and the prepayment price, shall designate the maturities, CUSIP numbers, if
any, and, if less than all of any such maturity is to be prepaid, the serial numbers of the Certificates
of such maturity to be prepaid by giving the individual number of each Certificate or by stating that
all Certificates between two stated numbers, both inclusive, have been called for prepayment and, in
the case of Certificates to be prepaid in part only, the respective portions of the principal amount
thereof to be prepaid. Each such notice shall also state that on said date there will become due and
payable on each of said Certificates the Prepayment Price thereof or of said specified portion of the
principal represented thereby in the case of a Certificate to be prepaid in part only, together with
interest accrued with respect thereto to the prepayment date, and that (provided that moneys for
prepayment have been deposited with the Trustee) from and after such prepayment date interest with
respect thereto shall cease to accrue, and shall require that such Certificate be then surrendered to the
Trustee. Any defect in the notice or the mailing will not affect the validity of the prepayment of any
Certificate.
The Certificate Insurer shall be notified of any prepayment, other than mandatory sinking
fund prepayment, of any of the Certificates, including the principal amount, maturities and CUSIP
numbers thereof.
Notice of prepayment of Certificates shall be given by the Trustee.
Notice of the prepayment of Certificates, other than mandatory sinking fund prepayment and
excepting any notice that refers to Certificates that are the subject of a refunding, shall be circulated
only if sufficient funds have been deposited with the Trustee to pay the Prepayment Price of the
Certificates to be prepaid.
SECTION 4.04. Partial Prepayment of Certificate. Upon surrender of any Certificate
prepaid in part only, the Trustee shall execute and deliver to the Owner thereof, at the expense of the
City, a new Certificate or Certificates of authorized denominations equal in aggregate principal
amount to the unprepaid portion of the Certificate surrendered and of the same Interest rate and
maturity.
SECTION 4.05. Effect of Prepayment. When notice of prepayment has been duly given as
aforesaid, and moneys for payment of the Prepayment Price of, together with interest accrued to the
prepayment date with respect to, the Certificates (or portions thereof) so called for prepayment are
held by the Trustee, the Certificates (or portions thereof) so called for prepayment shall, on the
prepayment date designated in such notice, become due and payable at the Prepayment Price
specified in such notice and interest accrued thereon to the prepayment date; and from and after the
date so designated interest represented by the Certificates so called for prepayment shall cease to
accrue, said Certificates (or portions thereof) shall cease to be entitled to any benefit or security
7476 2\STiemeyQ2759.0004 16
under this Agreement, and the Owners of said Certificates shall have no rights in respect thereof
except to receive payment of said Prepayment Price and accrued interest.
All Certificates prepaid pursuant to the provisions of this Article shall be cancelled upon
surrender thereof and destroyed by the Trustee.
ARTICLE V
INSTALLMENT PAYMENTS
SECTION 5.01. Pledge and Deposit of Installment Payments. The Installment Payments
are hereby irrevocably pledged to, and shall be used for, the punctual payment of the Certificates,
and the Installment Payments shall not be used for any other purpose while any of the Certificates
remain Outstanding. This pledge shall constitute a first and exclusive lien on the Installment
Payments in accordance with the terms hereof.
All Installment Payments to which the Authority may at any time be entitled (including
income or profit from investments pursuant to Section 5.03) shall be paid directly to the Trustee
pursuant to the terms of the Assignment Agreement, and if received by the Authority at any time
shall be deposited by the Authority with the Trustee within one Business Day after the receipt
thereof, and the Trustee shall deposit all Installment Payments as and when received in the
Certificate Payment Fund. All moneys at any time deposited in the Certificate Payment Fund shall
be held by the Trustee in trust for the benefit of the Owners from time to time of the Certificates, but
shall nevertheless be disbursed, allocated and applied solely for the uses and purposes herein set
forth.
SECTION 5.02. Certificate Payment Fund. The Trustee shall pay from the Certificate
Payment Fund, the interest and principal due and payable on each Interest Payment Date and the
Prepayment Price of Certificates when due, as provided in Section 4.01 hereof.
All earnings derived from the investment of funds on deposit in the Certificate Payment
Fund shall be retained therein. On the day 30 days before each Interest Payment Date or, if such day
is not a Business Day, on the next preceding Business Day, the Trustee shall transfer all earnings
from the Reserve Fund not used to meet the Series 1998 Reserve Requirement and for which the
Trustee has not received an instruction pursuant to Section 5.05 hereof to the Certificate Payment
Fund for payment of interest on the next Interest Payment Date. On the day 30 days preceding an
Interest Payment Date or, if such day is not a Business Day, on the next preceding Business Day, the
Trustee shall notify the City the amount necessary to be deposited in the Certificate Payment Fund to
pay the interest and principal, as the case may be, coming due on the next Interest Payment Date;
provided, however, the obligation of the City to pay shall not be contingent upon the receipt of such
notice.
SECTION 5.03. Investment of Moneys in Special Funds. Any moneys in Certificate
Payment Fund and the Reserve Fund shall be invested by the Trustee, upon the Written Request of
the City, in Qualified Investments which will mature on or before the dates when such moneys are
scheduled to be needed for payment from such fund. Securities acquired as an investment of moneys
in a fund shall be credited to such fund.
7476.2\STiemey\22759.0004 17
In the absence of written investment direction from the City, the Trustee shall invest moneys
held by it solely in Qualified Investments specified in clause (7) of the definition thereof.
Subject to the further provisions of Section 6.03 hereof, the Trustee may sell or present for
prepayment any obligations so purchased at the direction of the City whenever it shall be necessary
in order to provide moneys to meet any payment, and the Trustee shall not be liable or responsible
for any loss resulting from such investment. The Trustee may act as principal or agent in the
acquisition or disposition of any Investment. The Trustee may commingle moneys held in any of the
funds or accounts established pursuant to this Agreement. into a separate fund or funds for
investment purposes only; provided, however, that all funds or accounts held by the Trustee
hereunder shall be accounted for separately notwithstanding such commingling.
SECTION 5.04. Restrictions on Investment of Money in Reserve Fund. Investments
purchased with funds on deposit in the Reserve Fund shall have a term to maturity not greater than
five years. Such investments (except investment agreements) shall be valued by the Trustee as
frequently as requested by the City, but not less often than annually, at the market value thereof,
exclusive of accrued interest. Deficiencies in the amount on deposit in the Reserve Fund resulting
from a decline in market value shall be restored by the City no later than the succeeding valuation
date as provided in Section 5.05 of this Agreement and Section 5.02 of the Installment Purchase
Agreement. The Trustee shall send notice of such deficiency to the Certificate Insurer.
SECTION 5.05. Reserve Fund. The Trustee shall deposit in the Reserve Fund the amounts
required to be deposited therein pursuant to the Installment Purchase Agreement and this Agreement
and shall apply moneys in the Reserve Fund in accordance with this Section 5.05.
If on the fourth Business Day prior to any Interest Payment Date the money in the Certificate
Payment Fund is insufficient to make the payments required by the Trust Agreement with respect to
Certificates on such Interest Payment Date, the Trustee shall transfer from the Reserve Fund to the
Certificate Payment Fund the amount of such insufficiency.
In the event that the Trustee has transferred money from the Reserve Fund to the Certificate
Payment Fund in accordance with this Section 5.05, upon receipt of the moneys from the City to
increase the balance in the Reserve Fund to the Series 1998 Reserve Fund Requirement, the Trustee
shall deposit such money in the Reserve Fund. Any deficiency in the Reserve Fund due to a draw
thereon shall be replenished within one year of such deficiency in twelve equal monthly
installments.
All moneys in the Reserve Fund shall be used and withdrawn by the Trustee solely for the
purpose of paying principal and interest with respect to the Certificates or, to the extent that earnings
exceed the Series 1998 Reserve Fund Requirement, such excess amount shall be transferred to the
Rebate Fund in the amount designated in a Written Order of the City delivered to the Trustee, for the
purpose of meeting the City's rebate obligation to the United States and the balance, if any, to the
Certificate Payment Fund.
The City may satisfy the Series 1998 Reserve Fund Requirement to deposit a specified
amount in the Reserve Fund by the deposit of a surety bond, insurance policy or letter of credit as set
forth below. The following requirements shall be fulfilled to the satisfaction of the Certificate
7476.2\STiemey\22759.0004 18
Insurer in the event the Reserve Fund Requirement is fulfilled by a deposit of a credit instrument in
lieu of cash:
1. A surety bond or insurance policy issued to the Trustee by a company
licensed to issue such a bond or policy may be deposited in the Reserve Fund to meet the
Series 1998 Reserve Fund Requirement if the claims paying ability of the issuer thereof shall
be rated "AAA" by Standard & Poor's Corporation and "Aaa" by Moody's Investors Service.
2. An unconditional irrevocable letter of credit issued to the Trustee, as agent of
the Certificateowners, by a bank may be deposited in the Reserve Fund to meet the Series
1998 Reserve Fund Requirement if the issuer thereof is rated at least "AA" by Standard &
Poor's Corporation. The letter of credit shall be payable in one or more draws upon
presentation by the beneficiary of a sight draft accompanied by its certificate that it then
holds insufficient funds to make a required payment of principal or interest on the
Certificates. The draws shall be payable within two days of presentation of the sight draft.
The letter of credit shall be for a term of not less than three years. The issuer of the letter of
credit shall be required to notify the City and the Trustee, not later than 30 months prior to
the stated expiration date of the letter of credit, as to whether such expiration date shall be
extended and if so, shall indicate the new expiration date.
If such notice indicates that the expiration date shall not be extended, the City shall
deposit in the Reserve Fund an amount sufficient to cause the cash or Qualified Investments
on deposit in the Reserve Fund together with any other qualifying credit instruments, to
equal the Series 1998 Reserve Fund Requirement on all Outstanding Certificates, such
deposit to be paid in equal installments on at least a semi-annual basis over the remaining
term of the letter of credit, unless the Reserve Fund credit instrument is replaced by a
Reserve Fund credit instrument meeting the requirements in (1) or (2) hereof. The letter of
credit shall permit a draw weeks prior to the expiration full not less than two weeks prior to
the expiration or termination of such letter of credit if the letter of credit has not been
replaced or renewed. The Trustee shall draw upon the letter of credit prior to its expiration or
termination unless an acceptable replacement is in place or the Reserve Fund is fully funded
in its required amount.
3. The use of any Reserve Fund credit instrument pursuant to this paragraph
shall be subject to receipt of an opinion of counsel as to the due authorization, execution,
delivery and enforceability of such instrument in accordance with its terms, subject to
applicable laws affecting creditors' rights generally, and, in the event the issuer of such credit
instrument is not a domestic entity, an opinion of foreign counsel to such effect. In addition,
the use of an irrevocable letter of credit shall be subject to receipt of an opinion of counsel to
the effect that payments under such letter of credit would not constitute avoidable
preferences under Section 547 of the U.S. Bankruptcy Code or similar state laws with
avoidable preference provisions in the event of the filing of a petition for relief under the
U.S. Bankruptcy Code or similar state laws by or against the City or the Authority (or any
other account party under the letter of credit).
4. The obligation to reimburse the issuer of a Reserve Fund credit instrument
for any fees, expenses, claims or draws upon such Reserve Fund credit instrument shall be
7476.2\STiemey\22759.0004 19
subordinate to the payment of the Installment Payments. The right of the issuer of a Reserve
Fund Credit instrument to payment or reimbursement of its fees and expenses shall be
subordinated to cash replenishment of the Reserve Fund, and, subject to the second
succeeding sentence, its right to reimbursement for claims or draws shall be on a parity with
the cash replenishment of the Reserve Fund. The Reserve Fund credit instrument shall
provide for a revolving feature under which the amount available thereunder will be
reinstated to the extent of any reimbursement of draws or claims paid. If the revolving
feature is suspended or terminated for any reason, the right of the issuer of the Reserve Fund
credit instrument to reimbursement will be further subordinated to cash replenishment of the
Reserve Fund to an amount equal to the difference between the full original amount
available under the Reserve Fund credit instrument and the amount then available for further
draws or claims. If(a) the issuer of a Reserve Fund credit instrument becomes insolvent or
(b) the issuer of a Reserve Fund credit instrument defaults in its payment obligations
thereunder or (c) the claims-paying ability of the issuer of the insurance policy or surety
bond becomes rated below an Standard & Poor's Corporation "AAA" or a Moody's Investors
Service "Aaa" or (d) the rating of the issuer of the letter of credit falls below a Standard &
Poor's Corporation "AA", the obligation to reimburse the issuer of the Reserve Fund credit
instrument shall be subordinate to the cash replenishment of the Reserve Fund.
5. If (a) the revolving reinstatement feature described in the preceding
paragraph is suspended or terminated or (b) the rating of the claims paying ability of the
issuer of the surety bond or insurance policy falls below a Standard & Poor's Corporation
"AAA" or a Mood'; Investors Service "Aaa" or (c) the rating of the issuer of the letter of
credit falls belov, a Standard & Poor's Corporation "AA", the City shall either (i) deposit into
the Reserve Fund an amount sufficient to cause the cash or Qualified Investments on deposit
in the Reserve Fund to equal the Series 1998 Reserve Fund Requirement, such amount to be
paid within one year of such deficiency in twelve equal installments or (ii) replace such
instrument with a Buret-, bond. insurance policy or letter of credit meeting the requirements
in either (1) or (2) above within six months of such occurrence. In the event (a) the rating of
the claims-paying ability of the issuer of the surety bond or insurance policy falls below "A"
or (b) the rating of the issuer of the Letter of credit falls below "A" or (c) the issuer of the
Reserve Fund credit instrument defaults in its payment obligations or (d) the issuer of the
Reserve Fund credit instrument becomes insolvent. the City shall either (i) deposit into the
Reserve Fund an amount sufficient to cause the cash or Qualified Investments on deposit in
the Reserve Fund equal to Series 1998 Reserve Fund Requirement on all outstanding
Certificates, such amount to be paid over the ensuing year in equal installments on at least a
monthly basis or (ii) replace such instrument with a surety bond, insurance policy or letter of
credit meeting the requirements in either of (1) or (2) above within six months of such
occurrence.
6. The amount available for draws or claims under the Reserve Fund credit
instrument may be reduced by the amount of cash or Qualified Investments deposited in the
Reserve Fund pursuant to clause (1) of the preceding subparagraph 5.
7. If the City chooses one or more of the above described alternatives to a
cash-funded Reserve Fund, any amounts owed by the City to the issuer of such credit
instrument as a result of a draw thereon or a claim thereunder. as appropriate, shall be
7476.2\STiemey\22759.0004 20
included in any calculation of Debt Service requirements required to be made pursuant to
this Agreement or the Installment Purchase Agreement.
8. The Trustee shall ascertain the necessity for a claim or draw upon the
Reserve Fund credit instrument and provide notice to the issuer of the Reserve Fund credit
instrument in accordance with its terms not later than three Business Days (or such longer
period as may be necessary depending on the permitted time period for honoring a draw
under the Reserve Fund credit instrument) prior to each Interest Payment Date.
9. Cash on deposit in the Reserve Fund shall be used (or investments purchased
with such cash shall be liquidated and the proceeds applied as required) prior to any drawing
on any Reserve Fund credit instrument. If and to the extent that more than one Reserve Fund
credit instrument is deposited in the Reserve Fund, drawings thereunder and repayments of
costs associated therewith shall be made on a pro rata basis, calculated by reference to the
maximum amounts available thereunder.
Any money in the Reserve Fund in excess of the Series 1998 Reserve Fund Requirement
after the City acquires the alternate security and pays the appropriate costs as herein provided shall
be deposited into the Rebate Fund, the Certificate Payment Fund or transferred to the City at the
written direction of the City.
SECTION 5.06. Pledge of Monevs in Funds. All amounts on deposit in the Certificate
Payment Fund and the Reserve Fund are hereby irrevocably pledged to the Owners of the
Certificates as provided herein. This pledge shall constitute a first and exclusive lien on the
Certificate Payment Fund and the Reserve Fund for the benefit of the Owners of the Certificates in
accordance with the terms hereof and of the Installment Purchase Agreement.
SECTION 5.07. Rebate Fund.
(a) Establishment of Rebate Fund. With respect to the execution and delivery of the
Certificates, the Trustee shall establish a special fund with respect to the Certificates designated as
the "Rebate Fund" (the "Rebate Fund"), and within the Rebate Fund shall establish a separate special
account for the Certificates, to be designated as the 1998 Rebate Account (the "Rebate Account")
and comply with the requirements of Subsection (1) below and, if the City has elected in the Tax
Certificate to pay a penalty in lieu of rebate with respect to the Certificates, pursuant to Section
148(f)(4)(C)(vii) of the Code (the "1 1/2% Penalty"), within the Rebate Fund shall establish an
Alternative Penalty Account (the "Alternative Penalty Account") and the City shall instruct the
Trustee to comply with the requirements of Subsection (2) below. All money at any time deposited
in the Rebate Fund shall be held by the Trustee in trust, for payment to the United States Treasury.
All amounts on deposit in the Rebate Fund shall be governed by this Section 5.07 and the Tax
Certificate, unless the City obtains an opinion of Bond Counsel that the exclusion from gross income
of the interest component of the obligation represented by the Certificates will not be adversely
affected for federal income tax purposes if such requirements are not satisfied.
(1) Rebate Accounts. The following requirements shall be satisfied with respect to the
Rebate Account:
7476.2\STiemey\22759.0004 21
(i) Annual Computation. Within 55 days of the end of each applicable
Certificate Year, the City shall calculate or cause to be calculated the amount of rebatable
arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-2T of the
Rebate Regulations (taking into account any applicable exceptions with respect to the
computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g.,
the temporary investments exceptions of Section 148(f)(4)(B) and (C) of the Code), and
taking into account whether the 1 1/2% Penalty has been elected), for this purpose treating
the last day of the Certificate Year as a computation date, within the meaning of Section
1.148-8T(b) of the Rebate Regulations (the "Rebatable Arbitrage"). The City shall obtain
expert advice as to the amount of the Rebatable Arbitrage to comply with this Section.
(ii) Annual Transfer. Within 55 days of the end of each applicable Certificate
Year, the City shall instruct the Trustee in writing to deposit an amount in the applicable
Rebate Account from any legally available funds, including the Reserve Fund, if and to the
extent required, so that the balance in the applicable Rebate Account shall equal the amount
of Rebatable Arbitrage so calculated in accordance with (i) of this Subsection (a)(1). In the
event that immediately following the transfer required by the previous sentence, the amount
then on deposit to the credit of the applicable Rebate Account exceeds the amount required
to be on deposit therein, the City may instruct the Trustee to withdraw the excess from the
applicable Rebate Account and then credit the excess to the Certificate Payment Fund.
(iii) Payment to the Treasury. With respect to each such applicable Rebate
Account, the City shall instruct the Trustee to pay to the United States Treasury, out of
amounts in the applicable Rebate Account,
(X) Not later than 60 days after the end of (A) the applicable fifth
Certificate Year, and (B) each applicable fifth Certificate Year thereafter, an amount
equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such
Certificate Year; and
(Y) Not later than 60 days after the payment of all of the applicable issue
of obligations, an amount equal to 100% of the Rebatable Arbitrage calculated as of
the end of such Certificate Year, and any income attributable to the Rebatable
Arbitrage, computed in accordance with Section 148(f) of the Code.
In the event that, prior to the time of any payment required to be made from a Rebate
Account, the amount in the Rebate Account is not sufficient to make such payment when such
payment is due, the City shall calculate or cause to be calculated the amount of such deficiency and
deposit an amount received from any legally available source, including the Reserve Fund, equal to
such deficiency in the Rebate Account prior to the time such payment is due. Each payment required
to be made pursuant to this Subsection (a)(1) shall be made to the Internal Revenue Service Center,
Philadelphia, Pennsylvania 19255 on or before the date on which such payment is due, and shall be
accompanied by Internal Revenue Service Form 8038-T, or shall be made in such other manner as
provided under the Code.
(2). Alternative Penalty Account.
7476.2\STiemey\22759.0004 22
(i) Six-Month Computation. If an Alternative Penalty Account has been
established, within 85 days of each Six-Month Period, the City shall determine or cause to be
determined whether the 1 1/2% Penalty is payable (and the amount of such penalty) as of the
close of the applicable Six-Month Period. The City shall obtain expert advice in making such
determinations.
(ii) Six-Month Transfer. Within 85 days of the close of each Six-Month Period,
the City shall deposit in the Alternative Penalty Account from any legally available source of
funds, including the Reserve Fund, if and to the extent required, so that the balance in the
Alternative Penalty Account equals the amount of 1 1/2% Penalty due and payable to the
United States Treasury determined as provided in Subsection (a)(2)(i) above. In the event
that immediately following the transfer provided in the previous sentence, the amount then
on deposit to the credit of the Alternative Penalty Account exceeds the amount required to be
on deposit therein to make the payments required by Subsection (iii) below, the City may
instruct the Trustee to withdraw the excess from the Alternative Penalty Account and credit
the excess to the Reserve Fund.
(iii) Payment to the Treasury. The City shall pay to the United States Treasury,
out of amounts in an Alternative Penalty Account, not later than 90 days after the close of
each Six-Month Period the 1 1/2% Penalty, if applicable and payable, computed in
accordance with Section 148(f)(4) of the Code. In the event that, prior to the time of any
payment required to be made from the Alternative Penalty Account, the amount in such
Account is not sufficient to make such payment when such payment is due, the City shall
calculate the amount of such deficiency and deposit an amount received from any legally
available source of funds, including the Reserve Fund, equal to such deficiency into the
Alternative Penalty Account prior to the time such payment is due. Each payment required to
be made pursuant to this Subsection (a)(2) shall be made to the Internal Revenue Service,
Philadelphia, Pennsylvania 19255 on or before the date on which such payment is due, and
shall be accompanied by Internal Revenue Service Form 8038-T or shall be made in such
other manner as provided under the Code.
(b) Disposition of Unexpended Funds. Any funds remaining in a Rebate Fund after
prepayment of the Certificates and the 1986 Bonds and the payments described in Subsection
(a)(1)(iii) or (a)(2)(iii) (whichever is applicable), may be withdrawn by the City and utilized in any
manner by the City.
(c) Survival of Defeasance. Notwithstanding anything in this Section to the contrary, the
City's obligation to comply with the requirements of this Section shall survive the defeasance of the
Certificates.
(d) The Trustee shall have no responsibility or liability with respect to the provisions of
this Section 3.05 other than to follow the written directions of the City and shall be deemed
conclusively to have complied with the provisions of this Section 3.05 if it follows the written
directions of the City delivered pursuant to this Section and shall have no liability or responsibility to
enforce compliance by the City herewith or with the Tax Certificate.
7476.2\ST iemev\22759.0004 23
ARTICLE VI
COVENANTS
SECTION 6.01. Authority and City to Comply with Installment Purchase Agreement.
Each of the Authority and City covenants and agrees with the Owners of the Certificates to perform
all obligations and duties imposed on it under the Installment Purchase Agreement and, together
with the Trustee, to enforce such Installment Purchase Agreement against the other party thereto in
accordance with its terms.
The Authority and the City each will in all respects promptly and faithfully keep, perform
and comply with all the terms, provisions, covenants, conditions and agreements of the Installment
Purchase Agreement to be kept, performed and complied with by it
The Authority and the City each agrees not to do or permit anything to be done, or omit or
refrain from doing anything, in any case where any such act done or permitted to be done, or any
such omission of or refraining from action, would or might be a ground for cancellation or
termination of the Installment Purchase Agreement.
SECTION 6.02. City Budgets. On or prior to August 15 the City shall certify to the
Trustee that the amounts budgeted for payment of Installment Payments are fully adequate for the
payment of all Installment Payments due under the Installment Purchase Agreement for such Fiscal
Year. If the amounts so budgeted are not adequate for the payment of Series 1998 Installment
Payments due under the Installment Purchase Agreement, the City will take such action as may be
necessary to cause such annual budget to be amended, corrected or augmented so as to include
therein the amounts required to be raised by the City in the then ensuing Fiscal Year for the payment
of Series 1998 Installment Payments due under the Installment Purchase Agreement and will notify
the Trustee of the proceedings then taken or proposed to be taken by the City.
SECTION 6.03. Federal Tax Covenants. Notwithstanding any other provision of this Trust
Agreement, absent an opinion of Bond Counsel that the exclusion from gross income of the interest
component of the obligation represented by the Certificates will not be adversely affected for federal
income tax purposes, the City covenants to comply with all applicable requirements of the Code
necessary to preserve such exclusion from gross income and specifically covenants, without limiting
the generality of the foregoing, as follows:
(1) Private Activity. The City will take no action or refrain from taking any action or
make any use of the proceeds of the Certificates or of any other monies or property which would
cause the obligation represented by the Certificates to be "private activity bonds" within the meaning
of Section 141 of the Code;
(2) Arbitrage. The City will make no use of the proceeds of the Certificates or of any
other amounts or property, regardless of the source, or take any action or refrain from taking any
action which will cause the obligation represented by the Certificates to be "arbitrage bonds" within
the meaning of Section 148 of the Code;
7476.2\STiemey\22759.0004 24
(3) Federal Guaranty. The City will make no use of the proceeds of the Certificates or
take or omit to take any action that would cause the obligation represented by the Certificates to be
"federally guaranteed" within the meaning of Section 149(b) of the Code;
(4) Information Reporting. The City will take or cause to be taken all necessary action to
comply with the informational reporting requirement of Section 149(e) of the Code;
(5) Hedge Bonds. The City will make no use of the proceeds of the Certificates or any
other amounts or property, regardless of the source, or take any action or refrain from taking any
action that would cause the obligation represented by the Certificates to be considered "hedge
bonds" within the meaning of Section 149(g) of the Code, unless the City takes all necessary action
to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion
from gross income of the interest component obligation represented by the Certificates for federal
income tax purposes; and
(6) Miscellaneous. The City will take no action or refrain from taking any action
inconsistent with its expectations stated in the Tax Certificate and will comply with the covenants
and requirements stated therein and incorporated by reference herein.
