HomeMy WebLinkAboutAgenda Packet - November 27, 2006 - CC o
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AGENDA
SPECIAL MEETING OF THE CITY
COUNCIL-AZUSA PUBLIC FINANCING AUTHORITY
AZUSA LIGHT &WATER MONDAY, NOVEMBER 27, 2006
729 N.AZUSA AVENUE 7:30 P.M. OR IMMEDIATELY FOLLOWING
AZUSA, CALIFORNIA THE UTILITY BOARD MEETING
A. PRELIMINARY BUSINESS
• Call to Order
• Roll Call
B. PUBLIC PARTICIPATION - Please note that public comments are welcomed by recognition of the
Mayor.
C. AGENDA ITEM
1. DOCUMENTS TO FINANCE WATER UTILITY CAPITAL IMPROVEMENTS, INCLUDING THE WATER
TREATMENT PLANT. RECOMMENDED ACTION: Waive further reading and adopt the following
Resolution Numbers 06-P3 and 06-C1-09: tj
a. RESOLUTION OF THE GOVERNING BOARD OF THE AZUSA PUBLIC FINANCING AUTHORITY
AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $55,000,000 PRINCIPAL AMOUNT OF ITS
PARITY REVENUE BONDS (WATER SYSTEM CAPITAL IMPROVEMENTS PROGRAM), SERIES
2006; APPROVING A TRUST AGREEMENT, AND INSTALLMENT SALE AGREEMENT, A
PRELIMINARY OFFICIAL STATEMENT AND A BOND PURCHASE AGREEMENT, AND
AUTHORIZING THE TAKING OF CERTAIN ACTIONS IN CONNECTION THEREWITH.
b. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA APPROVING AN INSTALLMENT
SALE AGREEMENT, A CONTINUING DISCLOSURE AGREEMENT, A PRELIMINARY OFFICIAL
STATEMENT AND A BOND PURCHASE AGREEMENT, AND AUTHORIZING THE TAKING OF
CERTAIN ACTIONS.
D. ADJOURNMENT
1. Adjourn
Zn compliance with the Americans with Disabilities Act, ifyou need special assistance to participate in
a city meeting,please contact the City Clerk at 626-811-5229. Notification three (3) working days prior
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arrangements can be made to provide access to the meeting"
,OF:gZ
AGENDA ITEM
TO: HONORABLE MAYOR AND AZUSA CITY COUNCIL MEMBERS, AND, HONORABLE
CHAIRPERSON AND MEMBERS OF THE AZUSA PUBLIC FINANCING AUTHORITY
FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES w\�., ,/
VIA: F.M. DELACH, EXECUTIVE DIRECTOR
DATE: NOVEMBER 27, 2006
SUBJECT: DOCUMENTS TO FINANCE WATER UTILITY CAPITAL IMPROVEMENTS, INCLUDING
THE WATER TREATMENT PLANT
RECOMMENDATION
It is recommended that the Azusa City Council and Azusa Public Financing Authority approve the
following Resolutions:
1. RESOLUTION OF THE GOVERNING BOARD OF THE AZUSA PUBLIC FINANCING
AUTHORITY AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $55,000,000 PRINCIPAL
AMOUNT OF ITS PARITY REVENUE BONDS (WATER SYSTEM CAPITAL IMPROVEMENTS
PROGRAM), SERIES 2006; APPROVING A TRUST AGREEMENT, AN INSTALLMENT SALE
AGREEMENT, A PRELIMINARY OFFICIAL STATEMENT AND A BOND PURCHASE
AGREEMENT, AND AUTHORIZING THE TAKING OF CERTAIN ACTIONS IN CONNECTION
THEREWITH
2. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA APPROVING AN
INSTALLMENT SALE AGREEMENT, A CONTINUING DISCLOSURE AGREEMENT, A
PRELIMINARY OFFICIAL STATEMENT AND A BOND PURCHASE AGREEMENT, AND
AUTHORIZING THE TAKING OF CERTAIN ACTIONS
BACKGROUND
At its October 23, 2006, Utility Board meeting, the City.Council, acting in its capacity as the Utility
Board, approved Resolution No. 06-C10I which directed staff to prepare the documents
necessary to issue debt up to the amount of $55 million in order to finance various water capital
improvements, including the water treatment plant. The financing documents have been prepared
by Bond Counsel, Fulbright & Jaworski LLP, in conjunction with Utilities staff, the City's Financial
Advisor, Fieldman, Rolapp &Associates, and the City's Underwriter, UBS Securities.
The documents (attached) are in substantially final form, however, do not include the final financial
information since bonds have not yet been priced and issued. Once these preliminary documents
are approved, and final rates are obtained on this financing, the documents will then be put into
their final form. The attached documents include: (1) Trust Agreement; (2) Installment Sale
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November 27, 2006
Page 2 of 3
Agreement; (3) a Bond Purchase Agreement; and (4) a Preliminary Official Statement which
includes a Continuing Disclosure Agreement. Two resolutions are attached to approve of the
referenced documents.
Following is a brief description of each document and its basic purpose:
Trust Agreement
The Trust Agreement is entered into by the Azusa Public Financing Authority and Trustee, Wells
Fargo Bank, National Association, and establishes the Authority as the issuer of the bonds and sets
forth how the bond proceeds are to be used, invested, secured and administered. The Azusa
Public Financing Authority is the issuer of the bonds because it is an entity set up pursuant to state
laws that authorize the Authority to issue debt on behalf of the City. The Trustee will receive the
proceeds from the bond sales and provide funds to the City through requisitions associated with
water capital improvement projects.
Installment Sale Agreement
The Installment Sale Agreement is entered into by the City of Azusa and the Azusa Public Finance
Authority for the purpose of having the City act as Agent on behalf of the Authority in carrying out
the obligations of the Authority with respect to the debt issuance. The most important aspect of
this agreement is that it obligates the City to pay back the debt through installment payments. This
agreement also establishes certain obligations, such as the City's maintenance of adequate
property damage and bond insurance, and the obligation to charge water rates such that a
minimum debt-coverage ratio of 1.25 is maintained.
Bond Purchase Agreement
The Bond Purchase Agreement is entered into by the City and by Azusa Public Financing Authority
with the Underwriter, in this case UBS Securities, for the purpose of formalizing selection of the
Underwriter and to cause the Underwriter to purchase the debt from the Authority. Underwriters
are usually large financial institutions capable of providing sizable amounts of funding to issuers by
a certain date, based on the Utility's credit rating and bond market rates. Several disclosures are
necessary for the Underwriter to be willing to purchase the Utility's debt, and these are covered in
the City's Official Statement, which Is referenced in various locations throughout the Bond
Purchase Agreement.
Preliminary Official Statement
The Official Statement makes various disclosures about the Water Utility, its governance structure,
management, facilities, production capacities, water rights, operations, financial history and
condition, and includes demographic information about the City of Azusa and surrounding areas
served by the Azusa Water Utility. This information is used to help Credit rating agencies such as
S&P and Moody's assess the Utility's credit worthiness; this information is also used by
Underwriters to market bonds or resell Azusa's debt. The Statement is considered "Preliminary"
because once the bonds are issued and rates determined, the installment payment amounts will be
set forth in this Statement. Included in the Statement is the Continuing Disclosure Agreement.
This agreement requires an Annual Disclosure Report to be prepared updating the information
included in the Official Statement.
002
November 27, 2006
Page 3 of 3
FISCAL IMPACT
There is no change in fiscal impact since the October 23, 2006 Utility Board meeting. The fiscal
impact of this revenue bond issuance will be approximately $105.8 million for principal and
interest over 30 years, less capitalized interest; present value of this expense Is about $56.6 million
based on a 4% discount rate. The funding to be provided through this issuance for projects
amounts to $50 million. The projects anticipated include the following:
Water Treatment Plant
Water Treatment Plant Design $1,400,000
Water Treatment Plant Construction 35,905,500
Construction Management 1,500,000
Transmission Line 1,000,000
Other Protects
890 Reservoirs 8,000,000
Water Mains (balance) 2,194,500
Total: $50,000,000
Other costs associated with this debt issuance include payment of the Financial Advisor, Bond
Counsel, Underwriter, Bond Insurer, Trustee and funding of a reserve account. Total amount of
debt issuance to cover these items, including above referenced project costs, is expected to be
less than $55 million.
Prepared by:
Cary Kalscheuer, Assistant to the Director of Utilities
Attachments:
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AUTHORITY CITY RESO.DOC TRUST AGKT.DOC INSn-KrSALE BOND PURCH PRELM OFFL
RESO.DOC AGMT.DDC AGMT.DOC STATEMT.DOC
DISCL AGKr.DOC
003
S
RESOLUTION NO.
RESOLUTION OF THE GOVERNING BOARD OF THE AZUSA PUBLIC
FINANCING AUTHORITY AUTHORIZING THE ISSUANCE OF NOT
TO EXCEED $55,000,000 PRINCIPAL AMOUNT OF ITS PARITY
REVENUE BONDS (WATER SYSTEM CAPITAL IMPROVEMENTS
PROGRAM), SERIES 2006; APPROVING A TRUST AGREEMENT, AN
INSTALLMENT SALE AGREEMENT, A PRELIMINARY OFFICIAL
STATEMENT AND A BOND PURCHASE AGREEMENT, AND
AUTHORIZING THE TAKING OF CERTAIN ACTIONS IN
CONNECTION THEREWITH
WHEREAS, the Azusa Public Financing Authority (the "Authority"), is a Joint
Powers Authority (a public body, corporate and politic) duly created, established and authorized
to transact business and exercise its powers, all under and pursuant to the Joint Exercise of
Powers Act (Articles 1 through 4 of Chapter 5, Division 7, Title 1 of the California Government
Code) (the "Act") and the powers of such Authority include the power to issue bonds for any of
its corporate purposes; and
WHEREAS, the City of Azusa (the "City") owns and operates certain water
system (the "Water System"); and
WHEREAS, the City desires to finance certain capital improvements to the
Water System including a water treatment plant(the "Water Improvements"); and
WHEREAS, it has been proposed that the Authority assist the City in providing
funds to finance the Water Improvements by (i) entering into an Installment Sale Agreement
with the City (the "Installment Sale Agreement"), and providing for the issuance, sale and
delivery of the Authority's Parity Revenue Bonds (Water System Capital Improvements Project),
Series 2006 (the "Bonds"); and
WHEREAS, the City has determined that it is necessary and desirable to enter
into the Installment Sale Agreement, whereby the Authority will finance the Water
Improvements and the City will purchase the Water Improvements from the Authority in
consideration for installment payments to be made under the Installment Sale Agreement in an
amount equal in time and amount to the debt service payments relating to the Bonds; and
WHEREAS, the City has approved the use of the proceeds of the Bonds to
finance the Water Improvements and has approved the purchase of the Water Improvements
from the Authority by means of the Installment Sale Agreement;
NOW, THEREFORE, THE GOVERNING BOARD OF THE AZUSA
PUBLIC FINANCING AUTHORITY DOES HEREBY RESOLVE AS FOLLOWS:
Section 1. The Authority hereby approves the issuance, sale and delivery of
the Bonds in an amount not to exceed $55,000,000 in accordance with the terms and conditions
45830259.2
004
of the Trust Agreement relating to the Bonds, substantially in the form annexed hereto, with such
revisions, amendments and completions as shall be approved by the Chairperson, the Vice-
Chairperson, the Executive Director or the Treasurer of the Authority, or their designee, or any
member of the Board, and each of them (each, a "Responsible Officer") with the advice of
counsel to the Authority, such approval to be conclusively evidenced by the execution and
delivery thereof.
Section 2. The Authority hereby approves the Installment Sale Agreement,
substantially in the form annexed hereto, with such revisions, amendments and completions as
shall be approved by a Responsible Officer with the advice of counsel to the Authority, such
approval to be conclusively evidenced by the execution and delivery thereof.
Section 3. The Authority hereby approves the Bond Purchase Agreement
relating to the Bonds, substantially in the form annexed hereto, with such revisions, amendments
and completions as shall be approved by a Responsible Officer with the advice of counsel to the
Authority, such approval to be conclusively evidenced by the execution and delivery thereof.
The Bond Purchase Agreement shall provide for an underwriter's discount of not greater than
0.3141% of the par amount of the Bonds and a true interest cost of not greater than 5.50%.
Section 4. The Authority hereby approves the Preliminary Official Statement
relating to the Bonds, substantially in the form annexed hereto, with such revisions, amendments
and completions as shall be approved by a Responsible Officer with the advice of counsel to the
Authority in order to make the Preliminary Official Statement final as of its date, except for the
omission of certain information, as permitted by Section 240.15c2-12(b)(1) of Title 17 of the
Code of Federal Regulations ("Rule 15c2-12"), and any certificate relating to the finality of the
Official Statement under Rule 15c2-12. A Responsible Officer of the Authority is authorized
and directed to execute and deliver a final Official Statement in substantially the form hereby
approved, with such additions and changes as may be approved by counsel and the Responsible
Officer executing the same, such approval to be conclusively evidenced by the execution and
delivery thereof.
Section 5. Any Responsible Officer is hereby authorized and directed to
execute and deliver any and all documents and to do and cause to be done any and all acts and
things necessary or proper for carrying out the transactions contemplated by this Resolution,
including obtaining a municipal bond insurance policy for all or a portion of the Bonds.
45830259.2 2
005
Section 6. The Secretary of the Authority shall certify to the adoption of this
Resolution, and thenceforth and thereafter the same shall be in full force and effect.
Notwithstanding the foregoing, such certification and any of the other duties and responsibilities
assigned to the Secretary pursuant to this Resolution may be performed by an Assistant Secretary
with the same force and effect as if performed by the Secretary hereunder.
Adopted and approved this _day of , 2006.
Chairperson, Azusa Public Financing
Authority
Secretary, Azusa Public Financing Authority
45830259.2 3
RESOLUTION NO.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA
APPROVING AN INSTALLMENT SALE AGREEMENT, A
CONTINUING DISCLOSURE AGREEMENT, A PRELIMINARY
OFFICIAL STATEMENT AND A BOND PURCHASE AGREEMENT,
AND AUTHORIZING THE TAKING OF CERTAIN ACTIONS
WHEREAS, the City of Azusa (the "City") owns and operates that certain water
system (the "Water System"); and
WHEREAS, the City desires to finance certain capital improvements to the
Water System including a water treatment plant (the "Water Improvements"); and
WHEREAS, it has been proposed that the Azusa Public Financing Authority (the
"Authority") assist the City in providing funds to finance the Water Improvements by (i) entering
into an Installment Sale Agreement with the City (the "Installment Sale Agreement'), and
providing for the issuance, sale and delivery of Azusa Public Financing Authority Parity
Revenue Bonds (Water System Capital Improvements Program) Series 2006 (the"Bonds"); and
WHEREAS, the City has determined that it is necessary and desirable to enter
into the Installment Sale Agreement, whereby the Authority will finance the Water
Improvements and the City will purchase the Water Improvements from the Authority in
consideration for installment payments to be made under the respective Installment Sale
Agreement in an amount equal in time and amount to the debt service payments relating to the
Bonds;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AZUSA
DOES HEREBY RESOLVE AS FOLLOWS:
Section 1. The City hereby approves the Installment Sale Agreement relating
to the Bonds, substantially in the form annexed hereto, with such revisions, amendments and
completions as shall be approved by the Mayor, the City Manager, or the Director of
Administrative Services/CFO, their designee, or any member of this Council (each, a
"Responsible Officer") with the advice of bond counsel to the City, such approval to be
conclusively evidenced by the execution and delivery thereof.
Section 2. The City hereby approves the Continuing Disclosure Agreement
relating to the Bonds, substantially in the form annexed hereto, with such revisions, amendments
and completions as shall be approved by a Responsible Officer with the advice of bond counsel
to the City, such approval to be conclusively evidenced by the execution and delivery thereof.
Section 3. The City hereby approves the Bond Purchase Agreement relating
to the Bonds, substantially in the form annexed hereto, with such revisions, amendments and
completions as shall be approved by a Responsible Officer with the advice of bond counsel to the
City, such approval to be conclusively evidenced by the execution and delivery thereof. The
45830249.2
007
Bond Purchase Agreement shall provide for an underwriter's discount of not greater than
0.3141% of the par amount of the Bonds and a true interest cost of not greater than 5.50%.
Section 4. The City hereby approves the Preliminary Official Statement
relating to the Bonds, substantially in the form annexed hereto, with such revisions, amendments
and completions as shall be approved by a Responsible Officer with the advice of bond counsel
to the City in order to make the Preliminary Official Statement final as of its date, except for the
omission of certain information, as permitted by Section 240.15c2-12(b)(1) of Title 17 of the
Code of Federal Regulations ("Rule 15c2-12"), and any certificate relating to the finality of the
Official Statement under Rule 15c2-12. A Responsible Officer is authorized and directed to
execute and deliver a final Official Statement in substantially the form hereby approved, with
such additions and changes as may be approved by bond counsel and the Responsible Officer
executing the same, such approval to be conclusively evidenced by the execution and delivery
thereof.
Section 5. Any Responsible Officer is hereby authorized and directed to
execute and deliver any and all documents and to do and cause to be done any and all acts and
things necessary or proper for carrying out the transactions contemplated by this Resolution,
including obtaining a municipal bond insurance policy for all or a portion of the Bonds.
Section 6. The City Clerk shall certify to the adoption of this Resolution, and
thenceforth and thereafter the same shall be in full force and effect. Notwithstanding the
foregoing, such certification and any of the other duties and responsibilities assigned to the City
Clerk pursuant to this Resolution may be performed by a Deputy City Clerk with the same force
and effect as if performed by the City Clerk hereunder.
Adopted and approved this _day of 2006.
Mayor
City Clerk
45830249.2 2
009
s
TRUST AGREEMENT
between the
AZUSA PUBLIC FINANCING AUTHORITY
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Trustee
Dated as of November 1, 2006
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
45830267.3
009
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; EQUAL SECURITY.............................................................2
SECTION 1.01. Definitions......................................................................................2
SECTION 1.02. Equal Security.............................................................................. 13
ARTICLE II ISSUANCE OF BONDS................................................................................ 13
SECTION 2.01. Authorization and Purpose of Bonds ........................................... 13
SECTION 2.02. Terms of the Bonds...................................................................... 14
SECTION 2.03. Redemption of Bonds................................................................... 15
SECTION 2.04. Form of Bonds.............................................................................. 16
SECTION 2.05. Execution of Bonds...................................................................... 16
SECTION 2.06: Transfer and Payment of Bonds................................................... 17
SECTION 2.07. Exchange of Bonds....................................................................... 17
SECTION 2.08. Bond Registration Books ............................................................. 17
SECTION 2.09. Mutilated, Destroyed, Stolen or Lost Bonds................................ 18
SECTION 2.10. Temporary Bonds......................................................................... 18
SECTION 2.11. Procedure for the Issuance of Bonds; Deposit,and Use of
Proceeds of Bonds........................................................................ 18
SECTION 2.12. Validity of Bonds .........................................................................19
SECTION 2.13. Special Covenants as to Book-Entry Only System for
Bonds............................................................................................19
ARTICLE III REVENUES...................................................................................................21
SECTION 3.01. Pledge of Revenues ......................................................................21
SECTION 3.02. Receipt and Deposit of Revenues in the Revenue Fund ..............22
SECTION 3.03. Establishment and Maintenance of Accounts for Use of
Money in the Revenue Fund........................................................22
SECTION 3.04. Deposit and Investments of Money in Accounts and Funds........25
ARTICLE IV COVENANTS OF THE AUTHORITY ........................................................26
SECTION 4.01. Punctual Payment and Performance.............................................26
SECTION 4.02. Against Encumbrances.................................................................26
SECTION4.03. Tax Covenants..............................................................................26
SECTION 4.04. Accounting Records and Reports.................................................27
SECTION 4.05. Prosecution and Defense of Suits.................................................27
SECTION 4.06. Further Assurances.......................................................................27
SECTION 4.07. Continuing Disclosure..................................................................27
ARTICLE V THE TRUSTEE..............................................................................................28
SECTION 5.01. The Trustee...................................................................................28
SECTION 5.02. Liability of Trustee.......................................................................29
ARTICLE VI AMENDMENT OF THE TRUST AGREEMENT........................................31
SECTION 6.01. Amendment of the Trust Agreement............................................31
45830267.3 i
010
TABLE OF CONTENTS
(continued)
Page
SECTION 6.02. Disqualified Bonds.......................................................................32
SECTION 6.03. Endorsement or Replacement of Bonds After Amendment.........32
SECTION 6.04. Amendment by Mutual Consent ..................................................32
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF HOLDERS.......................32
SECTION 7.01. Events of Default and Acceleration of Maturities........................32
SECTION 7.02. Application of Funds Upon Acceleration.....................................34
SECTION 7.03. Institution of Legal Proceedings by Trustee ................................35
SECTION7.04. Non-Waiver..................................................................................35
SECTION 7.05. Actions by Trustee as Attorney-in-Fact.......................................35
SECTION 7.06. Remedies Not Exclusive..............................................................35
SECTION 7.07. Limitation on Holders' Right to Sue............................................36
ARTICLEVIII DEFEASANCE..............................................................................................36
SECTION 8.01. Discharge of Bonds......................................................................36
SECTION 8.02. Unclaimed Money........................................................................37
ARTICLE DC PROVISIONS RELATING TO BOND INSURANCE.................................38
ARTICLE X MISCELLANEOUS.......................................................................................38
SECTION 10.01. Liability of Authority Limited to Revenues.................................38
SECTION 10.02. Benefits of the Trust Agreement Limited to Parties ....................38
SECTION 10.03. Notices..........................................................................................38
SECTION 10.04. Successor Is Deemed Included In All References To
Predecessor...................................................................................39
SECTION 10.05. Execution of Documents by Holders ...........................................39
SECTION 10.06. Waiver of Personal Liability........................................................39
SECTION 10.07. Acquisition of Bonds by Authority..............................................39
SECTION 10.08. Destruction of Cancelled Bonds...................................................39
SECTION 10.09. Content of Certificates .................................................................40
SECTION 10.10. Publication for Successive Weeks................................................40
SECTION 10.11. Accounts and Funds; Business Days............................................40
SECTION 10.12. Article and Section Headings and References .............................40
SECTION 10.13. Partial Invalidity...........................................................................41
SECTION 10.14. Execution in Several Counterparts...............................................41
SECTION 10.15. Amendments to Installment Agreement.......................................41
SECTION 10.16. Governing Law.............................................................................41
45830267.3 11 0
I
THIS TRUST AGREEMENT made and entered into as of November 1, 2006 (the "Trust
Agreement") by and between WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association duly organized and existing under and by virtue of the laws of the
United States of America (the "Trustee"), and the AZUSA PUBLIC FINANCING
AUTHORITY, a public entity and agency, duly organized and existing pursuant to an agreement
entitled "Joint Exercise of Powers Agreement" by and between the City of Azusa and the
Redevelopment Agency of the City of Azusa (the "Authority");
WITNESSETH:
WHEREAS, the Authority is a joint powers agency duly organized and operating
pursuant to Article 1 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State
of California;
WHEREAS, Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of
the State of California authorizes and empowers the Authority to issue bonds to assist local
agencies in financing and refinancing projects and programs consisting of certain public
improvements or working capital or liability and other insurance needs whenever a local agency
determines that there are significant public benefits from so doing;
WHEREAS, the City of Azusa (the "City") has determined that the consummation of the
transactions contemplated in the Installment Agreement (as hereinafter defined) and this Trust
Agreement will result in significant savings to the City and other public benefits;
WHEREAS, the Authority is empowered pursuant to the Installment Agreement and the
aforementioned Article 4 to assist in the financing and/or refinancing of the projects, as
described in the Installment Agreement and to reduce the borrowing costs of the City through the
issuance of its bonds;
WHEREAS, the Authority has authorized the issuance of its Parity Revenue Bonds
(Water System Capital Improvements Program), Series 2006 (the "Bonds"), in an aggregate
principal amount of Dollars ($ ) for the
purposes described herein and in the Installment Agreement;
WHEREAS, the Bonds shall be issued pursuant to Article 4 of Chapter 5 of Division 7 of
Title 1 of the Government Code of State of California;
WHEREAS, in order to provide for the authentication and delivery of the Bonds (as
hereinafter defined), to establish and declare the terms and conditions upon which the Bonds are
to be issued and secured and to secure the payment of the principal thereof premium, if any, and
interest thereon, the Authority has authorized the execution and delivery of this Trust
Agreement;
WHEREAS, all acts and proceedings required by law necessary to make the Bonds, when
executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid,
binding and legal obligations of the Authority payable in accordance with their terms, and to
constitute this Trust Agreement a valid and binding agreement of the parties hereto for the uses
45830267.3
012
and purposes herein set forth in accordance with its terms, have been done and taken, and the
execution and delivery of this Trust Agreement have been in all respects duly authorized;
NOW, THEREFORE, THIS TRUST AGREEMENT WITNESSETH, that in order to
secure the payment of the principal of, premium, if any, and the interest on all Bonds at any time
issued and outstanding under this Trust Agreement, according to their tenor, and to secure the
performance and observance of all the covenants and conditions therein and herein set forth, and
to declare the terms and conditions upon and subject to which the Bonds are to be issued and
received, and in consideration of the premises and of the mutual covenants herein contained and
of the purchase and acceptance of the Bonds by the holders thereof, and for other valuable
considerations, the receipt whereof is hereby acknowledged, the Authority does hereby covenant
and agree with the Trustee, for the benefit of the respective holders from time to time of the
Bonds, as follows:
ARTICLE I
DEFINITIONS; EQUAL SECURITY
SECTION 1.01. Definitions. Unless the context otherwise requires, the
terms defined in this section shall for all purposes hereof and of any Supplemental Trust
Agreement and of any certificate, opinion, request or other document herein or therein
mentioned have the meanings herein specified. All other capitalized terms used herein without
definition shall have the meanings set forth in the Installment Agreement.
Acquisition Fund
The term "Acquisition Fund" means the fund by that name established and maintained
pursuant to Section 2.1l(b).
Act
The term "Act' means the Joint Exercise of Powers Act (being Chapter 5 of Division 7 of
Title 1 of the California Government Code, as amended) and all laws amendatory thereof or
supplemental thereto.
Annual Debt Service
The term "Annual Debt Service" means, for each Bond Year, the sum of (1) the interest
falling due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Serial
Bonds are retired as scheduled and that the Outstanding Term Bonds are redeemed from
Mandatory Sinking Account Payments or at maturity as scheduled, (2) the principal amount of
the Outstanding Serial Bonds payable by their terms in such Bond Year, and (3) the principal
amount of the Outstanding Term Bonds scheduled to be paid or redeemed from Mandatory
Sinking Account Payments in such Bond Year.
45830267.3 2
013
Authority
The term "Authority" means the Azusa Public Financing Authority created pursuant to
the Act and its successors and assigns in accordance herewith.
Bonds, Serial Bonds, Term Bonds
The term "Bonds" means all bonds of the Authority authorized by and at any time
Outstanding pursuant hereto. and executed, issued and delivered in accordance with Article II.
The term "Serial Bonds" means.Bonds for which no sinking fund payments are provided. The
term "Term Bonds" means Bonds which are payable on or before their specified maturing dates
from sinking fund payments established for that purpose and calculated to retire such Bonds on
or before their specified maturity dates.
Bond Insurance Policy
The term "Bond Insurance Policy" means the insurance policy issued by the Bond Insurer
insuring the payment when due of principal of and interest on the Bonds as provided therein.
Bond Insurer
The term `Bond Insurer" shall mean or any successor
thereto or assignee thereof.
Bond Year
The term "Bond Year" means the period of twelve consecutive months ending on July 1
in any year in which any Bond has not yet been retired and cancelled, provided that the first
Bond Year shall commence on the date of issuance of the Bonds and end on the next July 1.
Business Dav
The term "Business Day" means any day on which the Trustee is open for business at its
Principal Corporate Trust Office.
Certificate of the Authority
The term "Certificate of the Authority" means an instrument in writing signed by the
Executive Director, Chairperson or Vice-Chairperson of the Authority, or by any other officer of
the Authority duly authorized by the Authority for that purpose.
City
The term "City" means the City of Azusa, a municipal corporation, duly organized and
existing under and by virtue of the Constitution and laws of the State.
Code
The term "Code" means the Internal Revenue Code of 1986, as amended.
45830267.3 3
014
Continuing Disclosure Agreement
The term "Continuing Disclosure Agreement' means that certain Continuing Disclosure
Agreement between the City and the Trustee, in its capacity as Trustee and as Dissemination
Agent, dated the date of issuance and delivery of the Bonds, as originally executed and as it may
be amended from time to time in accordance with the terms thereof.
Defeasance Obligations
The term "Defeasance Obligations means:
Direct obligations (other than an obligation subject to variation in principal repayment) of
the United States of America ("United States Treasury Obligations"), (b) obligations fully and
unconditionally guaranteed as to timely payment of principal and interest by the United States of
America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal
and interest by any agency or instrumentality of the United States of America when such
obligations are backed by the full faith and credit of the United States of America, or
(d) evidences of ownership of proportionate interests in future interest and principal payments on
obligations described above held by a bank or trust company as custodian, under which the
owner of the investment is the real party in interest and has the right to proceed directly and
individually against the obligor and the underlying government obligations are not available to
any person claiming through the custodian or to whom the custodian may be obligated.
Expense Fund
The term "Expense Fund" means the fund by that name established and maintained
pursuant to Section 2.11(a).
Financial Newspaper
The term "Financial Newspaper" means The Wall Street Journal or The Bond Buyer, or
any other newspaper or journal printed in the English language, publishing financial news and
selected by the Trustee, who shall be under no liability by reason of such selection.
Fiscal Year
The term "Fiscal Year" means the twelve-month period terminating on June 30 of each
year, or any other annual accounting period hereafter selected and designated by the Authority as
its Fiscal Year in accordance with applicable law.
Holder
The term "Holder" means any person who shall be the registered owner of any
Outstanding Bond.
45830267.3 4
015
Independent Certified Public Accountant
The term "Independent Certified Public Accountant" means any certified public
accountant or firm of such accountants duly licensed and entitled to practice and practicing as
such under the laws of the State or a comparable successor, appointed and paid by the Authority,
and who, or each of whom—
(1) is in fact independent according to the Statement of Auditing Standards
No. 1 and not under the domination of the Authority;
(2) does not have a substantial financial interest, direct or indirect, in the
operations of the Authority; and
(3) is not connected with the Authority as a member, officer or employee of
the Authority, but who may be regularly retained to audit the accounting records of and
make reports thereon to the Authority.
Information Services
The term "Information Services" means Financial Information, Inc.'s "Daily Called
Special Service," 30 Montgomery Street, 10th Floor, Jersey City, NJ 07302, Attention: Editor;
Mergent/FIS, Inc., 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention:
Municipal News Reports; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York
10041, Attention: Notification Department; and, in accordance with then current guidelines of
the Securities and Exchange Commission, such other addresses and/or such other services
providing information with respect to called bonds as the Authority may designate in a Written
Certificate of the Authority delivered to the Trustee.
Installment Agreement
The term "Installment Agreement" means the Installment Sale Agreement, dated as of
November 1, 2006, between the Authority and the City as originally executed and as it may from
time to time be amended or supplemented pursuant to the provisions hereof and thereof.
Installment Payments
The term "Installment Payments" shall have the meaning ascribed to such term in the
Installment Agreement.
Interest Payment Date
The term "Interest Payment Date" means January 1 and July 1 of each year, commencing .
1, 2007.
Joint Powers Agreement
The term "Joint Powers Agreement" means the Joint Exercise of Powers Agreement by
and between the City of Azusa and the Redevelopment Agency of the City of Azusa, dated as of
45830267.3 5
016
a
January 2, 1990, as originally executed and as it may from time to time be amended or
supplemented pursuant to the provisions hereof and thereof.
Mandatory Sinking Account Payment
The term "Mandatory Sinking Account Payment' means, with respect to Bonds of any
series and maturity, the amount required by this Trust Agreement or any Supplemental Trust
Agreement to be paid by the Authority on any single date for the retirement of Term Bonds of
such series and maturity.
Maximum Annual Debt Service
The term "Maximum Annual Debt Service" shall mean, as of any date of calculation, the
largest Annual Debt Service for the current or any future Bond Year following the anticipated
issuance of the Bonds.
Opinion of Counsel
The term "Opinion of Counsel' means a written opinion of Fulbright & Jaworski L.L.P.
or such other counsel of recognized national standing in the field of law relating to municipal
bonds, appointed and paid by the Authority.
Outstanding
The term "Outstanding," when used as of any particular time with reference to Bonds,
means (subject to the provisions of Section 7.02) all Bonds except
(1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee
for cancellation;
(2) Bonds paid or deemed to have been paid within the meaning of
Section 9.01; and
(3) Bonds in lieu of or in substitution for which other Bonds shall have been
executed, issued and delivered by the Authority pursuant hereto.
Permitted Investments
The term"Permitted Investments" means any of the following:
1. Direct obligations (other than an obligation subject to variation in principal repayment) of .
the United States of America("United States Treasury Obligations"), (b) obligations fully
and unconditionally guaranteed as to timely payment of principal and interest by the
United States of America, (c) obligations fully and unconditionally guaranteed as to
timely payment of principal and interest by any agency or instrumentality of the United
States of America when such obligations are backed by the full faith and credit of the
United States of America, or (d) evidences of ownership of proportionate interests in
future interest and principal payments on obligations described above held by a bank or
45830267.3 6
017
trust company as custodian, under which the owner of the investment is the real party in
interest and has the right to proceed directly and individually against the obligor and the
underlying government obligations are not available to any person claiming through the
custodian or to whom the custodian may be obligated.
2. Federal Housing Administration debentures
3. The listed obligations of government-sponsored agencies which are not backed by the full
faith and credit of the United States of America:
a) Federal Home Loan Mortgage Corporation (FHLMC)
b) Participation certificates (excluded are stripped mortgage securities which are
purchased at prices exceeding their principal amounts) - Senior Debt
obligations
c) Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate
Credit Banks and Banks for Cooperatives) Consolidated system-wide bonds
and notes
d) Federal Home Loan Banks (FHL Banks) Consolidated debt obligations
e) Federal National Mortgage Association (FNMA) Senior debt obligations
Mortgage-backed securities (excluded are stripped mortgage securities which
are purchased at prices exceeding their principal amounts)
f) Student Loan Marketing Association (SLMA) Senior debt obligations
(excluded are securities that do not have a fixed par value and/or whose terms
do not promise a fixed dollar amount at maturity or call date)
g) Financing Corporation (FICO) Debt obligations
h) Resolution Funding Corporation (REFCORP) Debt obligations
4. Unsecured certificates of deposit, time deposits, and bankers' acceptances (having
maturities of not more than 30 days) of any bank the short-term obligations of which are
rated 'A-1' or better by S&P.
5. Deposits the aggregate amount of which are fully insured by the Federal Deposit
Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5
million.
6. Commercial paper (having original maturities of not more than 270 days) rated 'A-1+' by
S&P and 'Prime-1' by Moody's.
7. Money market funds rated 'AAm' or 'AAm-G' by S&P, or better.
8. "State Obligations", which means:
a) Direct general obligations of any state of the United States of America or any
subdivision or agency thereof to which is pledged the full faith and credit of a
state the unsecured general obligation debt of which is rated 'A3' by Moody's and
45830267.3 7
018
`A' by S&P, or better, or any obligation fully and unconditionally guaranteed by
any state, subdivision or agency whose unsecured general obligation debt is so
rated.
b) Direct general short-term obligations of any state agency or subdivision or agency
thereof described in (A) above and rated `A-1+' by S&P and `MIG-1' by
Moody's.
c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any
state, state agency or subdivision described in (A) above and rated `AA' or better
by S&P and `Aa' or better by Moody's.
9. Pre-refunded municipal obligations rated "AAA" by S & P and "Aaa" by Moody's
meeting the following requirements:
a) the municipal obligations are (1) not subject to redemption prior to maturity or(2)
the trustee for the municipal obligations has been given irrevocable instructions
concerning their call and redemption and the issuer of the municipal obligations
has covenanted not to redeem such municipal obligations other than as set forth in
such instructions;
b) the municipal obligations are secured by cash or United States Treasury
Obligations which may be applied only to payment of the principal of, interest
and premium on such municipal obligations;
c) the principal of and interest on the United States Treasury Obligations (plus any
cash in the escrow) has been verified by the report of independent certified public
accountants to be sufficient to pay in full all principal of, interest, and premium, if
any, due and to become due on the municipal obligations ("Verification");
d) the cash or United States Treasury Obligations serving as security for the
municipal obligations are held by an escrow agent or trustee in trust for owners of
the municipal obligations;
e) no substitution of a United States Treasury Obligation shall be permitted except
with another United States Treasury Obligation and upon delivery of a new
Verification; and
f) the cash or United States Treasury Obligations are not available to satisfy any
other claims, including those by or against the trustee or escrow agent.
10. Repurchase agreements:
With (1) any domestic bank, or domestic branch of a foreign bank, the long term debt of
which is rated at least "A" by S&P and Moody's; or (2) any broker-dealer with "retail
customers" or a related affiliate thereof which broker-dealer has, or the parent company
(which guarantees the provider) of which has, long-term debt rated at least "A" by S&P
45830267.3 8
019
and Moody's, which broker-dealer falls under the jurisdiction of the Securities Investors
Protection Corporation; or (3) any other entity rated "A" or better by S&P and Moody's
and acceptable to the Authority, provided that:
a) The market value of the collateral is maintained at levels and upon such
conditions as would be acceptable to S & P and Moody's to maintain an "A"
rating in an "A" rated structured financing (with a market value approach); 4
b) The Trustee or a third party acting solely as agent therefor or for the Authority
(the "Holder of the Collateral") has possession of the collateral or the collateral
has been transferred to the Holder of the Collateral in accordance with applicable
state and federal laws (other than by means of entries on the transferor's books);
c) The repurchase agreement shall state and an opinion of counsel shall be rendered
at the time such collateral is delivered that the Holder of the Collateral has a
perfected first priority security interest in the collateral, any substituted collateral
and all proceeds thereof(in the case of bearer securities, this means the Holder of
the Collateral is in possession);
d) All other requirements of S&P in respect of repurchase agreements shall be met.
e) The repurchase agreement shall provide that if during its term the provider's
rating by either Moody's or S&P is withdrawn or suspended or falls below "A-"
by S&P or "A3" by Moody's, as appropriate, the provider must, at the direction of
the Authority or the Trustee (who shall give such direction if so directed by the
Bond Insurer), within 10 days of receipt of such direction, repurchase all
collateral and terminate the agreement, with no penalty or premium to the
Authority or Trustee.
Notwithstanding the above, if a repurchase agreement has a term of 270 days or less (with
no evergreen provision), collateral levels need not be as specified in (A) above, so long as
such collateral levels are 103% or better and the provider is rated at least "A" by S&P and
Moody's, respectively.
11. Investment agreements with a domestic or foreign bank or corporation (other than a life
or property casualty insurance company) the long-term debt of which, or, in the case of a
guaranteed corporation the long-term debt, or, in the case of a monoline financial
guaranty insurance company, claims paying ability,- of the guarantor is rated at least
"AA" by S&P and "Aa" by Moody's; provided that, by the terms of the investment
agreement:
a) interest payments are to be made to the Trustee at times and in amounts as
necessary to pay debt service (or, if the investment agreement is for the
construction fund, construction draws) on the Bonds;
b) the invested funds are available for withdrawal without penalty or premium for
purposes permitted under this Trust Agreement, at any time upon not more than
45830267.3 9 020
seven days' prior notice; the Authority and the Trustee hereby agree to give or
cause to be given notice in accordance with the terms of the investment agreement
so as to receive funds thereunder with no penalty or premium paid;
c) the investment agreement shall state that is the unconditional and general
obligation of, and is not subordinated to any other obligation of, the provider
thereof or, if the provider is a bank, the agreement or the opinion of counsel shall
state that the obligation of the provider to make payments thereunder ranks pari
passu with the obligations of the provider to its other depositors and its other
unsecured and unsubordinated creditors;
d) the Authority or the Trustee receives the opinion of domestic counsel (which
opinion shall be addressed to the Authority) that such investment agreement is
legal, valid, binding and enforceable upon the provider in accordance with its
terms and of foreign counsel (if applicable) in form and substance acceptable, and
addressed to, the Authority;
e) the investment agreement shall provide that if during its term
i) the provider's rating by either S&P or Moody's falls below "AA-" or
"AaY, respectively, the provider shall, at its option, within 10 days
of receipt of publication of such downgrade, either (i) collateralize
the investment agreement by delivering or transferring in accordance
-with applicable state and federal laws (other than by means of entries
on the provider's books) to the Authority, the Trustee or a third party
acting solely as agent therefor (the "Holder of the Collateral")
collateral free and clear of any third-party liens or claims the market
value of which collateral is maintained at levels and upon such
conditions as would be acceptable to S & P and Moody's to maintain
an "A" rating in an "A" rated structured financing (with a market
value approach); or (ii) repay the principal of and accrued but unpaid
interest on the investment, and
ii) the provider's rating by either S&P or Moody's is withdrawn or
suspended or falls below "A-" or "AY, respectively, the provider
must, at the direction of the Authority or the Trustee, within 10 days
of receipt of such direction, repay the principal of and accrued but
unpaid interest on the investment, in either case with no penalty or
premium to the Authority or Trustee, and
f) The investment agreement shall state and an opinion of counsel shall be rendered,
in the event collateral is required to be pledged by the provider under the terms of
the investment agreement, at the time such collateral is delivered, that the Holder of
the Collateral has a perfected first priority security interest in the collateral, any
substituted collateral and all proceeds thereof (in the case of bearer securities, this
means the Holder of the Collateral is in possession);
45830267.3 10 021
g) the investment agreement must provide that if during its term
i) the provider shall default in its payment obligations, the provider's
obligations under the investment agreement shall, at the direction of
the Authority or the Trustee, be accelerated and amounts invested
and accrued but unpaid interest thereon shall be repaid to the
Authority or Trustee, as appropriate, and
ii) the provider shall become insolvent, not pay its debts as they become
due, be declared or petition to be declared bankrupt, etc. ("event of
insolvency"), the provider's obligations shall automatically be
accelerated and amounts invested and accrued but unpaid interest
thereon shall be repaid to the Authority or Trustee, as appropriate.
12. The Local Agency Investment Fund of the State of California, created pursuant to Section
16429.1 of the California Government Code.
13. Such other investments as approved by the Bond Insurer.
Principal Corporate Trust Office
The term "Principal Corporate Trust Office" means the corporate trust office of the
Trustee located at 700 Wilshire Boulevard, 17th Floor, Los Angeles, California 90017 or such
other office or offices as the Trustee shall designate from time to time.
Rating Agencies
The term "Rating Agencies" means Standard & Poor's, a Division of The McGraw Hill
Companies, Inc. and Moody's Investors Service or, in the event that Standard & Poor's or
Moody's no longer maintain a rating on the Bonds, any other nationally recognized bond rating
agency then maintaining a rating on the Bonds, but, in each instance, only so long as Standard &
Poor's, Moody's or other nationally recognized rating agency then maintains a rating on the
Bonds.
Record Date
The term "Record Date" means the 15th day of the calendar month immediately
preceding each Interest Payment Date.
Representation Letter
The term "Representation Letter" means the letters and agreements relating to the Bonds,
filed with The Depository Trust Company, New York, New York.
45830267.3 11
022
Reserve Account
The term "Reserve Account" means the account by that name established and maintained
pursuant to Section 3.03
Reserve Account Requirement
The term "Reserve Account Requirement" means, as of any date of calculation, an
amount equal to the least of: (i) 100% of the Maximum Annual Debt Service for the then current
or every subsequent Bond Year; (ii) 125% of average Annual Debt Service for the then current
and every subsequent Bond Year, and (iii) ten percent (10%) of the issue price (as defined
pursuant to section 148 of the Code).
Revenues
The term "Revenues" means all Installment Payments and other payments paid by the
City and received by the Authority pursuant to the Installment Agreement and all interest or
other income from, any investment of any money in any fund or account pursuant to
Section 3.04.
Securities Depositories
The term "Securities Depositories" means The Depository Trust Company, 55 Water
Street, 50th Floor, New York, New York 10041-0099, Attention: Call Notification Department,
Fax (212) 855-7232; and, in accordance with then current guidelines of the Securities and
Exchange Commission, such other addresses and/or such other securities depositories as the
Authority may designate in a Written Request of the Authority delivered to the Trustee.
State
The term "State" means the State of California.
Supplemental Trust Agreement
The term "Supplemental Trust Agreement" means any trust agreement then in full force
and effect which has been duly executed and delivered by the Authority and the Trustee
amendatory hereof or supplemental hereto; but only if and to the extent that such Supplemental
Trust Agreement is specifically authorized hereunder.
Tax Certificate
The term "Tax Certificate" means the Tax Certificate delivered by the Authority and the
City at the time of the issuance and delivery of a series of Bonds, as the same may be amended
or supplemented in accordance with its terms.
45830267.3 12
023
Trust Agreement
The term "Trust Agreement" means this Trust Agreement, dated as of November 1, 2006,
between the Authority and the Trustee, as originally executed and as it may from time to time be
amended or supplemented by all Supplemental Trust Agreements executed pursuant to the
provisions hereof.
Trustee
The term "Trustee" means Wells, Fargo Bank, National Association, or any other
association or corporation that may at any time be substituted in its place as provided in
Section 5.01.
Water Project
The term "Water Project" has the meaning ascribed to such term in the Installment
Agreement.
Water System
The term "Water System" has the meaning ascribed to such term in the Installment
Agreement.
Written Request of the Authority
The term "Written Request of the Authority" means an instrument in writing signed by
the Executive Director of the Authority or by any other officer of the Authority duly authorized
by the Authority for that purpose.
SECTION 1.02. Equal Security. In consideration of the acceptance of the
Bonds by the Holders thereof, the Trust Agreement shall be deemed to be and shall constitute a
contract between the Authority and the Holders from time to time of all Bonds authorized,
executed, issued and delivered hereunder and then Outstanding to secure the full and final
payment of the interest on and principal of and redemption premiums, if any, on all Bonds which
may from time to time be authorized, executed, issued and delivered hereunder, subject to the
agreements, conditions, covenants and provisions contained herein; and all agreements and
covenants set forth herein to be performed by or on behalf of the Authority shall be for the equal
and proportionate benefit, protection and security of all Holders of the Bonds without distinction,
preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of
the number or date thereof or the time of authorization, sale, execution, issuance or delivery
thereof or for any cause whatsoever, except as expressly provided herein or therein.
ARTICLE II
ISSUANCE OF BONDS
SECTION 2.01. Authorization and Purpose of Bonds. The Authority has
reviewed all proceedings heretofore taken relative to the authorization of the Bonds and has
45830267.3 13 024
found, as a result of such review, and hereby finds and determines that all acts, conditions and
things required by law to exist, to have happened and to have been performed precedent to and in
the issuance of the Bonds do exist, have happened and have been performed in due time, form
and manner as required by law, and that the Authority is now duly authorized, pursuant to each
and every requirement of the Act, to issue the Bonds in the form and manner provided herein for
the purpose of providing funds to finance the Water Project and that the Bonds shall be entitled
to the benefit, protection and security of the provisions hereof.
SECTION 2.02. Terms of the Bonds. The Bonds shall be designated
"Azusa Public Financing Authority Parity Revenue Bonds (Water System Capital Improvements
Program), Series 2006" and shall be in the aggregate principal amount of
Dollars ($ ). The Bonds shall be dated their date
of delivery, shall be issued only in fully registered form in denominations of five thousand
dollars ($5,000) or any integral multiple of five thousand dollars ($5,000) (not exceeding the
principal amount of Bonds maturing at any one time), and shall mature on the dates and in the
principal amounts and bear interest at the rates (based on a 360-day year comprised of twelve 30
day months) as set forth in the following schedule:
MATURITY DATE PRINCIPAL INTEREST
(July 1) AMOUNT RATE
Except as otherwise provided in the Representation Letter, the principal of the.Bonds
shall be payable in lawful money of the United States of America by check at the Principal
Corporate Trust Office of the Trustee.
