HomeMy WebLinkAboutLEGISLATIVE & LEGAL CAPITAL IMPROVEMENT BOARD AGREEMENTS/WATER PROJECT FINANLegislative & legal Capital Improvement Board 706-03 Agreements/water project Finan FPVAP *BV.L
I`I�I�Iyllll�lllllllll I. MEETING DATE:
BB ill�ll C� 0 San`�(,()S �B'Sp� November 15, 1
MOZO COUNCIL AGENDA REPORT STEM �
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1IMmeCOUNCIL AGENDA REPORT
CONSEQUENCES OF NOT TAKING THE RECOMMENDED ACTION
Failure to adopt the attached resolutions at this time will:
s Delay the implementation of approved water projects, which are dependent upon
the proceeds from the issue for funding as identified in the 1987-89 Financial
Plan, Draft Water Management Plan, and recent water rate review.
• Result in a lost opportunity to conduct a small issue financing during 1988,
which provides significant record keeping and interest earning advantages to the
City.
• Result in a potential lost opportunity to benefit from current market conditions
which are especially favorable at this time for an issuance of this type.
BACKGROUND
At their November 1, 1988 meeting the City Council authorized staff to initiate
proceedings for the issuance of $5 million in Certificates of Participation in order to
provide financing for approved water projects. As indicated at that time, actions
required to initiate the proceedings included the selection of bond counsel, approval of
financing documents, selection of a competitive or negotiated sale, and closing
date/award of bid. The following is a summary of the status of each of these actions:
Bond Counsel Services - As noted in the November 1, 1988 report to the City Council,
legal services are required in conjunction with any project financing. Customary
services include the preparation of documents and opinions related to the financing;
consultation regarding federal tax and state public finance laws; and advice on other
legal matters which may arise in the course of planning and conducting debt
financings. Authorization was provided at the November 1, 1988 meeting for the CAO,
with the concurrence of the City Attorney, to enter into an agreement for bond
counsel services. A Request for Proposals (RFP) was distributed to five of the top
California bond counsel firms on October 10, 1988. Four proposals were received by
the closing date of October 20, 1988, which were reviewed by an evaluation committee
composed of the City Attorney, Director of Finance, Director of Utilities, Financial
Systems Manager, and the City's Financial Advisor, Evensen Dodge. The proposals were
evaluated using the criteria provided in the RFP as well as reference checks and a
follow-up interview with the finalist. Based on this review process, the firm of
Jones Hall Hill & White (Jones Hall) was selected to serve as the City's bond
counsel. In addition to their responsiveness to the City's RFP and competitive fee
structure, Jones Hall has direct experience with the City and its financing needs,
having served as Bond Counsel for the City's 1986 Lease Revenue Bond issue.
Approval of Financing Documents - As noted in the November 1, 1988 report to the City
Council, and as referenced in the attached resolutions, the formal approval by the
City Council and Board of a variety of documents is required at this time in order to
proceed with the project financing. Described in greater detail below, these
documents have been prepared by the City's Bond Counsel (Jones Hall) and Financial
Advisor (Evensen Dodge) and are on file in the City Clerk's office.
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City Of san luis OBispo
COUNCIL AGENDA REPORT
Competitive Sale - The project financing can be placed with an underwriter (the
purchaser of the Certificates who provides the City with the net proceeds from the
financing) through either a negotiated or competitive sale. Under a negotiated sale,
the City and its Financial Advisor negotiate directly with the prospective
underwriter for the placement terms such as discount, underwriter fees, and interest
rate. Under a competitive sale, the City awards the placement to an underwriter
based on a competitive bid process. Depending on the complexity of the issuance,
improvements to be funded, time constraints, debt instruments, repayment structure,
and market conditions, there are advantages and drawbacks to each approach. Based
on a review of these factors by the Financial Advisor and City staff, a competitive
sale is recommended for this project financing.
Closing Date and Award of Bid - Under the competitive sale approach, it is
anticipated that the closing date and award of bid for the placement of the debt
issuance will be made on December 13, 1988. Award at that time should allow
sufficient time for the preparation of closing documents and receipt of net proceeds
prior to the end of 1988. As referenced in the attached resolutions, the Director of
Finance (who also serves as the Chief Financial Officer of the Board) is authorized
to accept bids and award the sale subject to the following parameters: the
underwriter's discount (fee) does not exceed 2% of the par value of the certificates
($5 million); and the net interest rate does not exceed 8.75%.
DESCRIPTION OF THE PROPOSED FINANCING STRUCTURE
Under the proposed financing structure, the debt service payments on the Certificates
will be funded through lease payments from the City to the Board. As security for the
lease payments, the City will transfer its ownership of selected existing water fixed
assets to the Board, which will in turn lease the facilities back to the City. As
discussed in the November 1, 1988 report to the City Council, the "asset transfer" and
lease -purchase nature of the proposed issue is almost identical to the approach used in
structuring the 1986 Lease Revenue Bonds which were used to finance street and parking
structure improvements.
FUNDING SOURCE
It is intended that the lease payments to the Board will be funded exclusively through
the resources of the water enterprise fund. As noted in the November 1, 1988 report to
the City Council, the water rate structure approved by the City Council on June 6, 1988
has been designed to generate sufficient revenues to cover the anticipated debt
service/lease payments estimated at $490,000 annually. However, in order to strengthen
the credit rating of the issue, the City may need to commit to appropriating on an annual
basis any legally available funds in order to meet this annual lease obligation. Any
such commitment would end whenever net revenues from the water system equal 1 10% of lease
payments for three consecutive years. However, it should be emphasized that the
exclusive use of water enterprise fund resources is intended in funding the debt
service/lease payments, and the use of a back-up funding source would only be
incorporated in the final certificate documents if required by the credit rating agency.
DESCRIPTION OF FINANCING DOCUMENTS
As noted above, the attached resolutions approve a variety of financing documents which
are required in order to proceed with the project financing. Prepared by the City's Bond
C -A-3
���n�i�►i��illllllll u��'�� City of San u) I S OBISPO
��IIUI COUNCIL AGENDA REPORT
Counsel (Jones Hall) and Financial Advisor (Evensen Dodge), the following is a brief
description of these documents which are on file in the City Clerk's office:
Acauisition Agreement - This is the agreement under which the Board agrees to buy
selected water distribution assets (referred to as Facilities in the Agreement) from
the City. The purchase will take place at the Certificate closing in December, and
the full purchase price will be paid from the Certificate proceeds at that time.
Title to the Facilities vests in the Board immediately.
Lease Agreement - This document serves as the basic security for the financing.
Under the Lease Agreement, the Board leases the Facilities back to the City for a
term equal to the term of the Certificates. Since the City's obligation to pay Lease
Payments is a tax-exempt obligation, it is necessary to identify the portion of each
Lease Payment which constitutes interest. The City pledges the Net Revenues of the
water enterprise to pay the Lease Payments, with a back-up promise to pay out of
other legally available sources if required. During the term of the Lease, the City
covenants to set rates and charges for the water enterprise so as to yield Net
Revenues sufficient to provide a coverage factor for annual debt service. The Lease
Agreement also contains terms relating to insurance, maintenance, and similar
matters.
Assignment Agreement - Because the Certificates are payable from the Lease Payments,
it is necessary for the Lease Payments (and various other rights of the Board under
the Lease Agreement) to be assigned to the Trustee; and this is the sole purpose of
the Assignment Agreement.
Trust Agreement - This document contains all of the terms and provisions relating to
the Certificates, including prepayment provisions, maturity schedules, rights, and
remedies of the Certificate owners and the Trustee in the event of a default under
the Lease Agreement.
Official Notice of Sale - The Official Notice of Sale provides all of the terms upon
which the City will receive bids from potential investors for the purchase of the
Certificates.
Official Statement - Prepared by the Financial Advisor, the Official Statement (OS)
describes the financing for prospective purchasers of the Certificates, and
constitutes the primary marketing document for the financing.
As reflected in the attached resolutions of the Board and City approving these financing
documents, the City Administrative Officer (who also serves as the Executive Director for
the Board) is authorized to make minor amendments to these documents as recommended by
Bond Counsel, and to execute the final documents.
SUMMARY
The City Council conceptually approved the issuance of $5 million in Certificates of
Participation at their November 1, 1988 meeting in order to provide financing for
approved water projects. In order to proceed with this financing, it is recommended that
the City Council and the Board of Directors of the San Luis Obispo Capital Improvement
Board adopt the attached resolutions authorizing the sale of Certificates and approving
related financing documents.
Attachments: Draft Resolutions a�
Certificates of Participation in Council Office. "�
SUMMARY OF PROPOSED PROJECT FINANCING
• Policy links:
• Issue Size:
• Anticipated net proceeds after debt service
reserve requirements and issuance costs:
• Project cost summary:
Source of supply
Distribution system
Treatment plant
Total estimated project costs
• Type of debt instrument:
• Issued through:
• Maturity period:
• Estimated interest rate:
• Estimated annual debt service:
• Schedule of key events:
Initiate selection process for bond counsel
City Council authorization to initiate proceedings for
debt issuance; authorization for CAO, with concurrence of the
City Attorney, to enter into an agreement for bond counsel services
Formal City Council approval of financing documents
and authorization to solicit underwriter bids
Closing date; award of bid by Director of Finance
* Public facilities financing corporation established on April 15, 1986;
the City Council serves as its Board of Directors.
ATTACHMENT A
1987-89 Financial Plan
Draft Water Management Plan
Water Rate Review, June 6,1988
$5,000,000
$4,350,000
575,000
2,050,000
1,739,300
$4,364,300
Certificates of Participation
San Luis Obispo
Capital Improvement Board
20 years
8.0% to 8.5%
8490,000
October 10, 1988
November 1, 1988
November 15, 1988
December 13, 1988
N
RESOLUTION NO. _
•
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE
CITY OF SAN LUIS OBISPO CAPITAL IMPROVEMENT
BOARD APPROVING THE PURCHASE OF WATER ENTERPRISE
IMPROVEMENTS FROM THE CITY OF SAN LUIS OBISPO
AND THE LEASE OF SUCH IMPROVEMENTS BACK TO THE.
CITY, APPROVING RELATED AGREEMENTS, OFFICIAL
STATEMENT, AND COMPETITIVE SALE OF $5,000,000
CERTIFICATES OF PARTICIPATION
WHEREAS, the City of San Luis Obispo (the "City") is currently proceeding
to finance the costs of various capital improvements. with respect to the water
enterprise of the City (the "Enterprise"); and
WHEREAS, the City of San Luis Obispo Capital Improvement Board (the
"Board") has been formed for the purpose of assisting the City in financing the
acquisition, construction, and improvement of property which is of benefit to
the City; and
WHEREAS, to accomplish such financing the City has proposed to sell certain
facilities of the Enterprise (the "Facilities") to the Board pursuant to the
Acquisition Agreement dated as of December 1, 1988, (the "Acquisition
Agreement") and to lease the Facilities back from the Board pursuant to the
Lease Agreement dated as of December 1, 1988 (the "Lease Agreement"); and
WHEREAS, for the purpose of obtaining the moneys_required to finance the
acquisition of the Facilities under the Acquisition Agreement, the Board
proposes to assign and transfer certain of its rights under the Lease Agreement
to a trustee bank (the "Trustee") pursuant to that certain Assignment Agreement
dated as of December 1, 1988, (the "Assignment Agreement") by and between the
Board and the Trustee; and
WHEREAS, in consideration of such assignment and the execution of that
certain Trust Agreement dated as of December 1, 1988, (the "Trust Agreement")
by and among the Board, the City, and the Trustee, the Trustee will execute and
deliver Certificates of Participation in the principal amount of $5,000,000
(the "Certificates of Participation"), each evidencing an undivided fractional
interest in the Lease Payments made by the City under the Lease Agreement; and
WHEREAS, the City and the Board have determined to sell the Certificates of
Participation at competitive sale, and the firm of Evensen. Dodge, Inc. (the
"Financial Adviser") is assisting the City and the Board in such sale of the
Certificates of Participation and has caused to be prepared an Official
Statement describing the Certificates of Participation, to be used in
connection with such sale; and
WHEREAS, the Board of Directors approves of said transactions as being in
the public interests of the Board;
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the City of San
Luis Obispo Capital Improvement Board as follows:
SECTION 1. Purchase of Facilities: Approval of Acouisition Agreement, The
Board of Directors hereby approves the purchase of the Facilities by the Board
from the City pursuant to, and subject to the terms and conditions of, the
Acquisition Agreement in substantially the form on file with the Secretary,
together with any changes therein or additions thereto deemed advisable by the
Executive Director, whose execution thereof shall be conclusive evidence of his
approval of such changes and additions. The Board hereby authorizes and
directs the Executive Director, and the Secretary to attest and affix the seal
of the Board to, said form of the Acquisition Agreement for and in the name of
the Board.
SECTION 2. Lease of Facilities: Approval of Lease Agreement, The Board of
Directors hereby approves the lease of the Facilities by the Board to the City
pursuant to and subject to the terms and conditions of, the Lease Agreement in
substantially the form on file with the Secretary, together with any changes
therein or additions thereto deemed advisable by the Executive Director, whose
execution thereof shall be conclusive evidence of his approval of such changes
and additions. The Board of Directors hereby authorizes and directs the
Executive Director to execute; and the . Secretary to attest and affix the seal
of the Board to, said form of the Lease Agreement for and in the name of the
Board. The schedule of lease payments set forth in the Lease Agreement shall
conform to the schedule of principal and interest payments represented by the
Certificates of Participation as determined pursuant to Section 5 hereof..
SECTION 3. _Assistnment Agreement. The Board of Directors hereby approves
the Assignment Agreement in substantially the form on file with the Secretary
together with any changes therein or additions thereto deemed advisable by the
Executive Director, whose execution thereof shall be conclusive evidence of his
approval of such changes and additions. The Board of Directors hereby
authorizes and directs the Executive Director to execute, and the Secretary to
attest and affix the seal of the Board to, said form of the Assignment
Agreement for and in the name of the.Board.
SECTION 4. Trust Agreement. The Board of Directors hereby approves the
Trust Agreement in substantially the form on file with the Secretary together
with any changes therein' or additions thereto deemed advisable by the Executive
Director, whose execution thereof shall be conclusive evidence of his approval
of such changes and additions. The Board of Directors hereby authorizes and
directs the Executive Director to execute, and the Secretary to attest and
affix the seal of the Board to, said form of the Trust Agreement for and in the
name of the Board.
SECTION 5. Sale of Certificates of Participation. The Board of Directors
hereby approves the competitive sale of the Certificates of Participation, and
hereby calls for the receipt of bids on the Certificates of Participation on
Tuesday, December 13, 1988, at the hour of 10:00 a.m. in the office of Jones
Hall Hill & White at Four Embarcadero Center, Suite 1950, San Francisco,
California. The Chief Financial Officer is hereby authorized and directed for
an in the name and on behalf of the Board to accept the bid of the best
responsible bidder; provided that the purchase price to be paid for the
Certificates of Participation shall be at least ninety-eight percent (98%) of
the par value thereof, and the weighted average rate of interest represented by
the Certificates of Participation shall not exceed eight and three-quarters
percent (8-3/446) per annum. The Certificates of Participation shall be sold
pursuant to and in accordance with the provisions of the Official Notice of
Sale in substantially the form on file with the Secretary, which is hereby
approved as the official notice of sale of the Certificates of Participation.
SECTION 6. Official Statement, The Board of Directors hereby approves the
preliminary Official Statement describing the Certificates of Participation, in
the form submitted by the Financial Adviser and on file with the Secretary,
together with any changes therein or additions thereto deemed advisable by the
Chief Financial Officer, whose execution thereof shall be conclusive evidence
of his approval of any such changes or additions. The Board of Directors
hereby approves and authorizes the distribution by the Financial Adviser and by
the purchaser of the Certificates of Participation of said Official Statement
to prospective purchasers of the Certificates of Participation. The Chief
Financial Officer is hereby authorized and directed to approve any changes in
or additions to the final form of such Official Statement as the Chief
Financial Officer shall deem advisable, and to execute said final Official
Statement for and in the name and on behalf of the Board.
SECTION 7. Official Actions, The Executive Director, the Chief Financial
Officer, the Secretary, the Board Attorney, and all other officers and
representatives of the Board are each authorized and directed in the name and
on behalf of the Board to make any and all assignments, certificates,
requisitions, agreements, notices, consents, instruments of conveyance,
warrants, and other documents, which they or any of them might deem necessary
or appropriate in order to consummate any of the transactions contemplated by
the documents approved pursuant to this Resolution.
SECTION 8. Effective Date, This Resolution shall take effect from and
after the date of its passage and adoption.
On motion of seconded
by and on the following roll call
vote:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this 15th day of November,
1988.
EO
President
ATTEST:
Secretary
APPROVED:
Executive D ector
Board Attrney
Chief Financial Officer
•
RESOLUTION NO. _
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SAN LUIS OBISPO APPROVING THE SALE OF WATER
ENTERPRISE IMPROVEMENTS TO THE CITY OF
SAN LUIS OBISPO CAPITAL IMPROVEMENT BOARD
AND THE LEASE OF SUCH IMPROVEMENTS BACK FROM
SUCH BOARD, APPROVING RELATED AGREEMENTS,
OFFICIAL STATEMENT, AND COMPETITIVE SALE OF
$5,000,000 CERTIFICATES OF PARTICIPATION
WHEREAS, the City of San Luis Obispo (the "City") is currently proceeding
to finance the costs of various capital improvements with respect to the water
enterprise of the City (the "Enterprise"); and
WHEREAS, the City of San Luis Obispo Capital Improvement Board (the
"Board") has been formed for the purpose of assisting the City in financing the
acquisition, construction, and improvement of property which is of benefit to
the City; and
WHEREAS, to accomplish such financing the City has proposed to sell certain
facilities of the Enterprise (the "Facilities") to the Board pursuant to the
Acquisition Agreement dated as of December 1, 1988, (the "Acquisition
Agreement") and to lease the Facilities back from the Board pursuant to the
Lease Agreement dated as of December 1, 1988 (the "Lease Agreement"); and
WHEREAS, for the purpose of obtaining the moneys required to finance the
acquisition of the Facilities under the Acquisition Agreement, the Board
proposes to assign and transfer certain of its rights under the Lease Agreement
to a trustee bank (the "Trustee") pursuant to -that certain Assignment Agreement
dated as of December 1, 1988, (the "Assignment Agreement") by and between the
Board and the Trustee; and
WHEREAS, in consideration of such assignment and the execution of that
certain Trust Agreement dated as of December 1, 1988, (the "Trust Agreement")
by and among the Board, the City, and the Trustee, the Trustee will execute and
deliver Certificates of Participation in the principal amount of $5,000,000
(the "Certificates of Participation"), each evidencing an undivided fractional
interest in the Lease Payments made by the City under the Lease Agreement; and
WHEREAS, the City and the Board have determined to sell the Certificates of
Participation at competitive sale, and the firm of Evensen Dodge, Inc. (the
"Financial Adviser") is assisting the City and the Board in such sale of the
Certificates of Participation. and has caused to be prepared an Official
Statement describing the Certificates of Participation, to be used in
connection with such sale; and
WHEREAS, the City Council approves of said transactions as being in the
public interests of the City;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Luis
Obispo as follows:
SECTION 1. Sale of Facilities• Aooroval of Acauisition Agreement The
City hereby approves the sale of the Facilities by the City to the Board
pursuant to, and subject to the terms and conditions of, the Acquisition
Agreement in substantially the form on file with the City Clerk, together with
any changes therein or additions thereto deemed advisable by the City
Administrative Officer, whose execution thereof shall be conclusive evidence of
his approval of such changes and additions. The Board hereby authorizes and
directs the City Administrative Officer to execute, and the City Clerk to
attest and affix the seal of the City to, said form of the Acquisition
Agreement for and in the name of the City. .
SECTION 2. _Lease of Facilities• Approval of Lease Agreement The City
Council hereby approves the lease of the Facilities by the City from the Board
pursuant to, and subject to the terms and conditions of, the Lease Agreement in
substantially the form on file with the City Clerk, together with any changes
therein or additions thereto deemed advisable by the City Administrative
Officer, whose execution thereof shall be conclusive evidence of his approval
of such changes and additions. The City Council hereby authorizes and directs
the City Administrative Officer to execute, and the City Clerk to attest and
affix the seal of the City to, said form of the Lease Agreement for and in the
name of the City. The schedule of lease payments set forth in the Lease
Agreement shall conform to the schedule of principal and interest payments
represented by the Certificates of Participation as determined pursuant to
Section 4 hereof.
SECTION 3. Trust Agreement. The City Council hereby approves the Trust
Agreement in substantially the form on file with the City Clerk together with
any changes therein or additions thereto deemed advisable by the City
Administrative Officer, whose execution thereof shall be conclusive evidence of
his approval of such changes and additions. The City Council hereby authorizes
and directs the City Administrative Officer to execute, and the City Clerk to
attest and affix the seal of the City %to, said form of the Trust Agreement for
and in the name of the City.
SECTION 4. Sale of Certificates of Participation The City Council hereby
approves the Competitive sale of the Certificates of Participation, and hereby
calls for the receipt of bids on the Certificates of Participation on Tuesday,
December 13, 1988, at the hour of 10:00 a.m. in the office of Jones Hall Hill &
White at Four Embarcadero Center, Suite 1950, San Francisco, California. The
Director of Finance is hereby authorized and directed for and in the name on
behalf of the City to accept the bid of the best responsible bidder; provided
that the purchase price to be paid for the Certificates of Participation shall
be at least ninety-eight (98%) of the par value thereof, and the weighted
average rate of interest represented by the Certificates shall not exceed eight
and three-quarters percent (8-3/4%) per annum. The Certificates of
Participation shall be sold pursuant to and in accordance with the provisions
of the Official Notice of Sale in substantially the form on file with the City
Clerk, which is hereby approved as the official notice of sale of the
Certificates of Participation.
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SECTION 5. Publication of Notice of Intention. In accordance with the
requirements of Section 53692 of the California Government Code, the Director
of Finance is hereby authorized and directed to execute, and Jones Hall Hill &
White, A Professional Law Corporation, as bond counsel to the City, is hereby
authorized and directed to cause to be published, the Notice of Intention to
Sell Certificates of Participation in substantially the form on file with the
City Clerk. Such publication shall be made once no later than November 28,
1988, in a financial journal published in the State of California.
SECTION 6. Official Statement, The City Council hereby approves the.
preliminary Official Statement describing the Certificates of Participation, in
the form submitted by the Financial Adviser and on file with the City Clerk,
together with any changes therein or additions thereto deemed advisable by the
Director of Finance, whose execution thereof shall be conclusive evidence of
his approval of any such changes or additions. The City Council hereby
approves and authorizes the distribution by the Financial Adviser and by the
purchaser of the Certificates of Participation of said Official Statement. to
prospective purchasers of the Certificates of Participation. The Director of
Finance is hereby authorized and directed to approve any changes in or
additions to the final form of such Official Statement as the Director of
Finance shall deem advisable, and to execute said final Official Statement for
and in the name and on behalf of the City.
SECTION 7. Official Actions. The City Administrative Officer, the
Director of Finance, the City Clerk, the City Attorney, and all other officers
and representatives of the City are each authorized and directed in the name
and on behalf of the City to make any and all assignments, certificates,
requisitions, agreements, notices, consents, instruments of conveyance,
warrants, and other documents, which they or any of them might deem necessary
or.appropriate in order to consummate any of the transactions contemplated by
the documents approved pursuant to this Resolution.
SECTION 8. Effective Date, This Resolution shall take effect from and
after the date of its passage and adoption.
On motion of ,
by and on the following
vote:
AYES:
NOES:
ABSENT:
seconded
roll call
the foregoing Resolution was passed and adopted this 15th day of November,
1988.
-3-
e
Mayor
ATTEST:
City Clerk
APPROVED:
City Ad inistrative Officer
Director of Finance
-4- (!�] - ;?t -13
��IIB�IbIII�IIiIIIIII� LU�J � 1 i � MEETING GATE:
city o san Lues osispo November 1, 1988
COUNCIL AGENDA REPORT 11 NUMBER • Q
FROM: William C. Statler, Director of FinanceWl-'
SUBJECT: WATER PROJECT FINANCING
CAO RECOMMENDATION
Authorize staff to initiate proceedings for the issuance of $5 million in Certificates of
Participation/Lease Revenue Bonds in order to provide financing for approved water
projects.
OVERVIEW
The proposed project financing is in conformance with the policies, objectives, and
projects outlined in the 1987-89 Financial Plan, and is recommended for implementation at
this time due to the following factors:
• Enables all approved water projects to proceed expeditiously.
• Record keeping and investment earning advantages associated with completing a
small debt issuance (defined by the IRS as $5 million or less) prior to the
close of 1988.
• Favorable market conditions for an issuance of this type.
The following summaries of the proposed financing and improvement projects are provided
in Attachments A, B, and C:
• Attachment A provides an overview of the proposed financing including issue
size, anticipated net proceeds, project summary, maturity term, type of issue,
projected interest rate, and tentative calendar.
• Attachment B provides a summary of the proposed projects to be financed. .
• Attachment C is a memorandum from the Director of Utilities describing the
project scope in greater detail using tables excerpted from the Capital
Improvement Section of the Draft Water Management Plan.
FISCAL IMPACT
The use of debt proceeds for the financing of the proposed projects was identified and
approved in the 1987-89 Financial Plan. Additionally, the estimated cost of the debt
service on an issuance of approximately $5 million was included in the water rate
analysis approved by the City Council on June 6, 1988. As such, there is no adverse
fiscal impact associated with this action, and approval of the recommended action would
be consistent with the City's adopted financial plans.
CONSEQUENCES OF NOT TAKING THE RECOMMENDED ACTION
Failure to initiate proceedings at this time will:
• Delay the implementation of approved water projects, which are dependent upon
the proceeds from the issue for funding as identified in the 1987-89 Financial
Plan, Draft Water Management Plan, and recent water rate review. -007
111 i1111ll$$11011III city o f San 'ut s OBI SPO
Wa7wAI� COUNCIL AGENDA REPORT
• Result in a lost opportunity to conduct a small issue financing during 1988,
which provides significant record keeping and interest earning advantages to the
City.
• Result in a potential lost opportunity to benefit from current market conditions
which are especially favorable at this time for an issuance of this type.
BACKGROUND
In preparing the workscope for the Financial Services Study currently in progress, it was
originally anticipated that the need for any water project financings and related water
rate increases would be addressed as an integral part of the study. However, significant
progress has already been made in this area: as part of the water rate increase approved
by the City Council on June 6, 1988, provisions were made to fund the operating and
capital needs of the water system, and accordingly, the debt service on an issue of
approximately $5 million (estimated at $490,000 annually) was reflected in the water rate
analysis. As summarized in Attachment B, this size issue would provide funding for those
projects addressed in the 1987-89 Financial Plan and Draft Water Management Plan, with
the exception of the construction component of the Salinas Reservoir Expansion and
Balancing Reservoir projects, which were not included at this time due to uncertainties
regarding cost and feasibility.
Initial presentation of the Financial Services Study to the City Council is currently
scheduled for a study session in early January as part of the 1989-91 Financial Plan
preparation process. Rather than waiting for the completion of the Financial Services
Study, it is recommended that the City initiate proceedings for the issuance of $5
million in Certificates of Participation/Lease Revenue Bonds (COP's/LRB's) to be
completed prior to the end of 1988.
As noted previously, one of the primary benefits of proceeding at this time includes the
record keeping and investment earning advantages associated with completing a small debt
issuance (defined by the IRS as $5 million or less) prior to the close of 1988. Under
the Tax Reform Act of 1986, there are significant restrictions on the investment of
proceeds from any debt issuances that exceed $5 million cumulatively during any calendar
year. Under these provisions, the issuing agency is prohibited from earning investment
revenues greater than the net interest cost of the financing. In addition to limiting
the investment earning potential from bond proceeds (which prior to the restrictions were
used to reduce the size of the issue and related annual debt service costs), these
arbitrage restrictions place significant record keeping burdens on the issuing entity in
determining and documenting any such variances. Due to the significant penalties
associated with any violation of these provisions (including the withdrawal of tax
benefits to the bond holder, which is the primary incentive for them to purchase local
agency securities), most agencies contract annually with a Big 8 accounting firm to
provide this service at costs ranging from $5,000 to $20,000 per year per issue. By
completing this issuance prior to the close of the current calendar year, the City can
take advantage of the reduced record keeping and interest earning requirements associated
with a small debt issuance.
RECENT FINANCING EXPERIENCE
The City's most recent project financing was completed on July 15, 1986, with the
issuance of $13,970,000 in Lease Revenue Bonds related to the Madonna Road and other
street improvements ($5,000,000) and the construction of parking structures
($8,970,000). Net proceeds available for construction from the issue after debt service/i
_ p-
�un�ibu►�Iflllll�p►��'�►I �I city or sant is oBispo
!I�COUNCIL AGENDA REPORT
reserve requirements, capitalized interest, and issuance costs were $10,208,000. The
bonds were issued through the San Luis Obispo Capital Improvements Board, which was
established on April 15, 1986 as a public facilities financing authority. The City
Council serves as the Board of Directors for this agency. The portion of the issue
pertaining to road improvements was secured by the sale of property (City Hall and Police
Station) to the Board from the City. The issuance of the COP's or LRB's through the
Board is also anticipated for the proposed financing.
Other recent uses of debt financing include lease -purchase agreements for construction of
the corporation yard, acquisition of the City Hall telephone system, and purchase of the
financial management information system computer. Historical uses of debt financing
include the issuance of general obligation and revenue bonds in the late 1950's and early
1960's for the construction and implementation of various water and sewer facilities,
including the City's share of the Whale Rock Reservoir.
The City's current debt management policies are provided on page B-3 of the 1987-89
Financial Plan. As noted previously, the proposed financing is in accordance with these
policies.
ACTIONS REQUIRED TO INITIATE THE PROPOSED FINANCING
As part of the workscope of the Financial Services Study currently in progress, the City
Council selected the firm of Evensen Dodge to serve as the City's Financial Advisor for
any project financings that may be initiated during the next five years. As such, a
significant step in the project financing has already been accomplished. The following
is a summary of additional City Council actions required to initiate the remaining
proceedings:
Bond Counsel Services - Legal services are required in conjunction with any project
financing. Customary services include the preparation of documents and opinions
related to the financing; consultation regarding federal tax and state public finance
laws; and other legal matters which may arise in the course of planning and
conducting debt financings. As noted above, a master agreement for Financial Advisor
Services was an integral part of the City's Financial Services Study process.
Although subject to annual renewal, the agreement with Evensen Dodge anticipates an
ongoing relationship of at least five years. It is recommended that a similar
approach also be used in selecting and retaining bond counsel services. This
selection process has already been initiated, with RFP's sent to the top five
California bond counsel firms on October 10, 1988. Pursuant to this RFP process, it
is recommended that the City Council authorize the CAO, with the concurrence of the
City Attorney, to enter into an agreement for bond counsel services with the selected
f irm.
Approval of Financing Documents - The formal approval by the City Council of a
variety of documents is required prior to closing the project financing, including
the bond indenture, trust agreement, and official statement. Prepared by the
Financial Advisor and Bond Counsel, it is anticipated that these documents will be
submitted for City Council approval at the November 15, 1988 meeting. In conjunction
with the preparation and execution of these documents, the services of a trustee,
paying agent, registrar, and transfer agent will also be required. It is anticipated
that the City's Financial Advisor (Evensen Dodge) will assist in the selection of
firms providing these services, and it is recommended that the City Council authorize
the CAO to enter into any required agreements.
���n���ii�IVllllll�ll►►�u►I city of San Luis oBispo
mGmIACOUNCIL AGENDA REPORT
Comoetitive Sale - The project financing can be placed with an underwriter (the
purchaser of the issue who provides the City with the net proceeds from the
financing) through either a negotiated or competitive sale. Under a negotiated sale,
the City and its Financial Advisor negotiate directly with the prospective
underwriter for the placement terms such as discount, other underwriter fees, and
interest rate. Under a competitive sale, the City awards the placement to an
underwriter based on a competitive bid process. Depending on the complexity of the
issuance, improvements to be funded, time constraints, debt instruments, repayment
structure, and market conditions; there are advantages and drawbacks to each
approach. For this project financing, a competitive sale is anticipated.
Closing Date and Award of Bid - Under the competitive sale approach, it is
anticipated that the award of bid for the placement of the debt issuance will be made
on December 12, 1988, which has already been scheduled for a City Council study
session. Award at that time should allow sufficient time for the preparation of
closing documents and receipt of net proceeds prior to the end of 1988.
SUMMARY
In order to provide funding for currently approved water projects, it is recommended that
the City Council authorize the following actions:
• Authorize staff to initiate proceedings for the issuance of $5 million in
Certificates of Participation/Lease Revenue Bonds.
• Authorize the CAO, with the concurrence of the City Attorney, to enter into an
agreement for bond counsel services.
• Authorize the CAO to enter into agreements for other services incidental to the
project financing, such as trustee services, paying agent, registrar, or
transfer agent.
CONCURRENCES:
City AttorJoy
Director of Utilities
ATTACHMENTS
Overview of the proposed financing (Attachment A).
Summary of the proposed projects (Attachment B).
Description of the project scope (Attachment Q.
BOND COUNSEL/AGRPTWTR
• ATTACHMENT A
SUMMARY OF PROPOSED PROJECT FINANCING
• Policy Links:
• Issue Size:
• Anticipated net proceeds after debt service
reserve requirements and issuance costs:
• Project cost summary (See Attachments B and C):
Source of supply
Distribution system
Treatment plant
Total estimated project costs
• Type of debt instrument:
• Issued through:
• Maturity period:
• Estimated interest rate:
• Estimated annual debt service:
• Schedule of key events:
Initiate selection process for bond counsel
City Council authorization to initiate proceedings for
debt issuance; authorization for CAO, with concurrence of the
City Attorney, to enter into an agreement for bond counsel services
Formal City Council approval of bond documents
and authorization to solicit underwriter bids
Closing date; City Council award of bid (scheduled study session)
* Public facilities financing corporation established on April 15, 1986;
the City Council serves as its Board of Directors.
1987.89 Financial Plan
Draft Water Management Plan
Water Rate Review, June 6,1988
$5,000,000
54,400,000
575,000
2,050,000
1,739,300
84,364,300
Certificates of Participation
or Lease Revenue Bonds
San Luis Obispo
Capital Improvement Board '
20 years
8.0% to 8.5%
8490,000
October 10, 1988
November 1, 1988
November 15, 1988
December 12, 1988
OATTACHMENT B
SUMMARY OF WATER CAPITAL PROJECTS BASED ON THE 1987-89 FINANCIAL PLAN AND DRAFT WATER MANAGEMENT PLAN
SOURCE OF SUPPLY
Golf course wells 75,000
Salinas Reservoir expansion
Design 250,000
Construction 2,450,000
Groundwater wells 250,000
---------------
Total source of supply projects 3,025,000
---------------
DISTRIBUTION SYSTEM
Pump and valve improvements
Pump station - Hathway a Freeway
90,000
Pressure reducing valve relocation 8 Chorro & Foothill
80,000
Pressure reducing valve 8 Johnson & Buchon
30,000
Other pump/valve improvements
130,000
Water main reconstruction and upgrades
Higuera - South of Marsh
160,000
George Street
100,000
Higuera California to Johnson
80,000
Monterey - Garfield to Freeway
150,000
Johnson to Henry
230,000
Monterey to Reservoir No. 1
180,000
Highway 1 8 Foothill
240,000
Other water main projects
580,000
Balancing reservoir
2,500,000
Total distribution system projects
---------------
4,550,000
---------------
WATER TREATMENT PLANT
FLoculation basin improvements 235,900
Master control system 65,000
Telemetry system improvements 70,000
Improved backwash facilities 211,300
Chemical feed facilities 135,400
Standby emergency power 85,000
Filter media conversion/underdrain system 260,000
operations center 250,000
Other water treatment plant improvements 426,700
---------------
Total water treatment plant projects 1,739,300
---------------
TOTAL PROJECTS RECOMMENDED FOR FINANCING AT THIS TIME
Source of supply 575,000
Distribution system 2,050,000
Water treatment plant 1,739,300
---------------
TOTAL 54,364,300
* Due to uncertainties regarding cost and feasibilty, financing for these projects is not recommended at this time.
• ATTACHMENT C
MEMORANDUM
To: Bill Statler, Director of Finance OeFrom: William T. Hetland, Utilities Director
Subject: Summary of Recommended Water Fund Projects
Attached is a summary of recommended water fund projects and their
estimated costs. The summary is divided into three catagories:
A. Water Source of Supply $ 3,025,000
B. Water Treatment Plant 11739,300
C. Water Distribution 4.550.000
Total $ 91314,300
These projects were taken from the Draft Water Management Plan and
the 1988/89 Financial Plan and Budget and are the basis for the Water
Funds capital program over the next five years.
* Water Source of Supply
The Water Source of Supply projects include projects for development
of additional water resources for the City. The emphasis is in two
areas; groundwater and expansion of the Salinas Reservoir. The
initial phases of the groundwater projects (including construction)
are underway. The feasibility study and design phase of the Salinas
Reservoir is under contract.
* Water Treatment Plant
The Stenner Canyon Water Treatment Plant was constructed in 1963 and
was reviewed in the Draft Water Management Plan. The primary areas
which were analyzed included plant flexibility and operational
efficiency, replacement of outdated or deteriorated facilities,
ability to meet State Health Department requirements and increase in
plant capacity. The recommendation was to improve the flocculation
and filtration processes plus address some hydraulic restrictions
within the plant. Nineteen specific projects were identified in
order to upgrade the plant.