SECTION 6.04. Accounting Records and Reports. The Trustee shall keep or cause to be
kept proper books of record and account in which complete and correct entries shall be made of all
transactions made by it relating to the receipts, disbursements, allocation and application of the
Installment Payments, and such books shall be available for inspection by the City and by any
Owner or Owners of at least 5% aggregate principal amount of Certificates, or his agent or
representative, at reasonable hours and under reasonable conditions. Each month, so long as the
Certificates are Outstanding, the Trustee shall furnish to the City a statement covering receipts,
disbursements, allocation and application of amounts on deposit in the funds and accounts created
hereunder held by it.
SECTION 6.05. Compliance with Trust Agreement. The Trustee will not execute, or
permit to be executed, any Certificates in any manner other than in accordance with the provisions of
this Agreement, and the City will not suffer or permit any default by it to occur under this
Agreement, but will faithfully observe and perform all the covenants, conditions and requirements
hereof.
SECTION 6.06. Observance of Laws and Regulations. To the extent necessary to assure
its performance hereunder, the Authority and the City will each well and truly keep, observe and
perform all valid and lawful obligations or regulations now or hereafter imposed on it by contract, or
prescribed by any law of the united States of America, or of the State, or by any officer, board or
commission having jurisdiction or control, as a condition of the continued enjoyment of any and
every right, privilege or franchise now owned or hereafter acquired by the Authority or the City
respectively, including its right to exist and carry on its business, to the end that such contracts,
rights and franchises shall be maintained and preserved, and shall not become abandoned, forfeited
or in any manner impaired.
SECTION 6.07. Compliance with Contracts. The City shall comply with the terms,
covenants and provisions, express or implied, of all contracts for the use of the 1992 Sewer Project
7476.2\STiemey\22759.0004 25
by the City, and all other contracts and agreements affecting or involving the 1992 Sewer Project to
the extent that the City is a party thereto.
SECTION 6.08. Prosecution and Defense of Suits. The City shall promptly, upon request
of the Trustee or any Certificate Owner, from time to time take such action as may be necessary or
proper to remedy or cure any defect in or cloud upon the title to the Enterprise or any part thereof,
whether now existing or hereafter developing, shall prosecute all such suits, actions and other
proceedings as may be appropriate for such purpose and, to the extent permitted by law, shall
indemnify and save the Trustee, the Authority and every Certificate Owner harmless from all loss,
cost, damage and expense, including attorneys fees, which they or any of them may incur by reason
of any such defect, cloud, suit, action or proceeding.
The City shall defend against every suit, action or proceeding at any time brought against the
Trustee,the Authority or any Certificate Owner upon any claim arising out of the receipt, application
or disbursement of any of the Installment Payments or involving the rights of the Trustee, the
Authority or any Certificate Owner under this Agreement; provided that the Trustee, the Authority
or any Certificate Owner at such party's election may appear in and defend any such suit, action or
proceeding. To the extent permitted by law, the City shall indemnify and hold harmless the Trustee,
the Authority and the Certificate Owners against any and all liability claimed or asserted by any
person, arising out of such receipt, application or disbursement, and shall indemnify and hold
harmless the Certificate Owners against any attorneys fees or other expenses which any of them may
incur in connection with any litigation to which any of them may become a party by reason of
ownership of Certificates. The City shall promptly reimburse the Authority or any Certificate Owner
in the full amount of any attorneys fees or other expenses which it or such Owner may incur in
litigation or otherwise in order to enforce such party's rights under this Agreement or the
Certificates, provided that such litigation shall be concluded favorably to such party's contentions
therein.
SECTION 6.09. Recordation and Filing. The City shall record, register, file, renew, refile
and re-record all such documents, including financing statements, as may be required by law in order
to maintain a security interest in this Agreement and the Assignment Agreement, all in such manner,
at such times and in such places as may be required by, and to the extent permitted by, law in order
fully to preserve, protect and perfect the security of the Certificate Owners and the rights and
security interests of the Trustee. The City shall do whatever else may be necessary or be reasonably
required in order to perfect and continue the lien of this Agreement and the Assignment Agreement.
SECTION 6.10. Further Assurances. Whenever and so often as requested so to do by the
Trustee or any Certificate Owner, the Authority and the City will promptly execute and deliver or
cause to be executed and delivered all such other and further instruments, documents or assurances,
and promptly do or cause to be done all such other and further things, as may be necessary or
reasonably required in order to further and more fully vest in the Trustee and the Certificate Owners
all rights, interest, powers, benefits, privileges and advantages conferred or intended to be conferred
upon them by this Agreement.
7476.2\STiemey\22759.0004 26
ARTICLE VII
DEFAULT AND LIMITATION OF LIABILITY
SECTION 7.01. Notice of Non-Pavment. In the event of delinquency in the payment of
any Installment Payments due by the City pursuant to the Installment Purchase Agreement, the
Trustee shall, after one (1) Business Day following the date upon which such delinquent Installment
Payment was due, immediately give written notice of the delinquency and the amount of the
delinquency to the City and the Authority with a copy to the Certificate Insurer; provided, however,
that the Trustee in determining if an Installment Payment delinquency has occurred, no effect shall
be given to payments made under the Certificate Insurance Policy. Notice of a non-payment default
shall be sent to the Certificate Insurer by the Trustee two Business Days after the Trustee has actual
knowledge of such default, and notice of all other defaults shall be sent to the Certificate Insurer by
the Trustee within 30 days of the Trustee's knowledge of such default.
SECTION 7.02. Action on Default or Termination. Upon the occurrence of an Event of
Default (as that term is defined in the Installment Purchase Agreement), which event shall constitute
a default hereunder, and in each and every such case during the continuance of such Event of
Default, the Trustee at the direction of the Owners of not less than a majority in aggregate principal
amount of Certificates at the time Outstanding (but only with prior written consent of the Certificate
Insurer) shall be entitled, upon notice in writing to the City, to accelerate the unpaid Installment
Payments under the Installment Purchase Agreement and to exercise the remedies provided to the
Authority in the Installment Purchase Agreement.
SECTION 7.03. Other Remedies of the Trustee. The Trustee shall have the right
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its
rights against the City or any director, officer or employee thereof, and to compel the City or any
such director, officer or employee to perform or carry out its or his duties under law and the
agreements and covenants required to be performed by it or him contained herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights
of the Trustee; or
(c) by suit in equity upon the happening of any default hereunder to require the City and
its directors, officers and employees to account as the trustee of an express trust.
SECTION 7.04. Non Waiver. A waiver of any default or breach of duty or contract by the
Trustee shall not occur without the written consent of the Certificate Insurer and shall not affect any
subsequent default or breach of duty or contract or impair any rights or remedies on any such
subsequent default or breach of duty or contract.No delay or omission by the Trustee to exercise any
right or remedy accruing upon any default or breach of duty or contract shall impair any such right
or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an
acquiescence therein, and every right or remedy conferred upon the Trustee by law or by this article
may be enforced and exercised from time to time and as often as shall be deemed expedient by the
Trustee.
7476.2\STiemey\22759.0004 27
If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned
or determined adversely to the Trustee, the Trustee, Certificate Insurer, Owner of Certificates and
the City shall be restored to their former positions, rights and remedies as if such action, proceeding
or suit had not been brought or taken.
SECTION 7.05. Remedies Not Exclusive. No remedy herein conferred upon or reserved to
the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now or hereafter
existing in law or in equity or by statute or otherwise and may be exercised without exhausting and
without regard to any other remedy conferred by any law.
SECTION 7.06. No Obligation by the City to Owners. Except for the payment of
Installment Payments when due in accordance with the Installment Purchase Agreement and the
performance of the other covenants and agreements of the City contained in said Installment
Purchase Agreement and herein, the City shall have no obligation or liability to the Owners of the
Certificates with respect to this Agreement or the execution, delivery or transfer of the Certificates,
or the disbursement of Installment Payments to the Owners by the Trustee; provided however that
nothing contained in this Section shall affect the rights, duties or obligations of the Trustee expressly
set forth herein.
SECTION 7.07. Trustee Appointed Agent for Certificateowners• Direction of Proceedings.
The Trustee is hereby appointed the agent and attorney of the Owners of all Certificates outstanding
hereunder for the purpose of filing any claims relating to the Certificates. The Owners of a majority
in aggregate principal amount of the Certificates Outstanding hereunder shall, with the prior written
consent of the Certificate Insurer, or the Certificate Insurer if it has not failed to comply with its
payment obligations under the Certificate Insurance Policy, upon tender to the Trustee of reasonable
indemnity against the costs, expenses and liabilities to be incurred in compliance with such
direction, have the right to direct the method and place of conducting all remedial proceedings by the
Trustee, provided such direction shall be in accordance with law and the provisions of this Trust
Agreement 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 Certificateowners not parties to such a
direction.
SECTION 7.08. Power of Trustee to Control Proceedings. In the event that the Trustee,
upon the happening of an Event of Default shall have taken any action, by judicial proceedings or
otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of
the Owners of a majority in aggregate principal amount of the Certificates then outstanding pursuant
to Section 7.07 hereof, it shall have full power, in the exercise of its discretion for the best interests
of the Owners of the Certificates, with respect to the continuance. discontinuance, withdrawal,
compromise, settlement or other disposal of such action; provided, however, that the Trustee shall
not, unless there no longer continues an Event of Default hereunder, discontinue, withdraw,
compromise or settle, or otherwise dispose of, any litigation pending at law or in equity, if at the
time there has been filed with it a written request signed by the Owners of at least a majority in
principal amount of the Certificates Outstanding hereunder opposing such discontinuance
withdrawal, compromise, settlement or other disposal of such litigation.
7476.2\STiemey\22759.0004 28
SECTION 7.09. Limitation on Certificateowners' Right to Sue. No Owner of any
Certificate issued hereunder shall have the right to institute any suit, action or proceeding at law or
in equity, for any remedy under or upon this Agreement, unless (a) such Owner shall have previously
given to the Trustee written notice of the occurrence of an Event of Default hereunder; (b) the
Owners of at least a majority in aggregate principal amount of all the Certificates then Outstanding
shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to
institute such action, suit or proceeding in its own name; (c) 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 (d) 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.
Such notification, request, tender or indemnity and refusal or omission are hereby declared,
in every case, to be conditions precedent to the exercise by any Owner of Certificates of any remedy
hereunder; it being understood and intended that no one or more Owners of Certificates shall have
any right in any manner whatever by his or their action to enforce any right under this Agreement,
except in the manner herein provided, and that all proceedings at law or in equity to enforce any
provision of this Agreement shall be instituted, had and maintained in the manner herein provided
and for the equal benefit of all Owners of the Outstanding Certificates.
The right of any Owner of any Certificate to receive payment of the principal of (and
premium, if any)and interest on such Certificate out of Revenues, as herein and therein provided, on
and after the respective due dates expressed in such Certificate, or to institute suit for the
enforcement of any such payment on or after such respective dates, shall not be impaired or affected
without the consent of such Owner, notwithstanding the foregoing provisions of this Section or
Section 7.10 or any other provision of this Agreement.
SECTION 7.10. No Obligation with Respect to Performance by Trustee. Neither the City
nor the Authority shall have any obligation or liability to any of the other parties hereto or to the
Owners of the Certificates with respect to the performance by the Trustee of any duty imposed upon
it under this Agreement.
SECTION 7.11. No Liability to Owners for Payment. The Authority shall not have any
obligation or liability to the Owners of the Certificates with respect to the payment of the Installment
Payments by the City when due, or with respect to the performance by the City of any other
covenant made by it in the Installment Purchase Agreement or herein. Except as provided in this
Agreement, the Trustee shall not have any obligation or liability to the Owners of the Certificates
with respect to the payment of the Installment Payments by the City when due, or with respect to the
performance by the City of any other covenant made by it in the Installment Purchase Agreement or
herein.
SECTION 7.12. No Responsibility for Sufficiency. The Trustee shall not be responsible
for the sufficiency of this Trust Agreement, the Installment Purchase Agreement, or of the
assignment made to it by the Assignment Agreement of rights to receive Installment Payments
pursuant to the Installment Purchase Agreement, or the value of or title to the 1992 Sewer Project.
The Trustee shall not be responsible or liable for any loss suffered in connection with any investment
of funds made by it under the terms of and in accordance with this Agreement.
7476.2\STiemey\22759.0004 29
SECTION 7.13. Indemnification of Trustee. To the extent permitted by law, the City shall
indemnify the Trustee and hold it harmless against any loss, liability, expenses or advances,
including but not limited to fees and expenses of counsel and other experts, incurred or made
without negligence or willful misconduct on the part of the Trustee, (i) arising out of or in
connection with the acceptance or administration of this trust or in the exercise and performance of
any of the powers and duties hereunder or under the Installment Purchase Agreement by the Trustee,
(ii) relating to or arising out of the 1992 Sewer Project, or the conditions, occupancy, use,
possession, conduct or management of, or work done in or about, or from the planning, design,
acquisition, installation or construction of the 1992 Sewer Project or any part thereof, or (iii) arising
out of or relating to any untrue statement or alleged untrue statement of any material fact or omission
or alleged omission to state a material fact necessary to make the statements made, in light of the
circumstances under which they were made, not misleading in any official statement or other
offering circular utilized in connection with the sale of the Certificates, including the costs and
expenses of defending itself against any claim of liability arising under this Agreement. Such
indemnity shall survive payment of the Certificates or resignation or removal of the Trustee.
SECTION 7.14. Rights of Certificate Insurer. The Certificate Insurer shall be entitled to (i)
notify the Trustee of the occurrence of an event of default and (ii) request the Trustee to intervene in
Judicial proceedings that affect the Certificates or the security therefor. The Trustee shall be required
to accept notice of default from the Certificate Insurer.
ARTICLE VIII
THE TRUSTEE
SECTION 8.01. Employment of Trustee. In consideration of the recitals hereinabove set
forth and for other valuable consideration, the City hereby agrees to employ the Trustee to receive,
hold, invest and disburse the moneys received pursuant to the Installment Purchase Agreement for
credit to the various funds and accounts established by this Agreement; to execute, deliver and
transfer the Certificates; and to apply and disburse the Installment Payments received from the City
to the Owners of Certificates; and to perform certain other functions; all as herein provided and
subject to the terms and conditions of this Agreement.
SECTION 8.02. Acceptance of Employment. In consideration of the compensation herein
provided for, the Trustee accepts the employment above referred to subject to the terms and
conditions of this Agreement.
SECTION 8.03. Trustee Duties Removal and Resignation. By executing and delivering
this Agreement, the Trustee accepts the duties and obligations of the Trustee provided in this
Agreement, but only upon the terms and conditions set forth in his Agreement.
(a) In case an Event of Default has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Agreement, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
7476.2\STiemey\22759.0004 30
(b) The Trustee shall not be liable for any error of judgment made in good faith by a
responsible officer of the Trustee, unless it shall be proved that the Trustee was grossly 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 a majority in principal amount
of the Certificates relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under
this Agreement.
(d) The Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Agreement at the request or direction of any of the Owners pursuant to this
Agreement, unless such Owners shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in compliance with such
request or direction.
The City, or, if the City is in default under the Installment Purchase Agreement, the Owners
of a majority in aggregate principal amount of all Certificates Outstanding, may by written request to
the Trustee, remove the Trustee and any successor thereto. and may appoint a successor Trustee, but
any such successor shall be a bank or trust company doing business and having a corporate trust
office in California, which has (or the parent holding company of which has) a combined capital
(exclusive of borrowed capital) and surplus of at least seventy-five million dollars ($75,000,000) and
subject to supervision or examination by federal or state authorities. If such bank or trust companies
publishes a report of condition at leas' annually, pursuant to law or to the requirements of any
supervising or examining authority above referred to, then for the purposes of this Section 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.
The Trustee may at any time resign by giving written notice to the City and by giving to the
Certificate Owners notice of such resignation by mail at the addresses shown on the registration
books maintained by the Trustee. Upon receiving such notice of resignation, the City shall promptly
appoint a successor Trustee by an instrument in writing; provided, however,that in the event that the
City does not appoint a successor Trustee within thirty (30) days following receipt of such notice of
resignation, the resigning Trustee may at the expense of the City petition the appropriate court
having jurisdiction to appoint a successor Trustee. Any resignation or removal of the Trustee and
appointment of a successor Trustee shall become effective upon acceptance of appointment by the
successor Trustee.
Notwithstanding any other provision of this Agreement, no removal, resignation or
termination of the Trustee shall take effect until a successor shall be appointed. The Certificate
Insurer shall be furnished with written notice of the resignation or removal of the Trustee and the
appointment of any successor thereto.
SECTION 8.04. Merger or Consolidation of Trustee. Any corporation into which the
Trustee may be merged or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Trustee shall be a party, or any corporation succeeding to the
business of the Trustee, shall be the successor of the Trustee hereunder without the execution or
7476.2\STiemey\22759.0004 31
filing of any paper or any further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding, provided that such successor trustee shall be eligible under the provisions
of Section 8.03.
SECTION 8.05. Compensation of the Trustee. The City shall from time to time, subject to
any agreement in effect with the Trustee, pay to the Trustee reasonable compensation for its services
and shall reimburse the Trustee for all its advances and expenditures, including but not limited to
advances to and fees and expenses of independent appraisers, accountants, consultants, counsel,
agents and attorneys-at-law or other experts employed by it in the exercise and performance of its
powers and duties hereunder. Such compensation and reimbursement shall be paid by the City and
amounts owing therefor shall constitute a charge on those moneys in the Construction Fund and
payable by the City; provided, however, that the Trustee shall not otherwise have any claims, except
in accordance with Section 7.13 hereof, or lien for payment of compensation for its services against
any other moneys held by it in the funds or accounts established hereunder but may take whatever
legal actions are lawfully available to it directly against the City. The agreement contained in this
Section shall survive the payment of the Certificates, the discharge of this Agreement and the
appointment of a successor trustee.
SECTION 8.06. Protection of the Trustee. The Trustee shall be protected and shall incur
no liability in acting, refraining from acting or proceeding in good faith upon any resolution, notice,
telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or
other paper or document which it shall in good faith believe to be genuine and to have been adopted,
executed or delivered by the proper party or pursuant to any of the provisions of this Agreement, and
the Trustee shall be under no duty to make any investigation or inquiry as to any statements
contained or matters referred to in any such instrument, but may accept and rely upon the same as
conclusive evidence of the truth and accuracy of such statements. The Trustee may consult with
counsel, who may be counsel to the Authority or 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, suffered or omitted by it hereunder in good faith in accordance therewith.
Whenever in the administration of this Agreement, the Trustee shall deem it necessary or
desirable that a matter be proved or established prior to taking, omitting or suffering any action
hereunder, the Trustee may (unless other evidence in respect thereof be herein specifically
prescribed) rely on a certificate of the Authority or the City and such certificate shall be full
warranty to the Trustee for any action taken or suffered under the provisions of this Agreement upon
the faith thereof, but in its discretion the Trustee may (but shall have no duty), in lieu thereof, accept
other evidence of such matter or may require such additional evidence as to it may seem reasonable.
The Trustee may buy, sell, own, hold and deal in any of the Certificates provided pursuant to
this Agreement, and may join in any action which any Owner may be entitled to take with like effect
as if the Trustee were not a party to this Agreement. The Trustee, either as principal or agent, may
also engage in or be interested in any financial or other transaction with the City or the Authority,
and may act as depositary, trustee, or agent for any committee or body of Owners of Certificates or
of oblizations of the Authority or the City as freely as if it were not Trustee hereunder.
The Trustee may execute any of the trusts or powers hereof and perform the duties required
of it hereunder either directly or by or through attorneys, agents, or receivers, and the Trustee shall
7476.2\STiemey\22759.0004 32
not be responsible for the negligence or misconduct of any such attorney, agent or receiver selected
by it with reasonable care. The Trustee shall not be answerable for the exercise of any discretion or
power under this Agreement or for anything whatever in connection with the funds and accounts
established hereunder, except only for its own willful misconduct or negligence.
The recitals statements and representations by the City or the Authority contained in this
Agreement or in the Certificates shall be taken and construed as made by and on the part of the City
or Authority and not by the Trustee and the Trustee does not assume, and shall not have, any
responsibility or obligations for the correctness of any thereof.
Except during the continuance of an Event of Default the Trustee undertakes to perform such
duties, and only such duties as are specifically set forth in this Agreement and no implied duties or
obligations shall be read into this Agreement against the Trustee.
No provision in this Agreement 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 or in the
exercise of its rights or powers if it shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not assured to it.
In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and
not in its individual capacity and all persons, including without limitation the Owners and the City or
the Authority having any claim against the Trustee arising from this Agreement shall look only to
the funds and accounts held by the Trustee hereunder for payment except as otherwise provided
herein. Under no circumstances shall the Trustee be liable in its individual capacity for the
obligations evidenced by the Certificates.
The Trustee makes no representation or warranty, 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 or the Authority of the 1992 Sewer Project. In no event shall the Trustee be liable for
incidental, indirect, special or consequential damages in connection with or arising from the
Installment Purchase Agreement or this Agreement for the existence, furnishing or use of the 1992
Sewer Project.
The Trustee shall not be deemed to have knowledge of any Event of Default hereunder or
under the Installment Purchase Agreement unless and until it shall have actual knowledge thereof or
have received notice thereof at its corporate trust office at the address set forth in Section 12.11
hereof.
The Trustee shall not be accountable for the use or application by the City, or the Authority
or any other parry of any funds which the Trustee has released in accordance with the terms of this
Agreement.
SECTION 8.07. Certificate Insurance Policy. The Trustee shall not take the Certificate
Insurance Policy into account in determining whether the rights of the Owners of the Certificates are
adversely affected by actions taken pursuant to the terms and provisions of this Trust Agreement.
The Trustee shall provide the Certificate Insurer with any additional information to the information
7476.2\.STiemey\22759.0004 33
already required under this Trust Agreement when the Certificate Insurer reasonably requests such
information.
ARTICLE IX
AMENDMENT OF TRUST AGREEMENT
SECTION 9.01. Amendments Permitted. (a) This Agreement and the rights and
obligations of the Authority, the City, the Owners of the Certificates and of the Trustee may be
modified or amended at any time by an amendment hereto which shall become binding when the
written consents of the Owners of a majority in aggregate principal amount of the Certificates then
Outstanding, and the Certificate Insurer, exclusive of Certificates disqualified as provided in Section
11.04 hereof, shall have been filed with the Trustee. No such modification or amendment shall (1)
extend the stated maturities of the Certificates, or reduce the rate of interest represented thereby, or
extend the time of payment of interest, or reduce the amount of principal represented thereby, or
reduce any premium payable on the prepayment thereof, without the consent of the Owner of each
Certificate so affected and the Certificate Insurer, or (2) reduce the aforesaid percentage of Owners
of Certificates whose consent is required for the execution of any amendment or modification of this
Agreement, or (3) modify any of the rights or obligations of the Trustee or the Authority without its
respective written consent thereto.
(b) This Agreement and the rights and obligations of the Authority, the City and of the
Owners of the Certificates may also be modified or amended at any time by an amendment hereto
which shall become binding upon adoption, without the consent of the Owners of any Certificates
and with the written consent of the Certificate Insurer, but only to the extent permitted by law and
only for any one or more of the following purposes:
(1) to add to the covenants and agreements of the Authority or the City contained
in this Agreement other covenants and agreements thereafter to be observed or to surrender
any right or power herein reserved to or conferred upon the Authority or the City, and which
shall not materially adversely affect the interests of the Owners of the Certificates;
(2) to cure, correct or supplement any ambiguous or defective provision
contained in this Agreement or in regard to questions arising under this Agreement, as the
Authority or the City may deem necessary or desirable and which shall not materially
adversely affect the interests of the Owners of the Certificates; and
(3) to make such other amendments or modifications as may be in the best
interests of the Owners of the Certificates.
No amendment without consent of the Owners may modify any of the rights or obligations of
the Trustee without its written consent thereto.
Any rating agency rating the Certificates must receive notice of each amendment and a copy
thereof at least 15 days in advance of its execution and adoption. The Certificate Insurer shall be
provided with a full transcript of all proceedings relating to the execution of any such amendment or
supplement.
7476.2\STiemey\22759.0004 34
SECTION 9.02. Endorsement or Replacement of Certificates After Amendment or
Supplement. After the effective date of any action taken as hereinabove provided, the Trustee may
determine that the Certificates may bear a notation by endorsement in form approved by the Trustee
as to such action, and in that case upon demand of the Owner of any Outstanding Certificate and
presentation of such Owner's Certificate for such purpose at the corporate trust office of the Trustee
in San Francisco, California a suitable notation as to such action shall be made on such Certificate. If
the Trustee shall so determine, new Certificates so modified as in the opinion of the Trustee shall be
necessary to conform to such action shall be prepared, and in that case upon demand of the Owner of
any Outstanding Certificates such new Certificates shall be exchanged at the corporate trust office of
the Trustee in San Francisco, California without cost to each Owner for Certificates then
Outstanding upon surrender of such Outstanding Certificates.
SECTION 9.03. Amendment of Particular Certificates. The provisions of this article shall
not prevent any Owner from accepting any amendments to the particular Certificates held by him,
provided that due notation thereof is made on such Certificates.
In connection with any amendment of this Agreement, the Trustee may conclusively rely on
an opinion of counsel that the requirements of this Article IX have been met.
