HomeMy WebLinkAbout1997-08-26; Municipal Water District; 385; Refunding Revenue Certificates of Participation. CARLSBAD MUNiCIPAL WATER DlSTklC I- - AGENDA BILL
AB# 385 TITLE:
WATER REVENUE DEPT HD. v
MTG . 6126197 CERTIFICATES OF PARTICIPATION
DEPT. FIN REFUNDING ISSUE
RECOMMENDED ACTION:
Adopt Resolution No 79 3 authorizing the execution and delivery of not to exceed $8,500,000
refunding revenue certificates of participation, approving the execution and delivery of certain
documents and authorizing certain acts in connection therewith.
ITEM EXPLANATION:
On June 3, 1997, the Board adopted Resolution No. 975 directing staff to proceed with the refunding
(refinancing) of the existing Certificate of Participation (COP) issues. At that time, the Board heard a
report that explained that the decline in interest rates over the past few years has provided the District
with an opportunity to save hundreds of thousands of dollars by refinancing its outstanding COPS.
The Board directed staff to proceed with the selection of an underwriter and to move forward with the
refunding plan.
On July 8, 1997 the Board adopted Resolution No. 982 selecting Dean Witter Reynolds as the
underwriter to work on the refunding project, to return with an agreement, and directing staff to
continue with the refunding project. The form of that agreement is on file with the Secretary to the
Board and the attached resolution limits the amount to be paid to the underwriter to not more than
1.5% of the aggregate principal amount of the Certificates. The final amount will be negotiated at the
time the bonds are priced based on the market then in effect.
To insure that a fair price is achieved and to assist the staff with the review of documents, staff has
also solicited proposals from financial consultants. Staff has entered into an agreement with Peter J.
Ross, an independent financial consultant, who previously worked with the City on the refunding of a
multi-family mortgage revenue bond as an underwriter with Dean Witter.
The Board also asked staff to propose a second course of action should Dean Witter Reynolds not be
able to complete the refundings for any reason. After considering the five firms that were interviewed,
staff is recommending that, in the unlikely event that Dean Witter Reynolds was unable to complete
the refunding, that the Council transfer the assignment of completing the refunding to Stone and
Youngberg. The Stone and Youngberg staff is prepared to assist the City, if necessary.
Following the Board’s selection of the underwriter, staff consulted with the City Attorney on the
selection of Bond Counsel. The City Attorney requested that we select the firm of Stradling Yocca
Carlson and Rauth, and more specifically Kurt Yeager of that firm, to work on the Hosp Grove and
Water District refunding issues. Kurt Yeager has served the City as Bond Counsel on several past issues, including the expansion of the Encina Wastewater Plant.
Staff and the consultants listed above have been working to complete the refunding of both the Hosp
Grove and Water COP issues by late September in order to avoid having to wait six months for the
next principal payment date. The documents necessary to accomplish this are on file in the City
Clerk’s office (Secretary to the CMWD Board).
In general, the attached documents will authorize the issuing of new COPS at a lower interest rate
than the existing issue. The proceeds of this new issue will be used to pay off the outstanding COPS.
Page 2 of Agenda Bill # * -385
The attached resolution requires that refunding generate a net present value savings of at least 3.5 % in order for the transaction to proceed. The calculation of a net present value savings is an accepted
method used by the industry to determine the amount of savings expected from a bond refunding. The
method computes the annual savings to be achieved by the refunding (after adding in all associated
costs) and then discounts this stream of payments to take into account the time value of money.
Other actions the Board is being asked to take are as follows:
1. Consent to the refunding
2. Approve the form of the lnstallment Purchase Agreement
3. Approve the form of the Trust Agreement - First Trust of California
4. Approve the form of the Escrow Agreement
5. Approve the form of the Purchase Agreement - Dean Witter Reynolds
6. Approve the preparation and distribution of the Preliminary Official Statement
7. Approve the form of the Continuing Disclosure Certificate
8. Approve the form of the Amendment to lnstallment Purchase Agreement
9. Authorize various members of the Board and staff to sign documents for the District and to make
minor modifications as may be deemed necessary by the City Attorney and Bond Counsel
10. Appoint First Trust of California to act as Trustee
11. Approve the form of the agreement with Stradling Yocca Carlson and Rauth to act as Special
Counsel
12. Authorize staff to select a municipal bond insurer
Bond Counsel, the Dean Witter staff, and District staff will be available at the Board meeting to
answer any questions the Board may have on the documents listed above.
FISCAL IMPACT:
Based on current market conditions the refunding of the Water District Certificates of Participation will
produce a net savings of about $374,000 over the next seven years (a present value savings of 5%).
This assumes that the average coupon rate for the new COP issue will be about 4.12%, compared to
7.24% for the existing issue.
All costs related to this issue will be paid from the proceeds of the issue. A summary of all costs will
be available upon closing, now set for September 24, 1997.
EXHIBITS:
1. Resolution No. 9 9 3 authorizing the execution and delivery of not to exceed $8,500,000
refunding revenue certificates of participation, approving the execution and delivery of certain
documents and authorizing certain acts in connection therewith.
2. Documents on file with the Secretary to the Board:
l lnstallment Purchase Agreement
l Trust Agreement - First Trust of California
l Escrow Agreement
0 Preliminary Official Statement
l Purchase Agreement - Dean Witter Reynolds
l Continuing Disclosure Certificate
l Form of the Agreement for Legal Services - Stradling Yocca Carlson and Rauth
c -
RESOLUTION NO. 993
.-
RESOLUTION OF THE CARLSBAD MUNICIPAL WATER
DISTRICT AUTHORIZING THE EXECUTION AND
DELIVERY OF NOT TO EXCEED %8,500,000 1997 WATER
REVENUE CERTIFICATES OF PARTICIPATION (1988
REFUNDING PROJECT), APPROVING THE EXECUTION
AND DELIVERY OF CERTAIN DOCUMENTS AND
AUTHORIZING CERTAIN ACTS IN CONNECTION
THEREWITH
WHEREAS, the Carlsbad Municipal Water District (the “District”), a municipal water district
duly organized and existing under and pursuant to the Constitution and laws of the State of California,
formerly known as Costa Real Municipal Water District, has determined that it is in the best interest of
the District to refinance $8,160,000 outstanding principal amount of Installment Sale Agreement which
was originally executed and delivered in connection with those certain 1988 Certificates of
Participation (the “1988 Certificates”) to finance and refinance the expansion of the District’s water
system (collectively, the “1988 Installment Purchase Agreement”) by the execution and delivery of not
to exceed %8,500,000 aggregate principal amount of 1997 Water Revenue Certificates of Participation
(1988 Refunding Project) (the “Certificates”); and
WHEREAS, the District has determined the necessity to amend certain terms of the
Installment Purchase Agreement to delete the requirement that the District deposit cash with the notice
to the Trustee of the District’s exercise of its option to prepay the Installment Payments under the
Installment Purchase Agreement (collectively, the “Amendment”); and
WHEREAS, Section 10.4 of the Installment Purchase Agreement and Section 10.01 of that
certain Trust Agreement executed in connection with the delivery of the 1988 Certificates provide that
the Installment Purchase Agreement may be amended, without the consent and approval of the owners
of the 1988 Certificates but with the prior written consent of the District, Bond Investors Guaranty
Insurance Company (“BIG”) and the Independent Public Facilities Corporation (the “Corporation”), in
regard to questions arising thereunder, as the parties thereto deem necessary or desirable, and which
shall not adversely affect the interest of the Owners of the 1988 Certificates; and
WHEREAS, the District, MBIA Insurance Corporation, as successor in interest to BIG, and
First Trust of California, National Association, as assignee of all rights and interests of the Corporation
pursuant to that certain Assignment Agreement executed in connection with the delivery of the
Installment Purchase Agreement and the 1988 Certificates, have consented in writing to the terms of
that First Amendment to Installment Purchase Agreement dated as of September 1, 1997 by and
between the District and First Trust of California, National Association, as assignee of the Corporation,
the form of which is on file with the District (the “Amendment”); and
WHEREAS, the District and the City of Carlsbad Public Improvement Corporation have
determined (i) that the District and all subordinate entities thereof do not anticipate that they will issue
in the aggregate more than $10,000,000~of tax-exempt obligations during calendar year 1997 and (ii)
505254.5\22062.0024
that it is desirable and in the best interest of the District to designate the Certificates as “qualified tax
exempt obligations” for purposes of paragraph (3) of Section 265(b) of the Internal Revenue Code of
1986, as amended;
NOW, THEREFORE, the Board of Directors of the Carlsbad Municipal Water District
hereby finds, determines, declares, and resolves as follows:
SECTION 1. The Installment Purchase Agreement in substantially the form on file with the
District and, upon execution as authorized below, made a part hereof as though set forth in full herein,
be and the same is hereby approved. The President or Vice-President and the Secretary are hereby
authorized and directed to execute and deliver the Installment Purchase Agreement with such changes,
insertions and omissions as may be approved by the officers executing the same, said execution being
conclusive evidence of such approval.
SECTION 2. The Trust Agreement, in substantially the form on file with the District and,
upon execution as authorized below, made a part hereof as though set forth in full herein, be and the
same is hereby approved. The President or Vice-President and the Secretary are hereby authorized and
directed to execute and deliver the Trust Agreement with such changes, insertions and omissions as
may be approved by the officers, executing the same, said execution being conclusive evidence of such
approval.
SECTION 3. The Escrow Agreement, in substantially the form on file with the District and,
upon execution as authorized below, made a part hereof as though set forth in 111 herein, be and the
same is hereby approved. The President or Vice-President and the Secretary are hereby authorized and
directed to execute and deliver the Escrow Agreement with such changes, insertions and omissions as
may be approved by the officers, executing the same, said execution being conclusive evidence of such
approval.
SECTION 4. The Contract of Purchase, in substantially the form on file with the District and,
upon execution as authorized below, made a part hereof as though set forth in full herein, be and the
same is hereby approved. The Executive Manager or General Manager is hereby authorized and
directed to execute and deliver the Contract of Purchase with such changes, insertions and omissions as
may be approved by the officer executing the same, said execution being conclusive evidence of such
approval; provided, however, that in no event shall the principal amount of the Certificates exceed
$8500,000 (except such principal amount may be increased to provide original issue discount), nor-
shall the underwriters’ discount (not including original issue discount) exceed 1.5% of the Certificates
to be issued, and provided that the net present value of the Lnstallment Payments payable under the
Installment Purchase Agreement is at least 3.5 percent less than the net present value of the payments
under the 1988 Installment Purchase Agreement.
SECTION 5. The preparation and distribution of the Preliminary Official Statement, in the
form on file with the District, be and the same is hereby approved. The Executive Manager or General
Manager is hereby authorized to sign a certificate pursuant to Rule 15~2-12 promulgated under the
Securities Exchange Act of 1934 relating to the Preliminary Official Statement and the President or
Vice-President is hereby authorized and directed to execute, approve and deliver the final Official
Statement in the form of the Preliminary Official Statement which, upon execution as authorized
below, is made a part hereof as though set forth in full herein, with such changes, insertions and
505254.5Y22062.0024 2
omissions as the officer executing said document may require or approve, such approval to be
conclusively evidenced by the execution and delivery thereof The underwriters named in the Contract
of Purchase are hereby authorized to distribute copies of said Preliminary Official Statement to persons
who may be interested in the initial purchase of the Certificates and are directed to deliver copies of any
final Official Statement to all actual initial purchasers of the Certificates.
SECTION 6. The Continuing Disclosure Certificate in substantially the form on file with the
District and, upon execution as authorized below, made a part hereof as though set forth in full herein,
be and the same is hereby approved. The President or Vice-President or Executive Manager are
hereby authorized and directed to execute and deliver the Continuing Disclosure Certificate with such
changes, insertions and omissions as may be approved by the officer executing the same, said
execution being conclusive evidence of such approval.
SECTION 7. The form of the Amendment presented at this meeting is hereby approved.
Each of the President, Vice-President and the Secretary is hereby authorized for and in the name of the
District to execute the Amendment in substantially the form hereby approved, with such additions
thereto and changes therein as are recommended or approved by the officers executing the same.
Approval of such changes shall be conclusively evidenced by the execution and delivery of the
foregoing document by such officers.
SECTION 8. The President, Vice-President, Executive Manager, General Manager and
Financial Management Director and any other proper officer of the District, acting singly, be and each
of them hereby is authorized and directed to execute and deliver any and all documents and
instruments and to do and cause to be done any and all acts and things necessary or proper for carrying
out the transactions contemplated by the Trust Agreement, the Escrow Agreement, the Installment
Purchase Agreement, the Contract of Purchase, the Continuing Disclosure Certificate and this
Resolution.
SECTION 9. First Trust of California, National Association, Los Angeles, California is
hereby appointed to act as trustee under the Trust Agreement.
SECTION 10. The District has selected Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, to act as Special Counsel to the District on certain aspects of the execution and delivery of
the Certificates, and hereby authorizes the City Manager and Financial Management Director, acting
singly, to execute the Special Counsel Agreement for Certificates of Participation substantially in the
form which has been presented to this Board..
SECTION 11. The Executive Manager or Financial Management Director is hereby
authorized to select a municipal bond insurer to insure payments of interest with respect to and
principal of the Certificates so long as the Executive Manager or Financial Management Director
determines that obtaining the municipal bond insurance policy provided thereby will result in a lower
interest rate or yield to maturity with respect to the Certificates.
SECTION 12. The Certificates are hereby designated as “qualified tax exempt obligations”
for purposes of paragraph (3) of Section 265(b) of the Internal Revenue Code of 1986, as amended.
505254.5\22062.0024 3
SECTION 13. Unless otherwise defined herein, all terms used herein and not
otherwise defined shall have the meanings given such terms in the Trust Agreement
unless the context otherwise clearly requires.
SECTION 14. This resolution shall take effect immediately.
PASSED, APPROVED, AND ADOPTED, at a regular meeting of the Carlsbad
Municipal Water District held on the 26th day of August ,
1997, by the following vote, to wit:
Ayes: Board Members Lewis, Finnila, Nygaard and Hall
Noes: None
Absent: Board Member Kulchin /?
ATTEST:
Secretary
. -
STATE OF CALIFORNIA )
1 ss. COUNTY OF SAN DIEGO 1
I, Aletha L. Rautenkranz , Secretary of the Carlsbad Municipal
Water District, do hereby certify that the above and foregoing Resolution is a full, true
and correct copy of Resolution No. 993 of said Board, and that the same has not
been amended or repealed as of the date hereof.
DATED: September 2 , 1997.
Secretary of the Carlsbad Municipal
Water Dk&rict
-_
FAX TRANSMITTAL
DATE: August 27,1997
TO: E. Kurt Yeager
Stradling Yocca Carlson & Rauth
FROM: Lee Rautenkranz
City Clerk
City of Carlsbad
FAX No. (760) 434-1987
Office: (760) 434-2809
COMMENTS: This is the signed copy of the First
Amendment to Installment Sale Agreement for CMWD,
per your request. I know we have a lot of other documents
to process, and I’ll be looking at those today, but I’m
assuming we’ll still need to have this original signed;
therefore, we may be calling with more questions later on.
STRADLIN~ YOCCA CARLSON & RAUTH * PROFESSlONA‘ CORPORATlON
ATTORNEYS AT LAW
E. KURT YEAGER
DIRECT DlAL 660 NEWPORT CENTER DRIVE, SUITE ,600 (714) 725.4189 NEWPORT BE*Cn. C*.LIi=ORNIA se660 E-MAIL TELEPHONE ,,I.) 7254ooo
kyeoger@sycr.com FAX (714) 72%4100
FIRST AMENDMENT TO INSTALLMENT SALE AGREEMENT
THIS FIRST AMENDMENT TO INSTALLMENT SALE AGREEMENT entered into as of
this 1 st day of September 1997 is a supplemental agreement executed pursuant to the terms of Article
X of that certain Trust Agreement dated as of November 1, 1988 (the “1988 Trust Agreement”), by
and among Security Pacific National Bank, as Trustee, Independent Public Facilities Corporation (the
“Corporation”) and Costa Real Municipal Water District and, together with that certain Installment
Sale Agreement executed as of November 1, 1988, by and between the Corporation and the District
(the “1988 lnstallment Sale Agreement”), as hereby amended, governs the terms of the sale and
purchase of water facilities of the District in connection with the District’s execution and delivery of
Certificates of Participation (Reservoir and Water Facilities 1988 Refunding and Financing Project)
(the “1988 Certificates”).