Summary of Recommended Water Fund Projects
Page 2
* Water Distribution
Parts of the City's water distribution system are over one hundred
years old and are undersized to meet the needs of a modern
community. As part of the development of the Draft Water Management
Plan the City staff used a computer program to analyze our
distribution system. The analysis looked at improving system
reliability, reducing our pressure zones and minimizing our energy
requirements in delivering water to our customers.
The analysis showed that by restructuring our pressure zones the City
could save on its energy costs. This is possible by the addition of
new water lines and the replacement of some old undersized lines in
addition to some new valve and pump system improvements.
The analysis also showed that the southeastern portion of the City
was deficient in treated water storage. It was proposed that a
balancing reservoir be added to the,system in that area. The
balancing reservoir has not been authorized by the council and
additional justification will be necessary before it can proceed.
watfunproj/n
�' 9-0
EO
•
SUMMARY OF RECOMMENDED WATER FUND PROJECTS
A. WATER SOURCE OF SUPPLY TOTAL
1. Golf Course design $ 10,000
construction $ 65,000
2. Salinas Reservoir Expansion study/design $ 250,000
construction $2,450,000
3. Water Well Location and Development
study/design $ 60,000
construction $ 190.000
TOTAL WATER SOURCE OF SUPPLY PROJECTS $3,025,000
B. WATER TREATMENT PLANT
TOTAL
1. Flocculation Basin Improvements
$
235,900
2. New Master Control System
$
65,000
3. Influent Rate Control
$
25,100
4. Improved Backwash Facilities
$
211,300
5. Surface Wash Piping and Valve Replacement
$
28,300
6. Clarifier Bypass Line
$
55,900
7. Chemical Feed Facilities
$
135,400
8. Filter Rate Control and Instrumentation
$
91,000
9. Clarifier Improvements
$
19,900
10. Expanded Laboratory Facilities
$
7,500
11. Standby Emergency Power
$
85,000
12. Cover Clarifier/Filter Influent Flume
$
8,000
13. Filter Media Conversion/Underdrain System
$
260,000
14. Influent Piping Modifications
$
86,700
15. Radio Telemetry Monitoring/Control System
$
70,000
16. Chemical Application and Flash Mixing
$
19,800
17. Direct Filtration Option
$
24,500
18. Miscellaneous Hydraulic Restrictions
$
60,000
19. Operations Center
$ 250.000
7
TOTAL TREATMENT PLANT PROJECTS
$1,739,300
RECOMMENDED WATER FUND PROJECTS
Page 2
C. WATER DISTRIBUTION TOTAL
1. Balancing Reservoir $2,500,000
2. Water Main reconstruction/improvements
California/Hathway
$
20,000
California/Foothill
$
20,000
Monterey/Andrews
$
20,000
Serrano Heights
$
20,000
Ella/Johnson
$
10,000
Oakridge/Ferrini Tank
$
90,000
Serrano/Ramona/Broad
$
20,000
Skylark/Wilding
$
60,000
Ramona/La Entrada
$
10,000
Johnson/Henry
$
230,000
Monterey to Reservoir 1
$
180,000
Highway 1/Foothill
$
240,000
La Entrada/Catalina
$
20,000
Ella/Johnson to Sierra
$
20,000
Higuera/Marsh South
$
160,000
George St
$
100,000
Higuera/California/Johnson
$
80,000
Monterey/Garfield/Freeway
$
150,000
Buena Vista
$
80,000
Santa Ynez
$
70,000
Morro St.
$
30,000
Court St.
$
30,000
McCollum
$
60,000
3. Pump and Valve improvements
Pressure Reduc Valve - Grand/Wilson
$
30,000
Check Valve - Warren Way/Patricia
$
10,000
Remove Air Compressor - Alrita
$
10,000
Check Valve - Alrita/Flora
$
20,000
Pump Station - Hathway/Freeway
$
90,000
Pressure Reduc Valve - Highland/Oakridge
$
30,000
Check Valve - Johnson/Bishop
$
10,000
Pressure Reducing Valve - Johnson/Buchon
$
30,000
Pressure Reducing Valve - Chorro/Foothill
$
80,000
Emergency Pumping Hydrants
$
20,000
TOTAL DISTRIBUTION PROJECTS $4,550,000
ef_ f -m
29026-10 Q JHHW:CFA:dffi NM90, 1888 F8202
MARKED TO SHOW CHANGES
i ( 11/j o/16%
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT, dated as of December 1, 1988, is by and
between the CITY OF SAN LUIS OBISPO CAPITAL IMPROVEMENT BOARD, a public
body corporate and politic duly organized and existing under Ordinance No. 10591986
Series) adopted by the City Council of the City of San Luis Obispo on April 15, 1� 986, and
under the constitution and laws of the State of California (the "Board"), and the CITY OF
SAN LUIS OBISPO, a charter city and municipal corporation duly organized and existing
under the constitution and laws of the State of California (the "City"),
WITNESSETH:
WHEREAS, the City presently owns and operates certain facilities and property
for the treatment and distribution of water to residents of the City and adjacent areas
(the "Enterprise"), and the City wishes to provide funds for certain improvements to the
Enterprise; and
WHEREAS, to provide such funds to the City, the Board has proposed to acquire
certain facilities constituting a portion of the Enterprise, as such facilities are described
more fully in Exhibit A attached hereto and by this reference incorporated herein (the
"Facilities"); and
WHEREAS, to pay the costs acquiring the Facilities from the City pursuant
hereto, the Board proposes to lease the Facilities back to the City pursuant to that
certain Lease Agreement dated as of December 1, 1988, by and between the Board as
lessor and the City as lessee (the "Lease Agreement'), and to assign its rights to receive
lease payments payable by the City thereunder to Security Pacific National Bank as
trustee (the "Trustee"), and to enter into that certain Trust Agreement dated as of
December 1, 1988, by and among the Board, the City and the Trustee (the "Trust
Agreement') under which the Trustee agrees to execute and deliver Certificates of
Participation in the aggregate principal amount of $5,000,000 (the "Certificates")
representing the direct, undivided fractional interests of the owners thereof in such lease
payments; and
WHEREAS, the City is authorized to enter into this Agreement pursuant to the
municipal affairs power of the City as a charter city, and the Board is authorized to enter
into this Agreement pursuant to the Ordinance pursuant to which the Board has been
established; and
WHEREAS, the Board and the City wish to enter into this Agreement to provide
the terms and conditions relating to such acquisition of the Facilities by the Board from
the City;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants hereinafter contained, the parties hereto hereby agree as follows:
M
Section 1. Acquisition of Facilities. The City hereby grants, conveys and
sells to the Board all right, title and interest of the City in and to all of the
Facilities and the Board hereby acquires all of the right, title and interest of the
City in and to all of the Facilities. The City hereby agrees to take any and all
actions and to execute, deliver and record any and all deeds, instruments of
conveyance and other documents which the Board may reasonably request to
accomplish the sale of the Facilities to the Board pursuant hereto.
Section 2. Warranty of Title. The City hereby represents and warrants to the
Board that the City owns good and marketable fee title to the Facilities, subject only such
encumbrances as do not materially affect the operation of the Facilities for the purposes
served thereby.
Section & Acquisition Price. In consideration of the acquisition by the Board of
the City's right, title and interest in all of the Facilities pursuant to Section 1, the Board
hereby agrees to pay to the City the amount of Dollars
($ ). The Board and the City hereby agreement that such amount is not in
excess of the fair market value of the Facilities, as determined pursuant to the appraisal
by Brown & Caldwell dated November _, 1988. The parties hereto agree that said
purchase price constitute fair and adequate consideration for the interests of the City in
the Facilities. Said purchase price shall be paid by the Board to the City on the date of
delivery of the Certificates, and shall be paid from amounts deposited with the Trustee
for such purpose from the proceeds of sale of the Certificates.
Section 4. Use of Proceeds. The parties hereby agree that the acquisition by
the Board of the City's right, title and interest in the Facilities pursuant to Section 1
serves the public purposes of the City by providing funds to enable the City to finance
certain capital requirements of the City relating to the Enterprise. The City hereby
agrees that the proceeds of sale of the Facilities shall be deposited in the Water
Enterprise Fund of the Enterprise and shall be used solely for the purpose of paying the
costs of capital improvements to the Enterprise, and that the City shall make no use of
such proceeds which would cause the interest represented by the Certificates to be or to
become includable in gross income for federal income tax purposes.
-2-
M
•
S IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, all as of the date first
above written.
Attest:
By
City Clerk
Attest:
By
Secretary
CITY OF SAN LUIS OBISPO
By
City Administrative Officer
CITY OF SAN LUIS OBISPO CAPITAL
MTROVEMENT BOARD .
By
Executive Director
—3—
,S
DESCRIPTION OF FACILITIES
-4-
2901s-10 raw craam NA10,1988
WHEN RECORDED, RETURN TO:
Jones Hall Hill & White .
Four Embarmdero Center, Suite 1950
San Francisco, California 94111
Attention:
MARKED TO SHOW CHANGES
� n/rd/48
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT, made and entered into as of December 1,
1988, by and between the CITY OF SAN LUIS OBISPO CAPITAL IMPROVEMENT
BOARD, a public body corporate and politic duly organized and existing under Ordinance
No. 1059 (1988 Series) adopted by the City .Council of the City of San Luis Obispo on
April 15, 1988, and under the constitution and laws of the State of California (the
"Board"), and SECURITY PACIFIC NATIONAL BANK a national bank organized and
existing under the laws of the United States of America as trustee (the 71'rustee' );
WITNESSETH:
WHEREAS, the City presently owns and operates certain facilities and property
for the treatment and distribution of water to residents of the City and adjacent areas
(the "Enterprise'), and the City wishes to provide funds for certain improvements to the
Enterprise; and
WHEREAS, to that end the Board has proposed to acquire certain facilities
constituting a portion of the Enterprise (the "Facilities") from the City pursuant to that
certain Acquisition Agreement dated as of December 1, 1988, (the "Acquisition
Agreement") by and between the City as seller and the Board as purchaser, and to lease.
the Facilities back to the City pursuant to that certain Lease Agreement dated as of
December 1, 1988, by and between the Board as lessor and the City as lessee (the "Lease
Agreement"); and
WRF.RF.AS, in order to provide funds sufficient to enable the Board to pay the
purchase price of the Facilities under the Acquisition Agreement, the Board proposes to
assign its rights to receive lease payments payable by the City thereunder to Security
Pacific National Bank as trustee (the "Trustee"), and to enter into that certain Trust
Agreement dated as of December 1, 1988, by and among the Board, the City and the
Trustee (the "Trust Agreement") under which the Trustee agrees to execute and deliver
Certificates of Participation in the aggregate principal amount of $5,000,000 (the
"Certificates") representing the direct, undivided fractional interests of the owners thereof
in such lease payments; and
WHEREAS, the Board and the Trustee wish to enter into this Assignment
Agreement to provide the terms and conditions relating to such assignment;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants hereinafter contained, the parties hereto hereby agree as follows:
Section 1. Assignment. The Board hereby transfers, assigns and sets over
to the Trustee, for the benefit of the Owners of Certificates executed and
delivered under the Trust Agreement, all of the Board's rights under the Lease
Agreement (excepting only the Board's rights under Section,%. 6.3 and 8.4 of
the Lease Agreement), including without limitation (a) the right to receive and
collect all of the Lease Payments from the City under the Lease Agreement, (b)
the right to receive and collect any proceeds of any insurance maintained
thereunder, of any condemnation award rendered with respect to the Facilities,
and (c) the right to exercise such rights and remedies conferred on the Board
pursuant to the Lease Agreement as may be necessary or convenient (i) to enforce
payment of the Lease Payments and any other amounts required to be deposited
in the Certificate established under the Trust Agreement, or (ii) otherwise to
protect the interests of the Owners in the event of a default by the City under the
Lease Agreement. All rights assigned by the Board shall be administered by the
Trustee in accordance with the provisions of the Trust Agreement and for the
benefit of the Owners of Certificates.
.Section 2. Acceptance. The Trustee hereby accepts the assignments made
herein for the purpose of securing, equally and fractionally, the payments due pursuant
to the Lease Agreement and Trust Agreement to, and the rights under the Lease
Agreement and Trust Agreement of, the Insurer and the. Owners of the Certificates
delivered pursuant to the Trust Agreement, all subject to the provisions of the Trust
Agreement.
Section & Conditions. This Assignment Agreement shall confer no rights or
impose no duties upon the Trustee beyond those expressly provided in the Lease
Agreement and Trust Agreement.
IN WITNESS WHEREOF, the parties have executed this Assignment Agreement
by their officers thereunto duly authorized as of the day and year first written above.
Attest:
By
Secretary
CITY OF SAN LUIS OBISPO CAPITAL
IMPROVEMENT BOARD
Un
Executive Director
SECURITY PACIFIC NATIONAL BANK,
as Trustee
By
Authorized Officer
&a
79028-10 O JHHWCFA:df, Nm*, 1988 FUN
{
MARKED TO SHOW CHANGES
t
11/10
96
TRUST AGREEMENT
Dated as of December 1, 1988
by and among
SECURITY PACIFIC NATIONAL BANK, as trustee
CITY OF SAN LUIS OBISPO CAPITAL INTROVEMENT BOARD
and the
CITY OF SAN LUIS OBISPO
Relating to
$5,000,000
Certificates of Participation
GLOW : Rumor- Fund = I,JdWFj){tr-F0,(e Fi)A4
K
F8204
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
•
Page
Section1.01. Definitions..................................................................................... 2
Section 1.02. Legal Authority............................................................................. 6
ARTICLE II
THE CERTIFICATES OF PARTICIPATION
Section 2.01.
Authorization................................................................................
7
Section2.02.
Date..............................................................................................
7
Section 2:03.
Maturity; Interest Rates................................................................
7
Section 2.04.
Computation and Payment of Interest ...........................................
7
Section 2.05.
Form and Execution of Certificates ................................................
7
Section 2.06.
Book Entry System........................................................................
8
Section 2.07.
Transfer and Exchange..................................................................
10
Section 2.08.
Certificates Mutilated, Lost, Destroyed or Stolen ...........................
10
Section2.09.
Payment........................................................................................
11
Section 2.10.
Execution of Documents and Proof of Ownership ...........................
11
Section2.11.
Temporary Certificates..................................................................
12
Section 2.12.
Registration Books.................:........................................................
12
ARTICLE III
PREPAYMENT OF CERTIFICATES
Section3.01. Prepayment................................................................................... 13
Section 3.02. Selection of Certificates for Prepayment ........................................ 14
Section 3.03. Notice of Prepayment.................................................................... 14
Section 3.04. Partial Prepayment of Certificates ................................................. 14
Section 3.05. Effect of Notice of Prepayment....................................................... 15
ARTICLE IV
DISPOSITION OF PROCEEDS; ACQUISITION FUND
AND RESERVE FUND
Section 4.01. Application of Proceeds ...... :........................................................... 16
Section 4.02. Acquisition Fund........................................................................... 16
X
Page
Section 4.03. Reserve Fund ....... .... .:............................. :......... ............................. 16
ARTICLE V
LEASE PAYMENTS; CERTIFICATE FUND
Section 5.01. Assignment of Rights in Lease Agreement ..................................... 18
Section 5.02. Establishment of Certificate Fund ................................................. 18
Section 5.03. Deposits......................................................................................... 18
Section 5.04. Application of Moneys ..................... :............. ................................ 18
Section5.05. Surplus.......................................................................................... 18
ARTICLE VI
INVESTMENT PROVISIONS
Section 6.01. Held in Trust...................:............................................................. 19
Section 6.02. Investments Authorized................................................................. 19
Section6.03. Accounting.................................................................................... 19
Section 6.04. Allocation of Earnings................................................................... 19
Section 6.05. Valuation and Disposition of Investments ...................................... 19
ARTICLE VII
THE TRUSTEE
Section 7.01.
Appointment of Trustee .................. ........... :..................................
20
Section7.02.
Acceptance of Trusts.....................................................................
20
Section 7.03.
Fees, Charges and Expenses of Trustee .........................................
23
Section 7.04.
Notice to Certificate Owners of Default ...:......................................
23
Section 7.05.
Intervention by Trustee ........................... :.....................................
23
Section 7.06.
Removal of Trustee:.......................................................................
23
Section 7.07.
Resignation by Trustee..................................................................
23
Section 7.08.
Appointment of Successor Trustee .................................................
23
Section 7.09.
Merger or Consolidation.................................................................
24
Section 7.10.
Concerning any Successor Trustee .................................................
24
Section 7.11.
Appointment of Co-Trustge...........................................................
24
Section 7.12.
Non -Liability of Trustee................................................................
25
Section 7.13.
Actions Through Agents................................................................
25
Section 7.14.
Nature of Trust Engagement
26
.........................................................
ARTICLE VIII
MODIFICATION OR AMENDMENT OF AGREEMENTS
ll
C
•
ARTICLE IX
COVENANTS; NOTICES
Section 9.01. Compliance With and Enforcement of Lease
Agreement........................................................................... 30
Section 9.02. Observance of Laws and Regulations ............................................. 30
Section 9.03. Prosecution and Defense of Suits ................................................... 30
Section 9.04. Recordation and Filing ...... ................. :............... ...:........................ 30
Section 9.05. Tax Covenants............................................................................... 30
Section 9.06. Further Assurances....................................................................... 32
Section 10.01.
Section 10.02.
Section 10.03.
Section 10.04.
Section 10.05.
Section 11.01.
Section 11.02.
Section 11.03.
Section 11.04.
Section 11.05.
Section 11.06.
Section 11.07.
Section 11.08.
Section 11.09.
"N9*1
LDMATION OF LIABILITY
Limited Liability of City............................................................... 33
No Liability of the Board for Trustee Performance ....................... 33
Indemnification of Trustee........................................................... 33
Opinion of Counsel ....... :... :........................................... ............... 33
Limitation of Rights to Parties and Certificate
Owners................................................................................ 33
ARTICLE XI
EVENTS OF DEFAULT AND REMEDIES
OF CERTIFICATE OWNERS
Assignmentof Rights................................................................... 35
Remedies........................................................:............................ 35
Applicationof Funds....................................................4............... 35
Institution of Legal Proceedings................................................... 36
Non -waiver .... ................................ .............. :............................... 36
RemediesNot Exclusive............................................................... 36
Power of Trustee to Control Proceedings ...................................... 36
Limitation on Certificate Owners' Right to Sue ............................ 36
Possession of Certificates by Trustee Not Required ...................... 37
iii
Page
Section 8.01.
Amendments Permitted.................................................................
27
Section 8.02.
Procedure for Amendment with Written Consent of
Certificate Owners...............................................................
27
Section 8.03.
Effect of Supplemental Agreement ..... :.................. .........................
28
Section 8.04.
Endorsement or Replacement of Certificates Delivered
After Amendments..............................................................
28
Section 8.05.
Amendatory Endorsement of Certificates .......................................
29
ARTICLE IX
COVENANTS; NOTICES
Section 9.01. Compliance With and Enforcement of Lease
Agreement........................................................................... 30
Section 9.02. Observance of Laws and Regulations ............................................. 30
Section 9.03. Prosecution and Defense of Suits ................................................... 30
Section 9.04. Recordation and Filing ...... ................. :............... ...:........................ 30
Section 9.05. Tax Covenants............................................................................... 30
Section 9.06. Further Assurances....................................................................... 32
Section 10.01.
Section 10.02.
Section 10.03.
Section 10.04.
Section 10.05.
Section 11.01.
Section 11.02.
Section 11.03.
Section 11.04.
Section 11.05.
Section 11.06.
Section 11.07.
Section 11.08.
Section 11.09.
"N9*1
LDMATION OF LIABILITY
Limited Liability of City............................................................... 33
No Liability of the Board for Trustee Performance ....................... 33
Indemnification of Trustee........................................................... 33
Opinion of Counsel ....... :... :........................................... ............... 33
Limitation of Rights to Parties and Certificate
Owners................................................................................ 33
ARTICLE XI
EVENTS OF DEFAULT AND REMEDIES
OF CERTIFICATE OWNERS
Assignmentof Rights................................................................... 35
Remedies........................................................:............................ 35
Applicationof Funds....................................................4............... 35
Institution of Legal Proceedings................................................... 36
Non -waiver .... ................................ .............. :............................... 36
RemediesNot Exclusive............................................................... 36
Power of Trustee to Control Proceedings ...................................... 36
Limitation on Certificate Owners' Right to Sue ............................ 36
Possession of Certificates by Trustee Not Required ...................... 37
iii
O
ARTICLE XII
MISCELLANEOUS
Page
Section 12.01.
Defeasance...................................................................................
38
Section12.02.
Records........................................................................................
38
Section12.03.
Notices.........................................................................................
38
Section 12.04.
Disqualified Certificates...............................................................
39
Section 12.05.
Payment of Certificates After Discharge of Trust
Agreement...........................................................................
39
Section 12.06.
Governing Law............................................................................
39
Section 12.07.
Binding Effect; Successors...........................................................
40
Section 12.08.
Board and City Representatives...................................................
40
Section 12.09.
Execution in Counterparts...........................................................
40
Section 12.10.
Delivery of Cancelled Certificates .................................................
40
Section12.11.
Headings.....................................................................................
40
Section 12.12.
Waiver of Notice.........................................................................
40
Section 12.13.
Separability of Invalid Provisions ................................................
40
-iv-
TRUST AGREEMENT
THIS AGREEMENT, made and entered into as of December 1, 1988, is by and
among SECURITY PACIFIC NATIONAL BANK, a national bank organized and existing
under the laws of the United States of America (the "Trustee"), the CITY OF SAN LUIS
OBISPO CAPITAL IMPROVEMENT BOARD, a public body corporate and politic duly
organized and existing under Ordinance No. 1059 1986 Series) adopted by the City
Council of the City of San Luis Obispo on April 15,,,1986, and under the constitution and
laws of the State of California (the "Board"), and the CITY OF SAN LUIS OBISPO, a
charter city and municipal corporation duly organized and existing under the constitution
and laws of the State of California (the "City");
WITNESSETH:
WHEREAS, the City presently owns and operates certain facilities and property
for the treatment and distribution of water to residents of the City and adjacent areas
(the "Enterprise"), and the City wishes to provide funds for certain improvements to the
Enterprise; and
WHEREAS, to provide such funds to the City, the Board has proposed to acquire
certain facilities constituting a portion of the Enterprise (the "Facilities') pursuant to the
Acquisition Agreement dated as of December 1, 1988, (the "Acquisition Agreement") by
and between the City as seller and the Board as purchaser; and
WHEREAS, the Board has proposed to lease the Facilities to the City pursuant to
the Lease Agreement dated as of December 1, 1988, (the "Lease Agreement") by and
between the Board as lessor and the City as lessee, and the City is authorized pursuant
to the laws of the State of California to enter into leasehold agreements for such
purposes; and
WHEREAS, in order to provide funds to finance the acquisition of the Facilities
under the Acquisition Agreement, the Board proposes to assign and transfer to the
Trustee certain of its rights under the Lease Agreement, and .in consideration of such
assignment and the execution of this Trust Agreement the Trustee has agreed to execute
and deliver Certificates of Participation, each evidencing a direct, undivided fractional
interest in the Lease Payments to be made by the City under the Lease Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Unless the context otherwise requires, the terms
defined in this Section shall, for all purposes of this Trust Agreement, have the meanings
herein specified. In addition, all terms defined in the Lease Agreement and not otherwise
defined herein shall have the respective meanings specified in the Lease Agreement.
"Acquisition Fund" means the fund by that name established and held by the
Trustee pursuant to Section 4.02.
"Assignment Agreement" means the Assignment Agreement, dated as of
December 1, 1988, by and between the Board as assignor and the Trustee as assignee, as
originally executed or as thereafter amended pursuant to any duly authorized and
executed amendments thereto.
"Board" means the City of San Luis Obispo Capital Improvement Board, a public
body corporate and politic duly organized and existing under Ordinance No. 1059,(L986
Series) adopted by the City Council of the City of San Luis Obispo on April 15,1986, and
under the constitution and laws of the State of California.
"Board Representative" means the President, Executive Director, Chief
Financial Officer or Secretary of the Board, or any other person authorized by resolution
of the governing body of the Board to act on behalf of the Board under or with respect to
this Agreement.
"Bond Counsel" means any attorney or firm of attorneys of nationally recognized
expertise with respect to legal matters relating to obligations the interest on which is
excludable from gross income pursuant to Section 103 of the Tax Code.
"Business Day" means a day of the week on which the Trustee is not required or
authorized to remain closed and on which the New York Stock Exchange is open.
"Certificate Proceeds", when used with reference to the Certificates, means the
face amount of the Certificates, plus accrued. interest and premium, if any, less original
issue discount and less the proceeds thereof deposited in the Reserve Fund.
"Certificates" means the $5,000,000 aggregate principal amount of Certificates of
Participation to be executed and delivered pursuant hereto.
"City" means the City of San Luis Obispo, a charter city and municipal
corporation duly organized and existing under the constitution and laws of the State of
California.
"City Representative" means the Mayor, City Administrative Officer or the
Director of Finance of the City or any other person authorized by resolution of the City
Council of the City, to act on behalf of the City under or with respect to this Agreement.
-2-
"Closing Date" means December" 29, 1988, being the day when the Certificates of
Participation, duly executed by the Trustee, are delivered to the Original Purchaser.
"Costs of Issuance" means all items of expense directly or indirectly payable by
or reimbursable to the City or the Board relating to the execution and delivery of the
Lease Agreement or the execution, sale and delivery of the Certificates, includiV but not
limited to filing and recording costs, settlement costs, printing costs, reproduction and
binding costs, initial fees and charges of the Trustee (which shall include the first annual
administration fee of the Trustee), financing discounts, legal fees and charges, title
insurance fees and charges relating to the Facilities, financial and other professional
consultant fees, costs of rating agencies for credit ratings, fees for execution,
transportation and safekeeping of the Certificates and charges and fees in connection
with the foregoing.
r" means the Securities De
Section
"DTC" means The Depository Trust Company, New York, New York, and its
successors and assigns.
"Event of Default" means an event of default under the Lease Agreement, as
defined in Section 8.1 thereof.
"Federal Securities" means any of the following which are noncallable and which
at the time of investment are legal investments under the laws of the State of California
for trust funds held by the Trustee:
(a) direct general obligations of the United States of America
(including obligations issued or held in book entry form on the books of the
Department of the Treasury of the United States of America); and
(b) obligations of any agency, department or instrumentality of the
United States of America the timely.payment of principal of and interest on
which are fully guaranteed by the United States of America.
"Fiscal Year" means the twelve-month period beginning on July 1 and ending on
the next succeeding June 30, or any other twelve-month period selected by the City as its
fiscal year.
"Information Services" means Financial Information, Inc.'s "Daily Called Bond
Service', 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention:
Editor; Kenny Information Services' "Called Bond Service," 55 Broad Street, 28th Floor,
New York, New York 10004; Moody's Investors Service "Municipal and Government," 99
Church Street, 8th Floor, New York, New York 10007, Attention: Municipal News
Reports; Standard & Poor's Corporation "Called Bond Record," 25 Broadway, 3rd Floor,
New York, New York 10004; and, in accordance with then current guidelines of the
Securities and Exchange Commission, such other addresses and/or such other services
providing information with respect to called bonds as the City may designate in a written
request delivered to the Trustee.
2M
"Interest Payment Date" means June 1, 1989, and the first day of each June and
December thereafter so long as any Certificates are Outstanding.
"Lease Agreement" means the Lease Agreement dated as of December 1, 1988,
by and between the Board as lessor and the City as lessee, as originally executed or as
thereafter amended pursuant to any duly authorizers and executed amendments thereto.
"Lease Payments" means all payments required to be paid by the City pursuant
to Section 4.4 of the Lease Agreement, including any prepayment thereof pursuant to
Article IX of the Lease Agreement.
"Certificate Fund" means the fund by that name established and held by the
Trustee pursuant to Section 5.02.
"Minimum Rating" means means a rating of A or better by Moody's or S&P. In
the event the rating system of Moody's or S&P with respect to any particular Permitted
Investment does not including a rating category of A, the term "A or better" as used in
the preceding sentence shall mean the highest general rating category applicable to such
Permitted Investment (determined without regard to any refinement or gradation of such
rating category by a numerical modifier, a plus or a minus sign, or otherwise).
"Moody's' means Moody's Investors Service, its successors and assigns.
"Original Purchaser" means , as original purchaser of the
Certificates.
"Outstanding", when used as of any particular time with respect to Certificates,
means (subject to the provisions of Section 12.04) all Certificates theretofore executed
and delivered by the Trustee under this Agreement except -
(a) Certificates theretofore cancelled by the Trustee or surrendered
to the Trustee for cancellation;
(b) Certificates for the payment or prepayment of which funds or
Federal Securities in the necessary amount shall have theretofore been
deposited with the Trustee pursuant to Section 12.01; and
(c) Certificates in lieu of or in exchange for which other Certificates
shall have been executed and delivered by the Trustee pursuant to Section
2.08.
'Owner", when used with respect to a Certificate means the person in whose
name the ownership of such Certificate shall be registered on the Registration Books.
"Permitted Investments" means any of the following which at the time of
investment are legal investments under the laws of the State of California for the moneys
proposed to be invested therein:
(a) Federal Securities;
-4-
(b) any of the following obligations or indebtedness issued or
guaranteed by any of the following federal agencies and entities: (i) senior
debt obligations of the Federal Home Loan Bank System; (ii) participation
certificates of the Federal Home Loan Mortgage Corporation; (iii)
mortgage-backed securities or senior debt obligations of the Federal
National Mortgage Association; or (iv) senior debt obligations of the
Student Loan Marketing Association.
(c) interest-bearing demand or time deposits (including certificates
of deposit) in federal or state chartered savings and loan associations or in
national or State banks (including the Trustee) provided that either: (i) the
obligations of such association or bank or the obligations of the holding
company of such association or bank have a Minimum Rating; or (ii) such
deposits are fully insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation;
(d) obligations issued by any corporation organized and operating
within the United States of America having assets in. excess of
$500,000,000, which obligations have a Minimum Rating;
(e) commercial paper which has a Minimum Rating or backed by a
letter of credit or line of credit which has a Minimum Rating,
(fl money market funds either (i) the policy of which is to invest
solely in Permitted Investments, or (ii) which have a Minimum Rating,
(g) bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers acceptances, which are
eligible for purchase by the Federal Reserve System and the obligations of
which commercial bank or the obligations of the holding company of which
has a Minimum Rating,
(h) obligations the interest on which is exempt from federal income
taxation under Section 103 of the Tax Code, and which have a Minimum
Rating; and
(i) investment agreements which are the obligations of, or which are
secured or guaranteed by the obligations of, a financial institution whose
long-term obligations have a Minimum Rating.
"Private Business Use" means use directly or indirectly in a trade or business
carried on by a natural person or in any activity carried on by a person other than a
natural person, excluding, however, use by a governmental unit and use as a member of
the general public.
"Record Date" means the close of business on the fifteenth (15th) day of the
month preceding each Interest Payment Date, whether or not such fifteenth (15th) day is
a Business Day.
Im
"Registration Books" means the records maintained by the Trustee pursuant to
Section 2.12 for registration of the ownership and transfer of ownership of the
Certificates.
"Reserve Fund" means the fund by that name established and held by the
Trustee pursuant to Section 4.03.
"Reserve Requirement" means, as of the date of calculation, an amount equal to
to the maximum amount of Lease Payments (excluding Lease Payments with respect to
which the City shall have posted a security deposit pursuant to Section 9.1 of the Lease
Agreement) coming due in the current or any future Fiscal Year.
"Securities Depositories" means The Depository Trust Company, 711 Stewart
Avenue, Garden City, New York 11530, Fax -(516) 227-4039 or 4190; Midwest Securities
Trust Company, Capital Structures -Call Notification, 440 South LaSalle Street, Chicago,
Illinois 60605, Fax -(312) 663-2343; Philadelphia Depository Trust Company,
Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103,
Attention: Bond Department, Dex-(215) 496-5058; and, in accordance with then current
guidelines of the Securities and Exchange Commission, such other addresses and/or such
other securities depositories as the City may designate in a written request of the City
delivered to the Trustee.
"S&P" means Standard & Poor's Corporation, its successors and assigns.
"Tax Code" means the Internal Revenue Code of 1986. Any reference herein to a
provision of the Tax Code shall include all applicable Tax Regulations promulgated with
respect to such provision.
"Tax Regulations" means temporary and permanent regulations promulgated
under the Tax Code.
'Term of the Lease Agreement' means the time during which the Lease
Agreement is in effect, as provided in Section 4.2 of the Lease Agreement.
"Trust Agreement" means this Trust Agreement, as originally executed or as .
thereafter amended pursuant to any amendments hereto permitted to be made
hereunder.
"Trust Office" means the corporate trust office of the Trustee at 333 South
Beaudry Avenue, Los Angeles, California 90017, or at such other address or addresses
designated by the Trustee in written notice filed with the City, the Board and the
Owners.
"Trustee" means Security Pacific National Bank or any successor thereto acting
as Trustee pursuant to this Trust Agreement.
Section 1.02 Legal Authority. Each of the parties hereby represents and
warrants that it has full legal authority and is duly empowered to enter into this
Agreement, and has taken all actions necessary to authorize the execution of this
Agreement by the officers and persons signing it.
Elm
AR77CLE H
THE CERTIFICATES OF PARTICIPATION
Section 2.01. Authorization. The Trustee is hereby authorized and directed
upon written request from the Board to prepare, execute and deliver, to the Original
Purchaser, Certificates in an aggregate principal amount of Five Million Dollars
($5,000,000) evidencing direct, undivided fractional ownership interests of the Owners
thereof in the Lease Payments.
Section 2.02. Date. Each Certificate shall be dated as of the date of its execution
(except that each Certificate delivered to the Original Purchaser shall be dated as of
December 1, 1988), and interest represented thereby shall be payable from the Interest
Payment Date next preceding the date of execution thereof, unless: (a) it is executed after
a Record Date and on or before the following Interest Payment Date, in which event
interest represented thereby shall be payable from such Interest Payment Date; or (b) it
is executed on or before the first Record Date, in which event interest represented thereby
shall be payable from December 1, 1988; provided, however, that if, as of the date of any
Certificate, interest represented by any Certificate is in default, interest represented by
such Certificate shall be payable from the Interest Payment Date to which interest has
previously been paid or made available for payment with respect to such Certificate.
Section 2.03. Maturity; Interest Rates. Principal represented by the
Certificates shall be payable on June 1 in each of the respective years and in the
respective amounts, and interest represented thereby shall be computed at the respective
rates, as follows:
Maturity Date Principal Interest Maturity Date Principal Interest
(June 1) Amount Rate (June 1) Amount Rate
(TO COME)
AV,
Section 2.04. Computation and Payment of Interest. Interest represented by
the Certificates shall be payable on each Interest Payment Date to and including the date
of maturity or prepayment, whichever is earlier, as provided in Section 2.09. Said
interest shall represent the portion of Lease Payments designated as interest and coming
due on each of the respective Interest Payment Dates. The share of the portion of Lease
Payments designated as interest with respect to any Certificate shall be computed by
multiplying the portion of Lease Payments designated as principal represented by such
Certificate by the rate of interest represented by such Certificate (on the basis of a 360 -
day year of twelve 30 -day months).
Section 2.05. Form and Execution of Certificates. The Certificates shall be
themoL substantially as set forth in Exhibit A attached hereto. and by this reference
incorporated herein. The Certificates shall be executed by and in the name of the Trustee
-7-
by the manual signature of an signatory officer of the. Trustee. If any person whose
signature appears on any Certificate ceases to be an authorized signatory before the date
of delivery of said Certificate, such signature shall nevertheless be as effective as if such
person had remained an authorized signatory until such date.
Section 206. Book Entry System.
(a) Original Delivery. The Certificates shall be initially delivered in the form of a
separate single fully registered Certificate (which may be typewritten) for each of the
maturities of the Certificates. Upon initial delivery, the ownership of each such
Certificate shall be registered in the registration books kept by the Trustee in the name
of the nominee set forth in subsection (e) (the "Nominee"), as nominee of the Depository.
Except as provided in subsection (c), the ownership of all of the Outstanding Certificates
shall be registered in the name of the Nominee on the Registration Books.
With respect to Certificates the ownership of which shall be registered in the name
of the Nominee, the Board, the City and the Trustee shall have no responsibility or
obligation to any participant in the Depository's book—entry system (a "Depository
System Participant') or to any person on behalf of which such the City holds an interest
in the Certificates. Without limiting the generality of the immediately preceding
sentence, the Board, the City and the Trustee shall have no responsibility or obligation
(unless the Board is at such time the Depository) with respect to (i) the accuracy of the
records of the Depository, the Nominee, or any Depository System Participant with
respect to any ownership interest in the Certificates, (ii) the delivery to any Depository
System Participant or any other person, other than a Certificate Owner as shown in the
Registration Books, of any notice with respect to the Certificates, including any notice of
redemption, (iii) the selection by the Depository of the beneficial interests in the
Certificates to be redeemed in the event the City elects to prepay the Lease Payments in
part, (iv) the payment to any Depository System Participant or any other person, other
than a Certificate Owner as shown in the Registration Books, of any amount with respect
to principal, premium, if any, or interest represented by the Certificates or (v) any
consent given or other action taken by the Depository as Owner of the Certificates. The
Board, the City and the Trustee may treat and consider the person in whose name each
Certificate is registered as the absolute owner of such Certificate for the purpose of
payment of principal, premium and interest represented by such Certificate, for the
purpose of giving notices of redemption and other matters with respect to such
Certificate, for the purpose of registering transfers of ownership of such Certificate, and
for all other purposes whatsoever. The Trustee shall pay all principal, premium, if any,
and interest represented the Certificates only to or upon the order of the respective
Owners, as shown in the Registration Books, or their respective attorneys duly
authorized in writing, and all such payments shall be valid and effective to fully satisfy
and discharge all obligations with respect to payment of principal, premium, if any, and
interest with respect to the Certificates to the extent of the sum or sums so paid. No
person other than a Certificate Owner, as shown in the Registration Books shall receive a
Certificate evidencing the obligation of the City to make payments of principal, premium,
if any, and interest pursuant to this Trust Agreement. Upon delivery by the Depository
to the Nominee of written notice to the effect that the Depository has determined to
substitute a new nominee in place of the Nominee, and subject to the provisions herein
with respect to record dates, the word Nominee in this Trust Agreement shall refer to
M2
such new nominee of the Depository; and upon receipt of such a notice the Board shall
promptly deliver a copy of the same to the Trustee.