ARTICLE X
DEFEASANCE
SECTION 10.01. Discharge of Trust Agreement. When the obligations of the City under
the Installment Purchase Agreement shall cease pursuant to Article IX of the Installment Purchase
Agreement (except for the right of the Trustee and the obligation of the City to have the money and
Qualified Investments mentioned therein applied to the payment of Installment Payments as therein
set forth), then and in that case the obligations created by this Agreement shall thereupon cease,
terminate and become void except for the right of the Owners and the obligation of the Trustee to
apply such moneys and Qualified Investments to the payment of the Certificates as herein set forth,
and the Trustee shall turn over to the City, after provision for payment of amounts due the Trustee
hereunder, as an overpayment of Installment Payments, any surplus in the Certificate Payment Fund
and all balances remaining in any other funds or accounts other than moneys and Qualified
Investments held for the payment of the Certificates at maturity or on prepayment, which moneys
and Qualified Investments shall continue to be held by the Trustee in trust for the benefit of the
Owners and shall be applied by the Trustee to the payment, when due, of the principal and interest
and premium, if any, represented by the Certificates, and after such payment, this Agreement shall
become void.
If moneys or securities described in clause (1) of the definition of Qualified Investments are
deposited with and held by the Trustee as hereinabove provided, the Trustee shall within thirty (30)
days after such moneys or Qualified Investments shall have been deposited with it, mail a notice,
first class postage prepaid, to the Owners at the addresses listed on the registration books kept by the
Trustee pursuant to Section 2.08, setting forth (a) the date fixed for prepayment of the Certificates,
(b) a description of the moneys or securities described in clause (1) of the definition of Qualified
Investments so held by it, and (c) that this Agreement has been released in accordance with the
provisions of this Section.
7476.2\STiemey\22759.0004 3 5
SECTION 10.02. Deposit of Money or Securities with Trustee. Whenever in this
Agreement or the Installment Purchase Agreement it is provided or permitted that there be deposited
with or held in trust by the Trustee money or securities in the necessary amount to pay or prepay any
Certificates, the money or securities to be so deposited or held may include money or securities held
by the Trustee in the funds and accounts established pursuant to this Agreement and shall be only
cash, direct non-callable obligations of the United States of America and securities fully and
unconditionally guaranteed as to the timely payment of principal and interest by the United States of
America, to which direct obligation or Guarantee the full faith and credit of the United States of
America has been pledged. In the event of an advance refunding, the City shall cause to be delivered
a verification report or a report of an independent nationally recognized certified public accountant.
SECTION 10.03. Unclaimed Moneys. Anything contained herein to the contrary
notwithstanding, any moneys held by the Trustee in trust for the payment and discharge of the
interest or principal or Prepayment Price represented by any of the Certificates which remain
unclaimed for two (2) years after the later of (i) the date when such interest or principal or
Prepayment Price shall have become payable, or (ii) the date of deposit of such moneys if deposited
with the Trustee after the date when the interest or principal or Prepayment Price represented by
such Certificates shall have become payable, shall at the Written Request of the City be repaid by
the Trustee to the City as its absolute property free from trust, and the Trustee shall thereupon be
released and discharged with'respect thereto and the Owners shall look only to the City for the
payment of the interest and principal or Prepayment Price represented by such Certificates; provided.
however, that before being required to make any such payment to the City. the Trustee shall, at the
written request and expense of the City, first mail a notice to the Owners of the Certificates so
payable that such moneys remain unclaimed and that after a date named in such notice, which date
shall not be less than thirty (30) days after the date of the mailing of such notice, the balance of such
moneys then unclaimed will be returned to the City.
ARTICLE XI
THE CERTIFICATE INSURANCE POLICY
SECTION 11.01. The Certificate Insurance Policv.
(a) If, on the third Business Day preceding any Interest Payment Date for the Certificates
there is not on deposit with the Trustee sufficient moneys available to pay all principal of and
interest on the Certificates due on such date, the Trustee shall immediately notify the Certificate
Insurer and Citibank, N.A., New York, New York or its successor as its Fiscal Agent (the "Fiscal
Agent ) of the amount of such deficiency. If, by said interest payment date, the City has not provided
the amount of such deficiency, the Trustee shall simultaneously make available to the Certificate
Insurer and to the Fiscal Agent the registration books for the Certificates maintained by he Trustee.
In addition:
(i) The Trustee shall provide the Certificate Insurer with a list of the Certificate
Owners entitled to receive principal or interest payments from the Certificate Insurer under
the terms of the Certificate Insurance Policy and shall make arrangements for the Certificate
Insurer and its Fiscal Agent (1) to mail checks or drafts to Certificate Owners entitled to
receive full or partial interest payments from the Certificate Insurer and (2) to pay principal
7476.2\ST iemey\22759.0004 3 6
of the Certificates surrendered to the Fiscal Agent by the Certificate Owners entitled to
receive full or partial principal payments from the Certificate Insurer; and
(ii) The Trustee shall, at the time it makes the registration books available to the
Certificate Insurer pursuant to (i) above, notify Certificate Owner entitled to receive the
payment of principal of or interest on the Certificates from the Certificate Insurer (1) as to
the fact of such entitlement, (2) that the Certificate Insurer will remit to them all or part of
the interest payments coming due, (3) that, except as provided in paragraph (b) below, in the
event that any Certificate Owner is entitled to receive full payment of principal from the
Certificate Insurer, such Certificate Owner must tender his Certificate with the instrument of
transfer in the form provided on the Certificate executed in the name of the Certificate
Insurer, and (4) that, except as provided in paragraph (b) below, in the event that such
Certificate Owner is entitled to receive partial payment of principal from the Certificate
Insurer, such Certificate Owner must tender his Certificate for payment first to the Trustee,
which shall note on such Certificate the portion of principal paid by the Trustee, and then,
with the form of transfer executed in the name of the Certificate Insurer, to the Fiscal Agent,
which will then pay the unpaid portion of principal to the Certificate Owner.
(b) In the event that the Trustee has actual knowledge that any payment of principal of or
interest on a Certificate has been recovered from a Certificate Owner pursuant to the United States
Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a
court having competent jurisdiction, the Trustee shall, at the time it provides notice to the Certificate
Insurer, notify all Certificate Owners that in the event that any Certificate Owner's payment is so
recovered, such Certificate Owner will be entitled to payment from the Certificate Insurer to the
extent of such recovery, and the Trustee shall furnish to the Certificate Insurer its records evidencing
the payments of principal of and interest on the Certificates which have been made by the Trustee
and subsequently recovered from Certificate Owners, and the dates on which such payments were
made.
(c) The Certificate Insurer shall, to the extent it makes payment of principal of or interest
on the Certificates, become subrogated to the rights of the recipients of such payments in accordance
with the terms of the Certificate Insurance Policy and, to evidence such subrogation, (1) in the case
of subrogation as co claims for past due interest, the Trustee shall note the Certificate Insurer's rights
as subrogee on the registration books maintained by the Trustee upon receipt from the Certificate
Insurer of proof of the payment of interest thereon to the Certificate Owners of such Certificates and
(2) in the case of subrogation as to claims for past due principal,the Trustee shall note the Certificate
Insurer's rights as subrogee on the registration books for the Certificates maintained by the Trustee
upon receipt of proof of the payment of principal thereof to the Certificate Owners of such
Certificates. Notwithstanding anything in this Trust Agreement to the contrary, the Trustee shall
make payment of such past due interest and past due principal directly to the Certificate Insurer to
the extent that the Certificate Insurer is a subrogee with respect thereto.
7476.2\STiemey\22759.0004 37
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Benefits of Trust Agreement- Limited to Parties. Nothing contained
herein, expressed or implied, is intended to give to any person other than the City, the Trustee, the
Authority, the Certificate Insurer and the Owners any claim, remedy or right under or pursuant
hereto, and any agreement, condition, covenant or term required herein to be observed or performed
by or on behalf of the City shall be for the sole and exclusive benefit of the Trustee, the Authority,
the Certificate Insurer and the Owners.
SECTION 12.02. Successor Deemed Included in all References to Predecessor. Whenever
either the City, the Authority or the Trustee or any officer thereof is named or referred to herein,
such deference shall be deemed to include the successor to the powers, duties and functions that are
presently vested in the City, the Authority or the Trustee or such officer, and all agreements,
conditions, covenants and terms required hereby to be observed or performed by or on behalf of the
City, the Authority or the Trustee or any officer thereof shall bind and inure to the benefit of the
respective successors thereof whether so expressed or not.
SECTION 12.03. Execution of Documents by Owners. Any declaration, request or other
instrument which is permitted or required herein to be executed by Owners may be in one or more
instruments of similar tenor and may be executed by Owners in person or by their attorneys
appointed in writing. The fact and date of the execution by any Owner or such person's attorney of
any declaration, request or other instrument or of any writing appointing such attorney may be
proved by the certificate of any notary public or other officer authorized to take acknowledgements
of deeds to be recorded in the state or territory in which he purports to act that the person signing
such declaration, request or other instrument or writing 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, or by such other proof as the Trustee may accept which it may deem sufficient.
The ownership of any Certificates and the amount, payment date, number and date of owning
the same may be proved by the books required to be kept by the Trustee pursuant to the provisions of
Section 2.08.
Any declaration, request or other instrument in writing of the Owner of any Certificate shall
bind all future Owners of such Certificate with respect to anything done or suffered to be done by the
City or the Trustee in good faith and in accordance therewith.
SECTION 12.04. Disqualified Certificates. Certificates owned or held by or for the account
of the Authority or the City (but excluding Certificates held in any pension or retirement fund! shall
not be deemed Outstanding for the purpose of any consent or other action or any calculation of
Outstanding Certificates provided for in this Agreement, and shall not be entitled to consent to or
take any other action provided for in this Agreement. For the purpose hereof no bank organized
under the laws of the State and no national banking association doing business in said State, or
elsewhere, shall be deemed to be an agency of the Authority or of the City.
7476.2\STiemey\22759.0004 38
The Trustee may adopt appropriate regulations to require each Owner of Certificates, before
his consent provided for in this Agreement shall be deemed effective, to reveal if the Certificates as
to which such consent is given are disqualified as provided in this Section.
SECTION 12.05. Waiver of Personal Liability. No director, officer or employee of the City
or the Authority shall be individually or personally liable for the payment of the interest or principal
or the prepayment premiums, if any, represented by the Certificates, but nothing contained herein
shall relieve any director, officer or employee of the City or Authority from the performance of any
official duty provided by any applicable provisions of law or by the Installment Purchase Agreement
or hereby.
SECTION 12.06. Acquisition of Certificates by City: Destruction of Certificates. All
Certificates acquired by the City, whether by purchase or gift or otherwise shall be surrendered to
the Trustee for cancellation. Whenever in this Agreement provision is made for the cancellation by
the Trustee of any Certificates, the Trustee shall destroy such Certificates and deliver a certificate of
such destruction to the City.
SECTION 12.07. Headings. Headings preceding the text the several Articles and Sections
hereof, and the table of contents, are solely for convenience of reference and shall not constitute a
part of this Agreement or affect its meaning, construction or effect.
All references herein to "Articles," "Sections" and other subdivisions are to the
corresponding Articles Sections or subdivisions of this Agreement; and the words herein," "hereof,"
"hereunder" and other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or subdivision hereof.
SECTION 12.08. Funds and Accounts. Any fund required by this Agreement to be
established and maintained by the Trustee may be established and maintained in the 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 sound industry practices and with due regard for the protection of the security of the
Certificates and the rights of every Owner hereof.
SECTION 12.09. Partial Invalidity. If any one or more of the agreements, conditions,
covenants or terms required herein to be observed or performed by or on the part of the City, the
Authority or the Trustee shall be contrary to law,then such agreement or agreements, such condition
or conditions, such covenant or covenants or such term or terms shall be null and void and shall be
deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall
in no way affect the validity hereof or of the Certificates, and the Owners shall retain all the benefit,
protection and security afforded to them under any applicable provisions of law. The City, the
Authority and the Trustee hereby declare that they would have executed the Trust Agreement, and
each and every other article, section, paragraph, subdivision, sentence, clause and phrase hereof and
would have authorized the execution and delivery of the Certificates pursuant hereto irrespective of
the fact that any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or
phrases hereof or the application thereof to any person or circumstances may be held to be
unconstitutional, unenforceable or invalid.
7476.2\STiemeyU2759.0004 39
SECTION 12.10. California Law. THIS AGREEMENT SHALL BE CONSTRUED AND
GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE.
SECTION 12.11. Notices. All written notices to be given under this Agreement shall be
given by mail to the party entitled thereto at its address set forth below, or at such address as the
party may provide to the other parties in writing from time to time.
If to the City: San Bernardino Municipal Water Department
P.O. Box 710
San Bernardino, California 92402
Attention: General Manager
If to the Authority: San Bernardino Public Safety Authority
385 N. Arrowhead Avenue
San Bernardino, California 92415-0110
Attention: Secretary
If to the Trustee:
If to the Certificate Insurer:
SECTION 12.12. Execution in Countem This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall constitute but one and
the same instrument.
ARTICLE XIII
CROSS-OVER REFUNDING PROVISIONS
SECTION 13.01. Creation and Deposit of Moneys in SnPcial Escrow E=dL
Notwithstanding anything to the contrary in this Trust Agreement, until the Cross-Over Date, the
Installment Payments and the Certificates shall be paid solely from amounts in the Special Escrow
Fund. In the event of any conflict between the provisions of this Article XIII and the other
provisions of this Trust Agreement, the provisions of this Article XIII shall control. On the Delivery
Date, the City shall deposit with the Trustee in immediately available funds the sum of
to
be held in irrevocable escrow, by the Trustee separate and apart from other funds of the City and the
Trustee in a fund hereby created and established to be known as the "Special Escrow Fund" and to be
applied solely as provided in this Trust Agreement. The moneys set forth above are at least equal to
an amount sufficient to purchase the Governmental Obligations as provided in Section 13.02 hereof.
7476.2\STiemey\22759.0004 40
The Trustee hereby acknowledges receipt of the written opinion of
, certified public accountants, relating to the Governmental
Obligations.
SECTION 13.02. 1Ise and Investment of Moneys. The Trustee acknowledges receipt of the
moneys described in Section 13.01 and agrees:
(a) immediately to invest the moneys described in Section 13.01 hereof in the
Governmental Obligations set forth in Exhibit C hereto and to deposit such Governmental
Obligations in the Special Escrow Fund; and
(b) to make the payments required under Section 13.05 hereof at the times set forth
in Section 13.05 hereof.
SECTION 13.03. investment of Any Remaining Moneys. In the event that the Trustee shall
receive any payment of principal or interest from the Governmental Obligations prior to the date on
which such payment is required for the purposes set forth in this Article )GH,at the written direction of
the City the Trustee may reinvest the amount of such payment, or any portion thereof, in non-callable
Governmental Obligations maturing not later than the date on which such payment or portion thereof is
required for the purposes set forth in Section 13.05, as verified in a report prepared by a firm of
certified public accountants of favorable national reputation experienced in the refunding of obligations
of political subdivisions and provided the City has obtained and delivered to the Trustee an unqualified
opinion of nationally recognized bond counsel reinvestment 992 Certificateseforlpurpose of
exclusion from gross income of interest on the Certificates or th
federal income taxation. Any interest income resulting from investment or reinvestment of moneys
pursuant to this Section 13.03 which are not required for the purposes set c forth in pis Section 13.03 or
Section 13.05,as verified in the letter of
(the "Letter"), originally obtained by the City with respect to the refunding of the 1992 Certificates or
in any other report prepared by a firm of certified public accountants of favorable national reputation
experienced in the refunding of obligations of political subdivisions, shall be paid to the City promptly
upon the receipt of such interest income by the Trustee.
SECTION 13.04. Substitution of Securities. Upon the written request of the City and subject
to the conditions and limitations herein set forth and applicable governmental rules and regulations, the
Trustee shall sell,redeem or otherwise dispose of the Governmental Obligations provided that there are
substituted therefor from the proceeds of the Governmental Obligations: (a) direct general obligations
of the United States of America (including obligations issued or held in book entry form on the books
of the Department of the Treasury of the United States of America); and(b) obligations of any agency,
department or instrumentality of the United States of America the timely payment of principal of and
interest on which are fully guaranteed by the United States of America; but only after the City has
obtained and delivered to the Trustee (a) an unqualified exclusion iduon from gross income of payable on
opinion nationally recognized
that such reinvestment will not adversely affect th
the Certificates or the 1992 Certificates for purposes of federal income taxation, and (b) a report by a
nationally recognized firm of certified public accountants to the effect that such reinvestment will not
adversely affect the sufficiency of the amounts of securities, investments and money in the Special
Escrow Fund to pay when due principal or redemption price of and interest on the 1992 Certificates on
7476.2\STiemey\22759.0004 41
the dates specified herein. The Trustee shall not be liable or responsible for any loss resulting from any
reinvestment or liquidation of reinvestment made pursuant to this Agreement and in full compliance
with the provisions hereof.
SECTION 13.05. Payment of 1992 Certificates.
(c) Payment. From the maturing principal of the Governmental Obligations and the
investment income and other earnings thereon and other moneys on deposit in the Special Escrow
Fund, the Trustee shall on the Cross-Over Date, apply the amounts on deposit in the Special Escrow
Fund to pay the principal of, interest on and redemption price of the 1992 Certificates.
(d) Irrevocable Instructions to Provide Notice. The City hereby irrevocably instructs the
Trustee,as trustee for the Prior Obligations,to mail a notice of redemption to the owners of the 1992
Certificates in accordance with the 1992 Trust Agreement.
The Trustee,as trustee for the Prior Obligations, is hereby further instructed to mail a copy of
the notice to (i) the Securities Depositories(as hereinafter defined), and (ii) the Information Services
(as hereinafter defined).
"Securities Depositories" shall mean The Depository Trust Company, 711 Stewart Avenue,
Garden City, New York 11530, Fax-(516) 227-4039 or 4190; Midwest Securities Trust Company,
Capital Structured-Call Notification, 440 South LaSalle Street, Chicago, Illinois 60605,
Fax-(312)663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market
Street, Philadelphia,Pennsylvania 19103, Attention: Bond Department, Fax-(215) 496-5058; and, in
accordance with the then current guidelines of the Securities and Exchange Commission,to such other
address and/or such other services providing information with respect to called bonds.
"Information Services" shall mean Financial Information,Inc.'s Daily Called Bond Service,"
30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny S&P
Information Services,"Called Bond Record," 65 Broadway, 16th Floor,New York,New York 10006;
Moody's Investors Service "Municipal and Government Manual," 99 Church Street, 8th Floor, New
York, New York 10007, Attention: Municipal News Reports; and Standard and Poor's Corporation,
"Called Bond Record," 25 Broadway, 19th Floor, New York, New York 10004; and, in accordance
with then-current guidelines of the Securities and Exchange Commission,to such other address and/or
such other services providing information with respect to called bonds.
(e) Unclaimed and Excess Moneys. On and after the Cross-Over Date,any moneys which
remain unclaimed for two years after the date such moneys have become due and payable under this
Article XIV shall be repaid by the Trustee to the City. Any moneys remaining in the Special Escrow
Fund established hereunder after the final maturity date of the 1992 Certificates which are in excess of
the amount needed to pay owners of the 1992 Certificates payments of principal and interest and
redemption premium,if any,on the 1992 Certificates shall be immediately transferred by the Trustee to
the City.
7476.2\.STiemey\22759.0004 42
(f) Priority of Payments. On and after the Cross-Over Date, the owners of the
1992 Certificates shall have a lien on moneys and securities in the Special Escrow Fund which are
allocable and sufficient to pay the 1992 Certificates including any redemption premium thereon, in
accordance with this Article XIII verified by the Letter, until such moneys and such securities are
used and applied as provided in this Article XIII.
SECTION 13.06. Insufficient Funds. If at any time the moneys and investments in the
Special Escrow Fund, including the anticipated proceeds of and earnings thereon, will not be
sufficient to make all payments required by this Article XIII, the Trustee shall notify the City in
writing, immediately upon becoming aware of such deficiency, of the amount thereof and the reason
therefor to the extent known to it. The Trustee shall have no responsibility regarding any such
deficiency.
7476.2\STiemey\22759.0004 43
IN WITNESS THEREOF, the parties have executed and attested this Agreement by
their officers thereunto duly authorized as of the date and year first written above.
as Trustee
By
Authorized Officer
SAN BERNARDINO PUBLIC SAFETY
AUTHORITY
By
Chairman
ATTEST:
By
Secretary
CITY OF SAN BERNARDINO
By
General Manager of
the Municipal Water Department
ATTEST:
By
City Clerk
APPROVED AS TO FORM
APPROVED AS TO FORM AND LEGAL
CONTENT County Counsel
By
City Attorney County Counsel
7476.2\STiemey\22759.0004 44
Exhibit A
FORM OF CERTIFICATE OF PARTICIPATION
FORM OF FACE OF CERTIFICATE
SAN BERNARDINO PUBLIC SAFETY AUTHORITY
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
1998 REFUNDING SEWER REVENUE CERTIFICATES OF PARTICIPATION
Evidencing an Interest of the Owner Hereof
in Installment Payments to be Made by
CITY OF SAN BERNARDINO
CERTIFICATE ORIGINAL
INTEREST PAYMENT ISSUE
RATE DATE DATE CUSIP
June 1, 1998
REGISTERED OWNER:
PRINCIPAL AMOUNT: DOLLARS
THIS IS TO CERTIFY that the Registered Owner (specified above) of this Certificate of
Participation (herein called the "Certificate") is the owner of an undivided interest in the right to
receive certain Installment Payments (as that term is defined in the Trust Agreement hereinafter
mentioned) (the "Installment Payments") under that certain Installment Purchase Agreement dated as
of June 1, 1998 (the "Installment Purchase Agreement ) by and between San Bernardino Public
Safety Authority (the "Authority") and the City of San Bernardino (the "City"). The Installment
Payments to be made thereunder have been assigned to
as trustee (the "Trustee"), having a corporate trust office in San Francisco, California. The Trustee
has executed and delivered S aggregate principal amount of Certificates.
The Registered Owner of this Certificate is entitled to receive, subject to the terms of the
Installment Purchase Agreement and the Trust Agreement, on the Certificate Payment Date
(specified above) the Principal Amount (specified above) representing a portion of the Installment
Payments designated as principal coming due on the Certificate Payment Date, and to receive an
interest component on such principal component at the interest rate per annum specified above, from
the Interest Payment Date (as hereinafter defined) next preceding the date of execution hereof by the
Trustee, unless such date of execution is after a Record Date (as hereinafter defined) and on or
before the next Interest Payment Date, in which case interest shall be payable from such Interest
Payment Date or unless such date of execution is on or before the first Record Date, in which case
interest shall be payable from June 1, 1998, provided, however, that if, as shown by the records of
the Trustee, interest represented by this Certificate shall be in default, Certificates executed in
exchange for this Certificate surrendered for transfer or exchange shall represent interest from the
last date to which interest has been paid in full or duly provided for with respect to this Certificate,
7476.2\STiemey\22759.0004 A-I
or, if no interest has been paid or duly provided for with respect to this Certificate, from June 1,
1998. Interest with respect to this Certificate shall be paid on February 1 and August 1 of each year,
commencing August 1, 1998 (each, an "Interest Payment Date"), to and including the Certificate
Payment Date set forth above or the date of prior prepayment hereof. The principal with respect
hereto and prepayment premiums, if any, are payable "in lawful money of the United States of
America upon presentation and surrender at the corporate trust office of the Trustee in San
Francisco, California. Interest with respect hereto is payable by check of the Trustee mailed by first
class mail on each Interest Payment Date to the Registered Owner hereof as of the close of business
on the fifteenth day of the calendar month prior to such Interest Payment Date (the "Record Date") at
the address shown on the registration books maintained by the Trustee or, upon the request of an
owner of at least $1,000,000 in aggregate principal amount of Certificates, by wire transfer in
immediately available funds to an account designated in writing to the Trustee by such owner at
least fifteen (15) business days prior to the Interest Payment Date except, in each case that, if and to
the extent that there shall be a default in the payment of the interest due on such Interest Payment
Date, such defaulted interest shall be paid to the owner in whose name this Certificate is registered at
the close of business on a special record date as determined by the Trustee.
The City has certified that all acts, conditions and things required by the Constitution and
statutes of the State of California and the Trust Agreement to exist, to have happened and to have
been performed precedent to and in the delivery of this Certificate, do exist, have happened and have
been performed in due time, form and manner as required by law.
This Certificate has been executed by the Trustee pursuant to the terms of a Trust Agreement
dated as of June 1, 1998, by and among the Trustee, the Authority and the City (the "Trust
Agreement"). Copies of the Trust Agreement and the Installment Purchase Agreement are on file at
the corporate trust office of the Trustee in San Francisco, California, and reference is made to the
Trust Agreement and the Installment Purchase Agreement and any and all amendments thereto for a
description of the pledges and covenants securing the Certificates, the nature, extent and manner of
enforcement of such pledges, the rights and remedies of the registered owners of the Certificates
with respect thereto and the other terms and conditions upon which the Certificates are delivered
thereunder.
The Certificates are payable from Installment Payments and other moneys on deposit in the
funds and accounts created under the Trust Agreement. All Revenues and all amounts on deposit in
the Sewer Fund (as such terms are defined in the Installment Purchase Agreement) are irrevocably
pledged to the payment of the Installment Payments and the Revenues shall not be used for any other
purpose while any of the Installment Payments remain unpaid; provided that out of Revenues there
may be apportioned such sums for such purposes as are expressly permitted in the Installment
Purchase Agreement. Such pledge constitutes a first and exclusive lien on Revenues and, subject to
application of amounts on deposit therein as permitted in the Installment Purchase Agreement, the
Sewer Fund and other funds and amounts created under the Installment Purchase Agreement for the
payment of the Installment Payments and all other Contracts and Bonds (as such terms are defined in
the Installment Purchase Agreement) in accordance with the terms of the Installment Purchase
Agreement and the Trust Agreement. The obligation of the City to make Installment Payments is a
special obligation of the City payable solely from such Net Revenues (as such term is defined in the
Installment Purchase Agreement), Sewer Fund and other funds described in the Installment Purchase
Agreement and the Trust Agreement and does not constitute a debt of the City or the State of
7476.2\STiemey\22759.0004 A'2
California or any political subdivision thereof in contravention of any constitutional or statutory debt
limitation or restriction.