The Bonds shall bear interest at the rates set forth above, payable semiannually on each
Interest Payment Date. Each Bond shall bear interest from the Interest Payment Date next
preceding the date of authentication thereof, unless such date of authentication is an Interest
Payment Date, in which event such Bond shall bear interest from such date, or unless such date
of authentication is prior to the Record Date (as hereinafter defined) for the first Interest Payment
45830267.3 14
025
Date, in which event such Bond shall bear interest from November 1, 2006; provided, however,
that if at the time of authentication of any Bond interest is then in default on the Outstanding
Bonds, such Bond shall bear interest from the Interest Payment Date to which interest has
previously been paid or made available for payment on the Outstanding Bonds. Except as
otherwise provided in the Representation Letter, payment of interest on the Bonds due on or
before the maturity or prior redemption thereof shall be made to the person whose name appears
in the Bonds registration books kept by the Trustee pursuant to Section 2.08 as the registered
owner thereof as of the close of business 15 days immediately preceding an Interest Payment
Date (the "Record Date'), whether or not such day is a Business Day, such interest to be paid by
check mailed by first class mail to such registered owner at the address as it appears in such
books.
The Holder of $1,000,000 or more in aggregate principal amount of Bonds may request
in writing that the Trustee pay the interest thereon by wire transfer to an account in the United
States, such request to be filed with the Trustee not later than the applicable Record Date.
Payment of the principal of the Bonds shall be made upon the surrender thereof at
maturity or on redemption prior to maturity at the Principal Corporate Trust Office of the
Trustee.
SECTION 2.03. Redemption of Bonds.
(a) Optional Redemption. The Bonds maturing on or before July 1, 20_ are
not subject to optional redemption prior to their maturities. The Bonds maturing on or after
July 1, 20_ shall be subject to redemption prior to their respective maturities at the option of the
Authority from prepaid Installment Payments under the Installment Agreement on or after July 1,
20, as a whole or in part (in such maturities as are designated to the Trustee by the Authority
or, if the Authority fails to designate such maturities, on a proportional basis among maturities)
on any date, at a redemption price equal to the principal amount of the Bonds to be redeemed,
plus a premium (expressed as a percentage of the principal amount of Bonds to be redeemed),
together with interest accrued thereon to the date fixed for redemption, as follows:
[TO COME].
(b) Mandatory Sinking Fund Redemption. The Bonds maturing on July 1,
20_ and July 1, 20_ are also subject to redemption prior to their respective stated maturities, in
part by lot, from mandatory sinking account payments deposited in the 20_ Term Bonds
Sinking Account and the 20_ Term Bonds Sinking Account, respectively, pursuant to
Section 3.03(b), at the principal amount thereof and interest accrued thereon to the date fixed for
redemption, without premium.
If less than all the Outstanding Term Bonds of any maturity are called for redemption at
any one time, upon the written direction from the Authority, the Authority shall revise the
sinking account payment schedule to reduce mandatory sinking account payments required to be
made with respect to such Bonds (in an amount equal to the amount of Outstanding Term Bonds
to be redeemed) to the extent practicable, to achieve approximately equal Annual Debt Service
on the Bonds Outstanding following such redemption.
45830267.3 15 e
026,
C
(c) Notice of Redemption. Notice of redemption shall be mailed by first-class
mail, by the Trustee, not less than thirty (30) nor more than sixty (60) days prior to the
redemption date to (i) the respective Holders of the Bonds designated for redemption at their
addresses appearing on the registration books of the Trustee, (ii) the Securities Depositories and
(iii) one or more Information Services. Notice of redemption to the Securities Depositories and
the Information Services shall be given by first-class mail or facsimile transmission. Each notice
of redemption shall state the date of such notice, the redemption price, if any, (including the
name and appropriate address of the Trustee), the CUSIP number (if any) of the maturity or
maturities, and, if less than all of any such maturity is to be redeemed, the distinctive certificate
numbers of the Bonds of such maturity to be redeemed and, in the case of Bonds to be redeemed
in part only, the respective portions of the principal amount thereof to be redeemed. Each such
notice shall also state that on said date there will become due and payable on each of said Bonds
the redemption price, if any, thereof and in the case of a Bond to be redeemed in part only, the
specified portion of the principal amount thereof to be redeemed, together with interest accrued
thereon to the redemption date, and that from and after such redemption date interest thereon
shall cease to accrue, and shall require that such Bonds be then surrendered at the address of the
Trustee specified in the redemption notice. Failure to receive such notice shall not invalidate any
of the proceedings taken in connection with such redemption.
In the event of redemption of Bonds, the Trustee shall mail a notice of redemption upon
receipt of a Written Request of the Authority but only after the Authority shall file a Certificate
of the Authority with the Trustee that on or before (i) the date set for redemption, in the case of a
redemption of Bonds pursuant to Section 2.03(b) or the redemption of Bonds that have been
defeased in accordance with Section 8.01, or (ii) the date of mailing such notice, in all other
cases, the Authority shall have deposited with or otherwise made available to the Trustee for
deposit in the Principal Account the money required for payment of the redemption price of all
Bonds then to be called for redemption, together with the estimated expense of giving such
notice.
If notice of redemption has been duly given as aforesaid and money for the payment of
the redemption price of the Bonds called for redemption is held by the Trustee, then on the
redemption date designated in such notice Bonds so called for redemption shall become due and
payable, and from and after the date so designated interest on such Bonds shall cease to accrue,
and the Holders of such Bonds shall have no rights in respect thereof except to receive payment
of the redemption price thereof.
All Bonds redeemed pursuant to the provisions of this section shall be cancelled and
destroyed by the Trustee and shall not be reissued.
SECTION 2.04. Form of Bonds. The Bonds and the authentication
endorsement and assignment to appear thereon shall be substantially in the forms set forth in
Exhibit A hereto attached and by this reference herein incorporated.
SECTION 2.05. Execution of Bonds. The Executive Director of the
Authority is hereby authorized and directed to execute each of the Bonds on behalf of the
Authority and the Secretary of the Authority is hereby authorized and directed to countersign
each of the Bonds on behalf of the Authority. The signatures of such Executive Director and
45830267.3 16 027
27
S
Secretary may be manual, printed, lithographed or engraved by facsimile reproduction. In case
any officer whose signature appears on the Bonds shall cease to be such officer before the
delivery of the Bonds to the purchaser thereof, such signature shall nevertheless be valid and
sufficient for all purposes as if such officer had remained. in office until such delivery of the
Bonds.
Only those Bonds bearing thereon a certificate of authentication in the form hereinbefore
recited, executed manually and dated by the Trustee, shall be entitled to any benefit, protection
or security hereunder or be valid or obligatory for any purpose, and such certificate of the
Trustee shall be conclusive evidence that the Bonds so authenticated and registered have been
duly authorized, executed, issued and delivered hereunder and are entitled to the benefit,
protection and security hereof.
SECTION 2.06. Transfer and Payment of Bonds. Any Bonds may, in
accordance with its terms, be transferred in 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 his duly
authorized attorney, upon surrender of such Bonds for cancellation accompanied by delivery of a
duly executed written instrument of transfer in a form acceptable to the Trustee. Whenever any
Bonds or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee
shall authenticate and deliver to the transferee a new Bond or Bonds of the same series and
maturity for a like aggregate principal amount in authorized denominations. The Trustee shall
require the payment by the Holder requesting such transfer of any tax or other governmental
charge required to be paid with respect to such transfer as a condition precedent to the exercise
of such privilege.
The Authority and the Trustee may deem and treat the registered owner of any Bonds as
the absolute owner of such Bonds for the purpose of receiving payment thereof and for all other
purposes, whether such Bonds shall be overdue or not, and neither the Authority nor the Trustee
shall be affected by any notice or knowledge to the contrary; and payment of the interest on and
principal of and redemption premium, if any, on such Bonds shall be made only to such
registered owner, which payments shall be valid and effectual to satisfy and discharge liability
on such Bonds to the extent of the sum or sums so paid.
The Trustee shall not be required to issue, register the transfer of or exchange any Bonds
during the fifteen (15) days preceding each Interest Payment Date, or to register the transfer of or
exchange any Bonds which has been selected for redemption in whole or in part, from and after
the day of mailing of a notice of redemption of such Bonds selected for redemption in whole or
in part as provided in Section 2.03.
SECTION 2.07. Exchange of Bonds. Bonds may be exchanged at the
Principal Corporate Trust Office of the Trustee for a like aggregate principal amount of Bonds of
the same series and maturity of other authorized denominations. The Trustee shall require the
payment by the Holder requesting such exchange of any tax or other governmental charge
required to be paid with respect to such exchange as a condition precedent to the exercise of such
privilege. The Trustee shall not be required to make any such exchange during the fifteen (15)
days preceding each Interest Payment Date.
45830267.3 17 028
SECTION 2.08. Bond Registration Books. The Trustee will keep at its
Principal Corporate Trust Office sufficient books for the registration and transfer of the Bonds
which shall at all times be open to inspection by the Authority during regular business hours with
reasonable prior notice, and upon presentation for such purpose the Trustee shall, under such
reasonable regulations as it may prescribe, register or transfer the Bonds in such books as
hereinabove provided.
SECTION 2.09. Mutilated,Destroyed, Stolen or Lost Bonds. If any Bond
shall become mutilated the Trustee at the expense of the Holder shall thereupon authenticate and
deliver a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only
upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to
the Trustee shall be cancelled.
If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft
may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and
indemnity satisfactory to the Trustee shall be given, the Trustee, at the expense of the Holder,
shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution
for the Bond so lost, destroyed or stolen.
The Trustee may require payment of a reasonable sum for each new A Bond issued under
this Section 2.09 and of the expenses which may be incurred by the Authority and the Trustee in
the premises. Any Bond issued under the provisions of this Section in lieu of any Bond alleged
to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits of this
Trust Agreement with all other Bonds of the same series secured by this Trust Agreement.
Neither the Authority nor the Trustee shall be required to treat both the original Bond and any
replacement Bond as being Outstanding for the purpose of determining the principal amount of
Bonds which may be issued hereunder or for the purpose of determining any percentage of
Bonds Outstanding hereunder, but both the original and replacement Bond shall be treated as one
and the same.
SECTION 2.10. Temporary Bonds. The Bonds issued under this Trust
Agreement may be initially issued in temporary form exchangeable for definitive Bonds when
ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of
such denominations as may be determined by the Authority, shall be in fully registered form and
may contain such reference to any of the provisions of this Trust Agreement as may be
appropriate. Every temporary Bond shall be executed and authenticated as authorized by the
Authority, in accordance with the terms of the Act. If the Authority issues temporary Bonds it
will execute and furnish definitive Bonds without delay and thereupon the temporary Bonds may
be surrendered, for cancellation, in exchange therefor at the Principal Corporate Trust Office of
the Trustee, and the Trustee shall deliver in exchange for such temporary Bonds an equal
aggregate principal amount of definitive Bonds of authorized denominations. Until so
exchanged, the temporary Bonds shall be entitled to the same benefits under this Trust
Agreement as definitive Bonds delivered hereunder.
SECTION 2.11. Procedure for the Issuance of Bonds; Deposit and Use
of Proceeds of Bonds. At any time after the sale of the Bonds in accordance with the Act, the
Authority shall execute the Bonds for issuance hereunder and shall deliver them to the Trustee,
45830267.3 18 020
and thereupon the Bonds shall be delivered by the Trustee to the purchaser thereof upon the
Written Request of the Authority and upon receipt of payment therefor from the purchaser
thereof. Upon receipt of payment for the Bonds from the purchaser thereof in the amount of
$ , the Trustee shall deposit and transfer the proceeds received from such sale as
follows:
(a) The Trustee shall deposit in the Expense Fund, which the Trustee hereby
agrees to establish and maintain the amount of$ . Amounts in the Expense Fund shall
be withdrawn by the Trustee for the purpose of paying costs of issuance of the Bonds, upon a
requisition of the Authority specifying the payee, the amount and the purpose of the payment and
certifying that the payment has not been previously paid from the Expense Fund. Any amounts
remaining on deposit in the Expense Fund on 1, 2007 shall be withdrawn and
transferred to the Trustee for deposit in the Principal Account.
(b) The Trustee shall deposit in the Acquisition Fund, which the Trustee
hereby agrees to establish and maintain the amount of $ Amounts in the
Acquisition Fund shall be withdrawn by the Trustee for the purpose of paying costs of the Water
Project, upon a requisition in the form attached hereto as Exhibit B of the City specifying the
payee, the amount and the purpose of the payment and certifying that the payment has not been
previously paid from the Acquisition Fund. Any amounts remaining on deposit in the
Acquisition Fund upon receipt by the Trustee of a certificate of completion of the Water Project,
stating that the Water Project has been completed for purpose of this Section, shall be withdrawn
and transferred to the Trustee for deposit in the Principal Account.
(c) The Trustee shall deposit $ in the Reserve Account,
representing the Reserve Account Requirement.
SECTION 2.12. Validity of Bonds. The validity of the issuance of the
Bonds shall not be dependent on or affected in any way by the proceedings taken by the
Authority for the financing of the Water Project or by any contracts made by the Authority or its
agents in connection therewith, and shall not be dependent upon the completion of the Water
Project or upon the performance by any person, firm or corporation of his or its obligation with
respect thereto. The recital contained in the Bonds that the same are issued pursuant to the Act
and pursuant hereto shall be conclusive evidence of their validity and of the regularity of their
issuance, and all Bonds shall be incontestable from and after their issuance. The Bonds shall be
deemed to be issued, within the meaning hereof, whenever the definitive Bonds (or any
temporary Bonds exchangeable therefor) shall have been delivered to the purchaser thereof and
the proceeds of sale thereof received.
SECTION 2.13, Special Covenants as to Book-Entry Only System for
Bonds. (a) Except as otherwise provided in subsections (b) and (c) of this Section 2.13, all of
the Bonds initially issued shall be registered in the name of Cede & Co., as nominee for The
Depository Trust Company, New York, New York ("DTC'), or such other nominee as DTC
shall request pursuant to the Representation Letter. Payment of the interest on any Bond
registered in the name of Cede & Co. shall be made on each Interest Payment Date for such
Bonds to the account, in the manner and at the address indicated in or pursuant to the
Representation Letter.
45830267.3 19 030
3O
(b) The Bonds initially shall be issued in the form of a single authenticated
fully registered bond for each stated maturity of such Bonds, representing the aggregate principal
amount of the Bonds of such maturity. Upon initial issuance, the ownership of all such Bonds
shall be registered in the registration records maintained by the Trustee pursuant to Section 2.08
hereof in the name of Cede & Co., as nominee of DTC, or such other nominee as DTC shall
request pursuant to the Representation Letter. The Trustee, the Authority and any paying agent
may treat DTC (or its nominee) as the sole and exclusive owner of the Bonds registered in its
name for the purposes of payment of the principal or redemption price of and interest on such
Bonds, selecting the Bonds or portions thereof to be redeemed, giving any notice permitted or
required to be given to Holders hereunder, registering the transfer of Bonds, obtaining any
consent or other action to be taken by Holders of the Bonds and for all other purposes
whatsoever; and neither the Trustee nor the Authority or any paying agent shall be affected by
any notice to the contrary. Neither the Trustee nor the Authority or any paying agent shall have
any responsibility or obligation to any Participant (which shall mean, for purposes of this
Section 2.13, securities brokers and dealers, banks, trust companies, clearing corporations and
other entities, some of whom directly or indirectly own DTC), any person claiming a beneficial
ownership interest in the Bonds under or through DTC or any Participant, or any other person
which is not shown on the registration records as being a Holder, with respect to (i) the accuracy
of any records maintained by DTC or any Participant, (ii) the payment by DTC or any
Participant of any amount in respect of the principal or redemption price of or interest on the
Bonds (iii) any notice which is permitted or required to be given to Holders of Bonds hereunder,
(iv) the selection by DTC or any Participant of any person to receive payment in the event of a
partial redemption of the Bonds, or (v) any consent given or other action taken by DTC as
Holder of Bonds. The Trustee shall pay all principal of and premium, if any, and interest on the
Bonds only at the times, to the accounts, at the addresses and otherwise in accordance with the
Representation Letter, and all such payments shall be valid and effective to satisfy fully and
discharge the Authority's obligations with respect to the principal of and premium, if any, and
interest on the Bonds to the extent of the sum or sums so paid. 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 its then existing nominee, the Bonds will be transferable to such new nominee in
accordance with subsection (f) of this Section 2.13.
(c) In the event that the Authority determines that it is in the best interests of
the beneficial owners of the Bonds that they be able to obtain bond certificates, the Trustee shall,
upon the written instruction of the Authority, so notify DTC, whereupon DTC shall notify the
Participants of the availability through DTC of bond certificates. In such event, the Bonds will
be transferable in accordance with subsection (f) of this Section 2.13. DTC may determine to
discontinue providing its services with respect to the Bonds at any time by giving written notice
of such discontinuance to the Authority and the Trustee and discharging its responsibilities with
respect thereto under applicable law. In such event, the Bonds will be transferable in accordance
with subsection (f) of this Section 2.13. Whenever DTC requests the Authority and the Trustee
to do so, the Trustee and the Authority will cooperate with DTC in taking appropriate action
after reasonable notice to arrange for another securities depository to maintain custody of all
certificates evidencing the Bonds then Outstanding. In such event, the Bonds will be transferable
to such securities depository in accordance with subsection (f) of this Section 2.13, and
thereafter, all references in this Trust Agreement to DTC or its nominee shall be deemed to refer
to such successor securities depository and its nominee, as appropriate.
45830267.3 20 031
3S
(d) Notwithstanding any other provision of this Trust. Agreement to the
contrary, so long as all Bonds Outstanding are registered in the name of any nominee of DTC, all
payments with respect to the principal of and premium, if any, and interest on each such Bond
and all notices with respect to each such Bond shall be made and given, respectively, to DTC as
provided in the Representation Letter.
(e) The Trustee is hereby authorized and requested to execute and deliver the
Representation Letter and, in connection with any successor nominee for DTC or any successor
depository, enter into comparable arrangements, and shall have the same rights with respect to its
actions thereunder as it has with respect to its actions under this Trust Agreement.
(f) In the event that any transfer or exchange of Bonds is authorized under
subsection (b) or (c) of this Section 2.13, such transfer or exchange shall be accomplished upon
receipt by the Trustee from the registered owner thereof of the Bonds to be transferred or
exchanged and appropriate instruments of transfer to the permitted transferee, all in accordance
with the applicable provisions of Sections 2.06 and 2.07 hereof. In the event Bond certificates
are issued to Holders other than Cede & Co., its successor as nominee for DTC as holder of all
the Bonds, another securities depository as holder of all the Bonds, or the nominee of such
successor securities depository, the provisions of Sections 2.06 and 2.07 hereof shall also apply
to, among other things, the registration, exchange and transfer of the Bonds and the method of
payment of principal of, premium, if any, and interest on the Bonds.
ARTICLE III
REVENUES
SECTION 3.01. Pledge of Revenues. All Revenues and any other amounts
(including proceeds of the sale of the Bonds) held by the Trustee in any fund or account
established hereunder are hereby irrevocably pledged to the payment of the interest and
premium, if any, on and principal of the Bonds as provided herein, and the Revenues shall not be
used for any other purpose while any of the Bonds remain Outstanding; provided, however, that
out of the Revenues and other moneys there may be applied such sums_for such purposes as are
permitted hereunder. This pledge shall constitute a first pledge of and charge and lien upon the
Revenues and all other moneys on deposit in the funds and accounts established hereunder for
the payment of the interest on and principal of the Bonds in accordance with the terms hereof
and thereof.
The Authority hereby transfers in trust and assigns to the Trustee, for the benefit of the
Holders from time to time of the Bonds, all of the Revenues and all of the right, title and interest
of the Authority in and to the Installment Agreement (other than the rights of the Authority under '
Sections 7.03, 8.02, 8.03 and 9.02 thereof). The Trustee hereby accepts such assignment and
transfer; provided, however, that such assignment shall not confer any rights nor impose any
duties, obligations or responsibilities upon the Trustee beyond those expressly provided herein.
The Trustee shall be entitled to and shall receive all of the Installment Payments, and any
Installment Payments collected or received by the Authority shall be deemed to be held, and to
have been collected or received, by the Authority as the agent of the Trustee and shall forthwith
be paid by the Authority to the Trustee. The Trustee also shall be entitled to and, subject to the
45830267.3 21
032
provisions hereof, shall take all steps, actions, and proceedings reasonably necessary in its
judgment to enforce, either jointly with the Authority or separately, all the rights of the Authority
and all of the obligations of the City under the Installment Agreement.
SECTION 3.02. Receipt and Deposit of Revenues in the Revenue Fund .
In order to carry out and effectuate the pledge, charge and lien contained herein, the Authority
agrees and covenants that all Revenues when and as received shall be received by the Authority
in trust hereunder for the benefit of the Holders and shall be deposited when and as received by
the Authority in the Revenue Fund (the "Revenue Fund "), which fund is hereby created and
which fund the Authority hereby agrees and covenants to maintain with the Trustee so long as
any Bonds shall be Outstanding hereunder. All Revenues shall be accounted for through and
held in trust in the Revenue Fund , and the Authority shall have no beneficial right or interest in
any of the Revenues except only as herein provided. All Revenues, whether received by the
Authority in trust or deposited with the Trustee as herein provided, shall nevertheless be
allocated, applied and disbursed solely to the purposes and uses hereinafter in this Article set
forth, and shall be accounted for separately and apart from all other accounts, funds, money or
other resources of the Authority.
SECTION 3.03. Establishment and Maintenance of Accounts for Use of
Money in the Revenue Fund . Subject to Section 4.03, all money in the Revenue Fund shall
be, set aside by the Trustee in the following respective special accounts within the Revenue Fund
(each of which is hereby created and each of which the Authority hereby covenants and agrees to
cause to be maintained with the Trustee) in the following order of priority:
(a) Interest Account,
(b) Principal Account, and
(c) Reserve Account.
All money in each of such accounts shall be held in trust by the Trustee and shall be
applied, used and withdrawn only for the purposes hereinafter authorized in this section.
(a) Interest Account. On or before each January 1 and July 1 and any
redemption date, the Trustee shall set aside from the Revenue Fund and deposit in the Interest
Account that amount of money which is equal to the aggregate amount of interest becoming due
and payable on all Outstanding Bonds on such January 1 or July 1, as the case may be.
No deposit need be made in the Interest Account if the amount contained therein is at
least equal to the aggregate amount of interest becoming due and payable on all Outstanding
Bonds on such Interest Payment Date.
All money in the Interest Account shall be used and withdrawn by the Trustee solely for
the purpose of paying the interest on the Bonds as it shall become due and payable (including
accrued interest on any Bonds purchased or redeemed prior to maturity).
(b) Principal Account. On or before each July 1, commencing July 1, 20_,
the Trustee shall set aside from the Revenue Fund and deposit in the Principal Account an
45830267.3 22 033
amount of money equal to the aggregate amount of all sinking fund payments required to be
made on such July 1 into the respective sinking fund accounts for all Outstanding Term Bonds
and the aggregate principal amount of all Outstanding Serial Bonds maturing on such July 1.
No deposit need be made in the Principal Account if the amount contained therein is at
least equal to the aggregate amount of the principal of all Outstanding Serial Bonds maturing by
their terms on such July 1 plus the aggregate amount of all sinking fund payments required to be
made on such July 1 for all Outstanding Term Bonds.
The Trustee shall establish and maintain within the Principal Account a separate
subaccount for the Term Bonds of each maturity, designated as the " Sinking Account"
(the "Sinking Account"), inserting therein the series (if necessary) and maturity(if more than one
such account is established for such series) designation of such Bonds. With respect to each
Sinking Account, on each mandatory sinking account payment date established for such Sinking
Account, the Trustee shall apply the mandatory sinking account payment required on that date to
the redemption (or payment at maturity, as the case may be) of Term Bonds of the maturity for
which such Sinking Account was established, upon the notice and in the manner provided in
Article II; provided that, at any time prior to giving such notice of such redemption, the Trustee
may upon the Written Request of the Authority, apply moneys in such Sinking Account to the
purchase of Term Bonds of such maturity at public or private sale, as and when and at such
prices (including brokerage and other charges, but excluding accrued interest, which is payable
from the Interest Account), as may be directed by the Authority, except that the purchase price
(excluding accrued interest) shall not exceed the redemption price that would be payable for such
Bonds upon redemption by application of such Mandatory Sinking Account Payment. If, during
the twelve-month period immediately preceding said mandatory sinking account payment date,
the Trustee has purchased Term Bonds of such maturity with moneys in such Sinking Account,
such Bonds so purchased shall be applied, to the extent of the full principal amount thereof, to
reduce said mandatory sinking account payment.
The Trustee shall establish and maintain within the Principal Account a separate account
for the Term Bonds maturing on July 1, 20_, designated as the 20_ Term Bonds Sinking
Account. Subject to the terms and conditions set forth in this Section and Section 2.03(c), the
Term Bonds maturing on July 1, 20_shall be redeemed (or paid at maturity, as the case may be)
by application of Mandatory Sinking Account Payments in the amounts and upon the dates
hereby established for the 20_Term Bonds Sinking Account as follows:
20 Term Bonds Sinkine Account
Mandatory Sinking Account Mandatory Sinking
Payment Date (July 1) Account Payments
20_ $
20—*
* Maturity Date.
45830267.3 23 034
The Trustee shall establish and maintain within the Principal Account a separate account
for the Term Bonds maturing on July 1, 20_, designated as the 20_ Term Bonds Sinking
Account. Subject to the terms and conditions set forth in this Section and Section 2.03(c), the
Term Bonds maturing on July 1, 20_shall be redeemed (or paid at maturity, as the case may be)
by application of Mandatory Sinking Account Payments in the amounts and upon the dates
hereby established for the 20_Term Bonds Sinking Account as follows:
20 Term Bonds Sinking Account
Mandatory Sinking Account Mandatory Sinking
Payment Date (July 1) Account Payments
20
20
20
20
20—*
* Maturity Date.
All money in the Principal Account shall be used and withdrawn by the Trustee solely for
the purpose of paying the principal of the Bonds as they shall become due and payable, whether
at maturity or redemption, except that any money in any sinking fund account shall be used and
withdrawn by the Trustee only to purchase or to redeem or to pay Term Bonds for which such
sinking fund account was created.
(c) Reserve Account.
(1) On or before the last day of each month, so long as any Bonds are
Outstanding, beginning in [December, 2006], the Trustee shall set aside from the Revenue Fund
and deposit in the Reserve Account the amount of money that shall be required either (i) to
maintain the Reserve Account in the full amount of the Reserve Account Requirement or (ii) to
repay any and all obligations due and payable under the terms and conditions of any letter of
credit provided for in Section 3.03(c)(2)(A) or insurance policy provided for in
Section 3.03(c)(2)(B). No deposit need be made in the Reserve Account so long as there shall be
on deposit therein a sum equal to at least the amount required by this Section 3.03(c) to be on
deposit therein.
(2) Notwithstanding any provision of this Trust Agreement to the
contrary, all or any portion of the Reserve Account Requirement for the Bonds may be satisfied
by the provision of a policy of insurance, a surety bond, a letter of credit or other comparable
credit facility (collectively referred to herein as a "Credit Facility"), or a combination thereof,
which, together with moneys on deposit in the Reserve Account, provide an aggregate amount
equal to the Reserve Account Requirement; provided, that the provider of any such policy of
insurance, surety bond, letter of credit or other comparable credit facility must be rated in one of
the two highest rating categories by Moody's Investors Service at the time of delivery of such
45830267.3 24 035
credit facility, and the Bond Insurer has provided the Authority with its express written consent.
Upon deposit of a surety bond, a letter of credit or other comparable credit facility, or a
combination thereof, the Trustee shall transfer any excess amounts then on deposit in the
Reserve Account into a segregated account of the Principal Account, which monies shall be
applied at the written direction of the Authority either (i) to the payment within one year of the
date of transfer of capital expenditures of the City permitted by law, or (ii) to the redemption of
Bonds on the earliest succeeding date on which such redemption is permitted hereby, and
pending such application shall be held either not invested in investment property (as defined in
section 148(b) of the Code), or invested in such property to produce a yield that is not in excess
of the yield on the Bonds; provided, however, that the Authority may by written direction to the
Trustee cause an alternative use of such amounts if the Authority shall first have obtained a
written opinion of nationally recognized bond counsel substantially to the effect that such
alternative use will not adversely affect the exclusion pursuant to section 103 of the Code of
interest on the Bonds from the gross income of the owners thereof for federal income tax
purposes.
(3) All money in the Reserve Account (including all amounts which
may be obtained from letters of credit, insurance policies and surety bonds on deposit in the
Reserve Account) shall be used and withdrawn by .the Trustee solely for the purpose of
replenishing the Interest Account or the Principal Account, in that order, in the event of any
deficiency at any time in either of such accounts, but solely for the purpose of paying the interest
or principal of or redemption premiums, if any, on the Bonds or for the retirement of all the
Bonds then Outstanding, except that so long as the Authority is not in default hereunder, any
cash amounts in the Reserve Account in excess of the amount required by this subsection (3) to
be on deposit therein shall be withdrawn from the Reserve Account and deposited in the
Revenue Fund .
(4) Whenever the amount on deposit in the Reserve Account falls
below the Reserve Account Requirement, the Trustee shall send a notice to the City in writing
stating the amount of the deficiency resulting from (i) delinquencies in payments under the
Installment Agreement and (ii) a decline in the value of investments in the Reserve Account.
Pursuant to Section 4.04(b) of the Installment Agreement, the City shall deposit with the Trustee
the requisite amount from the Revenue Fund under the Installment Agreement to replenish the
Reserve Account. In the event that any part of the deficiency in the Reserve Account is due to a
decline in the value of investments in the Reserve Account, such replenishment shall be made
from the Revenue Fund under the Installment Agreement in proportion to the principal amount
of Installment Payments remaining unpaid undei the Installment Agreement, and the written
notice from the Trustee shall specify such amount.
SECTION 3.04. Deposit and Investments of Money in Accounts and
Funds. Subject to Section 4.03, all money held by the Trustee in any of the accounts or funds
established pursuant hereto shall be invested in Permitted Investments at the Written Request of
the Authority. If the Authority fails to direct the Trustee to invest any such moneys, they shall be
invested in Permitted Investments of the type described in paragraph (7) thereof. All money held
in the Reserve Account shall be invested in Permitted Investments with a term to maturity not
exceeding five years or invested in Permitted Investments of the type described in paragraph (11)
thereof. All investments hereunder shall be valued by the Trustee semi-annually, as follows:
45830267.3 25 036
(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 in The New York Times), 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 Trustee in its absolute discretion) at the time making a market
in such investments or the bid price published by a nationally recognized pricing service; (c) as
to certificates of deposit and bankers acceptances, the face amount thereof, plus accrued interest;
and (d) as to any investment not specified above, the value thereof established by prior
agreement between the Authority, the Trustee and the Bond Insurer.
Subject to Section 4.03, all investment earnings or profits received on any money held in
the funds and accounts established hereunder shall be deposited in the Revenue Fund.
The Authority acknowledges that to the extent regulations of the Comptroller of the
Currency or other applicable regulatory entity grant the Authority the right to receive brokerage
confirmations of security transactions as they occur, the Authority specifically waives receipt of
such confirmations to the extent permitted by law. The Trustee will furnish the Authority with
periodic cash transaction statements that include detail for all investment transactions made by
the Trustee under this Trust Agreement.
ARTICLE IV
COVENANTS OF THE AUTHORITY
SECTION 4.01. Punctual Payment and Performance. The Authority will
punctually pay out of the Revenues the interest on and the principal of and redemption
premiums, if any, to become due on every Bond issued hereunder in strict conformity with the
terms hereof and of the Bonds, and will faithfully observe and perform all the agreements and
covenants to be observed or performed by the Authority contained herein and in the Bonds.
SECTION 4.02. Against Encumbrances. The Authority will not make any
pledge of or place any charge or lien upon the Revenues except as provided herein, and will not
issue any bonds, notes or obligations payable from the Revenues or secured by a pledge of or
charge or lien upon the Revenues except the Bonds.
SECTION 4.03. Tax Covenants. The Authority covenants that it will not
take any action, or fail to take any action, if any such action or failure to take such action would
adversely affect the exclusion from gross income of the interest on the Bonds under Section 103
of the Code. The Authority covenants that it will not directly or indirectly use or permit the use,
of any proceeds of the Bonds or any other funds of the Authority or take or permit to be taken or
omit or permit the omission of any action or actions that would cause the Bonds to be "arbitrage
bonds" within the meaning of Section 148(a) of the Code. To that end, the Authority will
comply with all applicable regulations of Section 148 of the Code and all applicable regulations
of the United States Department of the Treasury. In the event that at any time the Authority is of
the opinion that for purposes of this Section 4.03 or Section 5.03 of the Installment Agreement it
45830267.3 26
037
is necessary to restrict or to limit the yield on the investment of any moneys held by the Trustee
under this Trust Agreement or the Installment Agreement or otherwise, the Authority shall so
instruct the Trustee in writing, and the Trustee shall take the action required by such instructions.
Notwithstanding any provision of this Section 4.03 or Section 5.03 of the Installment
Agreement, if the City shall provide to the Trustee an Opinion of Counsel that any specified
action required under this Section 4.03 or Section 5.03 of the Installment Agreement is no longer
required or that some further or different action is required to maintain the tax-exempt status of
interest on the Bonds, the Trustee and the Authority may conclusively rely on such opinion in
complying with the requirements of this Section, and the covenants hereunder shall be deemed to
be modified to that extent.
SECTION 4.04. Accounting Records and Reports. The Authority will
keep or cause to be kept proper books of record and accounts in which complete and correct
entries shall be made of all transactions relating to the receipts, disbursements, allocation and
application of the Revenues, and such books shall be available for inspection by the Trustee at
reasonable hours and under reasonable conditions. Not more than 180 days after the close of
each Fiscal Year, the Authority shall fumish or cause to be furnished to the Trustee a complete
financial statement covering receipts, disbursements, allocation and application of Revenues for
such Fiscal Year. The Authority shall also keep or cause to be kept such other information as
required under the Tax Certificate.
SECTION 4.05. Prosecution and Defense of Suits. The Authority will
defend against every suit, action or proceeding at any time brought against the Trustee upon any
claim to the extent arising out of the receipt, application or disbursement of any of the Revenues
or to the extent involving the failure of the Authority to fulfill its obligations hereunder; provided
that the Trustee or any affected Holder at its election may appear in and defend any such suit,
action or proceeding. The Authority will indemnify and hold harmless the Trustee against any
and all liability claimed or asserted by any person to the extent arising out of such failure by the
Authority, and will indemnify and hold harmless the Trustee against any attorney's fees or other
expenses which it may incur in connection with any litigation to which it may become a party by
reason of its actions hereunder, except for any loss, cost, damage or expense resulting from the
active or passive negligence or willful misconduct by the Trustee. Notwithstanding any contrary
provision hereof, this covenant shall remain in full force and effect even though all Bonds
secured hereby may have been fully paid and satisfied.
SECTION 4.06. Further Assurances. Whenever and so often as
reasonably requested to do so by the Trustee or any Holder, the Authority will promptly execute
and deliver or cause to be executed and delivered all such other and further assurances,
documents or instruments, and promptly do or cause to be done all such other and further things
as may be necessary or reasonably required in order to further and more fully vest in the Holders
all rights, interests, powers, benefits, privileges and advantages conferred or intended to be
conferred upon them hereby.
SECTION 4.07. Continuing Disclosure. The Trustee hereby covenants and
agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure
Agreement as applicable to it. Notwithstanding any other provision of this Trust Agreement,
458302673 27
038
failure of the Trustee to comply with the Continuing Disclosure Agreement shall not be
considered an event of default; however, the Trustee shall, at the written request of any
Participating Underwriter (as defined in the Continuing Disclosure Agreement) or the Owners of
at least 25% aggregate principal amount of Outstanding Bonds, or any Owner or Beneficial
Owner may take such actions as may be necessary and appropriate, including seeking mandate or
specific performance by court order, to cause the City or the Trustee, as the case may be, to
comply with its obligations under this Section.
ARTICLE V
THE TRUSTEE
SECTION 5.01. The Trustee. Wells Fargo Bank, National Association
_shall serve as the Trustee for the Bonds for the purpose of receiving all money which the
Authority is required to deposit with the Trustee hereunder and for the purpose of allocating,
applying and using such money as provided herein and for the purpose of paying the interest on
and principal of any redemption premiums, if any, on the Bonds presented for payment at the
Principal Corporate Trust Office of the Trustee, with the rights and obligations provided herein.
The Authority agrees that it will at all times maintain a Trustee having a principal office in San
Francisco or Los Angeles, California.
The Authority may, upon not less than 14 days' prior written notice (which notice may be
waived by the Trustee) and with the written consent of the Bond Insurer, unless there exists any
event of default as defined in Section 7.01, remove the Trustee initially appointed and any
successor thereto and may appoint a successor or successors thereto by an instrument in writing;
provided that any such successor shall be a bank or trust company doing business and having a
principal office in San Francisco or Los Angeles, California, having (or if such bank or trust
company is a member of a bank holding company system, its bank holding company 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 authority. If
such bank or trust company publishes a report of condition at least annually, pursuant to law or
to the requirements of any supervising or examining authority above referred to, then for the
purpose of this 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 Authority shall remove the Trustee if requested by the Bond Insurer for any
material breach of its duties under this Trust Agreement. The Trustee may at any time resign by
giving written notice of such resignation to the Authority and by mailing to the Bond Insurer and
the Holders notice of such resignation. Upon receiving such notice of resignation, the Authority
shall promptly appoint a successor Trustee by an instrument in writing. No resignation or
removal of the Trustee shall become effective until a successor, acceptable to the Bond Insurer,
has been appointed and has accepted the duties of Trustee. The Bond Insurer shall be furnished
with written notice of the resignation or removal of the Trustee and the appointment of any
successor thereto. If, within thirty (30) days after notice of the removal or resignation of the
Trustee no successor Trustee shall have been appointed and shall have accepted such
appointment, the removed or resigning Trustee may petition any court of competent jurisdiction
for the appointment of a successor Trustee, which court may thereupon, after such notice, if any,
45830267.3 28 039
as it may deem proper and prescribe and as may be required by law, appoint a successor Trustees
having the qualifications required hereby.
The Trustee is hereby authorized to redeem the Bonds when duly presented for payment
at maturity or on redemption prior to maturity. The Trustee shall cancel all Bonds upon payment
thereof or upon the surrender thereof by the Authority and shall destroy such Bonds and a
certificate of destruction shall be delivered to the Authority. The Trustee shall keep accurate
records of all Bonds paid and discharged and cancelled by it.
The Authority shall from time to time, subject to any agreement between the Authority
and the Trustee then in force, pay to the Trustee compensation for its services, reimburse the
Trustee for all its advances and expenditures including but not limited to advances to and fees
and expenses of independent accountants and counsel or other experts employed by it and
reasonably required in the exercise and performance of its rights and obligations hereunder, and,
to the extent permitted by law, indemnify and hold the Trustee harmless against liabilities, costs,
claims, expenses, of any kind whatsoever, including without limitations, fees and expenses of its
attorneys and advisors, not arising from the Trustee's own active or passive negligence or willful
misconduct, which the Trustee may incur in the exercise and performance of its rights and
obligations hereunder. Such indemnity shall survive the resignation or removal of the Trustee
and defeasance of the Bonds.
SECTION 5.02. Liability of Trustee. The recitals of facts, agreements and
covenants herein and in the Bonds shall be taken as recitals of facts, agreements and covenants
of the Authority, and the Trustee assumes no responsibility for the correctness of the same or
makes any representation as to the sufficiency or validity hereof or of the Bonds, or shall incur
any responsibility in respect thereof other than in connection with the rights or obligations
assigned to or imposed upon it herein, in the Bonds or in law or equity. The Trustee shall not be
liable,in connection with the performance of its duties hereunder except for its own active or
passive negligence or willful misconduct. The Trustee shall perform only such duties as are
expressly provided herein, and no implied duties or obligations shall be read into this Trust
Agreement against the Trustee.
The Trustee shall not be bound to recognize any person as the Holder.of a Bond unless
and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily
established, if disputed.
Whenever in the administration of its rights and obligations hereunder the Trustee shall
deem it necessary or desirable that a matter be established or proved prior to taking or suffering
any action hereunder, such matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by a Certificate of the Authority, which certificate shall be
full warrant to the Trustee for any action taken or suffered under the provisions hereof upon the
faith thereof, but in its discretion the Trustee may in lieu thereof accept other evidence of such
matter or may require such additional evidence as it may deem reasonable.
The Trustee shall not be liable for any error of judgment made in good faith, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent facts.
45830267.3 29 040
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 Holders of not less than a majority in
aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee under this Trust Agreement. The permissive right of
the Trustee to do things enumerated in this Trust Agreement shall not be construed as a duty.
The Trustee shall be under no obligation to exercise any of the rights or powers vested in
it by this Trust Agreement at the request, order or direction of any of the Holders pursuant to the
provisions of this Trust Agreement unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
The Trustee shall not be deemed to have knowledge of any event of default hereunder or
event of default under the Installment Agreement unless and until the President or any Vice
President, Assistant Vice President or Trust Officer shall have actual knowledge thereof or shall
have received written notice thereof at its Principal Corporate Trust Office. Except as otherwise
expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any of the terms, conditions, covenants or agreements herein or of
any of the documents executed in connection with the Bonds or as to the existence of an event of
default hereunder.
No provision of this Trust Agreement shall require the Trustee to expend or risk 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. The Trustee has no obligation or liability to the Holders
for the payment of interest, principal or redemption premium, if any, with respect to the Bonds.
The Trustee shall not be bound to ascertain or inquire as to the validity or genuineness of
any collateral given to or held by it. The Trustee shall not be responsible for the recording or
filing of any document relating to this Trust Agreement or of financing statements (or
continuation statements in connection therewith) or of any supplemental instruments or
documents of further assurance as may be required by law in order to perfect the security
interests in any collateral given to or held by it.
The Trustee shall not be concerned with or accountable to anyone for the subsequent use
or application of any moneys which shall be released or withdrawn in accordance with the
provisions hereof.
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 for the use
contemplated by the City of the Water Project. In no event shall the Trustee be liable for
incidental, indirect, special or consequential damages in connection with or arising from the
Installment Agreement or this Trust Agreement for the existence, furnishing or use of the Water
Project.
45830267.3 30 041
The rights given the Trustee under the Installment Agreement are subject in all respects
to the privileges and immunities afforded the Trustee under this Trust Agreement.
The Trustee shall be protected in acting upon any notice, requisition, resolution, request,
consent, order, certificate, report, opinion, bond or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties. The Trustee may
consult with counsel, who may be counsel of or to the Authority, with regard to legal questions,
and the opinion of such counsel shall be full and complete authorization and protection in respect
of any action taken or suffered by it hereunder in good faith and in accordance therewith.
The Trustee shall not be bound to recognize any person as the Holder of a Bond unless
and until such Bond is submitted for inspection, if required, and his or her title thereto is
satisfactorily established, if disputed.
Notwithstanding any other provision of this Trust Agreement, in determining whether the
rights of the Holders will be adversely affected by any action taken pursuant to the terms and
provisions of this Trust Agreement, the Trustee shall consider the effect on the Holders as if
there were no Bond Insurance Policy.
The Trustee shall have no responsibility with respect to any information, statement or
recital in any official statement, offering memorandum or any other disclosure material prepared
or distributed with respect to the Bonds.
The Trustee may establish such funds and accounts hereunder as it deems necessary or
appropriate to perform its obligations hereunder.
ARTICLE VI
AMENDMENT OF THE TRUST AGREEMENT
SECTION 6.01. Amendment of the Trust Agreement. The Trust
Agreement and the rights and obligations of the Authority and of the Holders may be amended at
any time by a Supplemental Trust Agreement which shall become binding when the written
consents of the Holders of a majority in aggregate principal amount of the Bonds then
Outstanding, exclusive of Bonds disqualified as provided in Section 6.02 and the written consent
of the Bond Insurer are filed with the Trustee. No such amendment shall (1) extend the maturity
of or reduce the interest rate on or amount of interest on or principal of or redemption premium,
if any, on any Bond without the express written consent of the Holder of such Bond, or
(2) permit the creation by the Authority of any pledge of or charge or lien upon the Revenues as
provided herein superior to or on a parity with the pledge, charge and lien created hereby for the
benefit of the Bonds, or (3) reduce the percentage of Bonds required for the written consent to
any such amendment, or (4) modify any rights or obligations of the Trustee, the Authority or the
City without their prior written assent thereto, respectively.
The Trust Agreement and the rights and obligations of the Authority and of the Holders
may also be amended at any time by a Supplemental Trust Agreement, which shall become
binding upon adoption with the written consent of the Bond Insurer, but without the consent of
any Holders and only to the extent permitted by law and after receipt of an approving Opinion of
45830267.3 31 042 .
Counsel, for any purpose that will not materially adversely affect the interests of the Holders,
including (without limitation) for any one or more of the following purposes —
(a) to add to the agreements and covenants required herein to be performed by
the Authority other agreements and covenants thereafter to be performed by the Authority,or to
surrender any right or power reserved herein to or conferred herein on the Authority;
(b) to make such provisions for the purpose of curing any ambiguity or of
,correcting, curing or supplementing any defective provision contained herein or in regard to
questions arising hereunder which the Authority may deem desirable or necessary and not
inconsistent herewith; or
(c) to add to the agreements and covenants required herein, such agreements
and covenants as may be necessary to qualify the Trust Agreement under the Trust Indenture Act
of 1939.
Any provision of this Trust Agreement expressly recognizing or granting rights in or to
the Bond Insurer may not be amended in any manner that affects the rights of the Bond Insurer
hereunder without the prior written consent of the Bond Insurer.
Notwithstanding the foregoing, any amendment or supplement to the Trust Agreement
shall only become effective fifteen (15) days after written notice of such amendment or
supplement, together with a copy thereof, has been provided to the Rating Agencies.
SECTION 6.02. Disqualified Bonds. Bonds owned or held by or for the
account of the Authority shall not be deemed Outstanding for the purpose of any consent or other
action or any calculation of Outstanding Bonds provided in this article, and shall not be entitled
to consent to or take any other action provided in this article.
SECTION 6.03. Endorsement or Replacement of Bonds After
Amendment. After the effective date of any action taken as hereinabove provided, the
Authority may determine that the Bonds may bear a notation by endorsement in form approved
by the Authority as to such action, and in that case upon demand of the Holder of any
Outstanding Bonds and presentation of his Bond for such purpose at the corporate trust office of
the Trustee a suitable notation as to such action shall be made on such Bond. If the Authority
shall so determine, new Bonds so modified as, in the opinion of the Authority, shall be necessary
to conform to such action shall be prepared and executed, and in that case upon demand of the
Holder of any Outstanding Bond a new Bond or Bonds shall be exchanged at the corporate trust
office of the Trustee without cost to each Holder for its Bond or Bonds then Outstanding upon
surrender of such Outstanding Bonds.
SECTION 6.04. Amendment by Mutual Consent. The provisions of this
article shall not prevent any Holder from accepting any amendment as to the particular Bonds
held by him, provided that due notation thereof is made on such Bonds.
45830267.3 32 - 043
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES OF HOLDERS
SECTION 7.01. Events of Default and Acceleration of Maturities. If one
or more of the following events (herein called "events of default') shall happen, that is to say:
(a) if default shall be made by the Authority in the due and punctual payment
of the interest on any Bond when and as the same shall become due and payable;
(b) if default shall be made by the Authority in the due and punctual payment
of the principal of or redemption premium, if any, on any Bond when and as the same shall
become due and payable, whether at maturity as therein expressed or by proceedings for
redemption;
(c) if default shall be made by the Authority in the performance of any of the
agreements or covenants required herein to be performed by the Authority, and such default shall
have continued for a period of sixty (60) days after the Authority shall have been given notice in
writing of such default by the Trustee; or
(d) if the Authority 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 any state therein, or if a court of competent jurisdiction shall approve a petition
filed with or without the consent of the Authority 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 Authority or of the whole or any
substantial part of its property;
then and in each and every such case during the continuance of such event of default the Trustee
may, with the written consent of the Bond Insurer, and shall, at the written direction of the Bond
Insurer or the Holders of not less than fifty-one percent (51%) in aggregate principal amount of
the Bonds then Outstanding with the written consent of the Bond Insurer, by notice in writing to
the Authority, declare the principal of all Bonds then Outstanding and the interest accrued
thereon to be due and payable immediately, and upon any such declaration the same shall
become due and payable, anything contained herein or in the Bonds to the contrary
notwithstanding. The Trustee shall promptly notify all Holders of any such event of default
which is continuing and of which the Trustee has notice pursuant to Section 5.02. Such notice
shall include a reference to or a summary of the rights and remedies available to the Holders as
set forth herein.