RECITALS:
WHEREAS, the Carlsbad Municipal Water District (the “District”), a municipal water district
duly organized and existing under and pursuant to the Constitution and laws of the State of California,
formerly known as Costa Real Municipal Water District, has determined that it is in the best interest of
the District to refinance $8,690,000 outstanding principal amount of Installment Sale Agreement which
was originally executed and delivered in connection with the 1988 Certificates to finance and refinance
the expansion of the District’s reservoir and water system; and
WHEREAS, the District has determined the necessity to amend certain terms of the
lnstallment Sale Agreement to delete the requirement that the District deposit cash with the notice to
the Trustee of the District’s exercise of its option to prepay the lnstallment Payments under the
lnstallment Sale Agreement (collectively, the “Amendment”); and
WHEREAS, Section 10.4 of the 1988 Installment Sale Agreement and Section 10.01 of the
1988 Trust Agreement executed in connection with the delivery of the 1988 Certificates provide that
the 1988 lnstallment Sale Agreement may be amended, without the consent and approval of the owners
of the 1988 Certificates but with the prior written consent of the District, Bond Investors Guaranty
Insurance Company (“BIG”) and the Independent Public Facilities Corporation, as seller (the
“Corporation”), in regard to questions arising thereunder, as the parties thereto deem necessary or
desirable, and which shall not adversely affect the interest of the Owners of the 1988 Certificates; and
WHEREAS, the District, BIG and First Trust of California, National Association, as assignee
of all rights and interests of the Corporation under the 1988 Installment Sale Agreement pursuant to
that certain Assignment Agreement executed in connection with the delivery of the 1988 Installment
Sale Agreement and the 1988 Certificates, have consented in writing to the terms of that First
Amendment to lnstallment Sale Agreement dated as of September 1,1997 by and between the District
and First Trust of California, National Association, as assignee of the Corporation, the form of which is
on file with the District (the “Amendment”);
NOW, THEREFORE, the Board of Directors of the Carlsbad Municipal Water District
hereby finds, determines, declares, and resolves as follows:
SECTION 1. Section 4.4 (b) of the 1988 lnstallment Sale Agreement is hereby amended by
deleting subsection (b) in its entirely and replacing it with the following:
509306.2\22062.0024
Oution to Prenav. Subject to the terms and conditions of this Section, the Seller hereby
grants an option to the District to prepay the Installment Payments, in whole or in part,
pursuant to which Prepayment Certificates will be redeemed in accordance with Section
4,01(c) of the Trust Agreement. Said option may be exercised on any Interest Payment Date
occurring on or after May 1, 1997. Said option shall be exercised by the District by giving
written notice to the Trustee of the exercise of such option at least sixty (60) days prior to such
an Interest Payment Date. Such notice shall designate the annual installments, or portion
thereof, to which such Prepayment shall apply in the event that such Prepayment is not a
Prepayment in whole of such remaining installment payments, together with applicable
premiums, if any. Such option shall be further exercised by the District depositing with the
Trustee, on or before the date that the Trustee provides notice of such Prepayment to the
Owners of the Certificates to be prepaid, cash in the minimum principal amount of $50,000,
plus accrued interest on the principal amount to be prepaid to the date of redemption of the
Certificates being redeemed with such Prepayment, together with any Installment Payments
then due but unpaid. The District shall also deposit on such date an additional amount of cash,
as a prepayment premium equal to l/4 of 1% of the principal amount of the InstaIlment
Payments to be prepaid for each year or portion of a year between the date of Prepayment and
the fixed maturity date of the Certificates to be prepaid therewith, but not in excess of 2% of
‘such principal amount.
SECTION 2. The Board of Directors hereby ratifies and directs District staff and the Trustee
to take any and all actions necessary and appropriate to accomplish the purposes described herein and
hereby directs the Secretary to place a true and correct copy of this First Amendment to Installment
Sale Agreement on file in the Secretary’s office immediately following the execution hereof
CARLSBAD MUNICIPAL WATER DISTRICT, as
ATTEST:
--. Secretary of the Carls
Water District
FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, as Trustee
By:
Author&d Officer
509306.2\22062.0024
c
September 17,1997
Attention: Judy Krawiec
Stradling, Yocca, Carlson and Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, CA 92660
,
Re: Certified copies of documents relating to Refunding Certificates of
Participation (Hasp Grove Project) and Water Revenue Certificates of
Participation (1988 Refunding Project)
Enclosed please find the requested copies of the following:
Certified copy of Carlsbad Public Improvement Corporation Resolution No. 88-1
(By-laws)
Certified copy of Carlsbad Public Improvement Corporation Resolution No. 88-2
Certified copy of Carlsbad Public Improvement Corporation draft Minutes of
August 26,1997
Certified copies (six) of Cai-isbad Municipal Water District Minutes dated
August 26,1997
If you have any questions or require further assistance, please contact this offtce.
Sincerely,+ ‘*
Isabelle Paulsen
Administrative Secretary
Enclosures
1200 Carlebad Village Drive l Carlebad, Callfornla 82008-1889 l (780) 434-2808 68
September 11,1997
Attention: Judy Krawiec
Stradling, Yocca, Carlson and Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, CA 92660
Re: Certified copies of documents relating to Refunding Certificates of
Participation (Hasp Grove Project) and Water Revenue Certificates of
Participation (1988 Refunding Project)
Enclosed please find the requested copies (six of each) of the following:
Certified copies of Carlsbad City Council Resolution No. 97-577
Certified copies of Carlsbad Public Improvement Corporation Resolution No.
97-l
Certified copies of Carlsbad Public Improvement Corporation Resolution No.
97-2
Certified copies of Carlsbad Municipal Water District Resolution No. 993
Certified copies of Carlsbad City Council Minutes dated August 26,1997
If you have any questions or require further assistance, please contact this office.
Sincerely,: ‘-
Isabelle Paulsen
Administrative Secretary
Enclosures
1200 Carlsbad Village Drfve l Carlsbad, California 82008-1989 l (760) 434-2808 t!D
14029-05 JH:CXL 7/24/97 B/08/97 a/19/97
PRELIMINARY OFFICIAL STATEMENT DATED SEF’TEMBER - 1997
New Issue - BOOK-ENTRY ONLY Bank Qualified
Ratingsz~
Moody’s: _
Standard & Poor’s: _
In the opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein the portion of each Installment Payment constituting interest is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the portion of each Installment Payment constituting interest is exempt from State of California personal income tax. See “TAX MATTERS” herein with respect to certain tax consequences with respect to the Certificates.
$-------* 1997 Water Revenue Certificates of Participation (1988 Refunding Project)
Evidencing Direct, Undivided Fractional Interests of the
Owners Thereof in Installment Payments to Be Made by the CARLSBAD MUNICIPAL WATER DISTRICT (San Diego County, California)
Pursuant to an Installment Purchase Agreement with the CJTY OF CARLSBAD PUBLIC IMPROVEMENT CORPORATION
Dated: September 1,1997 Due: May 1 as shown below
The Certificates evidence and represent direct, undivided fractional interests of the Owners thereof in the Installment Payments (which include principal and interest components) to be made by the Carlsbad Municipal Water District (the District”) for the acquisition of certain facilities (the “Project”) of the District’s water system (the ‘Water System”) pursuant to an Installment Purchase Agreement, dated as of September 1,1997 (the “Installment Purchase Agreement”), by and between the District and the City of Carlsbad Public Improvement Corporation (the “Corporation”). The Certificates are being executed and delivered to provide funds to (i) refund certain outstanding certificates of participation evidencing instaUment
payments to be made by the District with respect to the Project, (ii) fund a reserve fund for the Certificates, and (iii) pay certain costs incurred in
connection with the execution and delivery of the Certificates. Interest represented by the Certificates is payable on May 1,1998 and each November 1 and May 1 thereafter. The obligation of the District to make the Installment Payments is a special obligation of the District payable solely from Net Revenues of the District’s Water System and certain funds and accounts created under the lnstallment Purchase Agreement. The Certificates will be initially delivered only in book-entry form, registered to Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository of the Certificates. Interest and principal represented by the Certificates are payable by First Trust of California, National Association, Los Angeles, California, as Trustee, to DTC, which remits such payments to its Participants for
subsequent distribution to the beneficial owners of the Certificates. See “THE CERTIFICATES - Book-Entry Only System” and O- General.” The Certificates are subject to prepayment prior to maturity as described herein. See ‘THE CERTIFICATES -Prepayment.”
The obligation of the District to make the Installment Payments does not constitute a debt of the District or the State of California or of any
political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for
which the District or the Stats of California is obligated to levy or pledge any form of taxation or for which the District or the State of California levied or
pledged any form of taxation. This cover page contains information for reference only. Investors must read the entire Official Statement to obtain information essential in making an informed investment decision See “CERTIFICATE OWNERS RISKS” for a discussion of factors that should be considered, in addition to the
other matters set forth herein, in evaluating the investment quality of the Certificates.
MATURITYSCHEDULE
MEz’y Principal Mp-;V
liidd
Principal
Miurl AmQl.a
1998 2002 1999 2003 2000 2004 2001
xi&
The Certificates wiIl be offered when, as and if executed and delivered and received by the Underwriter, subject to the approval as to their legality by Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel. Certain legal matters will be passed upon for the Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California. In addition, certain legal matters will be passed upon for the District and the Corporation by the City Attorney. It is anticipated that the Certificates in definitive form will be available for delivery to DTC in New York, New York on or about September - 1997.
MORGAN STANLEY DEAN WITIER Dated: , 1997.
NO DEALER, BROKER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION WITH RESPECT TO THE CERTIFICATES, OTHER THAN AS CONTAINED IN THIS OFFICIAL STATEMENT, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE AUTHORITY, THE DISTRICT OR THE UNDERWRITERS. THIS OFFICIAL
STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE DESCRIBED ON THE COVER PAGE OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE CERTIFICATES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. THIS OFFICIAL STATEMENT IS NOT TO BE
CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE CERTIFICATES.
Statements contained in this Official Statement which involve time estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been
furnished by the District and the District, or other sources which are believed to be reliable, but
it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or the District since the date hereof.
This Official Statement is submitted in connection with the sale of securities referred to herein and may not be reproduced or be used, as a whole or in part, for any other purpose.
The District, by resolution adopted on August 26, 1997, designated the Installment
Purchase Agreement as a “qualified tax-exempt obligation” pursuant to Section 265(b)(3) of the
Internal Revenue Code of 1986. Such section provides an exception to the prohibition against
the ability of a “financial institution” (as defined in the Code) to deduct its interest expense
allocable to tax-exempt interest.
IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY
OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC
OFFERING PRICES STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS.
THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE CERTIFICATES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
CARLSBAD MUNICIPAL WATER DISTRICT
SAN DIEGO COUNTY, CALIFORNIA
BOARD OFDIRJZflORS
Claude A. “Bud” Lewis, President
Ramona Finnila, Director Matt Hall, Director Ann J. Kulchin, Director Julie Nygaard, Director
OFFICERS AND STAFF
Raymond R. Patchett, Executive Manager
Robert J. Greaney, General Manager Frank Mat-men, Assistant City Manager James F. Elliott, Financial Management Director James M. Stanton, Treasurer Lisa HiIdabrand, Finance Director Aletha L. Rautenkranz, Secretary Ron Bali, District Counsel
FJNANCIAL ADVISOR
Peter J. Ross
San Francisco, California
SPECIAL COUNSEL
StradIing, Yocca, Carlson & Rauth, a Professional Corporation
Newport Beach, California
TRUSTEE AND ESCROW AGENT
First Trust of California, National Association Los Angeles, California
ESCROW VERIFICATION AGENT
Ernst & Young Tucson, Arizona
TABLE OF CONTENTS
INTRODUCTION.. ...................................................................................................................... .1
ESTIMATED SOURCES AND USES OF PROCEEDS .............................................................. .3
PLAN OF REFUNDING .............................................................................................................. .3
THE CERTIFICATES.. .................................................................................................................. 4
General Provisions ........................................................................................................... .4 Prepayment Provisions.. ................................................................................................... .
INSTALLMENT PAYMENT SCHEDULE ................................................................................. .6
CONTINUING DISCLOSURE ..................................................................................................... .
BOOK-ENTRY ONLY SYSTEM.. ................................................................................................. .
SECURITY FOR THE CERTIFICATES.. ...................................................................................... .9
Nature of the Certificates ................................................................................................ .9
Limited Obligations Payable From Net Revenues ........................................................... .9
Rate Covenant.. .............................................................................................................. .10
Reserve Fund ................................................................................................................... 1 0
Additional District Obligations.. ................................................................................... .1 1
THE CORPORATION .............................................................................................................. ..12
THE CARLSBAD MUNICIPAL WATER DISTRICT .............................................................. ..12
Background.. .................................................................................................................. .12
Service Area ................................................................................................................... .13
Budget Process.. ............................................................................................................. .14
Insurance.. ...................................................................................................................... .14
Water System Supply and Operations.. ........................................................................ .14
Water Delivery History .................................................................................................. .17
Water Storage ................................................................................................................. .18
Distribution System.. ..................................................................................................... .18
Employees and Employee Benefits.. .............................................................................. .18
CAPITAL IMPROVEMENT PROGRAM.. ................................................................................ .20
FINANCIAL RESULTS OF THE DISTRICT .............................................................................. 20
Operating Revenues ....................................................................................................... .2 1
Non-Operating Revenues ............................................................................................... .2 5
Outstanding District Obligations ................................................................................. ..2 6
Historic Revenues, Expenditures and Debt Service Coverage ...................................... .27
Projected Revenues, Expenditures and Debt Service Coverage.. .................................. .28
Direct and Overlapping Bonded Indebtedness.. ........................................................... .29
CERTIFICATE OWNERS’ RISKS .............................................................................................. .30
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND
APPROPRIATIONS.. ............................................................................................................ . 1
Article XIIIA of the California Constitution ................................................................... 31
Article XIIIB of the California Constitution.. ................................................................. .3 1
Unitary Property.. .......................................................................................................... .32
Statutory Limitations.. ................................................................................................... .32
Proposition 218.. ............................................................................................................ .32
Future Initiatives and Legislation.. ................................................................................ .34
CERTAIN LEGAL MATTERS.. ................................................................................................. .34
TAX MATTERS .......................................................................................................................... 34
BANK QUALIFIED.. ................................................................................................................. .35
ABSENCE OF LITIGATION .................................................................................................... ..3 5
i
VERIFICATION OF MATHEMATICAL ACCURACY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 36
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
MISCELLANEOUS ,.................................,................................................................................. 36
APPENDIX h - CERTAIN DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-l APPENDIX B - GENERAL INFORMATION ABOUT THE CITY OF CARLSBAD . . . . . . . . . . . . . . B-l APPENDIX C - FORM OF OPINION OF SPECIAL COUNSEL . ..*....*..................**............... C-l APPENDIX D - FORM OF CONTINUING DISCLOSURE CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . D-l APPENDIX E - AUDITED FINANCIAL STATEMENTS FOR THE CITY FOR THE YEAR ENDED JUNE 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-l
OFFICIAL STATEMENT
CARLSBAD’MUNICIPAL WATER DISTRICT
SAN DIEGO COUNTY, CALIFORNIA
1997 Water Revenue Certificates of Participation
(1988 Refunding Project)
INTRODUCTION
This Official Statement, which includes the cover page and appendices hereto, provides certain information concerning the sale and delivery of the Carlsbad Municipal Water District 1997 Water Revenue Certificates of Participation (1988 Refunding Project) (the “Certificates”).
The Certificates are being executed and delivered in denominations of $5,000 or any integral multiple thereof. Interest will accrue on the principal components of each Certificate at the applicable interest rate (as set forth on the cover hereof) from September 1, 1997 until its date of maturity or prior prepayment, with interest becoming payable on each May 1 and November 1, commencing May 1,1998. The Certificates are subject to prepayment as described herein. See “THE CERTIFICATES - Prepayment.”