The Certificates are authorized to be executed and delivered in the form of fully registered
Certificates in denominations of $5,000 or any integral multiple thereof, so long as no Certificate
shall represent principal becoming payable in more than one year. Subject to the limitations and
conditions and upon payment of the taxes or charges, if any, as provided in the Trust Agreement,
Certificates may be exchanged for a like aggregate principal amount of Certificates of the same
Certificate Payment Date of other authorized denominations at the corporate trust office of the
Trustee in San Francisco, California.
This Certificate is transferable by the Registered Owner hereof, in person or by such person's
duly authorized attorney, at said office of the Trustee, but only in the manner, subject to the
limitations and upon payment of the taxes and charges provided in the Trust Agreement, and upon
surrender of this Certificate for cancellation, accompanied by delivery of a duly executed written
instrument of transfer in a form approved by the Trustee. Upon such transfer a new Certificate or
Certificates, of the same Certificate Payment Date and of authorized denomination or
denominations, for the same aggregate principal amount will be delivered to the transferee in
exchange herefor. The Trustee may treat the Registered Owner hereof as the absolute owner hereof
for all purposes, and he Trustee shall not be affected by any notice to the contrary.
The Trustee shall not be required to register the transfer or exchange of any Certificate (i)
within 15 days preceding selection of Certificates for prepayment or (ii) selected for prepayment.
The Certificates with stated maturities on or after February 1, 20_, shall be subject to
prepayment prior to their respective stated maturities, as a whole or in part on any date in the order
of maturities designated by the City in a written request provided to the Trustee at least 75 days prior
to the prepayment date, and by lot within each maturity in integral multiples of$5,000, on or after
February 1, 20_, from amounts prepaid by the City pursuant to the Installment Purchase
Agreement, at a prepayment price (expressed as a percentage of the principal amount of such
Certificates to be prepaid) plus interest accrued to the date fixed for prepayment, plus interest
accrued to the date fixed for prepayment, as set forth below:
Prepayment Dates Prepayment Price
February 1, 20_through January 31, 20_ 102%
February 1, 20_through January 31, 20_ 101
February 1, 20_and thereafter 100
The Certificates maturing February 1, 20_ are subject to mandatory prepayment, upon
notice as hereinafter described, in part (by lot) on each February I on and after February 1, 20_, in
integral multiples of five thousand dollars at a prepayment price of the principal amount thereof plus
accrued interest evidenced and represented thereby to the date fixed for prepayment, without
premium, in the amounts and upon the dates as set forth in the Trust Agreement.
The Certificates maturing February 1, 20_ are subject to mandatory prepayment, upon
notice as hereinafter described, in part (by lot) on each February I on and after February 1, 20_, in
7476.2\STiemey\22759.0004 A'3
integral multiples of five thousand dollars at a prepayment price of the principal amount thereof plus
accrued interest evidenced and represented thereby to the date fixed for prepayment, without
premium, in the amounts and upon the dates as set forth in the Trust Agreement.
As provided in the Trust Agreement, notice of prepayment hereof shall be mailed, first class
postage prepaid, not less than thirty note more than sixty days prior to the prepayment date, to the
Registered Owner of this Certificate. If this Certificate is called for prepayment and payment is duly
provided therefor as specified in the Trust Agreement, interest represented hereby shall cease to
accrue from and after the date fixed for prepayment. Any defect in the notice or the mailing will not
affect the validity of the prepayment of this Certificate.
To the extent and in the manner permitted by the terms of the Trust Agreement, the Trust
Agreement and the rights and obligations of the Authority, the City, the registered owners of the
Certificates and of the Trustee may be modified or amended with the written consents of the
registered owners of a majority in aggregate principal amount of the Certificates then outstanding,
and no such modification or amendment shall (1) extend the stated maturities of the Certificates, or
reduce the rate of interest represented thereby, or extend the time of payment of interest, or reduce
the amount of principal represented thereby, or reduce any premium payable on the prepayment
thereof, without the consent of the registered owner of each Certificate so affected, or (2) reduce the
percentage of registered owners of Certificates whose consent is required for the execution of any
amendment or modification of the Trust Agreement, or (3) modify any of the rights or obligations of
the Trustee or the Authority without its respective written consent thereto.
To the extent and in the manner permitted by the terms of the Trust Agreement, the Trust
Agreement and the rights and obligations of the Authority, the City and of the registered owners of
the Certificates may also be modified or amended, without the consent of the registered owners of
any Certificates, but only to the extent permitted by law and only for any one or more of the
following purposes
(1) to add to the covenants and agreements of the Authority or the City contained
in the Trust Agreement other covenants and agreements thereafter to be observed to
surrender any right or power in the Trust Agreement reserved to or conferred upon the
Authority or the City, and which shall not materially adversely affect the interests of the
registered owners of the Certificates;
(2) to cure, correct or supplement any ambiguous or defective provision
contained in the Trust Agreement or in regard to questions arising under the Trust
Agreement, as the Authority or the City may deem necessary or desirable and which shall
not materially adversely affect the interests of the registered owners of the Certificates; and
(3) to make such other amendments or modifications as may be in the best
interests of the registered owners of the Certificates.
No such amendment without registered owner consent may modify any of the rights or
obligations of the Trustee without its written consent thereto.
The Installment Purchase Agreement may be amended in accordance with the provisions
thereof.
7476.2\STiemey\22759.0004 A-4
The Trustee has no obligation or liability to the Certificate owners for the payment of
interest, principal or prepayment premium, if any, with respect to the Certificates out of the Trustee's
own funds; the Trustee's sole obligations are those described in the Trust Agreement. The recitals of
facts herein shall be taken as statements of the City and the Authority and the Trustee does not have
any responsibility for the accuracy thereof.
IN WITNESS WHEREOF, this Certificate has been executed by the manual signature of an
authorized officer of the Trustee, all as of the date set forth below.
Execution date:
as Trustee
By
Authorized Officer
7476.2\STiemey\22759.0004 A-5
FORM OF ASSIGNMENT
ASSIGNMENT
For value received the undersigned do(es) -hereby sell, assign and transfer unto
the within-mentioned Certificate and hereby irrevocably constitute(s) and
appoint(s) attorney, to transfer the same on the Certificate register of the Trustee
with full power of substitution in the premises.
Dated:
Note: The signature(s) to this Assignment
must correspond with the name(s) as written
on the face of the written Certificate in every
particular, without alteration or enlargement
or any change whatsoever.
Signature Guaranteed:
Note: Signature(s) must be guaranteed by a
commercial bank or trust company or a
member of the New York Stock Exchange.
STATEMENT OF INSURANCE
[To Come]
7476.2\.STiemey\22759.0004 A-6
EXHIBIT B
REQUISITION FOR DISBURSEMENT
[Trustee]
SUBJECT: San Bernardino Public Safety Authority
City of San Bernardino Municipal Water Department
1998 Refunding Sewer Certificates of Participation
Requisition No.:
The Trustee is hereby requested to pay from the Construction Fund established pursuant to
that certain Trust Agreement dated as of June 1, 1998 among you, the City and the San Bernardino
Public Safety Authority,authorizing the issuance and sale of the above-referenced Certificates to the
person or corporation designated below as payee, the sum set forth below. Each obligation, item of
cost, or expense included in this Requisition has been properly incurred and is a proper charge
against the Construction Fund and has not been the basis of any previous withdrawal and the
payment of the cost will not cause the balance remaining in the Construction Fund after such
payment to be less than the amount necessary to pay the remaining estimated costs of the
improvements to be paid from the Construction Fund.
PAYEE:
ADDRESS:
AMOUNT: $
DESCRIPTION:
Dated:
By
7476.2\STiemey\22759.0004 B-1
EXHIBIT C
SCHEDULE A
Governmental Obligations
MATURITY MATURITY
TYPE DATE PAR AMOUNT COUPON AMOUNT
SLGS
7476.2\STiemey\22759.0004 C-I
Stradling Yocca Carlson & Rauth
Draft of 4/25/98
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT, made and entered into as of the first day of June,
1998, by and between the San Bernardino Public Safety Authority, a joint exercise of powers
authority formed and existing under the laws of the State of California (the "Authority") and
, a national banking association organized and operating under the laws of the
United States of America(the "Trustee");
WITNESSETH :
In the joint and mutual exercise of their powers, in consideration of the mutual covenants
herein contained, and for other valuable consideration,the parties hereto recite and agree as follows:
Section 1. Recitals of the Authority.
(a) The capitalized terms in this Assignment Agreement shall have the meanings
ascribed to them in the Trust agreement dated as of June 1, 1998 among the Authority, the City of
San Bernardino (the "City") and the Trustee (the "Trust Agreement").
(b) The Authority and the City have entered into the Installment Purchase Agreement
dated as of June 1, 1998 (the "Agreement") between the Authority and the City whereby the
Authority has agreed to sell to the City, and the City has agreed to purchase from Authority the 1992
Sewer Project (more particularly defined in the Agreement) in the manner and on the terms set forth
in the Agreement.
(c) Under the Agreement, the Authority is required to deposit or cause to be deposited
with the Trustee certain sums of money to be credited, held and applied in accordance with the
Agreement and with the Trust Agreement dated as of June 1, 1998 among the Authority, the City
and the Trustee.
(d) Upon the deposit of monies by the Authority with respect to the Agreement, the City
is obligated to pay certain Installment Payments to Authority or its assignee. For the purpose of
obtaining the monies required to be deposited by it pursuant to the Agreement, the Authority is
willing to assign and transfer its rights under the Agreement to the Trustee for the benefit of the
owners of certificates of participation (the "Certificates") to be executed under the Trust Agreement,
and in consideration of such assignment, the Trustee is delivering such Certificates to an underwriter
for the sale to the public (the holders and owners, from time to time are herein referred to as the
"owners"), the proceeds of which sale are required to be deposited by the Trustee on behalf of the
Authority in the various funds and accounts created pursuant to the Trust Agreement.
7464.1\22000.0001
Section 2. Recitals of the Authority and the Trustee. Each of the parties has authority to
enter into this Assignment Agreement, and has taken all actions necessary to authorize its officers to
enter into it.
Section 3. Assignment. The Authority does hereby absolutely assign and transfer to the
Trustee, for the benefit of the Owners of the Certificates executed and delivered under the Trust
Agreement, all of its right, title and interest under the Agreement, including but not limited to its
right to receive the Installment Payments from the City under the Agreement; and its right to receive
proceeds of condemnation of, and insurance on, the 1992 Sewer Project; and its right to enforce
payment of such the Installment Payments when due and otherwise to protect its interests and
enforce its rights under the Agreement in the event of a default by the City; but excluding its rights
to indemnification under Section 10.13 of the Agreement. The Installment Payments shall be
applied, and the rights so assigned shall be exercised, by the Trustee as provided in the Trust
Agreement.
Section 4. Acceptance. The Trustee hereby accepts such assignment for the purpose of
securing such payments and rights to the Owners of the Certificates subject to the provisions of the
Trust Agreement.
Section 5. Conditions. This Assignment Agreement shall confer no rights and impose no
duties upon the Trustee beyond those expressly provided in the Trust Agreement.
Section 6. Amendments. This Assignment Agreement shall not be amended except by
written instrument duly executed by the parties hereto.
7464.1\,22000.0001 2
IN WITNESS WHEREOF, the parties have executed this Assignment Agreement by their
officers thereunto duly authorized as of the day and year first written above.
SAN BERNARDINO PUBLIC SAFETY
AUTHORITY
By:
Chairman
ATTEST:
Secretary
as Trustee
By:
Authorized Officer
APPROVED AS TO FORM
County Counsel
By
County Counsel
7464.1\22000.0001 3
Stradling Yocca Carlson& Rauth
Draft of 4/25/98
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
1998 REFUNDING SEWER REVENUE CERTIFICATES OF PARTICIPATION
CONTRACT OF PURCHASE
June , 1998
Municipal Water Department
City of San Bernardino
300 N. "D" Street
San Bernardino,California 92402
Ladies and Gentlemen:
Piper Jaffray Inc., as the underwriter(the "Underwriter"),does hereby offer to enter into this
Contract of Purchase with you, the City of San Bernardino (the "City") for the purchase by the
Underwriter of the 1998 Refunding Sewer Revenue Certificates of Participation specified below. This
offer is made subject to acceptance by the City prior to 11:59 P.M.,California time,on the date hereof,
and,upon such acceptance,this Contract of Purchase shall be in full force and effect in accordance with
its terms and shall be binding upon the City and the Underwriter. All terms not defined herein shall
have the meanings set forth in the Official Statement hereinafter mentioned.
1. Purchase and Sale. (a) Upon the terms and conditions and upon the basis of the
representations herein set forth,the Underwriter hereby agrees to purchase and the City agrees to cause
the Trustee to execute and deliver to the Underwriter all (but not less than all) of the
$ aggregate principal amount of the 1998 Refunding Sewer Revenue Certificates
of Participation (hereinafter the "Certificates"). The Certificates shall be dated June 1, 1998. The
Certificates shall have the maturities and evidence interest at the rates per annum set forth on Exhibit A
hereto. The purchase price for the Certificates shall be $ (representing
$ aggregate principal amount of the Certificates, less $ of
Underwriter's discount,less $ of original issue discount)plus interest accrued with
respect to the Certificates to the Closing Date(as hereinafter defined).
(b) Each Certificate shall evidence a proportionate interest of the owner thereof in
Installment Payments to be paid by the City pursuant to a certain Installment Purchase Agreement,
dated as of June 1, 1998 (the "Installment Purchase Agreement"),by and between the City and the San
Bernardino Public Safety Authority(the "Authority"). The Authority's right to receive the Installment
Payments due under the Installment Purchase Agreement and to exercise remedies upon default under
such Installment Purchase Agreement shall be assigned to the Trustee for the benefit of the owners of
the Certificates pursuant to an Assignment Agreement, dated as of June 1, 1998 (the "Assignment
7987.2\22759.0004
Agreement"), by and between the Authority and ,as trustee (the
"Trustee").
The Certificates shall be as described in, and shall be secured under and pursuant to a Trust
Agreement, dated as of June 1, 1998 (the "Trust Agreement"),by and among the City, the Authority
and the Trustee, substantially in the form previously submitted to the Underwriter with only such
changes therein as shall be mutually agreed upon by the Authority,the City and the Underwriter. To
provide additional security for the Certificates,a municipal bond insurance policy will be issued by
(the"Insurer").
The City will execute a Continuing Disclosure Certificate,to be dated the date of Closing(the
"Continuing Disclosure Certificate"), executed by the City, and an Escrow Agreement, dated as of
June 1, 1998 (the "Escrow Agreement"), by and between the City and ,escrow
bank(the"Escrow Bank").
(c) At 8:00 A.M., California time, on June_, 1998, or at such other time or on such
earlier or later date as the City and the Underwriter mutually agree upon(the "Closing Date"),the City
will cause to be delivered to the Underwriter,the Certificates in the form of a separate single fully
registered Certificate(which may be typewritten)for each of the maturities(all of the Certificates to
bear CUSIP numbers), duly executed,together with the other documents hereinafter mentioned and,
subject to the terms and conditions hereof, the Underwriter will accept such delivery and pay the
purchase price of the Certificates as set forth in subparagraph(a) above by wire transfer to the order of
the Trustee in an amount equal to the purchase price(such delivery and payment being herein referred
to as the "Closing"). Sale, delivery and payment as aforesaid shall be made at the offices of Stradling
Yocca Carlson& Rauth,A Professional Authority,Newport Beach,California("Special Counsel"),or
at such other place as shall have been mutually agreed upon by the City and the Underwriter,except
that the Certificates shall be delivered to the Underwriter in New York, New York, through the
book-entry system of The Depository Trust Company.
2. Use and Preparation of Official Statement. The City hereby ratifies, confirms and
approves the use by the Underwriter prior to the date hereof of the Preliminary Official Statement
relating to the Certificates dated May_, 1998 (which,together with all appendices thereto,is referred
to herein as the "Preliminary Official Statement"). The City has deemed final the Preliminary Official
Statement as of its date for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act
of 1934('Rule 15c2-12"),except for information permitted to be omitted therefrom by Rule 15c2-12.
The City hereby agrees to deliver or cause to be delivered to the Underwriter,within seven business
days of the date hereof, copies of the final official statement, dated the date hereof (including all
information permitted to be omitted by Rule 15c2-12 and any amendments and supplements to such
official statement as have been approved by the City and the Underwriter,the "Official Statement")in
sufficient quantity to enable the Underwriter to comply with the rules of the Securities and Exchange
Commission and the Municipal Securities Rulemaking Board. The City hereby approves of the use
and distribution by the Underwriter of the Official Statement in connection with the offer and sale of
the Certificates. At the time of or prior to the Closing Date, the Underwriter shall file a copy of the
Official Statement with the Municipal Securities Rulemaking Board and with a nationally recognized
securities information repository. The Underwriter shall advise the City of the date and repository of
such filing.
7987.2\22759.0004 2
3. Representations Warranties and Agreements of the City. The City represents,warrants
and covenants to the Underwriter that:
(a) The City is a city duly organized and "operating pursuant to its charter and the
Constitution and laws of the State of California and has all necessary power and authority to enter into
and perform its duties under the Installment Purchase Agreement,the Trust Agreement,the Continuing
Disclosure Certificate,the Escrow Agreement and this Contract of Purchase and, when executed and
delivered by the respective parties thereto,the Installment Purchase Agreement,the Trust Agreement,
the Continuing Disclosure Certificate, the Escrow Agreement and this Contract of Purchase will
constitute legal, valid and binding obligations of the City enforceable in accordance with their
respective terms.
(b) By official action of the City prior to or concurrently with the acceptance hereof,the
City has duly approved the distribution of the Preliminary Official Statement and the distribution of the
Official Statement, and has duly authorized and approved the execution and delivery of, and the
performance by the City of the obligations on its part contained in the Installment Purchase Agreement,
the Trust Agreement,the Continuing Disclosure Certificate,the Escrow Agreement and this Contract
of Purchase and the consummation by it of all other transactions contemplated by the Official
Statement and this Contract of Purchase.
(c) The execution and delivery of the Installment Purchase Agreement, the Trust
Agreement, the Continuing Disclosure Certificate, the Escrow Agreement and this Contract of
Purchase and the approval and execution of the Official Statement and compliance with the provisions
on the City's part contained therein and herein, will not conflict, in any material respect, with or
constitute a breach of or default under any law, administrative regulation,judgment, decree, loan
agreement,indenture,bond,note,resolution,agreement or other instrument to which the City is a party
or is otherwise subject, nor will any such execution, delivery, adoption or compliance result in the
creation or imposition of any lien, charge or other security interest or encumbrance of any nature
whatsoever upon any of the properties or assets of the City under the terms of any such law,
administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution,
agreement or other instrument, except as provided by the Installment Purchase Agreement,the Trust
Agreement, the Continuing Disclosure Certificate, the Escrow Agreement and this Contract of
Purchase.
(d) Except as may be required under blue sky or other securities laws of any state,there is
no consent,approval,authorization or other order of, or filing with, or certification by, any regulatory
authority having jurisdiction over the City required for the execution, delivery and sale of the
Certificates or the consummation by the City of the other transactions contemplated by the Official
Statement, the Installment Purchase Agreement, the Trust Agreement, the Continuing Disclosure
Certificate,the Escrow Agreement and this Contract of Purchase.
(e) The City is not in breach of or default under any applicable law or administrative
regulation of the State of California or the United States or any applicable judgment or decree or any
loan agreement,indenture,bond,note,resolution,agreement or other instrument to which the City is a
party or is otherwise subject,and no event has occurred and is continuing which, with the passage of
time or the giving of notice, or both, would constitute a default or an event of default under any such
instrument.
7987.2\22759.0004 3
(� There is no action,suit, proceeding,inquiry or investigation,at law or in equity,before
or by any court, governmental agency, public office or body, pending or threatened against the City
affecting the existence of the City or the titles of its officers to their respective offices or seeking to
prohibit,restrain or enjoin the execution or delivery of the Certificates or the City's covenants to make
Installment Payments or in any way contesting or affecting the validity or enforceability of the
Certificates, the Installment Purchase Agreement, the Trust Agreement, the Continuing Disclosure
Certificate,the Escrow Agreement or this Contract of Purchase or contesting the powers of the City or
its authority to enter into, adopt or perform its obligations under any of the foregoing, including, or
contesting in any way the completeness or accuracy of the Preliminary Official Statement or the
Official Statement,or any amendment or supplement thereto. wherein an unfavorable decision, ruling
or finding would materially adversely affect the validity or enforceability of the Certificates, the
Installment Purchase Agreement, the Trust Agreement, the Continuing Disclosure Certificate, the
Escrow Agreement or this Contract of Purchase,or in which a final adverse decision could materially
adversely affect the operations of the City.
(g) The City will furnish such information,execute such instruments and take such other
action in cooperation with the Underwriter as the Underwriter may reasonably request in order (i)to
qualify the Certificates for offer and sale under the blue sky or other securities laws and regulations of
such states and other jurisdictions of the United States as the Underwriter may designate, and (ii)to
determine the eligibility of the Certificates for investment under the laws of such states and other
jurisdictions,and will use its best efforts to continue such qualifications in effect so long as required for
the distribution of the Certificates;provided,however,that the City shall not be required to qualify to
do business or consent to service of process in connection with any such qualification or determination
in any jurisdiction.
(h) As of the date thereof,the Preliminary Official Statement did not, except as revised by
the Official Statement,contain any untrue statement of a material fact.
(i) As of the date thereof and at all times subsequent thereto to and including the date
which is 25 days following the End of the Underwriting Period(as such term is hereinafter defined)for
the Certificates,the Official Statement did not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary to make the statements
therein,in light of the circumstances under which they were made,not misleading.
0) If between the date hereof and the date which is 25 days after the End of the
Underwriting Period for the Certificates,an event occurs which would cause the information contained
in the Official Statement, as then supplemented or amended, to contain an untrue statement of a
material fact or to omit to state a material fact required to be stated therein or necessary to make such
information therein,in the light of the circumstances under which it was presented,not misleading,the
City will notify the Underwriter,and the City, and, if in the opinion of the Underwriter,or its counsel,
such event requires the preparation and publication of a supplement or amendment to the Official
Statement,the City will cooperate in the preparation of an amendment or supplement to the Official
Statement in a form and manner approved by the Underwriter, and shall pay all expenses thereby
incurred. For the purposes of this subsection, between the date hereof and the date which is 25 days
after the End of the Underwriting Period for the Certificates, the City will furnish such information
with respect to itself as the Underwriter may from time to time reasonably request.
7987.2\22759.0004 4
(k) If the information contained in the Official Statement is amended or supplemented
pursuant to paragraph 0) hereof, at the time of each supplement or amendment thereto and (unless
subsequently again supplemented or amended pursuant td such subparagraph)at all times subsequent
thereto up to and including the date which is 25 days after the End of the Underwriting Period for the
Certificates, the portions of the Official Statement so supplemented or amended (including any
financial and statistical data contained therein)will not contain any untrue statement of a material fact
required to be stated therein or necessary to make such information therein in the light of the
circumstances under which it was presented,not misleading.
(1) After the Closing,the City will not participate in the issuance of any amendment of or
supplement to the Official Statement to which,after being furnished with a copy,the Underwriter shall
reasonably object in writing or which shall be disapproved by counsel for the Underwriter.
(m) As used herein and for the purposes of the foregoing, the term "End of the
Underwriting Period" for the Certificates shall mean the earlier of(i)the Closing Date unless the City
shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date,
(ii)the date on which the End of the Underwriting Period for the Certificates has occurred under
Rule 15c2-12;provided,however,that the City may treat as the End of the Underwriting Period for the
Certificates the date specified as such in a notice from the Underwriter stating the date which is the End
of the Underwriting Period.
(n) The City will take no action and will cause no action to be taken that would cause the
interest with respect to the Certificates to be includable in gross income for federal income tax
purposes.
(o) Between the date hereof and the Closing Date,without the prior written consent of the
Underwriter,the City will not have issued any bonds,notes or other obligations for borrowed money on
behalf of the City secured by sewer revenues except for such borrowings as may be described in or
contemplated by the Official Statement.
(p) The City has not been notified of any listing or proposed listing by the Internal
Revenue Service to the effect that the City is an issuer whose non-arbitrage certificates may not be
relied upon.
(q) Any certificate signed by any officer of the City and delivered to the Underwriter shall
be deemed a representation and warranty by the City to the Underwriter as to the statements made
therein but not of the person signing the same.
4. Closing Conditions. The Underwriter has entered into this Contract of Purchase in
reliance upon the representations and warranties of the City contained herein,and in reliance upon the
representations and warranties to be contained in the documents and instruments to be delivered at the
Closing and upon the performance by the City of its obligations hereunder,both as of the date hereof
and as of the Closing Date. Accordingly,the Underwriter's obligations under this Contract of Purchase
to purchase,to accept delivery of and to pay for the Certificates shall be conditioned,at the option of
the Underwriter, upon the performance by the City of its obligations to be performed hereunder and
7987.2\22759.0004 5
under such documents and instruments at or prior to the Closing, and shall also be subject to the
following additional conditions:
(a) The Underwriter shall receive,within seven business days of the date hereof,copies of
the Official Statement(including all information permitted to have been omitted by Rule 15c2-12 and
any amendments or supplements as have been approved by the Underwriter), in such reasonable
quantity as the Underwriter shall have requested.