Upon the occurrence and continuance of an event of default, the Bond Insurer shall be
entitled to control and direct the enforcement of all rights and remedies granted to the Holders
and the Trustee for the benefit of the Holders under this Trust Agreement, including, without
limitation: (i) the right to accelerate the principal of the Bonds as described above and (ii) the
right to annul any declaration of acceleration, and the Bond Insurer shall also be entitled to
approve all waivers of events of default hereunder. With respect to any reorganization or
45830267.3 33 044
liquidation plan with respect to the Authority must be acceptable to the Bond Insurer, and in such
any reorganization or liquidation, the Bond Insurer shall have the right to vote on behalf of all
Holders absent a default by the Bond Insurer under the Bond Insurance Policy.
If directed by the Bond Insurer, upon the occurrence and continuance of an event of
default, amounts on deposit in the Acquisition Fund shall not be disbursed. The Authority shall,
at the direction of the Bond Insurer, transfer amounts on deposit in the Acquisition Fund to the
Revenue Fund , to be applied to the payment of debt service on, or redemption of, the Bonds.
In determining whether an event of default has occurred as described in Section 7.01(a)
or (b) or whether payment has been made on the Bonds, payments made under the Bond
Insurance Policy shall not be considered.
For all purposes of this Trust Agreement governing events of default and remedies,
except for the giving of notice of default to Holders, the Bond Insurer shall be deemed to be the
sole holder of the Bonds it has insured for so long as it has not failed to comply with its payment
obligations under the Bond Insurance Policy.
The provision above permitting the declaration of the principal of all Bonds then
Outstanding and the interest accrued thereon to be due and payable immediately is subject to the
condition that if at any time after the principal of the Bonds then Outstanding shall have been so
declared due and payable and before any judgment or decree for the payment of the money due
shall have been obtained or entered the Authority shall deposit with the Trustee a sum sufficient
to pay all matured interest on all the Bonds and all principal of the Bonds matured prior to such
declaration, with interest at the rate borne by such Bonds on such overdue interest and principal,
and the reasonable expenses of the Trustee, and any and all other defaults known to the Trustee
(other than in the payment of interest on and principal of the Bonds due and payable solely by
reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee
or provision deemed by the Trustee to be adequate shall have been made therefor, then and in
every such case the Holders of not less than fifty-one percent (51%) in aggregate principal
amount of Bonds then Outstanding with the written consent of the Bond Insurer, by written
notice to the Authority and to the Trustee, may on behalf of the Holders of all the Bonds there
Outstanding 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 7.02. Application of Funds Upon Acceleration. All moneys in
the accounts and funds provided in Sections 2.11, 3.02, 3.03 and 3.04 upon the date of the
declaration of acceleration by the Trustee as provided in Section 7.01 and all Revenues thereafter
received by the Authority hereunder shall be transmitted to the Trustee and shall be applied by
the Trustee in the following order—
First, to the payment of the costs and expenses of the Trustee and then to the payment of
the costs and expenses of the Holders in providing for the declaration of such event of default,
and in carrying out the provisions of this article, including reasonable compensation to their
accountants and counsel; and
45830267.3 34 045
A5
Second, upon presentation of the several Bonds, and the stamping thereon of the amount
of the payment if only partially paid or upon the surrender thereof if fully paid, to the payment of
the whole amount then owing and unpaid upon the Bonds for interest and principal, with (to the
extent permitted by law) interest on the overdue interest and principal at the rate borne by such
Bonds, and in case such money shall be insufficient to pay in full the whole amount so owing
and unpaid upon the Bonds, then to the payment of such interest, principal and (to the extent
permitted by law) interest on overdue interest and principal without preference or priority among
such interest, principal and interest on overdue interest and principal ratably to the aggregate of
such interest, principal and interest on overdue interest and principal.
SECTION 7.03. Institution of Legal Proceedings by Trustee. If one or
more of the events of default shall happen and be continuing, the Trustee may, and upon the
written request of the Holders of a majority in principal amount of the Bonds then Outstanding,
or upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its
rights or the rights of the Holders of Bonds under this Trust Agreement and under Article V of
the Installment Agreement by a suit in equity or action at law, either for the specific performance
of any covenant or agreement contained herein, or in aid of the execution of any power herein
granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal
or equitable remedy as the Trustee shall deem most effectual in support of any of its rights and
duties hereunder.
SECTION 7.04. Non-Waiver. Nothing in .this article or in any other
provision hereof or in the Bonds shall affect or impair the obligation of the Authority, which is
absolute and unconditional, to pay the interest on and principal of and redemption premiums, if
any, on the Bonds to the respective Holders of the Bonds at the respective dates of maturity or
upon prior redemption as provided herein from the Revenues as provided herein pledged for such
payment, or shall affect or impair the right of such Holders, which is. also absolute and
unconditional, to institute suit to enforce such payment by virtue of the contract embodied herein
and in the Bonds.
A waiver of any default or breach of duty or contract by any Holder 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 any Holder 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 Holders by the
Act or by this Article may be enforced and exercised from time to time and as often as shall be
deemed expedient by the Holders.
If any action, proceeding or suit to enforce any right or exercise any remedy is
abandoned, the Authority and any Holder 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. Actions by Trustee as Attorney-in-Fact. Any action,
proceeding or suit which any Holder shall have the right to bring to enforce any right or remedy
hereunder may be brought by the Trustee for the equal benefit and protection of all Holders,
whether or not the Trustee is a Holder, and the Trustee is hereby appointed (and the successive
45830267.3 35 - 046
Holders, by taking and holding the Bonds issued hereunder, shall be conclusively deemed to
have so appointed it) the true and lawful attorney-in-fact of the Holders for the purpose of
bringing any such action, proceeding or suit and for the purpose of doing and performing any
and all acts and things for and on behalf of the Holders as a class or classes as may be advisable
or necessary in the opinion of the Trustee as such attorney-in-fact.
SECTION 7.06. Remedies Not Exclusive. No remedy herein conferred
upon or reserved to the Holders 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 at 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.
SECTION 7.07. Limitation on Holders' Right to Sue. No Holder of any
Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or
equity, for any remedy under or upon this Trust Agreement, unless (a) such Holder shall have
previously given to the Trustee written notice of the occurrence of an event of default as defined
in Section 7.01 hereunder; (b) the Holders of at least a majority in aggregate principal amount of
all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the
powers hereinbefore granted or to institute such suit, action or proceeding in its own name;
(c) said Holders shall have tendered to the Trustee reasonable security or 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 request shall have been received by, and said tender of indemnity shall have been made to,
the Trustee.
Such notification, request, tender of indemnity and refusal or omission are hereby
declared, in every case, to be conditions precedent to the exercise by any owner of Bonds of any
remedy hereunder; it being understood and intended that no one or more owners of Bonds shall
have any right in any manner whatever by his or their action to enforce any right under this Trust
Agreement, except in the manner herein provided, and that all proceedings at law or in equity to
enforce any provision of the Trust Agreement shall be instituted, had and maintained in the
manner herein provided and for the equal benefit of all Holders of the Outstanding Bonds.
ARTICLE VIII
DEFEASANCE
SECTION 8.01. Discharge of Bonds.
(a) If the Authority shall pay or cause to be paid or there shall otherwise be
paid to the Holders of all Outstanding Bonds the interest thereon and the principal thereof and
the redemption premiums, if any, thereon at the times and in the manner stipulated herein and
therein, then the Holders of such Bonds shall cease to be entitled to the pledge of and charge and
lien upon the Revenues as provided herein, and all agreements, covenants and other obligations
of the Authority to the Holders of such Bonds hereunder shall thereupon cease, terminate and
become void and be discharged and satisfied. In such event, the Trustee shall execute and
45830267.3 , 36 047
deliver to the Authority all such instruments as may be necessary or desirable to evidence such
discharge and satisfaction, the Trustee shall pay over or deliver to the Authority all money or
securities held by it pursuant hereto which are not required for the payment of the interest on and
principal of and redemption premiums, if any, on such Bonds.
(b) Any Outstanding Bonds shall prior to the maturity date or redemption date
thereof be deemed to have been paid within the meaning of and with the effect expressed in
subsection (a) of this section if (1) in case any of such Bonds are to be redeemed on any date
prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it
irrevocable instructions to provide notice in accordance with Section 2.03, (2) there shall have
been deposited with the Trustee either (A) money in an amount which shall be sufficient or
(B) Defeasance Obligations,, the interest on and principal of which when paid will provide
money which, together with the money, if any, deposited with the Trustee at the same time, shall
be sufficient, as set forth in a written report of an Independent Certified Public Accountant, to
pay when due the interest to become due on such Bonds on and prior to the maturity date or
redemption date thereof, as the case may be, and the principal of and redemption premiums, if
any, on such Bonds, and (3) in the event such Bonds are not by their terms subject to redemption
within the next succeeding sixty (60) days, the Authority shall have given the Trustee in form
satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Holders of
such Bonds that the deposit required by clause (2) above has been made with the Trustee and that
such Bonds are deemed to have been paid in accordance with this section and stating the
maturity date or redemption date upon which money is to be available for the payment of,the
principal of and redemption premiums, if any, on such Bonds. If a forward supply contract is
employed in connection with such defeasance of the Bonds, (i) the written report of the
Independent Certified Accountant shall expressly state that the adequacy of the escrow to
accomplish the defeasance relies solely on the initial escrowed investments and the maturing
principal thereof and interest income thereon and does not assume performance under or
compliance with the forward supply contract, and (ii) the applicable escrow agreement shall
provide that in the event of any discrepancy or difference between the terms of the forward
supply contract and the escrow agreement and this Trust Agreement, the terms of the escrow
agreement and this Trust Agreement shall be controlling. No payment under the Bond Insurance
Policy shall be deemed a payment on the Bonds under subsection (a) of this section, and if any
payments on the Bonds are made pursuant to the Bond Insurance Policy, the Bonds shall remain
Outstanding until paid in full by the Authority.
(c) Notwithstanding anything to the contrary set forth in this Section 8.01, the
obligations of the Authority under this Trust Agreement shall not be discharged or terminated
until all Policy Costs owing to the insurance company in accordance with Section 3.03(c)(2)(B)
hereof shall have been paid in full.
SECTION 8.02. Unclaimed Money. Anything contained herein to the
contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge
of any of the Bonds which remains unclaimed for two (2) years after the date when such Bonds
have become due and payable, either at their stated maturity dates or by call for redemption prior
to maturity, if such money was held by the Trustee at such date, or for two (2) years after the
date of deposit of such money if deposited with the Trustee after the date when such Bonds have
become due and payable, shall be repaid by the Trustee to the Authority as its absolute property
45830267.3 37
X48
free from trust, and the Trustee shall thereupon be released and discharged with respect thereto
and the Holders shall not look to the Trustee for the payment of such Bonds; provided, however,
that before being required to make any such payment to the Authority, the Trustee may, and at
the request of the Authority shall, at the expense of the Authority, cause to be published once a
week for two (2) successive weeks in a Financial Newspaper of general circulation in San
Francisco and in Los Angeles, California and in the same or a similar Financial Newspaper of
general circulation in New York, New York a notice that such money remains 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 first publication of each such notice, the balance of such money then unclaimed will
be returned to the Authority.
ARTICLE IX
PROVISIONS RELATING TO BOND INSURANCE
[TO COME]
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Liability of Authority Limited to Revenues.
Notwithstanding anything contained herein, the Authority shall not be required to advance any
money derived from any source other than the Revenues as provided herein for the payment of
the interest on or principal of or redemption premiums, if any, on the Bonds or for the
performance of any agreements or covenants herein contained. The Authority may, however,
advance funds for any such purpose so long as such funds are derived from a source legally
available for such purpose without incurring any indebtedness.
The Bonds are limited obligations of the Authority and are payable, as to interest thereon,
principal thereof and any premiums upon the redemption of any thereof, solely from the
Revenues as provided herein, and the Authority is not obligated to pay them except from the
Revenues. All the Bonds are equally secured by a pledge of and charge and lien upon the
Revenues, and the Revenues constitute a trust fund for the security and payment of the interest
on and principal of and redemption premiums, if any, on the Bonds as provided herein. The
Bonds are not a debt of the Authority, the State of California or any of its political subdivisions,
and neither the Authority, said State nor any of its political subdivisions is liable thereon, nor in
any event shall the Bonds be payable out of any funds or properties other than those of the
Authority as provided herein. The Bonds do not constitute an indebtedness within the meaning
of any constitutional or statutory limitation or restriction.
SECTION 10.02. Benefits of the Trust Agreement Limited to Parties.
Nothing contained herein, expressed or implied, is intended to give to any person other than the
Authority, the Trustee, the Bond Insurer and the Holders any right, remedy or claim under or by
reason hereof. Any agreement or covenant required herein to be performed by or on behalf of
the Authority or any member, officer or employee thereof shall be for the sole and exclusive
benefit of the Trustee, the Bond Insurer and the Holders.
458302673 38
049
4
SECTION 10.03. Notices. Whenever any notice is required to be given
hereunder, such notice shall be mailed, first-class mail, postage prepaid, to the following parties
at the following addresses:
If to the Authority: Azusa Public Financing Authority
210 East Foothill Blvd.
Azusa, California 91702
Attention: Executive Director
If to the Trustee: Wells Fargo Bank, National Association.
700 Wilshire Boulevard, 17th Floor
Los Angeles, California 90017
Attention: Corporate Trust Department
If to the Bond Insurer: [TO COME]
SECTION 10.04. Successor Is Deemed Included In All References To
Predecessor. Whenever herein either the Authority or any member, officer or employee thereof
or of the State of California is named or referred to, such reference shall be deemed to include
the successor to the powers, duties and functions with respect to the Water Project as presently
vested in the Authority or such member, officer or employee, and all agreements and covenants
required hereby to be performed by or on behalf of the Authority or any member, officer or
employee thereof shall bind and inure to the benefit of the respective successors thereof whether
so expressed or not.
SECTION 10.05. Execution of Documents by Holders. Any declaration,
request or other instrument which is permitted or repaired herein to be executed by Holders may
be in one or more instruments of similar tenor and may be executed by Holders in person or by
their attorneys appointed in writing. The fact and date of the execution by any Holder or his
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 make
acknowledgments 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 hire
the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such
notary public or other officer. The ownership of any Bonds and the amount, maturity, number
and date of holding the same may be proved by the registration books relating to the Bonds at the
corporate trust office of the Trustee.
Any declaration, request or other instrument or writing of the Holder of any Bond shall
bind all future Holders of such Bond with respect to anything done or suffered to be done by the
Authority in good faith and in accordance therewith.
SECTION 10.06. Waiver of Personal Liability. No member, officer or
employee of the Authority or the City shall be individually or personally liable for the payment
of the interest on or principal of or redemption premiums, if any, on the Bonds by reason of their
issuance, but nothing herein contained shall relieve any such member, officer or employee from
45830267.3 39 050
the performance of any official duty provided by the Act or any other applicable provisions of
law or hereby.
SECTION 10.07. Acquisition of Bonds by Authority. All Bonds acquired
by the Authority, whether by purchase or gift or otherwise, shall be surrendered to the Trustee
for cancellation.
SECTION 10.08. Destruction of Cancelled Bonds. Whenever provision is
made for the return to the Authority of any Bonds which have been cancelled pursuant to the
provisions hereof, the Authority may, by a Written Request of the Authority, direct the Trustee to
destroy such Bonds and furnish to the Authority a certificate of such destruction.
SECTION 10.09. Content of Certificates. Every Certificate of the
Authority, with respect to compliance with any agreement, condition, covenant or provision
provided herein shall include (a) a statement that the person or persons making or giving such
certificate have read such agreement, condition, covenant or provision 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 contained in such certificate 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 agreement, condition, covenant or provision has been complied with, and (d) a statement as
to whether, in the opinion of the signers, such agreement, condition, covenant or provision has
been complied with.
Any Certificate of the Authority may be based, insofar as it relates to legal matters, upon
an Opinion of Counsel unless the person making or giving such certificate knows that the
Opinion of Counsel with respect to the matters upon which his certificate may be based, as
aforesaid, is erroneous, or in the .exercise of reasonable care should have known that the same
was erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters
information with respect to which is in the possession of the Authority, upon a representation by
an officer or officers of the Authority unless the counsel executing such Opinion of Counsel
knows that the representation with respect to the matters upon which his opinion may be based,
as aforesaid, is erroneous, or in the exercise of reasonable care should have known that the same
was erroneous.
SECTION 10.10. Publication for Successive Weeks. Any publication
required to be made hereunder for successive weeks in a Financial Newspaper may be made in
each instance upon any Business Day of the first week and need not be made on the same
Business Day of any succeeding week or in the same Financial Newspaper for any subsequent
publication, but may be made on different Business Days or in different Financial Newspapers,
as the case may be.
SECTION 10.11. Accounts and Funds; Business Days. Any account or
fund required herein to be established and maintained by the Trustee may be established and
maintained in the accounting records of the Trustee either as an account or a fund, and may, for
the purposes of such accounting records, any audits thereof and any reports or statements with
respect thereto, be treated either as an account or a fund; but all such records with respect to all
45830267.3 40
051
such accounts and funds shall at all times be maintained in accordance with the Tax Certificate
and sound industry practice and with due regard for the protection of the security of the Bonds
and the rights of the Holders. Any action required to occur hereunder on a day which is not a
Business Day shall be required to occur on the next succeeding Business Day.
SECTION 10.12. Article and Section Headings 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. 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," "hereunder" and other words of similar
import refer to the Trust Agreement as a whole and not to any particular article, section,
subdivision or clause hereof.
SECTION 10.13. 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 Authority
or the Trustee 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 or of the Bonds, and the Holders shall retain all the benefit, protection and security
afforded to them under the Act or any other applicable provisions of law. The Authority and the
Trustee hereby declare that they would have executed and delivered the Trust Agreement and
each and every other article, section, paragraph, subdivision, sentence, clause and phrase hereof
and would have authorized the issuance of the Bonds 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 circumstance may be held to be unconstitutional,
unenforceable or invalid.
SECTION 10.14. Execution in Several Counterparts. This Trust
Agreement may be executed in any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original; and all such counterparts, or as many of them as the
Authority and the Trustee shall preserve undestroyed, shall together constitute but one and the
same instrument.
SECTION 10.15. Amendments to Installment Agreement. The Authority
shall not supplement, amend, modify or terminate any of the terms of the Installment Agreement,
or consent to any such supplement, amendment, modification or termination, without the written
consent of the Trustee and the Bond Insurer. The Trustee shall give such written consent only if
(a) such supplement, amendment, modification or termination will not materially adversely
affect the interests of the Holders or result in any material impairment of the security hereby
given for the payment of the Bonds, or (b) the Trustee first obtains the written consent of the
Holders of a majority in principal amount of the Bonds then Outstanding to such supplement,
amendment, modification or termination; provided, that no such supplement, amendment,
modification or termination shall reduce the amount of Installment Payments to be made to the
Authority or the Trustee by the City pursuant to the Installment Agreement, or extend the time
for making such payments, or permit the creation of any lien prior to or on a parity with the lien
created by the Installment Agreement on Revenues (except as expressly provided in the
45830267.3 - 41
052
Installment Agreement), in each case without the written, consent of all of the Holders of the
Bonds then Outstanding.
SECTION 10.16. Governing Law. The terms and provisions of this Trust
Agreement shall be governed by the laws of the State.
45630267.3 42
053
IN WITNESS WHEREOF, the AZUSA PUBLIC FINANCING AUTHORITY has
caused this Trust Agreement to be signed in its name by its Executive Director and attested by its
Secretary in token of its acceptance of the trusts created hereunder, has caused this Trust
Agreement to be signed and attested by its duly authorized officers, all as of the day and year
first above written.
AZUSA PUBLIC FINANCING AUTHORITY
By:
Executive Director
Attest:
Secretary
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee
By:
Authorized Officer
45830267.3 43
054
EXHIBIT A
[FORM OF BOND]
AZUSA PUBLIC FINANCING AUTHORITY
PARITY REVENUE BOND
(WATER SYSTEM CAPITAL IMPROVEMENTS PROGRAM)
SERIES 2006
No. R—_ $
THE FULL FAITH AND CREDIT OF THE CITY OF AZUSA IS
NOT PLEDGED FOR THE PAYMENT OF THE INTEREST ON
OR PRINCIPAL OF THE BONDS AND NO TAX OR OTHER
SOURCE OF FUNDS OTHER THAN THE REVENUES
HEREINAFTER REFERRED TO IS PLEDGED TO PAY THE
INTEREST ON OR PRINCIPAL OF THE BONDS. NEITHER
THE PAYMENT OF THE PRINCIPAL OF NOR INTEREST ON
THE BONDS CONSTITUTES A DEBT, LIABILITY OR
OBLIGATION OF THE CITY OF AZUSA.
Interest Maturity Dated
Rate Date Date CUSIP
July 1, November—, 2006
REGISTERED OWNER:
PRINCIPAL SUM: DOLLARS
The AZUSA PUBLIC FINANCING AUTHORITY, a joint powers agency, duly
organized and validly existing under and pursuant to the laws of the State of California (the
"Authority"), for value received hereby, promises to pay (but only out of the Revenues
hereinafter referred to) to the registered owner identified above or registered assigns, on the
maturity date specified above (subject to any right of prior redemption hereinafter provided for)
the principal sum specified above, together with interest on such principal sum from the Interest
Payment Date (as hereinafter defined) next preceding the date of registration of this Bond (unless
this Bond is registered as of an Interest Payment Date, in which event it shall bear interest from
that date, or unless this Bond is registered prior to the Record Date for the first Interest Payment
Date, in which event it shall bear interest from the Dated Date specified above) until the
principal hereof shall have been paid at the interest rate per annum specified above, payable on
1, 2007, and semiannually thereafter on each January 1 and July 1 (each an "Interest
45830267.3 A-1
055
Payment Date"). Interest due on or before the maturity or prior redemption of this Bond shall be
payable by check mailed by first class mail by Well Fargo Bank, National Association, as trustee
(the "Trustee") to the registered owner hereof, provided that the Holders of $1,000,000 or more
in aggregate principal amount of Bonds may request in writing that the Trustee pay the interest
thereon by wire transfer to an account in the United States and the Trustee shall comply with
such request following the fifteenth day after receipt of such request. The principal hereof is
payable in lawful money of the United States of America at the Principal Corporate Trust Office
of the Trustee.
This Bond is one of a duly authorized issue of bonds of the Authority designated as its
"Parity Revenue Bonds (Water System Capital Improvements Program), Series 2006" (the
"Bonds") in aggregate principal amount of Dollars
($ ), all of like tenor and date (except for such variations, if any, as may be required
to designate varying numbers, maturities and interest rates), and is issued under and pursuant to
the provisions of the Joint Exercise of Powers Act (being Chapter 5 of Division. 7 of Title 1 of
the California Government Code, as amended) and all laws amendatory thereof or supplemental
thereto (the "Act") and under and pursuant to the provisions of a Trust Agreement, dated as of
November 1, 2006 (the "Trust Agreement"), between the Authority and the Trustee (copies of
which are on file at the Principal Corporate Trust Office of the Trustee).
The Bonds are issued to provide funds to finance the cost of improvements to the water
system of the City of Azusa (the "City"). The Bonds are limited obligations of the Authority and
are payable, as to interest thereon and principal thereof, solely from certain proceeds of the
Bonds held in certain funds and accounts pursuant to the Trust Agreement and the revenues (the
"Revenues") derived from Installment Payments and other payments made by the City and all
interest or other investment income, pursuant to the Installment Sale Agreement, dated as of
November 1, 2006 (the "Installment Agreement"), by and between the Authority and the City,
and the Authority is not obligated to pay interest on and principal of the Bonds except from the
Revenues. All Bonds are equally and ratably secured in accordance with the terms and
conditions of the Trust Agreement by a pledge of and charge and lien upon the Revenues, and
the Revenues constitute a trust fund for the security and payment of the interest on and principal
of the Bonds as provided in the Trust Agreement.
THE FULL FAITH AND CREDIT OF THE AUTHORITY AND THE CITY OF
AZUSA ARE NOT PLEDGED FOR THE PAYMENT OF THE INTEREST ON OR
PRINCIPAL OF THE BONDS. THE BONDS ARE NOT SECURED BY A LEGAL OR
EQUITABLE PLEDGE OF OR CHARGE OR LIEN UPON ANY PROPERTY OF THE
AUTHORITY OR ANY OF ITS INCOME OR RECEIPTS EXCEPT THE REVENUES, AND
NEITHER THE PAYMENT OF THE INTEREST ON NOR PRINCIPAL OF THE BONDS IS
A DEBT, LIABILITY OR GENERAL OBLIGATION OF THE AUTHORITY. ADDITIONAL
BONDS PAYABLE FROM THE REVENUES MAY BE ISSUED THAT WILL RANK
EQUALLY AS TO SECURITY WITH THE BONDS, BUT ONLY SUBJECT TO THE
CONDITIONS AND UPON COMPLIANCE WITH THE PROCEDURES SET FORTH IN
THE TRUST AGREEMENT.
Reference is hereby made to the Act and to the Trust Agreement and any and all
amendments thereof and supplements thereto for a description of the terms on which the Bonds
45830267.3 A'2
056
are issued, the provisions with regard to the nature and extent of the Revenues, the rights of the
registered owners of the Bonds, security for payment of the Bonds, remedies upon default and
limitations thereon, and amendment of the Trust Agreement (with or without consent of the
registered owners of the Bonds); and all the terms of the Trust Agreement are hereby
incorporated herein and constitute a contract between the Authority and the registered owner of
this Bond, to all the provisions of which the registered owner of this Bond, by acceptance hereof,
agrees and consents.
The Bonds are subject to redemption by the Authority on any date prior to their
respective stated maturities, at the times, in the amounts, at the redemption prices and upon
notice as provided in the Trust Agreement.
If an event of default, as defined in the Trust Agreement, shall occur, the principal of all
Bonds (and any additional bonds authorized by the Trust Agreement) may be declared due and
payable upon the conditions, in the manner and with the effect provided in the Trust Agreement;
except that the Trust Agreement provides that in certain events such declaration and its
consequences may be rescinded under the circumstances as provided therein.
This Bond is transferable on a register to be kept for that purpose at the above-mentioned
office of the Trustee by the registered owner hereof in person or by his duly authorized attorney
upon payment of the charges provided in the Trust Agreement and upon surrender of this Bond
together with a written instrument of transfer satisfactory to the Trustee duly executed by the
registered owner or his duly authorized attorney, and thereupon a new fully registered Bond or
Bonds in the same aggregate principal amount in authorized denominations will be issued to the
transferee in exchange therefor. The Authority and the Trustee may deem and treat the
registered owner hereof as the absolute owner hereof for the purpose of receiving payment of the
interest hereon and principal hereof and for all other purposes, whether or not this Bond shall be
overdue, and neither the Authority nor the Trustee shall be affected by any notice or knowledge
to the contrary, and payment of the interest on and principal of this Bond shall be made only to
such registered owner, which payments shall be valid and effectual to satisfy and discharge
liability on this Bond to the extent of the sum or sums so paid.
This Bond shall not be entitled to any benefit, protection or security under the Trust
Agreement or become valid or obligatory for any purpose until the certificate of authentication
hereon endorsed shall have been executed and dated by the Trustee.
It is hereby certified that all acts, conditions and things required by law to exist, to have
happened and to have been performed precedent to and in the issuance of this Bond do exist,
have happened and have been performed in due time, form and manner as required by law and
that the amount of this Bond, together with all other indebtedness of the Authority, does not
exceed any limit prescribed by the Constitution or laws of the State of California and is not in
excess of the amount of Bonds permitted to be issued under the Trust Agreement.
45630267.3 A-3
057
IN WITNESS WHEREOF, the Azusa Public Financing Authority has caused this Bond
to be executed in its name and on its behalf by the manual or facsimile signature of the Executive
Director of the Authority and countersigned by the manual or facsimile signature of the Secretary
of said Authority, and has caused this Bond to be dated as of the original issue date specified
above.
AZUSA PUBLIC FINANCING AUTHORITY
By:
Executive Director
Countersigned:
Secretary
45830267.3 A-5
059
[FORM OF CERTIFICATE OF AUTHENTICATION
TO APPEAR ON BONDS]
This is one of the Bonds described in the within-mentioned Trust Agreement which has
been authenticated on November_, 2006.
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee
By:
Authorized Officer
[FORM OF ASSIGNMENT TO
APPEAR ON BONDS]
For value received the undersigned hereby sells, assigns and transfers unto
the within bond and all rights thereunder, and hereby
irrevocably constitutes and appoints attorney to transfer the
within bond on the books kept for registration thereof, with full power of substitution in the
premises.
Dated:
Note: The signature to this Assignment must correspond with the name as written on the face of
the Bond in every particular, without alteration or enlargement or any change whatsoever.
Signature Guaranteed:
Notice: Signature must be guaranteed by an eligible guarantor institution.
45830267.3 A-6
060
EXHIBIT B
REQUISITION FOR MONEY
(City of Azusa)
I. Requisition No.:
II. The City of Azusa (the "City") hereby requests Wells Fargo Bank, National
Association, as trustee (the "Trustee") pursuant to that certain Trust Agreement, dated as of
November 1, 2006 (the "Trust Agreement") between the City and the Trustee, to pay from the
moneys in the Acquisition Fund established pursuant to Section 2.11 of the Trust Agreement (the
"Acquisition Fund"), upon receipt of an invoice therefor, an amount not to exceed the total
amount shown on Schedule I attached hereto to the,order of the persons shown therein, as
reimbursement for the costs incurred or expenditures made in connection with the Water Project.
III. The payees, the purpose for which the cost has been incurred, and the amount of
the disbursement requested are itemized on Schedule I hereto.
IV. Each obligation mentioned in Schedule I hereto has been properly incurred and is
a proper charge against the Acquisition Fund. None of the items for which payment is requested
has been reimbursed previously from the Acquisition Fund.
Dated:
CITY OF AZUSA
By:
Authorized Officer
45830267.3 B-1
061
INSTALLMENT SALE AGREEMENT
by and between
AZUSA PUBLIC FINANCING AUTHORITY
and
CITY OF AZUSA
Dated as of November I, 2006
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
45810353.3
062
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS.................................................................................................1
SECTION 1.01 Definitions......................................................................................1
SECTION 1.02 Content of Statements and Opinions..............................................3
SECTION 1.03 Exhibits...........................................................................................3
ARTICLE II. REPRESENTATIONS AND WARRANTIES................................................4
SECTION 2.01 Representations and Warranties of the City...................................4
SECTION 2.02 Representations, Warranties and Covenants of the
Authority........................................................................................5
ARTICLE III. AUTHENTICATION AND DELIVERY OF SERIES A
CERTIFICATES; ACQUISITION OF WATER PROJECT...........................7
SECTION 3.01 The 2006 Bonds .............................................................................7
SECTION 3.02 Acquisition of the Water Project....................................................7
SECTION 3.03 Appointment of the City as Agent of the Authority.......................7
SECTION 3.04 Water Project not Security .............................................................8
ARTICLE IV. SALE OF WATER PROJECT; INSTALLMENT PAYMENTS....................8
SECTION 4.01 Sale.................................................................................:...............8
SECTION4.02 Term...............................................................................................8
SECTION 4.03 Title ................................................................................................8
SECTION 4.04 Installment Payments .....................................................................8
SECTION 4.05 Administrative Fee and Tax Payments...........................................9
SECTION 4.06 Obligations of the City Unconditional; Net Contract;
Obligations of the Authority Unconditional................................. 10
SECTION 4.07 Prepayment of Installment Payments........................................... 11
SECTION 4.08 Termination of Agreement........................................................... 12
SECTION 4.09 City's Liability.............................................................................12
ARTICLE V. PARTICULAR COVENANTS......................................................................12
SECTION 5.01 Limitation on Encumbrances .......................................................12
SECTION 5.02 Accounting Records.....................................................................12
SECTION 5.03 Tax Covenants..............................................................................13
SECTION 5.04 Continuing Disclosure..................................................................17
ARTICLE VI. MAINTENANCE AND INSURANCE.........................................................17
SECTION 6.01 Maintenance and Operation of the Water System........................17
SECTION 6.02 Insurance ......................................................................................17
ARTICLE VII. NON-LIABILITY OF THE AUTHORITY; EXPENSES,
INDEMNIFICATION, BOND INSURANCE............................................... 18
SECTION 7.01 Non-Liability of the Authority.....................................................18
SECTION 7.02 Expenses.......................................................................................18
SECTION 7.03 Indemnification............................................................................18
SECTION 7.04 Survive Termination.....................................................................19
SECTION 7.05 Bond Insurance Provisions...........................................................19
45810353.3 i
063
TABLE OF CONTENTS
(continued)
Page
ARTICLE VIII. DEFAULTS AND REMEDIES.....................................................................19
SECTION 8.01 Events of Default..........................................................................19
SECTION 8.02 Remedies on Default....................................................................20
SECTION 8.03 Remedies Not Exclusive; No Waiver of Rights...........................20
SECTION 8.04 Expenses on Default.....................................................................21
SECTION 8.05 Notice of Default..........................................................................21
ARTICLEIX. MISCELLANEOUS.......................................................................................21
SECTION9.01 Notices..........................................................................................21
SECTION 9.02 Binding Effect..............................................................................22
SECTION9.03 Severability...................................................................................22
SECTION 9.04 Amendments, Changes and Modifications...................................22
SECTION 9.05 Execution in Counterparts............................................................22
SECTION 9.06 Applicable Law ............................................................................22
SECTION 9.07 Consents and Approvals...............................................................22
SECTION9.08 Captions........................................................................................22
SECTION 9.09 Benefit of Agreement; Compliance with Trust Agreement.........22
SECTION 9.10 Further Assurances.......................................................................22
SECTION9.11 Assignment...................................................................................22
SECTION 9.12 Unclaimed Moneys ......................................................................23
EXHIBIT A—Description of the Water Project........................................................................A-1
EXHIBIT B — Schedule of Installment Payments......................................................................B-1
EXHIBITC —Definitions ..........................................................................................................0-1
EXHIBIT D —Additional Covenants of the City with respect to City's Funds and
Accounts; Flow of Revenues; Security; Source of Payment; Rate and
Charges; Additional Obligation .........................................................................D-1
ii
064
INSTALLMENT SALE AGREEMENT
THIS INSTALLMENT SALE AGREEMENT, dated as of November 1, 2006 (the
"Agreement'), is by and between AZUSA PUBLIC FINANCING AUTHORITY, a joint powers
agency organized and existing under the laws of the State of California (the "Authority") and the
CITY OF AZUSA, California, a municipal corporation organized and existing under the laws of
the State of California (the "City").
WITNESSETH:
WHEREAS, the City owns and operates that certain water system referred to .
herein as the "Water System"; and
WHEREAS, the Authority is a Joint Powers Authority (a public body, corporate .
and politic) duly created, established and authorized to transact business and exercise its powers,
all under and pursuant to the Joint Exercise of Powers Act (Articles 1 through 4 of Chapter 5,
Division 7, Title 1 of the California Government Code) (the "Act') and the powers of such
Authority include the power to issue bonds for any of its corporate purposes; and
WHEREAS, the City desires to finance the construction of a water treatment
plant and certain other improvements to the Water System (the "Water Project'); and
WHEREAS, the Authority has approved the issuance of its Parity Revenue
Bonds (Water System Capital Improvements Program) Series 2006 (the "2006 Bonds") to assist
the City in providing funds to finance the Water Project; and
WHEREAS, the City has determined that it is necessary and desirable to enter
into this Agreement pursuant to which the City is to purchase the Water Project and to make
Installment Payments equal in time and amount to the debt service on the 2006 Bonds; and
WHEREAS, the Authority and the City have duly authorized the execution and
delivery of this Agreement;
NOW, THEREFORE, for and in consideration of the premises and of the mutual
covenants hereinafter contained, the parties hereby agree as follows.
ARTICLE I.
DEFINITIONS
SECTION 1.01 Definitions. Unless the context clearly otherwise requires or
unless otherwise defined herein, the capitalized terms in this Agreement shall have the respective
meanings specified in the Trust Agreement. In addition, the following terms defined in this
Section 1.01 shall, for all purposes of this Agreement, have the respective meanings herein
specified.
45810353.3 065
"Acquisition" means, with respect to the Water Project, the acquisition,
construction, improvement, equipping, renovation, remodeling or reconstruction thereof.
"Acquisition Costs" means, with respect to the Water Project, all costs of the
Acquisition thereof, including but not limited to:
(a) all costs required to be paid to any Person under the terms of any
agreement for or relating to the Acquisition of the Water Project;
(b) any sums required to reimburse the Authority or the City for
advances made for the above item or for any other costs incurred which are properly
chargeable to the Acquisition of the Water Project; and
(c) all financing costs incurred in connection with the Acquisition of
the Water Project, including but not limited to costs of issuance of the 2006 Bonds and
Acquisition or other costs incurred in connection with this Agreement and the financing
of the Water Project.
"Administrative Fee and Tax Payments" means the amounts payable by the City
pursuant to Section 4.05.
"Agreement" means this Installment Sale Agreement, including the Exhibits
attached hereto, as it may be supplemented, modified or amended from time to time in
accordance with the terms hereof and of the Trust Agreement.
"Continuing Disclosure Agreement" means the Continuing Disclosure
Agreement, dated as of November 1, 2006, by and between the Trustee, as Dissemination Agent,
and the City.
"Event of Default" means any of the events described in Section 8.01.
"Installment Payment Date" means the first day of each January and July during
the Term of this Agreement, commencing 1, 2007.
"Installment Payments" means the Principal Component and Interest Component
pursuant to Exhibit B hereto, payable by the City pursuant to Section 4.04, including any
prepayments thereof pursuant to Section 4.07.
"Term of this Agreement" means the time during which this Agreement is in
effect, as provided in Section 4.02.
"2003 Installment Sale Agreement" means the Series A Installment Sale
Agreement, dated as of August 1, 2003, by and between the City and Financing Authority for
Resource Efficiency of California.
"Water Fund" means the existing Water Fund established and held by the City
with respect to the Water System.
45810353.3 2
066
"Water Project" means the payment of Acquisition Costs relating thereto, as
described in Exhibit A attached hereto and by this reference incorporated herein.
"Water System" means the water system of the City, including all facilities,
properties and improvements at any time owned, controlled or operated by the City for the water
system, and any necessary lands, rights, entitlements and other property useful in connection
therewith, together with all extensions thereof and improvements thereto at any time acquired,
constructed or installed by the City.
"Written Certificate" means a written certificate statement signed in the name of
the City by an authorized representative of the City.
SECTION 1.02 Content of Statements and Opinions. Every statement or
opinion provided for in this Agreement with respect to compliance with any provision hereof
shall include: (1) a statement that the Person making or giving such statement or opinion has
read such provision and the definitions herein relating thereto; (2) a brief statement as to the
nature and scope of the examination or investigation upon which the statement or opinion is
based; (3) a statement (a) that, in the opinion of such Person, he or she has made or caused to be
made such examination or investigation as is necessary to enable him or her to express an
informed opinion with respect to the subject matter or (b) that he or she has made or caused to be
made his examination or investigation with respect to the subject matter in accordance with
specified professional standards; and (4) a statement as to whether, in the opinion of such Person,
such provision has been complied with.
Any such statement or opinion made or given by an officer of the Authority or the
City may be based, insofar as it relates to legal, accounting or City matters, upon a statement or
opinion of or representation by Counsel or an Independent Accountant, unless such officer
knows, or in the exercise of reasonable care should have known, that the statement, opinion or
representation with respect to the matters upon which such statement or opinion may be based, as
aforesaid, is erroneous. Any such statement or opinion made or given by Counsel or an
Independent Accountant may be based, insofar as it relates to factual matters (with respect to,
which information is in the possession of the Authority or the City, as the case may be) upon a
statement or opinion of or representation by an officer of the Authority or the City, unless such
Counsel or an Independent Accountant knows, or in the exercise of reasonable care should have
known, that the statement or opinion or representation with respect to the matters upon which
such Person's statement or opinion or representation may be based, as aforesaid, is erroneous.
The same officer of the Authority or the City, or the same Counsel or Independent Accountant,
as the case may be, need not certify to all of the matters required to be certified under any
provision of this Agreement, but different officers, Counsel or Independent Accountants may
certify to different matters, respectively.
SECTION 1.03 Exhibits. The following Exhibits are attached to and by this
reference made a part of this Agreement:
Exhibit A: Description of the Water Project.
45810353.3 3 067
Exhibit B: Installment Payment Schedule Regarding Principal Component
and Interest Component.
Exhibit C: Additional Definitions.
Exhibit D: Additional Covenants of the City with respect to City's Funds;
Flow of Revenues; Security; Source of Payment; Rates and
Charges; Additional Obligations. .
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
SECTION 2.01 Representations and Warranties of the City. The City
makes the following representations and warranties to the Authority as of the date of the
execution and delivery of this Agreement and as of the Delivery Date (such representations and
warranties to remain operative and in full force and effect regardless of delivery of the 2006
Bonds or any investigations by or on behalf of the Authority or the results thereof):
(i) The City is a municipal corporation organized and existing under
the laws of the State of California, 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 of this
Agreement.
(ii) The officers of the City executing this Agreement are duly and
properly in office and fully authorized to execute the same.
(iii) This Agreement has been duly authorized, executed and delivered
by the City, and constitutes valid and legally binding agreement of the City enforceable
against the City in accordance with its terms.
(iv) The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated and the fulfillment of or compliance with the
terms and conditions hereof (including, without limiting the generality of the foregoing,
the obligation of the City to make the Installment Payments and Administrative Fee and
Tax Payments in accordance with the terms and provisions hereof, including in particular
Exhibit D hereof), will not in any material respect conflict with or constitute a violation
or breach of or default (with due notice or the passage of time or both), under any
indenture, mortgage, deed of trust, agreement, lease, contract or other agreement or
instrument to which the City is a party or by which it or its properties are otherwise
subject or bound, or any applicable law or administrative rule or regulation, or any
applicable court or administrative decree or order, or any trust agreement, loan
agreement, lease, contract or other agreement to which the City is a party or by which it
or its properties are otherwise subject or bound, or result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any of the property or
assets of the City, which conflict, violation, breach, default, lien, charge or encumbrance
might have consequences that would materially and adversely affect the consummation
45810353.3 4
068
of the transactions contemplated by this Agreement, or the financial condition, assets,
properties or operations of the City or the Water System.
(v) No consent or approval of any trustee or holder of any
indebtedness of the City or any other Person, and no consent, permission, authorization,
order or license of, or filing or registration with, any governmental authority is necessary
in connection with the execution and delivery of this Agreement, or the consummation of
any transaction herein contemplated, or the fulfillment of or compliance with the terms
and conditions hereof, except as have been obtained or made and as are in full force and
effect and except such other permits, licenses and approvals as the City contemplates
obtaining in due course.
(vi) On the date of the Official Statement delivered by the Authority
with respect to the 2006 Bonds and as of the execution and delivery of this Agreement
(a) the descriptions and statements of or pertaining to the City and its Water Project
contained in the Official Statement were and are true and correct in all material respects;
and (b) insofar as the City and its Water Project and other affairs, including its financial
affairs, are concerned, the Official Statement did not and does not contain an untrue
statement of a material fact or omit any statement or information which is necessary to
make the statements therein, in the light of the circumstances under which they were
made, not misleading in any material respect.
1.
(vii) There is no action, suit, proceeding, inquiry or investigation before
or by any court or federal, state, municipal or other governmental authority pending or
threatened against or affecting the City or the Water System which, if determined
adversely to the City or its interests, would have a material and adverse effect upon the
consummation of the transactions contemplated by or the validity of this Agreement or
upon the financial condition, assets, properties or operations of the Water System or upon
the City's ability to perform under this Agreement, and the City is not in default with
respect to any order or decree of any court or any order, regulation or demand of any
federal, state, municipal or other governmental authority, which default might have
consequences that would materially and adversely affect the consummation of the
transactions contemplated by this Agreement, or the financial condition, assets, properties
or operations of the Water System.
(viii) The City has heretofore established the Water Fund into which the
City deposits and will continue to deposit all Water System revenues, and which the City
will maintain throughout the Term of this Agreement.
(ix) There are no outstanding bonds, notes, loans, leases, installment
sale agreements or other obligations which have any security interest or claim in the
Installment Payment Revenues and there are no other Parity Obligations outstanding.
SECTION 2.02 Representations, Warranties and Covenants of the
Authority. (a) the Authority makes the following representations and warranties to the City as
of the date of the execution and delivery of this Agreement and as of the Delivery Date (such
45810353.3 5
069
representations and warranties to remain operative and in full force and effect regardless of
delivery of the 2006 Bonds or investigations by or on behalf of the City or the results thereof):
(i) the Authority is a joint powers authority duly organized and
existing under and pursuant to the laws of the State of California, has full legal right,
power and authority to enter into this Agreement and the Trust Agreement and to carry
out and consummate all transactions contemplated by this Agreement and the Trust
Agreement, and by proper action has duly authorized the execution and delivery of this
Agreement and the Trust Agreement.
(ii) The officers of the Authority executing this Agreement and the
Trust Agreement are duly and properly in office and fully authorized to execute the same.
(iii) Each of this Agreement and the Trust Agreement has been duly
authorized, executed and delivered by the Authority, and constitutes a valid and legally
binding agreement of the Authority enforceable against the Authority in accordance with
its terms.
(iv) The execution and delivery of this Agreement and the Trust
Agreement, the consummation of the transactions herein and therein contemplated and
the fulfillment of or compliance with the terms and conditions hereof and thereof, will
not in any material respect conflict with or constitute a violation or breach of or default
(with due notice or the passage of time or both), under the Agreement of the Authority or
any indenture, mortgage, deed of trust, agreement, lease, contract or other agreement or
instrument to which the Authority is a party or by which it or its properties are otherwise
subject or bound, or any applicable law or administrative rule or regulation, or any
applicable court or administrative decree or order, or any trust agreement, loan
agreement, lease, contract or other agreement.to which the Authority is a party or by
which it or itsro erties are otherwise subject or bound, or result in the creation or
P P J
imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the
property or assets of the Authority, which conflict, violation, breach, default, lien, charge
or encumbrance might have consequences that would materially and adversely affect the
consummation of the transactions contemplated by this Agreement or the Trust
Agreement, or the financial condition, assets, properties or operations of the Authority.
(v) No consent or approval of any trustee or holder of any
indebtedness of the Authority or any other Person, and no consent, permission,
authorization, order or license of, or filing or registration with, any governmental
authority is necessary in connection with the execution and delivery of this Agreement or
the Trust Agreement, or the consummation of any transaction herein or therein
contemplated, or the fulfillment of or compliance with the terms and conditions hereof or
thereof, except as have been obtained or made and as are in full force and effect and
except such other permits, licenses and approvals as the City contemplates obtaining in
due course.
(vi) the Authority has determined that (1) it is necessary and proper for
the Authority to assist the City in undertaking the Water Project in the manner provided
45810353.3 6
070
for in this Agreement, and (2) this Agreement, the Trust Agreement and the transactions
contemplated hereby and thereby are just and reasonable as to the Authority.
(vii) To finance the Acquisition Costs, to fund deposits required by
Article II of the Trust Agreement and the costs of issuance of the 2006 Bonds, the
Authority will .execute and cause to be authenticated and delivered the 2006 Bonds,
which will mature, bear interest and be subject to redemption as set forth in the Trust
Agreement.
(viii) The 2006 Bonds will be executed, authenticated and delivered
pursuant to and secured by the Trust Agreement, and pursuant thereto, certain of the
Authority's interests in this Agreement have been assigned to the Trustee as security for
payment of the principal of, premium, if any, and interest on the 2006 Bonds.
(ix) the Authority is not in default under any of the provisions of the
laws of the State, which default would affect its existence or its powers referred to in
subsection(a) of this Section 2.02.
(b) the Authority covenants that it will not intentionally take or consent to be
taken any action which results in the interest paid on the 2006 Bonds being included in the gross
income of the recipients thereof for purposes of federal or state income taxation.
ARTICLE III.
AUTHENTICATION AND DELIVERY OF SERIES A CERTIFICATES;
ACQUISITION OF WATER PROJECT
SECTION 3.01 The 2006 Bonds. The Authority has executed and authorized
the authentication and delivery of the 2006 Bonds pursuant to the Trust Agreement in the
aggregate principal amount of Dollars ($ ). The Authority agrees
that the proceeds of the sale of the 2006 Bonds shall be paid to the Trustee on the Closing Date
for deposit pursuant to the terms and conditions of the Trust Agreement. The City hereby
approves the Trust Agreement, the assignment to the Trustee of the rights of the Authority
assigned under and pursuant to the Trust Agreement, and the execution and delivery of the 2006
Bonds by the Authority and the authentication of the 2006 Bonds by the Trustee under and
pursuant to the Trust Agreement.