(b) Representation Letter. In order to qualify the Certificates for the Depository's
book -entry system, the Board, the City and the Trustee shall execute, seal, countersign
and deliver to such Depository a letter representing such matters as shall be necessary to
so qualify the Certificates (the "Representation Letter"). The execution and delivery of
the Representation Letter shall not in any way limit the provisions of subsection (a)
above or in any other way impose upon the Board or the City any obligation whatsoever
with respect to persons having interests in the Certificates other than the Certificate
Owners, as shown on the Registration Books. In the written acceptance of the Trustee,
the Trustee shall agree to take all action necessary for all representations of the Board in
the Representation Letter with respect to the Trustee to at all times be complied with. In
addition to the execution and delivery of the Representation Letter, the City
Representative may take any other actions, not inconsistent with this Trust Agreement,
to qualify the Certificates for the Depository's book -entry program.
(c) Transfers Outside Book -Entry System. In the event (i) the Depository
determines not to continue to act as Securities Depository for the Certificates, or (ii) the
Board or the City determine that the Depository shall no longer so act, then the Board
and the City will discontinue the book -entry system with this Depository. In such event,
the Depository shall cooperate with the Board, the City and the Trustee in the issuance
of replacement Certificates by providing the Trustee with a list showing the interests of
the Depository System Participants in the Certificates, and by returning the Certificates,
registered in the name of the Nominee, on or before the date such replacement
Certificates are issued. The Depository, by accepting delivery of the Certificates, agrees
to be bound by this provision. If, prior to the termination of the Depository acting as
Securities Depository, the Board and the City fail to identify another qualified Securities
Depository to replace the Depository then the Certificates shall no longer be required to
be registered in the Registration Books in the name of the Nominee, but shall be
registered in whatever name or names the Owners transferring or exchanging Certificates
shall designate, in accordance with the provisions of this Article II.
In the event the Board determines that it is in the best interests of the beneficial
owners of the Certificates that they be able to obtain certificated Certificates, the Board
may notify the Depository System Participants of the availability of such through DTC of
Certificates. In such event, the Trustee will issue, transfer and exchange Certificates as
required by DTC and others in appropriate amounts; and whenever DTC requests, the
Trustee, the Board and the City will cooperate with DTC in taking appropriate action (y)
to make available one or more separate certificates evidencing the Certificates to any
Depository System Participant having Certificates credited to its DTC account or (z) to
arrange for another Securities Depository to maintain custody of a single certificate
evidencing the Certificates, all at the Board's expense (subject to reimbursement therefor
by the City).
(d) Payments to the Nominee. Notwithstanding any other provision of this Trust
Agreement to the contrary, so long as any Certificate is registered in the name of the
Nominee, all payments with respect to principal of, premium, if any, and interest on such
Certificate and all notices with respect to such Certificate shall be made and given,
respectively, as provided in the Representation Letter or as otherwise .instructed by the
Depository.
(e) Initial Depository and Nominee. The initial Depository under this Section
shall be DTC. The initial Nominee shall be CEDE & CO. as Nominee of DTC.
Section 2.07. Transfer and Exchange.
(a) Transfer of Certificates. The registration of any Certificate may, in accordance
with its terms, be transferred upon the Registration Books by the person in whose name
it is registered, in person or by his duly authorized attorney, upon surrender of such
Certificate for cancellation at the Trust Office of the Trustee, accompanied by delivery of
a written instrument of transfer in a form approved by the Trustee, duly executed.
Whenever any Certificate or Certificates shall be surrendered for registration of transfer,
the Trustee shall execute, authenticate and deliver a new Certificate or Certificates of the
same maturity, interest rate and aggregate principal amount, in any authorized
denominations.
(b) Exchange of Certificates. Certificates may be exchanged at the Trust Office of
the Trustee, for a like aggregate principal amount of Certificates of other authorized
denominations of the same interest rate and maturity. The Trustee may require the
payment by the Certificate Owner requesting such exchange of any tax or other
governmental charge required to be paid with respect to such exchange.
(c) Limitations on Transfer or Exchange. The Trustee may refuse to transfer or
exchange either (i) any Certificate during the fifteen—day period prior to the date
established by the Trustee for the selection of Certificates for redemption or (ii) the
portion of any Certificate which the Trustee has selected for redemption pursuant to the
provisions of Section 3.02.
Section 2.08. Certificates Mutilated, Lost, Destroyed or Stolen. If any
Certificate shall become mutilated, the Trustee, at the expense of the Owner of such
Certificate, shall execute and deliver a new Certificate of like principal amount, interest
rate and maturity in replacement for the Certificate so mutilated, but only upon
surrender to the Trustee of the Certificate so mutilated. Every mutilated Certificate so
surrendered to the Trustee shall be cancelled by it and redelivered by the Trustee to the
City. If any Certificate shall be lost, destroyed or stolen, evidence of such loss,
destruction or theft must be submitted to the Trustee, and, if such evidence is
satisfactory to the Trustee and, if an indemnity satisfactory to the Trustee shall be given,
the Trustee, at the expense of the Certificate Owner, shall execute and deliver a new
Certificate of like principal amount, interest rate and maturity and numbered as the
Trustee shall determine in lieu of and in replacement for the Certificate so lost, destroyed
or stolen. The Trustee may require payment of an appropriate fee for each replacement
Certificate delivered under this Section 2.08 and of the expenses which may be incurred
by the Trustee in carrying out the duties under this Section 2.08. Any Certificate issued
under the provisions of this Section 2.08 in lieu of any Certificate alleged to be lost,
destroyed or stolen shall be equally entitled to the benefits of this Agreement with all
other Certificates secured by this Agreement. The Trustee shall not be required to treat
both the original Certificate and any replacement Certificate as being Outstanding for the
purpose of determining the principal amount of Certificates which may be executed and
M51M
delivered. hereunder or for the purpose of determining any percentage of Certificates
Outstanding hereunder, but both the original and replacement Certificate shall be treated
as one and the same. Notwithstanding any other provision of this Section 2.08, in lieu of
delivering a replacement for a Certificate which has been mutilated, lost, destroyed or
stolen, and which has matured, the Trustee may make payment with respect to such
Certificate upon• receipt of indemnity satisfactory to the Trustee.
Section 2.09. Payment. Payment of interest represented by any Certificate on
any Interest Payment Date shall be made to the person appearing on the Registration
Books as the Owner thereof as of the close of business on the Record Date immediately
preceding such Interest Payment Date, such interest to be paid by check or draft mailed
to such Owner, by first class mail postage prepaid, at his address as it appears on the
Registration Books. The principal and prepayment price represented by the Certificates
at maturity or upon prior prepayment shall be payable in lawful money of the United
States of America upon surrender of the Certificates at the Trust Office of the Trustee.
Section 2.10. Execution of Documents and Proof of Ownership. Any
request, direction, consent, revocation of consent, or other instrument in writing required
or permitted by this Agreement to be signed or executed by Certificate Owners may be in
any number of concurrent instruments of similar tenor, and may be signed or executed by
such Owners in person or by their attorneys or agents appointed by an instrument in
writing for that purpose, or by any bank, trust company or other depository for such
Certificates. Proof of the execution of any such instrument, or of any instrument
appointing any such attorney or agent, and of the ownership of Certificates shall be
sufficient for any purpose of this Agreement (except as otherwise herein provided), if
made in the following manner.
(a) The fact and date of the execution by any Owner or his attorney
or agent of any such instrument and of any instrument appointing any such
attorney or agent, may be proved by a certificate, which need not be
acknowledged or verified, of an officer of any bank or trust company located
within the United States of America, or of any notary public, or other
officer authorized to take acknowledgements of deeds to be recorded in such
jurisdictions, that the persons signing such instruments acknowledged
before him the execution thereof. Where any such instrument is executed
by an officer of a corporation or association or a member of a partnership
on behalf of such corporation, association or partnership, such certificate
shall also constitute sufficient proof of his authority.
(b) The fact of the ownership of Certificates by any person and the
amount, the maturity and the numbers of such Certificates and the date of
his holding the same shall be proved by the Registration Books.
Nothing contained in this Section 2.10 shall be construed as limiting the Trustee
to such proof, it being intended that the Trustee may accept any other evidence of the
matters herein stated which the Trustee may deem sufficient. Any request or consent of
the Owner of any Certificate shall bind every future Owner of the same Certificate in
respect of anything done or suffered to be done by the Trustee in pursuant of such
request or consent.
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Section 2.11. Temporary Certificates. The Certificates may be issued in
temporary form exchangeable for definitive Certificates when ready for delivery. Any
temporary Certificates may be printed, lithographed or typewritten, shall be of
Authorized Denominations, shall be in fully registered form without coupons and may
contain such reference to any of the provisions of this Trust Agreement as may be
appropriate. Every temporary Certificate shall be executed by the Trustee upon the same
conditions and in substantially the same manner as the definitive Certificates. If the
Trustee delivers temporary Certificates it will execute and deliver definitive Certificates
as promptly thereafter as practicable, and thereupon the temporary Certificates may be
surrendered, for cancellation; in exchange therefor at the Trust Office of the Trustee who
shall execute and deliver in exchange for such temporary Certificates an equal aggregate
principal amount of definitive Certificates of authorized denominations. Until so
exchanged, the temporary Certificates shall be entitled to the same benefits under this
Trust Agreement as definitive Certificates executed and delivered hereunder.
Section 2.12. Registration Books. The Trustee shall keep or cause to be kept
sufficient records for the registration and registration of transfer of the Certificates,
which shall at all reasonable times be open to inspection by the City and the Board
during regular business hours; and, .upon 'presentation for such purpose, the Trustee
shall, under such reasonable regulations as it may prescribe, register or transfer or cause
to be registered or transferred, on the Registration Books, Certificates as hereinbefore
provided.
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E
ARTICLE III
0
PREPAYMENT OF CERTIFICATES
Section 3.01. Prepayment.
(a) Optional Prepayment. The Certificates maturing on or before June 1, 199_,
are not subject to optional prepayment prior to the respective stated maturities. The
Certificates maturing on or after June 1, 1998. are subject to optional prepayment in
whole, or in. partAamong maturities in such respective amounts as the City shall
designate in writing to the Trustee, and by lot within a maturity, on any date on or after
June 1, 1997, from prepayments of the Lease Payments made at the option of the City
pursuant to Section 9.2 of the Lease Agreement, at a prepayment price„eoual to 100% of
the principal amount to be prepaid, together with accrued interest represented thereby to
the date fixed for prepayment.
A
(b) Sinking Fund Prepayment. (i) Prepayment of .2003 Term Certificates. The
Certificates maturing on June 1, 2003, are also subject to mandatory sinking fund
prepayment by lot on June 1 in each year beginning June 1,A1, from the principal
components of the Lease Payments required to be paid with respect to each of such dates,
at a prepayment price equal to 100% of the principal amount to be prepaid, together with
accrued interest represented thereby to the prepayment date, as follows:
Sinking Fund
Prepayment Date Principal Amount
(June 1) To Be Prepaid
1999
$2359000
2000
255,000
2001
270,000
2002
295,000
2003 (Maturity)
315,000
(ii) Prepayment of 2008 Term Certificates. The Certificates maturing on
June 1, 2008, are also subject to mandatory sinking fund prepayment by lot on June 1 in
each year beginning June 1, 2004, from the principal components of the Lease Payments
required to be paid with respect to each of such dates, at a prepayment price equal to
100° of the principal amount to be prepaid, together with accrued interest represented
thereby to the prepayment date, as follows:
Sinldng Fund
Prepayment Date Principal Amount
(June 1) To Be Prepaid
2004
$340,000
2005
365,000
2006
395,000
2007
425,000
2008 (Maturity)
455,000
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(c) Prepayment From Insurance and Condemnation Proceeds. The Certificates
are subject to mandatory prepayment on any date, in whole, or in part among maturities
on a pro rata basis and by lot within a maturity, from the proceeds of insurance or
eminent domain proceedings credited towards the prepayment of the Lease Payments by
the City pursuant to Section 9.3 of the Lease Agreement, at a prepayment price equal to
100% the principal amount to be prepaid, together with accrued interest represented
thereby to the date fixed for prepayment.
Section 3.02. _Selection of Certificates for Prepayment. Whenever provision is
made in this Agreement for the prepayment of Certificates and less than all Outstanding
Certificates of . any maturity are called for prepayment, the Trustee shall select
Certificates of such maturity for prepayment by lot. For the purposes of such selection,
Certificates shall be deemed to be composed of $5,000 portions, and any such portion
may be separately prepaid. The Trustee shall promptly notify the City and the Board in
writing of the Certificates or portions thereof so selected for prepayment.
Section 3.03. Notice of Prepayment. When prepayment is authorized or
required pursuant to Section 3.01, the Trustee shall give notice of the prepayment of the
Certificates on behalf and at the expense of the City. Such notice shall state the
prepayment date and prepayment price and, if less than all of the then Outstanding
Certificates are to be called for prepayment, shall designate the numbers of the
Certificates to be prepaid by giving the individual number of each Certificate or by
stating that all Certificates between two stated numbers, both inclusive, have been called
for prepayment or by stating that all of the Certificates of one or more maturities have
been called for prepayment, and shall require that such Certificates be then surrendered,
at the option of the respective Owners thereof, at the Trust Office of the Trustee for
prepayment at said prepayment price, giving notice also that further interest represented
by the Certificates will not accrue after the prepayment date. Such notice shall further
state that on the specified date there shall become due and payable, the principal and
premium, if any, represented by each Certificate together with accrued interest
represented thereby to said date, and that from and after such date interest represented
thereby shall cease to accrue and be payable.
Notice of such prepayment shall be mailed by first class mail with postage
prepaid, to the Information Services and to the Securities Depositories, and to the
Owners of Certificates designated for prepayment at their respective addresses appearing
on the Registration Books, at least thirty (30) days but not more than sixty (60) days
prior to the prepayment date, which notice shall, in addition to setting forth the above
information, set forth, in the case of each Certificate called only in part, the portion of the
principal represented thereby which is to be prepaid; provided• that neither failure to
receive such notice so mailed nor any defect in any notice so mailed shall affect the
sufficiency of the proceedings for the prepayment of such Certificates or the cessation of
accrual of interest represented thereby from and after the prepayment date.
Section 3.04. Partial Prepayment of Certificates. Upon surrender of any
Certificate prepaid in part only, the Trustee shall execute, authenticate and deliver to the
Owner thereof, at the expense of the City, a new Certificate or Certificates of authorized
denominations equal in aggregate principal amount to the unprepaid portion of the
Certificate surrendered and of the same interest rate and the same maturity.
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N
•
Section 3.05. Effect of Notice of Prepayment. Moneys for the prepayment
(including the interest to the applicable date of prepayment), of Certificates having been
set aside in the Certificate Fund, the Certificates shall become due and payable on the
date of such prepayment, and, upon presentation and surrender thereof at the Trust
Office of the Trustee, said Certificates shall be paid at the unpaid principal amount (or
applicable portion thereof) represented thereby plus interest accrued and unpaid to said
date of prepayment.
If, on said date of prepayment, moneys for the prepayment of all the Certificates to
be prepaid, together with interest to said date of prepayment, shall be held by the
Trustee so as to be available therefor on such date of prepayment, then, from and after
said date of prepayment, interest represented by the Certificates shall cease to accrue
and become payable. All moneys held by the Trustee for the prepayment of Certificates
shall be held in trust for the account of the Owners of the Certificates so to be prepaid.
All Certificates paid at maturity or prepaid prior to maturity pursuant to the
provisions of this Article III shall be cancelled upon surrender thereof and delivered to
the City pursuant to Section 12.07.
Dim
ARTICLE IV
DISPOSITION OF PROCEEDS; ACQUISITION FUND
AND RESERVE FUND
Section 4.01. Application of Proceeds. The proceeds received by the Trustee
from the sale of the Certificates shall forthwith be set aside by the Trustee in the
following respective funds and in the following order of priority:
(a) The Trustee shall deposit in the amount of $ in
the Certificate Fund, constituting accrued interest represented by the
Certificates.
(b) The Trustee shall deposit the amount of $ in the
Reserve Fund, constituting the initial amount of the Reserve Requirement.
(c) The Trustee shall deposit the amount of $ in the
Acquisition Fund, constituting the remainder of such proceeds.
Section 4.02. Acquisition Fund. The Trustee shall establish a special fund
designated as the "Acquisition Fund". The Trustee shall disburse moneys in the
Acquisition Fund upon receipt of a requisition signed by the Board Representative for the
purpose of paying or reimbursing the payment of the Acquisition Costs, and to pay the
Costs of Issuance upon receipt by the Trustee from time to time of a requisition signed by
the City Representative, in each case which: (a) identifies the total amount of such costs
to be paid pursuant to such requisition, including all items of cost in such detail as may
be available to the Board or the City, as the case may be; and (b) states with respect to
such disbursement (i) the requisition number, (ii) the amount to be disbursed for payment
of such costs, (iii) the payee with respect to each cost to be disbursed and (iv) that each
item of cost identified therein has been properly incurred, and is a proper charge against
the Acquisition Fund and has not been the basis of any previous disbursement. Any
amounts remaining on deposit in the Acquisition Fund on the date which is three (3)
months following the Closing Date shall be withdrawn therefrom by the Trustee and
transferred to the Certificate Fund.
Section 4.03. Reserve Fund. The Trustee shall establish a special fund
designated as the "Reserve Fund" to be held by the Trustee in trust for the benefit of the
City and the Owners of the Certificates, and applied solely as provided herein. Moneys
in the Reserve Fund shall be held in trust as a reserve for the payment when due -of the
Lease Payments on behalf of the City. The Trustee shall deposit any moneys in the
Reserve Fund in excess of the Reserve Requirement in the Certificate Fund from time to
time, to be credited towards payment of the principal components of the Lease Payments.
If on any Interest Payment Date the moneys available in the Certificate Fund do not
equal the amount of the Lease Payment then coming due and payable, the Trustee shall
apply the moneys available in the Reserve Fund to make such payments on behalf of the
City by transferring the amount necessary for this purpose to the Certificate Fund. Upon
receipt of any delinquent Lease Payment with respect to which moneys have been
advanced from the Reserve Fund, such Lease Payment shall be deposited in the Reserve
Fund to the extent of such advance.
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If on any Interest Payment Date the moneys on deposit in the Reserve Fund and
the Certificate Fund (excluding amounts required for payment of principal, interest and
redemption premium, if any, represented by any Certificates theretofore.having come due
but not presented for payment) are sufficient to pay. all Outstanding Certificates,
including all principal, interest and redemption premiums (if any) represented thereby,
and upon payment in full of all fees and expenses due and payable to the Trustee in
connection with the Certificates, the Trustee shall, upon the written request of the City,
transfer all amounts then on deposit in the Reserve Fund to the Certificate Fund to be
applied for such purpose to the payment of the Lease Payments on behalf of the City.
Any amounts remaining in the Reserve Fund on the date of payment in full, or provision
for such payment as provided in Section 12.01, of all obligations represented by the
Outstanding Certificates shall be withdrawn by the Trustee and at the written request of
the City applied towards such payment or paid to the City.
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ARTICLE V
LEASE PAYMENTS; CERTIFICATE FUND
Section 5.01. Assignment of Rights in Lease Agreement. The Board has in the
Assignment Agreement transferred, assigned and set over to the Trustee certain of.its rights
under the Lease Agreement, including but not limited to all of the Board's rights to receive
and collect all of the Lease Payments and all other amounts required to be deposited in the
Certificate Fund. All Lease Payments and such other amounts to which the Board may at
any time be entitled shall be paid directly to the Trustee, and all of the Lease Payments
collected or received by the Board shall be deemed to be held and to have been collected or
received by the Board as the agent of the Trustee, and if received by the Board at any time
shall be deposited by the Board with the Trustee within one Business Day after the receipt
thereof, and all such Lease Payments and such other amounts shall be forthwith deposited
by the Trustee upon the receipt thereof in the Certificate Fund, except as provided in
Section 4.03.
Section 5.02. Establishment of Certificate Fund. The Trustee shall establish a
special fund designated as the "Certificate Fund". All moneys at any time deposited by the
Trustee in the Certificate Fund shall be held by the Trustee in trust for the benefit of the
City and the Owners of the Certificates. So long as any Certificates are Outstanding,
neither the City nor the Board shall have any beneficial right or interest in the Certificate
Fund or the moneys deposited therein, except only as provided in this Agreement, and such
moneys shall be used and applied by the Trustee as hereinafter set forth.
Section 5.03. Deposits. There shall be deposited in the Certificate Fund all Lease
Payments received by the Trustee, including any moneys received by the Trustee for deposit
therein pursuant to Sections 4.01(a), 4.02 or 5.01 hereof, or Article IX of the. Lease
Agreement, and any other moneys required to be deposited therein pursuant to the Lease
Agreement or pursuant to this Agreement.
Section 5.04. Application of Moneys. All amounts in the Certificate Fund shall be
used and withdrawn by the Trustee solely for the purpose of paying the principal, interest
and prepayment premiums (if any) represented by the Certificates as the same shall become
due and payable, in accordance with the provisions of Articles II and III hereof.
Section 5.05. Surplus. Any surplus remaining in the Certificate Fund, after
prepayment and payment of all Certificates, including premiums and accrued interest (if
any) and payment of any applicable fees and expenses to the Trustee, or provision for such
prepayment or payment having been made to the satisfaction of the Trustee, shall be
withdrawn by the Trustee and remitted to the City.
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ARTICLE YI
INVESTMENT PROVISIONS
Section 6.01. Held in Trust. The moneys and investments held by the Trustee
under this Agreement are irrevocably held in trust for the benefit of the City and the
Owners of the Certificates solely for the purposes herein specified, and such moneys, and
any income or interest earned thereon, shall be expended only as provided in this
Agreement, and shall not be subject to levy or attachment or lien by or for the benefit of any
creditor of the Board, the Trustee, the City or the Owner of any Certificates.
Section 6.02. Investments Authorized. Upon the written request of the City filed
with the Trustee from time to time, moneys held by the Trustee in any fund or account
hereunder shall be invested and reinvested by the Trustee in Permitted Investments
selected by the City and specified in such written request of the City, which mature not
later than the date such moneys are required or estimated by the City to be required to be
expended hereunder. In the absence of any written request of the City directing the
investment of uninvested moneys held by the Trustee hereunder, the Trustee shall invest
such moneys in Permitted Investments described in clause (e) of the definition thereof,
which mature not later than the date such moneys are required or estimated by the Trustee
to be required to be expended hereunder. Such investments, if registrable, shall be
registered in the name of the Trustee, as trustee or in the name of its nominee, and shall be
held by the Trustee. The Trustee may purchase or sell to itself or any affiliate, as principal
or agent, investments authorized by this Section 6.02. Such investments and reinvestments
shall be made giving full consideration to the time at which funds are required to be
available. The Trustee may act as purchaser or agent in the making or disposing of any
investment.
Section 6.03. Accounting. The Trustee shall furnish to the City, not less than
monthly, an accounting of all investments made by the Trustee. The Trustee shall not be
responsible or liable for any loss suffered in connection with any investment of funds made
by it in accordance with Section 6.02.
Section 6.04. Allocation of Earnings. Subject to the provisions of Section 4.03,
any income or profit on such investments shall be deposited in the respective funds from
which such investments were made.
Section 6.05. Valuation and Disposition of Investments. For the purpose of
determining the amount in any fund, the value of Permitted Investments credited to such
fund shall be calculated at the lesser of (a) theAmaturity value thereof, or (b) the cost
thereof, excluding accrued interest and brokerage commissions, if any.p
The Trustee may sell at the best price obtainable, or present for prepayment, any
Permitted Investment so purchased by the Trustee whenever it shall be necessary in order
to provide moneys to meet any required payment, transfer, withdrawal or disbursement
from the fund to which such Permitted Investment is credited, and the Trustee shall not be
liable or responsible for any loss resulting from any such Permitted. Investment.
WRM
ARTICLE VII
THE TRUSTEE
Section 7.01. Appointment of Trustee. Security Pacific National Bank is hereby
appointed Trustee by the Board and the City for the purpose of receiving moneys
required to be deposited with the Trustee hereunder and to allocate, use and apply the same
as provided in this Agreement. The Board and the City agree that so long as any
Certificates are Outstanding they will maintain as Trustee hereunder a trust company or
bank which (a) is in good standing located in or incorporated under the laws of the State of
California, (b) has a corporate trust office in the State of California, (c) is duly authorized to
exercise trust powers, (d) has a combined capital and surplus of at least Fifty Million
Dollars ($50,000,000), and (e) is 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 7.01 the combined capital and surplus of
such bank or trust company shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published.
The Trustee is hereby authorized to pay or prepay the Certificates when duly
presented for payment at maturity, or on prepayment, or on purchase by the Trustee as
directed by the City prior to maturity in accordance with Section 3.06, and to cancel all
Certificates upon payment thereof. The Trustee shall keep accurate records of all funds
administered by it and of all Certificates paid and discharged. The Trustee shall be
compensated for its services rendered pursuant to the provisions of this Agreement.
Section 7.02. Acceptance of Trusts. The Trustee hereby accepts the trusts
imposed upon it by this Trust Agreement, and agrees to perform said trusts, but only upon
and subject to the following express terms and conditions:
(a) The Trustee, prior to the occurrence of an Event of Default and after
curing of all Events of Default which may have occurred, undertakes to perform such duties
and only such duties as are specifically set forth in this Trust Agreement. In case an Event
of Default has occurred (which has not been cured or waived) the Trustee may exercise such
of the rights and powers vested in it by this Trust Agreement, and shall use the same
degree of care and skill in their exercise, as a prudent and reasonable man would exercise or
use under the circumstances in the conduct of his or her own affairs.
(b) No provision in 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 any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(c) The Trustee may execute any of the trusts or powers hereof and perform
the duties required of it hereunder by or through attorneys, agents, or receivers and the
Trustee shall not be responsible for any misconduct or negligence on the part of any
attorney, agent or receiver appointed in accordance with the standard specified above, and
shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder.
—20—
(d) The Trustee shall not be responsible for any recital herein, or in the
Certificates, or for any of the supplements thereto or instruments of further assurance, or
for the sufficiency of the security for the Certificates issued hereunder or intended to be
secured hereby and the Trustee shall not be bound to ascertain or inquire as to the
observance or performance of any covenants, conditions or agreements on the part of the
Board or the City under the Lease Agreement. The Trustee shall not be responsible or
liable for any loss suffered in connection with any investment of funds made by it in
accordance with Article VI of this Trust Agreement.
(e) The Trustee shall not be accountable for the use of any Certificates
delivered hereunder. The Trustee may become the Owner of Certificates secured hereby
with the same rights which it would have if not the Trustee; may acquire and dispose of
other bonds or evidence of indebtedness of the City with the same rights it would have if it
were not the Trustee; and may act as a depository for and permit any of its officers or
directors to act as a member of, or in any other capacity with respect to, any committee
formed to protect the rights of Owners of Certificates, whether or not such committee shall
represent the Owners of the majority in aggregate principal amount of the Certificates then
Outstanding.
(f) In the absence of bad faith on its part, Trustee shall be protected in acting
upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper
or document believed by it to be genuine and correct and to have been signed or sent by -the
proper person or persons. Any action taken or omitted to be taken by the Trustee in good
faith pursuant to this Trust Agreement upon the request or authority or consent of any
person who at the time of making such request or giving such authority or consent is the
Owner of any Certificate, shall be conclusive and binding upon all future Owners of the
same Certificate and upon Certificates issued in exchange therefor or in place thereof. The
Trustee shall not be bound to recognize any person as an Owner of any Certificate or to take
any action at his request unless such Certificate shall be deposited with the Trustee or
satisfactory evidence of the ownership of such Certificate shall be furnished to the Trustee.
(g) As to the existence or non—existence of any fact or as to the sufficiency or
validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a
certificate signed by a Board Representative or a City Representative as sufficient evidence
of the facts therein contained and prior to the occurrence of an Event of Default of which the
Trustee has been given notice or is deemed to have notice, as provided in Section 7.02(i)
hereof, shall also be at liberty to accept a similar certificate to the effect that any particular
dealing, transaction or action is necessary or expedient, but may at its discretion secure
such further evidence deemed by it to be necessary or advisable, but shall in no case be
bound to secure the same. The Trustee may accept a certificate of a Board Representative
or a City Representative to the effect that an authorization in the form therein set forth has
been adopted by the Board or the City, as the case may be, as conclusive evidence that such
authorization has been duly adopted, and is in full force and effect.
(h) The permissive right of the Trustee to do things. enumerated in this Trust
Agreement shall not be construed as a duty and it shall not be answerable for other than its
negligence or willful default. The immunities and exceptions from liability of the Trustee
shall extend to its officers, directors, employees and agents.
—21—
(i) The Trustee shall not be required to take notice or be deemed to have
notice of any Event of Default hereunder except failure by the City to make any of the Lease
Payments to the Trustee required to be made by the City pursuant to the Lease Agreement
or failure by the Board or the City to file with the Trustee any document required by this
Trust Agreement or the Lease Agreement to be so filed subsequent to the delivery of the
Certificates, unless the Trustee shall be specifically notified in writing of such default by the
Board or the City and all notices or other instruments required by this Trust Agreement to
be delivered to the Trustee must, in order to be effective, be delivered at the Trust Office of
the Trustee, and in the absence of such notice so delivered the Trustee may conclusively
assume there is no Event of Default except as aforesaid.
0) At any and all reasonable times the Trustee and its duly authorized
agents, attorneys, experts, engineers, accountants and representatives, shall have the right
fully to inspect the Facilities, including all books, papers and records of the Board or the
City pertaining to the Facilities and the Certificates, and to take such memoranda from and
with regard thereto as may be desired.
(k) The Trustee shall not be required to give any bond or surety in respect of
the execution of the said trusts and powers or otherwise in respect of the premises..
(1) Notwithstanding anything elsewhere in this Trust Agreement with respect
to the execution of any Certificates, the, withdrawal of any cash, the release of any property,
or any action whatsoever within the purview of this Trust Agreement, the Trustee shall
have the right, but shall not be required, to demand any showings, certificates, opinions,
appraisals or other information, or corporate action or evidence thereof, in addition so that
by the terms hereof required as a condition of such action, by the Trustee deemed desirable
for the purpose of establishing the right of the Board to the execution of any Certificates,
the withdrawal of any cash, or the taking of any other action by the Trustee.
(m) Before taking the action referred to in Section 11.02 hereof the Trustee
may require that a satisfactory indemnity bond be furnished for the reimbursement of all
expenses to which it may be put and to protect it against all liability, except liability which
is adjudicated to have resulted from its negligence or wilful default in connection with any
such action.
(n) All moneys received by the Trustee shall, until used or applied or invested
as herein provided, be held in trust for the purposes for which they were received but need
not be segregated from other funds except to the extent required by law. The Trustee shall
not be under any liability for interest on any moneys received hereunder except such as may
be agreed upon.
(o) The Trustee shall not be responsible for the sufficiency of the Lease
Agreement, its right to receive moneys pursuant to the Lease Agreement, or the value of or
title to the premises upon which the Facilities are located.
(p) The Trustee shall not be liable with respect to any action taken or omitted
to be taken by it in good faith in accordance with the direction of the Owners of a majority
in aggregate principal amount of the Outstanding Certificates relating to the time, method
and place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this Agreement.
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Section 7.03. Fees, Charges and Expenses of Trustee. The Trustee shall be
entitled to payment and reimbursement for reasonable fees for its services rendered
hereunder and all advances, counsel fees (including expenses) and other expenses
reasonably and .necessarily made or incurred by the Trustee in connection with such
services. The Trustee shall have and is hereby granted alien upon all interest earnings on
the investment of moneys on deposit in the Reserve Fund for the payment of any amounts
due and owing to the Trustee pursuant to this Section 7.03 and, upon the occurrence of an
Event of Default, for the payment of any amounts estimated by the Trustee to become due
and payable pursuant to this Section 7.03 as a result of such Event of Default.
Section 7.04. Notice to Certificate Owners of Default. If an Event of Default
occurs of which the Trustee has been given or is deemed to have notice, as provided in
Section 7.02(i), then the Trustee shall promptly give written notice thereof by first class
mail to the Owner of each Certificate, unless such Event of Default shall have been cured
before the giving of such notice.
Section 7.05. Intervention by Trustee. In any judicial proceeding to which the
Board or the City is a party which, in the opinion of the Trustee and its counsel, has a
substantial bearing on the interests of the Owners of the Certificates; the Trustee may
intervene on behalf of the Certificate Owners, and subject to Section 7.02(1), shall do so if
requested in writing by the Owners of at least twenty-five percent .(25%) of the aggregate
principal amount of Certificates then Outstanding. The rights and obligations of the
Trustee under this Section 7.05 are subject to the approval of a court of competent
jurisdiction.
Section 7.06. Removal of Trustee. The City may, provided that no Event of
Default shall have occurred and be continuing, upon at least thirty (30) days' prior written
notice and with the consent of the Board, remove the Trustee initially appointed, and any
successor thereto, by an instrument or concurrent instruments in writing delivered to the
Trustee and the Board, and may appoint a successor or successors thereto; provided that
any such successor shall be a bank or trust company meeting the requirements set forth in
Section 7.01.
Section 7.07. Resignation by Trustee. The Trustee and any successor Trustee
may at any time resign by giving thirty days' written notice by registered or certified mail to
the City and the Board. Upon receiving such notice of resignation, the City shall promptly
appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of
a successor Trustee shall become effective upon acceptance of appointment by the successor
Trustee. Upon such acceptance, the City shall mail notice thereof to the Certificate Owners
at their respective addresses set forth on the Registration. Books.
Section 7.08. Appointment of Successor Trustee. In the event of the removal or
resignation of the Trustee pursuant to Sections 7.06 or 7.07, respectively, the City shall
promptly appoint a successor Trustee. In the event the City shall for any reason
whatsoever fail to appoint a successor Trustee within thirty (30) days following the delivery
to the Trustee of the instrument described in Section 7.06 or within thirty (30) days
following the receipt of notice by the City pursuant to Section 7.07, :the Trustee may apply
to a court of competent jurisdiction for the appointment of a successor Trustee meeting the
requirements of Section 7.01. Any such successor Trustee appointed by such court shall
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become the successor Trustee hereunder notwithstanding any action by the City purporting
to appoint a successor Trustee following the expiration of such ninety -day period.
Section 7.09. Merger or Consolidation. Any company or association into which
the Trustee may be merged or converted or with which it may be consolidated or any
company resulting from any merger, conversion or consolidation to which it shall be a party
or any company or association to which the Trustee may sell or transfer all or substantially
all of its corporate trust business, provided that such company or association shall be
eligible under Section 7.01, shall be the successor to the Trustee and vested with all of the
title to the trust estate and all of the trusts, powers, discretions, immunities, privileges and
all other matters as was its predecessor, without the execution or filing of any paper or
further act, anything herein to the contrary notwithstanding.
Section 7.10. Concerning any Successor Trustee. Every successor Trustee
appointed hereunder shall execute, acknowledge and deliver to its or his predecessor and
also the Board and the City an instrument in writing accepting such appointment hereunder
and thereupon such successor, without any further act, deed or conveyance, shall become
fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of
its predecessors; but such predecessor shall, nevertheless, on the written request of the
Board, or of its successor, execute and deliver an instrument transferring to such successor
all the estates, properties, rights, powers and trusts of such predecessor hereunder; and
every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee
hereunder to its successor. Should any instrument in writing from the Board be required by
any successor Trustee for more fully and certainly vesting in such successor the estate,
rights, powers and duties hereby vested or intended to be vested in the predecessor, any
and all such instruments in writing shall, on request, be executed, acknowledged and
delivered by the Board. The resignation of any Trustee and the instrument or instruments
removing any Trustee and appointing a successor hereunder, together with all other
instruments provided for in this Article VII, shall be filed or recorded by the successor
Trustee in each recording office where the Assignment Agreement shall have been filed or
recorded.
Section 7.11. Appointment of Co -Trustee. It is the purpose of this Trust
Agreement, that there shall be no violation of any law of any jurisdiction (including
particularly the law of the State of California) denying or restricting the right of banking
corporations or associations to transact business as Trustee in such jurisdiction. It is
recognized that in case of litigation under this Trust Agreement or the Lease Agreement,
and in particular in case of the enforcement of either on default, or in case the Trustee
deems that by reason of any present or future law of any jurisdiction it may not exercise any
of the powers, rights or remedies herein granted to the Trustee 'or hold title to the
properties, in trust, as herein granted, or take any other action which may be desirable or
necessary in connection therewith, it may be necessary that the Trustee appoint an
additional individual or institution as a separate or co -trustee. The following provisions of
this Section 7.11 are adapted to these ends.
In the event that the Trustee appoints an additional individual or institution as a
separate or co -trustee, each and every remedy, power, right, claim, demand, cause of action,
immunity, estate, title, interest and lien expressed or intended by this Trust Agreement to
be exercised by or vested in or conveyed to the Trustee with respect thereto shall be
exercisable by and vest in such separate or co -trustee but only to the extent necessary to
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enable such separate or co -trustee to exercise such powers, rights and remedies, and every
covenant and obligation necessary to the exercise thereof by such separate or co -trustee
shall run to and be enforceable by either of them.