(b) The representations and warranties of the City and the Authority contained herein shall
be true and correct on the date hereof and on and as of the Closing Date,as if made on the Closing Date
and the statements of the officers and other officials of the City and the Authority made in any
certificate or any other document furnished pursuant to the provisions hereof are accurate.
(c) At the time of Closing, the Installment Purchase Agreement, the Assignment
Agreement,the Continuing Disclosure Certificate, the Trust Agreement, the Escrow Agreement and
this Contract of Purchase,all as described in the Official Statement,shall be in full force and effect as
valid and binding agreements between or among the various parties thereto and the Installment
Purchase Agreement, the Assignment Agreement, the Continuing Disclosure Certificate, the Trust
Agreement,the Escrow Agreement and this Contract of Purchase,and the Official Statement shall not
have been amended, modified or supplemented except as may have been agreed to in writing by the
Underwriter,and there shall be in full force and effect such resolutions as, in the opinion of Stradling
Yocca Carlson & Rauth, Newport Beach, California shall be necessary in connection with the
transactions contemplated hereby.
(d) At or prior to the Closing, the Underwriter shall receive the following documents, in
each case satisfactory in form and substance to the Underwriter:
(1) the unqualified approving opinion of Special Counsel,dated the Closing Date,
as to the validity of the Installment Purchase Agreement and the tax-exempt status of the
Certificates together with a reliance letter addressedto the Underwriterand the Trustee;
(2) a supplemental opinion of Special Counsel in form and substance satisfactory
to the Underwriter,dated the Closing Date and addressed to the City and the Underwriter,to
the effect that:
(i) the description of the Certificates and the security for the
Certificates and statements in the Official Statement on the cover page thereof and
under the captions "INTRODUCTION,""THE CERTIFICATES," "SECURITY FOR
THE CERTIFICATES," "TAX MATTERS," and "APPENDIX B - SUMMARY OF
PRINCIPAL LEGAL DOCUMENTS" are, to the extent they purport to summarize
certain provisions of the Installment Purchase Agreement,the Assignment Agreement,
the Trust Agreement, the Continuing Disclosure Certificate, the Escrow Agreement
fairly and accurately summarize the matters purported to be summarized therein in all
material aspects; provided that Special Counsel need not express any opinion with
respect to any financial or statistical data contained therein;
7987.2\22759.0004 6
(ii) assuming due authorization, execution and delivery by the
other parties thereto,the Installment Purchase Agreement,the Assignment Agreement,
the Trust Agreement,the Escrow Agreement and this Contract of Purchase have each
been duly authorized, executed and delivered by the respective parties thereto and
constitute legal, valid and binding agreements of the City and are enforceable in
accordance with their respective terms, except as enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors'rights and except as their enforcement
may be subject to the application of equitable principles and the exercise of judicial
discretion in appropriate cases if equitable remedies are sought;and
(iii) the Certificates are exempt from registration pursuant to the
Securities Act of 1933, as amended, and the Trust Agreement is exempt from
qualification as an indenture pursuant to the Trust Indenture Act of 1939,as amended;
(3) an opinion of the City Attorney, dated the Closing Date and addressed to the
City and the Underwriter, in form and substance satisfactory to the Underwriter,to the effect
that:
(1) the City is a city duly organized,validly existing and in good
standing under its charter and the Constitution and the laws of the State of California;
(ii) the resolutions of the City and the City's Municipal Water
Department approving and authorizing the execution and delivery of the Installment
Purchase Agreement,the Trust Agreement,the Escrow Agreement and this Contract of
Purchase and approving the Official Statement were duly adopted at meetings which
were called and held pursuant to law and with all public notice required by law and at
which a quorum was present and acting throughout;
(iii) to the best of such counsel's knowledge,there is no action,suit,
proceeding or investigation at law or in equity before or by any court, public office or
body, pending or threatened against or affecting the City, which would adversely
impact the City's ability to complete the transactions described in and contemplated by
the Official Statement, to restrain or enjoin the collection of Installment Payments
under the Installment Purchase Agreement, or in any way contesting or affecting the
validity of the Certificates,the Installment Purchase Agreement,the Trust Agreement,
the Escrow Agreement,this Contract of Purchase or the transactions described in and
contemplated hereby and by the Official Statement wherein an unfavorable decision,
ruling or finding would adversely affect the validity and enforceability of the
Certificates,the Installment Purchase Agreement,the Trust Agreement,the Continuing
Disclosure Certificate,the Escrow Agreement or this Contract of Purchase or in which
a ftnal adverse decision could materially adversely affect the operations of the City;
(iv) the execution and delivery of the Installment Purchase
Agreement, the Trust Agreement, the Continuing Disclosure Certificate, the Escrow
Agreement and this Contract of Purchase and the approval of the Official Statement
and compliance with the provisions thereof and hereof, under the circumstances
7987.2\22759.0004 7
contemplated thereby, do not and will not in any material respect conflict with or
constitute on the part of the City a breach of or default under any agreement or other
instrument to which the City is a party or by which it is bound or any existing law,
regulation,court order or consent decree to which the City is subject;
(v) the Installment Purchase Agreement,the Trust Agreement,the
Continuing Disclosure Certificate, the Escrow Agreement and this Contract of
Purchase have been duly authorized,executed and delivered by the City,and,assuming
due authorization,execution and delivery by the other parties thereto,constitute legal,
valid and binding agreements of the City enforceable in accordance with their
respective terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency or other laws affecting the enforcement of creditors' rights and by the
application of equitable principles if equitable remedies are sought;
(vi) no authorization,approval,consent,or other order of any court
or governmental body is required for the valid authorization,execution and delivery of
the Installment Purchase Agreement,the Trust Agreement,the Continuing Disclosure
Certificate,the Escrow Agreement or this Contract of Purchase and the approval of the
Official Statement or the consummation by the City of the transactions contemplated
herein and in the Official Statement, except such as have been obtained and except
such as may be required under state securities or blue sky laws in connection with the
purchase and distribution of the Certificates by the Underwriter;and
(vii) to the best knowledge of such counsel,the information in the
Official Statement(excluding therefrom financial statements and other statistical data
included in the Official Statement, as to which no view need be expressed)does not
contain any untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein,in the light of
the circumstances under which they were made,not misleading;
(4) An opinion of the counsel to the Authority, dated the Closing Date, and
addressed to the Authority and the Underwriter, in form and substance satisfactory to the
Underwriterto the effect:
(i) the Authority is a joint powers authority duly organized,validly
existing and in good standing under the laws of the State of California;
(ii) the Authority has full corporate power and authority to enter
into the Installment Purchase Agreement, the Assignment Agreement and the Trust
Agreement;and
(iii) to the best of such counsel's knowledge,there is no action,suit,
proceeding or investigation at law or in equity before or by any court, public office or
body, pending or threatened against or affecting the Authority,which would adversely
impact the Authority's ability to complete the transactions described in and
contemplated by the Official Statement, to restrain or enjoin the collection of
Installment Payments under the Installment Purchase Agreement, or in any way
7987.2\22759.0004 8
contesting or affecting the validity of the Certificates, the Installment Purchase
Agreement, the Trust Agreement, or the transactions described in and contemplated
hereby and by the Official Statement wherein an unfavorable decision,ruling or finding
would adversely affect the validity arid enforceability of the Certificates, the
Installment Purchase Agreement or the Trust Agreement;
(iv) the Installment Purchase Agreement, the Assignment
Agreement and the Trust Agreement have each been validly authorized,executed and
delivered by the Authority and, assuming due authorization,execution and delivery by
and enforceability against the other parties thereto, constitute legal,valid and binding
agreements of the Authority, enforceable in accordance with their respective terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency or other
laws affecting the enforcement of creditors'rights and by the application of equitable
principles if equitable remedies are sought;
(5) the opinion of counsel to the Trustee and Escrow Agent,dated the Closing Date
and addressed to the Underwriter,to the effect that:
(i) the Trustee is a national banking association with trust powers,
duly organized and lawfully existing under the laws of the United States;
(ii) the Trustee has duly authorized, executed and delivered the
Trust Agreement,the Escrow Agreement and the Assignment Agreement and assuming
due authorization,execution and delivery by the other parties thereto are the valid and
binding agreements of the Trustee, enforceable in accordance with their respective
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors' rights and
by the application of equitable principles if equitable remedies are sought;and
(iii) the Trustee has lawful authority to execute and deliver the
Certificates;
(6) a certificate,dated the Closing Date,signed by a duly authorized official of the
City satisfactory in form and substance to the Underwriter to the effect that the representations
and warranties of the City contained in this Contract of Purchase are true and correct on and as
of the closing Date with the same effect as if made on the Closing Date;
(7) a certificate,dated the Closing Date,signed by a duly authorized official of the
Authority satisfactory in form and substance to the Underwriter to the effect that(i)to the best
of his or her knowledge, no litigation or proceeding is pending or threatened against the
Authority (a)to restrain or enjoin the delivery of any of the Certificates or the collection of
Installment Payments(b) in any way contesting the validity of the Certificates,the Installment
Purchase Agreement,the Assignment Agreement,or the Trust Agreement,or the authority of
the Authority to enter into the Installment Purchase Agreement, the Assignment Agreement,
the Trust Agreement or this Contract of Purchase,or (c) in any way contesting the powers of
the Authority in connection with any action contemplated by the foregoing agreements, and
(ii)the statements and information concerning the Authority contained in the Official
7987.2\22759.0004 9
Statement are correct and do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein,in light of the circumstances under which they were
made,not misleading in any material respect;
(8) a certificate,dated the Closing Date,signed by a duly authorized official of the
Trustee satisfactory in form and substance to the Underwriter to the effect that(i)to the best of
such officer's knowledge,there is no action,suit, proceeding,inquiry or investigation at law or
in equity, before or by any court or governmental agency, public office or body pending or
threatened (a) seeking to prohibit, restrain or enjoin the execution of the Certificates or the
collection of Installment Payments intended to pay the principal of and interest on the
Certificates, or (b) in any way contesting or affecting the validity or enforceability of the
Certificates,the Trust Agreement or the Assignment Agreement,(ii)to the best of such officer's
knowledge,there is no action pending or threatened against the Trustee affecting the existence
of the Trustee,or contesting the powers of the Trustee or its authority to enter into or perform
its obligations under any of the foregoing agreements,wherein an unfavorable decision,ruling
or finding would adversely affect the validity of the Certificates,the Trust Agreement or the
Assignment Agreement,and (iii)to the best of such officer's knowledge,no consent,approval,
authorization or other action by any governmental or regulatory authority having jurisdiction
over the Trustee that has not been obtained is or will be required for the execution and delivery
by the Trustee of the Trust Agreement and the Assignment Agreement;
(9) a certificate,dated the Closing Date,signed by a duly authorized official of the
Escrow Bank satisfactory in form and substance to the Underwriter and Special Counsel;
(10) two executed or certified copies of each of the Installment Purchase
Agreement,the Assignment Agreement,the Trust Agreement,the Escrow Agreement and the
Continuing Disclosure Certificate;
(11) two executed copies of the Official Statement,delivered by the City;
(12) two certified copies of the general resolution of the Trustee authorizing the
execution and delivery of Certificates, the Trust Agreement and the acceptance of the
Assignment Agreement;
(13) certified copies of resolutions adopted by the City authorizing the execution
and delivery of the Installment Purchase Agreement, the Trust Agreement, the Continuing
Disclosure Certificate,the Escrow Agreement, this Contract of Purchase and the approval of
the Official Statement;
(14) certified copies of resolutions adopted by the Authority authorizing the
execution and delivery of the Installment Purchase Agreement,the Assignment Agreement,the
Trust Agreement and this Contract of Purchase;
(15) non-arbitrage certifications by the City in form and substance acceptable to
Special Counsel;
7987.2\22759.0004 10
(16) evidence that any ratings described in the Official Statement have been
obtained as of the Closing Date;
(17) municipal bond insurance policy of the Insurer;
(18) opinion of counsel to the Insurer satisfactory in form and substance to the
Underwriterand Special Counsel;
(19) such additional legal opinions, certificates,proceedings,instruments and other
documents as the Underwriter may reasonably request to evidence compliance by the Trustee
with legal requirements,the truth and accuracy,as of the Closing Date, of the representations
contained herein and in the Official Statement and the due performance or satisfaction by the
Trustee, the Authority and the City at or prior to such time of all agreements then to be
performed and all conditions then to be satisfied.
If the conditions to the Underwriter's obligations contained in this Contract of Purchase are not
satisfied or if the Underwriter's obligations shall be terminated for any reason permitted by this
Contract of Purchase,this Contract of Purchase shall terminate and neither the Underwriter nor the City
shall have any further obligation hereunder. In the event that the Underwriter fails (other than for a
reason permitted by this Contract of Purchase)to accept and pay for the Certificates at the Closing,the
amount of one-half of one percent(`/2 of I%) of the principal amount of the Certificates shall be full
liquidated damages for such failure and for any and all defaults hereunder on the part of the
Underwriter, and the acceptance of such amount shall constitute a full reInstallment Purchase
Agreement and discharge of all claims and rights of the City against the Underwriter.
6. Termination. The Underwriter shall have the right to cancel its obligations to purchase
the Certificates if,between the date hereof and the Closing Date:
(a) the marketability of the Certificates or the market price thereof, in the opinion of the
Underwriter,has been materially adversely affected by an amendment to the Constitution of the United
States or by any legislation in or by the Congress of the United States or by the State of California,or
the recommendation to Congress or endorsement for passage (by press reInstallment Purchase
Agreement,other form of notice or otherwise)of legislation by the President of the United States,the
Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking
minority member of the Committee on Finance of the United States Senate or the Committee on Ways
and Means of the United States House of Representatives, or the proposal for consideration of
legislation by either such Committee or by any member thereof, or the presentment of legislation for
the staff of either such Committee,or by the staff of the Joint Committee on taxation of the Congress of
the United States,or the favorable reporting for passage of legislation to either House of the Congress
of the United States by a Committee of such House to which such legislation has been referred for
consideration,or any decision of any federal or state court or any ruling or regulation(final,temporary
or proposed) or official statement on behalf of the United States Treasury Department, the Internal
Revenue Service or other federal or state authority affecting the federal or state tax status of the City,or
the interest on bonds or notes(including the Certificates);
(b) there shall exist any event which in the reasonable opinion of the Underwriter either
(i) makes untrue or incorrect in any material respect any statement or information contained in the
7987.222759.0004 I I
Official Statement or (ii) is not reflected in the Official Statement but should be reflected therein to
make the statements and information contained therein not misleading in any material respect(for the
purposes of this paragraph the Preliminary Official Statement shall be deemed to be the Official
Statement until such time as the final Official Statement ha' been printed);
(c) there shall have occurred any new outbreak of hostilities or other national or
international calamity or crisis,the effect of such outbreak,calamity or crisis on the financial markets
of the United States being such as would make it impracticable, in the reasonable opinion of the
Underwriter,for the Underwriter to sell the Certificates;
(d) there shall be in force a general suspension of trading on the New York Stock
Exchange or other national securities exchange,or minimum or maximum prices for trading shall have
been fixed and be in force,or maximum ranges for prices for securities shall have been required and be
in force on the New York Stock Exchange or such other exchange, whether by virtue of a
determination by the New York Stock Exchange or such other exchange or by orders of the Securities
and Exchange Commission or any other governmental authority;
(e) a general banking moratorium shall have been declared by either federal,California or
New York authorities having jurisdiction and be in force;
(f) there shall be established any new restrictions on transactions in securities materially
affecting the free market for securities(including the imposition of any limitations on interest rates)or
the extension of credit by, or the charge to the net capital requirements of, underwriters established by
the New York Stock Exchange, the Securities and Exchange Commission,any other federal or state
agency or the Congress of the United States,or by Executive Order;
(g) an adverse event occurs in the affairs of the Trustee or the City which,in the opinion of
the Underwriter,requires or has required a supplement or amendment to the Official Statement;
(h) the rating of the Certificates shall have been downgraded or withdrawn by a national
rating service,which,in the opinion of the Underwriter,materially adversely affects the market price of
the Certificates;or
(i) the Comptroller of the Currency renders an opinion or issues a regulation which has the
effect of prohibiting the Underwriter from underwriting the Certificates.
7. Expenses. Whether or not the transactions contemplated by this Contract of Purchase
are consummated,the Underwriter shall be under no obligation to pay,and the City shall pay from the
proceeds of the Certificates or otherwise,all expenses and costs of the City and the Authority incident
to the performance of their obligations in connection with the authorization,execution and delivery of
the Certificates to the Underwriter including, without limitation, fees and disbursements of Special
Counsel and other professional advisors employed by the City or the Authority;costs of preparation,
printing,signing,transportation,delivery and safekeeping of the Certificates;printing and distribution
of the preliminary and final Official Statements incurred by an independent printer;credit rating(s)and
bond insurance premiums; Trustee fees and charges; travel by City or Authority officials; title
insurance and appraisal fees. The Underwriter shall pay its out-of-pocket expenses including,but not
limited to PSA,MSRB,CUSIP and CDIAC fees.
7987.2\22759.0004 12
8. Notice. Any notice or other communication to be given to the Underwriter under this
Contract of Purchase may be given by delivering the same in writing to Piper Jaffray Inc., Suite 2200,
345 California Street, San Francisco,CA 94104-2623,Attention: Richard G. Kiss, Managing Director.
All notices or communications hereunder by any party shall be given and served upon each other party.
Any notice or communication to be given the City under this Contract of Purchase may be given by
delivering the same to the City at the address indicated on the first page hereof, Attention: General
Manager of the Municipal Water District. The approval of the Underwriter when required hereunder or
the determination of satisfaction as to any document referred to herein shall be in writing signed by the
Underwriter and delivered to the City.
9. Parties in Interest. This Contract of Purchase is made solely for the benefit of the City,
and the Underwriter(including the successors or assigns thereof)and no other person shall acquire or
have any right hereunder or by virtue hereof. All representations,warranties and agreements of the
City in this Contract of Purchase shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Underwriter and shall survive the delivery of and payment for
the Certificates.
10. Effectiveness and Counterparts. This Contract of Purchase shall become effective and
binding upon the respective parties hereto upon the execution of the acceptance hereof by duly
authorized officers of the City and the Authority and shall be valid and enforceable as of the time of
such acceptance. This Contract of Purchase may be executed by the parties hereto by facsimile
transmission and in separate counterparts,each of which when so executed and delivered shall be an
original,but all such counterparts shall together constitute but one and the same instrument.
7987.2\22759.0004 13
11. Governing Law. This Contract of Purchase shall be construed in accordance with the
laws of the State of California.
PIPER JAFFRAY INC.
By:
Richard G. Kiss
Managing Director.
Accepted:
CITY OF SAN BERNARDINO
By:
General Manager of
the Municipal Water Department
7987.2\22759.0004 14
EXHIBIT A
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
1998 REFUNDING SEWER REVENUE CERTIFICATES OF PARTICIPATION
MATURITY SCHEDULE
7987.2\22759.0004 A-1
STRADLING YOCCA CARLSON&RAUTH
Draft of 5/13/98
PRELIMINARY OFFICIAL STATEMENT DATED MAY 1998
NEW ISSUE-BOOK ENTRY ONLY
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ("Special Counsel"),
under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants
;r and requirements described herein, the portion of each Installment Payment constituting interest (and original issue discount) is excluded from
gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum
In the further opinion of Special Counsel, the portion of each Installment Payment constituting
tax imposed on individual and corporations.
Tinterest (and original issue discount) is exempt from State and California personal income tax. In addition, the difference between the issue
1' = price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity is to be sold to the public) and the stated
y 'J ca
redemption price at maturity with respect to the Certificate constitutes original issue discount. See "TAX MATTERS" herein with respect to
3 tax consequences relating to the Certificates.
CITY OF SAN BERNARDINj MUNICIPAL WATER DEPARTMENT
y° ' 1998 REFUNDING SEWER REVENUE CERTIFICATES OF PARTICIPATION
Dated: June 1, 1998 Due: February 1, as shown below
° The Certificates described herein are being sold to refinance the acquisition and construction of certain capital improvements by the
s= City of San Bernardino Municipal Water Department, and to pay certain costs of executing and delivering the Certificates.
The Certificates are deliverable in fully registered form and when executed and delivered will be registered in the name of Cede&
N a Co., as nominee of The Depository Trust Company, New York, New York. Individual purchases will be made in book-entry form only, in
-° `o principal amounts of $5,000 or any integral multiple thereof. Purchasers of Certificates will not receive certificates representing their
5-1! o beneficial ownership in the Certificates but will receive credit balances on the books of their respective nominees. Interest with respect to the
Certificates, which is payable semiannually on each February 1 and August 1, commencing August 1, 1998, and the principal thereof and
T C U
E y -' premium, if any,are payable by as Trustee,to Cede&Co.;and such interest and principal payments
y Q and premium, if any, are to be disbursed to the beneficial owners of the Certificates through their nominees.
ci The Certificates are subject to optional and mandatory prepayment as more fully described herein.
N o 0
Pursuant to the Trust Agreement the Trustee will hold all right, title and interest in and to the Installment Payments for the use and
y .m benefit of the Owners of the Certificates. The City's obligation to make Installment Payments under the Installment Purchase Agreement is a
[�- o special obligation of the City payable solely from Net Revenues of the City's sewer utility enterprise remaining after payment of Operation and
Maintenance Costs. The City has covenanted in the Installment Purchase Agreement not to incur obligations payable prior to the Installment
°- Payments and not to incur parity obligations except as described herein. The obligation of the City to make Installment Payments is payable
G
on a parity with the obligation of the City to make purchase payments relating to certain other installment purchase agreements currently
E 3 outstanding in the aggregate principal amount of $ , as described herein. The obligation of City to make such Installment
Payments does not constitute an obligation for which it is obligated to levy or pledge any form of taxation or for which it has levied or pledged
any form of taxation but rather is an obligation payable solely from the Net Revenues of the City's sewer utility enterprise. The obligation of
the City to make Installment Payments pursuant to the Installment Purchase Agreement does root constitute a debt of the City, the State of
California or any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction.
°= The refunding to be accomplished by the sale and delivery of the Certificates shall be a "cross-over refunding." The net
t H proceeds of the Certificates will be held in escrow by the Trustee in the Special Escrow Fund and used to pay principal and interest
y y `o with respect to the Certificates through February 1, 2001 (the "Cross-Over Date"). On the Cross-Over Date the amounts in the
o o Special Escrow Fund will be used to prepay in full the principal, interest and prepayment premium with respect to the 1942 Sewer
v h _ Certificates of Participation. Prior to the Cross-Over Date, the Installment Payments shall be payable solely from amounts on deposit
_ = in the Special Escrow Fund, and the pledge of Net Revenues securing Installment Payments and the other covenants under the
y Installment Purchase Agreement securing the obligation to pay Installment Payments shall not be effective. After the Cross-Over Date
U
the Installment Payments evidenced by the Certificates will begin to be payable from the Net Revenues.
The scheduled payment of principal of and interest with respect to the Certificates when due will be issued by a municipal bond
c H insurance policy to be issued by concurrently with the execution and delivery of the Certificates.
o=.0
[LOGO]
0 3 THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE.
E INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN
�'=•° INFORMED INVESTMENT DECISION.
•—° ° MATURITY SCHEDULE'
-'
t Maturity Principal Interest Price or Maturity Principal Interest Price or
>_ ' February 1 Amount Rate Yield February 1 Amount Rate Yield
_T p
% p�
.y
%
J _ H
-° :? y $ Term Certificates due February 1,20_Yield_%
N (Accrued interest from June 1,1998 to be added.)
The Certificates are offered when, as and if delivered and received by the Underwriter, subject to the approval as to the legality of
the Installment Purchase Agreement by Stradling Yocca Carlson&Routh. a Professional Corporation, Newport Beach, California, Special Counsel, and certain
other conditions. Certain legal matters will be passed upon for the City by the City Attorney. It is anticipated that the Certificates will be available for delivery
H to The Depository Trust Company in New York.New York on or about June_, 1998.
r s PIPER JAFFRAY INC.
Dated: June—, 1997
7453 4\22759 0003
•Preliminary,subject to change.
7453.4\22759.0003
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
No dealer, broker, salesperson or other person has been authorized to give any information or
to make any representations other than those contained in this Official Statement in connection with the
offering made hereby and, if given or made, such other information or representations must not be
relied upon as having been authorized by the City or the Underwriter. This Official Statement does not
constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of the
Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an
offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers of the
Certificates. Statements contained in this Official Statement which involve estimates, forecasts or
matters of opinion, whether or not expressly so described herein, are intended solely as such and are
not to be construed as a representation of facts.
The information set forth herein has been obtained from official sources which are believed to
be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a
representation by the Underwriter. The information and expression of opinions herein are subject to
change without notice and neither delivery of this Official Statement nor any sale made hereunder will,
under any circumstances, create any implication that there has been no change in the affairs of the City
since the date hereof.
7453.4\22759.0003
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
BOARD WATER COMMISSIONERS
Harold W. Willis, President
James H. Urata, Commissioner
Martin A. Matich, Commissioner
B. Warren Cocke, Commissioner
Alton C. Garrett, Jr., Commissioner
MAYOR AND COMMON COUNCIL
Judith Valles, Mayor
Esther Estrada, Councilwoman
Susan Lien, Councilwoman
Rita Arias, Councilwoman
Betty Anderson, Councilwoman
Norine Miller, Councilwoman
Frank Schnetz, Councilman
Jerry Devlin, Councilman
STAFF
Bernard Kersey, General Manager
Stacey Aldstadt, Deputy General Manager
James Penman, Esq., City Attorney
SPECIAL COUNSEL
Stradling Yocca Carlson&Rauth
A Professional Corporation
Newport Beach, California
TRUSTEE
VERIFICATION AGENT
7453.4\22759.0003
TABLE OF CONTENTS
Page
INTRODUCTION..................................................................................................................................1
THEREFUNDING PLAN................................................:....................................................................3
THECERTIFICATES...........................................................................................................................4
GeneralProvisions...........................................................................................................................4
Book-Entry System..........................................................................................................................4
Provisions Upon Termination of Book-Entry Only System............................................................5
Prepaymentof Certificates ...............................................................................................................6
Debt Service Schedule ........................•••••"""""""""8
......................................................................