SECTION 3.02 Acquisition of the Water Project. The Authority hereby
agrees with due diligence to supervise and provide for, or cause to be supervised and provided
for, the Acquisition of the Water Project in a manner approved by the City pursuant to all
applicable requirements of law.
SECTION 3.03 Appointment of the City as Agent of the Authority. The
Authority hereby appoints the City as its agent to carry out or cause to be carried out the
Acquisition of the Water Project pursuant to and in accordance with the provisions hereof. The
City hereby accepts such appointment and assumes all rights, liabilities, duties and
responsibilities of the Authority regarding the Acquisition of the Water Project. The Authority,
45810353.3 7 071
or the City as agent of the Authority hereunder, shall enter into, administer and enforce all
contracts relating to the Acquisition of the Water Project.
SECTION 3.04 Water Project not Security. It is expressly acknowledged
and agreed by the parties that the Water Project will not constitute any security for the City's
obligation to pay Installment Payments or Administrative Fee and Tax Payments hereunder.
ARTICLE IV.
SALE OF WATER PROJECT; INSTALLMENT PAYMENTS
SECTION 4.01 Sale. The Authority hereby agrees to sell the Water Project to
the City, and the City hereby agrees to purchase the Water Project from the Authority, upon the
terms and conditions set forth in this Agreement.
SECTION 4.02 Term. The Term of this Agreement shall commence on the
Closing Date, and shall end on the date on which the City shall have paid (or provision for the
payment thereof shall have been made in accordance with Section 8.01 of the Trust Agreement)
all of the Installment Payments and all other amounts due and payable hereunder. The
provisions of this Section 4.02 are subject in all respects to any other provisions of this
Agreement relating to the termination hereof with respect to the Water Project.
SECTION 4.03 Title. Title to the Water Project shall at all times be deemed
conveyed to and vested in the City. The Authority and the City shall execute, deliver and cause
to be recorded any and all documents necessary to convey such title to the City.
SECTION 4.04 Installment Payments. (a) The City agrees to pay the
purchase price of the Water Project by making monthly payments, as further provided in
subsection (b) of this Section 4.04, the aggregate of which will equal certain installment
payments, referred to herein as "Installment Payments," in the respective amounts and at the
times shown in Exhibit B hereto, as further provided in subsection (b) of this Section 4.04, which
the City agrees to pay to the Trustee, as assignee of the Authority, for deposit in the Revenue
Fund held by the Trustee and which, in the aggregate, shall be in an amount sufficient for the
payment in full of all obligations to the Owners of the 2006 Bonds from time to time
Outstanding under the Trust Agreement, including (i) the total Interest Components due and
payable with respect to the Installment Payments and (ii) the total Principal Components of such
Installment Payments; less the amount of other funds available for such payment as provided in
the Trust Agreement. The Installment Payments are payable over the period set forth in Exhibit
B, subject to prepayment as provided herein.
(b) Until such time the 2003 Installment Sale Agreement is terminated, in
order to provide for the payment when due of semi-annual Installment Payments, the City shall,
on or before the 15th day of each month, make payments to the Trustee, for deposit in the
Revenue Fund, equal to 1/6 of the Interest Component coming due on the following Interest
Payment Date and 1/12 of the Principal Component coming due (including any mandatory
sinking fund payment) on the following Principal Payment Date; provided, however, (i) with
respect to the Interest Component coming due on 1, 2007, the City shall make
45810353.3 8 072
monthly payments on or before the 15`s day of each of the months of through
2007, inclusive, equal to 1/_ of the Interest Component coming due on such Interest
Payment Date, and (ii) with respect to the Principal Component coming due on July 1, 200_,
the City shall make monthly payments on or before the 150' day of each of the months of
200_ through 200_, inclusive, equal to 1/_ of the Principal
Component coming due on such Principal Payment Date. Each such monthly payment received
by the Trustee shall be credited against the City's obligation to make Installment Payments on
the following Interest Payment Date. Not less than three Business Days prior to 1,
2007 and 1, 200_ and not less than three Business Days prior to January 1 and July 1 of
each year thereafter, the City shall pay to the Trustee for deposit into the Revenue Fund the
amount of the Installment Payments due on such January 1 or July, respectively, as shown in
Exhibit B hereto; provided however, no such semi-annual payments need be made to the extent
moneys have been received and credited against such semi-annual obligation as a result of
previous monthly payments as provided for in the first sentence of this subpart (b).
(c) Each monthly payment as provided in subsections (a) and (b) of this
Section 4.04 and any Installment Payment hereunder shall be paid by the City in funds available
on the due date as set forth in Exhibit B in lawful money of the United States of America to the
Trustee at its Corporate Trust Office, and the City agrees that such amounts shall be held,
invested, disbursed and applied as provided in the Trust Agreement.
SECTION 4.05 Administrative Fee and Tax Payments. (a) In addition to
Installment Payments, the City shall also pay to the Authority, the Trustee or to the United States
Treasury Department, as the case may be, "Administrative Fee and Tax Payments" as follows:
(i) All taxes and assessments of any type or character (including
taxes, service charges, assessments and other governmental charges lawfully assessed or
levied by any public agency or governmental authority of whatsoever character having
power to levy taxes or assessments, but excluding franchise taxes based upon the capital
and/or income of the Trustee and taxes based upon or measured by the net income of the
Trustee) charged to the Authority or to the Trustee affecting the amount available to the
Authority or the Trustee from payments to be received hereunder or in any way arising
due to the transactions contemplated hereby; provided, however, that the City shall have
the right to protest in good faith any such taxes or assessments and to require the
Authority or the Trustee, at the City's expense, to protest and contest any such taxes or
assessments levied upon them and the City shall have the right to withhold payment of
any such taxes or assessments pending disposition of any such protest or contest unless
such withholding, protest or contest would adversely affect the rights or interests of the
Authority, the 2006 Bond Holders or the Trustee;
(ii) All reasonable fees, charges and expenses of the Trustee with
respect to this Agreement or the 2006 Bonds, as and when the same become due and
payable;
(iii) The reasonable fees and expenses of such accountants, consultants,
attorneys and other experts as may be engaged by the Authority or the Trustee to prepare
audits, financial statements, reports, the Continuing Disclosure Agreement, opinions or
45810353.3 9 073
73
provide such other services required under this Agreement or the Trust Agreement with
respect to this Agreement or the 2006 Bonds;
(iv) The reasonable costs and expenses of the Authority as provided
herein in connection with this Agreement, the Trust Agreement and the 2006 Bonds,
including any and all expenses incurred in connection with the execution, authentication,
and delivery of any 2006 Bonds or in connection with any litigation which may at any
time be instituted involving this Agreement, the 2006 Bonds or the Trust Agreement, or
any costs and expenses incurred in connection with the Insurance Policy or the Insurer
with respect to the 2006 Bonds; and
(v) Any amount required to be paid to the United States Treasury
Department pursuant to Section 5.03 hereof.
(b) Such Administrative Fee and Tax Payments to the Authority or the
Trustee shall be billed to the City by the Authority or the Trustee, as the case may be, on
January 15 and July 15 of each year and otherwise from time to time, together with a statement
certifying that the amount billed has been incurred or paid by the Authority or the Trustee, for
one or more of the above items. Each January 15 billing shall be paid by the City on or before
March I of such year, and each July 15 billing shall be paid by the City on or before September 1
of such year. With respect to any other bill, amounts so billed shall be paid by the City within
forty-five (45) days after receipt of the bill by the City.
SECTION 4.06 Obligations of the City Unconditional; Net Contract;
Obligations of the Authority Unconditional. (a) The obligations of the City to make the
Installment Payments and Administrative Fee and Tax Payments required hereunder and to
perform and observe the other agreements on its part contained herein shall be absolute and
unconditional, and shall not be abated, rebated, set-off, reduced, abrogated, terminated, waived,
diminished, postponed or otherwise modified in any manner or to any extent whatsoever, while
any Installment Payments or Administrative Fee and Tax Payments remain unpaid, regardless of
any contingency, act of God, event or cause whatsoever, including, without limiting the
generality of the foregoing, any acts or circumstances that may constitute failure of
consideration, commercial frustration of purpose, any change in the laws of the United States of
America or of the State or any political subdivision of either or in the rules or regulations of any
governmental authority, or any failure of the Authority or the Trustee to perform and observe any
agreement, whether express or implied, or any duty, liability or obligation arising out of or
connected with this Agreement or the Trust Agreement.
This Agreement shall be deemed and construed to be a "net contract," and the
City shall pay absolutely net the Installment Payments, Administrative Fee and Tax Payments
and all other payments required hereunder, regardless of any rights of set-off, recoupment,
abatement or counterclaim that the City might otherwise have against the Authority or the
Trustee or any other Person or Persons.
The Authority and the City understand, agree and intend that the obligation of the
City to make Installment Payments and to pay Administrative Fee and Tax Payments hereunder
or any other required payment hereunder constitute special limited obligations of the City
45610353.3 10 074
payable solely from the sources described in Exhibit D and shall not in any way be construed to
be a debt of the City, the Authority, or the State of California, or any political subdivision
thereof, in contravention of any applicable constitutional or statutory limitation or requirement
concerning the creation of indebtedness by the City, the Authority, the State of California, or any
political subdivision thereof, nor shall anything contained herein constitute a pledge of general
revenues, funds or moneys of the City or the Authority or an obligation of the City or the
Authority for which the City or the Authority is obligated to levy or pledge any form of taxation
or for which the City or the Authority has levied or pledged any form of taxation.
(b) The City covenants to take such action as may be necessary to include and
maintain the applicable Installment Payments and Administrative Fee and Tax Payments due
hereunder in its applicable budget for the appropriate Fiscal Year or pursuant to separate
resolution of the City and further shall make the necessary appropriations for all such Installment
Payments and Administrative Fee and Tax Payments (to the extent necessary) required herein.
The covenant on the part of the City contained in this subsection (b) shall be deemed to be and
shall be construed to be a ministerial duty and it shall be the ministerial duty of each and every
public official of the City to take such action and do such things as are required by law in the
performance of such official duty of such officials to enable the City to carry out and perform
such covenant.
(c) The obligation of the Authority to perform and observe the agreements on
its part contained herein shall be absolute and unconditional and, until such time as all of the
Installment Payments shall have been fully paid (or provision for the payment thereof shall have
been made in accordance with Section 8.01 of the Trust Agreement), the Authority (i) will
perform and observe all of its agreements contained in this Agreement and (ii) 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, commercial frustration of purpose,
any change in the tax or other laws of the United States of America or of the State or any
political subdivision of either or any failure of the City to perform and observe any agreement,
whether express or implied, or any duty, liability or obligation arising out of or connected with
this Agreement.
Nothing contained in this Section 4.06(c) shall be construed to release the City
from the performance of any of the agreements on its part herein contained, and in the event the
City should fail to perform any such agreement, the Authority may institute such action against
the City as the Authority may deem necessary to compel performance or recover its damages for
nonperformance so long as such action shall not violate the agreements of the Authority
contained in the first paragraph of this Section 4.06.
SECTION 4.07 Prepayment of Installment Payments. Installment Payments
are subject to prepayment as provided in this Section 4.07. All prepayments of Installment
Payments shall be made in funds immediately available on the date of such prepayment.
(a) The City shall have the option to prepay remaining Principal Components
of Installment Payments in whole or in part on any date such prepayment is permitted by
Section 2.03 of the Trust Agreement (in the principal amount of$5,000, or any integral multiple
thereof), by depositing with the Trustee the Prepayment Price of the Principal Components of the
45810353.3 11 075
Installment Payments set forth in Exhibit B with respect. thereto and the corresponding accrued
Interest Components of Installment Payments with respect thereto to the prepayment date. The
City shall give the Trustee written notice of its intention to exercise its option to prepay not more
than ninety(90) and not less than sixty(60) days in advance of the date of such prepayment.
(b) In the event that the City prepays the Installment Payments in whole, the
amount paid shall be applied to the prepayment in full of the principal including premium, if any,
and interest on the principal amount of the 2006 Bonds in accordance with the Trust Agreement.
In the event that the City prepays the Installment Payments in part, such prepayment shall be.
applied to the prepayment of the Installment Payments as follows: (i) the City shall designate
which Principal Components are being prepaid, and to what extent, together with the accrued
interest thereon to the prepayment date, and the Principal Component of each remaining
Installment Payment shall be reduced accordingly, in each case in integral multiples of $5,000
corresponding to the principal amount of 2006 Bonds redeemed pursuant to Section 2.03(a) of
the Trust Agreement; and (ii) the Interest Component of each remaining Installment Payment
shall be reduced by the aggregate corresponding amount of interest which would otherwise be
payable on the Principal Components thereby redeemed pursuant to the Trust Agreement.
Principal Components and Interest Components of the Installment Payments shall
be payable by the City to the Trustee, as assignee of the Authority under the Trust Agreement, in
immediately available funds which constitute lawful money of the United States of America.
Payment of such Principal Components and Interest Components shall be secured, and amounts
for the payment thereof shall be deposited with the Trustee at the times, as set forth in
Section 4.04 hereof.
SECTION 4.08 Termination of Agreement. Except as otherwise specifically
provided herein, this Agreement shall terminate upon the earlier of the following events: (i) the
payment or prepayment by the City of all remaining Installment Payments as provided in
Section 4.04 or 4.07 hereof and all other amounts to be paid by the City hereunder (including any
premium and Administrative Fee and Tax Payments which are then due or will become due); or
(ii) the 2006 Bonds have been paid, or deemed paid, in accordance with Section 8.01 of the Trust
Agreement.
SECTION 4.09 City's Liability. As between the Authority and the City, the
City assumes liability for all risks of loss during the implementation of the Water Project.
ARTICLE V.
PARTICULAR COVENANTS
SECTION 5.01 Limitation on Encumbrances. The City covenants and
agrees that it will not create, assume or suffer to exist any mortgage, deed of trust, pledge,
security interest, encumbrance, lien or charge of any kind (including the charge upon property
purchased under conditional sales or other title retention agreements) upon the Water System
which impairs the ability of the City to comply with its covenants set forth in Exhibit D hereto.
45810353.3 12 0 7 t)
SECTION 5.02 Accounting Records. The City covenants and agrees at all
times to keep, or cause to be kept, proper books of record and account, prepared in accordance
with generally accepted accounting principles, in which complete and accurate entries shall be
made of all transactions of or in relation to the business, properties and operations of the Water
System. Such books of record and account shall be available for inspection by the Trustee or the
Authority at reasonable hours and under reasonable circumstances.
SECTION 5.03 Tax Covenants.
(a) Special Definitions. When used in this Section, the following terms have
the following meanings:
"Code" means the Internal Revenue Code of 1986.
"Computation Date" has the meaning set forth in section 1.148-1(b) of the Tax
Regulations.
"Gross Proceeds" means any proceeds as defined in section 1.148-1(b) of the
Tax Regulations (referring to sales, investment and transferred proceeds), and any
replacement proceeds as defined in section 1.148-1(c) of the Tax Regulations, of this
Agreement. For purposes of this Section 5.03, the City acknowledges that the Authority
intends to syndicate the beneficial ownership of this Agreement through the issuance of
the 2006 Bonds, and agrees that should such syndication occur in connection with the
execution and delivery of this Agreement it will treat all proceeds of such syndication as
sale proceeds of this Agreement(within the meaning of said section 1.148-1(b)).
"Investment" has the meaning set forth in section 1.148-1(b) of the Tax
Regulations.
"Nonpurpose Investment" means any investment property, as defined in
section 148(b) of the Code, in which Gross Proceeds of this Agreement are invested and
that is not acquired to carry out the governmental purposes of this Agreement.
"Rebate Amount," with respect to this Agreement, has the meaning set forth in
section 1.148-1(b) of the Tax Regulations.
"Tax Regulations" means the United States Treasury Regulations promulgated
pursuant to sections 103 and 141 through 150 of the Code.
"Yield":
(i) of any Investment has the meaning set forth in section 1.148-5 of
the Tax Regulations; and
(ii) with respect to this Agreement, has the meaning set forth in
section 1.148-4 of the Tax Regulations.
45810353.3 13 077
(b) Agreement as Obligation: Not to Cause Interest to Become Taxable. The
City represents and warrants that it intends that for federal income tax purposes and for
California personal income tax purposes this Agreement is to be treated as an obligation of the
City, that the Interest Component and Principal Component of each Installment Payment is
corresponding payment of interest on and principal of such
intended to be treated as the p g p y p p
obligation, and that the interest on such obligation is intended to be excluded pursuant to
section 103(a) of the Code from the gross income of the Authority or its assigns. The City
covenants that it shall not use, and shall not permit the use of, and shall not omit to use Gross
Proceeds or any other amounts (or any property the acquisition, construction or improvement of
which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or
omitted, respectively, could cause the Interest Component of any Installment Payment to fail to
be excluded pursuant to section 103(a) of the Code from the gross income of the Authority or its
assigns for federal income tax purposes. Without limitation of the preceding sentence, the City
agrees to execute and deliver in connection with the issuance of this Agreement a Tax Certificate
as to Arbitrage and the Provisions of Sections 103 and 141-150 of the Internal Revenue Code of
1986, or similar document containing additional representations and covenants pertaining to the
exclusion of the interest component of the Installment Payments from the gross income of the
Authority or its assigns for federal income tax purposes, which representations and covenants are
incorporated as though expressly set forth herein.
(c) Private Use or Private Payments. Except as would not cause this
Agreement to become a "private activity bond" within the meaning of section 141 of the Code
and the Tax Regulations and rulings thereunder, the City shall at all times prior to the final
termination of this Agreement:
(1) exclusively own, operate and possess all property the acquisition,
construction or improvement of which is to be financed or refinanced directly or indirectly with
Gross Proceeds, and not use or permit the use of such Gross Proceeds (including all contractual
arrangements with terms different than those applicable to the general public) or any property
acquired, constructed or improved with such Gross Proceeds in any activity carried on by any
person or entity (including the United States or any agency, department and instrumentality
thereof) other than a state or local government, unless such use is solely as a member of the
general public; and
(2) not directly or indirectly impose or accept any charge or other
payment by any person or entity who is treated as using Gross Proceeds or any property the
acquisition, construction or improvement of which is to be financed or refinanced directly or
indirectly with such Gross Proceeds, other than taxes of general application within the
jurisdiction of the City or interest earned on investments acquired with such Gross Proceeds
pending application for their intended purposes.
(d) No Private Loan. Except as would not cause this Agreement to become a
"private activity bond" within the meaning of section 141 of the Code and the Tax Regulations
and rulings thereunder, the City shall not use Gross Proceeds to make or finance loans to any
person or entity other than a state or local government. For purposes of the foregoing covenant,
such Gross Proceeds are considered to be "loaned" to a person or entity if: (a) property acquired,
constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a
45810353.3 14 078
transaction that creates a debt for federal income tax purposes; (b) capacity in or service from
such property is committed to such person or entity under a take-or-pay, output or similar
contract or arrangement; or (c) indirect benefits of such Gross Proceeds, or burdens and benefits
of ownership of any property acquired, constructed or improved with such Gross Proceeds, are
otherwise transferred in a transaction that is the economic equivalent of a loan.
(e) Not to Invest at Higher Yield. Except as would not cause this Agreement
to become an "arbitrage bond" within the meaning of section 148 of the Code and the Tax
Regulations and rulings thereunder, the City shall not, at any time prior to the final termination
of this Agreement, directly or indirectly invest Gross Proceeds in any Investment, if as a result of
such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or
previously disposed of, would materially exceed the Yield of this Agreement within the meaning
of said section 148.
(f) Not Federally Guaranteed. Except to the extent permitted by
section 149(b) of the Code and the Tax Regulations and rulings thereunder, the City shall not
take or omit to take any action that would cause this Agreement to be "federally guaranteed"
within the meaning of section 149(b) of the Code and the Tax Regulations and rulings
thereunder.
(g) Information Report. The City shall timely file any information required
by section 149(e) of the Code with respect to this Agreement with the Secretary of the Treasury
on Form 8038-G or such other form and in such place as the Secretary may prescribe.
(h) Rebate of Arbitrage Profits. Except to the extent otherwise provided in
section 148(f) of the Code and the Tax Regulations:
(1) the City shall account for all Gross Proceeds (including all
receipts, expenditures and investments thereof) on its books of account separately and apart from
all other funds (and receipts, expenditures and investments thereof) and shall retain all records of
accounting for at least six years after the day on which this Agreement is terminated. However,
to the extent permitted by law, the City may commingle Gross Proceeds with its other moneys,
provided that it separately accounts for each receipt and expenditure of Gross Proceeds and the
obligations acquired therewith;
(2) not less frequently than each Computation Date, the City shall
calculate the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and
the Tax Regulations and rulings thereunder. The City shall retain the results of such calculation,
including the basis therefor, in sufficient detail and on a timely basis in order to demonstrate
compliance with its covenants herein. The City shall maintain a copy of the calculation with its
official transcript of proceedings relating to the execution and delivery of this Agreement until
six years after the final Computation Date; and
(3) in order to assure the excludability of the Interest Components of
the Installment Payments from the gross income of the Authority or its assigns for federal
income tax purposes, the City shall timely pay to the United States the amount that when added
to the future value of previous rebate payments made for this Agreement equals (i) in the case of
45810353.3 15 079
a Final Computation Date as defined in section 1.148-3(e)(2) of the Tax Regulations, one
hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other
Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, such
rebate payments shall be made by the City at the times and in the amounts as are or may be
required by section 148(f) of the Code and the Tax Regulations and rulings thereunder, and shall
be accompanied by Form 8038-T or such other forms and information as is or may be required
by section 148(f) of the Code and the Tax Regulations and rulings thereunder for execution and
filing by the City.
The City shall exercise reasonable diligence to assure that no errors are made in
the calculations and payments required by paragraphs (2) and (3), and if an error is made, to
discover and promptly correct such error within a reasonable amount of time thereafter (and in
all events within one hundred eighty (180) days after discovery of the error), including payment
to the United States of any additional Rebate Amount owed to it, interest thereon, and any
penalty imposed under section 1.148-3(h) or other provision of the Tax Regulations.
(i) Not to Divert Arbitrage Profits. Except to the extent permitted by
section 148 of the Code and the Tax Regulations and rulings thereunder, the City shall not, at
any time prior to the final termination of this Agreement, enter into any transaction that reduces
the amount required to be paid to the United States pursuant to paragraph (h) of this Section
because such transaction results in a smaller profit or a larger loss than would have resulted if the
transaction had been at arm's length and had the Yield on this Agreement not been relevant to
either party.
(j) Agreement Not a Hedge Bond.
(1) The City represents that this Agreement will not be a "hedge bond"
within the meaning of section 149(8) of the Code.
(2) Without limitation of paragraph (1) above: (a) the City reasonably
expects that at least 85% of the spendable proceeds of the 2006 Bonds will be expended within
the three-year period commencing on the date of issuance, and (b) no more than 50% of the
proceeds of the 2006 Bonds will be invested in Nonpurpose Investments having a substantially
guaranteed yield for a period of four years or more.
(k) Use of Proceeds: Weighted Average Maturity. The City hereby represents
and covenants that it will apply the proceeds of the 2006 Bonds in a manner so that the weighted
average maturity of the 2006 Bonds does not exceed 120% of the average reasonably expected
economic life (or remaining economic life) of the facilities financed by this Agreement (all
determined in accordance with the provisions of section 147(b) of the Code).
(1) Elections. The City hereby directs and authorizes any Authorized
Representative of the City to make elections permitted or required pursuant to the provisions of
the Code or the Tax Regulations, as such Authorized Representative of the City (after
consultation with Special Counsel) deems necessary or appropriate in connection with this
Agreement, in the Tax Certificate as to Arbitrage and the Provisions of Sections 103 and
45810353.3 16 080
141-150 of the Internal Revenue Code of 1986 or similar or other appropriate certificate, form or
document.
(m) Closing Certificate. The City agrees to execute and deliver in connection
with the execution and delivery of this Agreement a Tax Certificate as to Arbitrage and the
Provisions of Sections 103 and 141-150 of the Internal Revenue Code of 1986, or similar
document containing additional representations and covenants pertaining to the exclusion of the
Interest Component of the Installment Payments from the gross income of the Authority or its
assigns for federal income tax purposes, which representations and covenants are incorporated as
though expressly set forth herein.
SECTION 5.04 Continuing Disclosure. The City covenants and agrees that it
will comply with and carry out, or cause to be complied with and carried out, all of the
provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this
Agreement to the contrary, failure to comply with the Continuing Disclosure Agreement shall
not constitute an Event of Default; however, the Trustee, who shall be entitled to adequate
indemnification (to the extent permitted by law) may, or at the request of any Participating
Underwriter (as defined in the Continuing Disclosure Agreement) shall, or any Owner or
Beneficial Owner (as defined in the Continuing Disclosure Agreement) may, take such actions as
may be necessary and appropriate, including seeking mandamus or specific performance by
court order, to cause the City to comply with its obligations under this Section 5.04. The sole
remedy under the Continuing Disclosure Agreement in the event of any failure of the City to
comply with the Continuing Disclosure Agreement shall be an action to compel performance,
and no Person or entity shall be entitled to recover monetary damages under the Continuing
Disclosure Agreement.
ARTICLE VI.
MAINTENANCE AND INSURANCE
SECTION 6.01 Maintenance and Operation of the Water System. The City
covenants and agrees that it will operate and maintain the Water System in an efficient and
economic manner and to operate, maintain and preserve the Water System in good repair and
working order.
SECTION 6.02 Insurance. The City covenants that it shall at all times
maintain with responsible insurers, to the extent available from such insurers at reasonable rates
as determined by the City, all such insurance on the Water System as is customarily maintained
with respect to works and properties of like character against accident to, loss of or damage to
such works or properties and against loss of revenues. If any useful part of the Water System
shall be damaged or destroyed such part shall be restored to use unless the City provides a
Written Certificate to the Trustee and the Authority to the effect that in the opinion of the City
such restoration would not be prudent. The money collected from insurance against accident,
loss or damage shall be used for repairing or rebuilding the lost, damaged or destroyed works
and properties, and to the extent not so applied, shall be applied to the retirement of outstanding
Parity Obligations of the City and for such purpose paid into the appropriate funds or accounts.
45810353.3 17
The City shall also maintain with responsible insurers to the extent available from
such insurers at reasonable rates worker's compensation insurance and insurance against public
liability and property damage to the extent reasonably necessary and obtainable.
Notwithstanding the foregoing, the City may provide any insurance required by
this covenant through a self-insurance program or it may provide such insurance as part of any
blanket coverages maintained by the City.
ARTICLE VII.
NON-LIABILITY OF THE AUTHORITY; EXPENSES,
INDEMNIFICATION,BOND INSURANCE
SECTION 7.01 Non-Liability of the Authority. The Authority shall not be
obligated to pay any Installment Payments or Administrative Fee and Tax Payments. Neither the
faith and credit nor the taxing power of the City, the Authority or the State, or any political
subdivision thereof, is pledged to the payment of the principal or premium or interest on the
2006 Bonds.
The City hereby agrees that if the payments to be made hereunder shall ever prove
insufficient to pay all principal of, premium, if any, and interest on the 2006 Bonds as the same
shall become due (whether by maturity, mandatory sinking account redemption or otherwise),
then upon notice from the Trustee as provided in Section 3.03 of the Trust Agreement, the City
shall pay Installment Payments in such amounts as are required from time to time to prevent any
deficiency or default in the payment of such principal, premium or interest, including, but not
limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of
the Trustee, the City, the Authority or any third party.
The City, the Trustee and/or the Owners shall have no right to compel the
Authority to pay Principal Components or Interest Components of Installment Payments,
Administrative Fee and Tax Payments or prepayment premiums, if any.
SECTION 7.02 Expenses. The City covenants and agrees to pay and to
indemnify, (to the extent permitted by law) defend and hold harmless the Authority and the
Trustee against all costs and charges, including reasonable fees of attorneys, accountants,
consultants and other experts, incurred in good faith, arising out of or in connection with this
Agreement, the Water Project or the Trust Agreement.
SECTION 7.03 Indemnification. The City agrees, to the extent permitted by
law, to indemnify, defend and hold harmless the Authority and its directors, officers, employees
and agents, from and against any and all losses, claims, damages, liabilities or expenses, of every
conceivable kind, character and nature whatsoever, including, but not limited to, losses, claims,
damages, liabilities, or expenses arising out of, resulting from or in any way connected with
(i) the administration of the Water Project, (ii) the execution and delivery of any 2006 Bonds and
the carrying out of any of the transactions contemplated by this Agreement, or (iii) any untrue
statement or alleged untrue statement of any material fact with respect to the City, its Water
System, or the Water Project or omission or alleged omission to state a material fact with respect
45810353.3 18 082
to the City, its Water System, or the Water Project 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 2006 Bonds. The City further
agrees, to the extent permitted by law, to pay or to reimburse the Authority and its officers,
employees and agents for any and all costs, reasonable attorneys fees, liabilities or expenses
incurred in connection with investigating, defending against or otherwise in connection with any
such losses, claims, damages, liabilities, expenses or actions. However, the City shall not hold
harmless or indemnify the Authority, its directors and officers for any losses, expenses or
liabilities which are caused by the negligence, bad faith or willful misconduct of the Authority,
its directors, officers or employees.
The City, to the extent permitted by law, shall indemnify the Trustee, its directors,
officers, employees and agents, and hold them harmless against any loss, claim, liability,
expenses or advances, including, but not limited to fees and expenses of counsel and other
experts, incurred or made without negligence, bad faith or willful misconduct on the part of the
Trustee arising out of the Trustee's acceptance or administration of the trust under the Trust
Agreement, or the exercise or performance of any of its powers or duties thereunder. The
Trustee's protection from liability and its right to payment of its fees and expenses shall survive
its resignation or removal and final payment of the sums due hereunder. The Trustee shall be
considered a third party beneficiary for the purposes of enforcing any of its rights or any of the
rights assigned to the Trustee.
SECTION 7.04 Survive Termination. Notwithstanding Section 4.08 hereof,
the provisions of this Article VII shall survive payment in full of the Installment Payments,
Administrative Fee and Tax Payments and the 2006 Bonds, the expiration of the Trust
Agreement and the termination of this Agreement.
SECTION 7.05 Bond Insurance Provisions.
[TO COME]
ARTICLE VIII.
DEFAULTS AND REMEDIES
SECTION 8.01 Events of Default. Each of the following events shall be an
"Event of Default":
(a) If the City shall fail to pay in full any Installment Payment
pursuant to Section 4.04 hereof, Administrative Fee and Tax Payment or other payment
required to be paid hereunder at the time and in the manner specified herein;
(b) If the City shall fail to observe or perform any covenant, condition,
agreement or provision in this Agreement on its part to be observed or performed, other
than as referred to in subsection (a) of this Section 8.01, or shall breach any warranty by
the City herein contained, for a period of sixty (60) days after written notice, specifying
such failure or breach and requesting that it be remedied, has been given to the City by
the Authority or the Trustee; provided that, if in the reasonable opinion of the City such
45810353.3 19 081
S1
failure or breach can be remedied but not within such sixty (60) day period and if the City
has taken all action reasonably possible to remedy such failure or breach within such
sixty (60) day period, such failure or breach shall not become an Event of Default for so
long as the City shall diligently proceed to remedy it in accordance with and subject to
any directions or limitations of time established by the Authority or the Trustee, as the
case may be;
(c) If the City files a petition in voluntary bankruptcy for the
composition of its affairs or for its corporate reorganization under any state or federal
bankruptcy or insolvency law, or makes an assignment for the benefit of creditors, or
admits in writing to its insolvency or inability to pay debts as they mature, or consents in
writing to the appointment of a trustee or receiver for itself or for the whole or any
substantial part of the Water System;
(d) If a court of competent jurisdiction shall enter an order, judgment
or decree declaring the City an insolvent, or adjudging it bankrupt, or appointing a trustee
or receiver of the City or of the whole or any substantial part of the Water System, or
approving a petition filed against the City seeking reorganization of the City under any
applicable law or statute of the United States of America or any state thereof, and such
order, judgment or decree shall not be vacated or set aside or stayed within sixty (60)
days from the date of the entry thereof; or
(e) 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
the Water System and such custody or control shall not be terminated within sixty (60)
days from the date of assumption of such custody or control.
SECTION 8.02 Remedies on Default. If an Event of Default specified in
Section 8.01 hereof shall occur, then, and in each and every case during the continuance of such
Event of Default:
(a) The Trustee may take whatever action, at law or in equity, as may
appear necessary or desirable to collect the Installment Payments, Administrative Fee and
Tax Payments and any other payments then due and thereafter as they become due under
this Agreement or to enforce the performance and observance of any obligation,
covenant, agreement or provision contained in this Agreement; and
(b) The Trustee may take whatever other legal action may appear
necessary or desirable to enforce its rights and the rights of the Owners of the 2006
Bonds.
SECTION 8.03 Remedies Not Exclusive; No Waiver of Rights. No remedy
herein conferred upon or reserved to the Authority or the Trustee is intended to be exclusive of
any other available remedy or remedies, but each and every such remedy, to the extent permitted
by law, shall be cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or otherwise. In order to entitle the
Authority or the Trustee to exercise any remedy, to the extent permitted by law, reserved to it or
45810353.3 20 084
contained in this Agreement, it shall not be necessary to give any notice, other than such notice
as may be herein expressly required. Such rights and remedies as are given to the Authority
hereunder shall also extend to the Trustee, and the Trustee may exercise any rights under this
Agreement, and the Trustee and the Owners of the 2006 Bonds executed, authenticated and
delivered under the Trust Agreement shall be deemed third party beneficiaries of all covenants
and conditions herein contained.
No delay in exercising or omitting to exercise any right or power accruing upon
any default shall impair any such right or power or shall be construed to be a waiver of any such
default or an acquiescence therein, and every such right and power may be exercised from time
to time and as often as may be deemed expedient.
Notwithstanding any other provision of this Agreement to the contrary, in no
event shall the remedy of acceleration be available to the Authority, the Trustee or any other
Person.
SECTION 8.04 Expenses on Default. In the event the City should default
under any of the provisions of this Agreement and the Trustee should employ attorneys or incur
other expenses for the collection of the payments due hereunder or the enforcement or
performance or observance of any obligation on the part of the City herein contained, the City
agrees that it will on demand therefor pay to the Trustee the reasonable fee of such attorneys and
such other expenses so incurred by the Trustee.
SECTION 8.05 Notice of Default. The City agrees that, as soon as is
practicable, and in any event within ten (10) days, the City will furnish the Trustee notice of any
event which is an Event of Default pursuant to Section 8.01 hereof (other than an Event of
Default pursuant to Sections 8.01(d) or 8.01(e) hereof) which has occurred and is continuing on
the date of such notice, which notice shall set forth the nature of such event and the action which
the City proposes to take with respect thereto.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 Notices. All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed given when hand delivered or mailed
by registered or certified mail, postage prepaid, to the City at the address specified on Exhibit A
attached hereto and made a part hereof and to the Authority and the Trustee at the following
addresses:
(a) Authority: Azusa Public Financing Authority
210 East Foothill Blvd.
Azusa, California 91702
(b) Trustee: Wells Fargo Bank, National Association
707 Wilshire Blvd., 17`h Floor
Los Angeles, California 90017
45810353.3 21 085
Any of the foregoing parties may designate any further or different addresses to
which subsequent notices, certificates or other communications shall be sent, by notice in writing
given to the others.
SECTION 9.02 Binding Effect. This Agreement shall inure to the benefit of
and shall be binding upon the Authority and the City and their respective successors and assigns.
SECTION 9.03 Severability. In the event any provision of this Agreement
shall be held illegal, invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate, render unenforceable or otherwise affect any other provision hereof.
SECTION 9.04 Amendments, Changes and Modifications. This Agreement
may not be amended, changed or modified except in accordance with the terms and provisions of
the Trust Agreement and without the prior written consent of the parties hereto.
SECTION 9.05 Execution in Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
SECTION 9.06 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 9.07 Consents and Approvals. Whenever the written consent or
approval of the Authority shall be required under the provisions of this Agreement, such consent
or approval may only be given by the Authority unless otherwise provided by law or by rules,
regulations or resolutions of the Authority or unless expressly delegated to the Trustee and
except as otherwise provided in Section 9.10 hereof.
SECTION 9.08 Captions. The captions or headings in this Agreement are for
convenience only and shall not in any way define, limit or describe the scope or intent of any
provisions or sections of this Agreement.
SECTION 9.09 Benefit of Agreement; Compliance with Trust Agreement.
This Agreement is executed, among other reasons, to induce the purchase of the 2006 Bonds.
Accordingly, all covenants, representations and agreements of the City herein contained are
hereby declared to be for the benefit of and are enforceable by the Owners and the Authority.
The City covenants and agrees to comply with, and to enable the Authority to comply with, all
covenants and requirements contained in the Trust Agreement.
SECTION 9.10 Further Assurances. The City shall, at the request of the
Authority, execute, acknowledge and deliver such further resolutions, conveyances, transfers,
assurances, financing statements and other instruments as may be necessary or desirable for
better assuring, conveying, granting, assigning and confirming the rights, security interests and
agreements granted or intended to be granted by this Agreement.
SECTION 9.11 Assignment. Pursuant to Section 3.01 of the Trust Agreement,
the Authority has assigned its right, title and interest in this Agreement (other than its rights
45810353.3 22
under Sections 7.02, 7.03 and 8.03 hereof) to the Trustee, for the benefit of the Owners from
time to time of the 2006 Bonds. The City hereby consents to such assignment.
The City shall not assign its interests in this Agreement without the prior written
consent of the Authority and the Trustee.
SECTION 9.12 Unclaimed Moneys. If the Trustee, in accordance with
Sections 8.02 of the Trust Agreement, pays to the City any unclaimed moneys held under the
Trust Agreement with respect to a 2006 Bond, the City agrees to pay to the Owner of such 2006
Bond, upon written demand, all moneys due and owing to such Owner as provided in the Trust
Agreement.
IN WITNESS WHEREOF, the Authority and the City have caused this
Agreement to be executed and delivered, as of the Commencement Date set forth on Exhibit A
hereto.
AZUSA PUBLIC FINANCING AUTHORITY
ATTEST: By:
CITY OF AZUSA
ATTEST: By:
45810353.3 23 p
007
EXHIBIT A
DESCRIPTION OF WATER PROJECT
[TO COME]
45810353.3 A-1
088
EXHIBIT B
INSTALLMENT PAYMENT SCHEDULE REGARDING
PRINCIPAL COMPONENT AND INTEREST COMPONENT
Three Business Days Principal Interest
Prior to Following ates Component Component
45810353.3 B-1 089
EXHIBIT C
DEFINITIONS
The following terms shall have.the meanings indicated below for all purposes of
this Agreement unless the context clearly requires otherwise.
"Administrative Expenditures" means any expenditures of the Authority
reasonably or necessarily incurred by the Authority in connection with the issuance of the 2006
Bonds and any other Parity Obligations including, without limitation, fees and expenses of
auditing, fees and expenses of the Trustee and the Registrar and Paying Agent allocable to the
2006 Bonds and any other Parity Obligations, legal, financing and administrative expenses, any
expenses incurred by the Authority or the Trustee to compel full and punctual performance of all
the provisions of the Installment Sale Agreement and any other agreement pursuant to which
other Parity Obligations are issued or incurred, in accordance with their respective terms.
"Annual Parity Obligation Service" means, as of any date of calculation for any
Fiscal Year, with respect to all Parity Obligations then outstanding (as determined in accordance
with each instrument authorizing such other Parity Obligations) and any Parity Obligations then
proposed to be issued, the aggregate amount of principal and interest scheduled to become due
with respect to such Parity Obligations in such Fiscal Year, calculated in accordance with this
definition. The following assumptions shall be used to determine the Annual Parity Obligation
Service becoming due in any Fiscal Year:
(a) payments of principal or interest that are due on or before the fifteenth day
of a Fiscal Year shall be assumed to be due on the last day of the immediately preceding Fiscal
Year;
(b) in determining the principal amount due in each Fiscal Year (unless a
different subsection of this definition applies for purposes of determining principal maturities on
amortization), payment shall be assumed to be made in accordance with any amortization
schedule established for such principal, including any scheduled sinking fund;
(c) if 20% or more of the principal of Parity Obligations matures on the same
date or within a twelve-month period (including sinking fund payments as payments of matured
principal), such principal shall not be treated as due on the maturity date thereof and, for the
period commencing on the maturity date of such Parity Obligations, principal thereof and interest
thereon shall be determined as if such principal and interest were due based upon an amortization
of the principal of such Parity Obligations from the maturity thereof through the final maturity of
any Parity Obligation then outstanding (as determined in accordance with each instrument
authorizing such Parity Obligation) and interest on such Parity Obligations for such period shall
be calculated using the rate most recently published in The Bond Buyer as the "Bond Buyer
Revenue Bond Index" prior to the date of such calculation, or, if the Bond Buyer Revenue Bond
Index is no longer published, another similar index selected by the City;
45810353.3 C-1 090
(d) if the subject Parity Obligations are supported by a credit support
instrument in the form of a line of credit or a letter of credit, principal may, at the option of the
City, be treated as if it were due based upon a level amortization of such principal over the
maximum term of repayment of borrowings under such credit support agreement entered into in
connection with such line of credit or letter of credit;
(e) if the interest rate of any Parity Obligafion then outstanding (as
determined in accordance with each instrument authorizing such Parity Obligation) is not a fixed
rate, the interest rate on such Parity Obligation shall be assumed to be 100% of the greater of
(i) the daily average interest rate on such Parity Obligation during the 12 months ending with the
month preceding the date of calculation, or such shorter period that such Parity Obligation shall
have been outstanding, or (ii) the rate of interest on such Parity Obligation on the date of
calculation;
(f) if the interest rate of any Parity Obligation proposed to be _ssued will not
be a fixed rate and the interest thereon will be excluded from gross income for federal income
tax purposes, the interest rate on such Parity Obligation shall be assumed to be equal to 110% of
the average BMA Index during the three (3) months preceding the month of sale of such Parity
Obligation, or if BMA Index is no longer published, at an interest rate equal to 75% of the
average One Month USD LIBOR Rate during the three (3) months preceding the month of sale
of such Parity Obligation, or if the One Month USD LIBOR Rate is not available for such period
another similar rate or index selected by the City;
(g) if the interest rate of any Parity Obligation proposed to be issued will not
be a fixed rate and the interest thereon will be included in gross income for federal income tax
purposes, the interest rate on such Parity Obligation shall be assumed to be equal to 100% of the
average One Month USD LIBOR Rate during the three (3) months preceding the month of sale
of such Parity Obligation, or if the One Month USD LIBOR Rate is not available for such
period, another similar rate or index selected by the City;
(h) if any Parity Obligation is, or upon issuance will be, part of a commercial
paper program, the principal of such Parity Obligation constituting commercial paper will be
treated as if such principal were due based upon an amortization of such principal so as to
produce substantially level payments of principal and interest with respect to such commercial
paper over the period,commencing on the date of such calculation through the final maturity of
any Parity Obligation then outstanding (as determined in accordance with each instrument
authorizing such Parity Obligation), and the interest on such commercial paper shall be
calculated as if such commercial paper were a Parity Obligation without a fixed interest rate as
provided in this definition; and
(i) if moneys or Defeasance Securities have been irrevocably deposited with
and are held by the Trustee or another fiduciary in escrow to be used to pay principal and/or
interest on any specified Parity Obligation or Parity Obligations, then the principal and/or
interest to be paid from such moneys, from Defeasance Securities or from the earnings thereon
shall be disregarded and not included in calculating Annual Parity Obligation Service.
45810353.3 C-2 q
091
"Authorized Officer" means, in the case of the City, any Person or Persons
authorized pursuant to a resolution of the governing body of the City to perform any act or
execute any document relating to the Trust Agreement or this Agreement.
"Bonds" means any revenue bond, revenue note, warrant or other evidence of
indebtedness issued, incurred or delivered for the financing or refinancing or extensions of,
additions to, repairs and replacements to, renewals of, and improvements of, the Water System,
designated by the City at the initial delivery thereof as payable from Net Revenues to be
transferred to the Trustee for deposit in the Revenue Fund and any other corresponding fund or
account relating to any other Parity Obligations, to the extent the payments under such revenue
bond, revenue note, warrant or other evidence of indebtedness are payable from such Net
Revenues.
"City" means the City of Azusa, a municipal corporation organized and existing
under the laws of the State of California.
"Commencement Date" means the date of commencement of the term of this
Agreement, which shall be the commencement date set forth in Exhibit A, which is attached
hereto and made a part hereof.
"Cost" means the City's costs, expenses and liabilities paid or incurred or to be
paid or incurred by the City relating to the Water Project including, but not limited to, legal and
financial advisory fees and expenses, interest and financing costs, including, without limitation,
fees and expenses of the trustees, registrars, paying agents, administration and general overhead
expense and costs of keeping accounts and making reports required by the Trust Agreement, and
amounts, if any, required by the Trust Agreement to be paid into various funds and accounts
thereunder for any of the respective purposes thereof, including capitalized interest. It is
intended that this definition be broadly construed to encompass all costs, expenses and liabilities
of the City related to the Water Project permitted to be funded with the proceeds of obligations
issued pursuant to the provisions of the Act or any other applicable laws of the State of
California.
"Delivery Date" means the date on which the 2006 Bonds are delivered pursuant
to the Trust Agreement to the original purchasers thereof.
"Fiscal Year" means the twelve month fiscal period of the City which
commences on July 1 in every year and ends on June 30 of the succeeding year, or any other
twelve-month, or fifty-two week, period hereafter selected and designated by an Authorized
Officer of the City as the official fiscal year period of the City.
"Gross Revenues" means all revenues, charges, income and receipts derived by
the City from the operation of the Water System or arising from the Water System (including all
revenues, charges, income and receipts received by the City from the services, facilities and
distribution of water by the City), including, but not limited to income from investments, but
excepting therefrom all refundable charges and deposits to secure service.
"Installment Payments" means the payments payable by the City pursuant to
Section 4.04 of this Agreement.
45810353.3 C-3
092
"Net Revenues" means Gross Revenues less Operation and Maintenance
Expenses.
"Operation and Maintenance Expenses" means the amount required to pay the
reasonable expenses of management, repair and other costs of the nature of costs which have
historically and customarily been accounted for as such, necessary to operate, maintain and
preserve the Water System in good repair and working order, including but not limited to, the
cost of supply and transmission of water under long-term contracts or otherwise and the expenses
of conducting the activities of the water division of the City, but excluding depreciation.
"Operation and Maintenance Expenses" shall not include any payments to the City for special
franchise fees or any transfers to the City's general fund.
"Parity Obligation" means any Bond or any contract, instrument or other
agreement for the purchase, acquisition or lease of facilities, properties, structures or equipment
(or the refinancing thereof) for the Water System, designated by the City at the initial delivery
thereof as payable from Net Revenues to be transferred to the Revenue Fund and any other
corresponding fund or account relating to any other Parity Obligations, to the extent the
payments under such Bond, contract, instrument or agreement are payable from such Net
Revenues, and the final payments under which are due more than one year following the
incurrence thereof. "Parity Obligation" includes this Installment Sale Agreement.
"Parity Obligation Service" means, with respect to any period, the amount of
principal and interest or other payments accrued or to accrue in such period with respect to all
outstanding Parity Obligations (excluding the amount of proceeds of Parity Obligations held in
any fund or account for the payment of Parity Obligation Service accrued or to accrue during
such period). For purposes of accrual under this definition, all payments with respect to Parity
Obligations due in a calendar month shall be deemed due on the first day of such calendar
month. "Parity Obligation Service" includes Installment Payments.
"Person" means an individual, corporation, firm, association, partnership, trust,
or other legal entity or group of entities, including a governmental entity or any agency or
political subdivision thereof.
"Prepayment Price" means such amount, together with investment earnings
thereon when invested in Defeasance Securities, as shall be sufficient to pay, at the earlier of
their stated maturity or the next applicable optional redemption date, the principal of, plus the
applicable redemption premium, if any, and accrued interest on the applicable 2006 Bonds to the
date fixed for their redemption in connection with such prepayment.
"Treasurer" shall mean the Treasurer of the City.