The net proceeds of the sale of the Certificates will be used to (i) provide funds to refund on a current basis the $ (outstanding as of September 1, 1997) Costa Real Municipal Water District Certificates of Participation 1988 Refunding and Financing Project (the “1988 COPS”), evidencing installment payments to be made by the District (formerly known as the Costa Real Municipal Water District) to the Independent Public Facilities Corporation pursuant to an Installment Purchase Agreement, dated as of November 1, 1988, pursuant to which the District agreed to sell to and purchase from the 1988 Corporation certain water facilities (the “Project”, as described more completely below), (ii) fund a reserve fund for the Certificates, and (iii) pay certain costs incurred in connection with the execution and delivery of the Certificates. The 1988 COPS were executed and delivered for the purpose of advance refunding certain outstanding Costa Real Municipal Water District 1984 Certificates of Participation (the “1984 Certificates”), which were sold to finance the acquisition of certain capital improvements for the District, and to finance the construction and acquisition of additional capital improvements (the “Project”).
The Certificates evidence and represent the direct, undivided fractional interests of the
registered owners (the “Owners”) thereof in Installment Payments (as defined herein) to be made
by the District to the City of Carlsbad Public Improvement Corporation (the “Corporation”),
pursuant to that certain Installment Purchase Agreement, dated as of September 1, 1997 (the “Installment Purchase Agreement”).
The Certificates will be executed and delivered pursuant to a Trust Agreement, dated as of September 1, 1997 (the “Trust Agreement”), by and among the City, the Corporation and
First Trust of California, National Association, as trustee (the “Trustee”).
The Trustee and the Corporation will enter into an Assignment Agreement, dated as of September 1, 1997 (the “Assignment Agreement”), pursuant to which the Corporation will assign to the Trustee for the benefit of the Certificate Owners substantially all of the Corporation’s right, title and interest in and to the Installment Purchase Agreement, including its
right to receive the Installment Payments due under the Installment Purchase Agreement,
provided that the Corporation will retain the rights to indemnification and to payment or
reimbursement of its reasonable costs and expenses under the Installment Purchase Agreement.
The Installment Purchase Agreement requires the District to make payments to the
Trustee which, in the aggregate, are sufficient for the payment in full of all principal of and
interest with respect to the Certificates when due, or upon the earlier prepayment thereof. With
the exception of moneys applied to pay costs of issuance of the Certificates and to establish a Reserve Fund with respect to the Certificates, all net proceeds of the Certificates will be applied to fund an irrevocable escrow account to be established for the purpose of refunding the 1988 COPS; and the Certificates will constitute limited obligations of the District payable solely from payments made by the District under the Installment Purchase Agreement, and certain funds held under the Trust Agreement. See “SECURITY FOR THE CERTIFICATES.”
This Official Statement contains brief descriptions of, among other things, the District,
the Certificates, the Installment Purchase Agreement and the Trust Agreement. Such
descriptions do not purport to be comprehensive or definitive. All references in this Official
Statement to documents are qualified in their entirety by reference to such documents, and
references to the Certificates are qualified in their entirety by reference to the forms of
Certificate included in the Trust Agreement. During the offering period respecting the
Certificates, copies of the forms of the Trust Agreement and other documents described in this Official Statement may be obtained at the principal offices of the Underwriter. Copies of these documents may be obtained from the Trustee or the District after delivery of the Certificates.
Capitalized terms not otherwise defined herein have the meaning given to them in the
Trust Agreement. See “APPENDIX A - CERTAIN DEFINITIONS AND SUMMARY OF THE
PRINCIPAL LEGAL DOCUMENTS.”
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ESTIMATED SOURCES AND USES OF PROCEEDS
The table below sets forth the estimated sources and uses of proceeds (exclusive of accrued interest in the amount of $ and original issue discount in the amount of
s------):
Sources of Funds
Par Amount of Certificates Less: Original Issue Discount
1988 COPS Reserve Fund
$
Total Sources $
Uses of Fun&
Deposit to Escrow Fund
Deposit to Reserve Fund (l)
Deposit to Delivery Cost Fund (2)
$
Total Uses $
(I) Equal to the Reserve Requirement with respect to the Certificates.
(2) Includes legal, financial advisory, rating agency, printing, an underwriter’s discount ($ other miscellaneous delivery costs. ) and
PLAN OF REFUNDING
The District plans to apply proceeds of the Certificates made available to it pursuant to the Installment Purchase Agreement to prepay and refund the 1988 COPS on November 1,1997
pursuant to that certain Escrow Agreement, dated September 1, 1997 (the “Escrow
Agreement”), by and between the District and the Corporation.
The 1988 COPS were executed and delivered on November 16, 1988, in the original
principal amount of $14,370,000 to refund an issue of 1984 Certificates of Participation of the
District, then known as the Costa Real Municipal Water District, and to fund certain District capital projects.
Proceeds from the sale of the Certificates, together with certain funds made available through the defeasance of the 1988 COPS, will be deposited in trust with First Trust of California, National Association, as escrow agent for the 1988 COPS (the “Escrow Agent”). The
funds deposited with the Escrow Agent will be applied to the purchase of direct 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) (the “Escrow Securities”). The Escrow Securities, including interest thereon, together with other moneys held in trust by the Escrow Agent, will be sufficient to refund the 1988 COPS in full on November 1,1997, together with the required prepayment premium. The foregoing deposit with the Escrow Agent will result in the defeasance of the 1988 COPS, pursuant to the provisions of the financing documents pursuant to which they were delivered, as of the date of execution and delivery of the Certificates. See “VERIFICATION OF MATHEMATICAL ACCURACY.”
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The Escrow Securities and other moneys held by the Escrow Agent are pledged to the payment of the 1988 COPS. Neither the principal of the Escrow Securities deposited with the Escrow Agent nor the interest thereon will be available for the payment of the Certificates.
THECERTIFICATES
General Provisions
The Certificates will be executed and delivered in the aggregate principal amount of
$ will be dated September 1,1997, will represent interest from such date at the rates per annum set forth on the cover page hereof, payable semiannually on May 1 and November 1 in each year, commencing May 1,1998 (each, an “Interest Payment Date”), and will mature on the dates set forth on the cover page hereof. The Certificates will be delivered only in fully registered form and, when executed and 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 for the Certificates. Ownership interests in the Certificates may be purchased in book-entry form only in denominations of $5,000 or any integral multiple thereof. See “Book-Entry Only System” below.
In the event the book-entry only system described below is discontinued, the principal and prepayment premium (if any) evidenced by any Certificates are payable by check or draft of the Trustee upon presentation and surrender thereof at maturity or upon prior prepayment at the office of the Trustee in Los Angeles, California (the “Office of the Trustee”). Interest evidenced by each Certificate is payable on each Interest Payment Date to the person whose name appears on the registration books maintained by the Trustee (the “Registration Books”) as the Owner thereof as of the close of business on the fifteenth day of the calendar month preceding the Interest Payment Date (the “Record Date”), such interest to be paid by check or draft of the Trustee, sent by first class mail to the Owner at such Owner’s address as it appears on the Registration Books. An Owner of $l,OOO,OOO or more in principal amount of Certificates may, at such Owner’s option, be paid interest by wire transfer of immediately available funds in accordance with written instructions provided to the Trustee by such Owner prior to the applicable Record Date. The principal and interest and premium evidenced by the Certificates shall be payable in lawful money of the United States of America.
Interest with respect to any Certificate will be payable from the Interest Payment Date
preceding the date of execution thereof, unless such date is after a Record Date and on or before
the succeeding Interest Payment Date, in which case interest with respect thereto will be
payable from such Interest Payment Date, or unless such date is on or before April 15,1998, in
which case interest with respect thereto will be payable from September 1,1997.
Prepayment Provisions
Prevavment Redemvtion. The Certificates are not subject to optional prepayment prior to maturity.
Extraordinarv Prevavment. The Certificates are subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as
directed by the District in a written request provided to the Trustee at least 60 days prior to
such date and by lot within each maturity in integral multiples of $5,000 from prepaid
Installment Payments made by the District from Net Proceeds of casualty insurance or condemnation award upon the terms and conditions of, and as provided for in the Trust Agreement and the Installment Purchase Agreement at a prepayment price equal to the
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principal amount thereof plus accrued interest evidenced and represented thereby to the date fixed for prepayment, without premium.
Selection of Certificates to be Redeemed. If Certificates are to be redeemed by extraordinary prepayment pursuant to the Trust Agreement from insurance or condemnation proceeds, the Trustee shall select the Certificates to be redeemed by lot within each maturity from which Certificates are to be redeemed, as set forth in the Written Order provided pursuant to the Trust Agreement. The Written Order required for all extraordinary prepayments shall select those maturities to be redeemed such that the payments remaining to be made under the Installment Purchase Agreement will match debt service payments on the Certificates which will remain Outstanding. The portion of any Certificate of a denomination of more than $5,000 to be redeemed shall be redeemed in an Authorized Denomination and, in selecting portions of such Certificates for prepayment, the party making the selection shall treat each such Certificate as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000.
Notice of Prevavment. When prepayment is authorized or required, the Trustee shall give notice to the Owners of the Certificates designated for prepayment. Such notice shall state the date of notice, the prepayment date, the place or places of prepayment, and the prepayment price, shall designate the maturities, CUSIP numbers, if any, and, if less than all Certificates of any such maturity are to be prepaid, the serial numbers of the Certificates of such maturity to be prepaid by giving the individual number of each Certificate or by stating
that all Certificates between two stated numbers, both inclusive, have been called for
prepayment, and in the case of Certificates to be prepaid in part only, the respective portions
of the principal amount thereof to be prepaid. Each such notice will also state that on said
date there will become due and payable on each of said Certificates the prepayment price
thereof or of said specified portion of the principal represented thereby in the case of a Certificate to be prepaid in part only, together with interest accrued with respect thereto to the prepayment date, and that (provided that moneys for prepayment have been deposited with the Trustee) from and after such prepayment date interest with respect thereto shall cease to accrue, and shall require that such Certificate be then surrendered to the Trustee.
Notice of such prepayment shall be mailed, first class postage prepaid, not more than 60 days nor less than 30 days prior to said prepayment date, to the respective Owners of any
Certificates designated for prepayment at their addresses appearing on the Certificate registration books. Any defect in the notice or the mailing thereof will not affect the validity of the prepayment of any Certificate.
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INSTALLMEW PAYMENT SCHEDULE
Following is the annual schedule of Installment Payments due with respect to the
Certificates.
Period Ending Principal
(Mav Comvonent
Interest
Component
Total
pavments
1998
1999 2000 2001
2002
2003 2004
Total $ $
CONTINUING DISCLOSURE
$
The District has covenanted for the benefit of the holders and beneficial owners of the Certificates to provide certain financial information and operating data relating to the District by not later than nine months following the end of the District’s fiscal year (which fiscal year currently ends on June 30), commencing with the report for the 1996-97 Fiscal Year (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events, if material. The District will file, or cause to be filed, the Annual Report with each Nationally Recognized Municipal Securities Information Repository, and with the appropriate State information depository, if any. The District will file, or cause to be filed, the notices of material events with
the Municipal Securities Rulemaking Board (and with the appropriate State information
depository, if any). The specific nature of the information to be contained in the Annual Report
or the notices of material events is set forth below in “APPENDIX D - FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). The District has never failed to comply, in all material respects, with an undertaking pursuant to said Rule.
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 executed and delivered as fully-
registered securities registered in the name of Cede & Co. (DTC’s partnership nominee). One
fully-registered certificate will be issued for each maturity of the Certificates, each in the initial
aggregate principal amount of such maturity, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking Law, a ‘banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform
Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934. DTC holds securities that its participants
(“Participants”) deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants’ accounts, thereby eliminating the need for
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physical movement of securities certificates. “Direct Participants” include securities brokers and dealers, banks, trust companies, clearing companies, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission.
Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive credit for the Certificates on DTC’s records. The ownership interest of each Beneficial Owner is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Certificates are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Certificates, except in the event that use of the book-entry system for the Certificates is discontinued.
To facilitate subsequent transfers, all Certificates deposited by Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. The deposit of
Certificates with DTC and their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates;
DTC’s records reflect only the identity of the Direct Participants to whose accounts such
Certificates are credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Prepayment notices will be sent to Cede & Co. If less than all of the Certificates within a
maturity are being prepaid, DTC’s practice is to determine by lot the amount of the interest of
each Direct Participant in such maturity to be prepaid.
Neither DTC nor Cede & Co. will consent or vote with respect to Certificates. Under its
usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.‘s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments with respect to the Certificates will be made to DTC. DTC’s practice is to credit Direct Participants’ accounts on the payment date in accordance with their respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payment on a payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the District or the Trustee, disbursement of such
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payments to Direct Participants will be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
The District cannot and does not give any assurances that DTC Participants or others
will distribute payments with respect to the Certificates received by DTC or its nominee as the
registered Owner, or any prepayment or other notices, to the Beneficial Owners, 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.
The District, the Corporation and the Trustee cannot and do not give any assurances that DTC will distribute to Participants, or that Participants or others will distribute payments of principal or interest with respect to the Certificates paid to DTC or its nominee as the registered Owner, or any prepayment or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The District, the Corporation and the Trustee are not responsible or liable for the failure of DTC or any Participants to make any payment or give any notice to a Beneficial Owner with respect to the certificates or any error or delay relating thereto.
The foregoing description of the procedures and record-keeping with respect to beneficial ownership interests in the Certificates, payment of principal, interest and other payments with respect to the Certificates to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Certificates and other related transactions by and between DTC, the Participants and the Beneficial Owners is based on information provided by DTC. Accordingly, the District takes no responsibility for the accuracy thereof.
Discontinuance of DTC Service. In the event that (a) DTC determines not to continue to act as securities depository for the Certificates, or (b) the District determines to remove DTC from its functions as a depository, DTC’s role as securities depository for the Certificates and use of the book-entry system will be discontinued. If the District fails to select a qualified securities depository to replace DTC, the District will cause the Trustee to execute and deliver new Certificates in fully registered form in such denominations numbered in the manner determined by the Trustee and registered in the names of such persons as are requested by the Beneficial Owners thereof. Upon such registration, such persons in whose names the Certificates are registered will become the registered Owners of the Certificates for all purposes.
Transfer and Exchange of Certificates. The following provisions regarding the exchange and transfer of the Certificates apply only during any period in which the Certificates are not subject to DTC’s book-entry system. While the Certificates are subject to DTC’s book-entry system, their exchange and transfer will be effected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC.
All Certificates are transferable by the Owner thereof, in person or by his or her attorney duly authorized in writing, at the principal corporate trust office of the Trustee on the books required to be kept by the Trustee pursuant to the provisions of the Trust Agreement, upon surrender of such Certificates for cancellation accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee, manually executed.
Whenever any Certificate or Certificates are surrendered for transfer, the Trustee will execute and deliver a new Certificate or Certificates for like aggregate principal amount in authorized denominations. The Trustee will require the payment by any Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer.
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Certificates may be exchanged, upon surrender thereof, at the principal corporate trust office of the Trustee for a like aggregate principal amount of Certificates of other authorized denominations of the same maturity. Whenever any Certificate or Certificates are surrendered for exchange, the Trustee shall execute and deliver a new Certificate or Certificates for like principal amount in authorized denominations. The District shall pay any costs of the Trustee incurred in connection with such exchange, except that 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.
The Trustee may refuse to transfer or exchange either (i) any Certificate during the period established by the Trustee for the selection of Certificates for prepayment, or (ii) any Certificate selected for prepayment.
SECURITY FOR THE CERTIFICATES
Nature of the Certificates
Each Certificate represents an undivided interest in Installment Payments to be made by the District under the Installment Purchase Agreement. The Corporation has assigned substantially all of its right, title and interest in the Installment Purchase Agreement to the Trustee, pursuant to the Assignment Agreement, for the benefit of the Owners of the Certificates, including its right to receive Installment Payments thereunder and its rights as may be necessary to enforce payment of the Installment Payments when due or otherwise protect the interests of the Owners of the Certificates under the lnstallment Purchase Agreement; provided that the Corporation will retain the rights to indemnification and to payment of reimbursement
of its reasonable costs and expenses under the Installment Purchase Agreement. The District
will pay Installrnent Payments directly to the Trustee, as assignee of the Corporation.