SECURITYFOR THE CERTIFICATES..............................................................................................8
General.............................................................................................................................................8
Pledgeof Net Revenues...................................................................................................................9
RevenueCovenant...........................................................................................................................9
InstallmentPayments......................................................................................................................10
Limited Liability of City and Limitations or Remedies.........................................................•••••..10
AdditionalCity Indebtedness.........................................................................................................
ReserveFund .................................................................................................................................12
CERTIFICATEINSURANCE............................................................................................................12
ESTIMATED SOURCES AND USES OF PROCEEDS AND RELATED FUNDS .........................13
CITYOF SAN BERNARDINO..........................................................................................................13
MUNICIPAL WATER DEPARTMENT ...13
.........................................................................................
SEWERUTILITY...............................................................................................................................13
Introduction....................................................................................................................................13
FinancialStatements......................................................................................................................21
OperatingResults...........................................................................................................................21
Projected Operating Results and Debt Service Coverage..............................................................22
CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES..........................23
ArticleXIIIB..................................................................................................................................23
Proposition218..............................................................................................................................23
FutureInitiatives............................................................................................................................24
APPROVALOF LEGAL PROCEEDINGS........................................................................................24
LITIGATION
......................................................................................................................................25
CONTINUINGDISCLOSURE...........................................................................................................25
TAXMATTERS..................................................................................................................................25
7453.4\22759.0003
TABLE OF CONTENTS
(continued)
Page
RATINGS ............................................................................................................................................26
UNDERWRITING...............................................................................................................................27
VERIFICATION..................................................................................................................................27
MISCELLANEOUS ...................................................................._.......................................................27
APPENDIX A Financial Statements for the Fiscal Year ending June 30, 1997.........................A-1
APPENDIX B Summary of Principal Legal Documents............................................................B-1
APPENDIX C Form of Special Counsel Opinion ......................................................................0-1
APPENDIX D Form of Continuing Disclosure Certificate........................................................D-1
APPENDIX E DTC and Book-Entry Only System....................................................................E-1
APPENDIX F Form of Municipal Bond Insurance Policy.........................................................F-1
7453.4\22759.0003 H
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
1998 REFUNDING SEWER REVENUE CERTIFICATES OF PARTICIPATION
INTRODUCTION
This Official Statement, including the cover page and all appendices hereto, provides certain
information concerning the sale and delivery of the City of San Bernardino Municipal Water
Department 1998 Refunding Sewer Revenue Certificates of Participation (the "Certificates").
Descriptions and summaries of various documents hereinafter set forth do not purport to be
comprehensive or definitive, and reference is made to each document for complete details of all terms
and conditions. All statements herein are qualified in their entirety by reference to each document.
Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in
Appendix B hereto entitled "Summary of Principal Legal Documents."
The Certificates evidence the direct and undivided interests of the registered owners thereof
(the "Owners") in the right to receive payments (the "Installment Payments") to be made by the City of
San Bernardino (the "City") to refinance certain capital improvements (the "Refunding") originally
financed with a portion of the proceeds of City of San Bernardino Municipal Water Department 1992
Sewer Certificates of Participation ("1992 Sewer Project ) currently outstanding in an aggregate
principal amount of $ (the "1992 Certificates"), pursuant to an Installment Purchase
Agreement, dated as of June 1, 1998 (the "Installment Purchase Agreement"), by and between the City
and the San Bernardino Public Safety Authority, a joint powers authority formed by the City and the
County of San Bernardino (the "Authority"). See "THE REFUNDING PLAN" herein.
The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of
June 1, 1998 (the "Trust Agreement"), by and among the City, the Authority , as
trustee (the "Trustee"). The Trust Agreement establishes funds and accounts to be held and
administered by the Trustee and the City. These funds and accounts are described in the section of this
Official Statement entitled "SECURITY FOR THE CERTIFICATES" and Appendix B hereto.
The Installment Payments are payable by the City, as the purchaser, to the Authority, as the
seller, for the 1992 Sewer Project. Pursuant to an Assignment Agreement, dated as of June 1, 1998
(the "Assignment Agreement"), by and between the Authority and the Trustee, the Authority has
assigned to the Trustee for the benefit of the Owners of the Certificates substantially all its rights under
the Installment Purchase Agreement, including its right to receive Installment Payments and its right to
enforce amounts payable when due in the event of a default by the City.
Purpose. The Certificates are being sold to refinance the acquisition and construction by the
City of San Bernardino Municipal Water Department of certain capital improvements as described
herein and to pay certain of the costs incurred in executing and delivering the Certificates.
Certificates. The Certificates are.being executed and delivered as fixed rate certificates of
participation. The Certificates will represent interest at the rates and mature on the dates set forth on
the cover page of this Official Statement. The Certificates will be executed and delivered in
denominations of$5,000 or any integral multiple thereof. Interest with respect to the Certificates shall
Preliminary,subject to change.
7453.4\22759.0003
be payable semiannually on each February 1 and August 1, commencing August 1, 1998 (each, an
"Interest Payment Date"). The Certificates are subject to prepayment prior to maturity as described
below under "THE CERTIFICATES—Prepayment of Certificates."
Security for the Certificates. Each Certificate represents an undivided interest of the Owner
thereof in Installment Payments to be made by the City as the price for certain capital improvements
pursuant to an Installment Purchase Agreement with the Authority. The City's obligation to make
Installment Payments is a special obligation of the City payable solely from Net Revenues of the City's
sewer utility enterprise and amounts on deposit in certain funds and accounts established by the
Installment Purchase Agreement. The Installment Payments are scheduled to be sufficient to pay the
principal of and interest due with respect to the Certificates.
The obligation of the City to make the Installment Payments out of Net Revenues under the
Installment Purchase Agreement is absolute and unconditional and, until such time as all principal and
interest payments required thereunder shall have been paid in full (or provision for the payment thereof
shall have been made pursuant to the Installment Purchase Agreement), the City will not discontinue or
suspend any Installment Payments required to be made by it when due, whether or not the facilities of
the City or any part thereof are operating or operable or have been completed, or their use is
suspended, interfered with, reduced, curtailed or terminated in whole or in part and such payments will
not be subject to reduction whether by offset, abatement or otherwise and will not be conditional upon
the performance or nonperformance by any party to any agreement for any cause whatsoever.
The obligation of the City to make Installment Payments pursuant to the Installment Purchase
Agreement does not constitute a debt of the City, the State of California or of any political subdivision
thereof in contravention of any constitutional or statutory debt limitation or restriction. The obligation
of the City to make Installment Payments pursuant to the Installment Purchase Agreement does not
constitute an obligation for which it is obligated to levy any form of taxation or for which it has levied
any form of taxation. Under no circumstances will the City be required to advance any moneys
derived from any source of income other than Net Revenues and such funds and accounts nor will any
other funds or property of the City be liable for the payment of the Installment Payments. See
"SECURITY FOR THE CERTIFICATES—Limited Liability of City" herein.
Prior to the Cross-Over Date, the Installment Payments shall be payable solely from
amounts on deposit in the Special Escrow Fund, and the pledge of Net Revenues securing
Installment Payments and the other covenants under the Installment Purchase Agreement
securing the obligation to pay Installment Payments shall not be effective.
Bond Insurance. Concurrently with the execution and delivery of the Certificates,
will issue a municipal bond insurance policy with respect to the Certificates.
The Policy unconditionally guarantees the payment of the principal of and interest with respect to the
Certificates which has become due for payment, but is unpaid by reason of nonpayment. See
"CERTIFICATE INSURANCE" herein.
The Refunding Plan. With the exception of the proceeds from the sale of the Certificates to
be used to fund a reserve fund and to pay certain costs of issuance, all other proceeds will be used to
refinance certain of the capital improvements (the "Refunding Project") constructed with a portion of
the proceeds of the City of San Bernardino Municipal Water Department 1992 Sewer Certificates of
Participation (the "1992 Certificates"). The refunding to be accomplished by the sale and delivery of
the Certificates shall be a "cross-over refunding." The net proceeds of the Certificates will be held in
7453.4\22759.0003 2
escrow by the Trustee in the Special Escrow Fund and used to pay principal and interest with respect to
the Certificates through February 1, 2001 (the "Cross-Over Date"). On the Cross-Over Date the
amounts in the Special Escrow Fund will be used to prepay in full the principal, interest and
prepayment premium with respect to the 1992 Sewer Certificates of Participation. After the Cross-
Over Date the Installment Payments evidenced by the Certificates will begin to be payable from the Net
Revenues. See "THE REFUNDING PLAN" herein.
Revenue Covenant. The Installment Purchase Agreement will require the City to set rates and
charges for sewer service which will be at least sufficient to yield during each fiscal year Net Revenues
equal to 110% of Debt Service (i.e., the Installment payments and all other parity debt).
Parity Obligations. The obligation of the City to make Installment Payments is payable on a
parity with the obligation of the City to make installment payments relating to the 1992 Certificates
which will not be refunded and which will be outstanding in the principal amount of $
[Description of other parity debt]. See CITY OF SAN BERNARDINO MUNICIPAL WATER
DEPARTMENT SEWER UTILITY—Outstanding City Debt" herein.
The Installment Purchase Agreement permits the City to execute any Contract or issue any
Bonds, as the case may be, payable from Net Revenues on a parity with the Installment Payments
provided that certain conditions are satisfied as discussed under the caption "SECURITY FOR THE
CERTIFICATES—Additional City Indebtedness" herein.
Reserve Fund. On the Cross-Over Date, the Trustee is to establish, maintain and hold in trust
a fund, designated as the "Reserve Fund." The Trustee will deposit in the Reserve Fund the sum of
$ . See "SECURITY FOR THE CERTIFICATES-Reserve Fund" herein.
Prepayment of Certificates. The Certificates are subject to mandatory, optional and
extraordinary prepayment as described as described under the caption "THE CERTIFICATES—
Prepayment of Certificates" herein.
The City. The Municipal Water Department of the City of San Bernardino is a component
unit of the City of San Bernardino (the "Department") and was formed in 1904 under the charter of the
City of San Bernardino (the "City"). The Department is governed by a Board of Water Commissioners
who are appointed by the Mayor of the City of San Bernardino. The Charter gives the Board of Water
Commissioners limited authority to govern the Department. The Department operates two enterprise
funds: the Water Utility Enterprise Fund (Water Utility) and the Sewer Utility Enterprise Fund (Sewer
Utility). The City began providing wastewater collection and treatment service in
The City regularly prepares a variety of reports, including audits, budgets and related items.
Any Certificate owner can obtain a copy of publicly available information from the City. Additional
information concerning the Official Statement may be obtained by contacting , P.O.
Box 710, San Bernardino, CA 92402 (909)
THE REFUNDING PLAN
Under the refunding plan to be accomplished by the sale of the Certificates and the use of the
proceeds provided thereby (the "Refunding Plan"), a portion of the proceeds of the of the Certificates,
together with interest to be earned thereon, will be held in a special escrow fund under the Trust
Agreement (the "Special Escrow Fund") and used to pay principal and interest with respect to the
7453.4\22759.0003 3
Certificates through February 1, 2001. On February 1, 2001, the amounts in the Special Escrow Fund
will be used to prepay in full the principal, interest and prepayment premium with respect to the 1992
Certificates. The 1992 Certificates were originally executed and delivered to provide funds for the
acquisition and construction of the 1992 Sewer Project.
Under the Refunding Plan, the amounts to be deposited in the Special Escrow Fund will be
used to purchase investment securities, the interest on and principal of which when due will provide
moneys which, together with certain amounts which may be held in cash in such fund, will be
sufficient to pay the principal and interest with respect to the Certificates through February 1, 2001,
and on February 1, 2001 to pay the principal, interest and prepayment premium with respect to the
1992 Certificates. See "VERIFICATION" herein. The 1992 Certificates will remain outstanding until
February 1, 2001.
The types of securities which may be purchased for the Special Escrow Fund by the Trustee
are direct general obligations of the United States (the "Government Obligations"). Such Government
Obligations will be irrevocably pledged under the Trust Agreement to the payment of the principal of
and interest with respect to the Certificates and the 1992 Certificates in accordance with the plan
described above.
THE CERTIFICATES
General Provisions
The Certificates will be dated June 1, 1998 and will be payable in the years and amounts and
will represent interest at the respective rates set forth on the cover page hereof, which interest will be
payable on February 1 and August 1 of each year, commencing August 1, 1998 (each, an "Interest
Payment Date"). The Certificates will be delivered in the form of fully registered Certificates and,
when executed and delivered, will be initially 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 Certificates. Ownership interests in the Certificates may be purchased in book-entry
form only in denominations of$5,000 or any integral multiple thereof. See "THE CERTIFICATES-
Book-Entry System" and Appendix E hereto.
Book-Entry System
The information in this section concerning The Depository Trust Company ("DTC") and
DTC's book-entry system has been obtained from DTC, and the City, the Authority and the Trustee
take no responsibility for the accuracy thereof. See "APPENDIX E—DTC AND BOOK-ENTRY
ONLY SYSTEM" for a further description of DTC and its book-entry system. Capitalized terms used
under this caption and not otherwise defined shall have the respective meanings given to such terms in
Appendix E.
DTC will act as securities depository for the Certificates. The Certificates will be executed
and delivered as fully registered securities registered in the name of Cede & Co. (DTC's partnership
nominee). One fully-registered Certificate will be executed and delivered for each year in which the
Certificates mature in a denomination equal to the aggregate principal amount of the Certificates
maturing in that year, and will be deposited with DTC. So long as Cede & Co. is the registered owner
of the Certificates, as nominee of DTC, references herein to the owners or holders of the Certificates
7453.4\22759.0003 4
or Certificate Owners shall mean Cede & Co. and shall not mean the actual purchasers of the
Certificates (the "Beneficial Owners").
The City and the Trustee cannot and do not give any assurances that DTC Direct Participants
or DTC Indirect Participants will distribute to the Beneficial Owners (i) payments of interest with
respect to and principal of the Certificates, (ii) certificates representing an ownership interest in or
other confirmation of ownership interests in the Certificates, or (iii) redemption or other notices sent to
DTC or Cede & Co., its nominee, as registered owner of the Certificates, or that they will do so on a
timely basis or that DTC, DTC Direct Participants or DTC Indirect Participants will service and act in
the manner described in the Official Statement.
Provisions Upon Termination of Book-Entry Only System
In the event the book-entry system described above is abandoned, Certificates will be printed
and delivered. Thereafter, any Certificate may, in accordance with its terms, be transferred, upon the
registration books of the Trustee by the person in whose name it is registered, in person or by such
person's duly authorized attorney, upon surrender of such Certificate for cancellation at the corporate
trust office of the Trustee, accompanied by delivery of a duly executed written instrument of transfer in
a form acceptable to the Trustee. Whenever any Certificate or Certificates will be surrendered for
transfer, the Trustee will execute and deliver a new Certificate or Certificates of the same maturity for
a like aggregate principal amount and interest rate. The Trustee may require the payment by any
Certificate Owner requesting any such transfer of any tax or other governmental charge required.to be
paid with respect to such transfer.
Certificates may be exchanged upon surrender thereof at the corporate trust office of the
Trustee for a like aggregate principal amount of Certificates of other authorized denominations of the
same maturity. The Trustee may require the payment by any Certificate Owner requesting such
exchange of any tax or other governmental charge required to be paid with respect to such exchange.
The Trustee will not be required to register the exchange or transfer of any Certificate within
15 days preceding selection of Certificates for prepayment or of any Certificate, in fact, selected for
prepayment.
The principal and Prepayment Price with respect to all Certificates shall be payable upon
presentation and surrender thereof at the principal corporate trust office of the Trustee. Interest with
respect to Certificates shall be payable by check of the Trustee mailed by first class mail on the
Interest Payment Date of such Certificates to the respective Certificate Owners of record thereof as
of the close of business on the Record Date at the addresses shown on the books of the Trustee, or,
upon the request of an Owner of at least 51,000,000 in aggregate principal amount of Certificates, by
wire transfer in immediately available funds to an account designated by such Owner in writing to
the Trustee at least fifteen Business Days prior to the Interest Payment Date, except in each case,
that, if and to the extent that there shall be a default in the payment of the interest due on such
Interest Payment Date, such defaulted interest shall be paid to the Owners in whose names any such
Certificates are registered at the close of business on a special record date as determined by the
Trustee.
Interest with respect to Certificates shall be payable from the Interest Payment Date
preceding their date of execution, unless such date shall be after a Record Date and on or before the
7453.4`22759.0003 5
succeeding Interest Payment Date, in which case interest shall be payable from such Interest
Payment Date, or unless such date shall be on or before the first Record Date, in which case interest
shall be payable from June 1, 1998, provided, however, that if, as shown by the records of the
Trustee, interest represented by the Certificates shall be in default, Certificates executed in exchange
for Certificates surrendered for transfer or exchange shall represent interest from the last date to
which interest has been paid in full or duly provided for with respect to the Certificates, or, if no
interest has been paid or duly provided for with respect to the Certificates, from June 1, 1998.
Prepayment of Certificates
Sinking Fund Prepayments. The Certificates maturing on February 1, 20_ are subject to
mandatory sinking fund prepayment in part (by lot) on each February 1 on and after February 1, 20_,
in integral multiples of $5,000 at a prepayment price of the principal amount thereof plus accrued
interest evidenced and represented thereby to the date fixed for prepayment, without premium as
follows:
Mandatory
Prepayment Dates Amount
(February 1)
*
* Maturity
provided, however, that if some but not all of the Certificates maturing on February 1, 20_ have been
optionally prepaid as described below, the total amount of sinking fund payments to be made
subsequent to such optional prepayment will be reduced in an amount equal to the corresponding
reduction in Installment Payments which were prepaid in integral multiples of$5,000.
Optional Prepayment. The Certificates with stated maturities on or after February 1, 20_ are
subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in the
order of maturity as directed by the City, and by lot within each maturity, in integral multiples of
$5,000 on or after February 1, 20_ , at a prepayment price (expressed as a percentage of the principal
amount of such Certificates to be prepaid) plus accrued interest evidenced and represented thereby to
the date fixed for prepayment, as set forth below:
Prepayment Period Prepayment Price
February 1, 20_through January 31, 20_ 102%
February 1, 20_through January 31, 20_ 101
February 1, 20_and thereafter 100
Notice of Prepayment. Notice of prepayment will be mailed, first-class postage prepaid, to the
respective Owners of any Certificates designated for prepayment at their addresses appearing on the
Certificate registration books and to certain other entities. Notice of the prepayment of Certificates,
other than mandatory sinking fund prepayment and excepting any notice that refers to Certificates that
are the subject of a refunding, will be given only if sufficient funds have been deposited with the
Trustee to pay the applicable prepayment price of the Certificates to be prepaid. Any failure to receive
7453.4\22759.0003 6
such notice or any defect in the notice or the mailing thereof will not affect the validity of the
prepayment of any Certificate.
7453.4\22759.0003
Debt Service Schedule
Set forth below is a schedule of debt service on the Certificates and the Certificates of
Participation secured by the 1992 Installment Purchase Agreement (the "1992 Certificates") due in
each annual period ending February 1 of the following years:
The Certificates
Annual Period
Ending
February 1 Principal Interest Total 1992 Certificates Total
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
SECURITY FOR THE CERTIFICATES
General
The Certificates are being executed and delivered pursuant to the Trust Agreement, dated as of
June 1, 1998, by and among the City, the Authority and the Trustee. The Trust Agreement establishes
funds and accounts to be held and administered by the Trustee and the City. These funds and accounts
are described in the section of this Official Statement entitled "SECURITY FOR THE
CERTIFICATES—Reserve Fund" and Appendix B hereto.
Each Certificate represents an interest in Installment Payments to be made by the City under
the Installment Purchase Agreement. Pursuant to the Assignment Agreement, the Authority has
assigned and pledged to the Trustee substantially all of the Authority's right, title and interest in the
Installment Purchase Agreement for the benefit of the Owners of the Certificates, including its right to
receive Installment Payments and all of the other rights of the Authority under the Installment Purchase
Agreement as may be necessary to enforce payment of such Installment Payments when due or
otherwise to protect the interest of the Owners of the Certificates.
7453.4\22759.0003 8
Prior to the Cross-Over Date, the Installment Payments shall be payable solely from
amounts on deposit in the Special Escrow Fund, and the pledge of Net Revenues securing
Installment Payments and the other covenants under the Installment Purchase Agreement
securing the obligation to pay Installment Payments shall not be effective.
Pledge of Net Revenues
All Net Revenues are irrevocably pledged to the payment of the Installment Payments as
provided in the Installment Purchase Agreement and the Net Revenues will not be used for any other
purpose while any of the Installment Payments remain unpaid. Such pledge, together with the pledge
created by the 1992 Installment Purchase Agreement, the [other parity debt], and any other Bonds or
Contracts hereafter entered into constitutes a first lien on Net Revenues and, subject to application of
amounts on deposit in the Sewer Fund as permitted in the Installment Purchase Agreement, the Sewer
Fund and other funds and accounts created under the Installment Purchase Agreement for the payment
of the Installment Payments and all other Contracts and Bonds in accordance with the terms of the
Installment Purchase Agreement and the Trust Agreement.
Moneys in the Sewer Fund will be used and applied by the City as provided in the Installment
Purchase Agreement. The City will, from the moneys in the Sewer Fund, pay all Operation and
Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for
Operation and Maintenance Costs, the payment of which is not then immediately required) as such
Operation and Maintenance Costs become due and payable. Thereafter, all remaining moneys in the
Sewer Fund will be applied, used and withdrawn to pay Debt Service, including the Installment
Payments, the 1992 Installment Payments and the [other parity debt] as well as any other Contracts or
Bonds, and to replenish the Reserve Fund and all reserve funds established for the 1992 Certificates
and any Bonds or Contracts, if any, and, thereafter, for any purpose permitted by law.
Revenues include all income, rents, rates, fees, charges, and other moneys derived from the
ownership or operation of the Enterprise (i.e., the sewer system), including, (1) all income, rents,
rates, fees, charges, connection fees, business interruption insurance proceeds or other moneys derived
by the City from the furnishings and supplying of the sewer or other services, facilities, and
commodities furnished or supplied though the facilities of or in the conduct or operation of the business
of the Enterprise, but excluding in all cases customer deposits or any other deposits or advances subject
to refund until such deposits or advances have become the property of the City plus sewer availability
charges and plus the earnings on and income derived from the investment of said amounts, and (2)
amount remaining in the Sewer Fund after full compliance with the terms of the Installment Purchase
Agreement and the Trust Agreement.
Revenue Covenant
The Installment Purchase Agreement will require the City to set rates and charges for sewer
service which will be at least sufficient to yield during each fiscal year Net Revenues equal to 110% of
Debt Service (i.e., the Installment payments and all other parity debt).
Installment Payments
Pursuant to the Installment Purchase Agreement, in consideration for the Authority's assistance
in refinancing the 1992 Sewer Project, the City will sell the 1992 Sewer Project to the Authority and
the Authority, in consideration for the City's agreement to make Installment Payments, will sell the
7453.4\22759.0003 9
1992 Sewer Project to the City. The City is to pay the purchase price specified in the Installment
Purchase Agreement (the "Purchase Price") and to do so by making the Installment Payments specified
therein.
The obligation of the City to make the Installment Payments out of Net Revenues is absolute
and unconditional and, until such time as all of the Installment Payments will have been paid in full (or
provision for the payment thereof will have been made in accordance with the Installment Purchase
Agreement), the City will not discontinue or suspend any Installment Payments required to be made by
it under the Installment Purchase-Agreement when due, whether or not the 1992 Sewer Project or any
part thereof is operating or operable or has been completed, or its use is suspended, interfered with,
reduced, curtailed or terminated in whole or in part and such payments will not be subject to reduction
whether by offset or otherwise and will not be conditional upon the performance or nonperformance by
any party to any agreement for any cause whatsoever.
Limited Liability of City and Limitations or Remedies
Notwithstanding anything contained in the Installment Purchase Agreement, the City will not
be required to advance any moneys derived from any source of income other than the Revenues, the
Sewer Fund and the other funds provided in the Installment Purchase Agreement and in the Trust
Agreement for the payment of the Installment Payments or for the performance of any agreements or
covenants required to be performed by it contained in the Installment Purchase Agreement. The City
may, however, advance moneys for any such purpose so long as such moneys are derived from a
source legally available for such purpose and may be legally used by the City for such purpose.
The obligation of the City to make Installment Payments is a special obligation of the City
payable solely from Net Revenues, the Sewer Fund and other funds held under the Installment
Purchase Agreement and the Trust Agreement, and does not constitute a debt of the City or of
the State of California or of any political subdivision thereof in contravention of any
constitutional or statutory debt limitation or restriction.
In addition to the specific limitations on remedies contained in the applicable documents
themselves, the rights and obligations with respect to the Certificates, the Trust Agreement and the
Installment Purchase Agreement are subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable
principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases
and to limitations on legal remedies against public agencies in the State of California. The various
opinions of counsel to be delivered with respect to such documents, including the opinion of Special
Counsel(the form of which is attached as Appendix C),will be similarly qualified.
Additional City Indebtedness
The City has covenanted that no evidences of indebtedness or other obligations (other than
Operation and Maintenance Costs) will be issued or incurred having any priority in payment over the
Installment Payments, the 1992 Installment Payments, the [other parity debt] and other Debt Service.