"Trust Agreement" means the Trust Agreement, dated as of November 1, 2006,
by and between the Authority and Wells Fargo Bank, National Association, as Trustee and any
amendments and supplements thereto entered into in accordance with the provisions thereof
applicable to the 2006 Bonds.
45810353.3 C-4 093
"Trustee" means the Trustee for the 2006 Bonds pursuant to the Trust
Agreement, and its successors as Trustee under the Trust Agreement as provided in Article V of
the Trust Agreement.
45810353.3 C-5 094
EXHIBIT D
ADDITIONAL COVENANTS OF THE CITY WITH RESPECT TO
CITY'S FUNDS; FLOW OF REVENUES;
SECURITY; SOURCE OF PAYMENT; RATES AND CHARGES;
ADDITIONAL OBLIGATIONS
SECTION ONE. Revenue Fund. The Authority shall create, or cause to be
created, under the Trust Agreement a Revenue Fund. The Authority shall cause the Trustee to
make deposits to and payments from the Revenue Fund in accordance with the terms of this
Agreement and the Trust Agreement.
SECTION TWO. Reserve Account. The Authority shall create, or cause to be
created, under the Trust Agreement, a Reserve Account into which it shall deposit or cause to be
deposited on the Delivery Date, the amount of$ . The Authority shall cause the
Trustee to make deposits to and payments from the Reserve Account in accordance with the
terms of this Agreement and the Trust Agreement.
SECTION THREE. Expense Fund. The Authority shall create, or cause to be
created, under the Trust Agreement, an Expense Fund into which it shall deposit or cause to be
deposited on the Delivery Date, the amount of$ . The Authority shall cause the
Trustee to make deposits to and payments from the Expense Fund in accordance with the terms
of this Agreement and the Trust Agreement.
SECTION FOUR. Flow of Gross Revenues. The City agrees and covenants
that all Gross Revenues received by it shall be deposited when and as received in the Water
Fund, and all money on deposit in the Water Fund shall be applied and used only as provided in
this Exhibit D. The City shall pay all Operation and Maintenance Expenses (including amounts
reasonably required to be set aside in contingency reserves for Operation and Maintenance
Expenses the payment of which is not then immediately required) from the Water Fund as they
become due and payable, and remaining Net Revenues on deposit in the Water Fund shall be
transferred or expended by the City at the following times in the following order of priority:
(a) Parity Obligation Service: Transfers. On or before the third
Business Day before each date on which Parity Obligation Service becomes due
and payable (whether at maturity or prior redemption or otherwise) the City shall,
from the Net Revenues in the Water Fund, transfer to the Trustee for deposit in
the Revenue Fund and to the trustee or trustees for any corresponding funds or
accounts relating to any other Parity Obligations, sums equal to the amount of
Installment Payments and other Parity Obligation Service, respectively, becoming
due and payable on such due date, except that such a deposit need not be made if
the Trustee or such other trustees, as the case may be, then holds monies in the
Revenue Fund or any corresponding funds or accounts, respectively, at least equal
to the amount of Installment Payments or other Parity Obligation Service
(including mandatory sinking account payments) becoming due and payable on
45810353.3 D-1
J95
the next succeeding date on which Parity Obligation Service becomes due and
payable; provided, however, that if Net Revenues are not sufficient to make such
transfers, then such transfers shall be made on a pro rata basis based upon the
amount due on each such series of Panty Obligations.
(b) Reserve Account; Transfers. On or before the third Business Day
before each date on which Parity Obligation Service becomes due and payable,
the City shall, from the remaining Net Revenues on deposit in the Water Fund
after transfers pursuant to subsection (a) above, transfer to the Trustee for deposit
in the Revenue Fund and to the trustee or trustees for any corresponding funds or
accounts relating to any other Parity Obligations the respective amounts, if any,
required to be so transferred to satisfy the Reserve Account Requirement pursuant
to the Trust Agreement and the reserve requirements of each other instrument
authorizing the other Parity Obligations; provided, however, that if Net Revenues
are not sufficient to make such transfers, then such transfers shall be made on a
pro rata basis based upon the amount of the deficiency in each fund or account
(including the accounts in the Revenue Fund) to which transfers are to be made.
(c) Rebate Payments. The City shall, from the remaining Net
Revenues on deposit in the Water Fund after transfers pursuant to subsections (a)
and (b) above, make when due any payments required to be made to the United
States in accordance with Section 5.03 hereof and any tax certificate relating to
the Water System.
(d) Administrative Fee and Tax Payments. The City shall, from the
remaining Net Revenues on deposit in the Water Fund after transfers pursuant to
subsections (a), (b) and (c) above, transfer to the Trustee for deposit in the
Administrative Expense Fund and any other corresponding funds or accounts
relating to any other Parity Obligations the amount necessary to pay when due all
Administrative Fee and Tax Payments as provided in Section 4.05 hereof and
other payments required to be made from any other such corresponding funds or
accounts.
(e) Remaining Net Revenues. All Net Revenues remaining on deposit
in the Water Fund after transfers pursuant to subsections (a), (b), (c) and (d) above
shall be held free and clear of the Trust Agreement by the City, and the City may
use and apply such remaining amount for any lawful purpose of the City,
including, but not limited to, replenishing any deficiencies under the Trust
Agreement or any other instrument authorizing Parity Obligations, payment of
any repairs, replacements, improvements or renewals of or to the Water System, .
payment of any cost or funding of any reserve or fund, the redemption,
prepayment or payment of 2006 Bonds or other Parity Obligations upon the terms
and conditions set forth in the Trust Agreement or the instrument authorizing such
other Parity Obligations, the purchase of 2006 Bonds or other Parity Obligations
as and when and at such prices as the City may determine, the payment of any
subordinate obligations in accordance with the instruments authorizing such
45810353.3 D-2
as00
subordinate obligations, and transfers to the City's general fund, including but not
limited to special franchise fees or other similar fees or taxes.
SECTION FIVE. Investments of Moneys in Funds and Accounts. All
moneys in any of the funds or accounts identified in or established pursuant to this Exhibit D and
held by the City shall be invested in the manner prescribed by the City; provided, however,
unless otherwise provided by the City, such moneys shall be invested solely in Permitted
Investments. Except as otherwise determined from time to time by the City, securities purchased
as an investment of moneys in any fund or account identified in or created under this Exhibit D
and held by the City shall be deemed at all times to be a part of such fund or account and any
profit realized from the liquidation of such investment and any income or interest received on
account of such investment shall be credited to, and any loss resulting from the liquidation of
such investment shall be charged to, such fund or account.
In computing the amount in any fund or account identified in or created under this
Exhibit D and held by the City for any purpose provided in this Agreement, Permitted
Investments purchased as an investment of moneys therein shall be valued no less frequently
than annually at the greater of the cost of such Permitted Investments or the amortized value
thereof(including accrued interest).
SECTION SIX. Security for the Installment Payments. The City is obligated
to make Installment Payments solely from Net Revenues. Notwithstanding the foregoing, the
Installment Payments shall be made from the proceeds of the sale of the 2006 Bonds deposited in
the Revenue Fund, in the amounts and at the times set forth in the Trust Agreement, and other
moneys transferred to or deposited in the Revenue Fund pursuant to the Trust Agreement, as and
to the extent set forth in the Trust Agreement. Installment Payments and all other payments with
respect to other Parity Obligations shall be equally secured by Net Revenues without priority for
number or date of incurrence of such Parity Obligations.
SECTION SEVEN. Source for Installment Payments. (a) The City shall be
obligated to make Installment Payments hereunder solely from Net Revenues.
(b) Notwithstanding Section 7(a) hereof, Installment Payments shall not be
made from Net Revenues to the extent (i) of the proceeds of the sale of the 2006 Bonds deposited
in the Revenue Fund, in the amount set forth in the Trust Agreement, or (ii) as otherwise
provided in the Trust Agreement.
(c) The City shall be obligated to make Administrative Fee and Tax Payments
hereunder solely from Net Revenues as provided in Section 4(d) of this Exhibit D.
Subject to the foregoing provisions of this Section 7, nothing herein shall preclude
the City from making Installment Payments and Administrative Fee and Tax Payments from
other lawfully available moneys of the City.
SECTION EIGHT. Rates and Charges. The rates to be charged for services
furnished by the Water System shall be fixed so as to provide Gross Revenues for each Fiscal
Year at least sufficient to pay, as the same become due, all Operation and Maintenance Expenses
for such Fiscal Year and so as to provide Net Revenues for each Fiscal Year at least 1.25 times
45810353.3 D-3
097
the amount necessary to pay, as the same become due, all Parity Obligation Service (including
mandatory sinking account payments) on the 2006 Bonds and any other Parity Obligations for
such Fiscal Year and to pay all other obligations and indebtedness payable under the Trust
Agreement or similar agreement for any other Parity Obligation for such Fiscal Year (including
the payment of any amounts owing to any provider of any surety bond, insurance policy or letter
of credit with respect to the 2006 Bonds and any other Parity Obligations, which amounts are
payable under the Trust Agreement or other applicable instrument).
The City shall have in effect at all times rules and regulations requiring each
consumer or customer located on any premises connected with the Water System to pay the rates
and charges applicable to the Water System provided to such premises and providing for the
billing thereof and for a due date and a delinquency date for each bill. The City shall not permit
any part of the Water System or any facility thereof to be used or taken advantage of free of
charge by any corporation, firm or Person, or by any public agency (including the United States
of America, the State of California and any city, county, district, political subdivision, public
corporation or agency of any thereof).
SECTION NINE. Additional Indebtedness. The City shall not issue or incur
any Bonds, indebtedness or obligations (excluding obligations for payment of Operation and
Maintenance Expenses) that would be payable out of Net Revenues prior to Parity Obligations.
Except for Bonds or other indebtedness issued to refund 2006 Bonds or other Parity Obligations
payable from Net Revenues, which may be issued at any time without meeting the test set forth
below, no additional indebtedness of the City payable out of Net Revenues on a parity with the
2006 Bonds and other Parity Obligations shall be created or incurred unless:
(i) the Net Revenues during any twelve (12) consecutive calendar
months out of the immediately preceding eighteen (18) calendar month period,
plus, at the option of the City, any or all of the items hereinafter designated in (a)
and (b) in this Section 9, shall have amounted to at least one hundred twenty-five
percent (125%) of the greatest amount of Annual Parity Obligation Service
immediately subsequent to the incurring of such additional Parity Obligations, as
certified by the City; or
(ii) the projected Net Revenues during the first complete Fiscal Year
following issuance of such Parity Obligations when the improvements to the
Water System financed with the proceeds of the Parity Obligations shall be in
operation, plus, at the option of the City, any or all of the items hereinafter
designated in (a) and (b) in this Section 9, shall amount to at least one hundred
twenty-five percent (125%) of the greatest amount of Annual Parity Obligation
Service immediately subsequent to the incurring of such additional Parity
Obligations, as certified by the City.
The items any or all of which may be added to such Net Revenues for the purpose
of meeting either of the requirements set forth in clause (i) or (ii) of this Section 9 are the
following:
45810353.3 D-4
;i98
(a) An allowance for any increase in Net Revenues (including, without
limitation, a reduction in Operation and Maintenance Expenses) which may arise
from any additions to or extensions or improvements of the Water System to be
made or acquired with the proceeds of such additional Parity Obligations or with
the proceeds of indebtedness previously issued, and also for Net Revenues from
any such additions, extensions or improvements which have been made or
acquired with moneys from any source but which, during all or any part of such
Fiscal Year or such twelve (12) consecutive calendar month period out of the
immediately preceding eighteen (18) calendar month period, were not in service,
all in an amount equal to the estimated additional average annual Net Revenues
(or estimated average annual reduction in Operation and Maintenance Expenses)
to be derived from such additions, extensions or improvements for the first thirty-
six (36) month period in which each addition, extension or improvement is to be
in operation, all as certified by the City.
(b) An allowance for earnings arising from any increase in the charges
made for the use of the Water System which has become effective prior to the
incurring of such additional Parity Obligations but which, during all or any part of
such Fiscal Year or such twelve (12) consecutive calendar month period out of the
immediately preceding eighteen (18) calendar month period, was not in effect, in
an amount equal to the amount by which the Net Revenues would have been
increased if such increase in charges had been in effect during the whole of such
Fiscal Year or such twelve (12) consecutive calendar month period out of the
immediately preceding eighteen (18) calendar month period, as certified by the
City.
Nothing in this Agreement shall limit the ability of the City to issue or incur
obligations that are junior and subordinate to the payment of the principal, premium, interest and
reserve fund requirements for the 2006 Bonds and all other Parity Obligations and which
subordinate obligations are payable as to principal, premium, interest and reserve fund
requirements, if any, only out of Net Revenues after the prior payment of (i) all amounts then
due and required to be paid or set aside hereunder from Net Revenues for principal, premium, if
any, interest and reserve fund requirements for the 2006 Bonds and other Parity Obligations, as
the same become due and payable and at the times and in the manner as required in the Trust
Agreement, this Agreement or any documents providing for the issuance or incurrence of other
Parity Obligations and (ii) any rebate amount to the United States pursuant to Section 4(c) of this
Exhibit D.
SECTION TWELVE. No Encumbrances. The City shall not create any
pledge, lien or charge upon any of the Net Revenues having priority over the lien of the 2006
Bonds and the other Parity Obligations with respect to Net Revenues.
The City covenants that in order to fully preserve and protect the priority and
security of the 2006 Bonds, the City shall pay from the Water Fund and discharge all lawful
claims for labor, materials and supplies furnished for or in connection with the Water System
which, if unpaid, may become a lien or charge upon the revenues prior or superior to the lien of
the 2006 Bonds and impair the security of the 2006 Bonds. Except as expressly otherwise
45810353.3 D-5
099
provided in this Agreement, the City shall also pay from the Water Fund all taxes and
assessments or other governmental charges lawfully levied or assessed upon or in respect of the
Water System or upon any part thereof or upon any of the revenues therefrom.
SECTION THIRTEEN. Sale of Water System. The Water System shall not be
sold or leased or otherwise disposed of as a whole, or substantially as a whole, unless such sale,
lease or other disposition be so arranged as to provide for a continuance of payments into the
Water Fund sufficient in amount to permit payment therefrom of the principal of and interest on,
and premiums, if any, due upon the maturity or redemption of, all 2006 Bonds and other Parity
Obligations payable out of Net Revenues, or to provide for such payments into some other fund
charged with such payments. None of the works, plant, properties, facilities or other part of the
Water System or any real or personal property comprising a part of the Water System shall be
sold, leased or otherwise disposed of if such sale, lease or disposition would cause the City to be
unable to satisfy the requirements of Section 8 hereof.
45810353.3 D-6 1 I V
$
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
Bond Purchase Agreement
November_, 2006
City of Azusa
210 East Foothill Blvd.
Azusa, California 91702
Azusa Public Financing Authority
210 East Foothill Blvd.
Azusa, California 91702
Ladies and Gentlemen:
UBS Securities LLC (the "Underwriter") hereby offers to enter into the following
agreement with the City of Azusa, California (the "City") and the Azusa Public Financing
Authority (the "Authority"). Upon the acceptance hereof by you, this offer will be binding upon
the Authority, the City and the Underwriter. This offer is made subject to (i) the written
acceptance hereof by you and (ii) withdrawal by the Underwriter upon written notice (by
telegraph or otherwise) delivered to you at any time prior to the acceptance hereof by you.
1. Purchase and Sale. (a) Upon the terms and conditions and upon the basis
of the representations, warranties and agreements set forth herein, the Underwriter hereby agrees
to purchase from the Authority at the Closing Time on the Closing Date (both as defined herein),
and the Authority hereby agrees to cause to sell and deliver to the Underwriter, $
aggregate principal amount of Azusa Public Financing Authority Parity Revenue Bonds (Water
System Capital Improvements Program), Series 2006 (the "Bonds"). The Bonds shall be dated
the date of their delivery and shall mature on July 1 in the years shown on Exhibit A hereto, shall
bear interest at the rates shown on Exhibit A hereto and shall be subject to optional and
mandatory redemption from sinking fund payments in the amounts and on the dates set forth in
the Trust Agreement. Interest on the Bonds shall be payable semiannually on January 1 and July
1 of each year, commencing , 2007.
(b) The aggregate purchase price for the Bonds shall be $ being the
$ aggregate principal amount thereof, less an Underwriter's discount of
$ and [less/plus original issue discount/premium) of $ . (The date
of such payment and delivery is referred to herein as the "Closing Date," the hour and
date of such delivery and payment is referred to herein as the "Closing Time," and the
45830483.2
101
other actions contemplated hereby to take place at the time of such payment and delivery
being herein sometimes called the "Closing").
2. The Bonds. The Bonds shall be described in, and shall be issued and
secured pursuant to, the provisions of the Marks-Roos Local Bond Pooling Act of 1985,
constituting Article 4 of Chapter 5 (commencing with Section 6584), Division 7, Title 1 of the
Government Code of the State of California (the "Law"). The Bonds shall be issued and secured
pursuant to a Trust Agreement, dated as of November 1, 2006 (the "Trust Agreement"), by and
between the Authority and Wells Fargo Bank, National Association (the "Trustee"), authorizing
the issuance of the Bonds.
The Authority has determined to assist the City in providing funds to finance
certain capital improvements to the City's water system by entering into an Installment Sale
Agreement, dated as of November 1, 2006 (the "Installment Sale Agreement"), with the City and
providing for the issuance, sale and delivery of the Bonds.
The Bonds are secured by Revenues, comprising primarily Installment Payments
(as defined in the Installment Sale Agreement) to be made by the City from Net Revenues (as
defined in the Installment Sale Agreement) of the water system of the City. Payment of principal
and interest on the Bonds when due is guaranteed by a municipal bond insurance policy issued
by (the `Bond Insurer"). Herein, the Trust Agreement, the Installment
Sale Agreement, and this Bond Purchase Agreement are referred to collectively as the "Authority
Documents." The Installment Sale Agreement, this Bond Purchase Agreement and the
Continuing Disclosure Agreement are referred to collectively as the "City Documents."
The Bonds shall be payable and shall be subject to redemption as provided in the
Trust Agreement and shall be as described in the Preliminary Official Statement of the Authority
dated , 2006 and the Official Statement of the Authority dated of even date herewith.
Such Official Statement, including the cover page, the appendices thereto relating to the Bonds,
as amended to conform to the terms of this Bond Purchase Agreement and with such changes
and amendments thereto as have been mutually agreed to by the Authority, the City and the
Underwriter, is hereinafter referred to as the "Official Statement."
3. Offering by the Underwriter. It shall be a condition to the Authority's
obligations to sell and to deliver the Bonds to the Underwriter and to the Underwriter's
obligation to purchase, to accept delivery of and to pay for the Bonds that the entire principal
amount of the Bonds shall be issued, sold and delivered by the Authority and purchased,
accepted and paid for by the Underwriter at the Closing. It is understood that the Underwriter
proposes to offer the Bonds for sale to the public (which may include selected dealers and special
purchasers) at prices or yields as set forth in Exhibit A hereto and on the inside cover page of the
Official Statement. Concessions from the public offering price may be allowed to selected
dealers and special purchasers. It is understood that the initial public offering price and
concessions set forth in the Official Statement may vary after the initial public offering. It is
further understood that the Bonds may be offered to the public at prices other than the par value
thereof. The net premium on the sale of the Bonds to the public, if any, shall accrue to the
benefit of the Underwriter.
45830483.2 2
102
4. Official Statement, Delivery of Other Documents, Use of Documents.
(a) The Authority and the City hereby authorize the use by the Underwriter of the Preliminary
Official Statement and the Official Statement (including any supplements or amendments to the
Official Statement) and the Trust . Agreement and the information therein contained, in
connection with the public offering and sale of the Bonds.
(b) The Authority shall deliver to the Underwriter, within seven business days
from the date hereof, such number of copies of the final Official Statement executed on
behalf of and approved for distribution by the Authority as the Underwriter may
reasonably request in order for the Underwriter to comply with the rules of the Municipal
Securities Rulemaking Board and Rule 15c2-12(b) (4) under the Securities Exchange Act
of 1934.
(c) As soon as practicable following receipt thereof, the Underwriter shall
deliver the Official Statement, and any supplements or amendments thereto, to a
nationally recognized municipal securities information repository.
5. Representations, Warranties and Agreements of the Authority. The
Authority represents, warrants and agrees as follows:
(a) The Authority is a joint powers agency duly organized and validly existing
under the laws of the State of California.
(b) The Authority has full legal right, power and authority (i) to enter into the
Authority Documents, (ii) to sell, issue and deliver the Bonds to the Underwriter as
provided herein; and (iii) to carry out and consummate the transactions on its part
contemplated by the Authority Documents.
(c) By all necessary official action, the Authority has duly authorized and
approved the Authority Documents, has duly authorized and approved the Preliminary
Official Statement and the Official Statement, has duly authorized and approved the
execution and delivery of, and the performance by the Authority of the obligations in
connection with the issuance of the Bonds on its part contained in the Bonds and the
Authority Documents and the consummation by it of all other transactions contemplated
by the Authority Documents in connection with the issuance of the Bonds.
(d) To the best of its knowledge, the Authority is not in any material respect
in breach of or default under any applicable constitutional provision, law or
administrative regulation of any state or of the United States, or any agency or
instrumentality of either, or any applicable judgment or decree, or any loan agreement,
indenture, bond, note, resolution, agreement (including, without limitation, the Trust
Agreement) or other instrument to which the Authority is a party which breach or default
has or may have an adverse effect on the ability of the Authority to perform its
obligations under the Authority Documents, and no event has occurred and is continuing
which with the passage of time or the giving of notice, or both, would constitute such a
default or event of default under any such instrument; and the authentication and delivery
of the Bonds, or the execution and delivery of the Authority Documents, and compliance
45830483.2 3 10 3
with the provisions on the Authority's part contained therein, will not conflict in any
material way with or constitute a material breach of or a material default under any
constitutional provision, law, administrative regulation, judgment, decree, loan
agreement, indenture, bond, note, resolution, agreement or other instrument to which the
Authority is a party 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 property or assets of the Authority or under the
terms of any such law, regulation or instrument, except as provided by the Bonds and the
Trust Agreement.
(e) To the best of its knowledge, all authorizations, approvals, licenses,
permits, consents and orders of any governmental authority, legislative body, board,
agency or commission having jurisdiction of the matter which are required for the due
authorization by, or which would constitute a condition precedent to or the absence of
which would materially adversely affect the due performance by, the Authority of its
obligations in connection with the issuance of the Bonds under this Bond Purchase
Agreement or the Trust Agreement have been duly obtained, except for such approvals,
consents and orders as may be required under the Blue Sky or securities laws of any state
in connection with the offering and sale of the Bonds; except as described in or
contemplated by the Official Statement, all authorizations, approvals, licenses, permits,
consents and orders of any governmental authority,.board, agency or commission having
jurisdiction of the matter which are required for the due authorization by, or which would
constitute a condition precedent to or the absence of which would materially adversely
affect the due performance by, the Authority of its obligations under the Trust Agreement
have been duly obtained.
(f) The Bonds when issued will conform to the descriptions thereof contained
in the Official Statement under the captions "INTRODUCTION" and "THE BONDS";
and the Trust Agreement when adopted will conform to the descriptions thereof
contained in the Official Statement under the captions "INTRODUCTION," "THE
BONDS," "SECURITY FOR THE BONDS," and "APPENDIX A - SUMMARY OF
PRINCIPAL LEGAL DOCUMENTS."
(g) The Bonds, when issued, authenticated and delivered in accordance with
the Trust Agreement, and. sold to the Underwriter as provided herein, will be validly
issued and outstanding obligations of the Authority, entitled to the benefits of the Trust
Agreement, and upon such issuance and delivery, the Trust Agreement will provide, for
the benefit of the owners from time to time of the Bonds, the legally valid and binding
pledge of and lien and security interest it purports to create.
(h) As of the date hereof, there is no action, suit, proceeding, inquiry or
investigation, notice of which has been served on the Authority, at law or in equity before
or by any court, government agency, public board or body, pending or to the best
knowledge of the officer of the Authority executing this Bond Purchase Agreement,
threatened against the Authority, affecting the existence of the Authority or the titles of
its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin
the sale, issuance or delivery of the Bonds or the pledge and lien on the Revenues
45830483.2 4 - 104
pursuant to the Trust Agreement, or contesting or affecting as to the Authority the
validity or enforceability of the Bonds, or the Authority Documents or contesting the tax-
exempt status of interest on the Bonds, or contesting the completeness or accuracy of the
Preliminary Official Statement or the Official Statement, or contesting the powers of the
Authority for the issuance of the Bonds, or the execution and delivery or adoption by the
Authority of the Authority Documents, or in any way contesting or challenging the
consummation of the transactions contemplated hereby or thereby; nor, to the best
knowledge of the Authority, is there any basis for any such action, suit, proceeding,
inquiry or investigation, wherein an unfavorable decision, ruling or finding would
materially adversely affect the validity of the Law, as to the Authority, or the
authorization, execution, delivery or performance by the Authority of the Bonds, or the
Authority Documents.
(i) The Authority 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 Bonds 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 (ii) to determine the eligibility of the Bonds 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 Bonds; provided, however, that the Authority shall not be required to execute a
general or special consent to service of process or qualify to do business in connection
with any such qualification or determination in any jurisdiction, provided, that the
Underwriter shall bear all costs in connection with the Authority's action under (i) and
(ii) herein, and (iii) assure or maintain the tax-exempt status of the interest on the Bonds.
0) As of the date thereof, the Preliminary Official Statement does not, except
for the omission of certain information permitted to be omitted in accordance with Rule
15c2-12, contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein with respect to the Authority, in light of the
circumstances under which they were made, not misleading.
(k) At the time of the Authority's acceptance hereof, and (unless an event
occurs of the nature described in paragraph (m) of this Section 5) at all times subsequent
thereto up to and including the date of the Closing, the Official Statement does not and
.will not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that these representations and warranties
of the Authority shall apply only to the information contained in the Official Statement
relating to the Authority.
(1) If the Official Statement is supplemented or amended pursuant to
paragraph (m) of this Section 5, at the time of each supplement or amendment thereto and
(unless subsequently again supplemented or amended pursuant to such paragraph) at all
times subsequent thereto up to and including the date of the Closing, the Official
Statement as so supplemented or amended will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements therein, in
45830453.2 5
105
light of the circumstances under which they were made, not misleading; provided,
however, that these representations and warranties of the Authority shall apply only to the
information contained in the Official Statement relating to the Authority.
(m) If between the date of this Bond Purchase Agreement and that date which
is 25 days after the end of the underwriting period (as determined in accordance with
Section 14 hereof) any event known to the Authority shall occur affecting the Authority
which might adversely affect the marketability of the Bonds or the market prices thereof,
or which might cause the Official Statement, as then supplemented or amended, to
contain any untrue statement of a material fact or to omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they were
made, not misleading, the Authority shall notify the Underwriter thereof, and if in the
opinion of the Underwriter such event requires the preparation and publication of a
supplement or amendment to the Official Statement, the Authority will at its expense
prepare and furnish to the Underwriter a reasonable number of copies of such supplement
to, or amendment of, the Official Statement in a form and in a manner approved by the
Underwriter.
(n) The Authority will refrain from taking any action, or permitting any action
to be taken, with regard to which the Authority may exercise control, that results in the
loss of the tax-exempt status of the interest on the Bonds.
(o) Any certificate signed by any officer of the Authority and delivered to the
Underwriter pursuant to the Authority Documents or any document contemplated
thereby, shall be deemed a representation and warranty by the Authority to the
Underwriter as to the statements made therein.
(p) The Authority will cause the proceeds from the sale of the Bonds to be
paid to the Trustee for the purposes specified in the Trust Agreement and the Official
Statement. So long as any of the Bonds are outstanding and except as may be authorized
by the Trust Agreement, the Authority will not issue or sell any bonds or other
obligations, other than the Bonds sold thereby, the interest on and premium, if any, or
principal of which will be payable from the payments to be made under the Trust
Agreement.
(q) The Authority shall honor all other covenants on its part contained in the
Authority Documents which are incorporated herein and made a part of this Bond
Purchase Agreement.
6. Representations, Warranties and Agreements of the City. The City
represents, warrants and agrees as follows:
(a) The City is a municipal corporation duly organized and validly existing
under the laws of the State of California.
(b) The City has full legal right, power and authority to enter into and to carry
out the transactions on its part contemplated by the City Documents.
45830483.2 6
10
(c) By all necessary official action, the City has duly authorized and approved
the City Documents, has duly authorized and approved the Preliminary Official
Statement and the Official Statement, has duly authorized and approved the execution
and delivery of, and the performance by the City of the obligations in connection with the
issuance of the Bonds on its part contained in the City Documents and the consummation
by it of all other transactions contemplated by the City Documents in connection with the
issuance of the Bonds.
(d) To the best of its knowledge, the City is not in any material respect in
breach of or default under any applicable constitutional provision, law or administrative
regulation of any state or of the United States, or any agency or instrumentality of either,
or any applicable judgment or decree, or any loan agreement, indenture, bond, note,
resolution, agreement (including, without limitation, the Installment Sale Agreement) or
other instrument to which the City is a party which breach or default has or may have an
adverse effect on the ability of the City to perform its obligations under the City
Documents, and no event has occurred and is continuing which with the passage of time
or the giving of notice, or both, would constitute such a default or event of default under
any such instrument; and the execution and delivery of the City Documents, and
compliance with the provisions on the City's part contained therein, will not conflict in
any material way with or constitute a material breach of or a material default under any
constitutional provision, law, administrative regulation, judgment, decree, loan
agreement, indenture, bond, note, resolution, agreement or other instrument to which the
City is a party 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 property or assets of the City or under the terms of any
such law, regulation or instrument, except as may be provided by the Installment Sale
Agreement.
(e) To the best of its knowledge, all authorizations, approvals, licenses,
permits, consents and orders of any governmental authority, legislative body, board,
agency or commission having jurisdiction of the matter which are required for the due
authorization by, or which would constitute a condition precedent to or the absence of
which would materially adversely affect the due performance by, the City of its
obligations in connection with the City Documents have been duly obtained, except for
such approvals, consents and orders as may be required under the Blue Sky or securities
laws of any state in connection with the offering and sale of the Bonds; except as
described in or contemplated by the Official Statement, all authorizations, approvals,
licenses, permits, consents and orders of any governmental authority, board, agency or
commission having jurisdiction of the matter which are required for the due authorization
by, or which would constitute a condition precedent to or the absence of which would
materially adversely affect the due performance by, the City of its obligations under the
City Documents have been duly obtained.
(f) The Installment Sale Agreement when adopted will conform to the
descriptions thereof contained in the Official Statement under the captions
"INTRODUCTION," "THE BONDS," "SECURITY FOR THE BONDS," and
"APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."
45830483.2 7
107
(g) At or prior to the Closing, the City shall have duly authorized, executed
and delivered a continuing disclosure agreement (the "Continuing Disclosure
Agreement"), which complies with the provisions of Rule 15c2-12(b)(5) and which shall
be substantially in the form described in the Official Statement.
(h) The City is in full compliance with all of its prior written continuing
disclosure undertakings entered into pursuant to the provisions of Rule 15c2-12(b) (5).
(i) As of the date hereof, there is no action, suit, proceeding, inquiry or
investigation, notice of which has been served on the City, at law or in equity before or
by any court, government agency, public board or body, pending or to the best
knowledge of the officer of the City executing this Bond Purchase Agreement, threatened
against the City, affecting the existence of the City or the titles of its officers to their .
respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance
or delivery of the Bonds or the pledge and lien on the Installment Payments pursuant to
the Trust Agreement or the Net Revenues pursuant to the Installment Sale Agreement, or
contesting or affecting as to the City the validity or enforceability of the Law, the Bonds,
or the City Documents or contesting the tax-exempt status of interest on the Bonds, or
contesting the completeness or accuracy of the Preliminary Official Statement or the
Official Statement, or the execution and delivery or adoption by the City of the City
Documents, or in any way contesting or challenging the consummation of the
transactions contemplated hereby or thereby; nor, to the best knowledge of the City, is
there any basis for any such action, suit, proceeding, inquiry or investigation, wherein an
unfavorable decision, ruling or finding would materially adversely affect the
authorization, execution, delivery or performance by the City of the City Documents.
0) 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 Bonds 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 (ii) to determine the eligibility of the Bonds 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 Bonds; provided, however, that the City shall not be required to execute a general or
special consent to service of process or qualify to do business in connection with any
such qualification or determination in any jurisdiction, provided, that the Underwriter
shall bear all costs in connection with the City's action under (i) and (ii) herein, and (iii)
assure or maintain the tax-exempt status of the interest on the Bonds.
(k) As of the date thereof, the Preliminary Official Statement did not, except
for the omission of certain information permitted to be omitted in accordance with Rule
15c2-12, contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(1) At the time of the City's acceptance hereof, and (unless an event occurs of
the nature described in paragraph (n) of this Section 6) at all times subsequent thereto up
45830483.2 8 108
to and including the date of the Closing, the Official Statement does not and will not
contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that these representations and warranties of the City
shall apply only to the information contained in the Official Statement relating to the
City.
(m) If the Official Statement is supplemented or amended pursuant to
paragraph (n) of this Section 6, at the time of each supplement or amendment thereto and
(unless subsequently again supplemented or amended pursuant to such paragraph) at all
times subsequent thereto up to and including the date of the Closing, the Official
Statement as so supplemented or amended will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that these representations and warranties of the City shall apply only to the
information contained in the Official Statement relating to the City.
(n) If between the date of this Bond Purchase Agreement and that date which
is 25 days after the end of the underwriting period (as determined in accordance with
Section 14 hereof) any event known to the City shall occur affecting the City which
might adversely affect the marketability of the Bonds or the market prices thereof, or
which might cause the Official Statement, as then supplemented or amended, to contain
any untrue statement of a material fact or to omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were made,
not misleading, the City shall notify the Underwriter thereof, and if in the opinion of the
Underwriter such event requires the preparation and publication of a supplement or
amendment to the Official Statement, the City will, in conjunction with and at the
expense of the Authority, prepare and furnish to the Underwriter a reasonable number of
copies of such supplement to, or amendment of,the Official Statement in a form and in a
manner approved by the Underwriter.
(o) The City will refrain from taking any action, or permitting any action to be
taken, with regard to which the City may exercise control, that results in the loss of the
tax-exempt status of the interest on the Bonds.
(p) Any certificate signed by any officer of the City and delivered to the
Underwriter pursuant to the City Documents or any document contemplated thereby shall
be deemed a representation and warranty by the City to the Underwriter as to the
statements made therein.
7. Closing. At 8:00 a.m., Los Angeles time, on November _, 2006, or on
such earlier date or as soon thereafter as practicable, as may be mutually agreed upon by the
Authority, the City and the Underwriter, the Authority will, subject to the terms and conditions
hereof, cause the Trustee to deliver to The Depository Trust Company ("DTC") in New York,
New York, on behalf of the Underwriter, the Bonds, in definitive form duly authenticated by the
Trustee, together with the other documents hereinafter mentioned; and the Underwriter will
accept such delivery to DTC and will pay the purchase price of the Bonds in Los Angeles,
45830483.2 9
109
California as set forth in Paragraph 1(a) hereof by delivering Federal or other immediately
available funds in the amount of such purchase price to the Trustee. The Bonds shall be prepared
in fully registered form without coupons in authorized denominations and registered in the name
of or at the direction of the Underwriter.
8. Closing Conditions. The Underwriter has entered into this Bond
Purchase Agreement in reliance upon the representations and warranties of the Authority and 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
Authority and the City of its respective obligations hereunder, both as of the date hereof and as
of the date of the Closing. Accordingly, the Underwriter's obligations under this Bond Purchase
Agreement to purchase, to accept delivery of and to pay for the Bonds shall be conditioned upon
the performance by the Authority and the City of their obligations to be performed hereunder and
under such documents and instruments at or prior to the Closing, and shall also be subject to the
following additional conditions:
(a) The representations and warranties of the Authority and the City contained
herein shall be true, complete and correct on the date hereof and on and as of the date of
the Closing, as if made on the date of the Closing;
(b) At the time of the Closing, the Trust Agreement shall be in full force and
effect in accordance with its terms and shall not have been amended, modified or
supplemented and the Official Statement shall not have been supplemented or amended,
except in any such case as may have been agreed to by the Underwriter;
(c) At the time of the Closing, all necessary official action of the Authority,
the City and of the other parties thereto relating to the Authority Documents and the City
Documents; respectively, shall have been taken and shall be in full force and effect and
shall not have been amended, modified or supplemented in any material respect;
(d) Subsequent to the date hereof, there shall not have occurred any change in
or affecting particularly the Authority, the City, the Bonds, or the Water System (as
defined in the Trust Agreement), as the foregoing matters are described in the Official
Statement, which in the reasonable opinion of the Underwriter materially impairs the
investment quality of the Bonds;
(e) At or prior to the Closing, the Underwriter shall have received copies of
each of the following documents:
(1) The Official Statement and each supplement or amendment, if any,
thereto, executed by a designated officer of the Authority;
(2) A copy of the Trust Agreement, executed by the Authority and the
Trustee;
(3) A copy of the Installment Sale Agreement, executed by the
Authority and the City;
45830483.2 10 {�
{
Agreementthe
(4) A copy of the Continuing DisclosureA g executed b y
parties thereto, substantially in the form described in the Official Statement.
(5) Certificates of the Authority and the City, respectively, with
respect to the matters described in Sections 5 and 6 and in paragraphs (a), (b), (c)
and (d) of this Section 8;
(6) An opinion, (the "Final Approving Legal Opinion") dated the date
of the Closing and addressed to the Authority, of Fulbright & Jaworski L.L.P.,
Bond Counsel, substantially in the form set forth in Appendix C of the Official
Statement, accompanied by a reliance letter from Bond Counsel to the effect that
such opinion may be relied upon by the Underwriter with the same effect as if
such opinion were addressed to it;
(7) An opinion, dated the date of the Closing and addressed to the
Underwriter of Fulbright & Jaworski L.L.P., Bond Counsel, in substantially the
form attached hereto as Exhibit B;
(8) An opinion, dated the date of the Closing and addressed to the
Underwriter of the City Attorney, as counsel for the City, in substantially the form
attached hereto as Exhibit C;
(9) An opinion, dated the date of the Closing and addressed to the
Underwriter of the City Attorney, as counsel for the Authority, in substantially the
form attached hereto as Exhibit D;
(10) An opinion, dated the date of the Closing and addressed to the
Authority and the Underwriter, of Fulbright & Jaworski L.L.P., Los Angeles,
California, Disclosure Counsel for the Authority, in substantially the form
attached hereto as Exhibit E;
(11) The municipal bond insurance policy issued by the Bond Insurer
for the Bonds, and evidence that Moody's Investors Service and Standard &
Poor's Ratings Group have assigned ratings of Aaa and AAA, respectively, to the
Bonds based on the issuance of such municipal bond insurance policy;
(12) An opinion of counsel to the Bond Insurer in form and substance
satisfactory to the Underwriter;
(13) A certificate of the Trustee to the effect that:
(i) Due Organization and Existence - the Trustee is duly
organized and existing as a national banking association in good standing
under the laws of the United States having the full power and authority to
enter into and perform its duties under the Trust Agreement, and to
authenticate and deliver the Bonds to the Underwriter pursuant to the
terms of the Trust Agreement;
45830483.2 11
(ii) Due Authorization; Valid and Binding Obligations - the
Trustee is duly authorized to enter into the Trust Agreement, and to
authenticate and deliver the Bonds; and
(iii) No Conflict - to the best of the knowledge of the Trustee,
after due investigation, the execution and delivery by the Trustee of the
Trust Agreement, and the authentication and delivery of the Bonds, and
compliance with the terms thereof will not, in any material respect,
conflict with, or result in a violation or breach of, or constitute a default
under, any loan agreement, indenture, bond, note, resolution or any other
agreement or instrument to which the Trustee is a party or by which it is
bound, or any law or any rule, regulation, order or decree of any court or
governmental agency or body having jurisdiction over the Trustee or any
of its activities or properties, or (except with respect to the lien of the
Trust Agreement) result in the creation or imposition of any lien, charge or
other security interest or encumbrance of any nature whatsoever upon any
of the property or assets of the Trustee.
(14) An opinion of counsel to the Trustee to the effect that:
(i) Due Organization and Existence - the Trustee has been
duly organized and is validly existing and in good standing as a national
banking association under the laws of the United States of America with
full corporate power to undertake the trusts of the Trust Agreement;
(ii) Corporate Action - the Trustee has duly authorized,
executed and delivered the Trust Agreement, and by all proper corporate
action has authorized the acceptance of the duties and obligations of the
Trustee under the Trust Agreement and to authorize in such capacity the
authentication and delivery of the Bonds; and
(iii) Authorization, Execution and Delivery - assuming due
authorization, execution and delivery by the Authority, the Trust
Agreement is the valid, legal and binding agreement of the Trustee,
enforceable in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights in general and by general
equity principles (regardless of whether such enforcement is considered in
a proceeding in equity or at law).
(15) A certified copy of the general resolution of the Trustee
authorizing the execution and delivery of certain documents by certain officers of
the Trustee, which resolution authorizes the execution and delivery of the Trust
Agreement, and the authentication and delivery of the Bonds.
45830483.2 12 112
(16) Transcripts of all proceedings relating to the authorization and
issuance of the Bonds certified by the Secretary or an Assistant Secretary of the
Authority; and
(17) Such additional legal opinions, certificates, instruments and other
documents as the Underwriter may reasonably request to evidence the truth and
accuracy, as of the date hereof and as of the date of the Closing, of the Authority's
and the City's representations and warranties contained herein and of the
statements and information contained in the Official Statement and the due
performance or satisfaction by the Authority and the City on or prior to the date of
the Closing of all the agreements then to be performed and conditions then to be
satisfied by it.
All the opinions, letters, certificates, instruments and other documents mentioned
above or elsewhere in this Bond Purchase Agreement shall be deemed to be in compliance with
the provisions hereof if, but only if, they are in form and substance satisfactory to Bond Counsel,
Counsel for the Underwriter, and the Underwriter. The opinions and certificates referred to in
clauses (6), (7) and (8) of this paragraph (e) shall be deemed satisfactory provided they are
substantially in the forms attached as exhibits to this Bond Purchase Agreement.
If the Authority and the City shall be unable to satisfy the conditions to the
obligations of the Underwriter to purchase, to accept delivery of and to pay for the Bonds
contained in this Bond Purchase Agreement, or if the obligations of the Underwriter to purchase,
to accept delivery of and to pay for the Bonds shall be terminated for any reason permitted by
this Bond Purchase Agreement, this Bond Purchase Agreement shall terminate and neither the
Underwriter nor the Authority nor the City shall be under any further obligation hereunder.
9. Termination. The Underwriter shall have the right to terminate the
Underwriter's obligations under this Bond Purchase Agreement to purchase, to accept delivery
of and to pay for the Bonds by notifying the Authority, in writing, of their election to do so, if,
after the execution hereof and prior to the Closing: (a) the United States has become engaged in
hostilities which have resulted in a declaration of war or a national emergency; (b) there shall
have occurred the declaration of a general banking moratorium by any authority of the United
States or the States of New York or California; (c) an event shall have occurred or been
discovered as described in paragraph (m) of Section 5 or paragraph (n) of Section 6 hereof which
in the opinion of the Underwriter requires the preparation and publication of disclosure material
or a supplement or amendment to the Official Statement; (d) any legislation, ordinance, rule or
regulation shall be introduced in, or be enacted by any governmental body, department or agency
in the State of California, or a decision by any court of competent jurisdiction within the State of
California shall be rendered which, in the Underwriter's reasonable opinion, materially adversely
affects the market price of the Bonds; (e) legislation shall be introduced, by amendment or
otherwise, or be enacted by the House of Representatives or the Senate of the Congress of the
United States, or a decision by a court of the United States shall be rendered, or a stop order,
ruling, regulation or official statement by or on behalf of the Securities and Exchange
Commission or other governmental agency having jurisdiction of the subject matter shall be
made or proposed, to the effect that the issuance, offering or sale of obligations of the general
character of the Bonds, or the Bonds, as contemplated hereby or by the Official Statement, is or
45830483.2 13 113
would be in violation of any provision of the Securities Act of 1933, as amended and as then in
effect, or the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust
Indenture Act of 1939, as amended and as then in effect, or with the purpose or effect of
otherwise prohibiting the issuance, offering or sale of obligations of the general character of the
Bonds or the Bonds, as contemplated hereby or by the Official Statement; (f) additional material
restrictions not in force as of the date hereof shall have been imposed upon trading in securities
generally by any governmental authority or by any national securities exchange; (g) the New
York Stock Exchange, or other national securities exchange or association or any governmental
authority, shall impose as to the Bonds, or obligations of the general character of the Bonds, any
material restrictions not now in force, or increase materially those now in force, with respect to
the extension of credit by or the charge to the net capital requirements of broker-dealers; (h)
trading in securities on the New York Stock Exchange or the American Stock Exchange shall
have been suspended or limited or minimum prices have been established on either such
exchange; or (i) any action shall have been taken by any government in respect of its monetary
affairs which, in the reasonable opinion of the Underwriter, has a material adverse effect on the
United States securities market.
If this Bond Purchase Agreement shall be terminated pursuant to Section 8 or this
Section 9, or if the purchase provided for herein is not consummated because any condition to
the Underwriter's obligation hereunder is not satisfied or because of any refusal, inability or
failure on the part of the Authority or the City to comply with any of the terms or to fulfill any of
the conditions of this Bond Purchase Agreement, or if for any reason the Authority or the City
shall be unable to perform all of their respective obligations under this Bond Purchase
Agreement, the Authority and the City shall not be liable to the Underwriter for damages on
account of loss of anticipated profits arising out of the transactions covered by this Bond
Purchase Agreement.
10. Payment of Costs and Expenses. (a) The Authority shall pay or
reimburse all costs and expenses incident to the sale and delivery of the Bonds to the
Underwriter, including, but not limited to: (i) the fees and expenses of the Authority and its
Counsel; (ii) the fees and expenses of the City and its Counsel; (iii) the fees and expenses of the
Financial Advisor, Bond Counsel and Disclosure Counsel; (iv) all costs and expenses incurred in
connection with the preparation and printing of the Bonds; (v) all expenses in connection with
the preparation, printing, distribution and delivery of the Preliminary Official Statement, the
Official Statement and any amendment or supplement thereto; (vi) municipal bond insurance
premium, and (vii) the fees and expenses of the Trustee.
(b) The Underwriter shall pay all advertising expenses in connection with the
public offering of the Bonds.
11. Representations, Warranties and Agreements to Survive Delivery.
The representations, warranties, indemnities, agreements and other statements of the Authority,
the City and the Underwriter or their officers or partners set forth in, or made pursuant to, this
Bond Purchase Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Authority, the City or the Underwriter or any
controlling person and will survive delivery of and payment for the Bonds.
45830483.2 14 114
12. Notices. Any notice or other communication to be given under this Bond
Purchase Agreement may be given by delivering the same in writing:
To the City: City of Azusa
c/o Azusa Light &Water Department
729 N. Azusa Ave.
.Azusa, California 91702
Attention: Director of Utilities
To the Authority: Azusa Public Financing Authority
210 East Foothill Blvd.
Azusa, California 91702
Attention: Executive Director
To the Underwriter: UBS Securities LLC,
One California Street, Suite 2700
San Francisco, CA 94111
Attention:
13. Parties in Interest. This Bond Purchase Agreement is made solely for
the benefit of the Authority, the City and the Underwriter (including the successors or assigns of
the Underwriter) and no other person shall acquire or have any right hereunder or by virtue
hereof. All of the Authority's and the City's representations, warranties and agreements
contained in this Bond Purchase Agreement shall remain operative and in full force and effect,
regardless of: (i) any investigations made by or on behalf of the Underwriter; (ii) delivery of and
payment for the Bonds pursuant to this Bond Purchase Agreement; and (iii) any termination of
this Bond Purchase Agreement.
14. Determination of End of the Underwriting Period. For purposes of this
Bond Purchase Agreement, the End of the Underwriting Period for the Bonds shall mean the
earlier of (a) the day of the Closing unless the Authority and the City have been notified in
writing by the Underwriter, on or prior to the day of the Closing, that the "end of the
underwriting period" for the Bonds for all purposes of Rule 15c2-12 of the Securities and
Exchange Commission promulgated under the Securities Exchange Act of 1934 (the "Rule") will
not occur on the day of the Closing, or (b) the date on which notice is given to the Authority and
the City by the Underwriter in accordance with the following sentence. In the event that the
Underwriter has given notice to the Authority and the City pursuant to clause (a) above that the
"end of the underwriting period" for the Bonds will not occur on the day of the Closing, the
Underwriter agrees to notify the Authority and the City in writing as soon as practicable
following the "end of the underwriting period" for the Bonds for all purposes of the Rule.