Limited Obligations Payable From Net Revenues
Pursuant to the Installment Purchase Agreement, the District will purchase the Project from the Corporation at the purchase price specified in the Installment Purchase Agreement (the “Purchase Price”) and will pay the Purchase Price by making the Installment Payments. The Purchase Price is equal to the principal amount of the Certificates and the Installment Payments are equal to the principal and interest evidenced by the Certificates.
The District is obligated to make Installment Payments solely from the Net Revenues of its Water System. The term “Net Revenues” means, for any Fiscal Year, the Water System
Revenues for such Fiscal Year less the Operation and Maintenance Costs for such Fiscal Year. Revenues are defined as all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including, without limiting the generality of the foregoing:
(1) all income, rents, rates, fees, charges, business interruption insurance
proceeds or other moneys derived by the District from the sale, furnishing and supplying of the water or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System, plus
(2) the proceeds of any stand-by, readiness-to-serve or water availability
charges and, to the extent permitted by law to be so pledged, proceeds of ad valorem taxes levied by the County, and apportioned to and received by the District pursuant to
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the provisions of California Constitution Article XIIIA and implementing legislation thereof, and not otherwise pledged to repayment of voter-approved indebtedness of the
District, plus
(3) the earnings on and income derived from the investment of the amounts described in clauses (1) and (2) hereof and the general unrestricted funds of the District,
but excluding in all cases customer deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District, and excluding any proceeds of taxes restricted by law to be used by the District to pay bonds hereafter issued. See Appendix A-“CERTAIN DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS-Installment Purchase Agreement” hereto for a detailed discussion of the terms of the Installment Purchase Agreement.
The obligation of the District to make the Installment Payments under the Installment Purchase Agreement is absolute and unconditional, and until such time as the Purchase Price specified in the Installment Purchase Agreement shall have been paid in full (or provision for the payment thereof shall have been made as provided for in the Installment Purchase Agreement), the District will not discontinue or suspend any Installment Payments required to be made by it when due, whether or not its Water System or any part thereof is operating or operable, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever.
THE OBLIGATION OF THE DISTRICT TO PAY INSTALLMENT PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE DISTRICT FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE DISTRICT TO PAY INSTALLMENT PAYMENTS UNDER THE INSTALLMENT PURCHASE AGREEMENT DOES NOT CONSTITUTE A DEBT OR INDEBTEDNESS OF THE DISTRICT, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS
IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION
OR RESTRICTION.
Rate Covenant
The Installment Purchase Agreement will require the District, to the fullest extent
permitted by law, to fix, prescribe and collect rates and charges for its Water Service which will
be at least sufficient to yield during each Fiscal Year Net Revenues equal to 115% of the “Debt Service” for such Fiscal Year. “Debt Service” in any Fiscal Year is defined to include the Installment Payments required to be made during such Fiscal Year and the principal of and interest on any outstanding Bonds of the District to be paid in that year, but minus the earnings to be derived from the investment of moneys on deposit in the Reserve Fund, and any other
debt service reserve funds established for Bonds or Contracts. For the definition of Debt Service, Bonds and Contracts, see Appendix A - “CERTAIN DEFINITIONS AND SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS - Installment Purchase Agreement.“.
Reserve Fund
A Reserve Fund is established under the Trust Agreement and is required to be funded
from proceeds of the Certificates initially in an amount equal to the Reserve Requirement. If one business day prior to any Interest Payment Date the moneys in the Certificate Payment Fund are insufficient to make the payments required by the Trust Agreement with respect to
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Certificates on such Interest Payment Date, the Trustee will transfer from the Reserve Fund to the Certificate Payment Fund the amount of such insufficiency.
If the amount available and contained in the Reserve Fund exceeds the Reserve Requirement and if the District is not then in default under the Installment Purchase Agreement, the Trustee will semiannually on or before May 1 and November 1 withdraw such excess from the Reserve Fund and will deposit such amount in the Certificate Payment Fund. In addition, the Trustee will, on the date all or any portion of the Certificates are defeased, value the Reserve Fund and withdraw the excess, if any, on deposit in the Reserve Fund and transfer such amount to or in accordance with the written direction of the District. Except for such withdrawals, all moneys in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose,of paying principal and interest with respect to the Certificates in the event that no other moneys of the District are available therefor. For the purpose of determining the amount in the Reserve Fund, all Permitted Investments credited to the Reserve Fund shall be valued at the lower of cost (inclusive of all interest accrued but not paid), or market value.
The District may substitute a municipal bond debt service reserve fund policy or a
surety bond or a letter of credit (a “Reserve Insurance Policy”) or money for any Reserve Insurance Policy or money held by the Trustee in the Reserve Fund; provided, that (i) in the case of a municipal bond debt service reserve fund policy or a surety bond, bonds which are insured by the issuer thereof are rated in the highest rating category by Standard & Poor’s Ratings Group and Moody’s Investors Service (collectively, the “Rating Agencies”), or, in the case of a letter of credit, the unsecured debt obligations of the issuing bank thereof are rated in the highest short- term rating category by the Rating Agencies; (ii) the sum of the money and face amount of any Reserve Insurance Policy in effect after such substitution will be equal to the Reserve Requirement; (iii) in the case of the substitution of a new Reserve Insurance Policy for money or an existing Reserve Insurance Policy, the Trustee receives an opinion of Special Counsel to the effect that such substitution will not adversely affect the exclusion from gross income for federal income tax purposes of interest represented by the Certificates; and (iv) in the case of the substitution of a Reserve Insurance Policy for money, so long as the Policy is in full force and effect, the Trustee shall have received the Bond Insurer’s consent thereto.
Additional District Obligations
The District may execute any Contract or issue any Bonds payable from Water System Revenues after payment of Operation and Maintenance Costs, provided that certain conditions are satisfied as provided below.
(4 The Net Revenues for the most recent audited twelve months preceding
the date of adoption by the Board of Directors of the District of the resolution
authorizing the issuance of such Bonds or the date of the execution of such Contract, as
the case may be, as evidenced by both a calculation prepared by the District and a
special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the District, shall have produced a sum equal to at least one hundred fifteen percent (115%) of the Debt Service for such Fiscal Year; and
(b> The Net Revenues for the most recent 12 calendar months preceding the date of the execution of such Contract or the date of adoption by the Board of Directors of the District of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Water Service approved and in
effect as of the date of calculation, as evidenced by both a calculation prepared by the District and a special report prepared by an Independent Certified Public Accountant or
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an Independent Financial Consultant on such calculation on file with the District, shall have produced a sum equal to at least one hundred fifteen percent (115%) of the Debt Service for such Fiscal Year plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year assuming such
Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus the Debt Service which would have accrued had such Contract been executed or Bonds been issued at the beginning of such Fiscal Year; and
Cc) The estimated Net Revenues for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Parity Project to be financed from proceeds of such Contracts or Bonds, as evidenced by a certificate of the Executive Manager of the District on file with the District, including (after giving effect to the completion of all such uncompleted Parity Projects) an allowance for estimated Net Revenues for each of
such Fiscal Years arising from any increase in the income, rents, fees, rates and charges estimated to be fixed, prescribed or received for the Water Service and which are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by a certificate of the Executive Manager on file with the District, shall produce a sum equal to at least one hundred fifteen percent (115%) of the estimated Debt Service for each of such Fiscal Years, after giving effect to the execution of all Contracts and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Parity Projects within such Fiscal Years, assuming that all such Contracts and Bonds have maturities, interest rates and proportionate principal repayment provisions similar to the Contract last executed or then being executed or the Bonds last issued or then being issued for the purpose of acquiring and constructing any of such uncompleted Parity Projects; and
(4 The Parity Project to be financed from the proceeds of such Contract or such Bonds is technically feasible and the estimated cost of the acquisition and construction thereof is reasonable, as evidenced by a certificate (prepared at the time of the execution of such Contract or Bonds, as the case may be) of the Executive Manager of the District, which certificate shall be filed with the District.
In addition, the District may issue any bonds or enter into any installment purchase contracts the payments under which are subordinate to any Bonds or Contracts of the District.
THECORPORATION
The Corporation is a nonprofit public benefit corporation organized and existing under
the laws of the State of California for charitable purposes (within the meaning of Section
501(c)(4) of the Internal Revenue Code of 1986). The Corporation is empowered to assist the City in financing public projects.
THE CARLSBAD MUNICIPAL WATER DISTRICT
Background
Originally Costa Real Municipal Water District, the District became the Carlsbad
Municipal Water District on April 18,1989, by Board Resolution No. 611. In January, 1990 the Carlsbad Municipal Water District became a subsidiary District of the City of Carlsbad. The District is governed by the Carlsbad City Council acting as the District’s Board of Directors.
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The City employs 56 employees at the District with the responsibility of providing
administration, engineering, field water operations, sewer maintenance services, conservation
and public education.
The current officers are:
Ray Patchett Executive Manager Ron Ball District Counsel
Robert Greaney General Manager Lee Rautenkranz Secretary
The District has all of the powers expressly granted or necessarily implied by the Municipal Water District Law of 1911, Division 20.
Service Area
From the time of its formation, the District has included the City of Carlsbad, which initially occupied only about a third of the total District area. The balance of the District was undeveloped except for some agricultural operations. The District’s boundaries are fixed, and have not materially changed since the time of its formation.
During the 43 years since the District’s formation, the City of Carlsbad has expanded into the area of the District, and into areas beyond the District’s boundaries. At present, the District serves about 85 percent of the City’s area. The balance of the City is not included in the District and is served by other water agencies. The District serves about 18,000 retail accounts.
The following table shows active accounts and consumption in the District by type of customer for Fiscal Year 1996-97:
Table 1
CARLSBAD MUNICIPAL WATER DISTRICT Active Accounts and Consumption by Type of Customer Fiscal Year 1996-97
Tvue of Customer Accounts Active Percent
Residential 15,733 86.4%
Commercial 1,490 8.2
Industrial 60 .3
Agricultural 77 .4
Irrigation 767 4.3
Reclaimed 93 .5
Metered Consumvtion Units
3,496,630
1,225,751
170,234
559,973
1,328,270
619,571
Percent
47.2%
16.6
2.3
7.6
17.9
8.4
Totals 18,220 100.0% 7,400,429 100.0%
Source: Carlsbad Municipal Water District.
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Budget Process
The budget process for the District is identical to that of the City. The budget of the District is a detailed operating plan which identifies estimated costs and activities in relation to estimated revenues. The District follows the following procedures in establishing its budget:
1. During May or June, the Executive Manager submits to the Board of Directors a
proposed operating budget for the fiscal year commencing the following July 1. The budget includes proposed expenditures and estimated revenues on a departmental basis.
2. Public hearings are conducted at Board of Directors meetings to obtain citizens’
comments during May and June.
3. resolution. Prior to July 1, the budget is enacted legally through passage of an appropriation
The Executive Manager is authorized to make transfers of appropriated amounts from one department to another within a fund for up to $100,000. The legal level of budgetary control is at the fund level. Revisions that alter the total appropriations of any fund must be approved by the Board of Directors with the exception of budget adjustments which involve offsetting revenues and expenditures. The Executive Manager is authorized to increase or decrease an appropriation for a specific purpose where the appropriation is offset by unbudgeted revenue which is designated for said specific purpose. Quarterly budget reviews are conducted each year and any major changes to the adopted budget are approved by the Board of Directors at that time. During the year, several supplementary appropriations are necessary.
Expenditures may not exceed budgeted appropriations at the fund level. All
appropriations lapse at fiscal year-end unless the Board of Directors takes action in the form of
a resolution to continue the appropriation into the following fiscal year.
insurance
Insurance for the District is maintained in conjunction with the City’s insurance program. The City is a participating member of the Public Agency Risk Sharing Authority of California (PARSAC), a risk management pool for general liability claims. Under this program, the pool
provides coverage up to a maximum of $500,000 per claim with a self-insured retention
provided by the City also in the amount of $500,000 per claim. In addition, excess general liability insurance coverage up to $10,000,000 is provided. Under the terms of the agreement
with PARSAC, the City must maintain an unencumbered portion of fund equity equal to $1,500,000. At J une 30, 1996, unencumbered fund equity for the General Liability Self- Insurance Fund was approximately $2,200,000.
Water System Supply and Operations
Water Rights. By a contract dated August 13, 1913 with the City of Oceanside, the South Coast Land Company became the owner of the right, by grants, to divert 200 miner’s inches (5 cfs) of water for use on non-riparian lands and the right to construct pumping plants,
pipelines, etc. These same rights were deeded to the Carlsbad Mutual Water Company on March 14, 1915, and reconfirmed by a repeat deed issuance on October 19, 1934. Diversion and use of this water commenced prior to December 19, 1914, the effective date of the State Water Commission Act. The Carlsbad Mutual Water Company was purchased by the City in 1958.
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An application was also made for 5 cfs with the application being filed on January 1, 1935. A permit was issued on October 7,1938 allowing for the diversion of 750 acre-feet per year from the San Luis Rey wells to Calavera Lake plus additional flows which might otherwise flow to the Pacific Ocean. Both of these rights were subject to the stipulation that static water level in the San Luis Rey Basin must remain above 10 feet Mean Sea Level. The allowed diversion period was from January 1 through December 31. This permit was issued concurrently with another permit which granted similar rights to the City of Oceanside for 12.5 cfs from the San Luis Rey Basin. Both of these permits were issued concurrently with State Division of Water Resources Decision 432 which granted both agencies until December 31,1999 to complete the planned use or to apply for an extension. Decision 432 further held that the underground water in the Mission Basin was deemed to be underground flow of the San Luis
Rey River.
A license was granted on December 9,1940, to the City which allowed for the diversion and storage of up to 5 cfs on Calavera Creek from November 1st through May 31st. The total annual amount was limited to 150 acre-feet.
An application was filed by the Costa Real Municipal Water District on November 16, 1961 for a seasonal collection and storage right on an unnamed stream.
In addition to the San Luis Rey/Mission Basin groundwater resources, the City holds certain rights to property identified as the Cannon Well Field. This well field is located on the northerly side of El Camino Real and to the east of the Ranch0 Carlsbad Mobile Home Park.
The Cannon Well Field was developed in the early 1950’s by W. D. Cannon and included four groundwater supply wells. Cannon had obtained the right to develop and use these wells by an agreement with the land owner, Ellen K. Hall, by an agreement dated October 11,195O. This well supply was the original supply for the Terramar Water Company, which was subsequently acquired by the City in 1958. The original agreement between Cannon and Hall was merged with an agreement by and between the City and Carroll R. Kelly, on June 1, 1964, and revised again on November 5, 1984. Neither of these changes had any material bearing on the basic rights obtained by the City.
The City used these wells for water supply from 1958 to 1962 with the largest extraction being 238 acre-feet in 1960-61. The long term available safe yield of the well field is presumed to be no more than approximately 400 acre-feet per year.
The groundwater quality in the Agua Hedionda subunit is considered poor, characterized by high TDS. None of the pre-existing wells appear worthy of reconstruction based on previous inspections.
Local Sources Of Water. The District has no local sources of water available for potable use. However, the District does provide reclaimed water to some of its customers. This use is limited to outdoor irrigation only. The District presently purchases reclaimed water from the Vallecitos Municipal Water District and the Leucadia County Water District. The District purchases and delivers approximately 2,000 acre feet of reclaimed water per year.
Imported Wafer - MWD. The District obtains all of its potable water supply from the San Diego County Water Authority (“CWA”) which, in turn, receives its water supply from the Metropolitan Water District of Southern California (“MWD”). MWD receives its water from the following sources of water:
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Colorado River. MWD has water delivery contracts for Colorado River water with the U.S. Department of the Interior for 1,212,OOO acre feet per year and an additional 190,000 acre feet per year of surplus water. However, as a result of the 1964 U.S. Supreme Court decree in Arizona v. California, MWD’s dependable supply of Colorado River Water was reduced to less than 550,000 acre feet per year. MWD received approval from the U.S. Department of the Interior to divert 1,212,OOO acre feet of water from the Colorado River in 1996.