Under the Installment Purchase Agreement, Bonds and Contracts payable on a parity with
Installment Payments may be issued or incurred provided the following condition are complied with:
7453.4\22759.0003 10
(1) The Net Revenues for the most recent audited Fiscal Year or other 12 month
period within the 18 months preceding the date of adoption by the City of the resolution
authorizing the issuance of such Bonds or the date of the execution of such Contract, as the
case may be, as evidenced by both a calculation prepared by the City and a special report
prepared by an Independent Certified Public -Accountant or an Independent Financial
Consultant on such calculation on file with the City, shall have produced a sum equal to at least
110% of the Debt Service for such Fiscal Year; and
(2) The Net Revenues for the most recent audited Fiscal Year or other 12 month
period within the 18 months preceding the date of the execution of such Contract or the date of
adoption by the City of the resolution authorizing the issuance of such Bonds, as the case may
be, including Adjustments to give effect as of the first day of such Fiscal Year to increases or
decreases in rates and charges for the sewer service approved and in effect as of the date of
calculation, as evidenced by both a calculation prepared by the City and a special report
prepared by an Independent Certified Public Accountant or an Independent Financial
Consultant on such calculation on file with the City, shall have produced a sum equal to at least
110% of the Debt Service for such Fiscal Year plus the Debt Service which would have
accrued had such Contract been executed or Bonds been issued at the beginning of such Fiscal
Year; and
(3) The estimated Net Revenues for the then current Fiscal Year or other 12 month
period within the 18 months and for each Fiscal Year thereafter to and including the first
complete Fiscal Year after the latest Date of Operation of any uncompleted Project to be
financed from proceeds of such Contracts or Bonds, as evidenced by a certificate of the
General Manager of the Department on file with the City, including (after giving effect to the
completion of all such uncompleted Projects) an allowance for estimated Net Revenues for each
of such Fiscal Years arising from any increase in the income, rents, fees, rates and charges
estimated to be fixed, prescribed or received for the sewer service and which are economically
feasible and reasonably considered necessary based on projected operations for such period, as
evidenced by a certificate of the General Manager on file with the Department, shall produce a
sum equal to at least 110% of the estimated Debt Service for each of such Fiscal Years, after
giving effect to the execution of all Contracts and the issuance of all Bonds estimated to be
required to be executed or issued to pay the costs of completing all uncompleted Projects
within such Fiscal Years, assuming that all such Contracts and Bonds have maturities, interest
rates and proportionate principal repayment provisions similar to the Contract last executed or
then being executed or the Bonds last issued or then being issued for the purpose of acquiring
and constructing any of such uncompleted Projects; and
(4) The Project to be financed from the proceeds of such Contract or such Bonds is
technically feasible and the estimated cost of the acquisition and construction thereof is
reasonable, as evidenced by a certificate (prepared at the time of the execution of such Contract
or Bonds, as the case may be) of the General Manager of the Department, which certificate
shall be filed with the City; and
(5) The City shall deposit in the Reserve Fund or in a similar fund or provide for
an alternate security as provided in the Trust Agreement an amount sufficient to equal the
lesser of the reserve requirement (calculated in the same manner as the Series 1998 Reserve
Fund Requirement was calculated) for the Bond or Contract or the maximum reserve
requirement permitted by law or governmental regulators.
7453.4�2)2759.0003 11
Reserve Fund
The Trust Agreement establishes a Reserve Fund to be held by the Trustee solely for the
benefit of the Owners of the Certificates executed and delivered pursuant to the Trust Agreement. On
the Cross-Over Date, the Reserve Fund will be funded from [old reserve fund or Special Escrow Fund]
in an amount equal to $ , which is equal to the Series 1998 Reserve Fund Requirement. The
Series 1998 Reserve Fund Requirement is defined to mean as of any date of calculation, an amount
equal to the lesser of(i) 10% of the original proceeds of the Certificates or (ii) maximum Series 1998
Installment Payments due in the then current or any subsequent Fiscal Year or (iii) 125% of the average
annual Series 1998 Installment Payments (the "Series 1998 Reserve Fund Requirement").
If on the fourth Business Day prior to any Interest Payment Date, the money in the Certificate
Payment Fund is insufficient to make the payments required by the Trust Agreement with respect to
Certificates on such Interest Payment Date, the Trustee will transfer from the Reserve Fund to the
Certificate Payment Fund the amount of such insufficiency. In the event that the Trustee has
transferred money from the Reserve Fund to the Certificate Payment Fund, upon receipt of the moneys
from the City to increase the balance in the Reserve Fund to the Series 1998 Reserve Fund
Requirement, the Trustee will deposit such moneys in the Reserve Fund. Any deficiency in the
Reserve Fund due to a draw thereon shall be replenished by the City within one year of such deficiency
in twelve equal monthly installments.
The City may satisfy the Series 1998 Reserve Fund Requirement to deposit a specified amount
in the Reserve Fund by the deposit of a surety bond, a municipal bond insurance policy, or an
unconditional irrevocable letter of credit as provided in the Trust Agreement. See "APPENDIX B -
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - The Trust Agreement - Reserve Fund"
attached hereto.
CERTIFICATE INSURANCE
The information under this caption has been prepared by the Bond Insurer for inclusion in this
Official Statement. Neither the City nor the Underwriter have reviewed this information nor does the
City or the Underwriter make any representation with respect to the accuracy or completeness thereof.
[To Come]
7453.4\22759.0003 12
ESTIMATED SOURCES AND USES OF PROCEEDS AND RELATED FUNDS
The following table sets forth the estimated sources and uses of proceeds (exclusive of accrued
interest) of the Certificates and amounts transferred from certain funds and accounts related to the 1992
Certificates.
Sources
Par Amount of Certificates Proceeds ............................... $
Transfer from funds and accounts for 1992 Certificates .........
TotalSources ........................................................... $
Uses
Special Escrow Fund .................................................. $
Costs of Issuance Fund'" .............................................
Underwriter's Discount ...............................................
Original Issue Discount ...............................................
TotalUses .............................................................. $
Includes municipal bond insurance premium, certain legal costs, rating agency fees, trustee fees,
printing fees and other costs.
CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
SEWER UTILITY
Introduction
The Municipal Water Department of the City of San Bernardino is a component unit of the City
of San Bernardino (the "Department") and was formed in 1904 under the charter of the City of San
Bernardino (the "City"). The Department is governed by a Board of Water Commissioners who are
appointed by the Mayor of the City of San Bernardino. The Charter gives the Board of Water
Commissioners limited authority to govern the Department. The Department operates two enterprise
funds: the Water Utility Enterprise Fund (Water Utility) and the Sewer Utility Enterprise Fund (Sewer
Utility). The City began providing wastewater collection and treatment service in
The City's sewage disposal system consists of two main components: regional sewage
treatment facilities and the collection system within City limits. The treatment plant serves about
customers, of which about are located within the City's boundaries. The plant also
treats sewage from East Valley Water District and the City of Loma Linda.
Five separate governmental entities are involved in the cooperative use and development of the
City's regional treatment facilities.
• City of San Bernardino: The City department of public services is responsible for sewage
collection.
• Municipal Water Department: The Municipal Water Department is responsible for water
service and sewage treatment and disposal. The Department is governed by the board of
7453.4\22759.0003 13
water commissioners and is a separate department under the City Charter, operated
independently of other City functions.
• East Valley Water District: East Valley Water District serves an area east and north of
the City, including the City of Highland. In 1958, the district entered into a joint powers
agreement with the City for treatment and disposal of sewage from the district at the City's
sewage treatment plant.
• City of Loma Linda: The City of Loma Linda is a general law city located east and south
of the City. The City provides sewage treatment and disposal to Loma Linda under a joint
powers agreement similar to that of East Valley Water District.
• San Bernardino Public Safety Authority: The Authority has assisted in the financing of
sewage treatment plant improvements for San Bernardino.
Municipal Water Department
The City operates its water and sewer utilities through the San Bernardino Municipal Water
Department. The Department is governed by a five-member Board of Water Commissioners,
appointed by the Mayor. The City Charter gives the Board of Water Commissioners limited
authority to manage the Water Department.
The Board of Water Commissioners appoints the general manager of the Water Department,
who is responsible for day-to-day operation of the Department. Bernard C. Kersey was appointed
general manager in 1991, after serving as Director of Finance and Administration since 1981. Mr.
Kersey has been with the Department for 19 years.
Under the City Charter, the Board of Water Commissioners has the power to set water rates,
to hire employees, and to finance, maintain, and operate water facilities. In 1974, the Mayor and
Common Council transferred responsibility for management and operation of the water reclamation
plant to the Board of Water Commissioners with the same powers as given to the Board to regulate
the City's water system. Sewer rates and fees, however, are adopted by the Mayor and Common
Council upon recommendation from the Board.
The Department has a staff of_> including the Board. Primary functions and staffing are
as follows:
Staff
Board of water commissioners....................................... 5
Administration................................................................
Finance...........................................................................
Customer service............................................................
Engineering (water utility only).....................................
Water utility (O&M)......................................................
Wastewater utility (O&M).............................................
Total...............................................................................
7453.3\22759.0003 14
Contracts with Other Agencies
The City has joint powers agreements with East Valley Water District ("East Valley WD")
and the City of Loma Linda ("Loma Linda") for wastewater treatment at the regional plant. The
agreement with East Valley WD was originally approved in 1958, and that with Loma Linda was
originally approved in 1965. Each has been amended subsequently. The terms of the agreements
are essentially similar. The agreements establish certain rules and requirements with respect to the
discharge of sewage into the sewer systems, including requirements that East Valley WD and Loma
Linda abide by, and require their customers to abide by, the City's rules and regulations regarding
sewer service.
Under the agreements, all costs attributable to regional facilities will be shared by the parties
to these and other agreements in proportion to the number of equivalent dwelling units served by
each party. The regional cost per dwelling unit equivalent will be determined by the City at the
close of each fiscal year by dividing the total regional costs (as defined in the agreements) by the
number of regional dwelling unit equivalents. Each agency is responsible for the costs of the
number of dwelling unit equivalents attributable to its customers.
The City, East Valley WD, and Loma Linda all agree to adopt uniform regional sewer
ordinances or resolutions to fix the charges applicable to regional facilities and treatment capacity.
Each party also agrees to implement a uniform system of assigning dwelling unit equivalents-to its
customers. Each party has the right to levy charges in addition to the regional monthly rate for their
respective customers. Regional charges are restricted to regional facilities.
Each party agrees to impose a regional capacity fee on all new connections within its service
area. Funds collected from such regional capacity fees are to be used exclusively to finance the
expansion of capital improvements or additions to regional treatment facilities. The City cannot
make treatment capacity in the regional facility available to any future customer unless that future
customer has paid a regional capacity fee of any amount equal to or greater than the regional
capacity fee then in effect.
As compensation to the City for services rendered in providing treatment capacity and
treating and disposing of wastes from East Valley WD and Loma Linda, East Valley WD and Loma
Linda pay to the Department at the end of each monthly period, or other period established by each
party for imposing and collecting sewer service charges, the aggregate of regional facilities and
treatment charges and regional capacity charges under the agreement.
7453.4\22759.0003 15
Rates and Charges
Rates and charges for sewage treatment and collection are reviewed and changes
recommended by the Board of Water Commissioners. Rates are adopted by the Mayor and Common
Council and are required by the city charter to be established in amounts sufficient to meet the
obligations of the sewer utility. The Council, upon recommendations from the Board of Water
Commissioners, has the power and authority to establish charges for sewer service without the
review or approval of any other governmental body, to refuse or terminate sewer service to
delinquent customers, and to require full payment of delinquent amounts and reconnection fees to
resume service.
The City establishes a uniform regional treatment charge for all customers served by the
regional treatment plant. The agencies served by contract pay the regional treatment charge and
remitting the total regional charge attributable to their customers to the City.
The City sewer service rate is composed of regional treatment charge and a collection system
charge. The water department bills and collects the total charge. Local collection system charges
are then transferred to the City department of public services.
The major source of operating revenue is sewer service charges. The City has defined two
categories of sewer customers - residential and commercial/industrial. Residential customers are
single-family residences, duplexes, or triplexes charged on a unit basis. All other customers-
including apartments, trailer courts, and commercial/industrial customers - are charged on the basis
of flow and strength. The flow portion of charges to nonresidential customers is portion based on
water consumption as reflected by water meter readings for the billing period, and may be reduced
for the purpose of establishing charges subject to seasonal or consumptive use approved by the
Board of Water Commissioners.
Revenue Program: San Bernardino received both state and federal grants in connection
with prior improvements to the treatment plant. As a condition of the grants, the City is required to
establish and maintain a system of sewer service charges in which classes of customers pay for
sewer service based on their demand on the system. [In 1992, the City completed a revenue program
and adopted rates and charges in accordance with this requirement. The system of sewer service
charges was developed by first estimating annual revenue requirements of the sewer utility, and then
setting rates based on the identification of the customers of the regional treatment works. Annual
costs are allocated in two steps. The cost is allocated among treatment parameters (sewage flow,
biochemical oxygen demand or BOD, and total suspended solids or TSS) in proportion to the
percentages of costs that these parameters represent. Then the amounts are divided by either total
annual plant loadings or total design loadings to produce unit costs. These unit costs are multiplied
by each customer's loadings or total design quantities. The product is the annual treatment rate
which is in proportion to the customer's demand on the system.]
State guidelines recommend that wastewater agencies establish operating reserves to ensure
that continued uninterrupted operation of the treatment works. These reserves are intended to pay
costs associated with unanticipated increases in costs such as power, chemical usage, or repairs.
7453.4\22759.0003 16
Sewer Service Charges: The table below shows the current regional sewer service charges
and the total charges by type of customer in each agency.
City of San Bernardino Sewer Utility
User Charges Effective 199_
Total Charge
San Bernardino
East
Valley
Regional Inside Outside Water Loma
User Classification Charge City City District Linda
Residential
Multi-family (4 or more)
Commercial/retail - general
Restaurants, lounges
Laundromats, dry cleaners
Schools, churches
Government- municipal
Hospitals/convalescent homes
Hotels with restaurant
Office buildings, motels,without restaurant
Auto repair, car wash
Industrial --z -- z z "-z z
I -Charges are per unit for residential,per 100 cubic feet for all other classifications.
2-1991 industrial user rates are based on sewer flows and loadings as measured quarterly by the water department's environmental division.
Source:City rate ordinances.
Capacity Fees: New customers connecting to the sewer system pay a one-time capacity or
connection fee. These fees are based on the value of the capital facilities necessary to serve new
customers and are established by the City and also implemented by East Valley WD and Loma
Linda. The table below shows the current capacity fees.
[Table of Capacity Fees to come]
7453.4\22759.0003 17
Comparative Rates: The table below shows the average monthly sewer service charge for a
single family household of certain sewer agencies in the vicinity of the City.
Comparative Sewer Rates
Sewer Agency Average Monthly Charge
Customers
The fiscal year 1996-97 customers and wastewater flow to the treatment plant are shown in
the table below. Residential and multi-family customers account for approximately _ percent of
total customers.
City of San Bernardino Sewer Utility
Regional Treatment Plant Customers
Equivalent Dwelling
Customers Units Flow(gal./day)
San Bernardino
East Valley WD
Loma Linda
Total
Percent
Customer Category Customers Revenue of Total
Residential
Multi-family
Hotels(units)
Office buildings/motels
Restaurants
Other commercial
Industrial
Total
7453.4\22759.0003 18
The table below shows the largest customers of the Sewer Utility.
City of San Bernardino Sewer Utility
Largest Customers
Percent of
Average Percent of
Customer Daily Flow Revenue Total
Total %
Outstanding Debt
The table below summarizes the outstanding long-term obligations of San Bernardino's
sewer utility.
City of San Bernardino Sewer Utility
Outstanding Debt
Principal Maximum Annual
Debt Amount Debt Service Maturity Date Priority of Lien
Facilities
[This section was adapted from 1992 OS and will need updating.]
The San Bernardino wastewater treatment plant is located in the south-central part of the
City. It is adjacent to the Santa Ana River Flood Control Channel. The facilities were initially
constructed inl958. In 1968 the City received a federal grant for an expanded secondary sewage
treatment plant. Local funds were raised through the sale of lease revenue bonds. The plant has
undergone a number of modifications and upgrades in order to improve plant operation so as to meet
discharge standards.
An engineering master plan to increase treatment capacity to approximately 60 million
gallons per day (mgd) from its then current capacity of 30 mgd was completed in 1987. It also
evaluated the adequacy of specific components of then*existing facilities. The plan included
primary, secondary, and solids-handling projects and called for capital expenditures over a 10-year
period. A number of new facilities have been completed pursuant to this master plan, including a
solids handling project, secondary treatment upgrade project, nitrogen removal pilot project, air
supply correction project, the fine bubble retrofit project, E Street pump station projects. These
7453.4\22759.0003 19
projects have been funded by cash balances accumulated for this purpose from operations and sales
of advance capacity rights. The remaining master plan projects are expected to be under
construction by [1995].
1992 Sewer Project. Proceeds of 1992 sewer certificates were used to finance construction
of a primary hydraulic reliability project, remodeling of laboratory and office space, and design of an
expansion of secondary treatment.
Primary Hydraulic Reliability Project (PHR): This project provided a new headworks to
replace and consolidate the existing headworks facilities, provided expansion capacity, and provided
standby primary treatment for the Unit 1 primary clarifiers. Preliminary and primary treatment
capacity increased from 33 mgd to 48 mgd.
Water reclamation Office and Lab: The sewer utility owned a building which it remodeled
for use as a water reclamation office, operations center, and laboratory.
Other Capital Projects. In addition to the 1992 Sewer Project, the sewer utility was required
by the State of California to implement tertiary treatment.
Tertiary Treatment: The cities of San Bernardino and Colton entered into agreements with
Santa Ana Watershed Project Authority to complete a tertiary treatment demonstration method
(RIX).
Phase 3A Secondary Expansion (3ASX): As previously indicated, construction of the
secondary facilities being designed with proceeds of the 1992 sewer certificates were completed in
199_. Construction cost was estimated at $ million. This project expanded the secondary
treatment system by 7.5 mgd to a total secondary capacity of 40.5 mgd, and provided biological
nutrient removal of nitrogen. 3ASX facilities included addition or modification of aeration basins,
secondary clarifiers, chlorine contact chamber and building, secondary effluent pipeline, and other
project elements.
Units 3A and 3B Solids Handling Improvement: This project consists of facilities to thicken
and dewater sludge. They will also treat and stabilize the sludge in preparation for its disposal.
Construction was completed in 199_ at a cost of$ million. Facilities include an additional
thickener unit, a new belt filter in the existing press building, two high-rate digesters, and an odor
scrubber.
Unit 3A Tertiary: This project includes facilities at the regional plant to treat effluent to new
Title 22 discharge regulations for discharge to the Santa Ana River. Construction was completed in
199_ at a cost of$ million. [These facilities provide for tertiary treatment capacity between
13.5 and 27 mgd, depending on reclamation issues which will be resolved during 1992.1 Facilities
will include tertiary filters and peripherals, disinfection process, and an equalization.
Ammonia and Nitrogen Replacement Upgrade: These project facilities replace capacity lost
in existing treatment plant units due to new nitrogen regulations. There will be no capacity increase.
Construction was completed in 199_ at a cost of $ million. New ammonia replacement
7453.4\22759.0003 20
facilities include primary clarifiers, an aeration basin, secondary clarifiers, and the pipe tunnel
system. This project modifies the blower building.
Unit 3B Secondary Expansion (313SX): This project expands the secondary treatment
system to add 7.5 mgd, for a total secondary treatment system capacity of 48 mgd. It will provide a
biological nutrient removal of nitrogen. Construction was completed in 199_ at a cost of $
million. New 313SX facilities include an aeration basin, secondary clarifier, blower building, and
pipe tunnel system.
Financial Statements
The audited financial statements of the Municipal Water Department for the Fiscal Year
ending June 30, 1997, are set forth in Appendix A attached hereto. The audited financial
statements, including the footnotes thereto, should be read in their entirety. The City's auditor has
not reviewed or audited any part of this Official Statement.
Operating Results
Historic Operating Results. The, following table is a summary of the Sewer Utility's
historic operating results for Fiscal Years ending the June 30, 1993 through 1997. This table
should be read in conjunction with the Department's most recent audited financial statements,
which are attached hereto as Appendix A.
Historic Operating Results
For Fiscal Years Ending June 30, 1993 to 1997
1993 1994 1995 1996 1997
Revenues
Total Revenues
Total O&M Expenses(')
Net Revenues
Senior Lien Debt Service(')
Senior Coverage
Junior Lien Debt Service
Balance Available for Capital
Projects and Other Purposes
Includes salaries, supplies and general operation and maintenance expenses.
(Z) Includes 1992 Certificates of Participation and
Source: City of San Bernardino Municipal Water Department.
7453.4\22759.0003 21
Projected Operating Results and Debt Service Coverage
The following table projects the Sewer Utility's operating results and debt service coverage for
fiscal years ending June 30, 1998 to 2002. These projections are based upon assumptions which the
City deems reasonable, however, actual results could vary'significantly from the projected results.
Projected Operating Results
For Fiscal Years Ending June 30, 1998 to 2002
1998 1999 2000 2001 2002
Revenues(()
Total O&M Expenses(2)
Net Revenues
Senior Lien Debt Service(3)
Senior Lien Coverage
Junior Lien Debt Service(4)
Total Debt Service
Balance Available for Capital
Projects and Other City Purposes
(1)
m
(3)
(4)
(5)
Source: City of San Bernardino Municipal Water District.
7453.4\22759.0003 22
CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES
Article XIIIB
Constitution limits the annual appropriations of the State and of any city, county, school district
authority or other political subdivision of the State to the level of appropriations of the particular
governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population.
The "base year" for establishing such appropriation limit is the 1978/79 fiscal year and the limit is to be
adjusted annually to reflect changes in population and consumer prices. Adjustments in the
appropriations limit of an entity may also be made if (i)the financial responsibility for a service is
transferred to another public entity or to a private entity, (ii)the financial source for the provision of
services is transferred from taxes to other revenues, or (iii)the voters of the entity approve a change in
the limit for a period of time not to exceed four years.
Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the
State or other entity of local government, exclusive of certain State subventions and refunds of taxes.
"Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to an entity of
government from (i)regulatory licenses, user charges, and user fees(but only to the extent such proceeds
exceed the cost of providing the service or regulation), and (ii)the investment of tax revenues.
Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amounts
permitted to be spent,the excess would have to be returned by revising tax rates or fee schedules over the
subsequent two years.
Certain expenditures are excluded from the appropriations limit including payments of
indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter
approved by the voters and payments required to comply with court or federal mandates which without
discretion require an expenditure for additional services or which unavoidably make the providing of
existing services more costly.
The City is of the opinion that its rates and charges do not exceed the costs it reasonably bears in
providing such services and therefore are not subject to the limits of Article XIIIB. The City will
covenant in the Installment Purchase Agreement that it will prescribe rates and charges sufficient to
provide net revenues for payment of Installment Payments in each year.
Proposition 218
General. An initiative measure entitled the "Right to Vote on Taxes Act" (the "Initiative") was
approved by the voters of the State of California at the November 5, 1996 general election. The
Initiative added Article XIIIC and Article MID to the California Constitution. According to the "Title
and Summary of the Initiative prepared by the California Attorney General, the Initiative limits "the
authority of local governments to impose taxes and property-related assessments, fees and charges."
Article XIIID. Article XIIID defines the terms "fee" and "charge" to mean "any levy other than
an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person
as an incident of property ownership, including user fees or charges for a property-related service." A
"property-related service" is defined as "a public service having a direct relationship to property
ownership." Article MID further provides that reliance by an agency on any parcel map (including an
7453.4\22759.0003 23
assessor's parcel map) may be considered a significant factor in determining whether a fee or charge is
imposed as an incident of property ownership.
Article MID requires that any agency imposing or increasing any property-related fee or charge
must provide written notice thereof to the record owner of each identified parcel upon which such fee or
charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or
charge may not be imposed or increased if a majority of owners of the identified parcels file written
protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for
sewer service is ultimately determined to be a "fee" or "charge" as defined in Article XIIID, the local
government's ability to increase such fee or charge may be limited by a majority protest. [The City
cannot predict whether Article MID will be construed as applying to their sewer rates and charges.]
In addition, Article MID includes a number of limitations applicable to existing fees and
charges including provisions to the effect that (i) revenues derived from the fee or charge shall not
exceed the funds required to provide the property-related service, (ii) such revenues shall not be used for
any purpose other than that for which the fee or charge was imposed, (iii)the amount of a fee or charge
imposed upon any parcel or person as an incident of property ownership shall not exceed the
proportional cost of the service attributable to the parcel and (iv) no such fee or charge may be imposed
for a service unless that service is actually used by, or immediately available to, the owner of the
property in question. Property-related fees or charges based on potential or future use of a service are
not permitted.
Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited or
otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the
power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local
governments. Article XIIIC does not define the terms "local tax," "assessment," "fee" or "charge," so it
is unclear that the definitions set forth in Article MID referred to above will be applicable to Article
XIIIC. The City does not believe that Article XIIIC grants to the voters within the City the power to
repeal or reduce sewer rates and charges in a manner which would be inconsistent with the City's
contractual obligations, including but not limited to, the Installment Purchase Agreement. There can be
no assurance of the availability of particular remedies adequate to protect the interests of Certificate
Owners. Remedies available to Certificate Owners in the event of a default by the City are dependent
upon judicial actions which are often subject to discretion and delay and could prove both expensive and
time-consuming to obtain.
Future Initiatives
Articles XIIIB, XIIIC and MID were adopted as measures that qualified for the ballot pursuant
to California's initiative process. From time to time other initiatives could be proposed and adopted
affecting the City's revenues or ability to increase revenues.