Should any instrument in writing from the Board or the City be • required by the
separate trustee or co -trustee so appointed by the Trustee for more fully and certainly
vesting in and confirming to him or it such properties, rights, powers, trusts, duties and
obligations, any and all such instruments in writing shall, on request, be executed,
acknowledged and delivered by the Board or the City, as the case may be. In case any
separate trustee or co -trustee, or a successor to either, shall die, become incapable of
acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and
obligations of such separate trustee or co -trustee, so far as permitted by law, shall vest in
and be exercised by the Trustee until the appointment of a new trustee or successor to such
separate trustee or co -trustee.
Section 7.12. Non -Liability of TYustee. The recitals, statements and
representations by the City and the Board contained in this Trust Agreement or in the
Certificates shall be taken and construed as made by and on the part of the City and the
Board, as the case maybe, and not by the Trustee, and the Trustee does not assume, and
shall not have, any responsibility or obligation for the correctness of any thereof.
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 its duties
hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds
for believing repayment of such funds or adequate indemnity is not reasonably assured to it.
The Trustee makes no representation or warranty, express or implied as to the title,
value, design, compliance with specifications or legal requirements, quality, durability,
operation, condition, merchantability or fitness for any particular purpose or fitness for the
use contemplated by the City or Board of the Facilities. In no event shall the Trustee be
liable for special or consequential damages in connection with or arising from the Lease
Agreement for the existence, furnishing or use of the Facilities.
The Trustee shall not be: (a) responsible for the sufficiency or enforceability of the
Lease Agreement or the assignment under the Assignment Agreement of its rights to receive
Lease Payments; (b) deemed to have knowledge of any Event of Default unless and until it
shall have actual knowledge thereof, and (c) accountable for the use or application by the
City or Board of any funds which the Trustee has released to the City or the Board under
and in accordance with this Trust Agreement.
Section 7.13. Actions Through Agents. The Trustee may execute any of the trusts
or powers hereof and perform the duties required of it hereunder by or through attorneys,
agents, or receivers, and shall be entitled to advice of counsel concerning all matters of trust
and its duty hereunder, and the Trustee shall not be answerable for the default or
misconduct of any such attorney, agent, or receiver selected by it with reasonable care. The
Trustee shall not be answerable for the exercise of any discretion or power under this Trust
Agreement or for anythingwhatever in connection with the funds and accounts established
hereunder, except only for its own negligence or willful misconduct.
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Section 7.14. Nature of Trust Engagement. The Trustee undertakes to perform
such duties and only such duties as are specifically set forth in the Trust Agreement and no
implied covenants or obligations shall be read into the Trust Agreement against the
Trustee. In accepting the trusts hereby created, the Trustee acts solely as Trustee and not
in its individual capacity and all persons, including without limitation the Owners, City and
Board having any claim against the Trustee arising from the Trust Agreement shall look
only to the funds and accounts hereunder for payment except as otherwise provided herein.
Under no circumstances shall the Trustee be liable in its individual capacity for the
obligations represented by the Certificates.
The permissive right of the Trustee to do things enumerated in this Trust Agreement
shall not be construed as a duty.
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ARTICLE VIII
•
MODIFICATION OR AMENDMENT OF AGREEMENTS
Section 8.01. Amendments Permitted. This Agreement and the rights ' and
obligations of the Owners of the Certificates and the Lease Agreement and the rights and
obligations of the parties thereto, may be modified or amended at any time by a
supplemental agreement which shall become effective when the written consent of the
Owners of a majority in aggregate principal amount of the Certificates then Outstanding,
exclusive of Certificates disqualified as provided in Section 8.03, shall have been filed with
the Trustee. No such modification oramendment shall (a) extend or have the effect of
extending the fixed maturity of any Certificate or reducing the interest rate represented
thereby or extending the time of payment of interest, or reducing the amount of principal
represented thereby or reducing any premium payable upon the prepayment thereof,
without the express consent of the Owner of such Certificate, or (b) reduce or have the effect
of reducing the percentage of Certificates required for the affirmative vote or written consent
to an amendment or modification of the Lease Agreement, or (c) modify any of the rights or
obligations of the Trustee without its written assent thereto. Any such supplemental
agreement shall become effective as provided in Section 8.02.
This Agreement and the rights and obligations of the Owners of the Certificates and
the Lease Agreement and the rights and obligations of the respective parties thereto, may
be modified or amended at any time by a supplemental agreement, without the consent of
any such Owners, but only to the extent permitted by law and only (a) to add to the
covenants and agreements of any party, other covenants to be observed, or to surrender any
right or power herein or therein reserved to the Board or the City, (b) to cure, correct or
supplement any ambiguous or defective provision contained herein or therein, (c) in regard
to questions arising hereunder or thereunder, as the parties hereto or thereto may deem
necessary or desirable and which shall not, in the opinion of Bond Counsel, materially
adversely affect the interests of the Owners of the Certificates, (d) to modify the description
of the Facilities to conform to the requirements of title insurance or otherwise to add or
delete property descriptions to reflect accurately the description of the property intended to
be included therein, or (e) if and to the extent permitted in the opinion of Bond Counsel filed
with the Trustee, the City and the Board, to delete or modify any of the provisions hereof or
thereof relating to the exemption from federal income taxation of interest represented by the
Certificates. Any such supplemental agreement shall become effective upon execution and
delivery by the parties hereto or thereto as the case may be.
Section 8.02. Procedure for Amendment with Written Consent of Certificate
Owners. This Agreement and the Lease Agreement may be amended by supplemental
agreement as provided in this Section 8.02 in the event the consent of the Owners of the
Certificates is required pursuant to Section 8.01. A copy of such supplemental agreement,
together with a request to the Certificate Owners for their consent thereto, shall be mailed
by the Trustee to each Owner of a Certificate at his address as set forth on the Registration
Books, but failure to mail copies of such supplemental agreement and request shall not
affect the validity of the supplemental agreement when assented to as in this Section
provided.
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Such supplemental agreement shall not become effective unless there shall be filed
with the Trustee the written consent of the Owners of a majority in aggregate principal
amount of the Certificates then Outstanding (exclusive of Certificates disqualified as
provided in Section 8.03) and a notice shall have been mailed as hereinafter in this Section
provided. Each such consent shall be effective only if accompanied by proof of ownership of
the Certificates for which such consent is given, which proof shall be such as is permitted by
Section 2.10. Any such consent shall be binding upon the Owner of the Certificate giving
such consent and on any subsequent Owner (whether or not such subsequent Owner has
notice thereof) unless such consent is revoked in writing by the Owner giving such consent
or a subsequent Owner by filing such revocation with the Trustee prior to the date when the
notice hereinafter in this Section provided for has been mailed.
After the Owners of the required percentage of Certificates shall have filed their
consents to such supplemental agreement, the Trustee shall mail a notice to the Owners of
the Certificates in the manner hereinbefore provided in this Section for the mailing of such
supplemental agreement of the notice of adoption thereof, stating in substance that such
supplemental agreement has been consented to by the Owners of the required percentage of
Certificates and will be effective as provided in this Section (but failure to mail copies. of
said notice shall not affect the validity of such supplemental agreement or consents thereto).
A record, consisting of the papers required by this Section to be filed with the Trustee, shall
be conclusive proof of the matters therein stated. Such supplemental agreement shall
become effective upon the mail of such last—mentioned notice, and such supplemental
agreement shall be deemed conclusively binding upon the parties hereto and the Owners of
all Certificates at the expiration of sixty (60) days after such filing, except in the event of a
final decree of a court of competent jurisdiction setting aside such consent in a legal action
or equitable proceeding for such purpose commenced within such sixty (60) day period.
Section 8.03. Effect of Supplemental Agreement. From and after the time any
supplemental agreement becomes effective pursuant to this Article VIII, this Agreement or
the Lease Agreement, as the case may be, shall be deemed to be modified and amended in
accordance therewith, the respective rights, duties and obligations of the parties hereto or
thereto and all Owners of Certificates Outstanding, as the case may be, shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such modification
and amendment, and all the terms and conditions of any supplemental agreement shall be
deemed to be part of the terms and conditions of this Agreement or the Lease Agreement, as
the case may be, for any and all purposes.
Section 8.04. Endorsement or Replacement of Certificates Delivered After
Amendments. The Trustee may determine that Certificates delivered after the effective
date of any action taken as- provided in this Article VIII shall bear a notation, by
endorsement or otherwise, in form approved by the Trustee, as to such action. In that'case,
upon demand of the Owner of any Certificate Outstanding at such effective date and
presentation of his Certificate for the purpose at the Trust Office of the Trustee, a suitable
notation shall be made on such Certificate. The Trustee may determine that the delivery of
substitute Certificates, so modified as in the opinion of the Trustee is necessary to conform
to such Certificate Owners' action, which substitute Certificates shall thereupon be
prepared, executed and delivered. In that case, upon demand of the Owner of any
Certificate then Outstanding, such substitute Certificate shall be exchanged at the Trust
Office of the Trustee, without cost to such Owner, for a Certificate of the same character
then Outstanding, upon surrender of such Outstanding Certificate.
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Section 8.05. Amendatory Endorsement of Certificates. The provisions of this
Article VIII shall not prevent any Certificate Owner from accepting any amendment as to
the particular Certificates held by him, provided that proper notation thereof is made on
such Certificates.
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ARTICLE IX
COVENANTS; NOTICES
Section 9.01. Compliance With and Enforcement of Lease Agreement. The
City covenants and agrees with the Owners of the Certificates to perform all obligations and
duties imposed on it under the Lease Agreement. The Board covenants and agrees with the
Owners of the Certificates to perform all obligations and duties imposed on it under the
Lease Agreement.
The City will not do or permit anything to be done, or omit or refrain from doing
anything, in any .case where any such act done or permitted to be done, or any such
omission of or refraining from action, would or might be a ground for cancellation or
termination of the Lease Agreement by the Board thereunder. The Board and the City,
immediately upon receiving or giving any notice, communication or other document in any
way relating to or affecting their respective estates, or either of them, in the Facilities,
which may or can in any manner affect such estate of the City, will deliver the same, or a
copy thereof, to the Trustee.
Section 9.02. Observance of Laws and Regulations. The City will well and truly
keep, observe and perform all valid and lawful obligations or regulations now or hereafter
imposed on it by contract, or prescribed by any law of the United States, or of the State, or
by any officer, board or commission having jurisdiction or control, as a condition of the
continued enjoyment of any and every right, privilege or franchise now owned or hereafter
acquired by the City, including its right to exist and carry on business as a municipal
corporation, to the end that such rights, privileges and franchises shall be maintained and
preserved, .and shall not become abandoned, forfeited or in any manner impaired.
Section 9.03. Prosecution and Defense of Suits. The City shall promptly, upon
request of the Trustee or any Certificate Owner, from time to time take such action as may
be necessary or proper to remedy or cure any defect in or cloud upon the title to the
Facilities, whether now existing or hereafter developing and shall prosecute all such suits,
actions and other proceedings as may be appropriate for such purpose and shall indemnify
and save the Trustee and every Certificate Owner harmless from all loss, cost, damage and
expense, including attorneys' fees, which they or any of them may incur by reason of any
such defect, cloud, suit, action or proceeding.
Section 9.04. Recordation and Filing. The City shall record and file the Lease
Agreement or a memorandum thereof, the Assignment Agreement and all such documents
as may be required by law (and shall take all further actions which may be necessary or be
reasonably required by the Trustee), all in such manner, at such times and in such places as
may be required by law in order fully to preserve, protect and perfect the security of the
Trustee and the Certificate Owners.
Section 9.05. Tax Covenants. (a) Private Business Use Limitation. The City shall
assure that (i) not in excess of ten percent (10%) of the Certificate Proceeds is used for
Private Business Use if, in addition, the payment of more than ten percent (10%) of the
principal or ten percent (10%) of the interest due with respect to the Certificates during the
term thereof is, under the terms of the Certificates or any underlying arrangement, directly
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or indirectly, secured by any interest in property used or to be used for a Private Business
Use or in payments it both (A) in excess of five percent (5%) of the Certificate Proceeds are
used for a Private Business Use, and (B) an amount in excess of five percent (5%) of the
principal or five percent (5%) of the interest due with respect to the Certificates due during
the term of this Agreement is, under the terms of this Agreement or any underlying
arrangement, directly or indirectly, secured by any interest in property used or to be used
for said Private Business Use or in payments in respect of property used or to be used for a
Private Business Use or is to be derived from payments, whether or not to the City, in
respect of property or borrowed money used or to be used for a Private Business Use; and
(ii) and that, in the event that both (A) in excess of five percent (5%) of the Certificate
Proceeds are used for a Private Business Use, and (B) an amount in excess of five percent
(5%) of the principal of five percent (5%) of the interest components of Lease Payments due
during the term of this Agreement is, under the terms of this Agreement or any underlying
arrangement, directly or indirectly, secured by any interest in property used or to be used
for said Private Business Use or in payments in respect of property used or to be used for
said Private Business Use or is to be derived from payments, whether or not to the City, in
respect of property or borrowed money used or to be used for said Private Business Use, to
said excess over said five percent (5%) of Certificate Proceeds used for a Private Business
Use shall be used for a .Private Business Use related to the governmental use of the
Facilities.
(b) Private Loan Limitation. The City shall assure that no more than five percent
(5%) of the Certificate Proceeds are used, directly or indirectly, to make or finance a loan
(other than loans constituting nonpurpose obligations as defined in the Tax Code or
constituting assessments) to persons other than state or local government units.
(c) Federal Guarantee Prohibition. The City shall not take any action or permit or
suffer any action to be taken if the result of the same would be to cause the obligations of
the City under the Lease Agreement to be "federally guaranteed" within the meaning of
Section 149(b) of the Tax Code.
(d) No Arbitrage. The City shall not take, or permit or suffer to be taken by the
Trustee or otherwise, any action with respect to the proceeds of the Certificates which, if
such action had been reasonably expected to have been taken, or had been deliberately and
intentionally taken, on the Closing Date, would have caused the obligations of .the City
under the Lease Agreement to be "arbitrage bonds" within the meaning of Section 148(a) of
the Tax Code.
(e) Small Issuer Exemption from Bank Nondeductibility Restriction. The City hereby
designates the Lease Agreement for purposes of paragraph (3) of Section 265(b) of the Tax
Code and covenants that (i) the obligations of the City under the Lease Agreement do not
constitute private activity bonds as defined in Section 141 of the Tax Code, and (ii) not more
than $10,000,000 aggregate principal amount of obligations the interest on which is
excludable (under Section 103(a) of the Tax Code) from gross income for federal income tax
purposes (excluding, however, private activity bonds, as defined in Section 141 of the Tax
Code, other than qualified 501(c)(3) bonds as defined in Section 145 of the Tax Code),
including the obligations of .the City under the Lease Agreement, have been or shall be
issued by the City, including all subordinate entities of the City, during the calendar year
1988.
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(fl Small Issuer Exemption from Rebate Requirements. In accordance with Section
148(f)(4)(C) of the Tax Code, the City covenants that it is -a governmental unit with general
taxing powers; that the Certificates are not private activity bonds as defined in Section 141
of the Tax Code; that ninety-five percent (95%) or more of the Certificate Proceeds are to be
used for local governmental activities of the City (or of a governmental unit the jurisdiction
of which is entirely within the jurisdiction of the City), and that the aggregate face amount
of the all tax-exempt obligations (other than private activity bonds as defined in Section 141
of the Tax Code) issued by the City, including all subordinate entities of the City, during the
calendar year 1988 will not exceed $5,000,000.
Section 9.06. Further Assurances. The Board and the City will make, execute and
deliver any and all such further resolutions, instruments and assurances as may be
reasonably necessary or proper to carry out the intention or to facilitate the performance of
this Agreement and the Lease Agreement, and for the better assuring and confirming unto
the Owners of the Certificates the rights and benefits provided herein.
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ARTICLE, %
LI IITATION OF LIABILITY
Section 10.01. Limited Liability of City. Except for the payment of Lease
Payments when due in accordance with the Lease Agreement and the performance of the
other covenants and agreements of the City contained in the Lease and this Trust
Agreement, the City shall have no pecuniary obligation or liability to any of the other
parties or to the Owners of the Certificates with respect to this Agreement or the terms,
execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to
the Owners by the Trustee, except as expressly set forth herein.
Section 10.02. No Liability of the Board for Trustee Performance. Neither the
City nor the Board shall have any obligation or liability to any of the other parties or to the
Owners of the Certificates with respect to the performance by the Trustee of any duty
imposed upon it under this Agreement.
Section 10.03. Indemnification of Trustee. The Board and the City shall
indemnify and save the Trustee harmless from and against all claims, losses, costs,
expenses, liability and damages, including legal fees and expenses, arising out of (a) the use,
maintenance, condition or management of, or from any work or thing done on, the Facilities
by the Board or the City, (b) any breach or default on the part of the Board or the City in
the performance of any of their respective obligations under this Trust Agreement and any
other agreement made and entered into for purposes of the Facilities, (c) any act of
negligence of the Board or the City or of any of their respective agents, contractors,
servants, employees, licensees with respect to the Facilities, (d) any act of negligence of any
assignee of, or purchaser from the Board or the City or of any of its or their respective
agents, contractors, servants, employees or licensees with respect to the Facilities, (e) the
authorization of payments from the Acquisition Fund, (f) the actions .of any other
partyrelating to the ownership, operation or use of the Facilities by the Board or the City, or
(g) the Trustee's exercise and performance of its powers and duties hereunder. No
indemnification will be made under this Section 10.03 or elsewhere in this Trust Agreement
for willful misconduct, negligence, or breach of duty under this Trust Agreement by the
Trustee, its officers, agents, employees, successors or assigns. The Board's and the City's
obligations hereunder shall remain valid and binding notwithstanding maturity and
payment of the Certificates.
Section 10.04. Opinion of Counsel. Before being required to take any action, at
the expense of the City the Trustee may require an opinion of counsel acceptable to the
Trustee, or an opinion of Bond Counsel acceptable to the Trustee with respect to any federal
tag matters, or a verified certificate of any party hereto, or both, concerning the proposed
action. If it does so in good faith, Trustee shall be absolutely protected in relying on any
such opinion or certificate obtained by the Trustee.
Section 10.05. Limitation of Rights to Parties and . Certificate Owners.
Nothing in this Agreement or in the Certificates expressed or implied is intended or shall be
construed to give any person other than the City, the Board, the Trustee and the Owners of
the Certificates, any legal or equitable right, remedy or claim under or in respect of this
Agreement or any covenant, condition or provision hereof; and all such covenants,
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conditions and provisions are and shall be for the sole and exclusive benefit of the City, the
Board, the Trustee and said Owners.
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ARTICLE M
EVENTS OF DEFAULT AND REM]
OF CERTIFICATE OWNERS
Section 11.01. Assignment of Rights. Pursuant to the Assignment Agreement the
Board has transferred, assigned and set over to the Trustee all of the Board's rights and
duties in and to the Lease Agreement (excepting only the Board's rights under Sections 4.5,
5.11, 6.3 and 8.4 thereof), including without limitation all of the Board's rights to exercise
such rights and remedies conferred on the Board pursuant to the Lease Agreement as may
be necessary or convenient (a) to enforce payment of the Lease Payments and any other
amounts required to be deposited in the Certificate Fund, and (b) otherwise to exercise the
Board's rights and take any action to protect the interests of the Trustee or the Certificate
Owners in an Event of Default.
Section 11.02. Remedies. If an Event of Default shall happen, then and in each
and every such case during the continuance of such Event of Default the Trustee may, and
at the written direction of the Owners of a majority in aggregate principal amount of the
Certificates then Outstanding the Trustee shall, exercise any and allremedies available
pursuant to law or granted pursuant to the Lease Agreement; provided, however, that
notwithstanding anything herein or in the Lease Agreement to the contrary, there shall be
no right under any circumstances to accelerate the maturities of the Certificates or
otherwise to declare any Lease Payment not then in default to be due and payable.
Section 11.03. Application of Funds. All moneys received by the Trustee
pursuant to any right given or action taken under the provisions of this Article M or Article
VIII of the Lease Agreement shall be applied by the Trustee in the following order upon
presentation of the Certificates, and the stamping thereon of the payment if only partially
paid, or upon the surrender thereof if fully paid -
First, to the payment of the costs and expenses of the Trustee and of
the Certificate Owners in declaring such Event of Default and in taking any
remedial action with respect thereto, including reasonable compensation to its
or their agents, attorneys and counsel; and
Second, to the payment of the whole amount then owing and unpaid
with respect to the Certificates for principal. and interest, with interest on the
overdue principal and installments of interest at the net effective rate per
annum then represented by the Outstanding Certificates (but such interest on
overdue installments of interest shall be paid only to the extent funds are
available therefor following payment of principal and interest and interest on
overdue principal, as aforesaid), and in case such moneys shall be insufficient
to pay in full the whole amount so owing and unpaid with respect to the
Certificates, then to the payment of such principal and interest without
preference or .priority of principal over interest, or of interest over principal, or
of any installment of interest over any other installment of interest, ratably to
the aggregate of such principal and interest.
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Section 11.04. Institution of Legal Proceedings. If one or more Events of Default
shall happen and be continuing, the Trustee in its discretion may, and upon the written
request of the Owners of a majority in principal amount of the Certificates then
Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to
protect or enforce its rights or the rights of the Owners of Certificates 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 or duties hereunder.
Section 11.05. Non—waiver. Nothing in this Article M or in any other provision of
this Agreement or in the Certificates, shall affect or impair the obligation of the City, which
is absolute and unconditional, to pay or prepay the Lease Payments as provided in the
Lease Agreement. No delay or omission of the Trustee or of any Owner of any of the
Certificates to exercise any right or power arising upon the happening of any Event of
Default shall impair any such right or power or shall be construed to be a waiver of any
such Event of Default or an acquiescence therein, and every power and remedy given by this
Article M to the Trustee or to the Owners of Certificates may be exercised from time to time
and as often as shall be deemed expedient by the Trustee or the Certificate Owners.
Section 11.06. Remedies Not Exclusive. No remedy herein conferred upon or
reserved to the Trustee or to the Certificate Owners is intended to be exclusive of any other
remedy, and every 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.
Section 11.07. Power of Trustee to Control Proceedings. In the event that the
Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial
proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion
or upon the request of the Owners of a majority in aggregate principal amount of the
Certificates then Outstanding, it shall have full power, in the exercise of its discretion for
the best interests of the Owners of the Certificates, with respect to the continuance,
discontinuance, withdrawal, compromise, settlement or other disposal of such action;
provided, however, that the Trustee shall not discontinue, withdraw, compromise or settle,
or otherwise dispose of any litigation pending at law or in equity, without the consent of a
majority in aggregate principal amount of the Certificates Outstanding.
Section 11.08. Limitation on Certificate Owners' Right to Sue. No Owner of
any Certificate issued hereunder shall have the right to institute any suit, action or
proceeding at law or in equity, for any remedy under or upon this Agreement, unless (a)
such Owner shall have previously given to the Trustee written notice of the occurrence of an
Event of Default hereunder, (b) the Owners of at least twenty-five percent (25%) in
aggregate principal amount of all the Certificates then Outstanding shall have made written
request upon the Trustee to exercise the powers hereinbefore granted or to institute such
.action, suit or proceeding in its own name; (c) said Owners shall have tendered to the
Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request; and (d) the Trustee shall have refused or omitted to comply
with such request for a period of sixty (60) days after such written request shall have been
received by, and said tender of indemnity shall have been made to, the Trustee.
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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
Certificates of any remedy hereunder, it being understood and intended that no one or more
Owners of Certificates shall have any right in any manner whatever by his or their action to
enforce any right under this Agreement, except in the manner herein provided, and that all
proceedings at law or in equity with respect to an Event of Default shall be instituted, had
and maintained in the manner herein provided and for the equal benefit of all Owners of the
Outstanding Certificates.
Section 11.09._ Possession of Certificates by Trustee Not Required. All rights
and remedies granted to or exercisable by the Trustee hereunder or under the Lease
Agreement may be exercised by the Trustee without possession of any of the Certificates or
the production thereof at the trial or other proceeding relative thereto, and any suit, action
or proceeding instituted by the Trustee hereunder or under the Lease Agreement shall be
brought in its name for the benefit of all of the Owners of such Certificates, subject to the
provisions of this Trust Agreement.
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ARTICLE XII
AMCELLAN •OUS
Section 12.01. Defeasance. If and when the obligations represented by any
Outstanding Certificates shall be paid and discharged in any one or more of the following
ways:
(a) by well and truly paying or causing to be paid the principal of and
interest and redemption premiums (if any) represented by such Certificates
Outstanding, as and when the same become due and payable; or
(b) by depositing with the Trustee or any other fiduciary, under an
escrow deposit and trust agreement, security for the payment of Lease
Payments relating to such Certificates as more particularly described in
Section 9.1 of the Lease Agreement, said security to be held by the Trustee or
by such other fiduciary as agent for the City to be applied by the Trustee to
pay or prepay such Lease Payments as the same become due, pursuant to
Section 9.1 of the Lease Agreement -
notwithstanding that such Certificates shall not have been surrendered for payment, all
rights hereunder of the Owners of such Certificates and all obligations of the Board, the
Trustee and the City with respect to such Certificates shall cease and terminate, except only
the obligations of the Trustee under Sections 2.07 and 2.08, and the obligation of the
Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the City
from funds deposited pursuant to paragraph (b) of this Section, to the Owners of such
Certificates not so surrendered and paid all sums represented thereby when due and in the
event of deposits pursuant to paragraph (b), such Certificates shall continue to represent
direct, undivided fractional interests of the Owners thereof in the Lease Payments.
Any fiords held by the Trustee, at the time of discharge of the obligations represented
by all Outstanding Certificates as a result of one of the events described in paragraphs (a)
or (b) of this Section, which are not required for the payment to be made to Owners, shall,
upon payment in full of all fees and expenses of the Trustee (including attorneys' fees) then
due, be paid over to the City.
Section 12.02. Records. The Trustee shall keep complete and accurate records of
all moneys received and disbursed under this Agreement, which shall be available for
inspection by the City, the Board and any Owner, or the agent of any of them, at any
reasonable time during regular business hours.
Section 12.03. Notices. All written notices to be given under this Agreement shall
be given by mail or personal delivery to the party entitled thereto at its address set forth
below, or at such address as the party may provide to the other party in writing from time
to time. Notice shall be effective upon deposit in the United States mail, postage prepaid
or, in the case of personal delivery, upon delivery to the address set forth below:
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C�
E
If to the City: Director of Finance
City of San Luis Obispo
990 Palm Street
San Luis Obispo, California 93401
If to the Board: Chief Financial Officer
City of San Luis Obispo
Capital Improvement Board
990 Palm Street
San Luis Obispo, California 93401
If to the Trustee: Security Pacific National Bank
333 South Beaudry Avenue, 24th Floor
Los Angeles, California 90017
Attention: Corporate Services Division W24-30
Section 12.04. Disqualified Certificates. In determining whether the Owners of
the requisite aggregate principal amount of Certificates have concurred in any demand,
request, direction, consent or waiver under this Indenture, Certificates which are owned or
held by or for the account of the District (but excluding Certificates held in any employees'
retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of
any such determination, provided, however, that for the purpose of determining whether the
Trustee shall be protected in relying on any such demand, request, direction, consent or
waiver, only Certificates which the Trustee knows to be so owned or held shall be
disregarded.
Section 12.05. Payment of Certificates After Discharge of Trust Agreement.
Notwithstanding any provisions of this Trust Agreement, any moneys held by the Trustee in
trust for the payment of the principal or interest represented by any Certificates and
remaining unclaimed for six (6) years after the principal represented by all of the
Certificates has become due and payable (whether at maturity or upon call for redemption
or by acceleration as provided in this Trust Agreement), if such moneys were so held at such
date, or sig (6) years after the date of deposit of such moneys if deposited after said date
when all of the Certificates became due and payable, shall be repaid to the City free from
the trusts created by this Trust Agreement upon receipt of an indemnification agreement
acceptable to the City and the Trustee indemnifying the Trustee with respect to claims of
Owners of Certificates which have not yet been paid, and all liability of the Trustee with
respect to such moneys shall thereupon cease; provided, however, that before the repayment
of such moneys to the City as aforesaid, the Trustee shall (at the cost of the City) first mail,
by first class mail postage prepaid, to the Owners of Certificates which have not yet been
paid, at the respective addresses shown on the Registration Books, a notice, in such form as
may be deemed appropriate by the Trustee with respect to the Certificates so payable and
not presented and with respect to the provisions relating to the repayment to the City of the
moneys held for the payment thereof.
Section 12.06. Governing Law. This Agreement shall be construed and governed
in accordance with the laws of the State of California.
Section 12.07. Binding Effect; Successors. This Agreement shall be'binding upon
and inure to the benefit of the parties and their respective successors and assigns.
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Whenever in this Agreement either the Board, the City or the Trustee is named or referred
to, such reference shall be deemed to include the successors or assigns thereof, and all the
covenants and agreements in this Agreement contained by or on behalf of the Board, the
City or the Trustee shall bind and inure to the benefit of the respective successors and
assigns thereof whether so expressed or not.
Section 12.08. .Board and City Representatives. Whenever under the provisions
of this Agreement the Board or the City is required or permitted to take some action,
including but not limited to the giving of any approval or the execution of some request,
direction or other instrument, such action shall be made on behalf of the Board by an Board
Representative and on behalf of the City by a City Representative, and any party hereto
shall be fully authorized to rely upon any such action by an Board Representative or a City
Representative.
Section 12.09. 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 agreement.
Section 12.10. Delivery of Cancelled Certificates. Whenever in this Agreement
provision is made for the surrender to or cancellation by the Trustee of any Certificates, the
Trustee shall cancel and destroy such Certificates and shall deliver a certificate of
destruction with respect thereto to the City.
Section 12.11. Headings. The headings or titles of the several Articles and
Sections hereof, and any table of contents appended to copies hereof, shall be solely for
convenience of reference and shall not affect the meaning, construction or effect of this
Agreement. All references herein to "Articles", "Sections", and other subdivisions are to the
corresponding Articles, Sections or subdivisions of this. Agreement; and the words "herein",
'hereof', "hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section or subdivision hereof.
Section 12.12 Waiver of Notice. Whenever in this Agreement the giving of notice
by mail or otherwise is required, the giving of such notice may be waived in writing by the
person entitled to receive such notice and in any case the giving or receipt of such notice
shall not be a condition precedent to the validity of any action taken in reliance upon such
waiver.
Section 1213. Separability of Invalid Provisions. In case any one or more of the
provisions contained in this Agreement or in the Certificates shall for any reason be held to
be invalid, illegal or unenforceable in any respect, then such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, and this Agreement
shall be construed as if such invalid or illegal or unenforceable provision had never been
contained herein. The parties hereto hereby declare that they would have entered into this
Agreement and each and every other section, paragraph, sentence, clause or phrase hereof
and authorized the delivery of the Certificates pursuant thereto irrespective of the fact that
any one or more sections, paragraphs, sentences, clauses or phrases of this Agreement may
be held illegal, invalid or unenforceable.
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EO
•
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
Attest:
By:
Secretary
(S E A L)
Attest:
0
City Clerk
SECURITY PACIFIC NATIONAL BANK, as
Trustee
LM
Authorized Representative
CITY OF SAN LUIS OBISPO CAPITAL
EWPROVEMENT BOARD
By
Executive Director
CITY OF SAN LUIS OBISPO
By
City Administrative Officer
-41-
•
(FORM OF CERTIFICATE OF PARTICIPATION)
(TO COME)
Exhibit A
29026-10 O 7HHW:CFA:Efs Novembe- 10, 1998 F8201
MARKED TO SHOW CHANGES
( IIA0L08 ) .
LEASE AGREEMENT
Dated as of December 1, 1988
by and between the
CITY OF SAN LUIS OBISPO CAPITAL UVIPROVEMENT BOARD,
as lessor
and the
CITY OF SAN LUIS OBISPO,
as lessee
(TUMLI. Revep0L Fvnd = Wafe✓ E'11"r se RIMA
F8201
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS; EXHIBITS
SECTION 1.1. Definitions........................................................................ 2
ARTICLE II
COVENANTS, REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Covenants, Representations and Warranties
ofthe City................:.:........................................................ 5
SECTION 2.2. Covenants, Representations and Warranties
ofthe Board......................................................................... 6
SECTION 3.1. Deposit of Moneys ............................................................. 8
SECTION 3.2. Acquisition of the Facilities .............................................. 8
SECTION 3.3. Substitution of Facilities ................................................... 8
ARTICLE IV
AGREEMENT TO LEASE; TERMINATION OF
THIS LEASE; LEASE PAYMENTS
SECTION4.1.
Lease................................................................................
9
SECTION 4.2.
Term of Agreement...........................................................
9
SECTION4.3.
Possession........................................................................
9
SECTION4.4.
Lease Payments................................................................
9
SECTION 4.5.
Pledge and Application of Net Revenues ...........................
10
SECTION 4.6.
Special Obligation of the City; Obligations
Absolute..............................................................................
11
SECTION 4.7.
Rates and Charges...........................................................
12
SECTION 4.8.
Superior and Subordinate Obligations ..............................
13
SECTION 4.9.
Issuance of Parity Obligations ..........................................
13
SECTION 4.10.
Quiet Enjoyment.............................................................
13
SECTION4.11.
Title................................................................................
13
SECTION 4.12.
Additional Payments......................................................
14
ARTICLE V
COVENANTS REGARDING ENTERPRISE
1—
• Page
SECTION 5.1.
Maintenance, Utilities, Taxes and
Assessments........................................................................
15
SECTION 5.2.
Modification of Facilities ...................................................
15
SECTION 5.3.
Public Liability and Property Damage
Insurance............................................................................
16
SECTION 5.4.
Casualty Insurance...........................................................
16
SECTION 5.5.
Insurance Net Proceeds; Form of Policies .........................
16
SECTION 5.6.
Eminent Domain...............................................................
17
SECTION 5.7.
Records and Accounts.......................................................
17
SECTION 5.8.
Installation of City's Equipment .......................................
17
SECTION5.9.
Liens................................................................................
17
ARTICLE VI
DISCLAIMER OF WARRANTIES; ACCESS
SECTION 6.1. Disclaimer of Warranties .................................................. 18
SECTION 6.2. Access to the Facilities..................................................... 18
SECTION 6.3. Release and Indemnification Covenants ............................ 18
ARTICLE VII
ASSIGNMENT, SUBLEASING AND AMENDMENT
SECTION 7.1. Assignment by the Board ................................................. 19
SECTION 7.2. Assignment and Subleasing by the City ........................... 19
SECTION 7.3. Sale of Enterprise............................................................. 19
SECTION 7.4. Amendment of Lease Agreement ...................................... 19
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1. Events of Default Defined ................................................. 21
SECTION 8.2. Remedies on Default......................................................... 21
SECTION 8.3. Appointment of Receiver ................................................... 22
SECTION 8.4. No Remedy Exclusive....................................................... 23
SECTION 8.5. Agreement to Pay Attorneys' Fees and
Expenses............................................................................. 23
SECTION 8.6. No Additional Waiver Implied by One Waiver ................... 23
SECTION 8.7. Application of Proceeds.....................6.............................. 23
SECTION 8.8. Trustee and Certificate Owners to Exercise
Rights.................................................................................. 23
ARTICLE IX
u
• pap
PREPAYMENT OF LEASE PAYMENTS
SECTION 9.1. Security Deposit ......... :...... ................................................ 24
SECTION 92. Optional Prepayment........................................................ 24
SECTION 9.3. Mandatory Prepayment From Net Proceeds of
Insurance or Eminent Domain ............................................. 24
SECTION 9.4. Credit for Amounts on Deposit ......................................... 24
ARTICLE X
MISCELLANEOUS
SECTION10.1.
Notices ................................................ ...........................
.
26
SECTION 10.2.
Binding Effect ........................... .............. .:.............
26
SECTION 10.3.
Severability ......... .......... :................................................
26
SECTION 10.4.
Net -net -net Lease..........................................................
26
SECTION 10.5.
Further Assurances and Corrective
Instruments.........................................................................
26
SECTION 10.6.
Execution in Counterparts6 .............................................
26
SECTION 10.7.
Applicable Law.............................................6.................
27
SECTION 10.8.
Board and City Representatives ......................................
27
SECTION 10.9.
Captions.........................................................................
27
o •
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease"), dated as of December 1, 1988, is by
and between the CITY OF SAN LUIS OBISPO CAPITAL IMPROVEMENT BOARD, a
public body corporate and politic duly organized and existing under Ordinance No. 1059
(1986 Series) adopted by the City Council of the City of San Luis Obispo on April 15,
1986, and under the constitution and laws of the State of California (the "Board', and
the CITY OF SAN LUIS OBISPO, a charter city and municipal corporation duly
organized and existing under the constitution and laws of the State of California (the
Ncitf );
WITNESSETH:
WHEREAS, the City wishes to finance the acquisition and construction of
improvements to the water treatment and distribution enterprise of the City (the
"Enterprise"); and
WHEREAS, the Board has been formed for the purpose of assisting the City in
financing the acquisition, construction and improvement of property which is of benefit to
the City; and
WHEREAS, in order to provide funds for the acquisition and construction of said
improvements to the Enterprise, the Board has proposed to acquire certain facilities
constituting a portion of the Enterprise, as such facilities are described more fully in
Exhibit A attached hereto (the "Facilities"), and to lease the Facilities to the City as
provided herein; and
WHEREAS, the Board will cause funds to be provided for the acquisition of the
Facilities from the proceeds of certain Certificates of Participation executed and delivered
in the aggregate principal amount of $5,000,000 under and pursuant to the Trust
Agreement dated as of December 1, 1988, by and among the City, the Board and Security
Pacific National Bank as trustee; and
WHEREAS, the City and the Board wish to set forth the terms and conditions
upon which the Facilities will be leased by the Board to the City, and to establish an
obligation of the City to pay lease payments in consideration of the use and occupancy of
the Facilities; and
WHEREAS, the City is authorized to enter into this Lease pursuant to the
provisions of Section 37350 of the Government Code of the State of California and
pursuant to the municipal affairs power of the City as a charter city, and the Board is
authorized to enter into this Lease pursuant to the provisions of the Ordinance pursuant
to which the Board has been established;
NOW, THEREFORE, for and in consideration of the premises and the material
covenants hereinafter contained, the parties hereto hereby formally covenant, agree and
bind themselves as follows:
ARTICLE I
DEFINMONS; EDITS
SECTION 1.1. Definitions. Unless the context clearly otherwise requires or
unless otherwise defined herein, the capitalized terms in this Lease shall have the
respective meanings specified in the Trust Agreement. In addition, the following terms
heretofore defined in this Lease and the following terms defined in this Section 1.1 shall,
for all purposes of this Lease, have the respective meanings herein specified.