Other water rights holders along the Colorado River in California, along with conveyance losses in the Colorado River Aqueduct, reduce the supply which MWD could obtain on a dependable basis. However, agreements with three California agricultural agencies, the Coachella Valley Water District, Desert Water Agency, and Imperial Irrigation District (“Imperial”) have increased dependable supplies available from the Colorado River. MWD, in its 1990 Regional Urban Water Management Plan, estimates that 576,110 acre feet per year is the dependable supply available from the Colorado River. The short-term ability (beyond 576,110 acre feet per year) of MWD to divert additional Colorado River water will be dependent upon hydrologic conditions in the Colorado River Basin, and the demand for water by other users who also hold rights
to Colorado River water, such as the California agricultural agencies and the states of
Arizona and Nevada.
State Water Project. MWD’s other source of water is the State Water Project, which is owned by the State of California and operated by its Department of Water Resources (“DWR”). MWD is one of 29 agencies which have contracted for water service from the State. MWD’s water supply contract, which provides for a maximum entitlement of 2,011,500 acre feet of water annually, expires in the year 2035, but is expected to be extended. The State Water Project water is transported from the Sacramento-San Joaquin Delta (the “Delta”) via the Califomia Aqueduct to four delivery points near the northern and eastern boundaries of the MWD service area. The total length of the California Aqueduct is 444 miles.
During the fiscal year ended June 30, 1996, MWD obtained 1.15 million acre feet of
water from the Colorado River and 0.58 million acre feet from the State Water Project. MWD supplies a blend ranging from 0% to 30% of Colorado River water to State Project water to San Diego County.
Imported Water - CWA. CWA operates five major pipelines from the MWD’s facilities in Riverside County south to the City of San Diego metropolitan area. The District’s water supply is delivered through one of CWA’s treated water aqueducts. The District has three major transmission pipelines connecting to the CWA’s aqueducts. Pipeline flows are integrated to provide for District-wide coordination of water deliveries. Major pipelines are as follows:
The Tri-Agencies pipeline, which varies in size from 39-inches to Zl-inches, traverses the northern part of the District;
The central pipeline, which varies from 30-inches to 36-inches, is connected to a
major 600 acre foot Maerkle reservoir (formerly Squires reservoir). This system
can direct flows to most areas of the District; and
The La Costa pipeline varies in size from 27-inches to 12-inches and traverses the La Costa development in the southern part of the District.
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No Additional Sources Of Water
The Carlsbad Municipal Water District has no secondary sources of water, no usable groundwater supplies and no surface water capture and release program.
Water Delivery History
The following chart details a five-year history of potable and reclaimed water deliveries in the District’s service area. These figures reflect purchases from CWA, the only source of potable water for the District:
Table 2
CARLSBAD MUNICIPAL WATER DISTRICT Gross Water Deliveries Fiscal Years 1992-93 to 1996-97 (in acre feet)
1992/93
1993/94
1994/95
1995/96
1996/97
Total Potable
14,928
14,963
14,008
15,273
16,011
Total Reclaimed Total Water Water Deliveries Deliveries
915 15,843
1,016 15,979
940 14,948
1,099 16,372
1,418 17,429
Source: Carlsbad Municipal Water District.
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Water Storage
The District has 10 water storage tanks, ranging from 1.0 million gallons to 10.0 million gallons in size. These reservoirs total 50.5 million gallons of storage. Additionally, the District’s
Maerkle Reservoir stores 600 acre feet (195 million gallons) of water that presently provides the
District with 10 days of emergency storage.
The following table shows the capacity of each of the District’s water storage facilities:
Table 3
CARLSBAD MUNICIPAL WATER DISTRICT Existing Distribution Storage Facilities
TAP Ellery Skyline
ervou
Maerkle (Concrete Storage Facility) “E” "D-3"
Santa Fe II
La Costa-HI La Costa-Lo Elm
Maerkle Reservoir (10 days emergency storage)
cltv (MG)
6.0 5.0 1.5 10.0 1.5
8.5 9.0 6.0 1.5
1.5
195.0
Source: Carlsbad Municipal Water District.
Distribution System
The water distribution has over 230 miles of water mains ranging in size from 6-inch to 42-inch in diameter. Eighty-eight percent of the piping system is constructed of asbestos cement (AC) with ductile iron, steel and PVC comprising the remainder. The system also has 55 pressure reducing vaults that provides a method of supplying water service between different
pressure zones, from the higher to the lower pressure zone.
Employees and Employee Benefits
Health Insurance. Health insurance coverage for City employees, including those employed at the District, is provided by either Kaiser, the California Public Employees Retirement System (PERS), or the City plan. The majority of City employees are covered
through the City’s plan which is administered by Northwestern National Life (NWNL). Under
the City’s agreement with NWNL, NWNL will provide coverage for each individual claim over $125,000. In addition, if claims for the City as a whole exceed 125% of the average of the previous two months, NWNL will assume payment for the excess amount.
Post-Retirement Health Care. In addition to the pension benefits provided to other City employees, the District provides post-retirement health care benefits to its full-time employees (including their dependents) who voluntarily retire after the age of 50 with no less than 5 years of service and whose age combined with years of service equal 70 or more.
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Workers ’ Compensation. The City is insured for workers’ compensation claims by
Employers Reinsurance Corporation (ERC). ERC provides coverage for losses which exceed the
City’s self-insured retention of $300,000 per claim.
Retirement PIan. The City contributes to PERS, an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State of California. All full-time employees are eligible to participate as members of PERS. Benefits vest after an employee has been a member of the plan for five years. Employees are required to make contributions ranging from 7 to 9 percent of gross pay. The City is required to contribute the remaining amounts necessary to fund the
benefits for its members, using the actuarial basis adopted by the PERS Board of
Administration. The employee contributions are made by the City on behalf of the employees. See “EXHIBIT B - AUDITED FINANCIAL STATEMENTS FOR THE CITY FOR THE YEAR ENDED JUNE 30,1996”.
Deferred Compensation Plan. The City offers its employees a deferred compensation plan, which permits substantially all full-time employees to defer a portion of their salary until future years. Amounts deferred may not exceed the lesser of $7,500 or 25% of a participant’s “includable compensation”. The City matches the contributions of certain individuals employed
by the District before it became a subsidiary district of the City.
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CAPITAL IMPROVEMENTPROGRAM
The District, in budgeting for capital improvements, provides estimates for reservoir (emergency and operational storage), transmission distribution mains, pumping stations and miscellaneous improvements. In order to plan for future water system improvements, the District has developed a phased capital improvement program in multi-year increments ending at the planning horizon of 2020. The District does not expect to borrow money to make the improvements identified in this table.
The proposed improvements by phase are summarized in the following table:
Table 4
CARLSBAD MUNICIPAL WATER DISTRICT Water Master Plan - Capital Improvement Summary
5-Years 5-Years Buildout 1998-2002 2003-2007 2007-2020 ILual Projects: Pipelines $14,087,736 $4,927,500 - $19,015,236 Reservoirs 2,777,490 5,312,500 - 8,089,990 Operations 1439,860 800,000 1,086,000 3,325,860 Total Project Costs $18,305,086 $11,040,000 $1,086,000 $30,431,086
Funding Sources: Major Facilities Charges $81300,506 $7,898,000 - $16,198,506 Capital Replacement 7,414,580 2,342,OOO - 9,756,580 Charges Reclaimed Water Charges 2,590,OOO 800,000 1,086,OOO 4,476,OOO
Total Sources $18,305,086 $11,040,000 $1,086,000 $30,431,086
Source: Carlsbad Municipal Water District.
FINANCIAL RESULTS OF THE DISTRICT
A copy of the most recent audited financial statement of the City of Carlsbad, which includes the financial statements of the District, prepared by Conrad Associates, LLP, San Diego, California (the “Auditor”) is included as Appendix E hereto (the “Financial Statements”). The Auditor’s letter concludes that the Financial Statements present fairly, in all material respects, the financial position of the City as of June 30, 1996 and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. The Financial Statements should be read in their entirety.
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.I
The sections below describe certain components of the District’s operating revenues and expenditures and non-operating revenues and expenditures. See Appendix E for additional information.
Operating Revenues
Rate Setting Process. The City Council, acting as the District’s Board of Directors, has the sole rate setting authority for establishing water rates and service charges in the service area. Rates are established in a public hearing setting and are established by resolution of the Board
of Directors. Rate adjustments for higher water costs incurred by the District from MWD and
the CWA are passed-through as established in each resolution establishing water rates and
service charges. Such rate adjustments require Board action for implementation. New or revised
rates generally take effect at the start of the new fiscal year (July 1).
Evaluation of water rates is an ongoing activity of the District. In Fiscal Year 1995-96, a comprehensive water rate study was conducted by an outside consultant with the assistance of District staff and a Board-appointed Citizens Review Committee. The results of the study were presented to the Board for review and final approval, and resulted in the adjustment of various rates and charges. The rate study is available upon request from the District at the following address: Carlsbad Municipal Water District, 5950 El Camino Real, Carlsbad, California 92008, Phone: 760-438-2722.
Water Rates. The present rate structure consists of a fixed delivery charge and a
commodity charge.
Deliverv Charges. The delivery charge includes a capacity charge that varies by meter
size plus a customer charge that is fixed for each customer. All costs are allocated to three cost centers. Delivery charges include capacity and customer costs. Capacity costs are those
associated with meeting peak water demands by customers. If there were no variation in usage,
i.e., usage was constant throughout the day, all system components could be designed for
average conditions. However, usage varies by time of day and year, and system components
are designed to accommodate peaking. The additional costs incurred in designing a system for peak conditions, as opposed to average conditions, are included as capacity costs.
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The following table shows delivery charges in the District during the previous five fiscal years. Delivery charges for Fiscal Year 1997-98 are identical to those for Fiscal Year 1996-97. Increases in the delivery charges in Fiscal Year 1996-97 were recommended by the rate study described above. The increase in delivery charge allocated to a particular meter size is intended to reflect the demand placed on the Water System by that particular meter size.
Table 5
CARLSBAD MUNICIPAL WATER DISTRICT
Delivery Charge
($ Per Month)
Fiscal Years 1992-93 through 1996-97
Year 5/8" l/2” I’ 1 1 l/2” 2” 3” 4” 6” 8”
1992/93 $5.50 $5.60 $5.70 $6.20 $13.60 $20.00 $24.60 $26.50 $29.70
1993/94 6.50 6.65 6.70 7.10 15.90 23.40 28.80 31.00 35.30
1994/95 8.50 8.70 8.75 9.30 20.80 30.60 37.65 40.55 46.15
1995/96 8.50 8.70 8.75 9.30 20.80 30.60 37.65 40.55 46.15
1996/97 9.25 11.75 16.75 29.25 44.25 79.50 129.50 254.50 404.50
Source: Carlsbad Municipal Water District
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Commoditv Ra&. Commodity rates are calculated from commodity costs. Commodity costs are those that vary with the quantity of water used under average load conditions. Commodity costs include the cost of purchasing and treating water. In addition, a part of the operations and maintenance costs, and capital costs of improvements are allocated to commodity.
The present commodity rate is $740.52 per acre foot or $1.70 per unit (1 unit = 749 gallons). This commodity charge includes the purchase cost of water from CWA which in turn purchases its water from MWD. The current commodity rates are as shown in the following
table.
Table 6
CARLSBAD MUNICIPAL WATER DISTRICT Current Commodity Rates
Aeencv Per Acre Foot
Metropolitan Water District $ 431.00
Unit Charee
$ 0.99
San Diego County Water Authority 80.00 0.18
Carlsbad Municipal Water District 229.52 0.53
Total District Commodity Rate $740.52 $1.70 (1)
(1) The $1.70 per unit includes $0.16 to fund depreciation.
Source: Carlsbad Municipal Water District
The following table shows historical commodity rates during the past five fiscal years:
Table 7
CARLSBAD MUNICIPAL WATER DISTRICT
Historical Commodity Rates Fiscal Years 1992-93 through 1996-97
Fiscal Year Base Unit Price
1992/93 $1.30
1993/94 1.67
1994/95 1.70
1995/96 1.70
1996/97 1.70
Source: Carlsbad Municipal Water District.
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Water Sales Revenues. The following table depicts water sales revenues generated by the
Water System during the last five years.
Table 8
CARLSBAD MUNICIPAL WATER DISTRICT Historic Water Sales Revenues (1)
Fiscal Years 1992-93 through 1996-97
Fiscal Year Potable Reclaimed Revenues Revenues
1992/93 $8,453,427 $522,100 $8,975,527 1993/94 10,884,573 665,431 11,550,004 1994/95 10,373,056 720,471 11,093,527 1995/96 11,309,888 893,709 12,208,597 1996/97 11,856,095 1,014,000 12,870,095
Total
Revenues
@) Includes commodity charge only (base unit charge)
Source: Carlsbad Municipal Water District.
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Largest Water Customers. The ten largest water customers of the Water System as
measured by both water sales and water sales revenue for the Fiscal Year 1996-97, are listed in the followinn table. The ten larrrest customers of the Water Svstem accounted for
approximately 6.5% of total water Sal& revenues in Fiscal Year 1996-97.’
Table 9
CARLSBAD MUNICIPAL WATER DISTRICT
Ten Largest Customers Fiscal Year 1996-97
Water
Water Sale Percent of Sales
Customers User Type {Units) Total Revenue
La Costa Hotel & Spa Commercial 103,287 1.40% $175,588
Lakeshore Gardens Residential 61,808 0.84 105,074
Ukegawa Brothers Agricultural 56,495 0.76 96,042
B & T Farms Agricultural 55,671 0.75 77,383
SDG&E Commercial 55,465 0.75 93,781
Francisco Valdivia Agricultural 42,607 0.58 72,432
Carlsberg Ranch0 Ltd. Residential 37,636 0.51 63,981
Mellano & Co. Agricultural 30,431 0.41 42,299
Culligan Water Conditioning Commercial 15,887 0.21 27,008
Jose Torres Agricultural 13,551 0.18 18,836
Percent of
IIQ!zd
1.48%
0.88
0.81
0.65
0.79
0.61
0.54
0.36
0.23
0.16
Total Top Ten $472,838 $772,424
Total All Customers $6,973,956 6.31% $11,855,725 6.51%
Source: Carlsbad Municipal Water District.
Non-Operating Revenues
The District’s non-operating revenues primarily include major facilities fees and interest
earned on invested funds. They also include ad valorem property taxes (see “SECURITY FOR
THE CERTIFICATES - Limited Obligations Payable From Net Revenues” herein.
Major Facilities Fees. Major facilities fees are the charges imposed by the District for connecting to the Water System and are used to provide capacity in the system for new users.
The District’s system of collecting fees is based on meter size. The administration of system
facilities charges is governed by State regulations. AB 1600, a bill related to system facilities
charges, was enacted by the state in 1987 and became effective January 1,1989. It requires that:
0) There be a “nexus” or logical connection between the fees charged and the costs
incurred in providing the service to new development,
w The fee revenue be segregated from other funds to avoid commingling, and
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(iii) The fee revenues be committed to a project or spent within 5 years.
The number of new connections for potable water and the related major facilities fees realized by the District for the last 5 Fiscal Years are set forth in the following table:
Table 10
CARLSBAD MUNICIPAL WATER DISTRICT Water Connections and Major Facilities Fees Potable Water Fiscal Years 1992-93 through 1996-97
Fiscal Year 1992/93 New Connections
96
Maior Facilities Fees $534,887 1993;94
1994/95
1995/96
1996/97
Source: Carlsbad Municipal Water District.
187 653;132 271 999,984
588 2,239,608
605 1,968,881 (1)
Major facilities fees attributable to reclaimed water were initiated in fiscal year 1996-97. The District estimates on an unaudited basis that major facilities fees related to reclaimed water for fiscal year 1996-97 were $246,080.
Property Tax Revenues. As a percentage of the District’s total revenues during the previous four fiscal years, property taxes were responsible for approximately 5.9% in 1992-93, approximately 4.7% in 1993-94, approximately 4.3% in 1994-95 and approximately 3.8% in 1995-96. See “FINANCIAL RESULTS OF THE DISTRICT - Historic Revenues, Expenditures and Debt Service Coverage” and “CERTIFICATE OWNERS’ RISKS - Property Tax Revenues” herein Outstanding District Obligations
Other than the 1988 COPS being refunded with the proceeds of the Certificates, the only District long-term obligation is a 1993 loan agreement with the State Water Resources Control Board. Principal is due in varying amounts ranging from $95,925 to $151,558 on November 30 of each year through 2013. Interest is payable on November 30 of each year at 2.9% per annum.