15. Effectiveness. This Bond Purchase Agreement shall become effective
upon the execution of the acceptance by the designee of the Authority and the City and shall be
valid and enforceable at the time of such acceptance.
16. Headings. The headings of the sections of this Bond Purchase Agreement
are inserted for convenience only and shall not be deemed to be a part hereof.
45830483.2 15 . 115
17. Governing Law. This Bond Purchase Agreement shall be construed in
accordance with the laws of the State of California.
45830483.2 16 116
18. Counterparts. This Bond Purchase Agreement may be executed in any
number of counterparts.
If the foregoing is in accordance with your understanding of the Bond Purchase
Agreement please sign and return to us the enclosed duplicate copies hereof, whereupon it will
become a binding agreement among the Authority, the City and the Underwriter in accordance
with its terms.
Very truly yours,
UBS SECURITIES LLC
By:
Title:
Accepted:
This _ day of 2006
CITY OF AZUSA
By:
Mayor
AZUSA PUBLIC FINANCING AUTHORITY
By:
Executive Director
45830483.2 17 117
J
Exhibit A
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program),
Series 2006
$ Serial Bonds
Maturity Date Principal
(July 1) Amount Coupon Yield
Term Bonds due July 1, 20, Yield
$ % Term Bonds due July 1, 20, Yield _%
45830483.2 A-1 + +
l
l
Exhibit B
Opinion of Fulbright &Jaworski L.L.P.
Bond Counsel and Trustee
Addressed to the Underwriter
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
[dated the Closing Date]
UBS Securities LLC,
One California Street, Suite 2700
San Francisco, CA 94111
Wells Fargo Bank, National Association,
700 Wilshire Boulevard, 17a' Floor
Los Angeles, California 90017
Ladies and Gentlemen:
We have this day released to the Azusa Public Financing Authority (the
"Authority") and the City of Azusa (the "City") our final approving legal opinion with respect to
the subject bonds (the "Bonds"). You are authorized to rely on such opinion as if the same were
addressed to you.
In connection with rendering the above-described opinion, we examined the
record of proceedings submitted to us relative to the issuance of the Bonds and such other
documents as are in our necessary o inionto enable us to express an informed opinion with
P
respect to the following matters. Capitalized terms not otherwise defined herein shall have the
P g P
meaning ascribed to them in the Official Statement of the Authority, dated November _, 2006,
relating to the Bonds.
Based upon the foregoing, in our opinion:
1. The City and the Authority have the right and power to perform all of their
respective obligations under the Bond Purchase Agreement, dated November _ , 2006 (the
"Bond Purchase Agreement'), among the Authority, the City and the Underwriter. The City and
the Authority have duly authorized the Bond Purchase Agreement, and assuming due
authorization, execution and delivery by the other parties thereto, as necessary, the Bond
Purchase Agreement constitutes legal, valid and binding agreement of the City and the Authority
45830483.2 B-1
119
enforceable against the City and the Authority in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, moratorium, insolvency, equitable remedies
and other laws affecting creditors' rights or remedies.
2. The Bonds are not required to be registered under the Securities Act of
1933, as amended.
3. The Trust Agreement is exempt from qualification as an indenture
pursuant to the Trust Indenture Act of 1939, as amended.
4. The statements contained in the Official Statement relating to the Bonds
(including the cover page and the Appendices thereto, but excluding any statements relating to
financial or statistical information), insofar as such statements purport to summarize the
provisions of the Bonds, the Trust Agreement, the Installment Sale Agreement, the Law and
federal tax law, fairly and accurately summarize the information presented therein.
Respectfully submitted,
45830483.2 B-2 120
Exhibit C
Opinion of Counsel for the City
Addressed to the Underwriter
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
[dated the Closing Date]
UBS Securities LLC,
One California Street, Suite 2700
San Francisco, CA 94111
Ladies and Gentlemen:
We are counsel to the City of Azusa (the "City") in connection with the issuance
of the above-referenced Bonds and in such capacity, we have examined the original, certified
copies, or copies otherwise identified to our satisfaction as being true copies of such resolutions,
documents, certificates, and records as we have deemed relevant and necessary (except as we
have specifically limited the scope of our investigation herein) as the basis for the opinions set
forth herein relying on such examination and pertinent law and subject to the limitations and
qualifications hereinafter set forth, we are of the opinion that:
1. The City is, a duly organized and validly existing public body, corporate
and politic, organized under the laws of the State of California acting pursuant to the Law (as
defined in the Official Statement respecting the Bonds) with full legal right, power and authority
to perform all of its obligations under the Bond Purchase Agreement, dated November _, 2006
(the `Bond Purchase Agreement"), among the Azusa Public Financing Authority (the
"Authority"), the City and UBS Securities LLC (the "Underwriter"), the Installment Sale
Agreement, dated as of November 1, 2006 (the "Installment Sale Agreement"), between the
Authority and the City, and the Continuing Disclosure Agreement, dated as of November 1, 2006
(the "Continuing Disclosure Agreement," and, together with the Bond Purchase Agreement and
the Installment Sale Agreement, the "Legal Documents"), between the City and the Trustee, as
Dissemination Agent. The City has duly authorized the Legal Documents and assuming due
authorization, execution and delivery by the other parties thereto, as necessary, the Legal
Documents constitute legal, valid and binding agreements of the City enforceable against the
City in accordance with their terms, except as the enforceability thereof may be limited by
bankruptcy, moratorium, insolvency, equitable remedies and other laws affecting creditors'
rights or remedies.
45830483.2 C-1 121
2. To the best of our knowledge, there is no action, suit or proceeding before
or by any court, public board or body pending or threatened wherein an unfavorable decision,
ruling or finding would (a) affect the creation, organization, existence or powers of the City or
the titles of its officers to their respective offices, (b) in any way question or affect the validity or
enforceability of the Legal Documents, or (c) find illegal, invalid or unenforceable the Bond
Purchase Agreement or the transactions contemplated thereby, or any other agreement or
instrument related to the issuance of the Bonds to which the City is a party.
3. The execution and delivery of the Legal Documents and the other
instruments contemplated by any of such documents to which the City is a party, and compliance
with the provisions of each thereof, will not conflict with or constitute a breach of or default
under any applicable law or administrative rule or regulation of the State of California, the
United States or any department, division, agency or instrumentality of either thereof, or any
applicable court or administrative decree or order or any loan agreement, note, resolution,
indenture, contract, agreement or other instrument to which the Authority is a party or is
otherwise subject or bound in a manner which would materially adversely affect the City's
performance under the Legal Documents.
4. All approvals, consents, authorizations, elections and orders of or filings
or registrations with any governmental authority, board, agency or commission having
jurisdiction which would constitute a condition precedent to, or the absence of which would
materially adversely affect, the performance by the City of its obligations under the Legal
Documents have been obtained and are in full force and effect.
Respectfully submitted,
45830483.2 C-2 122
Exhibit D
Opinion of Counsel for the Authority
Addressed to the Underwriter
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
[dated the Closing Date)
UBS Securities LLC,
One California Street, Suite 2700
San Francisco, CA 94111
Ladies and Gentlemen:
We are counsel to the Azusa Public Financing Authority (the "Authority") in
connection with the issuance, sale and delivery of the above-referenced Bonds and in such
capacity, we have examined the original, certified copies, or copies otherwise identified to our
satisfaction as being true copies of such resolutions, documents, certificates, and records as we
have deemed relevant and necessary (except as we have specifically limited the scope of our
investigation herein) as the basis for the opinions set forth herein relying on such examination
and pertinent law and subject to the limitations and qualifications hereinafter set forth, we are of
the opinion that:
1. The Authority is a duly organized and validly existing public body,
corporate and politic, organized under the laws of the State of California acting pursuant to the
Law (as defined in the Official Statement respecting the Bonds) with full legal right, power and
authority to perform all of its obligations under the Bond Purchase Agreement, dated November
_, 2006 (the "Bond Purchase Agreement"), among the Authority, the City of Azusa (the
"City") and UBS Securities LLC (the "Underwriter"), the Trust Agreement, dated as of
November 1, 2006 (the "Trust Agreement"), by and between the Authority and Wells Fargo
Bank, National Association, as trustee (the "Trustee"), relating to the above-referenced Bonds
and the Installment Sale Agreement, dated as of November 1, 2006 (the `Installment Sale
Agreement," and together with the Trust Agreement and the Bond Purchase Agreement, the
"Legal Documents"), by and between the Authority and the City. The Authority has duly
authorized the Legal Documents and assuming due authorization, execution and delivery by the
other parties thereto, as necessary, the Legal Documents constitute legal, valid and binding
agreements of the Authority enforceable against the Authority in accordance with their terms,
except as the enforceability thereof may be limited by bankruptcy, moratorium, insolvency,
equitable remedies and other laws affecting creditors' rights or remedies.
45830483.2" D-1 _ 123
2. To the best of our knowledge, there is no action, suit or proceeding before
or by any court, public board or body pending or threatened wherein an unfavorable decision,
ruling or finding would (a) affect the creation, organization, existence or powers of the Authority
or the titles of its officers to their respective offices, (b) in any way question or affect the validity
or enforceability of the Legal Documents, or (c) find illegal, invalid or unenforceable the Bond
Purchase Agreement or the transactions contemplated thereby, or any other agreement or
instrument related to the issuance of the Bonds to which the Authority is a party.
3. The execution and delivery of the Legal Documents and the other
instruments contemplated by any of such documents to which the Authority is a party, and
compliance with the provisions of each thereof, will not conflict with or constitute a breach of or
default under any applicable law or administrative rule or regulation of the State of California,
the United States or any department, division, agency or instrumentality of either thereof, or any
applicable court or administrative decree or order or any loan agreement, note, resolution,
indenture, contract, agreement or other instrument to which the Authority is a party or is
otherwise subject or bound in a manner which would materially adversely affect the Authority's
performance under the Legal Documents.
4. All approvals, consents, authorizations, elections and orders of or filings
or registrations with any governmental authority, board, agency or commission having
jurisdiction which would constitute a condition precedent to, or the absence of which would
materially adversely affect, the performance by the Authority of its obligations under the Legal
Documents have been obtained and are in full force and effect.
Respectfully submitted,
45830483.2 D'2 124
Exhibit E '
Opinion of Fulbright&Jaworski L.L.P., Disclosure Counsel
Addressed to the Authority and the Underwriter
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
[dated the Closing Date]
Azusa Public Financing Authority
210 East Foothill Blvd.
Azusa, California 91702
UBS Securities LLC,
One California Street, Suite 2700
San Francisco, CA 94111
Ladies and Gentlemen:
We have acted as Disclosure Counsel to the Azusa Public Financing Authority
(the "Authority") with respect to the captioned Bonds (the "Bonds"). This opinion is rendered
pursuant to the Bond Purchase Agreement, dated November _, 2006 (the "Bond Purchase
Agreement'), by and among UBS Securities LLC (the "Underwriter"), the City of Azusa (the
"City") and the Authority, pursuant to which the Underwriter has agreed to purchase the Bonds.
The Bonds are being issued pursuant to the provisions of the Marks-Roos Local Bond Pooling
Act of 1985, constituting Article 4 of Chapter 5 (commencing with Section 6584), Division 7,
Title 1 of the Government Code of the State of California (the "Law"). The Bonds shall be
issued and secured pursuant to a Trust Agreement, dated as of November 1, 2006 (the "Trust
Agreement'), between the Authority and Wells Fargo Bank, National Association (the
"Trustee") authorizing the issuance of the Bonds. The Bonds are more fully described in the
final Official Statement of the Authority dated November_, 2006 (the "Official Statement').
In rendering this opinion, we have reviewed such records, documents, certificates
and opinions, and made such other investigations of law and fact as we have deemed necessary
or appropriate.
This letter is limited to matters governed by the federal securities law of the
United States, and we assume no responsibility with respect to the applicability or effect of the
laws of any other jurisdiction.
In our capacity as Disclosure Counsel, we have rendered certain legal advice and
assistance to the Authority in connection with the preparation of the Official Statement.
45830483.2 E-1 25
Rendering such legal advice and assistance involved, among other things, discussions and
inquiries concerning various legal matters, review of certain records, documents and
proceedings, and participation in conferences with, among others, representatives of the
Underwriter and the Financial Advisor, and representatives of the Authority and the City, and
counsel to the Authority and the City, at which conferences the contents of the Official Statement
and related matters were discussed. On the basis of the information made available to us in the
course of the foregoing (but without having undertaken to determine or verify independently, or
assuming any responsibility for, the accuracy, completeness or fairness of any of the statements
contained in the Official Statement), no facts have come to the attention of the personnel in our
firm directly involved in rendering legal advice and assistance to you in connection with the
preparation of the Official Statement which cause us to believe that the Official Statement as of
its date (excluding therefrom financial, engineering and statistical data; forecasts, projections,
estimates, assumptions and expressions of opinions; statements relating to credit enhancement
and the provider of the credit enhancement; statements relating to the treatment of the Bonds or
the interest, discount or premium related thereto for tax purposes under the law of any
jurisdiction; and the statements contained in the Official Statement under the captions 'BOND
INSURANCE" and "TAX MATTERS" as to all of which we express no view) contained any
untrue statement of a material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were made, not
misleading.
During the period from the date of the Official Statement to the date of this
opinion, except for our review of the certificates and opinions regarding the Official Statement
delivered on the date hereof, we have not undertaken any procedures or taken any actions which
were intended or likely to elicit information concerning the accuracy, completeness or fairness of
any of the statements contained in the Official Statement.
We are furnishing this opinion to you, as Disclosure Counsel, pursuant to the
Bond Purchase Agreement, solely for the benefit of the addressees. This opinion is rendered in
connection with the transaction described herein, and may not be relied upon by you for any
other purpose. This opinion shall not extend to, and may not be used, circulated, quoted, referred
to, or relied upon by, any other person, firm, corporation or other entity without our prior written
consent. Our engagement with respect to this matter terminates upon the delivery of this opinion
to you at the time of the closing relating to the Bonds, and we have no obligation to update this
opinion.
Very truly yours,
45830483.2 E-2 126
PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER_,2006
NEW ISSUE–FULL BOOK-ENTRY RATINGS: Moody's:
Standard&Poor's:
(See"RATINGS"herein)
In the opinion of Fulbright&Jaworski L.L.P., Los Angeles, California, Bond Counsel, under existing law the interest on the Bonds
is exempt from personal income taxes of the Stale of California and, assuming compliance with the lax covenants described herein, interest _
on the Bonds is excluded pursuant to section 103(a)of the Internal Revenue Code of 1986(the "Code")from the gross income of the owners
thereof for federal income tax purposes and is not an item of preference under section 57(a) of the Code for purposes of the federal
alternative minimum tax. See "TAX MATTERS."
AZUSA PUBLIC FINANCING AUTHORITY
PARITY REVENUE BONDS
(WATER SYSTEM CAPITAL IMPROVEMENTS PROGRAM)
SERIES 2006
Dated: Date of Delivery Due: July 1,as shown below on the inside cover hereof
The $ * Azusa Public Financing Authority Parity Revenue Bonds (Water System Capital Improvements Program),
Series 2006 (the 'Bonds') are being issued by the Azusa Public Financing Authority (the "Authority") to finance certain capital
improvements to the municipal water system(the"Water System")of the City of Azusa,California(the"City"),to fund a reserve account for
the Bonds,fund capitalized interest on the Bonds through and to pay costs of issuance incurred in connection with the issuance of
the Bonds.
The Bonds are being issued as fully registered bonds, registered in the name of Cede&Co. as nominee of The Depository Trust
Company, New York, New York ("DTC"), and will be available to ultimate purchasers in the denomination of $5,000 or any integral
multiple thereof, under the book-entry system maintained by DTC. Ultimate purchasers of Bonds will not receive physical certificates
representing their interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, references
herein to the owners shall mean Cede&Co.,and shall not mean the ultimate purchasers of the Bonds. Interest on the Bonds will be payable
on January I and July I of each year, commencing 1, 2007. Payments of the principal of, premium, if any, and interest on the
Bonds will be made directly to DTC,or its nominee,Cede&Co.,by Wells Fargo Bank, National Association, as trustee(the"Trustee"), so
long as DTC or Cede & Co. is the registered owner of the Bonds. Disbursements of such payments to DTC's Participants is the
responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC's Participants and Indirect
Participants, as more fully described herein. See"fHE BONDS—Book-Entry System."
The Bonds are payable from and secured by a first pledge of Revenues comprising primarily of Installment Payments received by
the Authority from the City under an Installment Sale Agreement, dated as of December 1, 2006 (the "Installment Agreement"), by and
between the Authority and the City, and from interest and other income derived from certain funds and accounts held under the Trust
Agreement for the Bonds,dated as of December 1,2006(the"Trust Agreement"), by and between the Authority and the Trustee. The City's
obligation to make Installment Payments under the Installment Agreement is payable solely from Net Revenues of the Water System. See
"SECURITY FOR THE BONDS—Revenues; Pledge of Revenues"and"—Installment Payments."
The Bonds are subject to optional redemption and mandatory sinking account redemption prior to maturity as more fully
described herein. See"THE BONDS—Redemption."
The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy for the
Bonds to be issued concurrently with the delivery of the Bonds by See"APPENDIX E—SPECIMEN BOND
INSURANCE POLICY"
[INSURER LOGO]
The Bonds are limited obligations of the Authority and are not secured by a legal or equitable pledge of or charge or lien
upon, any property of the Authority or any of its income or receipts,except the Revenues pledged under the Trust Agreement. The
full faith and credit of the Authority,the City or the public agency which is a party to the agreement creating the Authority is not
pledged for the payment of the principal of or interest or premium, if any,on the Bonds and no tax or other source of funds,other
than the Revenues,is pledged to pay the principal of or interest or premium,if any,on the Bonds. The payment of the principal of or
interest or premium,if any,on the Bonds does not constitute a debt,liability or obligation of the Authority or the City or for which
either is obligated to levy or pledge any form of taxation or for which any such entity has levied or pledged any form of taxation.
For a discussion of some of the risks associated with the purchase of the Bonds,see'BONDOWNERS' RISKS."
This cover page contains information for quick reference only. It is not intended to be a summary of all factors relating to an
investment in the Bonds. Investors must read the entire Official_Statement before making any investment decision.
The Bonds are offered when, as and if issued and accepted by the Underwriter subject to the approval, as to their validity, of
Fulbright&Jaworski L.L.P.,Los Angeles,California, Bond Counsel,and certain other conditions. Certain legal matters will be passed upon
for the Authority and the City by the City Attorney and for the Authority by Fulbright & Jaworski L.L.P., Los Angeles, California,
Disclosure Counsel. It is expected that the Bonds will be available for delivery in book-entry form on or about December—,2006.
UBS INVESTMENT BANK
Dated: November—,2006
`Preliminary;subject to change. ry
45831055.5 127
Maturity Dates,Principal Amounts, Interest Rates and Yields*
$ Serial Bonds
Maturity Date Principal Interest
(July 1) Amount Rate Yield CUSIP**
$ %Term Bonds due July 1, 20_, Yield % CUSIP**
$ %Term Bonds due July 1, 20_, Yield_% CUSIP**
*Preliminary;subject to change.
** Copyright 2006,American Bankers Association. CUSIP data herein are provided by Standard&Poor's
CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., for convenience of reference
only. Neither the Authority,the City or the Underwriter assumes any responsibility for the accuracy of this
CUSIP data.
128
No dealer, broker, salesperson or other person has been authorized by the Authority, the City or `
the Underwriter to give any information or to make any representations other than those contained herein
and, if given or made, such other information or representation must not be relied upon as having been
authorized by any of the foregoing. This Official Statement is not to be construed as a contract with the
purchasers of the Bonds. 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 representations of fact. This Official Statement is submitted in connection
with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for
any other purpose.
The information set forth herein has been obtained from official sources which are believed to be
reliable. The information and expressions of opinion herein are subject to change without notice and
neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the Authority or the City since the
date hereof. All summaries of the Trust Agreement, the Installment Sale Agreement, or other documents
referred to in this Official Statement, are made subject to the provisions of such documents, respectively,
and do not purport to be complete statements of any or all of such provisions.
The Underwriter has provided the following sentence for inclusion in this Official Statement.
The Underwriter has reviewed the information in this Official Statement in accordance with, and as part
Of, its responsibilities to investors under the federal securities laws as applied to the facts and
circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of
such information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Certain statements included or incorporated by reference in this Official Statement constitute
"forward-looking statements." Such statements are generally identifiable by the terminology used such as
"plan," "projects," "expect," "anticipate," "intend," "believe," "estimate," "budget' or other similar
words. The achievement of certain results or other expectations contained in such forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements described to .be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements. The City and the
Authority do not plan to issue any updates or revisions to those forward-looking statements if or when
their expectations or events, conditions or circumstances on which such statements are based occur.
129
CITY OF AZUSA, CALIFORNIA
AND
AZUSA PUBLIC FINANCING AUTHORITY
Azusa City Council,Authority Board of Directors and Other Elected Officials
Diane Chagnon, Mayor/Chairperson
Joseph R. Rocha, Mayor Pro-Tem/Board David O. Hardison, CouncilmemberBoard Member
Member/Vice Chairperson
Keith Hanks, CouncilmemberBoard Member Angel A. Carrillo, CouncilmemberBoard Member
Vera Mendoza, City Clerk/Secretary of Authority
Marcene Hamilton, City Treasurer/Treasurer of Authority
City Officials
Francis Delach, City Manager/Executive Director Alan Kreimeier, Director of Administrative
Services/CFO
Best Best&Krieger, City Attorney
Azusa Light & Water Utility Board
Diane Chagnon,Chairperson
David O. Hardison, Vice Chairperson Joseph R.Rocha,Board Member
Keith Hanks, Board Member Angel A. Carrillo, Board Member
Azusa Ligh & Water Staff
Joseph F.Hsu,Director of Utilities
Bob Tang, Assistant Director Dave Ramirez, Assistant Director
of Resource Management of Electric Operations
Chet Anderson, Assistant Director Karen Vanca, Assistant Director
of Water Operations of Customer Care & Solutions
Cary Kalscheuer, Assistant to the Director of Utilities
Financial Advisor
Fieldman,Rolapp&Associates
Irvine, California
Bond and Disclosure Counsel Trustee
Fulbright&Jaworski L.L.P. Wells Fargo Bank,National Association
Los Angeles, California Los Angeles, California
130
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131
TABLE OF CONTENTS
Page
INTRODUCTION....................................................................................................................................... 1
THEBONDS...............................................................................................................................................2
General ...........................................................................................................................................2
Redemption.....................................................................................................................................3
Book-Entry System.........................................................................................................................4
DebtService Requirements ............................................................................................................6
SOURCESAND USES OF FUNDS...........................................................................................................7
SECURITYFOR THE BONDS..................................................................................................................7
Revenues; Pledge of Revenues.......................................................................................................7
InstallmentPayments......................................................................................................................8
ParityObligations..........................................................................:.............................................. 10
Unconditional Obligation............................................................................................................. 10
Ratesand Charges........................................................................................................................ 11
OtherCovenants........................................................................................................................... 11
Additional Indebtedness................................:................................................................I............. 12
ReserveAccount........................................................................................................................... 13
SpecialObligation........................................................................................................................ 14
BONDINSURANCE................................................................................................................................ 14
THEPROJECT.......................................................................................................................................... 14
AZUSA LIGHT AND WATER DEPARTMENT..........................................................I......................... 15
GeneralDescription...................................................................................................................... 15
Azusa Light and Water Utility Board........................................................................................... 15
Management of the Department................................................................................................... 16
Insurance....................................................................................................................................... 17
THEWATER SYSTEM ........................................................................................................................... 17
General .........................................................................:............................................................... 17
Existing Service Territory ............................................................................................................ 17
Major Facilities and Equipment.................................................................................................... 19
SeismicActivity ........................................................................................................................... 19
Sourcesof Water.......................................................................................................................... 19
WaterRights.................................................................................................................................21
Water Production and Average Cost............................................................................................23
Customers.....................................................................................................................................24
Ratesand Charges ........................................................................................................................25
Operation and Maintenance of the Water System........................................................................26
Water Treatment and Quality Control..........................................................................................26
Recent Additions to Water System...............................................................................................27
2006 Water Project.......................................................................................................................27
Historical Coverage of Water System Obligations Debt Service.................................................28
Projected Coverage of Water Systems Obligations Debt Service................................................29
Proposition218.............................................................................................................................29
FutureInitiatives...........................................................................................................................31
BONDOWNERS' RISKS .........................................................................................................................31
LimitedObligations......................................................................................................................31
i
132
TABLE OF CONTENTS
(continued)
Page
System Operation and Expenses...................................................................................................31
SystemDemand............................................................................................................................32
CasualtyRisk................................................................................................................................32
RegulatoryRisk............................................................................................................................32
LimitedRecourse on Default........................................................................................................32
Limitationson Remedies..............................................................................................................32
Constitutional Limitations on Appropriations and Fees...............................................................33
THEAUTHORITY...................................................................................................................................33
CONTINUINGDISCLOSURE..................................................................................................................33
LEGALOPINION.....................................................................................................................................34
TAXMATTERS .......................................................................................................................................34
NOLITIGATION......................................................................................................................................36
RATINGS..................................................................................................................................................36
FINANCIALSTATEMENTS...................................................................................................................37
FINANCIALADVISOR...........................................................................................................................37
UNDERWRITING.................................:..................................................................................................37
MISCELLANEOUS..................................................................................................................................37
APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS .......................................A-1
APPENDIXB THE CITY OF AZUSA .........................................................................................B-1
APPENDIX C PROPOSED FORM OF BOND COUNSEL OPINION ........................................C-1
APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT .................................D-1
APPENDIX E SPECIMEN BOND INSURANCE POLICY ........................................................ E-I
APPENDIX F AUDITED FINANCIAL STATEMENTS OF THE CITY
AS OF JUNE 30, 2005 AND UNAUDITED FINANCIAL
STATEMENTS OF THE CITY'S WATER SYSTEM FOR THE
TWELVE MONTHS ENDED JUNE 30, 2006.......................................................F-I
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OFFICIAL STATEMENT
AZUSA PUBLIC FINANCING AUTHORITY
PARITY REVENUE BONDS
(WATER SYSTEM CAPITAL IMPROVEMENTS PROGRAM)
SERIES 2006
INTRODUCTION
The purpose of this Official Statement (which includes the cover page, inside cover and the
appendices attached hereto) is to provide information concerning the issuance, sale and delivery by the
Azusa Public Financing Authority (the "Authority") of its Parity Revenue Bonds (Water System Capital
Improvements Program), Series 2006 (the "Bonds"), in the aggregate principal amount of$
The Authority is ajoint powers agency organized under the laws of the State of California and comprised
of the City of Azusa, California (the "City") and the Redevelopment Agency of the City of Azusa (the
"Redevelopment Agency"). The Authority was formed in 1990 to provide for the financing and
acquisition of public capital improvements for the City and the Redevelopment Agency.
The Bonds are being issued pursuant to the Marks-Roos Local Bond Pooling Act of 1985,
constituting Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of
California(the"Act"), and a Trust Agreement,dated as of December 1, 2006(the"Trust Agreement"), by
and between the Authority and Wells Fargo Bank, National Association, as trustee (the "Trustee"). The
proceeds of the sale of the Bonds will be used to (i) finance the design, engineering, acquisition, and
construction of certain repairs, renovations, extensions, betterments and improvements to the City's
municipal water system (the "Project"), (ii) to fund a reserve account for the Bonds, (iii) to fund
capitalized interest on the Bonds through and (iv) to pay certain costs of issuance of the
Bonds. See"SOURCES AND USES OF FUNDS" and"THE PROJECT."
The Bonds are payable from and secured by a first pledge of "Revenues" comprised of certain
payments(the "Installment Payments") received by the Authority from the City under an Installment Sale
Agreement, dated as of December 1, 2006 (the "Installment Agreement"), by and between the Authority
and the City, and from certain interest and other income derived from certain funds and accounts held
under the Trust Agreement. The obligation of the City to make the Installment Payments is payable
solely from Net Revenues of the City's Water System (the "Water System"). Under the Installment
Agreement, the City has irrevocably pledged all Net Revenues to the payment of the Installment
Payments, subject to the terns and conditions of the Installment Agreement. See "SECURITY FOR THE
BONDS—Revenues; Pledge of Revenues." The Installment Payments are payable from Net Revenues on
a parity with certain existing obligations of the City. See "SECURITY FOR THE BONDS — Parity
Obligations."
Payment of the principal of and interest on the Bonds will be guaranteed by a municipal bond
insurance policy (the "Insurance Policy") to be issued simultaneously with the delivery of the Bonds by
(the "Insurer"). See `BOND INSURANCE," and "APPENDIX E— SPECIMEN BOND
INSURANCE POLICY."
Preliminary;subject to change.
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The Bonds are limited obligations of the Authority and are not secured by a legal or equitable
pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except
the Revenues under the Trust Agreement. Neither the full faith and credit of the Authority nor that of the
City or the Redevelopment Agency is pledged for the payment of the interest on or principal of the Bonds
and no tax or other source of funds, other than the Revenues, is pledged to pay the interest on or principal
of the Bonds. The payment of the principal of or interest on the Bonds does not constitute a debt, liability
or obligation of the Authority, the City or the Redevelopment Agency for which any such entity is
obligated to levy or pledge any form of taxation or for which any such entity has levied or pledged any
form of taxation. The Authority has no taxing power.
The summaries and references of documents, statutes, reports and other instruments referred to
herein do not purport to be complete, comprehensive or definitive, and each such summary and reference
is qualified in its entirety by reference to each document, statute, report or instrument. The capitalization
of any word not conventionally capitalized or otherwise defined herein, indicates that such word is
defined in a particular agreement or other document and, as used herein, has the meaning given it in such
agreement or document. See "APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS"
for summaries of certain of such definitions.
THE BONDS
General
The Bonds are being issued as fully registered bonds, registered in the name of Cede & Co. as
nominee of The Depository Trust Company, New York, New York ("DTC") and will be available to
ultimate purchasers in the denomination of$5,000 or any integral multiple thereof, under the book-entry
system maintained by DTC. While the Bonds are subject to the book-entry system, the principal, interest
and any prepayment premium with respect to a Bond will be paid by the Trustee to DTC, which in turn is
obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial
Owners of the Bonds as described herein. See"Book-Entry System" below.
The Bonds will be dated their date of delivery and will bear interest at the rates set forth on the
inside cover page of this Official Statement, payable on January 1 and July 1 of each year, commencing
19 2007 (each, an "Interest Payment Date") until maturity or earlier redemption. Subject to
the redemption provisions set forth herein, the Bonds will mature on the dates and in the amounts set forth
on the inside cover page hereof. Each Bond shall bear interest from the Interest Payment Date next
preceding the date of authentication thereof, in which event such Bond shall bear interest from such date,
or unless such date of authentication is prior to the Record Date (as hereinafter defined) for the first
Interest Payment Date, in which event such Bond shall bear interest from its date of delivery; provided,
however, that if at the time of registration of any Bond interest is then in default on the Outstanding
Bonds of such series, such Bond shall bear interest from the Interest Payment Date to which interest has
previously been paid or made available for payment on such Outstanding Bonds. The holder of
$1,000,000 or more in aggregate principal amount of Bonds of any series may request in writing, such
request filed not later than the applicable Record Date, that the Trustee pay the interest thereon by wire
transfer to an account in the United States.
Principal of any Bond and any premium upon redemption shall be paid by check of the Trustee
upon presentation and surrender thereof at the Office of the Trustee. Principal of and interest and
premium (if any) on the Bonds shall be payable in lawful money of the United States of America. So
long as Cede & Co. is the registered owner of the Bonds, payments of principal and interest on the Bonds
will be paid to DTC as registered owner of the Bonds. See"THE BONDS—Book-Entry System."
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Redemption
Optional Redemption*
The Bonds maturing on or before July 1, 20_are not subject to optional redemption prior to their
maturities. The Bonds maturing on or after July 1, 20_ shall be subject to redemption prior to their
respective maturities at the option of the Authority from prepaid Installment Payments under the
Installment Agreement on or after July 1, 20, as a whole or in part(in such maturities as are designated
to the Trustee by the Authority or, if the Authority fails to designate such maturities, on a proportionate
basis among maturities) on any date, at a redemption price equal to the principal amount of the Bonds to
be redeemed, plus a premium (expressed as a percentage of the principal amount of Bonds to be
redeemed), together with interest accrued thereon to the date fixed for redemption, as follows:
(TO COME]
Mandatory Sinking Fund Redemption*
The Bonds maturing on July 1, 20_are also subject to redemption prior to their respective stated
maturities, in part by lot, from mandatory sinking account payments deposited in the 20_ Term Bonds
Sinking Account pursuant to the applicable Trust Agreement, on any July 1 on or after July 1, 20_at the
following principal amount thereof and interest accrued thereon to the date fixed for redemption, without
premium:
Sinking Account
Redemption Date . Principal
Jul 1 Amount
20_ $
20
20_(maturity)
The Bonds maturing on July 1, 20_are also subject to redemption prior to their respective stated
maturities, in part by lot, from mandatory sinking account payments deposited in the 20_ Term Bonds
Sinking Account pursuant to the applicable Trust Agreement, on any July 1 of or after July 1, 20_at the
following principal amount thereof and interest accrued thereon to the date fixed for redemption, without
premium:
Sinking Account
Redemption Date Principal
(July 1) Amount
20_ $
20
20_(maturity)
If less than all the Outstanding Term Bonds of any maturity and series are called for redemption
at any one time, the Authority will revise the sinking account redemption schedule to reduce the
Preliminary; subject to change.
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mandatory sinking account payments required to be made with respect to such series of Bonds (in an
amount equal to the amount of Outstanding Term Bonds of such series to be redeemed), to the extent
practicable, to achieve approximately equal Annual Debt Service on such series of Bonds Outstanding
following such redemption.
Notice of Redemption
Notice of redemption shall be mailed by first-class mail by the Trustee, not less than thirty (30)
nor more than sixty (60) days prior to the redemption date to (i) the respective Holders of the Bonds
designated for redemption at their addresses appearing on the registration books of the Trustee, (ii) the
Securities Depositories and(iii) one or more Information Services. Notice of redemption to the Securities
Depositories and the Information Services shall be given by first-class mail or facsimile transmission.
Each notice of redemption shall state the date of such notice, the redemption price, if any, (including the
name and appropriate address of the Trustee), the CUSIP number (if any) of the maturity or maturities,
and, if less than all of any such maturity is to be redeemed, the distinctive certificate numbers of the
Bonds of such maturity and series to be redeemed and, in the case of Bonds to be redeemed in part only,
the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state
that on said date there will become due and payable on each of said Bonds the redemption price, if any,
thereof and in the case of a Bond to be redeemed in part only, the specified portion of the principal
amount thereof to be redeemed, together with interest accrued thereon to the redemption date, and.that
from and after such redemption date interest thereon shall cease to accrue, and shall require that such
Bonds be then surrendered at the address of the Trustee specified in the redemption notice. Failure to
receive such notice shall not invalidate any of the proceedings taken in connection with such redemption.
Book-Entry System
The information in this section concerning DTC and DTC's book-entry system has been obtained
from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the
accuracy thereof.
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered
securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may
be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each
maturity of the Bonds, in the aggregate principal amount of such maturity.
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. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and
non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over
100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the
post-trade settlement among Direct Participants of sales and other securities transactions in deposited
securities through electronic computerized book-entry transfers and pledges between Direct Participants'
accounts. This eliminates the need for physical movement of securities certificates. Direct Participants
include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust
& Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC
and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and
Emerging Markets Clearing Corporation (NSCC, FICC and EMCC, also subsidiaries of DTCC), as well
as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National
4 137
Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that
clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). DTC has Standard &Poor's highest rating: AAA. The DTC Rules applicable
to its Participants are on file with the Securities and Exchange Commission. More information about
DTC can be found at www.dtcc.com and www.dtc.org. The information contained'on such websites is
not incorporated herein by reference.
Purchases of Bonds under the DTC system must be made by or through Direct Participants,
which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual
purchaser of each Bond ("Beneficial Owner") is in tum to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation from DTC of their
purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the
Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership
interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are
registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be
requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration
in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be
the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct .
Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial
Owners will be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a series are being
redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in
such series to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to
Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual
procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Bonds are credited on the record date(identified in a listing attached to the Omnibus Proxy).
Payments of principal of, premium, if any, and interest on the Bonds will be made to Cede &Co.,
or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to
credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information
from the Authority or the Trustee, on the payable date in accordance with their respective holdings shown
on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of such Participant and not of
DTC, the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect
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from time to time. Payment of such principal, premium and interest to Cede & Co. (or such other
nominee as may be requested by an authorized representative of DTC) is the responsibility of the
Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Bonds at
any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the
event that a successor securities depository is not obtained, Bond certificates are required to be printed
and delivered.
The Authority may decide to discontinue use of the system of book-entry-only transfers through
DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered
to DTC.
Debt Service Requirements
The following is the annual debt service schedule for the Bonds and 2003 Certificates, which are
payable from Net Revenues on a parity with the Bonds, assuming no redemption other than mandatory
sinking account redemptions. See"SECURITY FOR THE BONDS —Parity Obligations"below.
Bonds 2003 Certificates
Bond Year
Ending July I Principal Interest Principal Interest Total
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SOURCES AND USES OF FUNDS
The following sets forth the estimated sources and uses of funds related to the issuance of the
Bonds.
Sources of Funds:
Principal Amount
Less: Underwriter's Discount
Total Sources of Funds
Uses of Funds:
Deposit to Acquisition Fund
Deposit to Reserve Account
Deposit to Expense Fund')
Deposit to Interest Account(2)
Total Uses of Funds
D Includes fees and expenses of the Financial Advisor,Bond and Disclosure Counsel,fees of the Trustee,bond
insurance premium,printing and other miscellaneous costs associated with the issuance of the Bonds.
(2) Amount represents capitalized interest on the Bonds through
SECURITY FOR THE BONDS
Revenues;Pledge of Revenues
All Revenues and any other amounts (including proceeds of the sale of the Bonds) held by the
Trustee in any fund or account established under the Trust Agreement are irrevocably pledged to the
payment of the interest and premium, if any, on and principal of the Bonds, and the Revenues shall not be
used for any other purpose while any Bonds remain Outstanding; provided, however, that out of the
Revenues and other moneys of the Water System there may be applied such sums for such purposes as are
permitted under the Trust Agreement. Such pledges constitute a first pledge of and charge and lien upon
the Revenues and all other moneys on deposit in the funds and accounts established under the Trust
Agreement for the payment of the interest on and principal of the Bonds, in accordance with their terms
and the terms of the Trust Agreement.
In order to carry out and effectuate the pledge, charge and lien on the Revenues, the Authority
agrees and covenants that all Revenues when and as received shall be received by the Authority in trust
for the benefit of the holders of the Bonds shall be deposited when and as received by the Authority in the
Revenue Fund created under the Trust Agreement and which funds the Authority agrees and covenants to
maintain with the Trustee so long as any Bonds are Outstanding. All Revenues shall be accounted for
through and held in trust in the Revenue Fund, and the Authority has no beneficial right or interest in any
of the Revenues except only as provided in the Trust Agreement.
"Revenues" are defined in the Trust Agreement as all Installment Payments and other payments
paid by the City and received by the Authority pursuant to the Installment Agreement and all interest or
other income from, any investment of any money in any fund or account created under the Trust
Agreement.
140
Installment Payments
Pursuant to the Installment Agreement, the City is obligated to make Installment Payments, but
solely from Net Revenues, which are sufficient to provide for the payment of the principal of and interest
on the Bonds. The obligation of the City to pay the Installment Payments from Net Revenues is absolute
and unconditional, and until such time as all Installment Payments under the Installment Agreement have
been paid in full (or provision for the payment thereof shall have been made pursuant to the Trust
Agreement), the City will not discontinue or suspend any Installment Payments required to be paid by it
under the Installment Agreement when due, whether or not the Water System or any part thereof is
operating or operable, 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.
The Installment Agreement defines Net Revenues as the Gross Revenues less Operation and
Maintenance Expenses. These terms are defined as follows:
"Gross Revenues" means all revenues, charges, income and receipts derived by
the City from the operation of the Water System or arising from the Water System
(including all revenues, charges, income and receipts received by the City from the
services, facilities and distribution of water by the City), including, but not limited to
income from investments, but excepting therefrom all refundable charges and deposits to
secure service.
"Operation and Maintenance Expenses" means the amount required to pay the
reasonable expenses of management, repair and other costs of the nature of costs which
have historically and customarily been accounted for as such, necessary to operate,
maintain and preserve the Water System in good repair and working order, including but
not limited to, the cost of supply and transmission of water under long-term contracts or
otherwise and the expenses of conducting the activities of the water division of the City,
but excluding depreciation. "Operation and Maintenance Expenses" shall not include any
payments to the City for special franchise fees or any transfers to the City's general fund.
Flow of Gross Revenues. The City agrees and covenants that all Gross Revenues received by it
shall be deposited when and as received in the Water Fund, and all money on deposit in the Water Fund
shall be applied and used only as provided in the Installment Agreement. The City shall pay all Operation
and Maintenance Expenses (including amounts reasonably required to be set aside in contingency
reserves for Operation and Maintenance Expenses the payment of which is not then immediately
required) from the Water Fund as they become due and payable, and remaining Net Revenues on deposit
in the Water Fund shall be transferred or expended by the City at the following times in the following
order of priority:
(a) Parity Obligation Service; Transfers. On or before the third Business
Day before each date on which Parity Obligation Service (including the Installment
Payments) becomes due and payable (whether at maturity or prior redemption or
otherwise) the City shall, from the Net Revenues in the Water Fund, transfer to the
Trustee for deposit in the Revenue Fund and to the trustee or trustees for any
corresponding funds or accounts relating to any other Parity Obligations, sums equal to
the amount of Installment Payments and other Parity Obligation Service, respectively,
becoming due and payable on such due date, except that such a deposit need not be made
if the Trustee or such other trustees, as the case may be, then holds monies in the
8 141
Revenue Fund or any corresponding funds or accounts, respectively, at least equal to the
amount of Installment Payments or other Parity Obligation Service (including mandatory
sinking account payments) becoming due and payable on the next succeeding date on
which Parity Obligation Service becomes due and payable; provided, however, that if Net
Revenues are not sufficient to make such transfers, then such transfers shall be made on a
pro rata basis based upon the amount due on each such series of Parity Obligations.
Until such time the 2003 Installment Sale Agreement (as defined below) is
terminated, in order to provide for the payment when due of semi-annual Installment
Payments, the City shall, on or before the 15th day of each month, make payments to the
Trustee, for deposit in the Revenue Fund, equal to 1/6 of the Interest Component coming
due on the following Interest Payment Date and 1/12 of the Principal Component coming
due (including any mandatory sinking fund payment)on the following Principal Payment
Date; provided, however, (i) with respect to the Interest Component coming due on
1, 2007, the City shall make monthly payments on or before the 15th day of
each of the months of through _2007, inclusive, equal to 1/_of the
Interest Component coming due on such Interest Payment Date, and (ii) with respect to
the Principal Component coming due on July 1, 200_, the City shall make monthly
payments on or before the 15th day of each of the months of— 200_through
200, inclusive, equal to 1/_ of the Principal Component coming due on
such Principal Payment Date. Each such monthly payment received by the Trustee shall
be credited against the City's obligation to make Installment Payments on the following
Interest Payment Date. Not less than three Business Days prior to 1, 2007 and
1, 200_ and not less than three Business Days prior to January 1 and July I of
each year thereafter, the City shall pay to the Trustee for deposit into the Revenue Fund
the amount of the Installment Payments due on such January 1 or July, respectively, as
shown in the Installment Agreement; provided however, no such semi-annual payments
need be made to the extent moneys have been received and credited against such semi-
annual obligation as a result of previous monthly payments as provided for in the first
sentence of this section.
Each monthly payment as provided in the Installment Agreement and any
Installment Payment thereunder shall be paid by the City in funds available on the due
date as set forth in the Installment Agreement in lawful money of the United States of
America to the Trustee.at its Corporate Trust Office, and the City agrees that such
amounts shall be held, invested, disbursed and applied as provided in the Trust
Agreement.
(b) Reserve Account; Transfers. On or before the third Business Day before
each date on which Parity Obligation Service becomes due and payable, the City shall,
from the remaining Net Revenues on deposit in the Water Fund after transfers pursuant to
subsection (a) above, transfer to the Trustee for deposit in the Revenue Account and to
the trustee or trustees for any corresponding funds or accounts relating to any other Parity
Obligations the respective amounts, if any, required to be so transferred to satisfy the
Reserve Account Requirement pursuant to the Trust Agreement and the reserve
requirements of each other instrument authorizing the other Parity Obligations; provided,
however, that if Net Revenues are not sufficient to make such transfers, then such
transfers shall be made on a pro rata basis based upon the amount of the deficiency in
each fund or account(including the accounts in the Revenue Fund)to which transfers are
to be made.
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(c) Rebate Payments. The City shall, from the remaining Net Revenues on
deposit in the Water Fund after transfers pursuant to subsections(a) and (b) above, make
when due any payments required to be made to the United States in accordance with the
Installment Agreement and any tax certificate relating to the Water System.
(d) Administrative Fee and Tax Payments. The City shall, from the
remaining Net Revenues on deposit in the Water Fund after transfers pursuant to
subsections (a), (b) and(c) above, transfer to the Trustee for deposit in the Administrative
Expense Fund and any other corresponding funds or accounts relating to any other Parity
Obligations the amount necessary to pay when due all Administrative Fee and Tax
Payments as provided in the Installment Agreement and other payments required to be
made from any other such corresponding funds or accounts.
(e) Remaining Net Revenues. All Net Revenues remaining on deposit in the
Water Fund after transfers pursuant to subsections (a), (b), (c) and (d) above shall be held
free and clear of the Trust Agreement by the City, and the City may use and apply such
remaining amount for any lawful purpose of the City, including, but not limited to,
replenishing any deficiencies under the Trust Agreement or any other instrument
authorizing Parity Obligations, payment of any repairs, replacements, improvements or
renewals of or to the Water System, payment of any cost or funding of any reserve or
fund, the redemption, prepayment or payment of Bonds or other Parity Obligations upon
the terms and conditions set forth in the Trust Agreement or the instrument authorizing
such other Parity Obligations, the purchase of Bonds or other Parity Obligations as and
when and at such prices as the City may determine, the payment of any subordinate
obligations in accordance with the instruments authorizing such subordinate obligations,
and transfers to the City's general fund, including but not limited to special franchise fees
or other similar fees or taxes.
Parity Obligations
The City has entered into a Series A Installment Sale Agreement, dated as of August 1, 2003,
with the Financing Authority for Resource Efficiency of California (the "2003 Installment Sale
Agreement") pursuant to which installment payments are payable from Net Revenues on a parity with the
Installment Payments. Currently, $18,045,000 of the principal component of the installment payments
payable under the 2003 Installment Sale Agreement are outstanding.
Unconditional Obligation
Installment Payments due under the Installment Agreement are calculated to be in an amount
sufficient to provide for the payment of the principal of and the interest on the Bonds. The obligation of
the City to pay the Installment Payments from Net Revenues is absolute and unconditional, and until such
time as the Installment Payments have been paid in full (or provisions for the payment thereof shall have
been made pursuant to either of the Trust Agreement), the City may not discontinue or suspend any
Installment Payments required to be paid by it under the Installment Agreement when due, whether or not
the Water System or any part thereof is operating or operable, 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.
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i
Rates and Charges
The rates to be charged for services furnished by the Water System shall be fixed so as to provide
Gross Revenues for each Fiscal Year at least sufficient to pay, as the same become due, all Operation and
Maintenance Expenses for such Fiscal Year and so as to provide Net Revenues for each Fiscal Year at
least 1.25 times the amount necessary to pay, as the same become due, all Parity Obligation Service
(including mandatory sinking account payments) on the Bonds and any other Parity Obligations for such
Fiscal Year and to pay all other obligations and indebtedness payable under the Trust Agreement or
similar agreement for any other Parity Obligation for such Fiscal Year (including the payment of any
amounts owing to any provider of any surety bond, insurance policy or letter of credit with respect to the
Bonds and any other Parity Obligations, which amounts are payable under the Trust Agreement or other
applicable instrument).