"Acquisition Agreement" means the Acquisition Agreement dated as of December
1, 1988, by and between the City as seller and the Board as purchaser of the Facilities,
together with any duly authorized and executed amendments thereto.
"Acquisition Costs" means all costs of acquiring the Facilities on the Closing Date
pursuant to the Acquisition Agreement.
"Additional Payments" means the amounts payable by the City pursuant to
Section 4.12.
"Additional Revenues" means, for the purpose of determining compliance by the
City with the requirements of Section 4.9(b) with respect to the issuance of any Parity
Obligations, any or all of the following items:
(a) An allowance for Net Revenues from any additions or
improvements to or extensions of the Enterprise to be made with the
proceeds of such Parity Obligations and also for Net Revenues from any
such additions, improvements or extensions which have been made from
moneys from any source but in any case which were not in service during
all or any part of the most recently completed Fiscal Year for which audited
financial statements are available in an amount equal to ninety percent
(90%) of the estimated additional average annual Net Revenues to be
derived from such additions, improvements and extensions for the first
thirty-six (36) month period in which each addition, improvement or
extension is respectively to be in operation, all as shown by the certificate
or opinion of a qualified independent `accounting or consulting firm
employed by the City.
(b) An allowance for Net Revenues arising from any increase in the
charges made for service from the Enterprise which has become effective
prior to the incurring of such Parity Obligations but whichwere not in
effect during all or any part of the most recently completed Fiscal Year for
which audited financial statements are available, in an amount equal to the
total amount by which the Net Revenuestwould have been increased if such
increase in charges had been in effect during the whole of such Fiscal Year,
all as shown by the certificate or opinion of a "qualified independent
accounting or consulting firm employed by the City.
'Enterprise" means all facilities, properties and improvements at any time owned,
controlled or operated by the City for the collection, treatment and supply of water to
-2-
residents of the City and adjacent areas, and any necessary lands, rights,eentitlements
and other property useful in connection therewith, together with all extensions thereof
and improvements thereto hereafter acquired, constructed or installed by the City.
"Event of Default" means any of the events described in Section 8.1.
"Facilities" means the facilities, improvements and other property described as
more fully in Exhibit B attached hereto and by this reference incorporated herein, as such
description may be amended by the City from time to time pursuant to and in accordance
with Section 3.3.
"Gross Revenues" means all, gross charges received for, and all other gross income
and receipts derived by the City from, the ownership and operation of the Enterprise or
otherwise arising from the Enterprise, including but not limited to connection charges
and earnings on the investment of any funds held by the City; but excluding (a) the
proceeds of any ad valorem property taxes levied for the purpose of paying general
obligation bonds of the City relating to the Enterprise, and (b) the proceeds of any special
assessments or special taxes levied upon real property within any improvement district
served by the City levied for the purpose of paying special assessment bonds or special
tax obligations of the City relating to the Enterprise.
"Lease Payment Date" means, with respect to any Interest Payment Date, the
twenty-fifth (25th) day of the month preceding such Interest Payment Date, constituting
May 25 and November 25 of each Fiscal Year during the Term hereof commencing May
25, 1989.
"Maximum Annual Debt Service" means, as of the date of any calculation and with
respect to the Lease Payments or any Parity Obligations, as the case may be, the
maximum sum obtained for the current or any future Fiscal Year during the Term of this
Lease by totaling the following amounts for such Fiscal Year:.
(a) the aggregate amount of the Lease Payments coming due and
payable in such Fiscal Year pursuant hereto, except to the extent payable
from any security deposit pursuant to Section 9.1;
(b) the principal amount of all outstanding Parity Obligations, if
any, coming due and payable by their terms in such Fiscal Year; and
(c) the amount of interest which would be due during such Fiscal
Year on the aggregate principal amount of all outstanding Parity
Obligations, if any, which would be outstanding in such Fiscal Year if such
Parity Obligations are retired as scheduled; provided, however, that in the
event any such Parity Obligations bear interest at a variable rate, such
interest shall be calculated at an assumed rate equal to the average rate of
interest for each of the five previous whole calendar years as shown by the
J. J. Kinney Index (or, if such index is not maintained for all or any portion
of such period, any similar index of variable rate interest for tax-exempt
obligations as may be selected by the City in its sole discretion).
ism
"Net Revenues" means, for any period, an amount equal to all of the Gross
Revenues received during such period minus the amount required to pay all Operation
and Maintenance Costs becoming payable during such period.
"Operation and Maintenance Costs" means the reasonable and necessary costs and
expenses paid by the City for maintaining and operating the Enterprise, including but not
limited to (a) the reasonable expenses of management and repair and other costs and
expenses necessary to maintain and preserve the Enterprise in good repair and working
order and (b) the reasonable administrative costs of the City attributable to the operation
and maintenance of the Enterprise;. but in all cases excluding (i) interest expense relating
to subordinate obligations and unsecured obligations of the" City, (ii) depreciation,
replacement and. obsolescence charges or reserves therefor, and (iii) amortization of
intangibles or other bookkeeping entries of a similar nature.
"Parity Obligations" means any leases, installment sale agreements, bonds, notes
or other obligations of the City payable from and secured by a pledge of and lien upon
any of the Net Revenues on a parity with the Lease Payments, entered into or issued
pursuant to and in accordance with Section,&_9
'Rental Period" means each period during the Term of this Lease commencing on
and including the day immediately following an Interest Payment Date and extending to
and including the next succeeding.Interest Payment Date; except that the first Rental
Period shall commence on the Closing Date and extend to and including the next
succeeding Interest Payment Date.
"Term of this Lease means the time during which this Lease is in effect, as
provided in Section 4.3.
"Trust Agreement" means the Trust Agreement, and dated as of December 1,
1988, by and among the Trustee, the Board and the City, together with any duly
authorized and executed amendments thereto.
"Water Enterprise Fund" means the existing fund by that name established and
held by the City with respect to the Enterprise.
-4-
ARTICLE 11
COVENANTS, REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Covenants, Representations and Warranties of the City. The
City makes the following covenants, representations and warranties to the Board as of
the date of the execution and delivery of this Lease:
(a) Due Organization and Existence. The City is a charter city and
municipal corporation duly organized and validly existing under the
constitution and laws of the State of California, has full legal right, power
and authority to enter into this Lease, the Acquisition Agreement and the
Trust Agreement and to carry out and consummate all transactions
contemplated hereby and thereby, and by proper action the City has duly
authorized the execution and delivery of this Lease, the Acquisition
Agreement and the Trust Agreement.
(b) Due Execution. The representatives of the City executing this
Lease, the Acquisition Agreement and the Trust Agreement are fully
authorized to execute the same.
(c) Valid, Binding and Enforceable Obligations. This Lease, the
Acquisition Agreement and the Trust Agreement have been duly
authorized, executed and delivered by the City and constitute the legal,
valid and binding agreements of the City enforceable against the City in
accordance with their respective terms.
(d) No Conflicts. The execution and delivery of this Lease, the
Acquisition Agreement and the Assignment Agreement, the consummation
of the transactions herein and therein contemplated and the fulfillment of
or compliance with the terms and conditions hereof, do not and will not
conflict with or constitute a violation or breach of or default (with due
notice or the passage of time or both) under any applicable law or
administrative rule or regulation, or any applicable court or administrative
decree or order, or any indenture, mortgage, deed of trust, 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 result in the creation
or imposition of any prohibited 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 would have
consequences that would materially and adversely affect the consummation
tion
of the transactions contemplated by this Lease, the Acquisition Agreement
and the Assignment Agreement or the financial condition, assets,
properties or operations of the City or its properties.
(e) Consents and Approvals. No consent or approval of any trustee
or holder of any indebtedness of the City or of the voters of the City, and no
consent, permission, authorization herein or therein contemplated, except
as have been obtained or made and as are in full force and effect.
-5-
M No Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court or federal, state, municipal or other
governmental authority pending or, to the knowledge of the City after
reasonable investigation, threatened against or affecting the City or the
assets,. properties or operations of the City 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 Lease, the Acquisition Agreement or the Trust Agreement, or upon the
financial condition, assets, properties or operations of the City, 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 Lease, the Acquisition Agreement or the Trust
Agreement or the financial conditions, assets, properties or operations of
the City or its properties.
SECTION 22. Covenants, Representations and Warranties of the Board.
The Board makes the following covenants, representations and warranties as the basis
for its undertakings herein contained:
(a) Due Organization and Existence. The Board is a public body
corporate and politic duly organized and existing under Ordinance No. 1059
(1986 Series) adopted by the City Council of the City of San Luis Obispo on
April 15, 1986, and under the constitution and laws of the State of
California, has full legal right, power and authority to enter into this Lease,
the Acquisition Agreement, the Trust Agreement and the Assignment
Agreement and to carry out and consummate all transactions contemplated
hereby and thereby, and by proper action the Board has duly authorized
the execution and delivery of this Lease, the Acquisition Agreement, the
Trust Agreement and the Assignment Agreement.
(b) Due Execution. The representatives of the Board executing this
Lease, the Acquisition Agreement, the Trust Agreement and the
Assignment Agreement are fully authorized to execute the same.
(c) Valid. Binding and Enforceable Obligations. This Lease, the
Acquisition Agreement, the Trust Agreement and the Assignment
Agreement have been duly authorized, executed and delivered by the Board
and constitute the legal, valid and binding agreements of the Board with
the Board, enforceable against the Board in accordance their respective
terms.
(d) No Conflicts. The execution and delivery of this Lease, the
Acquisition Agreement, the Trust Agreement and the Assignment
Agreement, the consummation of the transactions herein and therein
contemplated and the fulfillment of or compliance with the terms and
conditions hereof, do not and will not conflict with or constitute a violation
or breach of or default (with due notice or the passage of time or both)
under any applicable law or administrative rule or regulation, or any
applicable court or administrative decree or order, or any indenture,
mortgage, deed of trust, lease, contract or other agreement or instrument to
which the Board is a party or by which it or its properties are otherwise
subject or bound, or result in the creation or imposition of any prohibited
lien, charge or encumbrance of any nature whatsoever upon any of the
property or assets of the Board, which conflict, violation, breach, default,
lien, charge or encumbrance would have consequences that would
materially and adversely affect the consummation of the transactions
contemplated by this Lease, the Acquisition. Agreement and by the Trust
Agreement or the financial condition, assets, properties or operations of the
Board or its properties.
(e) Consents and Approvals. No consent or approval of any trustee
or holder of any indebtedness of the Board, 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 Lease, the Acquisition Agreement, the Trust Agreement or
the Assignment Agreement, or the consummation of any transaction herein
or therein contemplated, except as have been obtained or made and as are
in full force and effect.
(f) No Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court or federal, state, municipal or other
governmental authority pending or, .to the knowledge of the Board after
reasonable investigation, threatened against or affecting the Board or the
assets, properties or operations of the Board which, if determined adversely
to the Board or its interests, would have a material and adverse effect upon
the consummation of the transactions contemplated by or the validity of
this Lease, the Acquisition Agreement, the Trust Agreement or the
Assignment Agreement, or upon the financial condition, assets, properties
or operations of the Board, and the Board 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 Lease, the
Acquisition Agreement, the Trust Agreement or the Assignment Agreement
or the financial conditions, assets, properties or operations of the Board or
its properties.
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ARTICLE III
DEPOSIT OF MONEYS; ACQUISITION OF THE FACILITIES
SECTION 3.1. Deposit of Moneys. On the Closing Date, the Board shall cause
the proceeds of sale of the Certificates to be deposited with the Trustee. Pursuant to
Section 4.01 of the Trust Agreement, the initial amount of the Reserve Requirement shall
be deposited in the Reserve FundAlhe amount of .accrued interest reuresented by the
Certificates to the Closing Date shall be deposited in the Certificate Fund, and the
remaining balance of said amount shall be deposited in the Acquisition Fund.
SECTION 3.2. Acquisition of the Facilities. The Board agrees on the Closing
Date to acquire the Facilities and to pay the full amount of the Acquisition Costs from
amounts deposited in the Acquisition Fund, pursuant to and in accordance with the
provisions of the Acquisition Agreement. The Board shall finance direct payment of the
Acquisition Costs from amounts on deposit in the Acquisition Fund pursuant to Section
4.02 of the Trust Agreement.
SECTION 3.3. Substitution of Facilities. The City shall have, and is hereby
granted, the option at any time and from time to time during the Term of this Lease, to
substitute other land, facilities, improvements or other property constituting any part of
the Enterprise (the "Substitute Facilities") for any Facilities or portion thereof (the
"Former Facilities"), provided that the City shall satisfy all of the following requirements
which are hereby declared to be conditions precedent to such substitution:
(a) No Event of Default shall have occurred and be continuing;
(b) The value of such Substitute Facilities shall not be less than the
value of such Former Facilities on or about the time of such substitution, as
shown in the report or opinion of a qualified independent appraisal or
consulting firm selected by the City;
(c) The City shall file with the Board and the Trustee an amended
Exhibit B to this Lease which adds thereto a description of such Substitute
Facilities and deletes therefrom the description of such Former Facilities;
(d) The City shall certify in writing to the Board and the Trustee
that such Substitute Facilities serve the municipal purposes of the City and
constitute property which the City is permitted to lease under the laws of
the State of California; and
(e) The Substitute Facilities shall not cause the City to violate any
of its covenants, representations and warranties made herein and in the
Trust Agreement.
Upon the satisfaction of all such conditions precedent, the Term of this Lease shall
thereupon end as to the Former Facilities and shall thereupon commence as to the
Substitute Facilities.
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ARTICLE IV
AGREEMENT TO LEASE; TERMINATION OF
THIS LEASE; LEASE PAYMENTS
SECTION 4.1. Lease. The Board hereby leases the Facilities to the City, and .the
City hereby leases the Facilities from the Board, upon the terms and conditions set forth
in this Lease.
SECTION 4.2. Term of Agreement. The Term of this Lease shall commence on
December 1, 1988, and shall end on June 1, 2008, unless such term is extended as
hereinafter provided. If on June 1, 2008, the Trust Agreement shall not be discharged by
its terms, then the Term of this Lease shall be extended until the Trust Agreement shall
be discharged by its terms, but not beyond June 1, 2018. If prior to June 1, 2008, the
Trust Agreement shall be discharged by its terms, the Term of this Lease shall the eupon
end.
SECTION 4.3. Possession. The City shall take possession of the Facilities
hereunder on the Closing Date.
SECTION 4.4. Lease Payments.
(a) Obligation to Pay. nThe City agrees to pay to the Board, its successors
and assigns, but solely from the Net Revenues and other funds pledged hereunder, the
Lease Payments (denominated into components of principal and interest) for the
Facilities in the respective amounts specified in Exhibit A, to be due and payable on the
Interest Payment Dates following each of the respective Lease Payment Dates specified in
Exhibit A, and to be deposited by the City with the Trustee on each of the Lease Payment
Dates specified in Exhibit A. Any amount held in the Certificate Fund on any Lease
Payment Date (other than amounts resulting from the prepayment of the Lease Payments
in part but not in whole pursuant to Article IX and other than amounts required for
payment of past due principal or interest represented by any Certificates not presented
for payment) shall be credited towards the Lease Payment then required to be paid
hereunder•, and no Lease Payment need be deposited with the Trustee on any Lease
Payment Date if the amounts then held in the Certificate Fund are at least equal to the
Lease Payment then required 'to be deposited with the Trustee. The Lease Payments
payable in any Rental Period shall be for the use of the Facilities for such Rental Period.
The Lease Payments shall be payable from the sources specified in Section 4.5.
(b) Effect of Prepayment. In the event that the City prepays all remaining
Lease Payments in full pursuant to Article IX, the City's obligations under this Lease
shall thereupon cease and terminate, including but not limited to the City's obligation to
pay Lease Payments therefor under this Section 4.4; subject, however, to the provisions of
Section 9.1 in the case of prepayment by application of a security deposit. In the event
that the City prepays the Lease Payments in part but not in whole pursuant to Section
9.2 or Section 9.3, the principal component of each succeeding Lease Payment shall be
reduced as provided in such Sections, and the interest component of each remaining
Lease Payment shall be reduced by the aggregate corresponding amount of interest which
would otherwise be payable with respect to the Certificates thereby prepaid pursuant to
Section 3.01 of the Trust Agreement.
(c) Rate on Overdue Payments. In the event the City should fail to make
any of the payments required in this Section 4.4, the payment in default shall continue as
an obligation of the City until the amount in default shall have been fully paid, and the
City agrees to pay the same with interest thereon, from the date of default to the date of
payment at the net effective rate of interest then represented by the Outstanding
Certificates.
(d) Fair Rental Value. The Lease Payments for the Facilities during each
Rental Period shall constitute the total rental for the Facilities for each Rental Period,
and shall be paid by the City in each Rental Period for and in consideration of the right of
the use and occupancy of, and the continued quiet use and enjoyment of the Facilities
during each Rental Period. The parties hereto have agreed and determined that the total
Lease Payments for the Facilities represent the fair rental value of the Facilities. In
making such determination, consideration has been given to the value of the Facilities as
set forth in the appraisal of Brown & Caldwell, dated November _, 1988, other
obligations of the parties under this Lease, the uses and purposes which may be served
by the Facilities and the benefits therefrom which will accrue to the City and the general
public.
(e) Assignment. The City understands and agrees that all Lease Payments
have been assigned by the Board to the Trustee in trust, pursuant to the Assignment
Agreement, for the benefit of the Owners of the Certificates, and the City hereby assents
to such assignment. The Board hereby directs the City, and the City hereby agrees to
pay to the Trustee at the Trust Office of the Trustee, all payments payable by the City
pursuant to this Section 4.4 and all amounts payable by the City pursuant to Article DL
SECTION 4.5. Fledge and Application of Net Revenues.,\
(a) Pledge of Net Revenues. All of the Net Revenues and all moneys on deposit in
any of the funds and accounts established under the Trust Agreement (other than the
Rebate Fund) are hereby irrevocably pledged to the punctual payment of the Lease
Payments and except as otherwise provided herein the Net Revenues and such other
funds shall not be used for any other purpose so long as any of the Lease Payments
remain unpaid. Such pledge shall constitute a first lien on the Net Revenues and such
other moneys for the payment of the Lease Payments in accordance with the terms
hereof.
(b) Deposit of Net Revenues Into Water Enterprise Fund; Transfers to Make
Lease Payments. All of the Gross Revenues shall be deposited by the City immediately
upon receipt in the Water Enterprise Fund which has heretofore been established by the
City and which shall continue to be held and maintained by the City at all times during
the Term hereof. The City covenants and agrees that all Net Revenues will be held by
the City in the Water Enterprise Fund in trust for the benefit of the Trustee (as assignee
of the rights of the Board hereunder) and the Certificate Owners, and for the benefit of
the owners of any Parity Obligations. On or before each Lease Payment Date during the
Term of this Lease, the City shall withdraw from the Water Enterprise Fund and transfer
to the Trustee, for deposit in the Certificate Fund, the full amount then required to be
deposited in payment of the Lease Payments pursuant to Section 4.4(a). In addition, the
City shall withdraw from the Water Enterprise Fund such amounts at such times as shall
be .required to: (i) pay all Operation and Maintenance Costs as they come due and
IKIII
payable, (ii) pay to the Trustee the amount of any deficiency in the Reserve Fund, the
notice of which deficiency shall have been given by the Trustee to the City; and (iii) pay
the principal of and interest on any Parity Obligations and otherwise comply with the.
provisions of the instruments authorizing the issuance of any Parity Obligations.
(c) Other Uses of Net Revenues Permitted. The City shall manage, conserve and
apply the Net Revenues on deposit in the Water Enterprise Fund in such a manner that
all deposits required to be made pursuant to the preceding paragraph will be made at the
times and in the amounts so required. Subject to the foregoing sentence, so long as no
Event of Default shall have occurred and be continuing hereunder, the City may use and
apply moneys in the Water Enterprise Fund for (i) the payment of Additional Payments,
(ii) the payment of any subordinate obligations or any unsecured obligations, (iii) the
acquisition and construction of extensions and betterments to the Enterprise; (iv) .the
prepayment of any obligations of the City relating to the Enterprise, or (iv) any. other
lawful purposes of the City.
I"' (d) Budget and Appropriation of Lease Payments. During the term of this Lease,
the City shall adopt and make all necessary budgets and appropriations of the Lease
Payments from theANet Revenues, and shall furnish to the Trustee a certificate of the
City Representative stating that the Lease Payments have been included in the final
budget of the City for the current Fiscal Year. Such certificate for any Fiscal Year shall
be filed with the Trustee not later than September 30 in such Fiscal Year. In the event
any Lease Payment requires the adoption by the City of any supplemental budget or
appropriation, the City shall promptly adopt the same. The covenants on the part of the
City contained in this subsections shall be deemed to be and shall be construed to be
duties imposed by law and it shall be the duty of each and every public official of the City
to take such action and do such things as are required by law in the performance of the
official duty of such officials to enable the City to carry out and perform the covenants
and agreements in this subsection.(d).
SECTION 4.6. Special Obligation of the City; Obligations Absolute. The
City's obligation to pay the Lease Payments and the Additional Payments shall be 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 herein for the payment of
the Lease Payments and the Additional Payments, nor shall any other funds or property
of the City be liable for the payment of the Lease Payments and the Additional
Payments.
The obligations of the City to make the Lease Payments and the Additional
Payments from the Net Revenues and to perform and observe the other agreements
contained herein shall be absolute and unconditional and shall not be subject to any
defense or any right of setoff, counterclaim or recoupment arising out of any breach of the
City, the Board or the Trustee of any obligation to the City or otherwise with respect to
the Enterprise, whether hereunder or otherwise, or out of indebtedness or liability at any
time owing to the City by the Board or the Trustee. Until such time as all of the Lease
Payments and all of the Additional Payments shall have been fully paid or prepaid, the
City (a) will not suspend or discontinue payment of any Lease Payments or Additional
Payments, (b) will perform and observe all other agreements contained in this Lease, and
(c) will not terminate the Term of this Lease for any cause, including, without limiting
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the generality of the foregoing, the occurrence of any acts or circumstances that may
constitute failure of consideration, eviction or constructive eviction, destruction of or
damage to the Enterprise, sale of the Enterprise, the talang by eminent domain of title to
or temporary use of any component of the Enterprise, commercial frustration of purpose,
any change in the tag or other laws of the United States of America or the State of
California or any political subdivision of either thereof or any failure of the Board 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 the Trust Agreement or this Lease.
Nothing contained in this Section 4.6 shall be construed to release the Board or
the Trustee from the performance of any of the agreements on. its part herein contained,
and in the event the Board or the Trustee shall fail to perform any such agreements on
its part, the City may institute such action against the Board or the Trustee as the City
may deem necessary to compel performance so long as such action does not abrogate the
obligations of the City contained in the preceding paragraph. The City may, however, at
the City's own cost and expense and in the City's own name or in the name of the Board
prosecute or defend any action or proceeding or take any other action involving third
persons which the City deems reasonably necessary in order to secure or protect the
City's rights hereunder, and in such event the Board hereby agrees to cooperate fully
with the City and to take such action necessary to effect the substitution of the City for
the Board in such action or proceeding if the City shall so request. _
SECTION 4.7. Rates and Charges. The City shall fig, prescribe, revise and
collect rates, fees and charges for the services and facilities furnished by the Enterprise
during each Fiscal Year which (together with existing unencumbered fund balances which
are lawfully available to the City for payment of any of the following amounts during
such Fiscal Year) are at least sufficient, after making allowances for contingencies and
error in the estimates, to pay the following amounts in the following order.
(a) all Operation and Maintenance Costs estimated by the City to
become due and payable in such Fiscal Year,
(b) The Lease Payments and the principal of and interest on any
Parity Obligations as they become due and payable during such Fiscal
Year, without preference or priority;
(c) All payments coming due and payable during such Fiscal Year
and required for compliance with this Lease and the instruments
authorizing the issuance of any Parity Obligations; and
(d) All payments required to meet any other obligations of the City
which are charges, liens, encumbrances upon or payable from the Gross
Revenues or the Net Revenues during such Fiscal Year.
In addition, the City shall fix, prescribe, revise and collect rates, fees and charges
for the services and facilities furnished by the Enterprise during each Fiscal Year which
are sufficient to yield Net Revenues which are at least equalAto one hundred ten percent
(110%) of the sum of (i) the amount of the Lease Payments coming due and payable
during such Fiscal Year, plus (ii) the principal of and interest on all outstanding Parity
Obligations coming due and payable during such Fiscal Year.A
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SECTION 4.8. Superior and Subordinate Obligations. The City shall not
issue or incur any additional bonds or other obligations during the Term of this Lease
having any priority in payment of principal or interest out of the Gross Revenues or the
Net Revenues over the Lease Payments. Nothing herein is intended or shall be construed
to limit or affect the ability of the City to issue or incur obligations which are either
unsecured or which are secured by an interest in the Net Revenues which is junior and
subordinate to the pledge of and lien upon the Net Revenues established hereunder.
SECTION 4.9. Issuance of Parity Obligations. Except for obligations incurred
to prepay„Ledeem or discharge Lease Payments or Parity Obligations, the City shall not
issue or incur any Parity Obligations during the Term hereof unless:
(a) No Event of Default shall have occurred and be continuing;
(b) The Net Revenues (excluding connection charges), calculated in
accordance with sound accounting principles, as shown by the books of the
City for the most recent completed Fiscal Year for which audited financial
statements are available, or for any more recent consecutive twelve (12)
month period selected by the City, in either case verified by a certificate or
opinion of an independent certified public accountant employed by the City,
plus, at the option of the City, any or all of the Additional Revenues, at
least equal one hundred twenty-five percent (125%) . of the amount of
Maximum Annual Debt Service with respect to the Lease Payments and all
Parity Obligations then outstanding (including the Parity Obligations then
proposed to be issued); and
(c) Upon the issuance of such Parity Obligations a reserve fund
shall be established for such Parity Obligations in an amount at least equal
to the lesser of (A) Maximum Annual Debt Service on such Parity
Obligations, or (B) the maximum amount then permitted under the Tax
Code.
SECTION 4.10. Quiet Enjoyment. During the Term of this Lease,. the Board
shall provide the City with quiet use and enjoyment of the Facilities, and the.City shall
during such Term peaceably and quietly have and hold and enjoy the Facilities, without
suit, trouble or hindrance from the Board, except as expressly set forth in this Lease.
The Board will, at the request of the City and at the City's cost, join in any legal action
in which the City asserts its right to such possession and enjoyment to the extent the
Board may lawfully do so. Notwithstanding the foregoing, the Board shall have the right
to inspect the Facilities as provided in Section 6.2.
SECTION 4.11. Title. During the Term of this Lease, the Board shall hold title
to the Facilities and to any and all additions which comprise fixtures, repairs,
replacements or modifications to any of the Facilities, except for those fixtures, repairs,
replacements or modifications which are added to the Facilities by the City at its own
expense and which may be removed without damaging the Facilities and except for any
items added to the Facilities by the City pursuant to'Section.5 8.
If the City prepays the Lease Payments in full pursuant to Sections„9.2 or, 9 3 or
posts the security deposit permitted by Section 9.1, or pays all Lease' Payments during
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the Term of this Lease as the same become due and payable, all right, title and interest
of the Board in and to the Facilities shall be transferred to and vested in the City. The
Board agrees to take any and all steps and execute and record any and all documents
reasonably required by the City to consummate any such transfer of title.
SECTION 4.12. Additional Payments. In addition to the Lease Payments, the
City shall pay when due all costs and expenses incurred by the Board to comply with the
provisions of the Trust Agreement, including without limitation all Costs of Issuance (to
the extent not paid from amounts on deposit in the Acquisition Fund), annual
compensation due to the Trustee and all of its reasonable costs payable as a result of. the
performance of and compliance with its duties under the Trust Agreement, and all costs
and expenses of auditors, engineers and accountants.
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ARTICLE V
COVENANTS REGARDING ENTERPRISE
SECTION 5.1. Maintenance, Utilities, Taxes and Assessments. Throughout
the Term of this Lease, as part of the consideration for the rental of the Facilities, all
improvement, repair and maintenance of the Facilities shall be the responsibility of the
City, and the City shall arrange for the payment of all costs of maintaining the Facilities
in good working order, and the cost of the repair and replacement of the .Facilities
resulting from ordinary wear and tear or want of care on the part of the City. In
exchange for the Lease Payments herein provided, the Board agrees to provide only the
Facilities, as hereinbefore more specifically set forth. The City waives the benefits of
subsections 1 and 2 of Section 1932, Section 1933(4) and Sections 1941 and 1942 of the
California Civil Code, but such waiver shall not limit any of the rights of the City under
the terms of this Lease.
The City shall also pay or cause to be paid all taxes and assessments of any type
or nature, if any, charged to the Board or the City affecting the Facilities or the
respective interests or estates therein; provided that with respect to special assessments
or other governmental charges that may lawfully be paid in installments over a period of
years, the City shall be obligated to pay only such installments as are required to be paid
during the Term of this Lease as and when the same become due. The City may, at the
City's expense and in its name, in good faith contest any such taxes, assessments, utility
and other charges and, in the event of any such contest, may permit the taxes,
assessments or other charges so contested to remain unpaid during the period of such
contest and any appeal therefrom. r
SECTION 5.2. Modification of Facilities. The City shall, at its own expense,
have the right to remodel the Facilities or to make additions, modifications and
improvements to the Facilities. All additions, modifications and improvements to the
Facilities shall thereafter comprise part of the Facilities and be subject to the provisions
of this Lease. Such additions, modifications and improvements shall not in any way
damage the Facilities or cause them to be used for purposes other than those authorized
under the provisions of state and federal law; and the Facilities, upon completion of any
additions, modifications and improvements made thereto pursuant to this Section, shall
be of a value which is not substantially less than the value of the Facilities immediately
prior to the making of such additions, modifications and improvements. The City will not
permit any mechanic's or other lien to be established or remain against any Facilities for
labor or materials furnished in connection with any remodeling, additions, modifications,
improvements, repairs, renewals or replacements made by the City pursuant to this
Section; provided that if any such lien is established and the City shall first notify or
cause to be notified the Board of the City's intention to do so, the City may in good faith
contest any lien filed or established against any Facilities, and in such event may permit.
the items so contested to remain undischarged and unsatisfied during the period of such
contest and any appeal therefrom and shall provide the Board with full security against
any loss or forfeiture which might arise from the nonpayment of any such item, in form
satisfactory to the Board. The Board will cooperate fully in any such contest, upon the
request and at the expense of the City.
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SECTION 5.3. Public Liability and Property Damage Insurance. The City
shall maintain or cause to be maintained, throughout the Term of this Lease, but only if
and to the extent available at reasonable cost from reputable insurers, a standard
comprehensive general insurance policy or policies in protection of the Board, the City,
and their respective members, officers, agents and employees. Said policy or policies
shall provide for indemnification of said parties against direct or contingent loss or
liability for damages for bodily and personal injury, death or property damage occasioned
by reason of the operation of the Enterprise. Said policy or policies shall provide
coverage in the minimum liability limits of $1,000,000 for personal injury or death of each
person and $3,000,000 for personal ,injury or deaths of two or more persons in each
accident or event (subject to a deductible of not to exceed $100,000), and in a minimum
amount of $150,000 (subject to a deductible of not to exceed $50,000) for damage to
property resulting from each accident or event. Such public liability and property
damage insurance may, however, be in the form of a single limit policy in the amount of
$3,000,000 covering all such risks, subject to&reasonable deductible,. Such liability
insurance may be maintained as part of or in conjunction with any other liability
insurance coverage carried by the City, and may be maintained in whole or in part in the
form of self-insurance by the City, subject to the provisions of SectionL5.5, or in the form
of the participation by the City in a joint powers agency or other program providing
pooled insurance. The proceeds of such liability insurance shall be applied toward
extinguishment or satisfaction of the liability with respect to whit such proceeds shall
have been paid.
SECTION 5.4. Casualty Insurance. The City shall procure and maintain, or
cause to be procured and maintained, throughout the Term of this Lease, but only in the
event and to the extent available from reputable insurers at reasonable cost, casualty
insurance against loss or damage to any improvements constituting any part of the
Enterprise, covering such hazards as are customarily covered with respect to works and
property of like character. Such insuranceNnay be subject to deductible clauses which
are customary for works and property of a like character. Such insurance may be
maintained as part of or in conjunction with any other casualty insurance carried by the
City and may be maintained in whole or in part in the form of self-insurance by the City,
subject to the provisions of Section, 5.5, or in the form of the participation by the City in a
joint powers agency or other program providing pooled insurance. All amounts collected
from insurance against accident to or destruction of any portion of the Facilities shall be
used to repair or rebuild such damaged or destroyed portion of the Facilities, and to the
extent not so applied, shall be paid to the Trustee to be applied to prepay the Lease
Payments on the next available prepayment date pursuant to Section 9.3.
f\ SECTION 5.5. Insurance Net Proceeds; Form of Policies. The City shall pay
or cause to be paid when due the premiums for all insurance policies required by this
Lease.NThe Trustee shall not be responsible for the sufficiency of any insurance herein
required and shall be fully protected in accepting payment on account of such insurance
or any adjustment, compromise or settlement of any loss. n In the event that any
insurance required pursuant to Sections 5.3 or 5.4 shall be provided in the form of self-
insurance, the City shall file with the Trustee annually, within ninety (90) days following
the close of each Fiscal Year, a statement of the risk manager of the City or of an
independent insurance advisor engaged by the City identifying the extent of such self. -
insurance and stating the determination that the City maintains sufficient reserves with
respect thereto. In the event that any such insurance shall be provided in the form of
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self insurance by the City, the City shall not be obligated to make any payment with
respect to any insured event except from Net Revenues or from such reserves.
SECTION 5.6. Eminent Domain. Any amounts received as awards as a result
of the taking of all or any part of the Enterprise by the lawful exercise of eminent
domain, at the election of the City (evidenced by a written certificate of the City
Representative filed with the Trustee and the Board) shall either (a) be used for the
acquisition or construction of improvements and extension of the Enterprise, or (b) be
paid to the Trustee for deposit into the Certificate Fund to be used to prepay the Lease
Payments on the next available prepayment date pursuant to Section 9.3.
SECTION 5.7. Records and Accounts. The City shall keep proper books of
record and accounts of the Enterprise, separate from all other records and accounts, in
which complete and correct entries shall be made of all transactions relating to the
Enterprise. Said books shall, upon prior request, be subject to the reasonable inspection
of the Owners of not less than ten percent (10%) of the Outstanding Certificates, or their
representatives authorized in writing. The City shall cause the books and accounts of the
Enterprise to be audited annually by an independent certified public accountant or firm
of certified public accountants, not more than one hundred eighty (180) days after the
close of each Fiscal Year, and shall make a copy of such report available for inspection by
the Certificate Owners at the office of the City and at the Trust Office of the Trustee.
The City shall cause to be published annually, not more than one hundred eighty
(180) days after the close of each Fiscal Year, a summary statement showing the amount
of Gross Revenues, the disbursements from Gross Revenues and from other funds of the
City in reasonable detail. The City shall furnish a copy of the statement to the Trustee
and, upon reasonable written request, to any Certificate Owner.
SECTION 5.8. Installation of City's Equipment. The City may at any time
and from time to time, in its sole discretion and at its own expense, install or permit to be
installed other items of equipment or other personal property in or upon the Facilities.
All such items shall remain the sole property of the City, in which neither the Board nor
the Trustee shall have any interest, and may be modified or removed by the City at any
time provided that the City shall repair and restore any and all damage to any Facilities
resulting from the installation, modification or removal of any such items. Nothing in
this Lease shall prevent the City from purchasing or leasing items to be installed
pursuant to this Section under a lease or conditional sale agreement, or subject to a
vendor's lien or security agreement, as security for the unpaid portion of the purchase
price thereof, provided that no such lien or security interest shall attach to any part of
the Facilities.
SECTION 5.9. Liens. The City shall not, directly or indirectly, create, incur,
assume or suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or
with respect to any Facilities, other than as herein contemplated. Except as expressly
provided in this Article, the City shall promptly, at its own expense, take such action as
may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge,
encumbrance or claim, for which it is responsible, if the same shall arise at any time.
The City shall reimburse the Board for any expense incurred by it in order to discharge
or remove any such mortgage, pledge, lien, charge, encumbrance or claim.
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ARTICLE VI
DISCIAMER, OF WARRANTIES; ACCESS
SECTION 6.1. Disclaimer of Warranties. The Board and the Trustee make no
warranty or representation, either express or implied, as to the value, design, condition,
merchantability or fitness for any particular purpose or fitness for the use contemplated
by the City of the Facilities, or any other representation or warranty with respect to the
Facilities. In no event shall the Board be liable for incidental, indirect, special or
consequential damages in connection with or arising out of this Lease or the Trust
Agreement for the existence, furnishing, functioning or City's use of the Facilities.