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- -
Historic Revenues, Expenditures and Debt Service Coverage
The following table presents the District’s cash revenues and expenditures for the past
five fiscal years, as well as a computation of net revenues and debt service coverage for the
1988 COPS in each of such fiscal years. Between Fiscal Year 1992-93 and Fiscal Year 1995-96,
debt service coverage with respect to the 1988 COPS increased from 1.63 times to 4.28 times.
Table 11
CARLSBAD MUNICIPAL WATER DISTRICT Historic Revenues, Expenditures and Debt Service Coverage Fiscal Years 1992-93 through 1995-96 (1) (In Thousands)
REVENUES
Operating Revenues Water Sales (2 Other Service J harges Contributions from Other Governmental Agencies Miscellaneous Total Operating Revenue Non-Operatmg Revenue/ (Expense) Major Facilities Fees (3) Interest Income PI’$i+y Taxes
Total Revenue
$9,844 $12,551 354 500 $‘3%! $14B2467
76 216 403 523 153 300 99 113 $10,427 $13,567 $14,048 $15,209
535 653 1,000 2,240 1,067 878 1,121 1,206 758 744 730 731 15 ( ) (45)
$12,802 %15,E6 $16,9;; $19,341
OPERATION AND MAINTENANCE COSTS
Purchased Water (4) General and Administrative
Total Operation & Maintenance Costs
NET REVENUES
Debt Service (1988 COPS)
Net Revenues Available After Debt Service
Debt Service Coverage Ratio (1988 COPS)
6,137 7,269 7,422 8,500 4,182 3,883 4,162 4,319
I I , ,
$2,483 $4,594 $5,329 $6,521
$1,528 $1,529 $1,526 $1,525
$955 $3,065 $3,802 $4,996
1.63X 3.01x 3.49x 4.28X
(1) Figures are compiled from audited financial statements, except where indicated. Totals may not add due to
(2) (3) EE%fpotabIe and reclaimed water sales revenue. Fees charged to connect new users to the system. (4) Includes the purchase of potable and reclaimed water.
Source: City of Carlsbad, Finance Department; Comprehensive Annual Financial Reports, Fiscal Years
1992-93,1993-94,1994-95 and 1995-96.
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- .
Projected Revenues, Expenditures and Debt Service Coverage
The following table is compiled from a pro forma operations statement developed by the District. The table shows the projected Revenues and Operations and Maintenance Costs of the Water System for the next five fiscal years (calculated in accordance with the Installment Sale Agreement) as well as calculations of Net Revenues and estimated debt service coverage based on estimated debt service with respect to the Certificates. Future revenues are based on projected water sales and on current and anticipated future water rates.
Table 12
CARLSBAD MUNICIPAL WATER DISTRICI. Projected Revenues, Expenditures and Debt Service Coverage Fiscal Years 1996-97 through 2000-01 (1)
(In Thousands)
1996-97 1997-98 1998-99 1999-00 2000-01 REVENUES
Operating Revenues Water Sales (2) Other Service Charges Contributions from Other Governmental Agencies Miscellaneous Total Operating Revenue Non-Operating Revenue/ (Expense) Major Facilities Fees (3) Interest Income Pl’!yty Taxes
Total Revenue
OPERATION AND MAINTENANCE COSTS
Purchased Water (4) General and Administrative
pota: Operation & Maintenance
NET REVENUES
Debt Service (the Certificates)Q)
Net Revenues Available After Debt Service
Debt Service Coverage Ratio (Certificates)
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
1,329 1,326 1,330 1,330 1,328
(1) Totals may not add due to rounding. (2) Includes potable and reclaimed water sales revenue. (3) Fees charged to connect new users to the system. (4) Includes the purchase of potable and reclaimed water. (5) Preliminary; subject to change.
Source: City of Carlsbad, Finance Department; Adopted Budgets for Fiscal Years 1996-97 and 1997-98;
[January 1996 water rate study]
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Direct and Overlapping Bonded Indebtedness
The following table shows the District’s total direct and overlapping bonded debt as of September 1,1997.
Table 13
CARLSBAD MUNICIPAL WATER DISTRICT
Direct and Overlapping Bonded Indebtedness
1996-97 Assessed Valuation: $5,192,927,870 Redevelopment Incremental Valuation: 135,106 731
Adjusted Assessed Valuation: $5,057,821,639
OVERLAPPING TAX AND ASSESSMENT DEBT:
San Diego County Water Authority Metropolitan Water District Carlsbad Unified School District Community Facilities District No. 1 Carlsbad Unified School District Lease Tax Obligations San Marcos Unified School District School Facilities Improvement District Encinitas Union School District Encinitas Union School District Lease Tax Obligations Leucadia County Water District Palomar Pomerado and T&City Hospital Districts City of Carlsbad 1915 Act Bonds TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT
CT AND OVERT. APPING GENERA1 0 FUND OBLIGATION DFBT: San Diego County General Fund Obligations San Diego County Pension Obligations San Diego County Su Carlsbad Municipal K erintendent of Schools Certificates of Participation ater District Certificates of Participation Community College District Certificates of Participation San Marcos Unified School District Certificates of Participation Vista Unified School District Certificates of Participation Encinitas Union School District Certificates of Participation City of Carlsbad General Fund Obligations
TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT Less: Carlsbad Municipal Water District Certificates of Participation
TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT
GROSS COMBINED TOTAL DEBT $103,622,890 (2 NET COMBINED TOTAL DEBT $95,462,89 A
% Avolicable 3.893% 0.627 100. 97.195 21.923
ZE 22:495 0.125 & 32.331 100.
3.746% 3.746 3.746 100. Various 17.054 0.065 2.946 82.326
Debt 9/l/97
$ 394,361 3,644,030 11,425,OOO p7;p7t;
‘873;602 330,247 23,620 149.267 24.135:ooo $54,138,217
$19,683,657 14,814,494 86,533 8,160,000 (1) 485,119 570,456 9,479 89,116
$m
(1) (2)
Excludes refunding certificates of participation to be sold. Excludes tax and revenue anticipation notes, revenue, mortgage revenue and tax allocation bonds and non- bonded capital lease obligations.
s to 1996-97 Assessed Valu&Qn Total Overlapping Tax and Assessment Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.04%
OS . . to Adlusted Assessed Vaw Gross Combined Direct Debt Combined Direct ($8&O 000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 16% Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0100% Gross Combined Total Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..,......... 2.05% Net Combined Total Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..__.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.89%
NG AID REPAYABLE AS OF 6/30/9Z: $3,202
YV:($375)
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CEXTIFICATE OWNERS’ RISKS
Payment of principal of and interest with respect to the Certificates depends primarily upon the District’s payments of the Installment Payments pursuant to the Installment Purchase Agreement. Some of the events which could prevent the District from making the Installment Payments are set forth below. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the Certificates and does not necessarily reflect the relative importance of the various risks.
Limited Oblieations. The Certificates are limited obligations of the District and are not secured by a legal or equitable pledge or charge or lien upon any property of the District or any of its income or receipts, except the Net Revenues. The obligation of the District to make the Installment Payments does not constitute an obligation of the District to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation.
The District is obligated under the Installment Purchase Agreement to pay the Installment Payments solely from Net Revenues. There is no assurance that the District can succeed in operating the Water System such that the Net Revenues in the future amounts projected herein will be realized.
Limited Recourse on Default. Failure by the District to pay the Installment Payments required to be made under the Installment Purchase Agreement constitutes an event of default under the Installment Purchase Agreement and the Trustee is permitted to pursue remedies at law or in equity to enforce the District’s obligation to make such Installment Payments. Although the Trustee has the right to accelerate the total unpaid principal amount of the Installment Payments, there is no assurance that the District would have sufficient funds to pay the accelerated Installment Payments. See also “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS - Proposition 218” herein.
Bankruptcy. The rights and remedies provided in the Installment Purchase Agreement may be limited by and are subject to the provisions of federal bankruptcy laws and to other laws or equitable principles that may affect the enforcement of creditors’ rights. If the District were to fiie a petition under Chapter 9 of the Bankruptcy Code, the Owners of the Certificates and the District could be prohibited from taking any steps to enforce their rights under the Installment Purchase Agreement and Trust Agreement, and from taking any steps to collect amounts due from the District under the Installment Purchase Agreement.
Tax Exemntion of the Certificates The District has covenanted in the Installment Purchase Agreement that it shall take all actions necessary to assure the exclusion of interest with respect to the Certificates from the gross income of the Owners of the Certificates to the same extent as such interest is permitted to be excluded from gross income under the Internal Revenue Code of 1986. In the event the District fails to comply with the foregoing tax covenant, the interest component of the Installment Payments evidenced by the Certificates may be includable in the gross income of the Owners thereof for federal tax purposes. See “TAX MATTERS’ herein.
Paritv Oblieations. The Installment Purchase Agreement permits the execution of Contracts and issuance of Bonds which, if issued, will be payable from Net Revenues on a
parity with the Installment Payments. Such Contracts and Bonds would increase Debt Service,
and could adversely affect Debt Service coverage with respect to the Certificates. In such event, however, the Rate Covenant described herein will remain in effect. See “SECURITY FOR THE CERTIFICATES - Rate Covenant” herein.
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Seismic Cons’derations. The areas in and surrounding the District, like those in much of
California, may be sibject to unpredictable seismic activity. If there were to be an occurrence of severe seismic activity in the area of the District, there could be an interruption in the service provided by the Water System resulting in a temporary reduction in the amount of Net
Revenues available to pay the Installment Payments.
Provertv Tax Revenues. One of the elements of the District’s non-operating revenue is
ad valorem property tax revenues. Thus, the Net Revenues available to pay the Installment Payments are subject to reductions in assessed valuation of property in the District.
CONSmONAL AND STATUTORY LIMITATIONS ON TAXES AND
APPROPRIATIONS
Article XIIIA of the California Constitution
On June 6,1978, California voters approved Proposition 13, which added Article XIIIA to the California Constitution (“Article XIIIA”). Article XIIIA limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional
ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1,1978 and (as a result of an amendment to Article XIIIA approved by California voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1,1978 by two-thirds of the voters on such indebtedness. Article XIIIA defines full cash value to mean the county assessors valuation of real property as shown on the 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. This full cash value may be increased at a rate not to
exceed two percent per year to account for inflation. Article XIIIA has subsequently been
amended to permit reduction of the “full cash value” base in the event of declining property
values caused by damage, destruction or other factors, to provide that there would be no
increase in the full cash value base in the event of reconstruction of property damaged or
destroyed in a disaster and in other minor or technical ways.
Article XIIIB of the California Constitution
An initiative to amend the California Constitution. entitled “Limitation of Government
Appropriations” was approved on September 6, 1979 thereby adding Article XIIIB to the
California Constitution (“Article XIIIB”). Under Article XIIIB state and local governmental entities have an annual “appropriations limit” and are not permitted to spend certain moneys which are called “appropriations subject to limitation” (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriations of moneys which are excluded from the definition of
“appropriations subject to limitation,” including debt service on indebtedness existing or
authorized as of January 1,1979, or bonded indebtedness subsequently approved by the voters. In general terms, the “appropriations limit” is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities’ revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.
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Proposition 111, entitled the Traffic Congestion Relief and Spending Act of 1990, was approved by the voters on June 5,199O. Proposition 111 changes the formula which allows for adjustments in the expenditure limits under Article XIIIB. Rather than adjusting the limit by the percentage change in the California Consumer Price Index, Proposition 111 adjusts it by the percentage change in California Personal Income per capita. Local governments are given the option of using Personal Income per capita or the change in local assessment rolls for new,
nonresidential construction as the basis for adjusting their limits. This change allows local governments limits to reflect economic growth, particularly in rapidly growing communities. Furthermore, Proposition 111 allows the averaging of two years’ tax revenues before requiring action regarding excess tax revenues. The District cannot predict the effect that Proposition 111 will have on the District.
Unitary Property
AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most
utility property assessed by the State Board of Equalization (“Unitary Property”), commencing
with the 1988-89 fiscal year, will be allocated as follows: (1) each jurisdiction will receive up to
102% of its prior year State-assessed revenue; and (2) if countywide revenues generated from
Unitary Property are less than the previous year’s revenues or greater than 102% of the previous
year’s revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a
specified formula. This provision applies to all Unitary Property except railroads, whose
valuation will continue to be allocated to individual tax rate areas.
The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county.
Statutory Limitations
On November 4, 1986, California voters approved Proposition 62, an initiative statute limiting the imposition of new or higher taxes by local agencies. The statute (a) requires new or
higher general taxes to be approved by two-thirds of the local agency’s governing body and a
majority of its voters; (b) requires the inclusion of specific information in all local ordinances or
resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail
to comply with the foregoing; and (d) requires local agencies to stop collecting any new or higher
general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by
November 1,1988. A final State Court of Appeal decision has declared the majority provisions
referred to in (d) above to be unconstitutional. A second appellate court decision held
unconstitutional both the effective date and majority vote provisions of Proposition 62.
However, the California Supreme Court has ordered that the latter decision not be published
(making it unavailable for citation as precedent) thus creating uncertainty as to the voter
approval requirement of Proposition 62.
Proposition 218
Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Over the past 18 years, the voters have exercised this power through the adoption of Proposition 13 and similar measures,
the most recent of which was approved as Proposition 218 in the general election held on
November 5,1996.
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Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the District. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives, possibly to the extent of creating cash-flow problems in the payment of outstanding obligations such as the Installment Payments.
Proposition 218-Voter Approval for Local Government Taxes-Limitation on Fees, Assessments, and Charges-Initiative Constitutional Amendment, added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. All assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures,
such as hearings and stricter and more individualized benefit requirements and findings. The
effect of such new provisions will presumably be to increase the difficulty a local agency will
have in imposing, increasing or extending such assessments, fees and charges. However, the
District believes that the components of its water rates --both the fixed delivery charge and the commodity charge -- are not incidents of property ownership and, thus, not subject to Proposition 218. This view is supported by a recent opinion of the California Attorney General (97 C.D.O.S. 5766), in which the Attorney General opined that water charges based upon the amount of water used are not fees or charges imposed as an incident of property ownership. [The Attorney General distinguished usage-related charges from standby charges, like the District’s “readiness-to-serve” charge, which are based upon the ownership of land and calculated on the basis of the amount of land involved and, thus, which are subject to the constitutional provision.]
Proposition 218 also provides that the constitutional initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local taxes, assessments,
fees and charges. This provision may be interpreted to allow the voters to exercise their initiative power to reduce or repeal local taxes, assessments, fees and charges such as the revenues securing the Installment Payments, possibly in contravention of the District’s rate covenant in the Installment Purchase Agreement. See “SECURITY FOR THE CERTIFICATES -
Rate Covenant.” Any such voter initiative, if duly proposed and approved, could materially and adversely affect the ability of the District to make Installment Payments under the
Installment Purchase Agreement. If the District is not able to make Installment Payments, then
following the depletion of the Reserve Fund, payments of principal and interest with respect to
the Certificates could be delayed or reduced (possibly substantially). In addition, the proposal
or enactment of any such measure could materially and adversely affect the market for the
Certificates.
Like its antecedents, Proposition 218 is likely to undergo both judicial and legislative scrutiny before its impact on the District and its obligations can be determined. Certain provisions of Proposition 218 may be examined by the courts for their constitutionality under
both State and federal constitutional law. The District is not able to predict the outcome of any
such examination.
The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The District does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Certificates as well as the market for the Certificates. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218.
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Future Initiatives and Legislation
Article XIIIA, Article XIIIB and Propositions 62,218 and 111 were adopted as measures that qualified for the ballot pursuant to California’s initiative process. From time to time other initiative measures could be adopted, further affecting District revenues or the District’s ability
to expend revenues.