The City shall have in effect at all times rules and regulations requiring each consumer or
customer located on any premises connected with the Water System to pay the rates and charges
applicable to the Water System provided to such premises and providing for the billing thereof and for a
due date and a delinquency date for each bill. The City shall not permit any part of the Water System or
any facility thereof to be used or taken advantage of free of charge by any corporation, firm or Person, or
by any public agency (including the United States of America, the State of California and any city,
county, district, political subdivision, public corporation or agency of any thereof).
Other Covenants
Additional covenants contained in the Installment Agreement include, but are not limited to, the
following:
No Encumbrances. The City shall not create any pledge, lien or charge upon
any of the Net Revenues having priority over the lien of the Bonds and the other Parity
Obligations with respect to Net Revenues.
The City covenants that in order to fully preserve and protect the priority and
security of the Bonds, the City shall pay from the Water Fund and discharge all lawful
claims for labor, materials and supplies furnished for or in connection with the Water
System which, if unpaid, may become a lien or charge upon the revenues prior or
superior to the lien of the Bonds and impair the security of the Bonds. Except as
expressly otherwise provided in the Installment Agreement, the City shall also pay from
the Water Fund all taxes and assessments or other governmental charges lawfully levied
or assessed upon or in respect of the Water System or upon any part thereof or upon any
of the revenues therefrom.
Sale of Water System. The Water System shall not be sold or leased or
otherwise disposed of as a whole, or substantially as a whole, unless such sale, lease or
other disposition be so arranged as to provide for a continuance of payments into the
Water Fund sufficient in amount to permit payment therefrom of the principal of and
interest on, and premiums, if any, due upon the maturity or prepayment of, all Bonds and
other Parity Obligations payable out of Net Revenues, or to provide for such payments
into some other fund charged with such payments. None of the works, plant, properties,
facilities or other part of the Water System or any real or personal property comprising a
part of the Water System shall be sold, leased or otherwise disposed of if such sale, lease
or disposition would cause the City to be unable to satisfy the requirements of the
Installment Agreement.
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Maintenance and Operation of the Water System. The City covenants and
agrees that it will operate and maintain the Water System in an efficient and economic
manner and to operate, maintain and preserve the Water System in good repair and
working order.
Insurance. The City covenants that it shall at all times maintain with responsible
insurers, to the extent available from such insurers at reasonable rates as determined by
the City, all such insurance on the Water System as is customarily maintained with
respect to works and properties of like character against accident to, loss of or damage to
such works or properties and against loss of revenues. If any useful part of the Water
System shall be damaged or destroyed such part shall be restored to use unless the City
provides a Written Certificate to the Trustee and the Authority to the effect that in the
opinion of the City such restoration would not be prudent. The money collected from
insurance against accident, loss or damage shall be used for repairing or rebuilding the
lost, damaged or destroyed works and properties, and to the extent not so applied, shall be
applied to the retirement of outstanding Parity Obligations of the City and for such
purpose paid into the appropriate funds or accounts.
The City shall also maintain with responsible insurers to the extent available
from such insurers at reasonable rates worker's compensation insurance and insurance
against public liability and property damage to the extent reasonably necessary and
obtainable.
Notwithstanding the foregoing, the City may provide any insurance required by
this covenant through a self-insurance program or it may provide such insurance as part
of any blanket coverages maintained by the City.
Additional Indebtedness
The City shall not issue or incur any bonds, indebtedness or obligations(excluding obligations for
payment of Operation and Maintenance Expenses) that would be payable out of Net Revenues prior to
Parity Obligations. Except for bonds or other indebtedness issued to refund the Bonds or other Parity
Obligations payable from Net Revenues, which may be issued at any time without meeting the test set
forth below, no additional indebtedness of the City payable out of Net Revenues on a parity with the
Bonds and other Parity Obligations shall be created or incurred unless:
(i) the Net Revenues during any twelve (12) consecutive calendar months
out of the immediately preceding eighteen (18) calendar month period, plus, at the option
of the City, any or all of the items hereinafter designated in (a) and (b) below in this
provision, shall have amounted to at least one hundred twenty-five percent (125%) of the
greatest amount of Annual Parity Obligation Service immediately subsequent to the
incurring of such additional Parity Obligations, as certified by the City; or
(ii) the projected Net Revenues during the first complete Fiscal Year
following issuance of such Parity Obligations when the improvements to the Water
System financed with the proceeds of the Parity Obligations shall be in operation, plus, at
the option of the City, any or all of the items hereinafter designated in (a) and (b) below '
in this provision, shall amount to at least one hundred twenty-five percent (125%) of the
greatest amount of Annual Parity Obligation Service immediately subsequent to the
incurring of such additional Parity Obligations, as certified by the City.
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The items any or all of which may be added to such Net Revenues for the purpose of meeting
either of the requirements set forth in clause (i)or(ii)above of this provision are the following:
(a) An allowance for any increase in Net Revenues (including, without
limitation, a reduction in Operation and.Maintenance Expenses) which may arise from
any additions to or extensions or improvements of the Water System to be made or
acquired with the proceeds of such additional Parity Obligations or with the proceeds of
indebtedness previously issued, and also for Net Revenues from any such additions,
extensions or improvements which have been made or acquired with moneys from any
source but which, during all or any part of such Fiscal Year or such twelve (12)
consecutive calendar month period out of the immediately preceding eighteen (18)
calendar month period, were not in service, all in an amount equal to the estimated
additional average annual Net Revenues (or estimated average annual reduction in
Operation and Maintenance Expenses) to be derived from such additions, extensions or
improvements for the first thirty-six (36) month period in which each addition, extension
or improvement is to be in operation, all as certified by the City.
(b) An allowance for earnings arising from any increase in the charges made
for the use of the Water System which has become effective prior to the incurring of such
additional Parity Obligations but which, during all or any part of such Fiscal Year or such
twelve(12) consecutive calendar month period out of the immediately preceding eighteen
(18) calendar month period, was not in effect, in an amount equal to the amount by which
the Net Revenues would have been increased if such increase in charges had been in
effect during the whole of such Fiscal Year or such twelve (12) consecutive calendar
month period out of the immediately preceding eighteen (18) calendar month period, as
certified by the City.
Nothing in the Installment Agreement shall limit the ability of the City to issue or incur
obligations that are junior and subordinate to the payment of the principal, premium, interest and reserve
fund requirements for the Bonds and all other Parity Obligations and which subordinate obligations are
payable as to principal, premium, interest and reserve fund requirements, if any, only out of Net Revenues
after the prior payment of(i) all amounts then due and required to be paid or set aside from Net Revenues
for principal, premium, if any, interest and reserve fund requirements for the Bonds and other Parity
Obligations, as the same become due and payable and at the times and in the manner as required in the
Trust Agreement, this Installment Agreement or any documents providing for the issuance or incurrence
of other Parity Obligations and (ii) any rebate amount to the United States pursuant to the Installment
Agreement.
Reserve Account
Under the Trust Agreement, a Reserve Account is created for the Bonds (the"Reserve Account"),
and shall be held in trust by the Trustee. On the Closing Date, the Trustee shall deposit into Reserve
Account an amount equal to the"Reserve Account Requirement'for the related series of Bonds which is,
as of any date of calculation, an amount equal to the least of (i) 100% of the Maximum Annual Debt
Service for the then current or every subsequent Bond Year; (ii) 125% of the average Annual Debt
Service for the then current and every subsequent Bond Year, or (iii) ten percent (10%) of the issue price
(as defined pursuant to section 148 of the Code). An amount equal to the Reserve Account Requirement
for the Bonds shall be maintained in the Reserve Account at all times, subject to the provisions of the
Trust Agreement, and any deficiency therein shall be replenished from the first available Revenues
pursuant to the Trust Agreement.
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Moneys in the Reserve Account shall be used solely for the purpose of replenishing the Interest
Account or the Principal Account under the Trust Agreement, in that order, in the event of any deficiency
at any time in either such Account. In the event that the amount on deposit in either such Account on any
date is insufficient to enable the Trustee to pay in full the aggregate amount of principal of, redemption
premium, if any, and interest on the Bonds coming due and payable, the Trustee shall withdraw the
amount of such insufficiency from the Reserve Account and transfer such amount to the related Interest
Account and Principal Account.
Whenever the amount on deposit in a Reserve Account falls below the Reserve Account
Requirement, the Trustee will send a notice to the City in writing stating the amount of the deficiency
resulting from (i) delinquencies in payments under the Installment Agreement, (ii) a decline in the value
of investments in the Reserve Account, as applicable. Pursuant to the Installment Agreement, the City
will deposit with the Trustee the requisite amount from the Revenue Fund under the Installment
Agreement to replenish the Reserve Account. In the event that any part of the deficiency in the Reserve
Account is due to a decline in the value of investments in the Reserve Account, such replenishment shall
be made from the Revenue Fund under the Installment Agreement in proportion to the principal amount
of Installment Payments remaining unpaid under the Installment Agreement, and the written notice from
the Trustee shall specify such proportionate amounts.
All or any portion of the Reserve Account Requirement for the Bonds may be satisfied by the
provision of a policy of insurance, a surety bond, a letter of credit or other comparable credit facility
(collectively referred to herein as a "Credit Facility"), or a combination thereof, which, together with
moneys on deposit in the Reserve Account, provide an aggregate amount equal to the Reserve
Requirement; provided, that the provider of any such policy of insurance, surety bond, letter of credit or
other comparable credit facility must be rated in one of the two highest rating categories by Moody's
Investors Service at the time of delivery of such credit facility, and the Bond Insurer has provided the
Authority with its express written consent.
Special Obligation
The City'sg obligation to pay the Installment Payments is a special obligation of the City
limited
solely to the Net Revenues. Under no circumstances shall the City be required to advance moneys
derived from any source of income other than the Net Revenues and other sources specifically identified
in the Installment Agreement for the payment of such Installment Payments.
BONDINSURANCE
[TO COME]
THE PROJECT
The Project will consist of additions, betterments, extensions or improvements to the Water
System as part of its Water System Master Plan, including the design and construction costs associated
with a water treatment plant, an adjacent reservoir and two underground reservoirs as further described
under"THE WATER SYSTEM—2006 Water Project"herein.
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AZUSA LIGHT AND WATER DEPARTMENT
General Description
Chapter 78 of the City Municipal Code provides for the functions and duties of the Light and
Water Department (the "Department") which is responsible for construction, maintenance and operation
of electric and water utilities owned or operated by the City. The Department's Director administers the
Department under the authority of the City Manager and is charged with the operation of both the City's
electric system (the"Electric System") and the Water System.
The Water System and the Electric System provide water as well as electricity to virtually all of
the residential, commercial and industrial customers within the City limits, and the Water System serves
portions of the Cities of Covina, Glendora, Irwindale, West Covina, and unincorporated areas of Los
Angeles County. The funds and accounts of the Electric System and the Water System are held
separately, and the funds and accounts of one system are not pledged or available to pay the other
system's obligations. The Bonds are being issued to finance improvements to the Water System. See
"THE PROJECT'."
Azusa Light and Water Utility Board
The City Council established the Azusa Light and Water Utility Board (the "Utility Board") by
Ordinance No. 01-03. The Utility Board is empowered to carry out the following duties: (1)establish
rates for the Electric System and Water System and such other fees and charges as may be appropriate in
the provision of utility services, (2)establish rules and regulations governing the conduct of the Utility
Board and its members and the employees of the Department, (3)control and order the expenditures of all
money received from the sale or use of water and electric power for defraying of expenses, maintenance,
repairs, construction, extension and operation of the Water System and Electric System and for any
expenses for additions to same, (4) supply Systems' customers with water and electric power for any and
all purposes and adopt all necessary rules and regulations for the provisions of service, (5)enter into
contracts with any public or private agency for the exchange of water or electric power, (6) hold, lease,
acquire and purchase property in the name of the City, and (7)dispose of property surplus to the needs of
the Water System or Electric System.
The Utility Board consists of five members, none of whom may hold any paid office in City
government or be a City employee. The members of the Utility Board are currently the five City Council
members.
The current members of the Utility Board are:
DIANE CHAGNON, Chairperson. Ms. Chagnon is a Housewife.
DAVID O. HARDISON, Vice Chairperson. Mr. Hardison is a Businessman.
JOSEPH R.ROCHA. Mr.Rocha is a retired High School Teacher.
KEITH HANKS. Mr. Hanks is a Civil Engineer.
ANGEL A. CARRILLO. Mr. Carrillo is a High School Teacher,
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15
Management of the Department
JOSEPH F.HSU,Director of Utilities
Mr. Hsu has served as the Director of the Department since January 1983. Mr. Hsu oversees the
Water System and the Electric System which serve approximately 15,000 electric customer accounts
within the City and 22,000 water customer accounts inside and outside of the City boundaries. Mr. Hsu
received his Bachelor of Science Degree in Electrical Engineering in 1971 from the University of
Nebraska, and Master of Business Administration from Azusa Pacific University in 1991. He is a
registered professional engineer in electrical engineering in the States of Nebraska and California.
BOB TANG, Assistant Director of Resource Management
Mr.Tang joined the Department in June 1994. His responsibilities include management of power
and transmission resources, state and federal regulatory matters, wholesale contract administration,
financial planning, and retail rate setting. He holds a Bachelor of Science Degree from Escola Politecnica
do Sao Paulo, Brazil and a Master of Science and Ph.D. Degrees from UCLA, all in electrical
engineering. Prior to joining the Department, Mr.Tang worked for the City of Vernon for 3-1/2 years
where he managed power resource planning functions.
DAVID RAMIREZ, Assistant Director of Electric Operations
Mr. Ramirez has been with the Department for over 24 years and has a total of 30 years of
experience in the utility field. He has served as the Assistant Director of Electrical Operations since
August of 2000. Prior to that Mr.Ramirez served as Electric Operations Manager and Electric Operations
Superintendent since October 1990. Mr. Ramirez manages the construction, maintenance and operations
of the Electric System.
Mr. Ramirez graduated from Northrup Institute of Technology, Inglewood, California in 1972,
with a Certificate of Graduation in Airframe &Power Plant Maintenance. He is an active member of the
Western Underground Utility Committee.
CHET ANDERSON, Assistant Director of Water Operations
Mr. Anderson has served as the Assistant Director of Water Operations since September of 2000.
Mr. Anderson oversees the operation of the Water System. He has provided civil engineering services for
approximately 28 years. Mr. Anderson previously worked as a design engineer, project manager and
supervising engineer in Illinois, Colorado, and California for various consultants, special districts, and
Southern California Water Company. Mr. Anderson holds a Bachelor of Arts Degree from Southern
Illinois University, and a Bachelor of Science Degree in Civil Engineering from Bradley University. He
is a registered professional engineer in civil engineering in California and is also an inactive Professional
Engineer in the State of Colorado.
KAREN VANCA, Assistant Director of Customer Care &Solutions
Ms. Vanca joined the Department in April 2001. Her responsibilities include management of
customer service and public benefit funds. She has a Bachelors Degree in Business Administration from
California State Polytechnic University at Pomona and is a Certified Internal Auditor and Certified Fraud
Examiner. Prior to joining the Department, Ms. Vanca worked for the City of Glendale for 4-1/2 years
where she managed customer services and marketing operations. Previously she worked for Southern
California Edison Company for 18 years. During that time she was a manager in the Internal Audits
16 149
Department, Budgets & Administration Manager in the Health Care & Employee Services Department,
and Customer Service Manager.
CARY KALSCHEUER, Assistant to the Director of Utilities
Mr. Kalscheuer has been with the Department since January 2000 and assists with budgeting and
financial analysis of the Utility and administers the Utility Board Agenda process and solid waste
franchise agreement. Mr. Kalscheuer served the City of Covina previously in various management
capacities for about 10 years. Mr. Kalscheuer holds a Bachelor of Arts Degree and Master of Public
Administration Degree with a concentration in Finance from California State University,Fullerton.
Insurance
The City is self-insured for workers' compensation and general liability claims arising in the
ordinary course of City operations, including utility operations. The City is a member of the Independent
Cities Risk Management Authority ("ICRMA") for general liability insurance coverage in excess of
$500,000 up to a maximum of$20,000,000 per claim and for coverage of workers' compensation claims
in excess of $350,000 up to a maximum of $1,000,000 per claim. The City also carries property loss
insurance through ICRMA in the amount of $25,000,000 per claim with a deductible of $10,000 per
occurrence. In addition to the property loss insurance, the City carries excess property insurance totaling
$75,000,000.
For the past three years, no settlements or claims payments have exceeded the amount of the
applicable insurance coverage. The City believes that provisions for claims as of June 30, 2006 are
adequate to cover the.net cost of claims incurred as of that date. However, such liabilities are based upon
estimates and there can be no assurance that the ultimate cost will not exceed such estimates.
THE WATER SYSTEM
General
The Water System began operation in 1899, the year after the incorporation of the City. That
same year the City issued water bonds to finance construction of the facilities of the Water System. Deep
ground water wells were drilled and their initial use was primarily for agricultural consumption. In the
latter half of the 1940s the wells were redeveloped for domestic production. In 1993, the City acquired
the outstanding shares and retired the outstanding debt of the Azusa Valley Water Company ("AVWC"),
substantially increasing the Water System service territory, customer base and facilities.
Existing Service Territory
The Water System service territory includes the City and adjoining portions of surrounding cities
and unincorporated areas of Los Angeles County. The Water System serves approximately 22,000
customers with an estimated population of 108,000 persons. About 40% of the Water System's
customers are located in the City, with the remainder in the Cities of Covina, Glendora, Irwindale, West
Covina, and unincorporated areas of Los Angeles County. A majority of customers served outside the
City are located in the Cities of Covina and West Covina. The Water System comprises the largest
municipal water utility in the San Gabriel Valley.
17 150
Major Facilities and Equipment
Major facilities and equipment of the Water System currently include 11 wells, 7 booster pump
stations, 10 reservoirs with a total storage capacity of 29.1 million gallons ("MG"), the existing Canyon
Filtration Plant, designed to treat 10 million gallons per day("MGD")of San Gabriel River surface water,
and 243 miles of transmission and distribution mains. In the next 2 years, the Water System is expected
to replace one 3 MG reservoir with two underground reservoirs totaling 6.6 MG of storage. The Water
System will also add one above ground reservoir with 1.25 MG of storage, one partially underground
reservoir with 4 MG of storage, two pump stations, miles of new pipeline, plus a new water treatment
plant. A portion of these additional facilities is intended to serve a master planned development of 1,200
homes in Azusa. The distribution system is divided into four pressure zones based on the hydraulic
gradient throughout the service area. The Water System also maintains fire hydrants throughout the
service area. The Department maintains a program that monitors the condition of all major facilities and
equipment of the Water System. Facilities and equipment are rehabilitated or replaced on a timely basis
to ensure reliable service.
Seismic Activity
The City is located in a region of seismic activity. The principal earthquake fault in the Los
Angeles and City area is the San Andreas Fault, which extends an estimated 700 miles from north of the
San Francisco area to the Salton Sea in Southern California. At its nearest point, it is approximately 30
miles from the City.
Announcements on January 20, 1995 by the scientists associated with the Southern California
Earthquake Center indicated that the probability of a magnitude 7 or greater earthquake occurring in
Southern California is between 80% and 90% in the 30-year period following the announcement. It is
impossible to accurately predict the cost or effect of such an earthquake on the Water System, and on the
Water System's ability to provide continued uninterrupted service to all parts of its service areas.
A future earthquake could cause significant damage to the City and the facilities of the Water
System and could adversely affect the ability of the Water System to meet all of its financial obligations.
On January 17, 1994, an earthquake of approximately 6.6 magnitude on the Richter Scale was centered in
the northwest San Fernando Valley section of the City of Los Angeles. It caused widespread damage to
commercial and residential structures, and to major freeways, causing business interruptions and
disrupting the normal flow of traffic. The Water System was not significantly damaged by this
earthquake. In the event of a severe earthquake, however, the amount of moneys available to pay debt
service on the Bonds could be reduced significantly.
Sources of Water
The Water System relies on several sources of water supply: (i) underground water, which is
pumped from 11 deep wells currently in operation within the Main San Gabriel Basin, Intermediate San
Gabriel Basin, and Upper San Gabriel Basin; (ii) surface water from the San Gabriel River, which is
filtered and treated at the Canyon Filtration Plant located in north Azusa; and (iii) water purchased from
The Metropolitan Water District of Southern California ("MWD"). MWD has no obligation to sell water
to the City. The Water System has interconnections with other water purveyors and is able to supply
water to other systems on an emergency basis.
Total water production for the fiscal year ending June 30, 2006, amounted to 25,512 AF, a
decrease of 5.3% from the amount produced in the prior year. Of total produced, 86.2% or 21,990 AF
was produced from the deep wells, and 13.8% or 3,522 AF was produced at the Canyon Filtration Plant
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from surface water supplied by the San Gabriel River. No water was purchased from MWD during fiscal
year ending June 30, 2006. Although water production from each source has varied from year to year,
total annual production for the past five years, from 2002 through 2006, has been between 21,780 AF to
25,512 AF. The lowest cost water source is the San Gabriel River, which has varied from 8.9% to 25.0%
of total production over the period from 2002 to 2006. The most expensive source of supply is imported
treated water purchased from MWD, but over the period from 2002 to 2006 these purchases have made
up less than I% of total production. From 2002 through 2006, ground water supplies have varied from a
low of 74.4% to as much as 91.1% of total water produced. As the City continues to grow, it will be
important to increase its capacity to treat surface water to keep costs down. To accomplish this goal in
the long term, the City has initiated a process to replace its existing filtration plant with a new, higher
capacity water treatment plant which is a subject of this financing, and also has executed agreements with
developers which require the construction of three additional reservoirs. See "THE WATER SYSTEM—
2006 Water Project"herein.
During the fiscal year ending June 30, 2006, the Water System distributed an average of 22.8
MGD, with an app-oximate peak day distribution of 32.2 MGD. Total water production for the fiscal
year ending June 30,2006 was 8,313 MG.
In 1979, studies revealed that portions of the Main San Gabriel Basin had been contaminated by
volatile organic compounds ("VOCs"), principal among which are trichloroethylene ("TCE") and
perchloroethylene (`PCE"). In 1984, the United States Environmental Protection Agency (the "EPA")
placed.the San Gabriel Basin on its National Priorities List. Contamination by VOCs has necessitated the
closure of numerous wells and the blending or treatment of water from other wells in order to meet State
and Federal drinking water requirements. Because the VOC contamination is located in the Main San
Gabriel Basin, downstream from the wells of the Water System, the VOC contamination poses no threat
to the Water System wells. The Upper and Intermediate San Gabriel Basins remain free of VOC
contamination. VOC contamination is still considered a significant issue in the San Gabriel Basin,
however, it is not a significant issue for the Water System due, in part, to the City of Azusa's location at
upstream of the ground water gradient.
Since 1953, surface and ground water have been taken from the groundwater resources utilized
by the Water System and other water purveyors in the San Gabriel Valley (the "Watershed") at a rate
greater than that at which natural precipitation and runoff can replenish them. To maintain the
productivity of wells in spite of this overdraft condition, the Watershed must be recharged by importing
water from outside sources and spreading it in basins located above the waterbearing strata of the
Watershed. This "replacement water" or "spreading water' currently is provided by three local water
districts (the "Local Water Districts"): Upper San Gabriel Valley Municipal Water District, a member
public agency of MWD; Three Valleys Municipal Water District, formerly Pomona Valley Municipal
Water District, also a member public agency of MWD, and the San Gabriel Valley Municipal Water
District (the "District"), which has a direct contract with the California Department of Water Resources
for State Water Project water.
The District was organized in 1958 by the Cities of Azusa, Alhambra, Monterey Park, and Sierra
Madre. It has an annual entitlement of State Water Project water of 28,800 AF. The District has not
requested more than 15,700 AF of State Water Project water annually in the past 5 years, and the requests
have always been fulfilled. In 1995, the District completed a one-mile extension of the State Project
Ground Water Recharge Service Connection to the Azusa Canyon Spreading Grounds. This extension
provides the Water System with an additional source of ground water replenishment.
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' Azusa purchases its replacement water from the Main San Gabriel Watermaster. During fiscal
year ending June 30, 2006, the Water System had to purchase 2,254 acre feet due to production
exceeding available water rights.
Water Rights
Pursuant to the judgment and decree in the California Superior Court case titled Upper San
Gabriel Valley Municipal Water District v. City of Alhambra et al., California Superior Court
No. 924128, Dec. 29, 1972, as amended (the "Judgment"), all of the rights of the Water System to pump
ground water and to divert surface water are under the jurisdiction of the Main San Gabriel Basin
Watermaster(the"Watermaster").
The Watermaster, a 9-member board composed of six representatives of water producers and
three public representatives, determines the annual amount of water that can safely be produced from the
Watershed (the "Operating Safe Yield"). Parties which produce in excess of their share of the Operating
Safe Yield are subject to assessment by the Watermaster for the purpose of purchasing replacement water
to recharge the ground water basin. The Water System pays a replacement water charge that varies
depending on the geographic location of the overdraft. By agreement between the City, the Watermaster,
and the District, 40% of the City's total annual water production is considered produced within the
District service boundaries, and is subject to a water replacement cost of $130 per acre foot for water
produced in excess of the City's water rights, which are dedicated for use within the District's service
boundaries. The remaining 60% of the City's total annual water production is considered produced
within the service boundaries of the Upper San Gabriel Valley Municipal Water District, and is subject to
a water replacement cost of$251.90 for water produced in excess of the combined water rights of AV WC
and the Azusa Agricultural Water Company ("AAWC"), which are dedicated for use within the Upper
San Gabriel Valley Municipal Water District service boundaries.
Rights to divert surface water are fixed and do not vary with changes in the Operating Safe Yield.
Pumping rights of a producer are expressed as the percentage share of the annual Operating Safe Yield
which that producer is entitled to take without being subject to assessment for purchase of replacement
water, In years in which the Watermaster declares a reduced Operating Safe Yield, the amount of water
each pumper is entitled to take without assessment is reduced proportionately. For the Fiscal Year ending
June 30, 2006, the Operating Safe Yield was established at 240,000 AF. A producer which produces less
than its share of the Operating Safe Yield is able to carryover its unproduced share. In a year in which the
producer produces in excess of its share of the Operating Safe Yield, it may produce additional water in
an amount equal to its carryover water rights without incurring an assessment for replacement water.
A producer which has both diversion and pumping rights is treated as an "Integrated Producer."
An Integrated Producer is a producer that may, at its sole option, produce its entire aggregate production
right by any combination of pumping and diversion. The Water System is an Integrated Producer and the
proposed water treatment plant will increase the Water System's capability to use diversion rights as a
means of water supply.
The following table shows the Operating Safe Yields declared by the Watermaster for the years
1996 through 2006.
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San Gabriel Basin
Operating Safe Yield
1996—2006
Year Operating Safe Yield
(ending Tune 30) (Acre Feet)
2006 240,000
2005 170,000
2004 170,000
2003 190,000
2002 210,000
2001 220,000
2000 220,000
1999 230,000
1998 220,000
1997 210,000
1996 220,000
The Water System holds the City's water rights, the Azusa Valley Water Company (AVWC)
water rights, and rights for the Azusa Agricultural Water Company (AAWC). The Water System
possesses an annual non-adjustable diversion right of 3,785 AF, and an annual pumping right of 14,204
AF at 210,000 AF Operating Safe Yield, under the Judgment, for a total of approximately 17,450 AR
The Water System rights resulting from AAWC come from the City's ownership of approximately 99%
of AAWC. AAWC is a tax-exempt, nonprofit mutual water company obligated to provide water to its
stockholders at cost. AAWC is under the management of the City. AAWC stockholders are entitled to
receive water in amounts proportionate to their stock holdings. Apart from current assets valued at
$101,058 in its audited financial statements of June 30, 2005, AAWC owns no assets other than surface
diversion and pumping rights established under the Judgment. The City uses its approximate 99% share
of AAWC's water rights for the benefit of the Water System.
Under the Operating Safe Yield of 240,000 AF in effect for fiscal year ending June 30, 2006, the
Water System is entitled under the Judgment to the following water rights:
Adjudicated Water Rights
(Acre Feet Per Year)
Azusa AAWC"' AVWC Total
Diversion 363 170 3,252 3,785
Pumping 4,440 358 11,794 16,592
Total 4M 528 15.046 6
Water supply to the Miller Brewing Company is provided using Miller's water rights, which totaled 2,355.89
AF in FY 2005-2006 based on Operating Safe Yield of 240,000 AF. This amount is not shown in the above
table.
The City has secured sufficient sources of water to meet the projected needs of the Water
System's customers for the foreseeable future.
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Water Production and Average Cost
The following table sets forth the total water production of the Water System and the sources of
that production for Fiscal Years 2002 through 2006.
Water Production
(Acre Feet)
Fiscal Year Ended June 30
2002 2003 2004 2005 2006
Percent Percent Percent Percent Percent
AF of Total AF of Total AF of Total AF of Total AF of Total
Wells 16,197 74.4% 19,516 90.3% 23,836 91.1% 20,073 82.6% 21,990 86.2%
Surface Water 5,450 25.0 2,086 9.7 2,320 8.9 4,225 17.4 3,522 13.8
Purchased from MWD(" 133 0.6 0 0.0 0 0.0 0 0.0 0 0.0
Total 21380 100% 21.602 100% 26.156E IQO.% 2-4,298 100% 25.513 100%
Adjudicated Water Rights 17456 16 104 14,751 15537 20 376
Canyover(Overdraft)('[ 11,921 138$2 3577 (2 !2.2541
Sources:Main San Gabriel Basin Water Master Reports and City of Azusa.
ttt These are the production rights to be carried over to the next year. If the number is positive for year in which the carryover
is realized, the amount carries forward for 2 years unless used. If the amount is negative, the overdraft amount must be
paid by the City for the year in which the overdraft occurred. Payment amounts are determined through the San Gabriel
Basin Watermaster and are passed on to customers in the form of a Replacement Water Cost Adjustment. The Watermaster
report was not available at time of preparation of this Official Statement for FY 2005-2006; however, Overdraft estimate
includes consideration of Miller Brewing Company's water rights.
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Customers
During 2006, the Water System delivered approximately 6,797 MG of water to 22,000 customers.
Approximately 52.4% of such water was used for residential purposes, approximately 36% for
commercial, industrial and municipal purposes, and approximately 12% for miscellaneous purposes. The
following table sets forth the volume of Water System sales by customer class and the corresponding
revenues for the Fiscal Years shown.
Sale of Waterol
Fiscal Year Ended June 30 141
2002 2003 2004 2005 2006
Volume(MG)
Residential........................... 3,772 3,775 3,807 3,578 3,562
Commercial,Industrial
and Municipal............. 2,467 2,469 3,341 2,360 2,420
Othe..................................... ^83 100 87 828 ts> 815
Total.......................... 6.322 6344 _7.235 6366 6,797
Revenues($000s)
Residential........................... $ 8,033 $ 8,359 $ 8,770 $ 8,465 $ 8,006
Commercial,Industrial
and Municipal............. 4,923 5,111 6,494 5,453 5,031
Other Retail and Wholesale. 304 342" 345 1.071 1,274
Total.......................... 2 0 $13,812 S15.609 $142$2 $14.302
Source: Azusa Light&Water Billing Report -
"I MG=1,336.898 hundred cubic feet or ccf. 1 acre foot=3.06887 million gallons.
t')Includes retail only
cat Southern California experienced a severe drought.
141 A larger than usual water loss occurred during Fiscal Year 2005-06 -
due in part to the collapse of a 300 foot wall of a mine-reclamation
pit which broke a 12"water main which Flowed for 8 hours from two
ends.
"s A large increase from the prior Fiscal Year is primarily due to the
addition of Miller Brewing Company as a customer.
.24 157
The following table sets forth the ten largest customers of the Water System in terms of total
water sales and total billings for the fiscal year ended June 30, 2006.
Ten Largest Customers
Fiscal Year Ended June 30, 2006
Business Usage Percentage Total Percentage
Customer Tyne cc of System Charges of System
Miller Brewing Company(" Food 1,006,377 11.08% $ 991,838 6.93%
Ready Pac Food 414,363 4.56 535,467 3.75
Azusa Western Mining 246,702 2.71 315,571 2.21
Azusa Unified School District Education 201,007 2.21 248,830 1.74
City of Azusa Government 102,790 1.13 135,393 0.95
Azusa Pacific University Education 97,317 1.07 132,293 0.92
Covina Valley Unified School District Education 101,028 1.11 127,391 0.89
Azusa Greens Country Club"' Golf 84,527 0.93 88,876 0.62
S &S Foods,LLC Food 66,282 0.73 85,360 0.60
Cal Mat Site#1055-A Mining 55,065 0.61 68,398 0.48
Total 2.375.458 26.14% $2.729.417 19.09%
Source: Azusa Light&Water billing system.
(�t Receive reduced rate due to contribution of their own water rights.
Rates and Charges
Water rates are developed by the Water System and approved by the City Council after a public
hearing process. Water rates are not subject to regulation by the CPUC or by any other state agency. See
"Proposition 218" herein. The water rates of the Water System are composed of a service charge
component designed to cover a portion of the fixed costs, and a commodity charge designed to cover the
remaining fixed costs and all of the variable costs. The following table sets forth the rate increases for the
Water System since January 1, 1999.
Schedule of Rate Increases
January 1, 1999 to January 1,2006
Service Commodity
Charge Charge Approximate
(Percent (Percent Revenue
Effective Date Increase) Increase) Increase
July 1, 1999 5.00% 5.70% $790,000
April 4, 2001 3.40 3.40 551,000
July 21,2003 4.35 4.35 658,000
November 1,2005 3.00 3.00 476,000
Effective October 1992, the City Council approved a surcharge which added a cost adjustment
factor called the Replacement Water Cost Adjustment Factor (the "RWCAF'). The RWCAF was
designed to address water cost fluctuations caused by variation in Operating Safe Yield and the costs of
replacement water. The RWCAF is adjusted annually at the beginning of each fiscal year. The following
table shows RWCAF adjustments from July 1, 1999 to August 1, 2005.
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Schedule of RWCAF Charges
July 1,1999 to August 1,2006
Effective RWCAF Approximate
Date Cost Per ccf Revenue
July 1, 1999 $0.06036 $ 512,991
July 1,2000 0.06036 519,335
July 1,2001 0.06036 510,150
July 1, 2002 0.16000 1,055,501
November 1,2003 0.09000 593,720
July 26,2004 0.13000 1,175,741
June 27,2005 0.00000 0
July 1,2006 0.05000 454,331
Residential customers of the Water System, and commercial and industrial customers within the
City are billed monthly; residential, commercial and industrial customers outside of the City are billed
bi-monthly. Bills are due and payable on presentation and become delinquent after 20 days. After a
water bill is delinquent, following appropriate procedures, the Water System may disconnect the water
service. Before service is reinstated, the customer must bring the entire bill current and pay a
reconnection charge.
Operation and Maintenance of the Water System
A staff of 26.5 fulltime equivalent employees is currently employed by the City to operate and
maintain the Water System. Additional employees perform utility billing, customer services and central
administrative service functions. The cost of these additional employees is shared with the Electric
System. Water System sales and expenses are monitored on a continuing basis. Projections of future
revenues, customers, and water consumption are made annually and are revised when appropriate. Rates
are reviewed annually and are recommended for adjustment as needed to meet budgetary, capital addition
requirements, debt service obligations, and the Utility Board's reserve policy goals. The following table
sets forth the operating expenses of the Water System (excluding depreciation, amortization, interest
expense and transfers to the City General Fund) during the Fiscal Years shown.
Operating Expenses[]]
Fiscal Year Ended June 30
2002 2003 2004 2005 2006
Cost of Purchased Water $1,957,812 $2,183,863 $617,543 $1,856,809 $2,268,911
Operations and Maintenance 5,325,532 7,672,950 7,557,560 7.965,583 6,807,292
Total 17.283.344 19 8 6 Rt $8.175 103 $9.822.392 19 076 203
IU Excludes depreciation,amortization,interest expense and transfers to Azusa General Fund.
at Cost of Purchased Water for 2005 includes Water Right Lease Payment to City in amount of$1,227,916.
tat Unaudited estimate based on FY 2005-2006 budget reports.
Water Treatment and Quality Control
Water supplied by the Water System meets or exceeds all existing chemical and bacteriological
quality standards relating to domestic water supply as established by State and Federal water quality
regulations.
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A review of recent water quality data indicates that, with the exception of the presence of nitrate
and perchlorate in Well No. 10, current groundwater sources of the Water System appear to be free of
contaminants and of good water quality. Well No. 10, at 4.2 MGD, is the third largest producer of
groundwater supplies of the 11 wells of the Water System. The level of nitrate contamination at Well
No. 10 has been measured at up to 40 parts per million ("ppm"). The Department of Health Services
("DOHS") maximum contaminant level for nitrates is 45 ppm, and the Water System monitors the nitrate
level regularly. A recent sampling from Well No. 10 showed a reading of 8.3 parts per billion ("ppb") for
perchlorate. The DOHS maximum contaminant level for perchlorate is 40 ppb. Water from Well No. 10
is blended with other sources, reducing perchlorates to lower levels before being piped to customers. The
City notifies DOHS of compliance with their guidelines for monitoring and review. Well No. 10 has not
been limited for operation by DOHS and is currently an approved source of drinking water.
The Water System obtains its raw surface water supply from a diversion at the San Gabriel Dam
Reservoir. This water is filtered and disinfected at the Canyon Filtration Plant. Pursuant to a
memorandum of understanding, protection of the surface water from unauthorized human contact is the
responsibility of the Los Angeles County Department of Public Works (the "DPW"), which operates the
impoundments of the San Gabriel River, and the Los Angeles County Sheriff patrols access points to the
surface supply. The Water System is obligated under the Surface Water Treatment Rule to perform a
watershed assessment every 5 years with regard to potential contamination due to unauthorized human
contact.
Recent Additions to Water System
In 1994, the City developed a Water System Master Plan to design an integration process along
with the needed system improvements or modifications necessary to integrate the Water System with that
of AVWC's water system. Integration was completed in 1998 and in 2000 and again in 2005 the City
updated its Water System Master Plan to guide Water System maintenance and capital improvements for
the ensuing years.
Projects undertaken the past several years have resulted from studies conducted on various
facilities and equipment. Between July 1, 1998 and March 31, 2003, the Water System completed capital
improvement projects valued at approximately $15.5 million. Generally, on-going capital improvement
costs range from $2 million to $5 million annually. In 2002, Well No. 11 and No. 12 were added to the
Water System, and were funded in part by Los Angeles County, through a project to assist Los Angeles
County in sluicing sediment behind the Morris and San Gabriel Dams. A 1.0 MG reservoir was recently
added to the upper pressure zone to serve a new City residential development.
2006 Water Project
As noted under"Major Facilities and Equipment," the Water System currently owns and operates
a 10 MGD filtration plant near the mouth of San Gabriel Canyon in the City of Azusa. The plant, a
Hardinge automatic backwash (ABW) type built in the 1960's, is currently limited by the Department of
Health Services (DHS) to a maximum capacity of 7.5 MGD due to DHS' determination that the plant
pretreatment facilities are undersized and subject to hydraulic overload at flows above 7.5 MGD.
The Project includes design and construction costs associated with a 16 MGD microfiltration
water treatment plant, with appropriate pretreatment processes and solids handling facilities, to be
constructed apart from the Water System's existing Canyon Filtration Plant and, as a part of the project
proposal, the construction of a 4 million gallon (MG) water storage reservoir located adjacent to the new
water treatment plant. Due to uninterruptible demand it is necessary that the existing Water Treatment
Plant remain at full production during the construction of the new microfiltration plant. After the new
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160
plant is constructed and operational testing is complete, the existing Water Treatment Plant will be taken
out of service.
The background for this new water treatment plant is the Year 2000 Water System Master Plan
Update and a recently completed Pilot Study. The Master Plan included a Preliminary Water Treatment
Plant Assessment of the Canyon Water Treatment Plant. The Pilot Study examined the effectiveness of
membrane microfiltration technology as a treatment process to replace the existing ABW sand filtration
process. The membrane treatment process was tested on the raw water available to the Canyon Water
Treatment Plant and was found to be efficient in treating the source waters with the use of coagulation
pretreatment.
The microfiltration process to be used is a pressure membrane system using U.S. Filter
Membranes which features an "outside in" water flowthrough. All environmental documents and permits
have been obtained to proceed with the construction of the new facility.
The new plant structure will include offices and a laboratory. The new plant will be outfitted
with filters to initially treat 12 MGD.
The contractor selected to construct the Water'Treatment.Plant and 4 MG reservoir is SSC
Construction, Incorporated ,(',SSC"); California State :Contractor's `License #767170. ..,. SSC was
established in 1978 as a;general engineertng,contractor, and is currently located in Corona, California.
SSC has 120 field employees,and has successfully completed a large number of projects to California for
various public agencies and+ttilt1.tiesi Completed`projects include construction of flood,control:chahnels,
pumping Aations,reservoirs,water filtration plants; and water reclamation facilities.
One bid;protest fetter was filed'with`ihe`Eity in regard to`SSC s bid on:the Water Treatment Plant
Construction project which allege&that SSC s bid did not include a full list of subcontractors. However,
Black'&,Veatch the'engineenng firm which Teb�ewed;'each submitted bid, found all the subcontractors
..:
listed in SSCs'bid documents that_were named in the protest letter. 31i City therefore does.not_consder
the protest letter to be factual.
Othei;facilthes to'be constructedthrough,,th�s:fmancing''include two underground reservoirs
referred to as the "890 Reservoirs." The 890 Reservoirs will be located at the foothills of the San Gabriel
Mountains in the City of Azusa and will add a total of 6.6 MG of storage to the System.
Historical Coverage of Water System Obligations Debt Service
The Azusa Public Financing Authority Revenue Bonds, Series 1993A (City of Azusa Water
System Acquisition Project) (the "1993 Bonds") were refunded in full from proceeds of the Financing
Authority for Resource Efficiency of California Certificates of Participation 2003 Series A(Water System
Capital Improvements Program (the"Series A Certificates")on September 18, 2003.
The following table shows the Water System obligations debt service coverage by the Net
Revenues of the Water System for the five Fiscal Years shown.
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161
Historical Coverage of Water System Obligations Debt Service
Fiscal Year Ended June 30
2002 2003 2004131 2005 2006(01
Gross Revenues ..................... $15,022,801 $15,186,907 $17,568,586 $16,769,096 $16,613,567
Operating Expenses(l)............ 7.283,344 9.856,813 8.175 103 9.822.392 9,076,203
Net Revenue Available for
Debt Service..................... $7.739.457 $5 330 094 $9.393.483 $6,946,704 $7.537.364
Debt Service(�)............ $ 1,603,242 $ 1,603,929 $ 305,528 $ 1,484,906 $ 1,544,108
Coverage131................. 4.83 3.32 30.75 4.68 4.88
19 Excludes interest expense,depreciation,amortization and transfers to the Azusa General Fund.
(2) Represents debt service on the 1993 Bonds through 2003, and interest only payment on Series A Certificates for 2004;
payment including interest on Series A Certificates did not commence until Fiscal Year 2005.
(3) Fiscal Year 2004 Debt Coverage Ratio is inflated due to refinancing during this fiscal year which postponed debt service
payments.
(4) Unaudited estimate based on FY 2005-2006 budget reports.
Projected Coverage of Water Systems Obligations Debt Service
The following table is a summary of the projected operating results of the Water System for the
five Fiscal Years shown. The financial forecast represents the City's estimate of projected financial
results based upon its judgment of the most probable occurrence of certain important future events.
Actual operating results achieved during the projection period may vary from those presented in the
forecast and such variations may be material.
Fiscal Year Ended June 30
2007 2008 2009 2010 2011
Gross Revenues") $16,497,306 $17,502,060 $17,945,612 $18,941,014 $19,048,948
Operating Expensesl21 9.442.350 9.773.026 10.117.846 10,421.322 10.733.902
Net Revenue Available for
Debt Service $7.054.957 $7.72.034 $7.827.767 $8.519.692 $8.315.406
Debt Service 131 $1,984,365 $2,167,782 $4,159,819 $5,038,617 - $5,034,605
Coverage 3.56 3.57 1.88 1.69 1.65
(') [DESCRIBE KEY ASSUMPTIONS]
(2) [DESCRIBE KEY ASSUMPTIONS]
(3) Preliminary;subject to change.
Proposition 218
Proposition 218, a state ballot initiative known as the`Right to Vote on Taxes Act" was approved
by California voters on November 5, 1996 and, except for certain provisions which became effective on
July 1, 1997, became effective on November 6, 1996. Proposition 218 added Article XIIIC, entitled
"Voter Approval of Local Tax Levies" ("Article XIIIC"), and Article XIIID, entitled "Assessment and
Property Related Fee Reform ("Article XIIID"), to the California Constitution. Article XIIIC and Article
XIIID limit the imposition by a local government of"general taxes," "special taxes," "assessments" and
"fees" or "charges." The City is a local government within the meaning of Article XIIIC and Article
XIIID.
29 162
Article XIIIC, provides, among other things, that the initiative power shall not be prohibited or
otherwise limited in matters of reducing or repealing any local fee or charge. This extension of the
initiative power is not limited by the terms of Article XIIIC to fees and charges imposed after November
6, 1996 and, absent other authority, could result in retroactive reduction in existing fees and. charges.
Although the terms "fees" and "charges" are not defined in Article XIIIC, the California Supreme Court,
in Bighorn-Desert View Water Agency v. Kari Verjil; E.W. Kelley (July 2006), has stated that there is no
basis for excluding from Article XIIIC's authorization any of the fees subject to Article XIIID. If fees or
charges charged or collected by the City for its Water System are subjected to the initiative process and
the outcome of any initiative proceedings results in a reduction or repeal of such fees or charges, the
ability of the City to generate Revenues sufficient to comply with its covenants under the Installment
Agreement may be adversely affected. Furthermore, if voters were to approve an initiative lowering the
City's water rates or other charges, the City would need voter approval before it could change the rate or
charge that had been set by initiative. The City could,however, increase a charge that was not affected by
initiative or to impose an entirely new charge without voter approval.
Article XIIID prohibits the assessment upon any parcel of property or upon any person "as an
incident of property ownership" (defined to exclude fees for the provision of electrical or gas service) by
a local government of any tax, assessment, fee or charge except voter-approved ad valorem property taxes
and special taxes, fees or charges as a condition of property development, and assessments and "fees or
charges for property related services" levied or imposed in accordance with the provisions of Article
XIIID. City believes that its water capacity and connection charges are fees or charges as a condition of
property development within the meaning of Article XIIID, although there can be no assurance that a
court would not determine otherwise.
Under Article XIIID, revenues derived from a "fee" or"charge" (defined as "any levy other than
an ad valorem tax, a special tax or an assessment, imposed by a local government upon a parcel or upon a
person as an incident of property ownership, including user fees or charges for a property related
service") may not exceed the funds required to provide the "property-related service" and may not be
used for any purpose other than that for which the fee or charge was imposed. Further, the amount of a
"fee" or "charge" may not exceed the proportional cost of the service attributable to the parcel, no "fee"
or "charge" may be imposed for a service unless that service is actually used by, or is immediately
available to, the owner of the property in question, and no "fee" or "charge" may be imposed for general
governmental service where the service is "available to the public at large in substantially the same
manner as it is to the property owners."
In addition, in order fora "fee" or "charge" to be imposed or increased, Article XIIID provides
that, among other things, the parcel upon which a fee or charge is proposed for imposition must be
identified, the amount of the fee or charge proposed to be imposed on each such parcel must be
calculated, written notice by mail of the proposed fee or charge must be provided to the "record owner" of
each identified parcel, and a public hearing must be conducted upon the proposed fee or charge. If
written protests against the proposed "fee" or "charge" are presented by a majority of owners of the
identified parcels, the fee or charge may not be imposed. The California Supreme Court in Bighorn
indicated that once a property owner or resident has paid the connection charges and has become a
customer of a public water agency, all charges for water delivery incurred thereafter are charges for a
property-related service, whether the charge is calculated on the basis of consumption or imposed as a
fixed monthly fee. Accordingly, the imposition or increase of any fee or charge by the City for its water
service will be the subject of such a majority protest. If such a majority protest occurs, the ability of the
City to generate Net Revenues sufficient to comply with its covenants under the Installment Agreement
may be adversely affected'.