SECTION 6.2. Access to the Facilities. The City agrees that the Board and any
Board Representative, and the Board's successors or assigns, shall have the right at all
reasonable times to enter upon and to eYAmine and inspect the Facilities. The City
further agrees that the Board, any Board Representative and the Board's successors or
assigns shall have such rights of access to the Facilities as may be reasonably necessary
to. cause the proper maintenance of the Facilities in the event of failure by the City to
perform its obligations hereunder.
SECTION 6.3. Release and Indemnification Covenants. The City shall and
hereby agrees to indemnify and save the Board and the Trustee and their respective
officers, agents, successors and assigns harmless from and against all claims, losses and
damages, including legal fees and expenses, arising out of (a) the use, maintenance,
condition or management of, or from any work or thing done on the Facilities by the City,
(b) any breach or default on the part of the City in the performance of any of its
obligations under this Lease, (c) any negligence or willful misconduct of the City or of any
of its agents, contractors, servants, employees or licensees with respect to the Facilities,
(d) any act or negligence of any sublessee of the City with respect to the Facilities, or (e)
the acquisition of the Facilities or the authorization of payment of the Acquisition Costs.
No indemnification is made under this Section or elsewhere in this Lease for willful
misconduct, negligence, or breach of duty under this Lease by the Board or the Trustee,
or their respective officers, agents, employees, successors or assigns.
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A
ARTICLE VII
•
ASSIGNMENT, SUBLEASING AND AMENDMENT
SECTION 7.1. Assignment by the Board. The Board's rights under this Lease,
including the right to receive and enforce payment of the Lease Payments to be made by
the City under this Lease have been assigned to the Trustee pursuant to the Assignment
Agreement, to which assignment the City hereby consents.
SECTION 72. Assignment and Subleasing by the City. This Lease may not
be assigned by the City. The City may further sublease the Facilities or portion thereof,
but only with the written consent of the Board and subject to all of the following
conditions:
(a) This Lease and the obligation of the City to make Lease
Payments hereunder shall remain obligations of the City.
(b) The City shall, within thirty (30) days after the delivery thereof,
furnish or cause to be furnished to the Board and the Trustee a true and
complete copy of such sublease.
(c) No such sublease by the City shall cause the Facilities to be used
for a purpose other than as may be authorized under the provisions of the
laws of the State of California.
(d) The City shall furnish the Board and the Trustee with a written
opinion of Bond Counsel, stating that such sublease does not cause the
interest components of the Lease Payments to become subject to federal or
State Qf California personal income taxes.
SECTION 7.3. Sale of Enterprise. Except as provided herein, the City
covenants that the Enterprise shall not be encumbered, sold, leased, pledged, any charge
placed thereon, or otherwise dispose of, as a whole or substantially as a whole. Neither
the Net Revenues nor any other funds pledged or otherwise made available to secure
payment of the Lease Payments shall be mortgaged, encumbered, sold, leased, pledged,
any charge placed thereon, or disposed or used except as authorized by the terms of this
Lease. The City shall not enter into any agreement which impairs the operation of the
Enterprise or any part of it necessary to secure adequate Net Revenues to pay the Lease
Payments, or which otherwise would impair the rights of the Certificate Owners with
respect to the Net Revenues. If any substantial part of the Enterprise shall be sold, the
payment therefor shall either (a) be used for the acquisition or construction of
improvements, extensions or replacements of facilities constituting part of the Enterprise,
or (b) be paid to the Trustee for deposit into the Certificate Fund to be used to prepay the
Lease Payments on the nest available prepayment date pursuant to Section 9.2.
SECTION 7.4. Amendment of Lease Agreement. Without the prior written
consent of the Trustee, the City will not alter, modify or cancel, or agree or consent to
alter, modify or cancel this Lease, excepting only such alteration or modification as may
be permitted by Article IX of the Trust Agreement; provided, however, that the City and
the Board shall have the right to modify or amend this Lease without the consent of the
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•
Trustee or any of the Certificate Owners, but only if such amendment or modification
does not cause interest represented by the Certificates to be includable in gross income
for federal income tax purposes and only if such amendment or modification is for any
one or more of the following purposes -
(a) to add to the covenants and agreements of the City contained in
this Lease, other covenants and agreements thereafter to be observed, or to
limit or surrender any rights or power herein reserved to or conferred upon
the City, or
(b) to make such provisions for the purpose of curing any ambiguity,
or of curing, correcting or supplementing any defective provision contained
herein, or in any other respect whatsoever as the Board and the City may
deem necessary or desirable, provided under any circumstances that such
modifications or amendments shall not, in the opinion of Bond Counsel,
materially adversely affect the interests of the Owners of the Certificates;
or
(c) to amend any provision thereof relating to the Tax Code, to any
extent whatsoever but only if and to the extent such amendment will not
adversely affect the exclusion from gross income of interest represented by
any of the Certificates under the Tax Code, in the opinion of Bond Counsel.
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ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1. Events of Default Defined. The following shall be Events of
Default under this Lease:
(a) Failure by the City to pay any Lease Payment when due and
payable hereunder.
(b) Failure by the City to pay any amounts (other than Lease
Payments) when due and payable hereunder, and the continuation of such
failure for a period of ten (10) days.
(c) Failure by the City to observe and perform any covenant,
condition or agreement on its part to be observed or performed, other than
as referred to in the preceding clauses (a) or (b), for a period of sixty (60)
days after written notice specifying such failure and requesting that it be
remedied has been given to the City by the Agency or the Trustee;
provided, however, that if in the reasonable opinion of the City the failure
stated in the notice can be corrected, but not within such 60 -day period,
such failure shall not constitute an Event of Default hereunder if the City
shall commence to cure such failure within such sixty (60) day period and
thereafter diligently and in good faith cure such failure in a reasonable
period of time.
(d) Commencement.by the City of a voluntary case under Title 11 of
the United States Code or any substitute or successor statute.
SECTION 82. Remedies on Default. Whenever any Event of Default shall
have happened and be continuing, the Board may exercise any or all remedies available
pursuant to law or granted pursuant to this Lease.NEach and every covenant hereof to be
kept and performed by the City is expressly made a condition and upon the breach
thereof the Board may exercise any and all rights of entry and re-entry upon the
Facilities, and also, at its option, with or without such entry, may terminate this Lease;
provided, that no such termination shall be effected either by operation of law or acts of
the parties hereto, except only in the manner herein expressly provided. If any Event of
Default and upon any entry or re-entry by the Board, the City shall, as herein expressly
provided, continue to remain liable for the payment of the Lease Payments and/or
damages for breach of this Lease and the performance of all conditions herein contained
and, in any event such rent and/or damages shall be payable to the Board at the time
and in the manner as herein provided, to wit:
(a) In the event the Board terminates this. Lease in the manner hereinafter
provided for in subparagraph (b) hereof, the City agrees to and shall remain liable for the
payment of all Lease Payments and the performance of all conditions herein contained
and shall reimburse the Board for any deficiency arising out of the re-leasing of the
Facilities, or, in the event the Board is unable to re -lease the Facilities, then for the full
amount of all Lease Payments to the end of the Term of this Lease, but said Lease
Payments and/or deficiency shall be payable only at the same time and in the same
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manner as hereinabove provided for the payment of Lease Payments hereunder,
notwithstanding such entry or re-entry by the Board or any suit in unlawful detainer, or
otherwise, brought by the Board for the purpose of effecting such re-entry or obtaining
possession of the Facilities or the exercise of any other remedy by the Board. The City
hereby irrevocably appoints the Board as the agent and attorney-in-fact of the City to
enter upon and re -lease the Facilities upon the occurrence of an Event of Default and to
remove all personal property whatsoever situated upon the Facilities to place such
property in storage or other suitable place in the County of San Luis Obispo for the
account of and at the expense of the City, and the City hereby exempts and agrees to
save harmless the Board from any costs, loss or damage whatsoever arising or occasioned
by any such entry upon and re-leasing of the Facilities and the removal and storage of
such property by the Board or its duly authorized agents in accordance with the
provisions herein contained. The City hereby waives any and all claims for damages
caused or which may be caused by the. Board in re-entering and taking possession of the
Facilities as herein provided and all claims for damages that may result from the
destruction of or injury to the Facilities and all claims for damages to or loss of any
property belonging to the City that may be in or upon the Facilities. The City agrees that
the terms of this Lease constitute fall and sufficient notice of the right of the Board to re-
lease the Facilities in the event of such re-entry without effecting a surrender of this
Lease, and further agrees that no acts of the Board in effecting such re-leasing shall
constitute•a surrender or termination of this Lease irrespective of the term for which such
re-leasing is made or the terms and conditions of such re-leasing, or otherwise, but that,
on the contrary, in the event of such Event of Default by the City the right to terminate
this Lease shall vest in the Board to be effected in the sole and exclusive manner
hereinafter provided for in subparagraph (b) hereof. The City further waives the right to
any rental obtained by the Board in excess of the Lease Payments and hereby conveys
and releases such excess to the Board as additional rental hereunder.
(b) In an Event of Default, with the written consent of the Board may
terminate this Lease and re -lease all or any portion of the Facilities; provided that any
such termination shall not operate to terminate the rights and remedies granted to the
Board pursuant to this Article VIII. In the event of the termination of this Lease by the
Board and in the manner hereinafter provided on account of an Event of Default by the
City (and notwithstanding any re-entry upon the Facilities by the Board in any manner
whatsoever or the re-leasing of the Facilities), the City nevertheless agrees to pay to the
Board all costs, loss or damages howsoever arising or occurring payable at the same time
and in the same manner as is herein provided in the case of payment of Lease Payments.
Any surplus received by the Board from such re-leasing shall be credited towards the
Lease Payments next coming due and payable. Neither notice to pay rent or to deliver up
possession of the premises given pursuant to law nor any proceeding in unlawful detainer
taken by the Board shall of itself operate to terminate this Lease, and no termination of
this Lease on account of an Event of Default by the City shall be or become effective by
operation of law, or otherwise, unless and until the Board shall have given written notice
to the City of the election on the part of the Board to terminate this Lease. The City
covenants and agrees that no surrender of the Facilities or of the remainder of the Term
hereof or any termination of this Lease shall be valid in any manner or for any purpose
whatsoever unless stated or accepted by the Board by such written notice.
SECTION 8.& Appointment of Receiver. Upon the occurrence of an Event of
Default hereunder, and upon the filing of a suit or other commencement of judicial
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proceedings to enforce the rights of the Trustee or of the Certificate Owners hereunder,
the Trustee shall be entitled, as a matter of right, for the equal and proportionate benefit
of the Owners of all the Outstanding Certificates, to the appointment of a receiver or
receivers of the Net Revenues and other moneys pledged hereunder, pending such
proceedings, with such powers as the court making such appointment shall confer.
SECTION 8.4. No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Board is intended to be exclusive and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this Lease or now
or hereafter existing at law or in equity. No delay or omission to exercise any right or
power accruing upon any Event of Default shall impair any such right or power or shall
be construed to be a waiver thereof, but any such right and power may be exercised from
time to time and as often as may be deemed expedient. In order to entitle the Board.to
exercise any remedy reserved to it in this Article it shall not be necessary to give any
notice, other than such notice as may be required in this Article or by law.
SECTION 8.5. Agreement to Pay Attorneys' Fees and Expenses. In the event
either party to this Lease should default under any of the provisions hereof and the
nondefaulting party should employ, but any such right and power may be exercised from
time to time and as often as may be deemed expedient. In order to entitle the Board to
exercise any remedy reserved to it in this Article it shall not be necessary to give any
notice, other than attorneys or incur other expenses for the collection of moneys or the
enforcement or performance or observance of any obligation or agreement on the part of
the defaulting party herein contained, the defaulting party agrees that it will on demand
therefor pay to the nondefaulting party the reasonable fees of such attorneys and such
other expenses so incurred by the nondefaulting party.
SECTION M. No Additional Waiver Implied by One Waiver. In the event
any agreement contained in this Lease should be breached by either party and thereafter
waived by the other party, such waiver shall be limited to the particular breach so
waived and shall not be deemed to waive any other breach hereunder.
SECTION 8.7. Application of Proceeds. All net proceeds received from the re-
lease of the Facilities under this Article VIII, and all other amounts derived by the Board
or the Trustee as a result of an Event of Default hereunder, shall be transferred to the
Trustee promptly upon receipt thereof and shall be deposited by the Trustee in the
Certificate Fund to be applied to the Lease Payments in order of Lease Payment Date.
SECTION 8.8. Trustee and Certificate Owners to Exercise Rights. Such
rights and remedies as are given to the Board under this Article VIII have been assigned
by the Board to the Trustee under the Assignment Agreement, to which assignment the
City hereby consents. Such rights and remedies shall be exercised by the Trustee and
the Owners of the Certificates as provided in the Trust Agreement.
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ARTICLE IX
PREPAYMENT OF LEASE PAYMENTS
SECTION 9.1. Security Deposit. Notwithstanding any other provision of this
Lease, the City may on any date secure the payment of Lease Payments in whole or in
part by irrevocably depositing with the Trustee or any other fiduciary an amount of cash
which, together with amounts on deposit in the Certificate Fund, the Insurance and
Condemnation Fund and the Reserve Fund, is either (a) sufficient to pay all such Lease
Payments, including the principal and interest components thereof, in accordance with
the Lease Payment schedule set forth in Exhibit A, or (b) invested in whole or in part in
Federal Securities in such amount as will, in the opinion of an independent certified
public accountant, together with interest to accrue thereon and together with any cash
which is so deposited, be fully sufficient to pay all such Lease Payments when due
pursuant to Section 4.4(a) or when due on any optional prepayment date pursuant to
Section 9.2, as the City shall instruct at the time of said deposit. In the event of a
security deposit pursuant to this Section with respect to all of the Lease Payments, all
obligations of the City under this Lease, and all security provided by this Lease for said
obligations, shall cease and terminate, excepting only the obligation of the City to make,
or cause to be made, all of such Lease Payments from such security deposit, and title to
the Facilities shall vest in the City on the date of said deposit automatically and without
further action by the City or the Board. Said security deposit shall be deemed to be and
shall constitute a special fund for the payment of Lease Payments in accordance with the
provisions of this Lease.
SECTION 9.2. Optional Prepayment. The City may exercise its option to
exercise its option to prepay the principal components of the Lease Payments in whole, or
in Dart►amone Lease Pavmant 'natac in enr}i in+&a l ,,,,,14:,.1. ..r @c nnn ,._ �ti_ n_.— —___
aesienate in written notice to the Trustee on any date on or after June 1,1997, by
Paying a prepayment price equal to the aggregate principal components of the Lease
Payments to be prepaid, together with the interest component of the Lease Payment
required to be paid on or accrued through such date j� Such prepayment price shall be
deposited by the Trustee in the Certificate Fund to be applied to the prepayment of
Certificates pursuant to Section 3.01(a) of the Trust Agreement. The City shall give the
Trustee notice of its intention to exercise its option not less than forty-five (45) days in
advance of the date of exercise.
SECTION 9.3. Mandatory Prepayment From Net Proceeds of Insurance or
Eminent Domain. The City shall be obligated to prepay the Lease Payments in whole,
or in part among Lease Payment Dates on a pro rata basis in any integral multiple of
$5,000, on any date from and to the extent of any Net Proceeds of insurance award or
condemnation award with respect to the Enterprise theretofore deposited in the
Certificate Fund for such purpose pursuant to Sections 5.4 or, 5.6. The City and the
Board hereby agree that such Net Proceeds, to the extent remaining after payment of any
delinquent Lease Payments, shall be credited towards the City's obligations under this
Section 9.3.
SECTION 9.4. Credit for Amounts on Deposit. In the event of prepayment of
the principal components of the Lease Payments in full under this Article M such that
the Trust Agreement shall be discharged by its terms as a result of such prepayment, all
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amounts then on deposit in the Certificate Fund, the Acquisition Fund or the Reserve
Fund shall be credited towards the amounts then required to be so prepaid.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1. Notices. All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed to have been received 48 hours
after deposit in the United States mail in registered or certified form with postage fully
prepaid:
If to the City: Director of Finance
City of San Luis Obispo .
990 Palm Street
San Luis Obispo, California 93401
If to the Board: Chief Financial Officer
City of San Luis Obispo
Capital. Improvement Board
990 Palm Street
San Luis Obispo, California 93401
If to the Trustee: Security Pacific National Bank
333 South Beaudry Avenue, 24th Floor
Los Angeles, California 90017
Attention: Corporate Services Division W24-
30
SECTION 102. Binding Effect. This Lease shall inure to the benefit of and
shall be binding upon the Board and the City and their respective successors and assigns.
SECTION 10.3. Severability. In the event any provision of this Lease shall be
held invalid or unenforceable by any court of competent jurisdiction, such holding shall
not invalidate or render unenforceable any other provision hereof.
SECTION 10.4. Net—net—net Lease.. This Lease shall be deemed and construed
to be a "net -net -net lease" and the City hereby agrees that the Lease Payments shall be
an absolute net return to the Board, free and clear of any expenses, charges or set -offs
whatsoever.
SECTION 10.5. Further Assurances and Corrective Instruments. The Board
and the City agree that they will, from time to time, execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, such supplements hereto and such
further instruments as may reasonably be required for correcting any inadequate or
incorrect description of the Facilities hereby leased or intended so to be or for carrying
out the expressed intention of this Lease.
SECTION 10.6. Execution in Counterparts. This Lease 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.
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M0J
SECTION 10.7. Applicable Law. This Lease shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 10.8. Board and City Representatives. Whenever under the
provisions of this Lease the approval of the Board or the City is required, or the Board or
the City is required to take some action at the request of the other, such approval or such
request shall be given for the Board by a Board Representative and for the City by a City
Representative, and any party hereto shall be authorized to rely upon any such approval
or request.
SECTION 10.9. Captions. The captions or headings in this Lease are for
convenience only and in no way define, limit or describe the scope or intent of any
provisions or Section of this Lease.
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X
E
IN WITNESS WHEREOF, the, Board and the City have caused this Lease to be
executed in their respective names by their duly authorized officers, all as of the date
first above written.
(S E A L)
Attest:
By:
Secretary
Attest:
By:
City Clerk
CITY OF SAN LUIS OBISPO CAPITAL
IMPROVEMENT BOARD, as lessor
By
Executive Director
CITY OF SAN LUIS OBISPO, as lessee
By
City Administrative Officer
—28—
Lease Payment
Date
o
EDIT A
SCHEDULE OF LEASE PAYMENTS
Principal
Component
May 25, 1989 $
November 25, 1989
May 25, 1990
November 25, 1990
May 25, 1991
November 25, 1991
May 25, 1992
November 25, 1992
May 25, 1993
November 25, 1993
May 25, 1994
November 25, 1994
May 25, 1995
November 25, 1995
May 25, 1996
November 25, 1996
May 25, 1997
November 25, 1997
May 25, 1998
November 25, 1998
May 25, 1999
November 25, 1999
May 25, 2000
November 25, 2000
May 25, 2001
November 25, 2001
May 25, 2002
November 25, 2002
May 25, 2003
November 25, 2003
May 25, 2004
November 25, 2004
May 25, 2005
November 25, 2005
May 25, 2006
November 25, 2006
May 25, 2007
November 25, 2007
May 25, 2008
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Interest
Component
$
$
Lease
Payment
E
0
DESCRIPTION OF FACII.ITIES
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28026-10 dHHW:CFA:dth November 10, 1088 F8182
O •
MARKED TO SHOW CHANGES
OFFICIAL NOTICE OF SALE
$5,000,000
CERTIFICATES OF PARTICIPATION
Evidencing the Direct, Undivided Fractional Interests
of the Owners Thereof in Lease Payments to be Made by the
CITY OF SAN LUIS OBISPO
NOTICE IS HEREBY GIVEN that sealed proposals will be received by a
representative of the of the City of San Luis Obispo at the office of Jones Hall Hill &
White, A Professional Law Corporation, Four Embarcadero Center, Suite 1950, San
Francisco, California 94111, on
TUESDAY, DECEMBER 13, 1988
at 10:00 a.m. (California Time) for the purchase of $5,000,000 principal amount of
Certificates of Participation (the "Certificates") evidencing the direct, undivided fractional
interests of the owners thereof in lease payments (the "Lease Payments') to be made by
the City of San Luis Obispo (the "City") as the rental for certain property pursuant to a
Lease Agreement dated as of December 1, 1988, (the "Lease Agreement') by and between
the City and the City of San Luis Obispo Capital Improvement Board, a public body
corporate and politic duly organized and existing under Ordinance No. 1059 (1986 Series)
adopted by the City Council of the City on April 15, 1986 (the "Board"). The Certificates
will be executed and delivered under the provisions of a Trust Agreement dated as of
December 1, 1988, (the "Trust Agreement') among the City, the Board and Security
Pacific National Bank as trustee (the "Trustee"). The Certificates are more particularly
described in the proposed form of the Trust Agreement and the Lease Agreement on file
with the City Clerk of the City (which is incorporated herein by reference) and copies
thereof will be furnished to any interested bidder upon request.
ISSUE; BOOK ENTRY SYSTEM: The Certificates will be issued in fully
registered form in denominations of $5,000 or authorized integral multiples thereof, to be
dated initially as of December 1, 1988. The Certificates will be issued initmll under the
book -entry system of The Depository Trust Company of New York, New York ("DTC"),
and the ownership of the Certificates will be registered to the nominee of DTC. Bidders
are referred to the Official Statement for further details.
i
MATURITIES: The Certificates will mature on June 1 in each of the years, and
in the amounts, as follows:
Year
Principal
Year
Principal
June 1
Amount
June 1
Amount
1989
$120,000
1995
$ 180,000
1990
130,000
1996
190,000
1991
140,000
1997
205,000
1992
145,000
1998
220,000
1993
155,000
2003
1,370,000
1994
165,000
2008
1,980,000
OPTIONAL PREPAYMENT: Certificates maturing on or before June 1, 1997,
are not subject to prepayment before their respective stated maturities. Certificates
maturing on or after June 1, 1998, are subject to prepayment before their respective
stated maturities in whole, or in partA!Lnong maturities in such amounts as the City shall
designate andby lot within a maturity, from optional prepayments of the Lease
Payments made by the City from any source of available funds, on any date on or after
June 1, 1997, at a prepayment price equal to 100% of the principal amount to be prepaid,
together with accrued interest represented thereby to the date fined for prepayment. r.
SINKING FUND PREPAYMENT: The Certificates maturing on June 1, 2003,
and the Certificates maturing on June 1. 2008 (collectively, the "Term Certificates") are
also subject to prepayment in whole, or in part by lot, on any June 1 on or after June 1,
1999, from regular scheduled principal components of the Lease Payments required to
paid by the City with respect to such dates pursuant to the Lease Agreement, at a
prepayment price equal to 100% the principal amount to be prepaid, together with
accrued interest represented thereby to the date fixed for prepayment, as follows:
$1,370,000 Term Certificates Maturing. June 1, 2003
Sinking Fund.
Prepayment Date Principal Amount
(June 1) to be Prepaid
1999
$235,000
2000
255,000
2001
270,000
2002
295,000
2003 (Maturity)
315,000
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$1,980,000 Term Certificates Maturing June 1, 2008
Sinldng Fund
Prepayment Date Principal. Amount
(June 1) to be Prepaid
2004
$340,000
2005
365,000
2006
395,000
2007
425,000
2008 (Maturity)
455,000
PREPAYMENT FROM NET PROCEEDS OF INSURANCE AND
CONDEMNATION. The Certificates are subject to mandatory prepayment on any date,
in whole, or in part among maturities on a pro rata basis and by lot within a maturity,
from the proceeds of insurance or eminent domain proceedings credited towards the
prepayment of the Lease Payments by the City pursuant to the Lease Agreement, at a
prepayment price equal to 100% the principal amount to be prepaid, together with
accrued interest represented thereby to the date fixed for prepayment.
PAYMENT: Both principal and interest represented by the Certificates are
payable in lawful money of the United States of America, upon presentation and
surrender at the corporate trust office of the Trustee in Los Ange es, ornia, in the
case of principal and by check or draft of the Trustee mailed to the registered owner of
each Certificate (being DTC through its nominee, so long as the Certificates are subiect to
PURPOSE: The proceeds of the Certificates are to be applied to finance the
acquisition by the Board from the City of certain facilities (the "Facilities') constituting a
part of the water enterprise of the City (the "Enterprise") pursuant to an Acquisition
Agreement dated as of December 1, 1988. The Facilities will be leased by the Board to
the City pursuant to the Lease Agreement. The City will use the proceeds of sale of the
Facilities to finance additional improvements to the Enterprise.
SECURITY: The Certificates evidence a direct, undivided fractional interest in
the Lease Payments. The Lease Payments are payable solely from and are secured by a
fust lien on and pledge of the Net Revenues (as such term is defined in the Lease
Agreement) of the Enterprise,nas more fully set forth in the Lease Agreement. Bidders
are referred to the Lease Agreement and the Official Statement for further details.
TAX—EXEMPT STATUS: In the opinion of Jones Hall Hill & White, A
Professional Law Corporation, special counsel to the City, interest represented by the
Certificates is not includable in gross income for federal income tag purpose, and is not
an item of tax preference for purposes of the federal individual and corporate alternative
minimum taxes. The Lease Agreement is a "qualified tax-exempt obligation" within the
meaning of Section 265 of the Internal Revenue Code of 1986. In the event that prior to
the delivery of the Certificates. (a) the interest on other obligations of the same type and
character is declared to be includable in gross income (either at the time of such
declaration or at any future date) under any federal income tax laws, either by the terms
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of such laws or by ruling of a federal income tag authority or official which is followed by
the Internal Revenue Service, or by decision of any federal court, or (b) any federal
income tag law is enacted which will have a substantial adverse effect upon the owners of
the Certificates as such, the successful bidder may; at its option, prior to the tender of
the Certificates, be relieved of its obligation under the contract to purchase the
Certificates, and in such case the deposit accompanying its bid will be returned.
LEGAL OPINION: The legal opinion of Jones Hall Hill & White, A Professional
Law Corporation, San Francisco, California, approving the validity of the Certificates, the
Trust Agreement and the Lease Agreement, will be furnished to the successful bidder
without cost. A copy of the .legal opinion, certified by the official in whose office the
original is filed, will be printed on each Certificate without charge to the successful
bidder.
TERMS OF SALE
FORM OF BID; MAXIMUM DISCOUNT: All bids must be for not less than all
of the Certificates and for not less than ninety-eight percent (98%) of the par value
thereof and accrued interest thereon to the delivery date. The amount of any discount
specified in any bid may not exceed two percent (2%) of the aggregate principal amount of
the Certificates. Each bid, together with bidder's check, must be enclosed in a sealed
envelope addressed to the City with the envelope and bid clearly marked "Proposal for
Purchase of of the City of San Luis Obispo 1988 Certificates of Participation". Each bid
must be in accordance with the terms and conditions set forth in this notice, and all of
the terms and conditions of this notice will be deemed to be incorporated into each of the
bids. Bids may be mailed or delivered to the City, in care of Jones Hall Hill & White, at
the address mentioned above, but must be received by the date and time of sale set forth
above.
IN'T'EREST RATE: Bidders must specify the rate or rates of interest to be
represented by the Certificates.n Interest represented by the Certificates is payable on
June 1, 1989, and thereafter semiannually on June 1 and December 1 in each year.
Bidders will be permitted to bid different rates of interest; but (a) each interest rate
specified in any bid must be in a multiple of one -twentieth or one-eighth of one percent;
(b) no Certificate may represent more than one rate of interest; (c) interest represented
by each Certificate will accrue from December 1, 1988, to its stated maturity date at the
interest rate specified in the bid, payable semiannually as set forth above; (d) all
Certificates maturing at any one time will represent the same rate of interest; (e)Athe rate
of interestAM sented by Certificates maturing in any one year must be greater than or
equal to the rate of interest borne by the Certificates maturing in the immediately
preceding year; and (f)jyny premium must be paid as part of the purchase price, and no
bid will be accepted which contemplates the waiver of any interest or other concession by
the bidder as a substitute for payment in full of the purchase price.
BEST BID: The best bid will be determined by deducting the amount of the
premium bid (if any) from, and adding the amount of the discount bid (if any) to, the total
amount of interest which would be required to be paid on the Certificates from December
1, 1988, to their respective maturity dates, or in the case of the Term Certificates to their
respective sinking account prepayment dates set forth above, at the respective interest
-4-
t rates specified in the bid, on the basis of the lowest net interest cost determined thereby.
The purchaser must pay accrued interest, computed on a 30—day month, 360—day year
basis, from December 1, 1988, to the date of delivery.
RIGHT OF REJECTION: The City reserves the right, in its sole discretion, (a)
to determine whether any bid or bidder is responsible, (b) to reject any and all bids with
or without cause, and (c) to waive any irregularity or informality in any bid, without
regard to the degree of materiality thereof.
ACCEPTANCE OF BID: On behalf of the City and pursuant to prior
authorization from the City Council, the Director of Finance of the City will accept a bid
for the Certificates in writing or will reject all bids not.later than twenty—four (24) hours
after the expiration of the time herein prescribed for the receipt of bids, unless such time
of award is waived by the successful bidder. Notice of the acceptance of any bid will be
given promptly to the successful bidder.
DELIVERY AND PAYMENT: Delivery of the Certificates will be made to the
successful bidder on a date (not later than Decemberti0, 1988) to be determined by the
City, at such place as the bidder may request at least four (4) days prior to delivery. The
Certificates will be printed with either a steel—engraved or lithographed border, at the
option of the City; and the cost of printing the Certificates will be borne by the City.
Payment of the purchase price for the Certificates must be made by Federal Reserve
funds check which is immediately available to the Trustee. Any expense in providing
immediately available funds will be borne by the purchaser.
RIGHT OF CANCELLATION: The successful bidder has the right, at its
option, to cancel the contract of purchase if the Trustee fails to execute and deliver the
Certificates within 60 days from the date of sale thereof, and in such event the successful
bidder will be entitled to the return of the good faith check accompanying its bid.
GOOD FAITH CHECK: A certified or cashier's check drawn on a bank or trust
company having an office in Los Angeles, California, or in San Francisco, California, in
the amount of $100,000, ayable to the order of the City, must accompany each proposal
as a guaranty the bidder, if successful, will accept and pay for the Certificates in
accordance with the terms of its bid. The check accompanying any accepted proposal will
be retained by the City pending delivery of the Certificates and will be surrendered to the
purchaser against payment in full of the purchase price of the Certificates. If the
successful bidder fails to complete its purchase on the terms stated in its proposal or
repudiates its obligation to make such purchase, the check will be cashed and the amount
thereof retained by the City. The check accompanying each unaccepted proposal will be
made available for recovery by each unsuccessful bidder at its expense. No interest will
be paid upon the deposit made by any bidder.
STATEMENT OF NET INTEREST RATE: Each bidder is requested, but not
required, to state in its bid the total net interest cost and the percentage net interest rate
represented by the bid, which will be informative only and not binding on either the
bidder or the City.
CALIFORNIA DEBT ADVISORY COMMISSION: The City has duly notified
the California Debt Advisory City of the proposed sale of the Certificates. Payment of all
M-2
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L fees to the California Debt Advisory City in connection with the sale and issuance of the
Certificates are the sole responsibility of the successful bidder, and not of the City or the
Board.
NO LITIGATION: There is no litigation pending concerning the validity of the
Certificates, the corporate existence of the City or the Board or the entitlement of the
officers thereof to their respective offices, and the successful bidder will be furnished a
no—litigation certificate certifying to the foregoing as of and at the time of delivery of the
Certificates.
CUSIP NUMBERS: It is anticipated that CUSIP numbers will be printed on the
Certificates, but neither the failure to print such numbers on any Certificates nor any
error with respect thereto will constitute cause .for a failure or refusal by the purchaser
thereof to accept delivery of and pay for the Certificates in accordance with the terms
hereof. All charges for the assignment of said numbers will be borne by the purchaser.
OFFICIAL STATEMENT: The City and the Board have approved an Official
Statement relating to the Certificates, and will makea reasonable number of copies, not
to exceed 250, available to the successful bidder, provided that the purchaser may, at its
cost, receive any amount of the copies of the -Official Statement in.egces"s of 250 copies. A
copy of the preliminary Official Statement and any other information concerning the
proposed financing. will be furnished upon request to the financial consultants of the City,
Evensen Dodge, Inc., 650 Town Center Drive, Costa Mesa, California 92626, telephone:
(714) 755-8016.
Dated: November 15, 1988
CITY OF SAN LUIS OBISPO
By /s/ William C. Statler
Director of Finance
of the City of San Luis Obispo
Q3
NEW ISSUE Rating: Requested from Moody's
Investors Service, Inc.
(See "Rating" herein)
In the •opinion of Jones Hall Hill & White, A Professional Law
Corporation, San Francisco, California, Special Counsel, subject,
however to certain qualifications described herein, under existing law,
the portion of lease payments designated as and comprising interest and
received by the owners of the Certificates is excluded from gross
income for federal income tax purposes, such interest is not an item of
tax preference for purposes of the federal individual and corporate
alternative minimum taxes, although it is included in adjusted net book
income and current earnings in computing the alternative minimum tax
imposed on certain corporations and the Lease Agreement is a "qualified
tax-exempt obligation" within the meaning of Section 265 of the
Internal Revenue Code of 1986. In the further opinion of Special
Counsel, such interest is exempt from California personal income taxes.
See "TAS ESEMPTION19 herein.
OFFICIAL STATEMENT
$5,000,000
CERTIFICATES OF PARTICIPATION
Representing Direct, Undivided Fractional
Interests of the Owners Thereof in Lease
Payments to be Made by the
CITY OF SAN LUIS OBISPO
Dated: December 1, 1988
Principal Due: June 1, 1989-2008
Interest represented by the Certificates is payable on June 1 and
December 1 of each year commencing June 1, 1989. The Certificates will
be delivered as fully registered Certificates without coupons, and,
when delivered, will be registered in the name of Cede & Co., as
nominee of the Depository Trust Company, New York, New York ("DTC").
DTC will act as securities depository of the Certificates. Individual
purchases may be made in book -entry form only, in the principal amount
of $5,000 or integral multiples thereof for each maturity. Purchasers
will not receive certificates representing their interest in the
Certificates purchased. Principal and interest will be paid to DTC,
which will in turn remit such principal and interest to its
participants for subsequent dispersal to the beneficial owners of the
Certificates as described herein.
The Certificates will mature on June 1 in the years and amounts as set
forth below.
$1,650,000 Serial Certificates
Year
Amount
Year
Amount
1989
$120,000
1994
$165,000
1990
130,000
1995
1801000
1991
140,000
1996
190,000
1992
145,000
1997
205,000
1993
155,000
1998
220,000
$11,370,000 Term Certificates Due June 1, 2003
$1,980,000 Term Certificates Due June 1, 2008
as
The Certificates are subject to prepayment as described herein.
Bids must be for not less than $4,900,000 and accrued interest
represented by the Certificates, and must be accompanied by a good
faith check in the amount of $100,000, payable to the City of San Luis
Obispo.
The Certificates are being delivered to finance the acquisition of
certain existing water system capital facilities (the "Facilities")
pursuant to a an Acquisition Agreement dated as of December 1, 1988 by
and between the City as seller and the City of San Luis Obispo Capital
Improvement Board (the "Board") as purchaser. The Facilities will be
leased pursuant to a Lease Agreement (the "Lease Agreement"), dated
December 1, 1988, by and between the City of San Luis Obispo as lessee
and the Board as lessor. See "The Facilities" herein..
The Certificates represent direct undivided fractional interests of the
owners in lease payments to be made by the City under the Lease
Agreement (the "Lease Payments"). The City has covenanted under the
Lease Agreement that it will take such action as may be necessary to
include the Lease Payments due under the Lease Agreement in its
annual budgets, and to make the necessary annual appropriations there-
fore. Neither the Certificates nor the obligation of the City to make
Lease Payments constitutes an obligation of the City or Board for which
the City is obligated to levy or pledge any form of taxation or for
which the City has levied or pledged any form of taxation. The Board
has no taxing power. Neither the Certificates nor the obligation of
the City to make Lease Payments under the Lease Agreement constitute a
debt of the City, the County of San Luis Obispo, the State of
California or any of its political subdivisions within the meaning of
any constitutional or statutory debt limitation or restriction.
The Certificates are offered, subject to approval of validity and tax
exemption, by Jones Hall Hill & White, A Professional Law Corporation,
San Francisco, California, Special Counsel. Delivery of the
Certificates in San Francisco, California is expected to be on or about
December 29, 1988.
The Lease Agreement has been designated as a "Qualified Tax -Exempt
Obligation" pursuant to Section 265(b)(3) of the Internal Revenue Code
of 1986.
BIDS RECEIVED: 10:00 A.M., Pacific Time, Tuesday, December 13,
1988 at the offices of Jones Hall 'Hill & White, A
Professional Law Corporation, Four Embarcadero
Center, Suite 1950, San Francisco, California
94111.
AWARD: In writing within 24 hours of receipt of bids by
the City Director of Finance on behalf of the City
and pursuant to prior authorization from the City
Council.
The date of this Preliminary Official Statement is November 23, 1988.
CA21.88A1/2
This Official Statement does not constitute an offer to sell the
Certificates in any state or other jurisdiction to any person to whom
it is unlawful to make such offer in such state or jurisdiction. No
dealer, salesman, or any person has been authorized to give any
information or to make any representation other than those contained
herein in connection with the offering of the Certificates, and if ,
given or made, such information or representation must not be relied
upon.