APPROVAL OF LEGAL PROCEEDINGS
The legality and enforceability of the Installment Purchase Agreement and the Trust Agreement
is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport
Beach, California, acting as Special Counsel. The form of such legal opinion is attached hereto as
Appendix C, and such legal opinion will be attached to each Certificate. Certain legal matters will be
passed upon for the City by the City Attorney, for the Trustee by its counsel, for the Escrow Agent by its
counsel and for the Bond Insurer by its counsel.
7453.4\22759.0003 24
LITIGATION
There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any
court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened
against the City affecting the existence of the City or the titles of its directors or officers to their
respective offices or seeking to restrain or to enjoin the sale or delivery of the Certificates, the
application of the proceeds thereof in accordance with the Trust Agreement, or in any way contesting or
affecting the validity or enforceability of the Certificates, the Trust Agreement, the Installment Purchase
Agreement, or any action of the City contemplated by any of said documents, or in any way contesting
the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or
contesting the powers of the City or its authority with respect to the Certificates or any action of the City
contemplated by any of said documents, nor to the knowledge of the City, is there any basis therefor.
CONTINUING DISCLOSURE
The City has covenanted in a Continuing Disclosure Certificate for the benefit of the holders and
beneficial owners of the Certificates to provide certain financial information and operating data relating
to the City by not later than 210 days following the end of the City's Fiscal Year (currently its Fiscal
Year ends June 30) (the "Annual Report"), commencing with the report for Fiscal Year ending June 30,
1998, and to provide notices of the occurrence of certain enumerated events, if material. The Annual
Report and the notices of material events will be filed by the City with each Nationally Recognized
Municipal Securities Information Repository. The specific nature of the information to be contained in
the Annual Report and the notice of material events is set forth in "APPENDIX D - FORM OF
CONTINUING DISCLOSURE CERTIFICATE" hereto. These covenants have been made in order to
assist the Underwriter in complying with Rule 15c2-12(b)(5) promulgated under the Securities Exchange
Act of 1934.
TAX MATTERS
In the opinion of Stradling Yocca Carlson& Rauth, a Professional Corporation,Newport Beach,
California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, the
portion of each Installment Payment constituting interest is excluded from gross income for federal
income tax purposes, and is not an item of tax preference for purposes of calculating the federal
alternative minimum tax imposed on individuals and corporations. In the further opinion of Special
Counsel,the portion of each Installment Payment constituting interest is exempt from State of California
personal income tax. Special Counsel notes that, with respect to corporations, the portion of each
Installment Payment constituting interest may be included as an adjustment in the calculation of
alternative minimum taxable income which may affect the alternative minimum tax liability of such
corporations. In addition, the difference between the issue price of a Certificate (the first price at which
a substantial amount of the Certificates of a maturity is to be sold to the public) and the stated
redemption price at maturity with respect to the Certificate constitutes original issue discount. Original
issue discount accrues under a constant yield method, and original issue discount will accrue to a
Certificateowner before receipt of cash attributable to such excludable income. The amount of original
issue discount deemed received by a Certificateowner will increase the Certificateowner's basis in the
applicable Certificate. The amount of original issue discount that accrues to the owner of the Certificate
is excluded from gross income of such owner for federal income tax purposes, is not an item of tax
preference for purposes of the federal alternative minimum tax imposed on individuals and corporations,
74514\22759.0003 25
and is exempt from State of California personal income tax. A complete copy of the proposed opinion of
Special Counsel is set forth in Appendix C—"FORM OF SPECIAL COUNSEL OPINION".
Special Counsel's opinion as to the exclusion from gross income of the portion of each
Installment Payment constituting interest (and original issue discount) is based upon certain
representations of fact and certifications made by the City and others and is subject to the condition that
the City complies with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
that must be satisfied subsequent to the execution and delivery of the Certificates to assure that the
portion of each Installment Payment constituting interest (and original issue discount) will not become
includable in gross income for federal income tax purposes. Failure to comply with such requirements of
the Code might cause the portion of each Installment Payment constituting interest (and original issue
discount) to be included in gross income for federal income tax purposes retroactive to the date of
execution and delivery of the Certificates. The City has covenanted to comply with all such
requirements.
Special Counsel's opinions may be affected by actions taken (or not taken) or events occurring
(or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform
any person, whether any such actions or events are taken or do occur. The Trust Agreement and the Tax
Certificate relating to the Certificates permit certain actions to be taken or to be omitted if a favorable
opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to
the exclusion from gross income of the portion of each Installment Payment constituting interest (and
original issue discount)for federal income tax purposes if any such action is taken or omitted based upon
the advice of counsel other than Stradling Yocca Carlson & Rauth.
Although Special Counsel has rendered an opinion that the portion of each Installment Payment
constituting interest (and original issue discount) is excluded from gross income for federal income tax
purposes provided that the City continues to comply with certain requirements of the Code, the
ownership of the Certificates and the accrual or receipt of interest (and original issue discount) with
respect to the Certificates may otherwise affect the tax liability of certain persons. Special Counsel
expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the
Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax
consequences relating to the Certificates.
RATINGS
Upon issuance of the Policy by the Bond Insurer, Standard & Poor's Rating Group and Moody's
Investors Service will assign the Certificates ratings of"AAA" and "Aaa," respectively. Such ratings are
based upon the Policy. See "CERTIFICATE INSURANCE" herein. Generally, rating agencies base
their ratings on information and material furnished directly to them and on investigations, studies and
assumptions made by them. The ratings reflect only the views of such organizations and an explanation
of the significance of such ratings may be obtained from Standard & Poor's Corporation, 25 Broadway,
New York, New York 10004, (212) 208-1974 and Moody's Investors Service, 99 Church Street, New
York, New York 10007 (212) 553-0470. There is no assurance that the ratings will continue for any
given period of time or that they will not be revised downward or withdrawn entirely by such rating
agencies, if, in the judgment of such rating agencies, circumstances so warrant. Any such downward
revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates.
7453.4\22759.0003 26
UNDERWRITING
The Certificates will be purchased by Piper Jaffray Inc. as underwriter (the "Underwriter"),
under a Purchase Contract, (the "Purchase Contract"), pursuant to which the Underwriter agrees to
purchase all of the Certificates for an aggregate purchase price of$ (which represents the par
amount of the Certificates less Underwriter's discount of $ and $ of original issue
discount) plus the interest with respect to the Certificates accrued from June 1, 1998 to the delivery date
thereof.
The initial public offering prices stated on the cover of this Official Statement may be changed
from time to time by the Underwriter. The Underwriter may offer and sell the Certificates to certain
dealers (including dealers depositing Certificates into investment trusts), dealer banks, banks acting as
agents and others at prices lower than said public offering prices.
VERIFICATION
Upon delivery of the Certificates, , a firm of independent public accountants,
will deliver a report on the mathematical accuracy of certain computations based upon certain
information and assertions provided to them by the Underwriter relating to (a) the adequacy of the
maturing principal of and interest earned on the Government Obligations to pay all of the principal and
interest with respect to the Certificates through February 1, 2001 and on February 1, 2001 to pay all of
the principal, interest and prepayment premium with respect to the 1992 Certificates (see "THE
REFUNDING PLAN" herein) as such principal, prepayment premium and interest becomes due and
payable, and (b)the computations of yield of the Certificates and the Government Obligations which
support Special Counsel's opinion that the portion of each Installment Payment due under the Installment
Purchase Agreement and designated as and comprising interest is not includable in gross income for
federal income tax purposes.
MISCELLANEOUS
Insofar as any statements made in this Official Statement involve matters of opinion or of
estimates, whether or not expressly stated, they are set forth as such and not as representations of fact.
No representation is made that any of such statements made will be realized. 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 Certificates.
The execution and delivery of this Official Statement have been duly authorized by the City.
CITY OF SAN BERNARDINO
By:
General Manger of
the Municipal Water Department
7453.4\22759.0003 27
APPENDIX A
FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDING
JUNE 30, 1997
7453.4\22759.0003 A-1
APPENDIX B
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
7453.4\22759.0003 B-1
APPENDIX C
FORM OF SPECIAL COUNSEL OPINION
Upon execution and delivery of the Certificates, Stradling Yocca Carlson & Rauth, a
Professional Corporation, Newport Beach, California, Special Counsel, proposes to render its final
approving opinion in substantially the following form:
June , 1998
City of San Bernardino
300 N. "D" Street
San Bernardino,CA 92402
Members of the Board of Directors:
We have acted as Special Counsel to the City of San Bernardino (the "City") in connection with
the execution and delivery of $ aggregate principal amount of 1998 Refunding Sewer
Revenue Certificates of Participation, dated June 1, 1998 (the "Certificates"), each evidencing and
representing an interest of the registered owner thereof in the right to receive Installment Payments (as
that term is defined in the Trust Agreement hereinafter mentioned) under and pursuant to that certain
Installment Purchase Agreement (the "Agreement"), dated as of June 1, 1998, by and between the City
and the San Bernardino Public Safety Authority (the "Authority"), which right to receive such
Installment Payments have been assigned by the Authority to , as trustee (the
"Trustee"),pursuant to the Assignment Agreement, dated as of June 1, 1998, by and between the Trustee
and the Authority. The Certificates have been executed by the Trustee pursuant to the terms of the Trust
Agreement, dated as of June 1, 1998 (the "Trust Agreement"), by and among the City,the Authority and
the Trustee.
In connection with our representation we have examined a certified copy of the proceedings
relating to the Certificates. As to questions of fact material to our opinion, we have relied upon the
certified proceedings and other certifications of public officials furnished to us without undertaking to
verify the same by independent investigations.
Based upon the foregoing and after examination of such questions of law as we have deemed
relevant in the circumstances,but subject to the limitations set forth herein,we are of the opinion that:
1. The proceedings show lawful authority for the execution and delivery by the City of the
Agreement and the Trust Agreement under the laws of the State of California now in force, and the
Agreement and the Trust Agreement have been duly authorized, executed and delivered by the City, and,
assuming due authorization, execution and delivery by the Trustee and the Authority, as appropriate, are
valid and binding obligations of the City enforceable against the City in accordance with their respective
terms.
2. The Certificates, assuming due execution and delivery by the Trustee, are entitled to the
benefits of the Trust Agreement.
7453.4\22759.0003 C-1
3. The obligation of the City to make the Installment Payments from Net Revenues (as
defined in the Agreement) is an enforceable obligation of the City and does not constitute a debt of the
City, or of the State of California or of any political subdivision thereof in contravention of any
constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the
City is obligated to levy or pledge any form of taxation or"for which the City has levied or pledged any
form of taxation.
4. The City's obligation to pay the Installment Payments under the Agreement is on a parity
with the City's obligation to pay the installment payments under the Installment Purchase Agreement,
dated as of February 1, 1992, by and between the City and the Authority and to pay the principal and
interest on
5. Under existing statutes, regulations, rulings and judicial decisions, the portion of each
Installment Payment constituting interest is excluded from gross income for federal income tax purposes
and is not an item of tax preference for purposes of calculating the federal alternative minimum tax
imposed on individuals and corporations; however, it should be noted that, with respect to corporations,
the portion of each Installment Payment constituting interest may be included as an adjustment in the
calculation of alternative minimum taxable income, which may affect the alternative minimum tax
liability of corporations.
6. The portion of each Installment Payment constituting interest is exempt from State of
California personal income tax.
7. The difference between the issue price of a Certificate (the first price at which a
substantial amount of the Certificates of a maturity is to be sold to the public) and the stated redemption
price at maturity with respect to such Certificate constitutes original issue discount. Original issue
discount accrues under a constant yield method, and original issue discount will accrue to a Certificate
Owner before receipt of cash attributable to such excludable income. The amount of original issue
discount deemed received by a Certificate Owner will increase the Owner's basis in the applicable
Certificate. Original issue discount that accrues to the Certificate Owner is excluded from the gross
income of such owner for federal income tax purposes, is not an item of tax preference for purposes of
the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State
of California personal income tax.
The opinions expressed herein as to the exclusion from gross income of the portion of each
Installment Payment constituting interest (and original issue discount) are based upon certain
representations of fact and certifications made by the City and others and are subject to the condition that
the City complies with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
that must be satisfied subsequent to the execution and delivery of the Certificates to assure that such
portion of each Installment Payment constituting interest (and original issue discount) will not become
includable in gross income for federal income tax purposes. Failure to comply with such requirements of
the Code might cause the portion of each Installment Payment constituting interest (and original issue
discount) to be included in gross income for federal income tax purposes retroactive to the date of
execution and delivery of the Certificates. The City has covenanted to comply with all such
requirements.
The opinions expressed herein may be affected by actions taken (or not taken) or events
occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform
any person, whether any such actions or events are taken or do occur. The Trust Agreement, the
7453.4L?2759.0003 C-2
Agreement and the Tax Certificate relating to the Certificates permit certain actions to be taken or to be
omitted if a favorable opinion of Special Counsel is provided with respect thereto. No opinion is
expressed herein as to the exclusion from gross income of the portion of each Installment Payment
constituting interest (and original issue discount) for federal income tax purposes with respect to any
Certificate if any such action is taken or omitted based upon the opinion or advice of counsel other than
ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences
with respect to the Certificates.
The opinions expressed herein are based upon our analysis and interpretation of existing laws,
regulations, rulings and judicial decisions and cover certain matters not directly addressed by such
authorities. We call attention to the fact that the rights and obligations under the Trust Agreement, the
Agreement, and the Certificates are subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable
principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and
to limitations on legal remedies against public agencies in the State of California.
Respectfully submitted,
7453.42759.0003 C-3
APPENDIX D
FORM OF CONTINUING DISCLOSURE CERTIFICATE
7453.4\22759.0003 D-1
APPENDIX E
DTC AND BOOK-ENTRY ONLY SYSTEM
The information in this appendix concerning DTC and DTC's book-entry system has been
obtained from DTC, and the City, the Authority and the Trustee take no responsibility for the accuracy
thereof.
DTC will act as securities depository for the Certificates. The Certificates will be executed and
delivered as fully-registered securities registered in the name of Cede & Co. (DTC's partnership
nominee). One fully-registered certificate will be executed and delivered for each year in which the
Certificates mature in denominations equal to the aggregate principal amount of the Certificates maturing
in that year, and will be deposited with DTC. So long as Cede & Co. is the registered owner of the
Certificates, as nominee of DTC, references herein to the owners of the Certificates, shall mean Cede &
Co. and shall not mean the actual purchasers of the Certificates(the "Beneficial Owners").
DTC 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, as amended. DTC holds securities that its participants ("DTC Participants")
deposit with DTC. DTC also facilitates the settlement among DTC Participants of securities
transactions, such as transfers and pledges, in deposited securities through electronic computerized book-
entry changes in DTC Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. DTC Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is owned by a number of its
DTC Direct Participants and by the New York Stock Exchange, Inc.,the American Stock Exchange, Inc.,
and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to
others such as securities brokers and dealers, banks and trust companies that clear through or maintain a
custodial. relationship with a DTC Direct Participant, either directly or indirectly ("DTC Indirect
Participants"). The Rules applicable to DTC and the DTC Participants are on file with the Securities and
Exchange Commission.
To facilitate subsequent transfers, all Certificates deposited by DTC Participants with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Certificates with DTC
and their registration in the name of Cede 8: Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of
the DTC Direct Participants to whose accounts such Certificates are credited, which may or may not be
the Beneficial Owners. The DTC Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Purchases of Certificates under the DTC system must be made by or through DTC Direct
Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of
each Beneficial Owner is in turn to be recorded on the DTC Direct and DTC Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but
Beneficial Owners are expected to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the DTC Direct or DTC Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the
7453.4\22759.0003 E-1
Certificates are to be accomplished by entries made on the books of DTC Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests
in the Certificates, except in the event that use of the book-entry system for the Certificates is
discontinued.
Conveyance of notices and other communications by DTC to DTC Direct Participants, by DTC
Direct Participants to DTC Indirect Participants and by DTC Direct Participants and DTC Indirect
Participants to the Beneficial Owners will be governed by arrangements among them, subject to any
statutory and regulatory requirements as may be in effect from time to time.
Prepayment notices shall be sent to Cede & Co. If less than all of the Certificates within a
maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each
DTC Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to Certificates. Under its usual
procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date
established for such consent or vote. The Omnibus Proxy assigns Cede & Co.'s consenting or voting
rights to those DTC Direct Participants to whose accounts the Certificates are credited on such record
date(identified in a listing attached to the Omnibus Proxy).
Principal and interest payments with respect to the Certificates will be made to DTC. DTC's
practice is to credit DTC Direct Participants' accounts on payment dates in accordance with. their
respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive
payment on the payment date. Payments by DTC 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 DTC
Participant and not of DTC, the City or the Trustee, subject to any statutory and regulatory requirements
as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of
the Trustee, disbursement of such payments to DTC Direct Participants shall be the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of DTC
Direct and Indirect Participants.
The City and the Trustee cannot and do not give any assurances that DTC Direct Participants or
DTC Indirect Participants will distribute to the Beneficial Owners (i)payments of interest with respect to
and principal of the Certificates, (ii) certificates representing an ownership interest in or other
confirmation of ownership interests in the Certificates,or(iii)redemption or other notices sent to DTC or
Cede&Co., its nominee, as registered owner of the Certificates, or that they will do so on a timely basis
or that DTC, DTC Direct Participants or DTC Indirect Participants will service and act in the manner
described in the Official Statement.
The City and the Trustee shall be entitled to treat the person in whose name any Certificate is
registered as the Certificate thereof for all purposes of the Trust Agreement 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 Certificates. 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 DTC or its successor(or substitute depository or its successor), except for the registered owner
of any Certificate.
7453.4\22759.0003 E-2
So long as the outstanding Certificates are registered in the name of Cede & Co. or its registered
assign, the City and the Trustee shall cooperate with Cede & Co., as sole registered Owner, and its
registered assigns in effecting payment of the principal of and redemption premium, if any, and interest
with respect to the Certificates by arranging for payment in such manner that funds for such payments
are properly identified and are made immediately available-on the date they are due.
DTC may discontinue providing its services as securities depository with respect to the
Certificates at any time by giving reasonable notice to the City.or the Trustee. Under such circum-
stances, in the event that a successor securities depository is not obtained, Certificates are required to be
printed and delivered.
The City may decide to discontinue use of the system of book-entry transfers through DTC (or a
successor securities depository). In that event, Certificates will be printed and delivered and such
Certificates may be transferred or exchanged in accordance with the Trust Agreement.
THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE
CERTIFICATES, WILL SEND ANY NOTICE OF PREPAYMENT OR OTHER NOTICES TO
OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR
OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND
ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OR SUFFICIENCY OF THE
PROCEEDINGS RELATING TO THE PREPAYMENT OF THE CERTIFICATES CALLED FOR
PREPAYMENT OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
7453.4\22759.0003 E-3
APPENDIX F
FORM OF MUNICIPAL BOND INSURANCE POLICY
7453.4\22759.0003
Stradling Yocca Carlson & Rauth
Draft of 4/25/98
CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and
delivered by the City of San Bemadino (the "City") in connection with the delivery of$
1998 Refunding Sewer Revenue Certificates of Participation, (the "Certificates"). The Certificates
are being delivered pursuant to the Trust Agreement, dated as of June 1, 1998 (the "Trust
Agreement"), by and among the San Bernardino Public Safety Authority (the "Authority"), the City
and , as trustee (the "Trustee"). The Certificates represent interests in installment
payments to be made by the City under the Installment Purchase Agreement, dated as of June 1,
1998, by and between the City and the Authority. 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
Certificates 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 Trust Agreement,
which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in
this Section,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.
"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to
vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons
holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the
owner of any Certificates for federal income tax purposes.
"Dissemination Agent" shall mean the Trustee, or any successor Dissemination Agent
designated in writing by the City and which has filed with the City 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. The National Repositories currently approved by
the Securities and Exchange Commission are set forth in Exhibit B.
"Official Statement" shall mean the Official Statement relating to the Certificates, dated
May_, 1998
7977.1\22759.0003 1
04/25/98
"Participating Underwriter" shall mean the original purchaser of the Certificates required to
comply with the Rule in connection with offering of the Certificates.
"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" shall mean the State of California.
"State Repository" shall mean any public or private repository or entity designated by the
State 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 Certificate,there is no State Repository.
SECTION 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than 210 days
after the end of the City's fiscal year(presently such fiscal year ends June 30), commencing with the
report for the fiscal year ending June 30, 1998, provide to each Repository an Annual Report which
is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report
may be submitted as a single document or as separate documents comprising a package, and may
cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided
that the audited financial statements of the City's Municipal Water Department 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 they are not available by that date. If the City's fiscal year changes, it shall
give notice of such change in the same manner as for a Listed Event under Section 5(c).
(b) 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). 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 each 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 the 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.
7977.1\22759.0003 2
04/25/98
SECTION 4. Content of Annual Reports. The City's Annual Report shall contain or include
by reference the following:
I. The audited financial statements of the City's Municipal Water Department
for the prior fiscal year, 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 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.
2. Updates of the information in the following tables from the Official
Statement for the last fiscal year, presented in substantially the same format as such tables:
[to come]
3. Calculation of coverage of Net Revenues to debt service on the Certificates
in the same manner as shown in the table entitled "Projected Operating Results" on page _
of the Official Statement.
4. Principal amount of Certificates and any additional Certificates outstanding
and balance in Reserve Account as of June 30 of the last fiscal year, to the extent not
included in the audited financial statements described in(1)above.
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.
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 Certificates, if material:
1. principal and interest payment delinquencies;
2. non-payment related defaults;
3. modifications to rights of Certificateholders;
4. optional, contingent or unscheduled Certificate calls;
7977.1\22759.0003 3
04/25/98
5. defeasances;
6. rating changes;
7. adverse tax opinions or events affecting the tax-exempt status of the
Certificates;
8. unscheduled draws on the debt service reserves reflecting financial
difficulties;
9. unscheduled draws on the credit enhancements reflecting financial
difficulties;
10. substitution of the credit or liquidity providers or their failure to perform; and
11. release, substitution or sale of property securing repayment of the
Certificates.
(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 laws.
(c) If the City determines that knowledge of the occurrence of a Listed Event would be
material under applicable federal securities laws, the City shall promptly file a notice of such
occurrence with the Repositories. Notwithstanding the foregoing, notice of Listed Events described
in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if
any) of the underlying event is given to Holders of affected Certificates pursuant to the Trust
Agreement.
SECTION 6. Termination of Reporting Obligation. The City's obligations under this
Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full
of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates,the
City shall give notice of such termination in the same manner as for a Listed Event under
Section 5(c).
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 Agent, with or without appointing a successor Dissemination Agent. The
Dissemination Agent shall not be responsible in any manner for the content of any notice or report
prepared by the City pursuant to this Disclosure Certificate.
SECTION 8. 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
7977.1\22759.0003 4
04/25/98
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
Certificate to update such information or include it in any future Annual Report or notice of
occurrence of a Listed Event.
SECTION 9. Default. In the event of a failure of the City to comply with any provision of
.this Disclosure Certificate, any Holder or Beneficial Owner of the Certificates or the Participating
Underwriter 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.
No Certificateholder or Beneficial Owner may institute such action, suit or proceeding to
compel performance unless they shall have first delivered to the City satisfactory written evidence of
their status as such, and a written notice of and request to cure such failure, and the City shall have
refused to comply therewith within a reasonable time.
SECTION 10. Duties Immunities and Liabilities of Dissemination Arent. The
Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure
Certificate, and the City agrees, to the extent permitted by law, to indemnify and save the
Dissemination Agent, its officers, directors, employees and agents, harmless against any loss,
expense and liabilities which it 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
negligence or wilful misconduct. The obligations of the City under this Section shall survive
resignation or removal of the Dissemination Agent and payment of the Certificates.
SECTION 11. 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, in the opinion of nationally recognized Certificate counsel,
such amendment or waiver is permitted by the Rule. In the event of any amendment or waiver of a
provision of this Disclosure Certificate, the City shall describe such amendment in the same manner
as for a Listed Event under Section 5(c).
SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of
the City, the Dissemination Agent,the Participating Underwriter and Holders and Beneficial Owners
from time to time of the Certificates, and shall create no rights in any other person or entity.
7977.1\227,59.0003 5
04/25/98
Dated: June , 1998
CITY OF SAN BERNARDINO
By
General Manager
of the Municipal Water District
ACKNOWLEDGEMENT OF DUTIES AS
DISSEMINATION AGENT:
Authorized Officer
7977.1\22759.0003
04/25/98 6
EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of San Bernardino
Name of Certificate Issue: 1998 Refunding Sewer Revenue Certificates of Participation
Date of Issuance: June_, 1998
NOTICE IS HEREBY GIVEN that an Annual Report with respect to the above-named Certificates
was not released by the City by the date required in the Continuing Disclosure Certificate. [The City
anticipates that the Annual Report will be filed by
Dated:
CITY OF SAN BERNARDINO
By fform only' no signature re4uiredl
7977.1\22759.0003
04/25/98 A-1
EXHIBIT B
Nationally Recognized Municipal Securities Information Repositories approved by the Securities
and Exchange Commission as of June_, 1998;
Bloomberg Municipal Repositories Kenny Information Systems,Inc.
P.O. Box 840 Attn: Kenny Repository Service
Princeton,NJ 08542-0840 65 Broadway, 16th Floor
E-mail: Munis @Bloomberg.com New York,NY 10006
Phone: (609)279-3200 Phone: (212) 770-4595
Fax: (609)279-5962 Fax: (212) 797-7994
Thomson NRMSIR DPC Data,Inc.
Attn: Municipal Disclosure One Executive Drive
395 Hudson Street, 3d Floor Fort Lee,NJ 07024
New York,NY 10014 E-mail: nrmsir @dpcdata.com
E-mail: Disclosure@Muller.com Phone: (201)346-0701
Phone: (212) 807-5001 or(800)689-8466 Fax: (201)947-0107
Fax: (212) 989-2078
7977.1\22759.0003
04/25/98 2