30 . 163
Article XIIID states that, beginning July 1, 1997, all "fees" or "charges" must comply with its
provisions. It is unclear how the provisions of Article X1IID will be applied to fees or charges established
prior to such date. It is also unclear how the provisions of Article XIIID will be applied to fees or charges
established after such date but prior to the Bighorn decision.
The City is unable to predict how Article XIIIC and Article XIIID will be interpreted by the
courts in the future and what, if any, implementing legislation will be enacted. Bond Counsel has advised
that there can be no assurance that Article XIIIC and Article XIIID will not limit the ability of the City to
charge and collect fees and charges for its water service sufficient to enable the City to comply with its
covenants under the Installment Agreement or that the ability of the City to generate Net Revenues
sufficient to pay principal and interest on the Bonds will not be adversely affected. See "SECURITY
FOR THE BONDS —Rate Covenant; Collection of Rates and Charges." Further, in such event, there can
be no assurance that remedies will be available to fully protect the interests of the holders of the Bonds.
See"Limitations on Remedies"below.
Future Initiatives
Articles XIIIC and XIIID 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 financial condition of the Water System, or the City's ability to increase Water System rates.
BONDOWNERS' RISKS
Payment of principal of and interest on the Bonds depends primarily upon the revenues derived
from operation of the Water System. Some of the events which could affect the revenues received by the
Water System, as well as issues that could affect the availability of moneys in any reserves, are set forth
below. The following discussion of risks is not meant to be an exhaustive list of the risks associated with
the purchase of the Bonds and the order in which the risks are discussed does not necessarily reflect the
relative importance of the various risks.
Limited Obligations
The Bonds are limited obligations of the Authority and are not secured by a legal or equitable
pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except
the Revenues. Neither the full faith and credit nor the taxing power of the City is pledged to the payment
of the Installment Payments or the principal of, premium, if any, or interest on the Bonds. No tax or other
source of funds, other than the Revenues, is pledged to pay the principal of, premium, if any, or interest
on the Bonds. Neither the payment of the principal of, nor the interest on, the Bonds constitutes a debt,
liability or obligation of the City for which the City is obligated to levy or pledge any form of taxation or
for which it has levied or pledged any form of taxation.
System Operation and Expenses
There can be no assurance that the City's expenses for the Water System will be consistent with
the descriptions in this Official Statement. Changes in technology, changes in quality standards,
availability and cost of water, loss of large customers, increased or decreased development, increases in
the cost of operation and/or other expenses could require increases in rates or charges in order to comply
with the City's rate covenant in the Installment Agreement. See "RISK FACTORS — Regulatory Risk"
below.
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164
System Demand
There can be no assurance that the demand for water services will occur as described in this
Official Statement. Reduction in levels of demand could require an increase in rates or charges in order
to comply with the covenants to fix rates and charges so as to produce Net Revenues equal to 125% of the
Installment Payments.
Casualty Risk
Any natural disaster or other physical calamity, including earthquake, may have the effect of
reducing Revenues through damage to the Water System or adversely affecting the economy of the
surrounding area. The Installment Agreement requires the City to maintain such insurance as is
customarily maintained by similar utilities systems with respect to works and properties of like character
against accident to, loss of or damage to such works or properties, but there can be no assurance that
losses in excess of the insured amount will not occur.
Regulatory Risk
Laws and regulations governing the diversion and storage of surface waters and water treatment
are enacted and promulgated by government agencies on the federal, State and local levels. Compliance
with these laws and regulations may be costly.
Although the City has covenanted in the Installment Agreement to prescribe, revise and collect
revenues for the Water System during each fiscal year which are at least sufficient to pay operating and
maintenance expenses, to pay required debt service and meet certain coverage requirements, no assurance
can be given that the cost of compliance with such laws and regulations will not adversely affect the
ability of the City to generate Net Revenues in the amounts required by the Installment Agreement to pay
all Installment Payments (which are needed to pay debt service on the Bonds).
Limited Recourse on Default
If the City defaults under the Installment Agreement, the Trustee, as assignee of the Authority
pursuant to the Trust Agreement, may exercise any right to enforce the Installment Agreement provided
therein or by law. In the event of such default, the Installment Agreement does not provide any remedy
of acceleration of the Installment Payments due over the term of the Installment Agreement, and the
Trustee is not empowered to sell the Water System or any portion thereof and use the proceeds of such
sale to prepay any obligations in respect of the Bonds. Any such suit for money damages would be
subject to limitations on legal remedies against cities in California, including a limitation on enforcement
of judgments against funds needed to serve the public welfare and interest.
Limitations on Remedies
The ability of the City to comply with its covenants under the Installment Agreement and to
generate Net Revenues sufficient to pay principal of and interest on the Bonds may be adversely affected
by actions and events outside of the control of the City and may be adversely affected by actions taken (or
not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. See
"Proposition 218" above. Furthermore, any remedies available to the owners of the Bonds upon the
occurrence of an event of default under either Installment Agreement are in many respects dependent
upon judicial actions which are often subject to discretion and delay and could prove both expensive and
time consuming to obtain.
32 165
In addition to the limitations on remedies contained in the Installment Agreement, the rights and
obligations under the Bonds and the Installment Agreement may be subject to bankruptcy, insolvency,
reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting
creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in
appropriate cases and to limitations on legal remedies against cities in the State of California. The
opinion to be delivered by Fulbright&Jaworski L.L.P., Bond Counsel, concurrently with the issuance of
the Bonds; that the Bonds constitute valid and binding limited obligations of the City payable from and
secured by a first lien upon and pledge of Net Revenues as and to the extent provided in the Installment
Agreement constitutes the valid and binding obligations of the City will be subject to such limitations and
the various other legal opinions to be delivered concurrently with the issuance of the Bonds will be
similarly qualified. A complete copy of the proposed form of opinion of Bond Counsel is set forth in
Appendix C hereto. In the event the City fails to comply with its covenants under the Installment
Agreement or to pay principal of or interest on the Bonds, there can be no assurance that remedies will be
available to fully protect the interests of the holders of the Bonds.
Constitutional Limitations on Appropriations and Fees
Under Article XIIIB of the California Constitution, as amended, state and local government
entities have an annual "appropriations limit" which limits their ability to spend certain moneys called
"appropriations subject to limitation", which consist of tax revenues, certain state subventions and certain
other moneys, including user charges to the extent they exceed the costs reasonably bome by the entity in
providing the service for which it is levying the charge. The Authority is of the opinion that the user
charges of the Water System imposed by the City do not exceed the costs the City reasonably bears in
providing its water service. In general terms, the "appropriations limit' is to be based on certain 1978/79
expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population,
and services provided by these entities. Among other provisions of Article XIIIB, if an entity's revenues
in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax
rates or fee schedules over the subsequent two years.
THE AUTHORITY
The Azusa Public Financing Authority was established pursuant to a Joint Exercise of Powers
Agreement dated January 2, 1990, by and between the City and the Azusa Redevelopment Agency (the
"Joint Powers Agreement"). The Joint Powers Agreement was entered into pursuant to the provisions of
Articles 1, 2 and 4, Chapter 5, Division 7, Title I of the California Government Code. The Authority was
created for the primary purpose of assisting the financing the acquisition of certain capital facilities within
the Agency's project area.
The Authority is administered by a governing board comprised of all of the individuals who
currently are the Mayor and the members of the City Council of the City. The Authority has no
independent staff. The Executive Director of the Authority is the City Manager of the City, and the
Treasurer of the Authority is the Treasurer of the City. The Executive Director serves as Chief Executive
Officer of the Authority, and the Treasurer has custody of all money of the Authority from whatever
source.
CONTINUING DISCLOSURE
The City has covenanted for the benefit of owners of the Bonds to provide certain financial
information and operating data relating to the City by not later than eight months after the end of the
City's fiscal year (presently June 30) in each year commencing with its report for the 2005-06 fiscal year
(the"Annual Report")and to provide notices of the occurrence of certain enumerated events. The Annual
33 166
Report will be filed by the Dissemination Agent on behalf of the City with each Nationally Recognized
Municipal Securities Information Repository. The notices of material events will be filed by the Trustee
on behalf of the City with the Municipal Securities Rulemaking Board. These covenants have been made
in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12.
The specific nature of the information to be contained in the Annual Report or the notices of material
events by the City is summarized in "APPENDIX D — FORM OF CONTINUING DISCLOSURE
AGREEMENT." The City has never failed to comply in all material respects with its undertakings
pursuant to Rule 15c2-12.
LEGAL OPINION
Legal matters incident to the authorization and issuance of the Bonds are subject to the approving
opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel and Disclosure Counsel
to the Authority and the City. Certain legal matters will be passed upon by the City Attorney, acting as
counsel to the Authority and the City. The compensation of Fulbright &Jaworski L.L.P. for this issue is
contingent on the successful sale of the Bonds.
TAX MATTERS
The Internal Revenue Code of 1986 (the "Code") imposes certain requirements that must be met
subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded
pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax
purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in
gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The
Authority and the City have covenanted to comply with each applicable requirement of the Code
necessary to maintain the exclusion pursuant to section 103(a) of the Code of the interest on the Bonds
from the gross income of the owners thereof for federal income tax purposes.
In the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, under existing law interest on the
Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the
aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from
the gross income of the.owners thereof for federal income tax purposes. Bond Counsel is also of the
opinion that, assuming compliance with the aforementioned covenant, the Bonds are not "specified
private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, the interest on
the Bonds will not be treated as an item of tax preference for purposes of computing the alternative
minimum tax imposed by section 55 of the Code. Receipt or accrual of interest on the Bonds owned by a
corporation may affect the computation of the alternative minimum taxable income, upon which the
alternative minimum tax is imposed, to the extent that such interest is taken into account in determining
the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current
earnings over the alternative minimum taxable income being an adjustment to alternative minimum
taxable income (determined without regard to such adjustment or to the alternative tax net operating loss
deduction)).
To the extent that a purchaser of a Bond acquires that Bond at a price that exceeds the aggregate
amount of payments (other than payments of qualified stated interest within the meaning of
section 1.1273-1 of the Treasury Regulations) to be made on the Bonds (determined, in the case of a
callable Bond, under the assumption described below), such excess will constitute "bond premium" under
the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide
generally that bond premium on a tax-exempt obligation must be amortized on a constant yield, economic
accrual, basis; the amount of premium so amortized will reduce the owner's basis in such obligation for
federal income tax purposes, but such amortized premium will not be deductible for federal income tax
34 16'7
purposes. In the case of a purchase of a Bond that is callable, the determination whether there is
amortizable bond premium, and the computation of the accrual of that premium, must be made under the
assumption that the Bond will be called on the redemption date that would minimize the purchaser's yield
on the Bond (or that the Bond will not be called prior to maturity if that would minimize the purchaser's
yield). The rate and timing of the amortization of the bond premium and the corresponding basis
reduction may result in an owner realizing a taxable gain when a Bond owned by such owner is sold or
disposed of for an amount equal to or in some circumstances even less than the original cost of the Bond
to the owner.
The excess, if any, of the stated redemption price at maturity of Bonds of a maturity over the
initial offering price to the public of the Bonds of that maturity set forth on the cover of this Official
Statement is"original issue discount" under the Code. Such original issue discount accruing on a Bond is
treated as interest excluded from the gross income of the owner thereof for federal income tax purposes
and exempt from California personal income tax to the same extent as would be stated interest on the
Bond. Original issue discount on any Bond purchased at such initial offering price and pursuant to such
initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant
yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of
original issue discount on such a Bond accruing during each period is added to the adjusted basis of such
Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of
such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the
case of purchasers of Bonds who purchase such Bonds other than at the initial offering price and pursuant
to the initial offering.
Any person considering purchasing a Bond at a price that includes bond premium should consult
his or her own tax advisors with respect to the amortization and treatment of such bond premium,
including, but not limited to, the calculation of gain or loss upon the sale, redemption or other disposition
of the Bond. Any person considering purchasing a Bond of a maturity having original issue discount
should consult his or her own tax advisors with respect to the tax consequences of ownership of Bonds
with original issue discount, including the treatment of purchasers who do not purchase in the original
offering and at the original offering price, the allowance of a deduction for any loss on a sale or other
disposition, and the treatment of accrued original issue discount on such Bonds under federal individual
and corporate alternative minimum taxes.
Bond Counsel has not undertaken to advise in the future whether any events after the date of
issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the
ownership of the Bonds. No assurance can be given that future legislation, or amendments to the Code, if
enacted into law, will not contain provisions that could directly or indirectly eliminate, or reduce the
benefit of, the exclusion of the interest on the Bonds from the gross income of the owners thereof for
federal income tax purposes. Furthermore, Bond Counsel expresses no opinion as to any federal, state or
local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with
respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of bond
counsel if such advice or approval is given by counsel other than Fulbright&Jaworski L.L.P.
Although Bond Counsel is of the opinion that interest on the Bonds is excluded from the gross
income of the owners thereof for federal income tax purposes, and is exempt from personal income taxes
of the State of California, an owner's federal, state or local tax liability may be otherwise affected by the
ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend
upon the owner's tax status and other items of income or deduction. Without limiting the generality of
the foregoing, prospective purchasers of the Bonds should be aware that (i) section 265 of the Code
denies a deduction for interest on indebtedness incurred.or continued to purchase or carry the Bonds or, in
the case of a financial institution, that portion of an owner's interest expense allocated to interest on the
35 168
Bonds, (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code,
section 832(b)(5)(B)(1) reduces the deduction for loss reserves by 15 percent of the sum of certain items,
including interest on the Bonds, (iii) interest on the Bonds earned by certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed by section 884 of the Code,
(iv) passive investment income, including interest on the Bonds, may be subject to federal income
taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings
and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S
corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social
Security and certain Railroad Retirement benefits to take into account, in determining the taxability of
such benefits, receipts or accruals of interest on the Bonds, and (vi) under section 32(i) of the Code,
receipt of investment income, including interest on the Bonds, may disqualify the recipient thereof from
obtaining the earned income credit. Bond Counsel has expressed no opinion regarding any such other tax
consequences.
Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based
upon its review of existing statutes, regulations, published rulings and court decisions and the
representations and covenants of the Authority described above. No ruling has been sought from the
Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Bond
Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program
of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds
commenced, under current procedures the Service is likely to treat the Authority as the "taxpayer," and
the owners would have no right to participate in the audit process. In responding to or defending an audit
of the tax-exempt status of the interest on the Bonds, the Authority may have different or conflicting
interest from the owners. Further, the disclosure of the initiation of an audit may adversely affect the
market price of the Bonds, regardless of the final disposition of the audit.
NO LITIGATION
There is not action, suit, or proceeding known by the Authority or the City to be pending or
threatened at the present time restraining or enjoining the delivery or in any way contesting or affecting
the validity of the Bonds, the Trust Agreement, the Installment Agreement or any proceedings of the
Authority or the City taken with respect to the execution or delivery thereof.
RATINGS
The City anticipates that Moody's Investors Services ("Moody's) and Standard & Poor's, a
Division of The McGraw-Hill Companies ("S&P") will assign their municipal bond ratings of"_" and
11_11 respectively, to the Bonds based on the understanding that upon delivery of the Insurance Policy.
In addition, Moody's and S&P have assigned underlying ratings of " " and " " to the Bonds,
respectively. Such ratings reflect only the views of such organizations and any desired explanation of the
significance of such ratings should be obtained from the rating agency furnishing the same, at the
following addresses: Moody's at 99 Church Street, New York, New York 10007, telephone: (212) 553-
0300; and Standard & Poor's Ratings Group, 55 Water Street, 45th Floor, New York, New York 10041.
The City and the Authority have furnished to S &P and Moody's certain materials and information with
respect to the Authority, the City and the Bonds. Generally, a rating agency bases its rating on the
information and materials furnished to it and on investigations, studies and assumptions of its own. There
is no assurance such ratings will continue for any given period of time or that such ratings will not be
revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating
agencies, circumstances so warrant. The Authority, the City and the Underwriter have undertaken no
responsibility to oppose any such proposed revision or withdrawal. Any such downward change in or
withdrawal of the ratings might have an adverse effect on the market price or marketability of the Bonds.
36 169
FINANCIAL STATEMENTS
The audited financial statements of the City for the year ended June 30, 2005, included in
Appendix F to this Official Statement, have been audited by Lance, Soll & Lunghard, L.L.P. (the
"Auditor"), as stated in their report appearing in Appendix F. Unaudited financial statements of the
City's Water System for the twelve months ended June 30, 2006 are also included in Appendix F. [The
Auditor has consented to the inclusion of its report in Appendix F. However, no review or investigation
with respect to subsequent events has been undertaken in connection with such financial statements by the
Auditor.]
FINANCIAL ADVISOR
The Authority and the City have retained Fieldman,Rolapp&Associates as financial advisor(the
"Financial Advisor") in connection with the preparation of this Official Statement and with respect to the
issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to
make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of
the information contained in this Official Statement. Fieldman, Rolapp & Associates is an independent
financial advisory firm and is not engaged in the business of underwriting municipal securities or other
public securities.
UNDERWRITING
The Bonds are being purchased by UBS Securities LLC (the "Underwriter") pursuant to a Bond
Purchase Agreement between the Underwriter and the City (the "Purchase Contract"). The Underwriter
has agreed to purchase all of the Bonds for an aggregate purchase price of $ , subject to
certain conditions set forth in the Purchase Contract. The purchase price for the Bonds reflects an original
issue premium or discount of $ and an underwriter's discount of $ The
Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into
investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering
prices.
MISCELLANEOUS
All quotations from, and summaries and explanations of the Trust Agreement, the Installation
Sale Agreement, the Bonds or other documents contained herein do not purport to be complete, and
reference is made to said documents and statutes for full and complete statements of their provisions.
This Official Statement is submitted only in connection with the sale of the Bonds by the
Authority. All estimates, assumptions, statistical information and other statements contained herein,
while taken from sources considered reliable, are not guaranteed by the Authority, the City or the
Underwriter. The information contained herein should not be construed as representing all conditions
affecting the Authority, the City or the Bonds.
37 170
All information contained in this Official Statement pertaining to the Authority and the City has
been furnished by the Authority and the City and the execution and delivery of this Official Statement has
been duly authorized by the Authority.
AZUSA PUBLIC FINANCING AUTHORITY
By:
Executive Director
38 171
APPENDIX A
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
The following is a brief summary of the provisions of the Trust Agreement and the Installment
Agreement and is supplemental to the summary of other provisions of such documents described
elsewhere in this Oficial Statement. This summary does not purport to be comprehensive or definitive,
and reference should be made to such documents for full and complete statements of their respective
provisions. Unless otherwise described below, the terms of the Bonds in the Trust Agreement and
Installment Agreement with respect thereto
[TO COME]
A-' 172
APPENDIX B '
THE CITY OF AZUSA
The Bonds will not be secured by any pledge of ad valorem taxes or General Fund revenues but
will be payable solely from the Net Revenues of the City's Water System, as more fully described in the
body of this Official Statement. The description of the financial and economic position of the City set
forth below and on the following pages is included in this Official Statement for informational purposes
only.
General
The City is a municipal corporation existing under the laws of the State of California. The City
owns and operates an electric public utility for its citizens, which provides electric service to virtually all
of the electric customers within the City limits, encompassing approximately 9 square miles. The City
also owns and operates a water system. Its service territory includes the City and adjoining portions of
surrounding cities and unincorporated areas of Los Angeles County. The City is located in the greater
metropolitan.Los Angeles area, approximately 24 miles east of downtown Los Angeles. The economy
represents a diverse blend of industrial,commercial, agricultural and residential development.
The City was incorporated as a general law city in 1898, and is administered by a
Council-Administrator form of government. The four City Council members are elected at large for
four-year terms. Elections are staggered at two-year intervals. The office of Mayor is elected at-large for
a two-year term. The election coincides with those of the Council members.
Population
The following chart indicates the growth in the population of the City since 1997.
Population
Fiscal Year Population
1997 44,650
1998 44,550
1999 45,500
2000 44,712
2001 45,263
2002 46,137
2003 47,167
2004 48,096
2005 48,241
2006 48,302
Source: U.S.Department of Census and State of California Department of Finance
Employment
No annual information is regularly compiled on employment and unemployment for the City
alone. Employment in Los Angeles County was 4,598,000 in 2001 and 4,564,700 in 2005, representing a
B-1 173
0.72% decrease over the five-year period. The County unemployment rate ranged from 5.7% in 2001 to
4.7% in 2005. Statewide unemployment rates were 5.3% in 2001 and 5.4% in 2005.
Los Angeles County
Employment,Unemployment and Labor Force
Averages for each of the Calendar Years 2001-2005
(in thousands)
2001 2002 2003 2004 2005
Employment 4,598 4,446 4,437 4,465 4,565
Unemployment 277 323 324 310 256
Civilian Labor Force 4,875 4,769 4,770 4,776 4,821
Unemployment Rate 5.7% 6.8% 7.0% 6.5% 5.3%
State Unemployment Rate 5.3% 6.7% 6.8% 6.2% 5.4%
Source: State of California,Employment Development Department.
Major Private Employers
Industry in Azusa is diversified. Some of the leading industries include education institutions,
light manufacturing, retail services and aerospace industries.
The employers within the City having more than 70 employees and the approximate number of
employees of each as of June 30, 2006, are shown below.
Major Employers
As of June 30,2006
Number of
Company Business Type Employees
Azusa Unified School District Education 1,600
Northrop Grumman Manufacturer 1,100
Azusa Pacific University Education 900
City of Azusa Government 522
Costco General Consumer Goods 311
Berger Bros. Manufacturer 300
Tru Wood Products Manufacturer 160
Wynn Oil Company Manufacturer 150
Rain Bird Manufacturer 132
California Amforge Manufacturer 106
Vulcan Manufacturer 100
Naked Juice Manufacturer 75
Morris National Candy Manufacturer 70
Source: Azusa Chamber of Commerce.
B-2 1.74
Building Permit Activity
The following table shows the value of building permits issued in the City between fiscal year
2002 and fiscal year 2006.
Building Permit Valuation
Fiscal Years 2002 through 2006
2002 2003 2004 2005 2006
Total Valuation(thousands) $55,249 $70,152 $23,571 $1,339 $10,261
New Dwelling Units 102 176 88 10 31
Source: City of Azusa.
Taxable Sales
The following table indicates taxable transactions in the City by type of business during this
period.
Taxable Transactions by Type of Business
Calendar Years 2001 through 2005
(in Thousands of Dollars)("
2001 2002 2003 2004 2005"'
Apparel Stores $ 2,175 $ 3,141 $ 4,000 $ 4,159 $ 3,092
General Merchandise 108,346 (3) (3) .(3) of
Food Stores 15,640 15,327 15,001 14,954 10,627
Eating&Drinking Places 29,428 30,521 31,623 35,095 27,472
Home Furnishings/Appliances 2,939 3,487 3,648 4,006 . 2,948
Bldg.Mat. &Farm Impl. 11,819 12,685 16,736 22,358 18,123
Auto Dealers and Supplies 20,932 21,183 18,744 17,454 14,800
Service Stations 22,619 20,266 32,241 44,970 40,568
Other Retail Stores 18.569 138,046 142,676 154.125 111,291
Retail Stores Total(') $232,467 $244,656 $264,669 $297,121 $228,312
All Other Outlets 102.317 94.503 95,096 102,317 71.860
Totall'l $ 4 Z$4 $332,159 $359,255 $399,438 $3 2
Source: California State Board of Equalization,City of Azusa.
Totals may not add due to rounding.
t3� Data for full fiscal year is not available. Figures represent data through the third quarter.
OI Included under Other Retail Stores.
B-3 175
Personal Income
Personal income information for The City, Los Angeles County, the State of California and the
United States is summarized in the following table.
Personal Income
City of Azusa,Los Angeles County
State of California and United States
Calendar Years 2001 through 2005
Year Azusa Los Angeles County State of California United States
2001 $38,770 $41,628 $44,464 $39,129
2002 39,288 40,789 43,352 . 38,365
2003"1 35,119 37,983 42,484. 38,035
2004 36,584 41,237 42,924 38,201
2005 37,751 42,629 43,915 39,324
Source: Sales&Marketing Management,"Survey of Buying Power"and Media Markets magazine.
of Methodology used to calculate Personal Income changed in 2103.
History and Development of Community
The Azusa area grew after 1854 when gold was discovered in the San Gabriel Canyon. By 1860
the town had over 2,000 inhabitants and the United States government bought much of the land from
founder Henry Dalton for homesteading. The advent of the railroad spurred more growth in the area and
agriculture emerged as the dominant industry.
After acquiring the orchard community of Azusa Rancho from Dalton in 1880, Jonathan D.
Slauson, a Los Angeles banker, laid out the City in the 1887. The City of Azusa was then incorporated on
December 29, 1898.
During the 1900s, Azusa, like many surrounding cities, urbanized from a largely rurual
agricultural community to a city with a downtown surrounded by tract housing. Agriculture continued to
have a presence in the City through the Monrovia wholesale nursery and food processing facilities.
Mining also continued as one of Azusa's industries in the form inert materials mining for cement, rock
and road base.
Other more sophisticated industries emerged, such as defense and higher education, and Azusa
became host to Aerojet, now Northrop, manufacturer of satellites, and Azusa Pacific University.
Currently, Azusa has a diverse economy of retail, commercial, industrial businesses, and an
equally diverse population of about 46,100 residents.
The industries and demographics in Azusa continue to diversify, and in 2004 the City approved a
development agreement with Azusa Land Partners for the Rosedale Development, which encompasses the
former Monrovia Nursery property.
The Rosedale Development (See: http://www.rosedaleazusa.conVcommunity/index.htmi) is a
1,200 home, master planned community, under construction on about 280 acres of land, and will include
homes with a view of the San Gabriel Valley. Home prices will range from the mid $400,OOOs to over
$1,000,000.
B-4 6
Direct and Overlapping Debt Report
Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by the
County of Los Angeles. The Debt Report is included for general information purposes only. The City
makes no representations as to its completeness or accuracy.
The Debt Report generally includes long-term obligations sold in the public credit markets by
public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term
obligations generally are not payable from revenues of the City (except as indicated) nor are they
necessarily obligations secured by property within the City. In many cases, long-term obligations issued
by a public agency are payable only from the general fund or other revenues of such public agency.
Direct and Overlapping Bonded Debt
[TO COME]
Assessed Valuation and Tax Collections
Property taxes attach as an enforceable lien on property as of March 1, each year. Taxes are
levied on July 1, and are payable in two installments no later than December 10, and April 10,
respectively, of each year. The County of Los Angeles bills and collects the property taxes and remits
them to the City in installments during the year. City property tax revenues are recognized when received .
in cash except at year-end when they are accrued pursuant to the modified accrual basis of accounting.
The following table shows the assessed property valuations within the City for fiscal years 2001
through 2005. Assessed valuations include homeowners and business inventory exemption, the taxes on
which have been paid by the State. Figures in the final column below consist of total assessed valuations
less redevelopment project area incremental assessed valuations, the taxes on which are payable to the
Azusa Redevelopment Agency.
Assessed Property Valuations
For Fiscal Years 2001 through 2005
(Unaudited,in thousands of dollars)
Less Azusa
Redevelopment
Fiscal Total Agency
Year Valuations Increment Valuations
2001 $1,710,047 ($508,189) $1,201,858
2002 1,808,223 (546,172) 1,262,051
2003 1,958,792 (612,444) 1,346,348
2004 2,165,829 (669,987) 1,495,842
2005 2,306,058 (741,191) 1,564,867
Source: Los Angeles County Auditor-Controller
B-5
177
Property Tax Collections
The following table shows the City's property tax collections and adjustments for the fiscal years
indicated.
Property Tax Collections
for Fiscal Years 2001 through 2005
Fiscal Year Collections Adjustments Total Collections
2001 $1,752,960 $(32,945) $1,720,015
2002 1,989,206 (237,726) 1,751,480
20Q3 2,013,405 (105,003) 1,908,402
2004 2,133,628 (39,065) 2,094,563
2005 2,335,339 (51,377) 2,283,962
Source: City of Azusa.
The following table shows the ten largest secured taxpayers of the City for the fiscal year ended
June 30, 2005.
Ten Largest Secured Taxpayers
Fiscal Year Ended June 30,2005
% of Total Assessed
Name Assessed Valuation Valuation
I. Northrop Grumman Systems Corporation $ 135,654,680 5.9117c
2. Azusa Pacific Foundation 106,090,977 4.62%
3. Coastal Pacific Glen LLC 29,681,649 1.29%
4. PPF Industrial 823 985 8" Street LP 27,575,000 1.20%
5. Costco Wholesale Corporation 17,253,265 0.75%
6. Criterion Catalyst Company Limited Partnership 17,000,599 0.74%
7. Jar University Commons LLC 15,652,549 0.68%
8. Reichhold Inc. 14,767,682 0.64%
9. MCS Edgewood Center LLC 14,148,237 0.62%
10. S &S Foods LLC 12.277.280 0.54%
Total $ 390.101.918 17.00%
Citywide Taxable Secured Value: $2,294,308,950.
Source: County of Los Angeles
B-6
178
APPENDIX C
PROPOSED FORM OF BOND COUNSEL OPINION
[Closing Date]
Azusa Public Financing Authority
210 East Foothill Blvd.
Azusa, California 91702
City of Azusa
210 East Foothill Blvd.
Azusa, California 91702
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
Ladies and Gentlemen:
We have acted as bond counsel to the Azusa Public Financing Authority, a joint powers agency
established under the Constitution and laws of the State of California (the "Authority"), in connection
with the issuance of$ aggregate principal amount of its Parity Revenue Bonds (Water System
Capital Improvements Program) Series 2006 (the"Bonds").
The Bonds are being issued pursuant to Article 4 of Chapter 5 of Division 7 of Title 1 of the
California Government Code and a Trust Agreement, dated as of December 1, 2006 (the "Trust
Agreement"), by and between the Authority and Wells Fargo Bank, National Association, as trustee (the
"Trustee"). The Bonds are payable from Revenues, as defined in the Trust Agreement, consisting
primarily of Installment Payments to be made by the City of Azusa, California (the"City") pursuant to an
Installment Sale Agreement, dated as of December 1, 2006 (the "Installment Sale Agreement"), by and
between the Authority and the City. Proceeds of the Bonds will be used to finance certain capital
improvements to the City's water system. Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Trust Agreement or the Installment Sale Agreement, as
applicable.
As bond counsel, we have examined copies certified to us as being true and complete copies of
the proceedings of the Authority and the City in connection with the issuance of the Bonds. We have also
examined such certificates of officers of the Authority and the City and others as we have considered
necessary for the purposes of this opinion.
cI 180
Based upon the foregoing, we are of the opinion that:
1. The Bonds constitute valid and binding limited obligations of the Authority as
provided in the Trust Agreement, and are entitled to the benefits of the Trust Agreement. The
Bonds are payable from Revenues (as such term is defined in the Trust Agreement).
2. The Trust Agreement has been duly and validly authorized, executed and
delivered by the Authority and, assuming the enforceability thereof against the Trustee,
constitutes the legally valid and binding obligation of the Authority, enforceable against the
Authority in accordance with its terms. The Trust Agreement creates a valid pledge, to secure the
payment of principal of and interest on the Bonds, of the Revenues and other amounts held by the
Trustee in the funds and accounts established pursuant to the Trust Agreement, subject to the
provisions of the Trust Agreement permitting the application thereof for other purposes and on
the terms and conditions set forth therein.
3. The Installment Sale Agreement has been duly and validly authorized, executed
and delivered by the Authority and the City, and constitutes the legally valid and blinding
obligation of the Authority and the City, enforceable against the Authority and the City in
accordance with its terms. The Installment Sale Agreement creates a valid pledge, to secure the
payment of Installment Payments by the City, of Net Revenues of the Water System, on the terms
and conditions set forth therein.
4. The Internal Revenue Code of 1986 (the "Code") imposes certain requirements
that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be
and remain excluded from the gross income of the owners thereof for federal income tax
purposes. Noncompliance with such requirements could cause the interest on the Bonds to be
included in gross income retroactive to the date of issue of the Bonds. The Authority and the City
have covenanted in the Trust Agreement and the Installment Sale Agreement to maintain the
exclusion of interest on the Bonds from the gross income of the owners thereof for federal income
tax purposes.
In our opinion, under existing law interest on the Bonds is exempt from personal income
taxes of the State of California and, assuming compliance with the aforementioned covenant,
interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of
the owners thereof for federal income tax purposes.
We are further of the opinion that under existing statutes, regulations, rulings and court
decisions, the Bonds are not "specified private activity bonds" within the meaning of section
57(a)(5) of the Code and, therefore, interest on the Bonds will not be treated as an item of tax
preference for purposes of computing the alternative minimum tax imposed by section 55 of the
Code. Receipt or accrual of interest on Bonds owned by a corporation may affect the
computation of the alternative minimum taxable income, upon which the alternative minimum tax
is imposed, to the extent that such interest is taken into account in determining the adjusted
current earnings of that corporation (75% of the excess, if any, of such adjusted current earnings
over the alternative minimum taxable income being an adjustment to alternative minimum taxable
income (determined without regard to such adjustment or to the alternative tax net operating loss
deduction)).
Except as stated in the preceding three paragraphs, we express no opinion as to any
federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we
express no opinion as to any federal, state or local tax law consequences with respect to the
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Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds
thereof predicated or permitted upon the advice or approval of other bond counsel.
The opinions expressed in paragraphs 1 through 3 above are qualified to the extent the
enforceability of the Bonds, the Trust Agreement and the Installment Sale Agreement may be limited by
applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally or as to the availability of any
particular remedy. The enforceability of the Bonds, the Trust Agreement and the Installment Sale
Agreement is subject to the effect of general principles of equity, including, without limitation, concepts
of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific
performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and
to the limitations on legal remedies against governmental entities in California.
No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official
Statement or other offering material relating to the Bonds.
Our opinions are based on existing law, which is subject to change. Such opinions are further
based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our
opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any
changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a
guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent
our legal judgment based upon our review of existing law that we deem relevant to such opinions and in
reliance upon the representations and covenants referenced above.
Very truly yours,
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APPENDIX D -
FORM OF CONTINUING DISCLOSURE AGREEMENT
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CONTINUING DISCLOSURE AGREEMENT
This Continuing Disclosure Agreement (the "Disclosure Agreement"), dated as of
November 1, 2006, is executed and delivered by the City of Azusa (the "City") and Wells Fargo
Bank, National Association, as dissemination agent hereunder (the "Dissemination Agent") in
connection with the issuance of $ aggregate principal amount of Azusa Public
Financing Authority Parity Revenue Bonds (Water System Capital Improvements Program),
Series 2006 (the "Bonds"). The Bonds are being issued pursuant to a Trust Agreement, dated as
of November 1, 2006 (the "Trust Agreement"), between the Authority and Wells Fargo Bank,
National Association, as trustee (the "Trustee"). The City, the Trustee and Dissemination Agent
covenant and agree as follows:
SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is
being executed-and delivered by the City, Trustee and the Dissemination Agent for the benefit
of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating
Underwriters in complying with Rule 15c2-12(b)(5) adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended. The City, Trustee and the
Dissemination Agent acknowledge that the Authority has no responsibility for continuing
disclosure.
SECTION 2. Definitions. In addition to the definitions set forth in the Trust Agreement,
which apply to any capitalized term used in this Disclosure Agreement 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 Agreement.
`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 Bonds (including persons
holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the
owner of any Bonds for federal income tax purposes.
"Disclosure Representative" shall mean the Director of Utilities or his or her designee, or
such other officer or employee as the City shall designate in writing to the Trustee from time to
time.
"Dissemination Agent" shall mean Wells Fargo Bank, National Association, acting in its
capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in
writing by the City and which has filed with the Trustee a written acceptance of such
designation.
"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure
Agreement.
"National Repository" shall mean any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule. The National Repositories currently approved
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by the Securities and Exchange Commission are set forth in the SEC website located at
http://www.sec.gov.
"Official Statement" shall mean the Official Statement in connection with the offering of
the Bonds.
"Participating Underwriter" shall mean any of the original underwriters of the Bonds
required to comply with the Rule in connection with offering of the Bonds.
"Repository" shall mean each National Repository and each State Repository.
"Rule" shall mean Rule 150-12(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 Agreement, 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
six (6) months after the end of the City's fiscal year, commencing with the Annual Report for the
2006-07 fiscal year, provide to each Repository an Annual Report which is consistent with the
requirements of Section 4 of this Disclosure Agreement. The Annual Reports may be provided
in electronic format to each Repository and may be provided through the services of a "Central
Post Office" approved by the Securities and Exchange Commission. The Annual Report may be
submitted as a single document or as separate documents comprising a package, and may include
by reference other information as provided in Section 4 of this Disclosure Agreement; provided.
that the audited financial statements of the City may be submitted separately from the balance of
the Annual Report and later than the date required above for the filing of the Annual Report if
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(f).
(b) Not later than fifteen (15) Business Days prior to the date specified in
subsection (a) for providing-the Annual Report to Repositories, the City shall provide the Annual
Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination
Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee
shall contact the City and the Dissemination Agent to determine if the City is in compliance with
the first sentence of this subsection (b). The City shall provide a written certification with each
Annual Report furnished to the Dissemination Agent and the Trustee to the effect that such
Annual Report constitutes the Annual Report required to be furnished by it hereunder. The
Dissemination Agent and the Trustee may conclusively rely upon such certification of the City
and shall have no duty or obligation to review such Annual Report.
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(c) If the Dissemination Agent is unable to verify that an Annual Report has
been provided to Repositories by the date required in subsection (a), the Dissemination Agent
shall send a notice to each Repository or to the Municipal Securities Rulemaking Board and the
State Repository, if any in substantially the form attached as Exhibit A.
(d) 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) to the extent known to the Dissemination Agent file a report with the City and (if
the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report
has been provided pursuant to this Disclosure Agreement, stating the date it was provided
and listing all the Repositories to which it was provided.
SECTION 4. Content of Annual Reports. The City's Annual Report shall contain or
include by reference the following:
1. The audited financial statements of the City 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 City's audited financial statements are not available by the time the Annual
Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain
unaudited financial statements in a format similar to the financial statements contained in
the final Official Statement, and the audited financial statements shall be filed in the same
manner as the Annual Report when they become available.
2. The tabular financial information and operating data contained in the Official
Statement under the following captions or tables presented on an annual basis, for the
subject Fiscal Year:
(a) the table entitled "San Gabriel Basin Operating Safe Yield" as it appears
in the Official Statement;
(b) the table entitled "Adjudicated Water Rights" and the paragraph
immediately preceding such table as it appears in the Official Statement;
(c) the table entitled "Water Production" as it appears in the Official
Statement;
(d) the table entitled "Sale of Water" as it appears in the Official Statement;
(e) the table entitled "Ten Largest Customers" as it appears in the Official
Statement;
(f) the table entitled "Schedule of Rate Increases" as it appears in the Official
Statement;
45830331.2 3 p Q
(g) the table entitled "Schedule of RWCAF Charges" as it appears in the
Official Statement;
(h) the table entitled "Operating Expenses" as it appears in the Official
Statement; and
(i) the table entitled "Summary of Coverage of Water Revenue Bond Debt
Service" as it appears in the Official Statement.
Updated information comparable to the information contained in the second
paragraph, the third paragraph and the seventh paragraph in the section entitled "THE WATER
SYSTEM— Sources of Water" as such information appears in the Official Statement.
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 Bonds, if
material:
1. principal and interest payment delinquencies;
2. non-payment related defaults;
3. modifications to rights of Bondholders;
4. optional, contingent or unscheduled bond calls;
5. defeasances;
6. rating changes;
7. adverse tax opinions or events adversely affecting the tax-exempt status of
the Bonds;
8. unscheduled draws on the debt service reserves reflecting financial
difficulties;
9. unscheduled draws on credit enhancements reflecting financial
difficulties;
10. substitution of credit or-liquidity providers, or their failure to perform;
45830331.2 4 t
11. release, substitution or sale of property securing repayment of the Bonds.
(b) The Trustee shall, within seven (7) Business Days or as soon as
reasonably practicable after obtaining actual knowledge of the occurrence of any of the Listed
Events, contact the Disclosure Representative, inform such person of the event, and request that
the City promptly notify the Dissemination Agent in writing whether or not to report the event
pursuant to subsection (f) and promptly direct the Trustee whether or not to report such event to
the Bondholders. In the absence of such direction, the Trustee shall not report such event unless
otherwise required to be reported by the Trustee to the Bondholders under the Trust Agreement.
The Trustee may conclusively rely upon such direction (or lack thereof). For purposes of this
Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean
actual knowledge by the officer at the corporate trust office of the Trustee with regular
responsibility for the administration of matters related to the Trust Agreement. The Trustee shall
have no responsibility to determine the materiality of any of the Listed Events.
(c) Whenever the City obtains knowledge of the occurrence of a Listed Event,
whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the City
shall as soon as possible determine if such event would be material under applicable federal
securities laws.
(d) If the City has determined that knowledge of the occurrence of a Listed
Event would be material under applicable federal securities laws, the City shall promptly notify
the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report
the occurrence pursuant to subsection (f).
(e) If in response to a request under subsection (b), the City determines that
the Listed Event would not be material under applicable federal securities laws, the City shall so
notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the
occurrence pursuant to subsection(f).
(f) If the Dissemination Agent has been instructed by the City to report the
occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with
the Municipal Securities Rulemaking Board and the State Repository or 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 Bonds pursuant to the Trust Agreement.
SECTION 6. Termination of Reporting Obligation. The City's obligations under this
Disclosure Agreement with respect to each series of Bonds shall terminate upon the legal
defeasance, prior redemption or payment in full of all of the Bonds of such series of Bonds. If
such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such
termination in the same manner as for a Listed Event under Section 5(f).
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
Agreement, and may discharge any such Dissemination Agent, with or without appointing a
successor Dissemination Agent. The Dissemination Agent shall not be responsible in any
45830331.2 5 188
QQ
manner for the content of any notice or report prepared by the City pursuant to this Disclosure °
Agreement. If at any time there.is not any other designated Dissemination Agent, the City shall
be the Dissemination Agent. The Dissemination Agent may resign by providing thirty days
written notice to the City and the Trustee. The Dissemination Agent shall have no duty to
prepare any information report nor shall the Dissemination Agent be responsible for filing any
report not provided to it by the City in a timely manner and in a form suitable for filing.
SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this
Disclosure Agreement, the City and the Trustee may amend this Disclosure Agreement (and the
Trustee and shall agree to any amendment so requested by the City provided, neither the Trustee
or the Dissemination Agent shall be obligated to enter into any such amendment that modifies or
increases its duties or obligations hereunder), and any provision of this Disclosure Agreement
may be waived, provided that the following conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or
5(a), it may only be made in connection with a change in circumstances that arises from a change
in legal requirements, change in law, or change in the identity, nature or status of an obligated
person with respect to the Bonds, or the type of business conducted;
(b) The undertaking, as amended or taking into account such waiver, would,
in the opinion of nationally recognized bond counsel, have complied with the requirements of the
Rule at the time of the original issuance of the Bonds, after taking into account any amendments
or interpretations of the Rule, as well as any change in circumstances; and
(c) The amendment or waiver either (i) is approved by the Holders of the
Bonds in the same manner as provided in the Trust Agreement for amendments to the Trust
Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized
bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds.
In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City
shall describe such amendment in the next Annual Report, and shall include, as applicable, a
narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in
the case of a change of accounting principles, on the presentation) of financial information or
operating data being presented by the City. In addition, if the amendment relates to the
accounting principles to be followed in preparing financial statements, (i) notice of such change
shall be given in the same manner as for a Listed Event under Section 5(f), and (ii) the Annual
Report for the year in which the change is made should present a comparison (in narrative form
and also, if feasible, in quantitative form) between the financial statements as prepared on the
basis of the new accounting principles and those prepared on the basis of the former accounting
principles.
SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be
deemed to prevent the City from disseminating any other information, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Annual Report or notice of occurrence of a Listed Event,
in addition to that which is required by this Disclosure Agreement. If the City chooses to include
any information in any Annual Report or notice of occurrence of a Listed Event in addition to
45830331.2 6 189
that which is specifically required by this Disclosure Agreement, the City shall have no
obligation under this Agreement to update such information or include it in any future Annual
Report or notice of occurrence of a Listed Event.
SECTION 10. Default. In the event of a failure of the City or the Trustee to comply with
any provision of this Disclosure Agreement, the Trustee (at the written request of any
Participating Underwriter or the Holders of at least 25% aggregate principal amount of
Outstanding Bonds, shall but only to the extent funds in an amount satisfactory to the Trustee
have been provided to it or it has been otherwise indemnified to its satisfaction from any cost,
liability, expense or additional charges and fees of the Trustee whatsoever, including, without
limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Bonds
may take such actions as may be necessary and appropriate, including seeking mandate or
specific performance by court order, to cause the City or Trustee, as the case may be, to comply
with its obligations under this Disclosure Agreement. A default under this Disclosure
Agreement shall not be deemed an Event of Default under the Trust Agreement, and the sole
remedy under this Disclosure Agreement in the event of any failure of the City or the Trustee to
comply with this Disclosure Agreement shall be an action to compel performance.
SECTION 11. Duties, Immunities and Liabilities of Trustee and Dissemination A ent.
Article VIII of the Trust Agreement is hereby made applicable to this Disclosure Agreement as if
this Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement and
the Trustee and the Dissemination Agent shall be entitled to the protections, limitations from
liability and indemnities afforded the Trustee thereunder. The Dissemination Agent (if other
than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such
duties as are specifically set forth in this Disclosure Agreement, and the City agrees to indemnify
and save the Dissemination Agent and the Trustee, their officers, directors, employees and
agents, harmless against any loss, expense and liabilities which they may incur arising out of or
in the exercise or performance of its powers and duties hereunder, including the costs and
expenses (including attorneys fees) of defending against any claim of liability, but excluding
liabilities due to the respective parties' gross negligence or willful misconduct. The
Dissemination Agent shall be paid compensation by the City for its services provided hereunder
in accordance with its schedule of fees as amended from time to time and all expenses, legal fees
and advances made or incurred by the Dissemination Agent in the performance of its duties
hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review
any information provided to them hereunder and shall not be deemed to be acting in any
fiduciary capacity for. the City, the Bondholders, or any other party. Neither the Trustee or the
Dissemination Agent shall have any liability to the Bondholders or any other party for any
monetary damages or financial liability of any kind whatsoever related to or arising from this
Agreement. The obligations of the City under this Section shall survive resignation or removal
of the Dissemination Agent and payment of the Bonds.
45630331.2 7 190
SECTION 12. Notices. Any notices or communications to or among any of the parties to
this Disclosure Agreement may be given as follows: b
To the City: City of Azusa
c/o Azusa Light &Water Department
729 North Azusa Avenue
Azusa, California 91702
Attention: Director of Utilities
To the Trustee: Wells Fargo Bank, National Association
700 Wilshire Boulevard, 17a'Floor
Los Angeles, California 90017
Attention: Corporate Trust Services
To the Dissemination_ Agent: Wells Fargo Bank, National Association
700 Wilshire Boulevard, 17`s Floor
Los Angeles, California 90017
Attention: Corporate Trust Services
Any person may, by written notice to the other persons listed above, designate a different address
or telephone number(s) to which subsequent notices or communications should be sent.
SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit
of the City, the Trustee, the Dissemination Agent, the Participating Underwriters and Holders
and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other
person or entity.
SECTION 14. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
45830331.2 8 191
IN WITNESS WHEREOF, the parties hereto have caused this Continuing Disclosure
Agreement to be duly executed and delivered by their respective officers as of the date first
above written.
CITY OF AZUSA
By
City Manager
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee
By
Authorized Officer
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Dissemination Agent
By
Authorized Officer
1 f9 2
45830331.2 9 +
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EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT
Azusa Public Financing Authority
Parity Revenue Bonds
(Water System Capital Improvements Program)
Series 2006
Date of Issuance: November_, 2006.
NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with
respect to the above-named Bonds as required by the Continuing Disclosure Agreement dated as
of November 1, 2006, between the City and the Dissemination Agent. [The City anticipates that
the Annual Report will be filed by j
Dated:
WELLS FARGO BANK, NATIONAL
ASSOCIATION, on behalf of the City
45830331.2 19 b
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O
APPENDIX E
SPECIMEN BOND INSURANCE POLICY
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APPENDIX F '
AUDITED FINANCIAL STATEMENTS OF THE CITY AS OF JUNE 30,2005
AND UNAUDITED FINANCIAL STATEMENT OF THE CITY'S WATER SYSTEM
FOR THE TWELVE MONTHS ENDED JUNE 30,2006
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