The information set forth herein has been furnished by the Board and
the City and other sources which are believed to be reliable, but it is
not guaranteed as to accuracy or completeness by, and is not to be
construed as a representation by the Board or the City or anyone acting
on its behalf. The information and expressions of opinion herein are
subject to change without notice and neither the delivery of this
Official Statement nor any sale of the Certificates made hereunder
shall, under the circumstances, except as stated herein, create any
implication that there has been no change in the affairs of the Board
or the City since the date hereof.
The Certificates have not been registered under the Securities Act of
1933, in reliance upon exemptions contained in the Securities Act.
TABLE OF CONTENTS
ii
CA21.88A1/3
CITY OF SAN LUIS OBISPO CAPITAL IMPROVEMENT BOARD
CITY OF SAN LUIS OBISPO, CALIFORNIA
Governing Body of the Board
and the City Council
Expiration of Term
Ron Dunin
Mayor and President
November,
1989
Penny Rappa Vice
Mayor and Vice President
November,
1989
Peg Pinard
Member
November,
1991
Jerry Reiss
Member
November,
1991
Allen K. Settle
Member
November,
1989
City Officials
John Dunn
Administrative Officer
Toby A. Ross
Assistant Administrative Officer
Roger T. Picquet
City Attorney
William C. Statler Director of Finance
Pam Voges
City Clerk
William Hetlund
Director of Utilities
Special Counsel
Jones Hall Hill & White, A Professional Law Corporation
San Francisco, California
Trustee
Security Pacific National Bank
Los Angeles, California
Financial Advisor
Evensen Dodge, Inc.
Costa Mesa, California
San Francisco, California
iii
CA21.88A1/4
s
E
OFFICIAL STATEMENT
$5,000,000
CERTIFICATES OF PARTICIPATION
.Representing Direct, Undivided Fractional
Interests of the Owners Thereof in Lease
Payments to be Made by the
CITY OF SAN LUIS OBISPO
INTRODUCTION
The purpose of this Official Statement is to provide certain
information concerning the $5,000,000 Certificates of Participation
(the "Certificates") representing the direct, individual fractional
interests of the owners thereof in lease payments to be made by the
City of San Luis Obispo (the "City") pursuant to a Lease Agreement
dated as of December 1, 1988 (the "Lease Agreement") between the City
as lessee and the City of San Luis Obispo Capital Improvement Board
(the "Board") as lessor.
The Board is a public body corporate and politic created by the City
pursuant to its municipal affairs powers as a charter city as exercised
pursuant to Ordinance No. 1059 (1986 Series) adopted. by the City
Council of the City on April 15, 1986. The Certificates are being
delivered pursuant to a Trust Agreement, dated December 1, 1988 (the
"Trust Agreement"), by and between the Board and Security Pacific
National Bank as trustee (the "Trustee").
The proceeds of the Certificates will be used to finance the acquisi-
tion by the Board of certain existing facilities (the "Facilities")
consisting of a part of the City's water system (the "Enterprise")
pursuant to an Acquisition Agreement dated as .of December 1, 1988, by
and between the. City, as seller and the Board, as purchaser (the
"Acquisition Agreement").
Pursuant to an Assignment Agreement, dated as of December 1, 1988 (the
"Assignment Agreement"), the Board has assigned to the Trustee, for the
benefit of the owners of the Certificates, certain rights of the Board
under the Lease Agreement including its right to (i) to receive and
collect the Lease Payments, (ii) to receive and collect proceeds of
condemnation of, and insurance of the Facilities, and (iii) to enforce
payment of amounts due under the Lease Agreement upon default -by the
City.
The Certificates evidence a direct, undivided fractional interest in
the Lease Payments. The Lease Payments are payable from and are
secured by a first lien on and pledge of the Net Revenues (as defined
in the Lease Agreement) of the Enterprise, `and from amounts budgeted
and appropriated by the City from its general fund, subject to
termination under certain circumstances. See "Summary of Legal
Documents - Lease Agreement."
Neither the Certificates nor the obligation of the City to make Lease
Payments constitute an obligation of the City or the Board for which
the City or the Board is obligated to levy or pledge any form of
taxation or for which the City or Board has levied or pledged any form
of taxation. The Board has no taxing power. Neither the Certificates
1
CA21.88A1/5
M
•
nor the obligation of the City to make Lease Payments constitutes a
debt of the City, County of San Luis Obispo, the State of California,
or any of its political subdivisions, and does not constitute an
indebtedness within the meaning of any constitutional or statutory debt.
limitation or restriction.
For certain information pertaining to the Enterprise and its financial
operations, please see "The Enterprise." General information regarding
the City is presented in Appendix A. Also within Appendix A is a
discussion of certain provisions of the California Constitution and
their impact on the City. See "Limitation on Tax Revenues and Tax
Collection Procedures." Audited general purpose financial statements
of the City for the fiscal year ended June 30, 1987 are presented in
Appendix B.
Brief descriptions of the Certificates, the Board, and the Facilities
are included in this Official Statement, together with summaries of the
Acquisition Agreement, Assignment Agreement, Lease Agreement and Trust
Agreement. Such descriptions do not purport to be comprehensive or
definitive. All references herein are qualified in their entirety by
reference to the actual documents.
THE CERTIFICATES
GENERAL PROVISIONS
The Certificates will be delivered in the aggregate principal amount of
$5,000,000, and will be originally dated December 1, 1988. Interest on
the Certificates will be payable on June 1, 1989, and semiannually
thereafter on December 1 and June 1 of each year. The Certificates
will mature June 1 in the years and amounts as set forth below.
$1,650,000 Serial Certificates
Year
Amount
Year
Amount
1989
$120,000
1994
$165,000
1990
130,000
1995
180,000
1991
140,000
1996
190,000
1992
145,000
1997
205,000
1993
155,000
1998
220,000
$1070,000 Term Certificates due June 1, 2003
$1;980,000 Term Certificates due June 1, 2008
The Certificates will be executed and delivered in fully registered
form without coupons and, when originally delivered, will be registered
in the name of Cede & Co., as nominee of The Depository Trust Company,
New York, New York ("DTC"). DTC will act as securities depository of.
the Certificates. Individual purchases may be made in book -entry form
only, in the principal amount of $5,000 or integral multiples thereof
for each maturity. Purchasers will not receive certificates repre-
senting their interest in the Certificates purchased. Principal and
interest represented by the Certificates will be paid to DTC, which
will in turn remit such principal and interest to its participants for
subsequent dispersal to the beneficial owners of the Certificates as
described herein.
2
CA21.88A1/6
PREPAYMENT FEATURES
Optional Prepayment of Certificates. The Board may elect on June 1,
1997 and on any date thereafter, to prepay Certificates due on or after
June 1, 1998. Prepayment may be in whole or in part of the Certifi-
cates subject to prepayment. If only part of the Certificates are
called for prepayment, the specific Certificates to be prepaid will be
selected by the City at its sole discretion.' All prepayments shall be
at a price of par and accrued interest.
Sinking Account Prepayment. The outstanding Term Certificates maturing
on June 1, 2003 and June 1, 2008, shall also be subject to mandatory
call and prepayment (or purchase in lieu of prepayment as provided in
the Lease Agreement) in part by lot commencing on June 1, 1997 from
the principal components of the regular scheduled Lease Payments, at a
prepayment price equal to the principal amount thereof to be prepaid
together with accrued interest thereon to the prepayment date, without
premium. The principal amount of Term Certificates to be called for
prepayment on each such date is by the Trustee by lot as follows:
$1,370,000 Term Certificate Maturing June 1, 2003
Sinking Account
Redemption Date
(June 1)
1999
2000
2001
2002
2003
Principal Amount
to be Redeemed
or Purchased
$235,000
255,000
270,000
295,000
315,000 (maturity)
$1,980,000 Term Certificate Maturing June 1, 2008
Sinking Account
Redemption Date
(June 1)
2004
2005
2006
2007
2008
Principal Amount
to be Redeemed
or Purchased
$340,000
365,000
395,000
425,000
455,000 (maturity)
SECURITY FOR THE CERTIFICATES
The Certificates represent direct, undivided fractional interests in
the Lease Payments. The Lease Payments are payable from and are
secured by a first lien and pledge of the Net Revenues, as defined in
the Lease Agreement, of the Enterprise. During the term of the Lease
Agreement, the City has covenanted to set rates and charges for the
Enterprise during each fiscal year at levels sufficient to yield Net
Revenues which are at least equal to 110% of the sum of any Lease
Payments coming due and payable during such fiscal year, plus the
principal of and interest on any outstanding parity obligations due and
payable during such fiscal year.
3
CA21.88A1/7
0 0
In the event Net Revenues are insufficient in any fiscal year to enable
the City to pay the Lease Payments coming due in such fiscal year in
full, the portion of the Lease Payments not paid from Net Revenues
shall be payable from any source of available general funds of the
City. In that event, the City shall take whatever action may be
necessary to include that portion of the Lease Payments in its budget ,,
for the fiscal year and make the necessary annual appropriations. The
City's general fund obligation terminates on the Net Revenue
Achievement Date, defined in the Lease Agreement as the first day of
the fiscal year immediately following three consecutive fiscal years
during which Net Revenues at least equaled 110% of maximum annual debt
service with respect to the Lease Payments and all parity obligations
then outstanding.
Pursuant to the Trust Agreement, there is to be on deposit in the
Reserve Fund an amount equal to the maximum annual debt service
requirement. Such money is to be held in trust as a reserve for the
payment when due of principal and interest represented by the
Certificates in the event amounts, in the Certificate Fund are
insufficient therefor.
BOOK -ENTRY ONLY SYSTEM
The Depository Trust Company ("DTC") , New York, New York, will act as
securities depository for the Certificates. The Certificates will be
issued as one fully registered Certificates for each maturity as set
forth on the cover page hereof, each in the aggregate principal amount
of such maturity, in the name of Cede & Co., as nominee and registered
owner for DTC. DTC is a limited -purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934,
as amended. DTC was created to hold securities of its participants
(the "Participants") and to facilitate the clearance and settlement of
securities transactions among Participants in such securities through
electronic book -entry changes in accounts of the Participants, thereby
eliminating the need of physical movement of securities certificates.
Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations, some
of whom (and/or their representatives) own DTC. Access to the DTC
system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly.
Ownership interest in the Certificates may be purchased by or through
Participants. Such Participants and the persons for whom they acquire
interest in the Certificates as nominees will not receive certificated
Certificates, but each such Participant will receive a credit balance
in the records of DTC in the amount of such Participant's interest in
the Certificates, which will be confirmed in accordance with DTC's
standard procedures. When reference is made herein to any consent from
or direction by the Certificate holders or Beneficial Owners, such
reference shall only relate to those permitted to act (by statute,
regulation or otherwise) on behalf of Beneficial Owners for such
purposes. For the purposes of this Official Statement, the term
"Beneficial Owner" shall hereinafter be defined to include the person
for which the Participant acquires an interest in the
Certificates.
4
CA21.88A1/8
Q 0
The Board, as long as a book -entry -only. method is used for the
Certificates, will send any notice of redemption or other bondholder
notices only to DTC. Each such person for which a Participant has an
interest in the Certificates, as nominee, may desire to make
arrangements with such Participant to have all notices of redemption or
other communications of the Board to DTC, which may affect such
persons, to be forwarded in writing by such Participant and to have
notification made of all .interest payments. Any failure of DTC to
advise any Participant, or of any Participant to notify the Beneficial
Owner, of any such notice and its content or effect will not affect the
validity or sufficiency of the proceedings .relating to the redemption
of the Certificates called for redemption or of any other action
premised on such notice. NEITHER THE CITY NOR THE BOARD WILL HAVE A
RESPONSIBILITY OR OBLIGATION TO SUCH PARTICIPANTS OR THE PERSONS FOR
WHICH THEY ACT AS NOMINEES WITH RESPECT TO PROVIDING NOTICE TO SUCH
PARTICIPANTS OR THE PERSONS FOR WHICH THEY ACT AS NOMINEES. DTC will
receive payments from the Trustee, to be remitted by DTC to the Parti-
cipants for subsequent disbursement to the Beneficial Owners. The
ownership interest of each Beneficial Owner in the Certificates will be
recorded on the records of the Participants whose ownership interests
will be recorded on a computerized book -entry system operated by DTC.
Transfer or crediting of the applicable principal, interest or
redemption premium payments to Participants is the responsibility of
DTC, and to Beneficial Owners on their nominees the responsibility of
the Participants. THE CITY AND THE BOARD CANNOT AND DO NOT GIVE ANY
ASSURANCES THAT DTC, DTC PARTICIPANTS OR OTHERS WILL DISTRIBUTE TO
BENEFICIAL OWNERS PAYMENTS REPRESENTED BY THE CERTIFICATES PAID TO DTC
OR ITS NOMINEE AS THE REGISTERED OWNER OF THE CERTIFICATES, OR THAT
THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC WILL SERVICE AND ACT IN
THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT.
Beneficial Owners will receive written confirmations of their purchases
detailing the terms of the Certificates acquired. Transfers of
ownership interests in the Certificates will be accomplished by book
entries made by DTC and the Participants who act on behalf of the
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interest in the Certificates, except as
specifically provided in the Ordinance. Interest and principal will be
paid by the Trustee to DTC, then paid by DTC to the Participants and
thereafter paid by the Participants to the Beneficial Owners when due.
DISCONTINUANCE OF DTC SERVICES AND
THE ISSUANCE OF REPLACEMENT BONDS
DTC may determine to discontinue providing its services with respect to
the Certificates at any time by giving notice to the City and discharg-
ing its responsibilities with respect thereto under applicable law.
Under such circumstances, certificates ("Replacement Certificates") are
required.to be delivered as described in the Trust Agreement unless a
successor securities depository is selected. The Beneficial Owner,
upon registration of certifications held in the Beneficial Owner's
name, will become the registered owner of the Replacement Certificates.
Interest represented by the Replacement Certificates, when due and
payable, will be paid by check or draft mailed by the Trustee to the
registered owners as they appear on the books of the Registrar on the
close of business on the Record Date (as hereinafter defined).
F,
CA21.88A1/9
The City may determine that continuation of the system of book -entry
transfers through DTC (or a successor securities depository) is not in
the best interests of the Beneficial Owners. In such event, Replace-
ment Certificates will be delivered.
No transfer or exchange of any Replacement Certificate shall be
required to be made (i) after the Record Date with respect to any
interest payment due on the next succeeding interest payment date, (ii)
after the Record Date with respect to any redemption of such
Replacement Certificates. "Record Date" means the 15th day of the
month next preceding such interest payment date or the 15th day next
preceding a date of mailing notice of redemption, whether or not a
regular business day of the Bond Registrar. The City shall not be
required to register the transfer of or exchange any Replacement
Certificate selected. for redemption in whole or in part, except the
unprepaid portion of the Replacement Certificate being prepaid in part.
For every transfer and exchange of the Replacement Certificates, the
Trustee may charge the Beneficial Owner a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation
thereto.
THE BOARD
The City of San Luis Obispo Capital Improvement Board was formed
pursuant to Ordinance No. 1059 (1986 Series) adopted by the City
Council of the City of San Luis Obispo on April 15, 1986 (the
"Ordinance"), for the purpose of implementing the construction,
acquisition, maintenance and improvement of public facilities and
improvements within the City and the performance of all undertakings
incidental or advantageous thereto. Among the powers expressly granted
to the Board is the power to borrow money to provide funds for the
construction, acquisition, maintenance or improvement of public
facilities authorized by the Ordinance and to issue in its name revenue
bonds to evidence the indebtedness created by such borrowing. The
Ordinance further provides that the bonds of each issue of the Board
shall constitute special obligations, and evidence a special
indebtedness of the Board, which shall be a charge upon and payable,
both as to principal and interest and as to any premiums payable upon
the redemption of bonds, solely from such revenues and funds as are
specified therein and in the proceedings for their issuance and shall
not constitute obligations nor evidence any indebtedness of the City.
The Certificates are the second issuance of bonds or of any
indebtedness by the Board. The members of the City Council of the City
also sit as the board of directors of the Board.
THE FACILITIES
Proceeds of the Certificates will be used to finance the costs of
acquisition of certain existing .water facilities of the Enterprise.
The City will deposit the proceeds of such sale in its general fund to
be expended for improvement projects of the Enterprise. The
facilities to be sold consist of water distribution pipelines.` Three
major types of projects will be financed with the proceeds: source of
supply projects, distribution system projects, and water treatment
plant projects. Brief descriptions of the improvements are presented
below.
6
CA21.88A1/10
Source of Supply Projects: An approximate total of $575,000 will be
expended to drill new groundwater and golf course wells and provide
financing for the design work for the Salinas Reservoir expansion.
Distribution System Projects: An estimated $1,720,000 will be used to
finance water main reconstruction and upgrades throughout the City. An
additional $330,000 will be used for pump and valve improvements. '
Water Treatment Plant Projects: Several smaller scale improvement
projects at the City's water treatment plant have been consolidated
into one large project in order to minimize costs and disruption of
operations. The primary purpose of the improvements is to ensure that
water will be treated to required standards and to achieve operational
efficiency. Total estimated cost of the improvements is $1,739,300.
A summary of estimated project costs is presented below.
Source of Supply:
Groundwater wells
$
250,000
Salinas Reservoir design work
250,000
Golf course wells
75,000
Subtotal - Source of Supply
$
575,000
Distribution System:
Water main reconstruction and upgrades
$11720,000
Pump and valve improvements
330,000
Subtotal - Distribution System
$21050,000
Water Treatment Plant
$1,739,300
Subtotal - Water Treatment Plant
$1,739,300
Total Estimated Costs - All Projects
$4,364,300
Use of Proceeds
The proceeds to be received from the sale of the Certificates (net of
accrued interest) will be applied as follows:
Acquisition Fund $4,304,200
Debt Service Reserve Fund (max. annual) 495,800
Underwriter's Discount 100,000
Estimated Costs of Issuance 100,000
Total Issue $5,000,000
7
CA21.88A1/11
THE ENTERPRISE
Existing Water Sources
G
The City of San Luis Obispo's water supply is derived from two lakes
behind dams, one located 20,miles from the City and the other located
25 miles away. These two reservoirs store creek runoff from rainfall
on lands surrounding the lakes. Each reservoir can provide a certain
maximum amount of water each year without being drawn down to an
unacceptably low level, considering the period of lowest recorded
rainfall. This amount of water represents the safe annual yield, with
yield measured in acre-feet per year. For the City's reservoirs, safe
annual yield is based on the driest six-year period experienced in the
last 115 years.
The Salinas Dam (Santa Margarita reservoir) can store about 23,300
acre-feet of water and has a safe annual yield of 4,800 acre-feet per
year. The City is entitled to all the water stored in this reservoir.
Water may only be stored, however, after enough has been released to
maintain certain water levels downstream along the Salinas River. The
California Water Resources Control Board sets rules which govern flow
and storage. The reservoir is owned by the U.S. Army Corp of Engineers
and operated by the San Luis Obispo County Flood Control and Water
Conservation District, which is governed by the County Board of
Supervisors.
The Whale Rock reservoir can store about 40,660 acre-feet of water and
has a safe annual yield of approximately 4,400 acre-feet per year. The
City is entitled to 2,057 acre-feet per year. California Polytechnic
Institute ("Cal Poly") is entitled to 823 acre-feet of water per year
from Whale Rock for uses other than irrigation. Cal Poly is a City
water customer, even though the campus is not located within the City
limits.
Whale Rock reservoir is owned jointly by the City and the State of
California, which uses its allocation for Cal Poly and the Men's Colony
prison. The Whale Rock Commission sets operating policies. The
commission is comprised of representatives of the City, Cal Poly, Men's
Colony and the State Department of Water Resources. City staff operate
the dam.
Treatment, Storage and Distribution
The existing reservoirs generally provide good quality water, though it.
must be treated to meet health and aesthetic standards. The City's
Stenner Canyon Water Treatment Plant purifies the water to meet these
drinking water standards. Various compounds are added to help remove
sediment and kill bacteria. The water also flows through carbon
filters to remove additional impurities.
The Stenner Canyontreatment facility has treatment and pumping
capacity of 33.8 acre-feet per day. The average daily usage is 21.97
acre-feet, excluding treatment of water for California Polytechnic
Institute. As of June 30, 1988, the City had 11,695 water customers.
8
CA21.88A1/12
O 6
From the treatment plant, water is pumped to storage tanks located on
hillsides throughout the City. From these tanks, it flows through a
system of approximately 180 miles of watermains to customers and to
fire hydrants. The existing system of pumps, mains and tanks determine
water pressure and delivery rates which can be provided to various
areas of the City. The pressures and rates in turn determine how far
up the hillsides and how far out new development can be served while
still meeting City standards for customer service and fire protection.
Water Rates and Charges
According to the resolution passed by the City Council on June 6, 1988
amending water service rates, the primary goals of the City's water
utility are to provide quality water service to its citizens and to
function as a self-sufficient enterprise. The water should meet all
health standards, be free of bad taste and odors, provide adequate fire
protection and assure reliably and continuity of service to users.
In order to accomplish these goals, the City water utility operations
shall be efficiently managed and based on a sound economic foundation.
This requires following prudent business practices and setting
equitable service rates resulting in revenues sufficient to cover
expenses. The water service rates shall be based on a cost of service
approach while encouraging water conservation.
A comprehensive analysis of the City's water rate structure was
performed in 1981. At that time it was recommended that minimum
(readiness to serve) charges be increased by 20% and that commodity
charges be increased by 30%. No action on water rates was taken by the
City Council at that time. Water rates were reviewed again in January,
1986, at which time an across-the-board increase of 7.7% was approved.
Presented on the following page
various categories of service
The new rates were effective
August 1, 1988. The City bills
Bi -Monthly Minimum Charge:
Meter Size
5/8n
3/4"
1"
1 1/4"
1 1/2"
2"
3"
4"
611
8"
10"
CA21.88A1/13
is a summary of rates and charges for
adopted by the Council in June, 1988.
with billings prepared on or after
on a bi-monthly basis.
Inside Cit
Previous
Current
$ 5.40
$ 7.40
8.10
11.10
13.50
18.50
21.60
29.60
32.50
44.54
54.00
.74.00
97.00
132.89
172.00
235.70
260.00
356.30
410.00
561.85
520.00
712.59
9
as
commoaity Charge Per Hundred Cubic Feet of Water (CCF) Per Dwelling
Unit for Accounts ClascifivA DZ94Ai,M zz-i ..3__, _ .._�____ I _
Ca
11 Other Users:
Previous Current
0 to 10 (CCF) $0.70 $0.75 4
In excess thereof 0.70 1.50
The estimated annual debt service requirement associated with a
$5,000,000 issuance of the Certificates was incorporated in the rate
increase approved in June.
Major Users of the Enterprise
Financial Operations of the Enterprise
A five-year audited history of revenues, expenses and changes in
retained earnings of the Water Fund, together with preliminary and
unaudited results for the fiscal year ended June 30, 1988 is presented
on the following page.
10
CA21.88A1/14
N
•
Total Nonoperating Revenues
(Expenses)
S
TABLE
1
143,138
S
129,834
S
239,484
S
(10.679)
$
City of San Luis
Obispo
Water Fund Statement of
Revenues, Expenses
Operating Transfers
$
97,298
and
Changes in Retained
Earnings
177,862
S
428,808
S
265,077
8
90,213
Year Ended
June 30
(125,000)
(67,338)
2,570
Net Income
$
(27,702)
5
526,077
1988
180,432
1983
1984
1985
265,077
1986
90,213
1987
(Unaudited)
Operating Revenues
primarily Water Sales
Beginning of Year
9,138,364
9,110,662
$9,636,739
9,817,171
and Services
$2,133,896
82,337,885
$2,477,192
S
2,652,231
8
3,034,953
5
3,319,675
Total Operating Revenues
$2,133,896
$2,357,885
$2,477,192
$
2,652,231
$
3,034,953
S
3,319,675
Operating Expense:
$9,817,171
810,245,979
$10,511,056
510,601,269
Operations and Maintenance
$1,829,364
$1,573,782
82,069,229
S
2,079,907
S
2,354,611
8
2,721,226
Depreciation
252,349
223,826
249,935
273,000
294,586
309,237
Amortization
100,000
110,000
110,000
110,000
110,000
110,000
Total Operating Expenses
$2,181,713
$1,907,608
$2,429,164
$
2,462,907
8
2,759,197
8
3,140,463
Operating Income (Loss)
$ (47,817)
S 450,277
S 48.028
5
189,324
S
275,756
8
179,212
Nonoperating Revenues:
Interest Revenue
8 215,950
S 146,688
$ 216,149
S
309,764
$
234,067
S
87,465
Interest Expense
(70,835)
(106,624)
(194,482)
(195,310)
(244,746)
(176,464)
Other
103,074
108,167
125,030
Total Nonoperating Revenues
(Expenses)
S
145,115
$
143,138
S
129,834
S
239,484
S
(10.679)
$
(88,999)
Income (Loss) Before
Operating Transfers
$
97,298
S
593,415
$
177,862
S
428,808
S
265,077
8
90,213
Operating Transfers In (Out)
(125,000)
(67,338)
2,570
Net Income
$
(27,702)
5
526,077
$
180,432
$
428,808
$
265,077
$
90,213
Retained Earnings at
Beginning of Year
9,138,364
9,110,662
$9,636,739
9,817,171
10,245,979
10,511,056
Retained Earnings at End
of Year
$9,110,662
59,636,739
$9,817,171
810,245,979
$10,511,056
510,601,269
Source: City of San Luis Obispo Comprehensive Annual Financial Reports.
SUMMARY OF PRINCIPAL DOCUMENTS
Following are brief summaries of the provisions of the principal
documents. These summaries are not intended to be definitive.
Reference is made to the actual documents for the complete terms
thereof.
ACQUISITION AGREEMENT
Pursuant to the Acquisition Agreement between the City and the Board;
the Board purchases from the City the Facilities. The purchase price
of the Facilities will be paid from proceeds of the Certificates and
such purchase will be completed immediately prior to the recording of
the Lease Agreement.
11
CA21.88A1/15
a
N
Lease of Facilities
LEASE AGREEMENT
The Board agrees to lease the Facilities to the City pursuant to the
Lease Agreement. The term of the Lease Agreement begins on December 1, as
1988, and ends only after all of the Certificates have been paid or
provision made therefor.
Lease Payments
The City has agreed to pay the Lease Payments to the Board for the
Facilities during the terms of the Lease Agreement. The City has
agreed to pledge Net Revenues of the Enterprise to payment of the Lease
Payments, constituting a first lien on the Net Revenues. The City has
covenanted to set rates and charges of the Enterprise to generate
sufficient funds in each fiscal year to meet the operations and
maintenance costs of the Enterprise; the Lease Payments; and any
payments required to meet other obligations of the City payable from
Gross or Net Revenues during the fiscal year.
In the event that Net Revenues are insufficient in any fiscal year to
pay the Lease Payments, the portion of the Lease Payments not paid from
Net Revenues shall be payable from any source of available general
funds of the City. Under these circumstances, the City shall take all
actions necessary to include such portion of the Lease Payments in its
annual budget for the fiscal year and make the necessary annual
appropriation. The general fund obligation of the City shall terminate
at the Net Revenue Achievement Date, the first day of the fiscal year
immediately following three consecutive fiscal years during each of
which the amount of Net Revenues equaled at least 110% of maximum
annual debt service with respect to the Lease Payments. After this
point, the City's obligation to pay the Lease Payments shall be a
special obligation limited solely to the Net Revenues of the Enterprise
and other funds pledged under the Lease Agreement.
In addition to the Lease Payments, the City shall pay when due all
costs and expenses incurred by the Board to comply with the provisions
of the Trust Agreement, including costs of issuance, annual
compensation due to the Trustee and costs and expenses of auditors,
engineers and accountants.
Maintenance. Utilities. Taxes and Modifications
The City, at its own expense, has agreed to maintain or cause to be
maintained the Facilities in good repair; the Board has no
responsibility for such repair. The City has the power to make
additions, modifications and improvements to the Facilities which do
not damage or reduce their value substantially less than that which
existed prior to such modifications or improvements. Any such
additions, modifications or improvements that constitute fixtures will
automatically become subject to the Lease Agreement. The City must pay
or cause to be paid all utility charges with respect to the Facilities,
as well as any taxes and assessments, if.any, which it or the Board is
legally obligated to pay.
12
CA21.88A1/16
Insurance
The Lease Agreement requires the City to maintain or cause to be
maintained the following insurance against the risk of physical damage
to the Facilities and other risks for the protection of Certificate
owners, the Board and the Trustee:
4
(i) Public Liability and Property Damage Insurance
Coverage shall be equal to the minimum liability of
$1,000,000 for personal injury or death of each person and
$3,000,000 for personal injury or deaths of two or more
persons in each accident or event (subject to a deductible of
not to exceed $100,000), and in a minimum amount of $150,000
(subject to deductible of not to exceed $50,000) for damage
to property resulting from each accident or event. Such
Public liability and property damage insurance may, however,
be in the form of a single limit policy in the amount of
$3,000,000 covering all such risks, subject to a deductible
of not to exceed $100,000. Liability insurance may be
maintained as part of or in conjunction with any other
liability insurance coverage carried by the City, and may be
maintained in whole or in part in the form of self-insurance
by the City, subject to the provisions of the Lease
Agreement, or in the form of the participation by the City in
a joint powers agency or other program providing pooled
insurance.
(ii) Casualty Insurance
The City shall procure and maintain, or cause to be procured
and maintained, throughout the term of the Lease Agreement,
but only in the event and to the extent available from
reputable insurers at reasonable cost, casualty insurance
against loss or damage to any improvements constituting any
part of the Enterprise, covering such hazards as are
customarily covered with respect to works and property of
like character. Such insurance shall be in a loss
recoverable amount at least equal to the aggregate principal
amount of the Outstanding Certificates, and may be subject to
deductible clauses which are customary for works and property
of a like character. Such insurance may be maintained as
part of or in conjunction with any other casualty insurance
carried by the City and may be maintained in whole or in part
in the form of self-insurance by the City, subject to the
provisions of the Lease Agreement, or in the form of the
participation by the City in a joint powers agency or other
program providing pooled insurance. All amounts collected
from insurance against accident to or destruction of any
portion of the Facilities shall be used to repair or rebuild
such damaged or destroyed portion of the Facilities, and to
the extent not so applied, shall be paid to the Trustee to be
applied to prepay the Lease Payments on the next available
prepayment date pursuant to the Lease Agreement.
13
CA21.88A1/17
•
Eminent Domain
Any amounts received as awards as a result of the taking of all or any
part of the Enterprise by the lawful exercise of eminent domain, at the
election of the City (evidenced by a written certificate of the City
Representative filed with the Trustee and the Board) shall either .,
(a) be used for the acquisition or construction of improvements and
extension of the Enterprise, or (b) be paid to the Trustee for deposit
into the Certificate Fund to be used to prepay the Lease Payments on
the next available prepayment date pursuant to the Lease Agreement.
Limitations on Superior and Subordinate Obligations
The City shall not issue or incur any additional bonds or other
obligations during the term of this Lease having any priority in
payment of principal or interest out of the Gross Revenues or the Net
Revenues over the Lease Payments. Nothing herein is intended or shall
be construed to limit or affect the ability of the City to issue or
incur obligations which are either unsecured or which are secured by an
interest .in the Net Revenues which is junior and subordinate to the
pledge of and client upon the Net Revenues established hereunder.
Issuance of Parity Obligations
Except for obligations incurred to prepay all or a portion of the Lease
Payments or to post a security deposit for the payment of all of a
portion of the Lease Payments, the City shall not issue or incur any
Parity Obligations during the Term hereof unless:
a. No event of default shall have occurred and be continuing;
b. The Net Revenues (excluding connection charges), calculated
in accordance with sound accounting principles, as shown by
the books of the City for the most recent completed Fiscal
Year, or for any more recent consecutive twelve (12) month
period selected by the City; in either case verified by a
certificate or opinion of an independent certified public
accountant employed by the City, plus, at the option of the
City, any or all of .the Additional Revenues, at least equal
one hundred twenty-five percent (125%) of the amount of
Maximum Annual Debt Service with respect to the Lease
Payments and all Parity Obligations then outstanding
(including the Parity Obligations then proposed to be issued);
and
C. Upon the issuance of such Parity Obligations a reserve fund
shall be established for such Parity Obligations in an amount
at least equal to the lesser of (A) Maximum Annual Debt
Service on such Parity Obligations, or (B) the maximum amount
then permitted under the Tax Code.
14
CA21.88A1/18
Option to Prepay
The City has the option to prepay the Lease Payments in whole or in
part in inverse order on any date on or after June 1, 1997. Such
prepayment price shall be deposited by the Trustee in the Certificate
Fund to be applied to the prepayment of the Certificates pursuant to as
the Trust Agreement.
Assignment; Subleases -
The Board has assigned certain of its rights under the Lease Agreement
to the Trustee pursuant to the Assignment Agreement. The City may not
assign any of its rights in or obligations under the Lease Agreement.
The City may sublease all or a portion of the portion of any of the
Projects only under the conditions contained in the Lease Agreement,
including the conditions that the City provide to the Board and the
Trustee an opinion of bond counsel stating that such sublease does not
cause the interest on the Bonds to become subject to federal or State
of California personal income taxes.
Events of Default
The following shall be events of default under this Lease:
a. Failure by the City to pay any Lease Payment when due and
payable hereunder.
b. Failure by the City to pay any amounts (other than Lease
Payments) when due and payable hereunder, and the
continuation of such failure for a period of ten (10) days.
C. Failure by the City to observe and perform any covenant,
condition or agreement on its part to be observed or
performed, other than as referred to in the preceding clauses
(a) or (b), for a period of sixty (60) days after written
notice specifying such failure and requesting that it be
remedied has been given to the City by the Agency or the
trustee; provided, however, that if in the reasonable opinion
of the City the failure stated in the notice can be
corrected, but not within such 60 -day period, such failure
shall not constitute an Event of Default hereunder if the
City shall commence to cure such failure within 60 days and
thereafter diligently and in good faith cure such failure in
a reasonable period of time.
d. Commencement by the City of a voluntary case under Title 11
of the United States Code or any substitute or successor
statute.
Upon the occurrence and continuance of any event of default, the Board
may at its option elect to terminate the Lease Agreement or, with or
without such termination, re-enter, take possession of the Facilities
and re -let the Facilities. When the Board does not elect to terminate
the Lease Agreement, the City remains liable to pay all Lease Payments
as they come due and payable. When the Board elects to terminate the
Lease Agreement, the City is liable for damages resulting from such
event of default. Any amounts collected by the Board from the
15
CA21.88A1/19
Q
reletting of the Facilities shall be credited towards the City's unpaid
Lease Payments. Any net proceeds of re-leasing or other disposition of
the Facilities are required to be deposited in the Lease Payment Fund
and applied to the payment of principal and interest on the
Certificates in order of payment date. Pursuant to the Assignment
Agreement, the Board assigns all of its rights with respect to remedies
in an event of default to the Trustee, so that, all such remedies shall
be exercised by the Trustee and the Bond owners as provided in the
Trust Agreement.
TRUST AGREEMENT
Trustee
The Trustee is appointed pursuant to the Trust Agreement and is
authorized to prepare, execute and deliver the Certificates and to act
as a depository of amounts held thereunder. The Trustee is required to
make deposits into and withdrawals from funds, and invest amounts held
under the Trust Agreement in accordance with the City's instructions.
Funds
The Trust Agreement creates the Acquisition Fund, Reserve Fund,
Certificate Fund and Insurance and Condemnation Fund to be held in
trust by the Trustee.
Acquisition Fund. The balance of the proceeds from the sale of the
Certificates after certain deposits are made to the Certificate Fund
and the Reserve Fund will be deposited in the Acquisition Fund and
disbursed by the Trustee, upon written order of the Board, to pay the
acquisition costs of the Facilities and to pay costs of issuance. Any
amounts remaining on deposit in the Acquisition Fund three months
following the closing date shall be withdrawn by the Trustee and
transferred to the Certificate Fund.
Reserve Fund. The Reserve Fund will be funded out of proceeds of the
sale of the Certificates in an amount equal to the maximum annual debt
service on the Certificates. If on any interest payment date there are
insufficient moneys in the Certificate Fund to pay principal and
interest then due, the Trustee shall transfer as much of the Reserve
Fund as necessary to make such payments. Any amounts transferred will
be replenished upon receipt of Net Revenues in excess of the amount
needed for principal and interest payments on the Certificates.
Certificate Fund. There shall be deposited in the Certificate Fund,
when received by the Trustee, all Lease Payments and prepayments and
accrued interest on the Certificates. All amounts held in the
Certificate Fund shall be used and withdrawn by the Trustee solely for
the purpose of paying the principal and interest represented by the
Certificates as they become due and payable. Any surplus remaining in
the Certificate Fund after prepayment and payment of all Certificates
and payment of any applicable fees and expenses to the Trustee, shall
be withdrawn by the Trustee and remitted to the City.