CERTAIN LEGAL MATTER!3
The legal opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
Newport Beach, California, Special Counsel, substantially in the form of Appendix C hereto, will be made available to purchasers at the time of original delivery of the Certificates, and a copy thereof will accompany each Certificate. Certain matters will be passed upon for the
Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California. Certain legal matters will be passed upon for the Corporation and the District by the City Attorney.
Payment of the fees and expenses of Special Counsel is contingent upon the execution and delivery of the Certificates.
TAXMATTERS
In the opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, the portion of each Installment Payment constituting interest is excluded from
gross income for federal income tax purposes, and is not an item of tax preference for purposes
of calculating the federal alternative minimum tax imposed on individuals and corporations. In
the further opinion of Special Counsel, the portion of each Installment Payment constituting
interest is exempt from State of California personal income tax. Special Counsel notes that, with respect to corporations, the portion of each Installment Payment constituting interest may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. In addition, the
difference between the issue price of a Certificate (the first price at which a substantial amount
of the Certificates of a maturity is to be sold to the public) and the stated redemption price at
maturity with respect to a Certificate constitutes original issue discount, and the amount of
original issue discount that accrues to the owner of the Certificate is excluded from gross income
of such owner for federal income tax purposes, is not an item of tax preference for purposes of
the federal alternative minimum tax imposed on individuals and corporations, and is exempt
from State of California personal income tax. A complete copy of the proposed opinion of
Special Counsel is set forth in Appendix C - “FORM OF OPINION OF SPECIAL COUNSEL.”
Special Counsel’s opinion as to the exclusion from gross income of the portion of each
Installment Payment constituting interest (and original issue discount) is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies with all requirements of the Code, that must be satisfied subsequent to the execution and delivery of the Certificates to assure that the portion of each Installment Payment constituting interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such
requirements of the Code might cause the portion of each Installment Payment constituting
interest (and original issue discount) to be included in gross income for federal income tax
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purposes retroactive to the date of execution and delivery of the Certificates. the District has covenanted to comply with all such requirements.
Although Special Counsel has rendered an opinion that the portion of each Installment Payment constituting interest (and original issue discount) is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain
requirements of the Code, the ownership of the Certificates and the accrual or receipt of interest
(and original issue discount) with respect to the Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Certificates.
Special Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreement and the Tax Certificate relating to the Certificates permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the exclusion from gross income of the portion of each Installment Payment constituting interest (and original issue discount) for federal income tax purposes if any such action is taken or omitted based upon the advice of counsel other than Stradling, Yocca, Carlson & Rauth.
BAN-K QUALIFIED
The Code generally prohibits the deduction of interest on indebtedness incurred or continued by a bank or other financial institution to purchase or carry tax-exempt obligations, such as the Installment Purchase Agreement. The Code, however, contains an exception to this
provision which permits an 80% deduction for interest expense of banks and other financial
institutions allocable to their investments in tax-exempt obligations to the extent they purchase
obligations of certain small governmental units (i) that together with all subordinate entities
thereof do not reasonably expect to issue in the aggregate more than $10,000,000 of tax-exempt obligations (not counting private activity bonds other than qualified 501(c)(3) bonds) in a calendar year, and (ii) that designate such obligations as qualifying for such exception. By resolution adopted on August 26, 1997, the District has (i) represented that it expects that it
and all subordinate entities thereof will not issue in the aggregate more than $10,000,000 of tax-
exempt obligations during calendar year 1996, and (ii) designated the Installment Purchase
Agreement as qualifying for such exception.
ABSENCE OF LITIGATION
There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the issuance or sale of the Certificates, the Installment Purchase Agreement, the Trust Agreement or in any way contesting or affecting the validity of the foregoing or any proceedings
of the Corporation or the District taken with respect to any of the foregoing.
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VERIFICATION OF MATHEMATICAL ACCURACY
Ernst & Young, Tucson, Arizona, independent accountants, upon delivery of the Certificates, will deliver a report on the mathematical accuracy of certain computations,
contained in schedules provided to them which were prepared by the District, relating to the
sufficiency of the anticipated receipts from the Escrow Securities to pay, when due, the
principal, whether at maturity or upon prior prepayment, interest and prepayment premium requirements of the 1988 COPS.
The report of Ernst & Young will include the statement that the scope of their engagement is limited to verifying the mathematical accuracy of the computations contained in
such schedules provided to them, and that they have no obligation to update their report
because of events occurring, or data or information coming to their attention, subsequent to the date of their report.
RATINGS
Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services have assigned their municipal bond ratings of ” ” and ” “, respectively, to the Certificates. Such ratings reflect only the views of such organizations and an explanation of the significance of such rating may be obtained from Moody’s Investors Service and Standard & Poor’s Ratings Services. There is no assurance that such ratings will continue for any given period of time or
that such ratings will not be revised downward or withdrawn entirely by such organizations, if
in their judgment circumstances so warrant. Any such downward revision or withdrawal of
such ratings may have an adverse effect on the market price of the Certificates.
UNDERWRITING
The Bonds are being purchased by Dean Witter Reynolds Inc. (the “Underwriter”) at a purchase price of $ (which represents the aggregate principal amount of the Bonds less an original issue discount of $- and an underwriter’s discount of
$- ). The purchase agreement relating to the Bonds provides that the
Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such
purchase being subject to certain terms and conditions set forth in such purchase agreement.
The Underwriter may offer and sell Bonds to certain dealers and others at prices lower
than the offering price stated on the cover page hereof. The offering prices may be changed from
time to time by the Underwriter.
MISCELLANEOUS
References are made herein to certain documents and reports which are brief summaries thereof and which do not purport to be complete or definitive, and reference is made to such documents and reports for a full and complete statement of the contents thereof.
This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Certificates,
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The execution and delivery of this Official Statement has been duly authorized by the District.
CARLSBAD MUNICIPAL WATER DISTRICT
Executive Manager
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APPENDIX A
CERTAIN DEFINITIONS AND
SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS
[to come from Special Counsel]
A-l
APPENDIX B
GENERAL INFORMATION ABOUT THE CITY OF CARLSBAD
The following information relating to the City of Carlsbad, San Diego County, California
(the “City”) is supplied solely for purposes of information.
The City of Carlsbad, California is located about 35 miles north of San Diego and 86
miles south of Los Angeles. City limits cover approximately 42.19 square miles and has an
estimated population of 70,100. The City was incorporated July 16,1952.
Municipal Government
Carlsbad is a general law city with the council-manager form of government. A five- member City council is elected at large for four-year alternating terms at elections held every two years. The mayor is the presiding officer of the council and also is elected to serve a four-
year term. The city manager, appointed by the council for an indeterminate term, acts as chief
executive officer in carrying out council policies. The current city manager has served for 10
years.
The City had approximately 725 full- and part-time employees during 1995-96. City services include police and fire protection, public safety, parks and recreation, library, community development, and water and sewer services.
Climate and Topography
Carlsbad has mild summers with a mean temperature for the month of July of 73 degrees and moderate winters with an average winter temperature of 58 degrees. The relative humidity is low. Average rainfall, which occurs generally in the period between October and February, is less than 9 inches.
The City is located on the Pacific Ocean 31 miles north of San Diego at an altitude of
sea level to 585 feet above sea level.
Population
Population figures for the City of Carlsbad, San Diego County and the State for the last
five years are shown in the following table.
CITY OF CARLSBAD
Population Estimates Calendar Years 1993 through 1997
Calendar City of County State of &g Carlsbad San DiePo California
1993 66200 2,614,200 31,517,oOO
1994 66,700 2,638,500 31,661,OOO
1995 6=0 2,658,600 31,910,oOO
1996 68,000 2,682,100 32,223,OOO
1997 70,100 2,724,400 32,609,OOO
Source: State Department of Finance estimates (as of January 1)
B-l
City Employees Retirement Program
The City contributes to the California Public Employees Retirement System (“PER!?‘), an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for participating public entities within the state of California. All salaried full-time employees are eligible to participate in PERS. Participants in the plan vest after 5 years of employment. Employees in the plan are eligible to retire after ages 50 to 60 and receive annual retirement benefits calculated based on age at retirement, years of membership service and the amount of earnings based on the highest 12 consecutive months average. The City’s payroll for employees covered by PERS for the year ended June 30, 1996 was $22,028,791 out of a total payroll of $25,216,119.
Pension costs are recorded as expenditures when paid by monthly contributions to PERS. At June 30, 1995, the market value of the net assets available for benefits was $89,855,496. The City’s total unfunded (overfunded) pension benefits obligation at June 30, 1995 was approximately $12.9 million.
City Insurance Program
Effective January 1,1991, the City became a participating member of the Public Agency
Risk Sharing Authority of California (“PARSAC”), a risk-management pool for general liability claims. Under this program, the pool provides coverage up to a maximum of $500,000 per claim
with a self insured retention provided by the City also in the amount of $500,000 per claim. In addition, excess general liability insurance coverage up to $10,000,000 is provided. Under the
terms of the agreement with PARSAC, the City must maintain an unencumbered portion of fund
equity equal to $1,500,000. At June 30, 1996, unencumbered fund equity for the General
Liability Self-Insurance Fund was approximately $2,200,000.
Health Insurance coverage for City employees is provided by Kaiser, PERS, or an
indemnity plan. The majority of City employees are covered through the indemnity plan ‘which is administered by Northwestern National Life (“NWNL”). Under the City’s agreement with
NWNL, NWNL provides coverage for each individual claim over $125,000. If claims for the
City as a whole exceed 125% of the average of the previous two months, NWNL assumes payment for the excess amount.
The City is insured for worker’s compensation claims by Employers Reinsurance
Corporation providing coverage for losses which exceed the City’s self-insured retention of
$300,000 per claim.
Employment and Industry
The City of Carlsbad is included in the San Diego Metropolitan Statistical Area, which
includes all of San Diego County. Set forth below is data from 1992 to 1996, reflecting San
Diego County’s civilian labor force, employment and unemployment. In the past five years total
employment in San Diego County rose 2.3% while the labor force increased 1%.
B-2
METROPOLITAN STATISCAL AREA (SAN DIEGO COUNTY) Civilian Labor Force, Employment and Unemployment h4nnual Averages)
Civilian Labor Force Employment Unemployment Unemployment Rate
Wage & Salary Employment
1992 1993
1,201,000 1,226,300 1,113,oOO 1,131,600 88,000 94,700
7.3% 7.7%
Total All Industries 958,400 957,900
Agriculture 10,600 10,700
Nonagricultural Industries 947,800 947,200
Mining 500 400 Construction 43,100 39,500 Manufacturing 124,100 117#500 Transportation, Public 34,800 35,700 Utilities Wholesale Trade 42,300 39,700 Retail Trade 179,100 185,800 Finance, Insurance, Real 61,100 62,200 Estate Services 283,600 287,300 Government 179,300 179,100
Source: State of California Employment Development Department
1994 1995 1996
1,236,500 1,234,500 1,236,300
1,149,500 1.155800 1,170,700
87;OOO 78;700 65;600
7.0% 6.4% 5.3%
965,800 989,300 1,009,800
10,600 10,800 10#800
955,300 978,600 999,000
400 300
40,600 43,600
114,100 114,900
36,400 37,400
116,200
38,000
42,000 42,900 43,300 185,100 186,600 191,400 59,100 55,800 56,600
296,100 310,900 319300
181,500 186,100 189,600
The following tables list the major employers within the City and their estimated number of employees.
The major manufacturing employers located within Carlsbad are summarized in the
table below.
CITY OF CARLSBAD
Major Manufacturing Employers
As of September 1996
EmDlover EmDlovmen t products
CaIloway Golf 2,250 Golf Equipment The Upper Deck 700 Entertainment Cards Smith & Nephew Donjoy Inc. 500 Orthopedic Braces Nellcor Puritan Bennet Corp. 400 Medical Equipment Republic Tool & Manufact. Co. 400 Tools Taylor Made Golf Co., Inc. 400 Golf Equipment Cobra Golf Inc. II 350 Golf Equipment Palomar Products 300 Integrated Circuits Ashworth, Inc. 250 Golf Apparel Eaton-Leonard Corpora Lion 240 Tube Bending Machines
Source: City of Carlsbad Chamber of Commerce
B-3
A list of major non-manufacturing employees in the City is set forth in the table below.
CITY OF CARLSBAD
Major Non-Manufacturing Employers
As of September 1996
Emnlover Emnlovment
Plaza Camino Real 3,000 La Costa Resort & Spa 950 City of Carlsbad 700 Carlsbad Unified School District 610 Car Country Carl&ad 500 Farmers Insurance-Regional 400 San Diego Gas & Electric Co. 300 Isis Pharmaceutical 250 Price Costco 200 Coast Waste Management 165
Source: City of Carlsbad Chamber of Commerce
Products
Shopping Mall (4 major dept. stores) Hotel and Health Spa Municipal Government Education Car Dealerships Insurance Services Power Generation Research and Development Grocer/Wholesale/Retail Solid Waste Disposal
Median Effective Buying Income
“Effective Buying Income” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s income, rental income (which includes imputed rental
income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest
income from all sources, and transfer payments (such as pensions and welfare assistance).
Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal
income.”
Due to changes implemented in 1996 in the method of calculating Effective Buying
Income, prior years are not directly comparable with statistics for 1996. The following table
summarizes the total effective buying income for the City, the County of San Diego, the State
and the United States for the period 1992 through 1996.
B-4
Year and Area
Total Effective Buying Income
@oo3 Omitted)
Median Household
Effective Buvinrr Income
1992 City of Carlsbad 1360,268 45,754 San Diego County 40,840,447 California 35,776
490,749,649 36,943 United States 3,728,967,043 32,073
1993 City of Carlsbad 1,418,208 46,746 San Diego County 42,282,698 36,503 California 509,152,677 37,686 United States 3,916,947,023 33,178
1994 City of Carlsbad 1,407,026 48,592 San Diego County 43,795,963 38,082 California 528,958,745 39,330
United States 4,169,724,052 35,056
1995 City of Carlsbad 1,450,561 50,414
San Diego County 45,541,671 39,542 California 552,074,838 40,969
United States 4,436,178 37,070
1996 City of Carlsbad 1,302,354 43,416
San Diego County 39,777,129 33,679
California 477,640,503 34333
United States 3,964,285,118 32,238
EFFECTIVE BUYING INCOME As of January 1,199l through 1996
Source: Sales & Marketing Management Survey of Buying Power
B-5
Building Activity
The table below summarizes building activity in the City of Carlsbad from 1992 to 1996.
CITY OF CARLSBAD Building Activity and Valuation, 1992-1996 (In Thousands of Dollars)
ZrYIE
Single-Family
Multi-Family
Alterations/Additions
TOTAL
Commercial
Industrial
Other
Alterations/Additions
Total
Total Building Valuations
1992
$13,583
fi41:
$19,999
8,123
4,848
486
8.260
1993
$26,175
0
5,017
$31,192
1,732
1,108
851
11.467
1994
$57,289 4,424
4,796
$66509
2;648
5,842
2,798
9.710
1995
$96,094
11,158
2,868
$110,120
15,730
9,760
505
5.009
21,717 15;158 20:998 31:004
$41,716 $46,349 $87,508 $141,124
136#.566 1,639
/a 138,205
n/a n/a n/a n/a
No. of Building; Units
Single-Family 64 125 261 427 631
Multi-Family A! 0 33 J9J 11 TOTAL 64 125 294 620 642
Source: Economic Sciences Corp., California Building Permit Activity
B-6
APPENDIX C
FORM OF OPINION OF SPECIAL COUNSEL
C-l
APPENDIX D
FORM OF CONTINUING DISCLOSURE CERTIFICATE
D-l
APPENDIX E
AUDITED FINANCIAL STATEMENTS FORTH-E CITY
FOR THE YEAR ENDED JUNE 30,1996
El
14029-05 JH:CKL 7124197 8/08/97 8/19/97
PURCHASE CONTRACT
1997 Water Revenue Certificates of Participation
(1988 Refunding Project)
Evidencing Direct, Undivided Fractional Interests of the
Owners Thereof in lnstallment Payments to Be Made by the
CARLSBAD MUNICIPAL WATER DISTRICT
Pursuant to an lnstalhnent Purchase Agreement with the
CITY OF CARLSBAD PUBLlC IMPROVEMENT CORPORATION
(Bank Qualified)
PURCHASE CONTRACT
September -, 1997
Carlsbad Municipal Water District 1200 Carlsbad Village Drive
Carlsbad, California 92008-l 989
Ladies and Gentlemen:
The undersigned (the “Underwriter”), offers to enter into this purchase contract (the
“Purchase Contract”) with the Carlsbad Municipal Water District (the “District”), which will be binding upon the District and the Underwriter upon the acceptance hereof by the District. This offer is made subject to its acceptance by the District by execution of this Purchase Contract and its delivery to the Underwriter on or before 5:00 p.m., California time, on the date hereof. All terms used herein and not otherwise defined shall have the meanings given to such terms in
the Trust Agreement (as hereafter defined).