16
CA21.88A1/20
Investment of Funds
The Trustee is required to invest and reinvest all funds held under the
Trust Agreement in investments permitted by the Trust Agreement,
including (a) Federal Securities; (b) any of the following obligations
or indebtedness issued or guaranteed by,any of the following federal •
agencies and entities: (i) senior debt obligations of the Federal Home
Loan Bank System; (ii) participation certificates of the Federal Home
Loan Mortgage Corporation; (iii) mortgage-backed securities or senior
debt obligations of the Federal National Mortgage Association; or
(iv) senior debt obligations of the Student Loan Marketing Association;
(c) interest-bearing demand or time deposits (including certificates of
deposit) in federal or state chartered savings and loan associations or
in national or State banks (including the. Trustee) provided that
either: (i) the obligations of such association or bank or the
obligations of the :holding company of such association or bank have a
rating of "A" or better from Moody's or Standard & Poor's; or (ii) such
deposits are fully insured by the Federal Deposit Insurance Corporation
or the Federal Savings and Loan Insurance Corporation; (d) obligations
issued by any corporation organized and operating within the United
States of America having assets in excess of $50010001000, which
obligations have a rating of "A" or better from Moody's or Standard &
Poor's; (e) commercial paper which has a rating or backed by a letter
of credit or credit line of credit which has a rating; (f) money market
funds either (i) the policy of which is to invest solely in Permitted
Investments, or (ii) which have a rating of "A" or better from Moody's
or Standard & Poor's; (g) bills of exchange or time drafts drawn on and
accepted by a commercial bank, otherwise known as bankers acceptances,
which are eligible for purchase by the Federal Reserve System and the
obligations of which commercial bank or the obligations of the holding
company of which has a rating of "A" or better from Moody's or Standard
& Poor's; (h) obligations the interest on which is exempt from federal
income taxation under. Section 103 of the Tax Code, and which have a
rating of "A" or better from Moody's and Standard & Poor's; and (i)
investment agreements which are the obligations of or which are secured
or guaranteed by the obligations of a financial institution whose
long-term obligations have a rating of "A" or better from Moody's or
Standard & Poor's.
Remedies on Default
If an event of default by the Board under the Trust Agreement should
occur, the Trustee may, and at the written direction of the owners of a
majority of the aggregate principal amount of the Certificates then
outstanding, exercise any and all remedies available pursuant to law or
granted pursuant to the Lease Agreement. There will be no right,
however, to accelerate the maturities of the Certificates or otherwise
declare any Lease Payment not then in default to be due and payable.
Amendment
The Trust Agreement and the rights and obligations of the owners of the
Certificates and the Lease Agreement and the rights and obligations of
the respective parties thereto, may be modified or amended at any time
by a supplemental agreement, without the consent of any such owners,
but only to the extent permitted by law and only (a) to add to the
covenants and agreements of any party, other covenants to be observed,
or to surrender any right or power herein or therein reserved to the
Board or the City, (b) to cure, correct or supplement any ambiguous or
17
CA21.88A1/21
defective provision contained herein or therein, (c) in regard to
questions arising hereunder or thereunder, as the parties hereto or
thereto may deem necessary or desirable and which shall not, in the
opinion of Bond Counsel, materially adversely affect the interests of
the owners of the Certificates, (d) to modify the description of the
Facilities to conform to the requirements of title insurance or
otherwise to add or delete property descriptions to reflect accurately
the description of the property intended to be included therein, or
(e) if and to the extent permitted in the opinion of Bond Counsel filed
with the Trustee, the City and the Board, to delete or modify any of
the provisions hereof or thereof relating to the exemption from federal
income taxation of interest represented by the Certificates. Any such
supplemental agreement shall become effective upon execution and
delivery by the parties hereto or thereto as the case may be.
Defeasance
Upon payment of all outstanding Certificates, either at or before
maturity, or upon the deposit of money or federal securities (as
required by the Trust Agreement) with the Trustee sufficient with other
available funds to retire the Certificates at or before maturity, the
Trust Agreement will be terminated, except for the obligation of the
Trustee to make payments on the Certificates.
ASSIGNMENT AGREEMENT
Pursuant to the Assignment Agreement, the Board transfers, assigns and
sets over to the Trustee, for the benefit of the owners of the
Certificates, all of the Board's rights under the Lease Agreement
(subject to certain exceptions), including the right of the Board to
receive and collect amounts payable under the Lease Agreement, its
right to receive and collect proceeds of condemnation of and insurance
awards and the right to exercise rights and remedies of the Board in
the Lease Agreement to enforce payments of amounts thereunder. The
Trustee accepts such assignment for the purpose of securing such
payments due to, and the rights of,, the owners of the Certificates,
subject to the provisions of the Trust Agreement.
FINANCIAL ADVISOR
Evensen Dodge, Inc., Costa Mesa, California, has acted as Financial
Advisor to the Corporation and the City in connection with the issuance
of the Certificates. Requests for information concerning the Board and
the City should be addressed to Evensen Dodge, Inc., 650 Town Center
Drive, Suite 1900, Costa Mesa, CA 92626 (714) 755-8016.
18
CA21.88A1/22
LEGAL MATTERS
Legal matters incident to the authorization and issuance of the
Certificates are subject to the opinion of Jones Hall Hill and White, A
Professional Law Corporation, San Francisco, California, Special
Counsel, as to validity and tax exemption. The opinion will be
substantially in the form set forth in Appendix C attached hereto.
Bond Counsel has not been requested to, and has not undertaken to,
verify the accuracy of the information contained in this Official
Statement and expresses no opinion with respect thereto.
TAX EXEMPTION
In the opinion of Jones Hall Hill & White, A Professional Law
Corporation, San Francisco, California, Special Counsel, subject,
however, to the qualifications set forth below, under existing law, the
portion of the Lease Payments designated as and comprising interest and
received by the owners of the Certificates is excluded from gross
income for federal income tax purposes, such interest is not an item of
tax preference for purposes of the federal alternative minimum tax
imposed on individuals and corporations, provided, however, that, for
the purpose of computing the alternative minimum tax imposed on such
corporations (as defined for federal income tax purposes), such
interest is taken into account in determining adjusted net book income
(adjusted current earnings for taxable years beginning after
December 31, 1989) and the Lease Agreement is a "qualified tax-exempt
obligation" within the meaning of Section 265 of the Internal Revenue.
Code of 1986 (the "Code") such that, in the case of a financial
Institution, a deduction for federal income tax purposes is allowed for
80 percent of that portion of such financial institutions' interest
expense allocable to interest payable with respect to the Certificates.
The opinions set forth in the preceding sentences are subject to the
condition that the City comply with all requirements of the Code that
must be satisfied subsequent to the delivery of the Lease Agreement in
order that such interest be, or continue to be', excluded from gross
income for federal income tax purposes. The City has covenanted to
comply with each such requirement. Failure to comply with certain of
such requirements may cause the. inclusion of such interest in gross
income for federal income tax purposes to be retroactive to the date of
delivery of the Lease Agreement. Special Counsel expresses no opinion
regarding other federal tax consequences arising with respect to the
Lease Agreement and the Certificates.
Prospective purchasers of the Certificates should be aware that (i)
with respect to insurance companies subject to the tax imposed by
Section 831 of the Code, for taxable years beginning after December 31,
1986, Section 832 (b) (5) (B) (1) reduces the deduction for loss reserves
by 15 percent of the sum of certain items, including interest payable
with respect to the Certificates, (ii) for taxable years beginning
after December 31, 1986 and before January 1, 1992, interest payable
with respect to the Certificates earned by some corporations could be
subject to the environmental tax imposed by Section 59A of the Code,
(iii) for taxable years beginning after December 31, 1986, interest
payable with respect to the Certificates 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
19
CA21.88A1/23
investment income, including interest payable with respect to the
Certificates, 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 and (v) Section 86 of the Code requires recipients of
certain Social Security and certain Railroad Retirement benefits to
take into account, in determining gross income, receipts or accruals of
interest payable with respect to the Certificates.
In the further opinion of Special Counsel, such interest is exempt from
California personal income taxes.
BANK QUALIFIED TAX-EXEMPT OBLIGATIONS
The Lease Agreement has been designated as a "bank -qualified tax-exempt
obligation" pursuant to Section 265(b)(3) of the Internal Revenue Code
of 1986.
RATING
A rating review has been requested for the Certificates from Moody's
Investors Service, Inc. This rating will reflect only the view of the
rating agency, and does not constitute a recommendation to buy, sell or
hold securities. Explanations of the significance of the rating may be
obtained from the rating agency. The rating is subject to revision or
withdrawal at any time by the rating agency, and there is no assurance
that the rating will continue for any period of time or that it will be
revised or withdrawn. Any revision or withdrawal of the rating could
have an adverse effect on the market price of the Certificates.
LITIGATION
There is no litigation now pending or, to the knowledge of Board
officials, threatened which questions the validity of the
Certificates or of any proceedings of the Board taken with respect to
the delivery or sale thereof.
CERTIFICATION
On the date of delivery of the Certificates, the Board President will
furnish a written certification to the effect that this Official
Statement, to the best of his knowledge and belief as of the date of
sale and the date of delivery, is true and correct in all material
respects and does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements made herein, in light of the circumstances under which they
were made, not misleading.
20
CA21.88A1/24
•
MISCELLANEOUS
Any statements made in this Official. Statement involving matters of
opinion or of estimated, whether or not so expressly stated, are set
forth as such and not as representations of fact, and no representation
is made that any of the estimated will be realized.
AUTHORIZATION
The execution and delivery of this Official Statement by its Chief
Financial Officer have been duly authorized by the Board
BY /s/ William C. Statler
Chief Financial Officer
21
CA21.88A1/25
n
R
APPENDIX A
•
General Information Concerning the City
22
CA21.88A1/26
GENERAL INFORMATION CONCERNING THE CITY
Although the Certificates do not constitute a general obligation debt
of the City, the following is presented for informational purposes.
The City of San. Luis Obispo is a Charter City, incorporated
February 19, 1856 and chartered May 1, 1876 under the laws of the
State of California. Located on the central coast of California
approximately 175 miles northwest of Los Angeles, the City is the
county seat of San Luis Obispo County. With a January 1, 1988
estimated population of 39,850, the City is the largest city in the
county.
The City is governed under a "Council -Mayor -Administrative Officer"
form of municipal government. The elected officers of the City are the
Mayor and four Council members. Each elected officer shares equal
voting power., The Mayor serves a two-year term. Council members serve
four-year staggered terms. The City Administration Officer, City
Attorney, City Clerk, City Treasurer and all advisory boards,
committees and commissions are appointed by the City Council. The City
Administrative Officer is responsible for the day-to-day operations of
the City staff, implementing the policies of the City Council.
San Luis Obispo is a full-service city. Services provided include:
public safety (police and fire); public utilities (water, wastewater,
waste collection and disposal); transportation (street maintenance,
parking, flood control, municipal transit); leisure, cultural and
social services (parks, recreation, golf course, library, community
promotion, human relations); and community development (public
improvements, planning and zoning, business promotion).
CITY PROPERTY VALUES, TAX RATES AND -PROPERTY TAX COLLECTIONS
TABLE A-1
City of San Luis Obispo
Trend of Assessed and Estimated Actual Value
of Taxable Property
23
CA21.88A1/27
_ Gross Assessed Valuation (1)
Year Ended
Secured
Unsecured
Estimated
June 30
Total Valuation
Total Valuation
Utility
Total
Actual Value
1982
S 674,198,789
842,290,865
$43,575,130
S 760,064,784
8 760,064,784
1983
783,223,138
54,592,077
46,228,190
884,043,405
884,043,405
1984
857,236,452
57,158,947
49,961,260
964,356,659
964,356,659
1985
933,064,061
69,050,162
53,753,180
1,055,867,403
1,055,867,403
1986
1;004,275,125
64,811,299
64,146;830
1,133,233,254
1,133,233,254
1987
1,202,072,027
81,766,693
66,459,690
1,350,298,410
1,350,298,410
1988
1,355,182,574
94,891,297
65,930,350
1,516,004,221
1,516,004,221
(1) For comparison purposes,
gross assessed valuations
include
homeowner's and
other exemptions.
Although
these exemptions
reduce property tax
collections, the
revenue Loss is
reimbursed by the
State of
California. As
such, gross assessed
valuation is the
revenue base used in establishing
property
tax related revenues.
Source: San Luis Obispo County
Auditor -Controller.
23
CA21.88A1/27
TABLE A-2
City of San Luis Obispo
Secured Property Tax Levies and Collections
Year Ended
Current
Collections
June 30
Total Levy
Amount
Percent
1982
$11421,144
$1,3461370
94.9%
1983
1,651,863
11554,635
94.1%
1984
11805,369
11719,593
95.2%
1985
1,962,421
1,886,049
96.1%
1986
21138,689
21069,902
96.8%
1987
2,5411905
2,439,169
96.0%
1988
2,826,498
21723,234
96.3%
TABLE A-3
City of San Luis Obispo
Total Property Tax Rates
Per $100 of Assessed Value
Year Ended
June 30
1983 1984 1985 1986 1987 1988
1.130 1.021 1.021 1.021 1.015 1.014
Source: City of San Luis Obispo
LIMITATIONS ON TAX REVENUES AND TAX COLLECTION PROCEDURES
PROPERTY TAX RATE LIMITATIONS --ARTICLE XIII A
In 1978, California voters approved an amendment (commonly known as
both Proposition 13 and the Jarvis -Gann Initiative) to the California
Constitution which imposes certain limitations on taxes that may be
levied against real property. This amendment, which adds Article XIIIA
to the California Constitution, among other things, defines full cash
value to mean "the county assessor's valuation of real property as
shown on the fiscal year 1975/76 tax bill under 'full cash value,' or
thereafter, the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred after the 1975
assessment period." This full cash value may be increased at a rate
not to exceed 2% per year to account for inflation. The amendment
further limits the amount of any ad valorem tax on real property to it
of the full cash value, except that additional taxes may be levied to
pay debt service on indebtedness approved by the voters prior to
July 1, 1978, and on any bonded indebtedness for the acquisition or
improvement of real property which is approved after July 1, 1978, by
two-thirds of the voters voting on such indebtedness.
24
CA21.88A1/28
a
PROPERTY TAX COLLECTION PROCEDURES
In California, property which is subject to ad valorem taxes is
classified as "secured" or "unsecured." The secured classification
includes property on which any property tax levied by a county becomes
a lien on that property. A tax levied on unsecured property does not as
become a lien against the taxes unsecured property, but may become a
lien on certain other property owned by the taxpayer. Every tax which
becomes a lien on secured property has priority over all other liens,
arising pursuant to State law, on the secured property, regardless of
the time of the creation of other liens. The valuation of property is
determined as of March 1 each year, and installments of taxes levied
upon secured property become delinquent on the following December 10
and April 10. Taxes on unsecured property are due March 1 and become
delinquent August 31.
Secured and unsecured property are entered separately on the assessment
roll maintained by the county assessor. The method of collecting
delinquent taxes is substantially different for the two classifications
of property. The exclusive means of enforcing the payment of
delinquent taxes with respect to property on the secured roll is the
sale of the property securing the taxes to the State for the amount of
taxes that is delinquent. The taxing authority has three ways of
collecting unsecured personal property taxes: (1) a civil action
against the taxpayer; (2) filing a certificate in the office of the
county clerk specifying certain facts in order to obtain a judgment
lien on certain property of the taxpayer; and (3) seizure and sale of
personal property, improvements or possessory interests belonging or
taxable to the assessee.
Commencing in 1982, a 10% penalty is added to delinquent taxes which
have been levied with respect to property on the secured roll. In
addition, property on the secured roll on which taxes are delinquent is
sold to the State on or about June 30 of the fiscal year. Such
property may thereafter be redeemed by payment of the delinquent taxes
and a delinquency penalty, plus a redemption penalty of 1 1/2% per
month to the time of redemption. If taxes are unpaid for a period of
five years or more, the property is deeded to the State and then is
subject to sale by the county tax collector. A l0% penalty also
applies to delinquent taxes on property on the unsecured roll, and
further, an additional penalty of 1 1/2% per month accrues with respect
to such taxes beginning on the varying dates related to the tax billing
date.
SUPPLEMENTAL ASSESSMENTS
Legislation enacted in 1983, SB 813 (Statutes of 1983, Chapter 498),
provides for the supplemental assignment and taxation of property as of
the occurrence of a change of ownership or completion of new
construction. Previously, statutes enabled the assessment of such
changes only as of the next March 1 tax lien date following the change
and thus delayed the realization of increased property taxes from the
new assessments for up to 14 months. As enacted, Chapter 498 provides
increased revenue to redevelopment agencies to the extent that
supplemental assessments of new construction or changes of ownership
occur within the boundaries of redevelopment projects subsequent to the
March 1 lien date.
25
CA21.88A1/29
Q
Collection of taxes based on supplemental assessments occurs throughout
the year. Taxes due are prorated according to the amount of time
remaining in the tax year, with the exception of tax bills dated
March 1 through May 31, which are calculated on the basis of the
remainder of the current fiscal year and the full 12 months of the next
fiscal year.
a
BUSINESS INVENTORY EXEMPTION
Pursuant to legislation adopted in 1979 (Statues of 1979, Chapter
1150), business inventories were exempted from taxation in fiscal year
1980-81 and each fiscal year thereafter. Under Chapter 1150, the State
paid, as a subvention to certain local agencies, an amount equal to
100% of taxes that would otherwise be due (excluding taxes to pay for
voter -approved indebtedness) on business inventories. This law further
provided a formula for reimbursement by the State to cities, counties,
special districts and school districts for the amount of tax revenues
lost be reason of such exemption, as adjusted for percentage changes in
the population and the cost of living.
SUPPLEMENTAL REVENUES/SPECIAL SUBVENTIONS
Legislation adopted in 1984 (Senate Bill 794 and Assembly Bill 1849)
has replaced business inventory subventions with a financing plan for
local governments. In Section 1 of Senate Bill 794 (Section 16110, et
seq. of the California Government Code, which became operative along
with counterpart legislation, Assembly Bill 1849, on July 1, 1984), the
purpose and intent of the legislation was stated as follows:
The Legislature finds and declares that some local agencies lack
sufficient revenues to meet their obligations to the landowners
and residents they serve. It is the intent of the Legislature in
enacting this act to provide local agencies with reliable, stable,
and very predictable revenues to finance these obligations.
APPROPRIATION LIMITATION --ARTICLE XIII B
On November 6, 1979, California voters approved Proposition 4, known as
the Gann Initiative, which added Article XIII B to the California
Constitution. The principal effect of Article XIII B is to limit the
annual appropriations of the State and its political subdivisions to
the level of appropriations for the prior fiscal year,'as adjusted for
changes in the cost of living, population and services rendered by the
government entity.
PROPOSITION 62
On November 4, 1986, an initiative statute (known as Proposition 62)
was approved by the voters of the State which (i) requires that any tax
for general government purposes imposed on local governmental entities
such as the City be approved by resolution or ordinance adopted by a
two-thirds vote of the governmental entity's legislative body and by a
majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as taxes levied for other than
general government purposes) imposed by a local governmental entity
approved by a two-thirds vote of the voters within that jurisdiction,
26
CA21.88A1/30
(iii) restricts the use of revenues from a special tax to the purposes
or for the service for which the special tax was imposed, (iv)
prohibits the imposition of ad valorem taxes on real property by local
government entities except as permitted by Article XIIIA, (v) prohibits
the imposition of transaction taxes and sales taxes on the sale of real
property by local governmental entities, and (vi) requires that any tax
imposed by a local governmental entity on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the
adoption of the initiative or be terminated by November 15, 1988.
TABLE A-4
City of San Luis Obispo
Statement of Direct and Overlapping Debt
Direct and Overlapping Bonded Debt
San Luis Obispo County Certificates of Participation
Cuesta Community College District
San Luis Obispo Coastal Unified School District
Certificates of Participation
City of San Luis Obispo
City of San Luis Obispo Lease Revenue Bonds and
Certificates of Participation
City of San Luis Obispo 1915 Act Bonds
Total Gross Direct and Overlapping Bonded Debt
Less: Self -Supporting Issues:
General Obligation (water)
Lease Revenue (parking)
1915 Act
Total Net Direct and Overlapping Bonded Debt
Debt Outstanding as
% Applicable
of June 1, 1988
12.729%
$ 1,709,356
12.690%
381,334
23.380%
2,338,000
100.000%
1,816,000
100.000%
18,745,000(1)
100.000%
21,000
825,010,690
(1) Includes $5,000,000 certificates of participation to be sold.
Source: City of San Luis Obispo Comprehensive Annual Financial Report.
Lease Obligations
(1,816,000)
(8,904,425)
(21,000)
814,269,265
The City has entered into noncancelable long-term leases with outside
parties for financing the construction of the Public Works Corporation
Yard and the purchase of an IBM computer system. The lease arrange-
ments transfer ownership of the facilities and equipment to the City at
the end of the term of the lease. Accordingly, the City has recorded
the Corporation Yard and the computer equipment lease obligation and
corresponding assets in the General Long -Term Debt and Fixed Asset
group of accounts, respectively. The computer equipment lease debt
service is funded directly out of the General Fund.
27
CA21.88A1/31
Future minimum lease payments under these capital leases are as
follows:
Fiscal Year
1988-89
1989-90
Total Minimum Lease Payments
Less: Amount Representing Interest
Present Value of Future Minimum
Lease Payments
General Fund
Corporation IBM
Yard Computer Total
$586,540 $34,366 $620,906
- 34,366 34,366
$586,540 $68,732 $655,272
52,253
Population
8,913
61,166
34,500
-
1980
$534,287
(0,9%)
$59r819
$594,106
0,9%
ECONOMY
The economic base of the City consists principally of governmental
services, higher education, the tourist industry and public utilities.
Government and public utilities are the largest employers in the City
and county.
TABLE A-5
City of an Luis Obispo
Population Growth
Year
Population
Percentage Change
1979
34,500
-
1980
34,184
(0,9%)
1981
34,509
0,9%
1982
35,545
3.0%
1983
35,740
0,2%
1984
36,420
2,0%
1985
37,151
2.0%
1986
38,205
2,8%
1987
38,307
0.2%
1988
39,850
4.0%
Source: California Department of Finance and U.S. Census.
Source: City of San Luis Obispo
28
CA21.88A1/32
Total Single -Family
Permits Issued
158
270
167
197
129
97
45
TABLE A-6
City of
San Luis Obispo
Building
Permit Data
Year Ended
Total Permits
Total Permit
June 30
Issued
Valuation
1988
657
$41,768,000
1987
833
54,014,530
1986
741
65,383,233
1985
694
30,915,815
1984
275
24,339,357
1983
418
18,115,703
1982
330
71172,099
Source: City of San Luis Obispo
28
CA21.88A1/32
Total Single -Family
Permits Issued
158
270
167
197
129
97
45
EO
MANUFACTURING:
TRW
Cryolab
Zistech Corporation
Trusco Tank
TABLE A-7
Major Employers
NON -MANUFACTURING:
County of San Luis Obispo*
Cal Poly State University*
California Men's Colony*
Pacific Gas & Electric (Diablo Canyon)*
San Luis Coastal Unified School District
Sierra Vista Regional Medical Center
Pacific Gas & Electric (General Construction)
French Hospital
City of San Luis Obispo
American Eagle Airlines*
San Luis Obispo General Hospital
Pacific Gas & Electric (Transmission and Distribution)
Madonna Inn
Guests Community College*
Mervyn's
Pacific Bell
Telegram -Tribune
Embassy Suites Hotel
Estimated
Number of
Employees
283
80
58
50
2,400
2,000
1,475
1,041
670
606
350
340
302
300
300
267
240
232
221
213
210
165
•
Principal Product/Service
Electronics Assembly
Cryogenic Values, Piping Systems
Electronics
Welded Steel Storage Tanks
County Government
University
State Prison
Power Plant
School District
Hospital
Utilities Construction
Hospital
City Government
Airlines
Hospital
Utilities
Lodging
Community College
Department Store
Telephone Company
Newspaper
Lodging
Although outside of the City limits, these companies or agencies are located immediately adjacent to
the City's boundaries, and are major sources of employment for the San Luis Obispo community. In the
case of the County of San Luis Obispo, which is seated in the City, the total above represents
County -wide employment, of which 1,800 are estimated to work in the City.
Source: San Luis Obispo Chamber of Commerce
(1) As of August, 1988.
Source: State of California Employment Development Department.
29
CA21.88A1/33
4
TABLE A-8
County
of San Luis Obispo
Average Annual
Labor Force,
Employment,
Unemployment
and Unemployment
Rate
1984
1985
1986
1987
1988(1)
Employed
73,850
77,750
81,300
85,800
89,550
Unemployed
41450
41600
41400
3,950
3,950
Labor Force
78,300
82,350
85,700
89,750
93,500
Unemployment
Rate 5.7%
5.6%
5.1%
4.4%
4.2%
(1) As of August, 1988.
Source: State of California Employment Development Department.
29
CA21.88A1/33
4
K
TABLE A-9
County of San Luis Obispo
Estimated Number of Wage and Salary
Workers by Industry - Annual Averages
(Amounts in Thousands)
Agricultural
Mining.
Construction
Manufacturing
Transportation, Utilities
and Communications
Wholesale Trade
Retail Trade
Finance, Insurance and
Real -Estate
Services
Government
Total All Industries
1983
1984
1985
1986
1987
1.9
2.0
2.0
1.7
1.8
.3
.4
.3
.3
.2
6.3
6.5
5.0
4.7
5.0
3.6
4.1
4.7
4.8
4.9
3.1
3.1
3.3
3.5
3.8
1.5
1.5
1.5
1.5
1.5
12.5
14.6
16.5
17.5
18.6
2.1
2.6
2.9
3.2
3.2
11.4
12.0
12.9
13.5
14.7
12.0
12.3
13.1
13.8
14.3
54.7
59.1
62.2
64.5
68.0
Source: State of California Employment Development Department.
Retail Sales and Effective Buying Income
Sales and Marketing Management's annual "Survey of Buying Power"
reported retail sales results and effective buying income ("EBI")
within the County of San Luis Obispo as follows:
TABLE A-10
County of San Luis Obispo
EBI and Retail Sales Data
30
CA21.88A1/34
•
Total EBI Median Household
Total Retail
Retail Sales
($000)
EBI
Sales ($000)
Per Household
1987
$2,607,691
$24,217(1)
$1,125,149
$14,863(2)
1986
2,360,440
22,996
11064,423
14,682
1985
21212,179
22,362(3)
11005,084
14,277
1984
21069,202
24,462
957,539
13,699
1983
11816,793
22,239
884,221
13,100
(1)
State median household EBI in 1987:
$30,537.
(2)
State retail sales
per household in
1987: $18,234.
(3)
Sales and Marketing
Management changed its methods
of calculating
effective buying
income in 1985.
This adjustment resulted in
generally lower
figures being recorded in 1985 compared to
previous years.
30
CA21.88A1/34
•
N
•
The median age
of residents in San Luis Obispo County was
estimated to
be 32.5 years
in 1987. Table A-13 presents the
County's
1987 EBI by
percentage of households in EBI groups in comparison with the State.
$ 21,800
54,902
TABLE A-11
Drug Stores
71243
7,557
County of San Luis Obispo
65,140
10,620
Food Stores
Package Liquor Stores
18,253
41927
1987 EBI Income Groups
20,771
22,300
Eating/Drinking Places
$101000- $201000-
$35,000-
$50,000
4F252
50,803
$19,999 $34F999
$49,999
and Over
San Luis Obispo
California
County 24.5% 25.4%
16.8$
16.5%
22,870
96,784
18.9% 23.7%
17.7$
25.8$
TABLE A-14
City of San Lu12 Obispo
Taxable Sales 1984-1987.($000
Source: California State Board of Equalization.
FINANCIAL OPERATIONS OF THE CITY
The City uses the modified accrual basis of accounting for its
governmental, expendable trust and agency funds whereby revenues are
recorded when available and measurable, and expenditures are recorded
when services or goods are received. The proprietary fund types
utilize the accrual basis of accounting. The City has received the
Certificate of Achievement for Excellence in Financial Reporting from
the Government Finance Officers Association of the United States and
Canada for the fiscal year ended June 30, 1987, as well as for the four
previous fiscal years.
31
CA21.88A1/35
4
1984
1985
1986
1987
Apparel Stores
General Merchandise Stores
$ 18,975
44,538
$ 20,665
49,526
$ 21,800
54,902
$ 22,639
Drug Stores
71243
7,557
10,372
65,140
10,620
Food Stores
Package Liquor Stores
18,253
41927
19,782
20,771
22,300
Eating/Drinking Places
43,234
41474
44,823
41503
46,354
4F252
50,803
Home Furnishings/Appliances
Building Materials/Farm
12,914
14,202
14,866
17,419
Implements
Auto Dealers/Auto Supplies
19,862
84,932
22,870
96,784
23,133
110,837
26,552
Service Stations
33,719
34,541
28,078
107,987
27,883
Other Retail Stores
40,402
36,254
38,394
47,649
Total Retail Outlets
All Other Outlets
$328,999
$351,478
$374,010
$403,244
541,215
52,473
66,128
78,735
Total All Outlets
$383,214
$403,951
$440,138
$481,979
Source: California State Board of Equalization.
FINANCIAL OPERATIONS OF THE CITY
The City uses the modified accrual basis of accounting for its
governmental, expendable trust and agency funds whereby revenues are
recorded when available and measurable, and expenditures are recorded
when services or goods are received. The proprietary fund types
utilize the accrual basis of accounting. The City has received the
Certificate of Achievement for Excellence in Financial Reporting from
the Government Finance Officers Association of the United States and
Canada for the fiscal year ended June 30, 1987, as well as for the four
previous fiscal years.
31
CA21.88A1/35
4
Table A-15 summarizes the statements of revenues, expenditures and
changes in fund balance for the City's general fund for the past three
fiscal years. Preliminary unaudited operating results for the fiscal
year ended June 30, 1988 are also presented. The financial information
presented for fiscal years ended June 30, 1985-87 was extracted from
the audited annual financial statements of the City. The City's
general purpose audited annual financial statement for the fiscal year
ended June 30, 1987 is included as Appendix S of this Official
Statement. The reader should be aware that the complete financial
statements may contain additional data relating to the information
presented here which may interpret, explain or modify it.
Source: City of San Luis Obispo Comprehensive Annual Financial Statements.
32
CA21.88A1/36
4
TABLE
A-13
City of San
Luis Obispo
Statement of Revenues, Expenditures and
Changes in Fund Balance
- General Fund
Fiscal Year
Ended June 30
Revenues:
1985
1986
1987
1988
(Unaudited)
Taxes
Licenses and Permits
$ 8,793,957
280,261
S 9,279,690
361,284
$ 9,739,287
$11,297,531
Fines and Forfeitures
420,250
496,261
316,302
457,360
245,977
Investment Revenue
Subventions and Grants
708,742
1,272,982
474,731
1,526,850
605,243
420,660
750,366
Charges for Services
450,427
437,173
1,459,765
417,179
1,529,081
Other
201,209
110,248
19.591
569,624
118.267
Total Revenues
512,127,828
$12,686,237
$13,014,727
$14,931,506
Expenditures:
Current:
General Government
Public Safety
S 1,982,108
S 1,898,202
S 1,941,438
S 2,281,189
Public Works
6,265,200
1,721,485
6,921,3.87
2,241,390
7,272 489
6,929,385
Cultural and Social Services
254,179
267,943
2,267,935
385,884
3,419,182
Other
Debt Service:
92,044
39,141
71,047
422,584
.0.
Principal
Interest
367,859
21 073 182.764
403,776
23,651
25,975
10,715
8.391
Total Expenditures
510,900,948
811,954,603
511,973,159
$13,086,706
Excess of Revenues Over
(Under) Expenditures
S 1,226,880
S 731,634
S 1,041,568
$ 1,844,800
Other Financing Sources (Uses):
Operating Transfers In
Operating Transfers Out
$ 765,092
(1,000,157)
$ 201,247
S 1,385,458
S 209,682
Proceeds of Capital Lease
(980,000)
(1,655,540)
(1,338,377)
Financing
186,003
-0-
-0-
0.
Total Other Financing
Sources (Uses)
S (49,062)
S (778,753)
S_ (270.082)
8(1.128,695)
Excess of Revenues and Other
Financing Sources Over
(Under) Expenditures and
Other Financing Uses
$ 1,177,818
, , 177 818
S (47,119)
S 771,486
S 716,105
Fund Balance at Beginning
of Year
S 1,855,061
S 3;032,879
S 2,985760
S 3,757,246
Fund Balance at End of Year
S 3.032,879
S 2,985,760
S 3,757,246
S 4,473,351
Source: City of San Luis Obispo Comprehensive Annual Financial Statements.
32
CA21.88A1/36
4
The Budgetary Process
In January, 1983, the City Council approved the use of a two-year
financial planning and budgeting process. The purpose of the two-year
plan is to emphasize long-range planning and effective fiscal
management. The plan presents program budgets based on significant and
measurable objectives.
The City's two-year planning documents have received national
recognition as outstanding and innovative management techniques from
the Government Finance Officers Association of the United States and
Canada. The 1985-1987 Financial Plan received unanimous recognition as
an especially notable policy document - one of only two such awards out
of 200 documents reviewed.
Basic tenets of the budgetary policy of the City, briefly stated,
include: maintenance of basic services at current levels with adequate
funding; maintenance of reserves at levels which will protect the City
from future uncertainties; estimation of revenues at realistic levels;
arrangement of program costs to reflect the true picture of the cost of
operations; and compliance of the recommended budget with the
provisions of the State Constitution, City Charter, municipal code and
sound fiscal policy.
Table A-16 sets forth comparative revenue detail by source and
comparative expenditure detail program of actual, estimated, budgeted
and projected budgets for fiscal years 1985-86 through 1988-89.
33
CA21.88A1/37
a
•
TABLE A-14
City of San Luis Obispo
Summary of Revenues, Expenditures, and
Changes in Fund Balance - All Funds Combined
REVENUES:
Tax Revenues
Licenses and Permits
Fines and Forfeitures
Investment and Property Revenues
Subventions and Grants
Service Charges
Trust and Agency Revenues
Other Revenues
Total Revenues
OPERATING PROGRAMS:
Public Safety
Public Utilities
Transportation
Leisure, Cultural, and
Community Development
General Government
Total Operating Programs
Social Services
CAPITAL PROJECTS:
1987-89 Financial Plan Projects
Carry -Over and Supplemental Projects
Total Capital Projects
Total Expenditures
OTHER FINANCING SOURCES (USES)
FUND BALANCE, BEGINNING OF YEAR
FUND BALANCE,
Designated
Undesignated
END OF YEAR:
TOTAL FUND BALANCE
34
CA21.88A1/38
1987-88
Estimated
$13,267,100
230,600
474,000
1,857,400
4,901,200
6,145,700
575,400
904,900
28,356,300
$ 71075,300
4,864,700
2,298,800
2,777,700
1,996,700
2,520,800
21,5_ 34,000
$11,895,500
8,1— 24t 00
20, 0- 1` 0
41,533,800
$ (488,700)
$29,426,400
$ 8,151,500
7,588,700
$15,740,200
1988-89
Budget
$141066,200
190,600
515,000
1,613,900
3,397,500
8,204,500
577,600
96f000
28,661,300
$ 7,479,400
5,373,800
2,482,000
3,028,600
2,290,900
2,566,100
23,220,800
$ 71090,500
1,947,300
9,037,800
32,258,600
$ 31076,800
$15,740,200
$ 81393,300
__6L826 400
$15,219,700
Retirement Plans for City Employees
The City participates in the State of California Public Employees'
Retirement System (PERS) which covers substantially all of the City's
employees. Two valuations have been established for the City: one for
all safety employees and a separate program for all other qualifying
employees. PERS is considered a contributory plan deriving funds from
employee contributions as well as from employer contributions and
earnings from investments.
It is the City's policy to fund current retirement costs as accrued.
The total pension expense for the fiscal year ended June 30, 1987 was
$1,041,991, which includes amortization of past service cost to the
year 2000. The accumulated plan benefits and plan net assets for the
City's PERS is presented below as of the most recent valuation date,
June 30, 1986.
Actuarial present value of
accumulated plan benefits
Net assets available for benefits
Unfunded liability:
Employees
Employers
Total Actuarial Assets
35
CA21.88A1/39
Safety
$19,843,687
$ 91941,989
2,557,643
7,344,055
$19,843,687
All Others
$18,003,478
$ 91814,642
4,042,532
4,146,304
$18,003,478
0
APPENDIX B
•
General Purpose Audited Annual
Financial Statements for the
Fiscal Year Ended June 30, 1987
36
CA21.88A1/40
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APPENDIX C
Form of Legal Opinion
37
CA21.88A1/41
M
CA21.88A1/42
APPENDIX D
Official Notice of Sale
38
i
Members of the Board of
City of San Luis Obispo
Capital Improvement Board
San Luis Obispo, California.
Members of the Board:
It
Sale Date: December 13, 1988
For all or none of the principal amount of $5,000,000 Certificates of
Participation, Series 1988, legally issued and as described in the
Official Notice of Sale, we will pay the Board $
(not less than $4,900,000) plus accrued interest on the total principal
Of $5,000,000 to date of delivery, provided the Certificates bear the
following interest rates:
Serial Certificates
Year
Amount
Interest
Rate
Year
Amount
Interest
Rate
1989
$120,000
%
1994
$165,000
$
1990
1991
130,000
%
1995
180,000
$
1992
140,000
145,000
%
%
1996
1900000
$
1993
155,000
%
1997
1998
205,000
220,000
$
$
Term Certificates
$1,370,000 Term
Certificates
Due June
1, 2003
$
$1,980,000 Term
Certificates
Due June
1, 2008
$
The Certificates mature
above, and interest is
on June 1 in
each of
the years
as indicated
thereafter
payable June
on December 1 and June 1 of
1, 1989, and
each
semiannually
year.
This bid
the Official
is made for prompt acceptance
Notice
and subject to the
conditions of
of Sale. We enclose, herewith,
check in the amount of $100,000.
our good faith
NOT PART OF THE BID
Explanatory Note: According
to our computation, this bid
involves the following:
Net Interest Cost
Net Interest Rate
I hereby acknowledge receipt
for the above-described good
faith check.
CA21.88A1/43
Respectfully submitted,
Syndicate Manager
By
(A list of the firms associated
with us in this bid is on the
reverse side of this proposal.)
The foregoing offer is hereby
accepted by and on behalf of
City of San Luis Obispo Capital
Improvement Board, San Luis
Obispo, California, this 13th
day of December, 1988.
City of San Luis Obispo
Capital Improvement Board
San Luis Obispo, California
City of San Luis Obispo
Capital Improvement Board
39 San Luis Obispo, California