1. Purchase and Sale. Upon the terms and conditions and upon the basis of the
representations, warranties and agreements hereinafter set forth, the Underwriter hereby agrees
to purchase, and the District hereby agrees to cause to be delivered to the Underwriter, all (but
not less than all) of the $ aggregate principal amount of the Carlsbad Municipal Water District 1997 Water Revenue Certificates of Participation (1988 Refunding Project) (the “Certificates”) at a purchase price of $ (being an amount equal to the principal amount of the Certificates, less an original issue discount of $ , less an underwriter’s discount of $ > plus accrued interest from the date of the Certificates to the date of Closing (as hereafter defined).
2. Authorizing: Instruments and Law. The District will acquire certain additions, betterments, extensions and improvements to the District’s water system (the “Project”) from
the City of Carlsbad Public Improvement Corporation (the “Corporation”) pursuant to an
Installment Purchase Agreement, dated as of September 1,1997, between the District and the Corporation (the “Installment Purchase Agreement”). The Certificates will evidence and represent fractional undivided interests of the owners thereof in Installment Payments to be made by the District to the Corporation pursuant to the Installment Purchase Agreement. The Certificates will be executed and delivered pursuant to a Trust Agreement, dated as of September 1, 1997 (the “Trust Agreement”), among First Trust of California, National
Association, as trustee (the “Trustee”), the Corporation and the District. The Corporation will assign substantially all of its rights under the Installment Purchase Agreement, including its right to receive Installment Payments, to the Trustee pursuant to an Assignment Agreement, dated as of September 1,1997 (the “Assignment Agreement”), between the Corporation and the Trustee. The Certificates shall be as described in the Trust Agreement and the Official Statement (as
hereafter defined).
The proceeds of the Certificates will be used (i) to provide funds to refund certain
outstanding certificates of participation (the “1988 COPS”) evidencing installment payments to be made by the District with respect to the Project pursuant to that certain Escrow Agreement, dated as of September 1,1997 (the “Escrow Agreement”), by and between the District and First Trust of California, National Association, as escrow agent, (ii) to establish a Reserve Fund with respect to the Certificates, and (iii) to pay the costs of execution and delivery of the Certificates.
Payment of principal of and interest with respect to the Certificates is being insured by (the “Insurer”).
3. Public Offering. The Underwriter agrees to make a bona fide public offering of all the Certificates initially at the public offering prices (or yields) set forth on Appendix A attached
hereto and incorporated herein by reference. Subsequent to the initial public offering, the
Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Certificates, provided that the Underwriter
shall not change the interest rates set forth on Appendix A. The Certificates may be offered and sold to certain dealers at prices lower than such initial public offering prices.
4. Deliverv of Official Statement; Continuing: Disclosure. Pursuant to the authorization
of the District, the Underwriter has distributed copies of the Preliminary Official Statement dated September ---I 1997, relating to the Certificates (the “Preliminary Official Statement”) to
prospective purchasers of the Certificates. By its acceptance of this proposal, the District
hereby ratifies such use by the Underwriter of the Preliminary Official Statement; and the
District agrees to approve a final Official Statement relating to the Certificates (the “Official
Statement”) which will consist of the Preliminary Official Statement with such changes as may
be made thereto, with the approval of the District and the Underwriter, and to provide copies
thereof to the Underwriter as set forth in Section 6(o) hereof. The Underwriter hereby agrees to
deposit the Official Statement with a nationally recognized municipal securities information
depository. The District hereby authorizes the Underwriter to use and distribute, in connection
with the offer and sale of the Certificates, the Preliminary Official Statement, the Official
Statement, the Trust Agreement, the Installment Purchase Agreement, the Assignment
Agreement and this Purchase Contract and all information contained herein, and all other
documents, certificates and statements furnished by the District to the Underwriter in
connection with the transactions contemplated by this Purchase Contract.
The District will undertake, pursuant to the Trust Agreement and a Continuing Disclosure Certificate (the “Continuing Disclosure Certificate”), to provide certain annual financial information and notices of the occurrence of certain events, if material. A description
of such undertaking is set forth in the Preliminary Official Statement and will also be set forth in
the Official Statement.
5. The Closing. At 8:00 a.m., California time, on September 24, 1997 or at such other
time or on such earlier or later business day as shall have been mutually agreed upon by the
District and the Underwriter, the District will cause to be delivered (i) the Certificates, through
the facilities of The Depository Trust Company, to the Underwriter in New York, New York, and (ii) the closing documents hereinafter mentioned at the offices of Stradling, Yocca, Carlson
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& Rauth, a Professional Corporation (“Special Counsel”), Newport Beach, California, or another
place to be mutually agreed upon by the District and the Underwriter. The Underwriter will accept such delivery and pay the purchase price of the Certificates as set forth in Section 1 hereof in immediately available funds. This payment and delivery, together with the delivery of
the aforementioned documents, is herein called the “Closing.” The Certificates will be delivered in such denominations and deposited in the account or accounts specified by the Underwriter pursuant to written notice to the District not later than five business days prior to Closing.
6. Reuresentations, Warranties and Covenants. The District represents, warrants to and covenants with to the Underwriter that:
(a) Due Orgunization Existence and Authority. The District is a municipal water district duly organized and existing under the Constitution and laws of the State of California (the “State”), with full right, power and authority to execute, deliver and perform its obligations under this Purchase Contract, the Trust Agreement, the Installment Purchase Agreement, the Escrow Agreement and the Continuing Disclosure Certificate (collectively, the “District Documents”) and to carry out and consummate the transactions on its part contemplated by the District Documents and the Official
Statement.
(b) Due Authorizution and Approval. By all necessary official action of the District, the District has duly authorized and approved the execution and delivery of, and the performance by the District of the obligations on its part contained in the District Documents; and as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. The District has complied, and will at the Closing be in compliance in all respects, with its obligations under the District Documents.
(c) Oficiul Statement Accurate and Complete. The Preliminary Official Statement was as of its date, and the Official Statement is, and at all times subsequent to the date of the Official Statement up to and including the Closing will be, true and correct in all material respects, and the Preliminary Official Statement and the Official Statement contain and up to and including the Closing will contain no misstatement of any material fact and do not, and up to and including the Closing will not, omit any
statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading.
(d) Underwriter’s Consent to Amendments and SuppEements to OfficiuE Statement. The District will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The District will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Certificates.
(e) District Agreement to Amend or Supplement Official Statement. If after the date
of this Purchase Contract and until 25 days after the end of the “underwriting period” (as defined below), any event occurs as a result of which the Official Statement as then amended or supplemented would include an untrue statement of a material fact, or omit
to state any material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading, and, in the reasonable opinion of the Underwriter, an amended or supplemented Official Statement should be delivered in connection with the offers or sales of the Certificates to reflect
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such event, the District promptly will prepare at its expense an amendment or supplement which will correct such statement or omission and the District shall promptly furnish to the Underwriter a reasonable number of copies of such amendment or supplement. Unless the Underwriter otherwise advises the District in writing that the
end of the underwriting period shall be another specified date, the end of the
underwriting period shall be the day of Closing.
(f) No Material Change in Finances. At the time of the Closing, there shall not have been any material adverse changes in the financial condition of the District since the
date hereof.
(g) No Breach OY Default. As of the time of acceptance hereof and as of the time of the Closing, the District is not and will not be, in any manner which would adversely affect the transactions on the part of the District contemplated hereby and by the District Documents, in breach of or in default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note,
resolution, ordinance, agreement or other instrument to which the District is a party or is
otherwise subject, and no event has occurred and is continuing which, with the passage
of time or the giving of notice, or both, would constitute, in any manner which would
adversely affect the transactions on the part of the District contemplated hereby and by
the District Documents, a default or event of default under any such instrument; and, as
of such times, the authorization, execution and delivery of the District Documents and compliance with the provisions of each of such agreements or instruments do not and
will not conflict with or constitute a breach of or default under any applicable
constitutional provision, law or administrative rule or regulation of the State or the
United States, or any applicable judgment, decree, license, permit, trust agreement, loan
agreement, bond, note, resolution, ordinance, agreement or other instrument to which the
District (or any of its officers in their respective capacities as such) is subject, or by which it or any of its properties is bound, nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other
security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument, except as may
be provided by the District Documents.
(h) No Litigation. As of the time of acceptance hereof and as of the date of the
Closing, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, is pending with respect to which
the District has been served with process, to the best knowledge of the District after due
investigation, threatened (i) in any way questioning the corporate existence of the District or the titles of the officers of the District to their respective offices; (ii) affecting,
contesting or seeking to prohibit, restrain or enjoin the execution and delivery of the
Certificates, or in any way contesting or affecting the validity of the District Documents
or the consummation of the transactions contemplated thereby, or contesting the
exclusion of interest evidenced and represented by the Certificates from gross income for federal income tax purposes or contesting the powers of the District to enter into the District Documents; (iii) which may result in any material adverse impact on the financial condition of the District; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is
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no known basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of this sentence.
(i) Per&ted Encumbrances. As of the time of acceptance hereof and as of the date of the Closing, the Project shall be free of all liens other than Permitted Encumbrances.
<j> Further Cooperution; Blue Sky. The District will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order (i) to qualify the Certificates for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and (ii) to determine the eligibility of the Certificates for investment under the laws of such states and other jurisdictions; provided, however, that the District shall not be required to execute a general or special consent to service of process or qualify to do business in connection with any such qualification or determination in any jurisdiction.
(k) Consents and Approvals. All authorizations, approvals, licenses, permits, consents and orders of or filings with any governmental authority, legislative body, board, agency or commission having jurisdiction in the matters which are required for the due authorization of, which would constitute a condition precedent to or the absence of which would adversely affect the due performance by the District of its obligations in connection with, the District Documents have been duly obtained or made, except as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Certificates.
(1) VuEidity of District Documents. The District Documents, when executed and delivered by the District and other parties thereto, will be legally valid and binding obligations of the District enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally.
(m) No Other Obligations. Between the date of this Purchase Contract and the date of Closing, the District will not, without the prior written consent of the
Underwriter, offer or issue any bonds, notes or other obligations for borrowed money
payable from the General Fund of the District.
(n) Certificates. Any certificate signed by any official of the District and delivered to the Underwriter shall be deemed to be a representation and warranty by the District
to the Underwriter as to the statements made therein.
(0) Compliance With Rule 15~2-22. The Preliminary Official Statement heretofore
delivered to the Underwriter is deemed final by the District as of its date and as of the
date hereof, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(l) of Rule 15~2-12. The District hereby covenants and agrees that, within seven business days from the date hereof, the District shall cause a final printed form of the Official Statement to be delivered to the Underwriter in sufficient quantity to comply with paragraph (b)(4) of Rule 15~2-12 and Rules of the Municipal Securities Rulemaking Board.
7. Closing Conditions. The Underwriter has entered into this Purchase Contract in reliance upon the representations, warranties and covenants of the District herein and the performance by the District of its obligations hereunder, both as of the date hereof and as of the
date of the Closing. The Underwriter’s obligations under this Purchase Contract are and shall be subject to the following additional conditions:
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(a) Bring-Down Representation. The representations, warranties and covenants of
the District contained herein shall be true and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing.
(b) Executed Agreements and Performance Thereunder. At the time of the Closing (i) the District Documents and the Assignment Agreement shall be in full force and effect, and shall not have been amended, modified or supplemented except with the written
consent of the Underwriter, (ii) there shall be in full force and effect such resolutions (the “Resolutions”) as, in the opinion of Special Counsel, shall be necessary in connection with the transactions contemplated by the Official Statement, the District Documents and the Assignment Agreement, (iii) the District shall perform or have performed its
obligations required as specified in this Purchase Contract or the District Documents to
be performed at or prior to Closing, (iv) the Corporation shall perform or have performed its obligations required as specified in the Trust Agreement, the Installment
Purchase Agreement or the Assignment Agreement (collectively, the “Corporation Documents”) to be performed at or prior to Closing, and (v) the Official Statement shall
not have been supplemented or amended, except pursuant to Paragraph 6(e) or as
otherwise may have been agreed to in writing by the Underwriter.
(c) No Default. At the time of the Closing, no default shall have occurred or be
existing under the Resolutions, the Corporation Documents or the District Documents,
and the District shall not be in default in the payment of any of its bonded indebtedness or any of its other obligations, which default would adversely impact the ability of the District to make Installment Payments.
(d) Tevminution Events. The Underwriter shall have the right to terminate this
Purchase Contract, without liability therefor, by written notification to the Corporation
and the District if at any time at or prior to the Closing:
(1) Any event shall occur which causes any statement contained in the Official Statement to be materially misleading or results in a failure of the Official Statement to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading; or
(2) The marketability of the Certificates or the market price thereof, in the opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State, or the amendment of legislation pending as of the date of this Purchase Contract in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of
the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to
which such legislation has been referred for consideration, or any decision of any federal or State court or any ruling or regulation (final, temporary or proposed)
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or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority materially adversely affecting the federal or State tax status of the District or the Corporation, or the interest on bonds or notes or obligations of the general character of the Certificates; or
(3) Any legislation, ordinance, rule or regulation shall be introduced in, or
be enacted by any governmental body, department or agency of the State, or a
decision by any court of competent jurisdiction within the State or any court of
the United States shall be rendered which, in the reasonable opinion of the
Underwriter, materially adversely affects the market price of the Certificates; or
(4) Legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation or official statement by, or on behalf of, the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject
matter shall be issued or made to the effect that the execution, delivery, offering
or sale of securities of the general character of the Certificates, or the execution,
delivery, offering or sale of the Certificates, including all underlying obligations,
as contemplated hereby or by the Official Statement, is in violation or would be
in violation of, or that securities of the general character of the Certificates, or the
Certificates, are not exempt from registration under, any provision of the federal
securities laws, including the Securities Act of 1933, as amended and as then in
effect, or that the Trust Agreement needs to be qualified under the Trust
Indenture Act of 1939, as amended and as then in effect; or
(5) Additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange which restrictions materially adversely affect the Underwriter’s ability to trade the Certificates; or
(6) A general banking moratorium shall have been established by federal or State authorities; or
(7) The United States has become engaged in hostilities which have resulted in a declaration of war or a national emergency or there has occurred any other outbreak of hostilities or a national or international calamity or crisis, financial or otherwise, the effect of such outbreak, calamity or crisis on the
financial markets of the United States, being such as, in the reasonable opinion of
the Underwriter, would affect materially and adversely the ability of the Underwriter to market or deliver the Certificates; or
(8) Any rating of the securities of the District shall have been downgraded, suspended or withdrawn by a national rating service, which, in the Underwriter’s reasonable opinion, materially adversely affects the marketability or market price of the Certificates; or
(9) The commencement of any action, suit or proceeding described in paragraphs 6(h) hereof which, in the judgment of the Underwriter, materially adversely affects the market price of the Certificates; or
(10) There shall be in force a general suspension of trading on the New York Stock Exchange.
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(e> Closing Documents. At or prior to the Closing, the Underwriter shall receive (unless the context otherwise indicates) the following documents:
(1) Final Opinion. An approving opinion of Special Counsel dated the date of the Closing and substantially in the form included as Appendix C to the Official Statement, together with a letter from such counsel, dated the date of the Closing and addressed to the Underwriter, to the effect that the foregoing opinion addressed to the District may be relied upon by the Underwriter to the same extent as if such opinion were addressed to it.
(2) Supplemental Opinion. A supplemental opinion of Special Counsel
addressed to the Underwriter, in form and substance acceptable to the
Underwriter, and dated the date of the Closing substantially to the following effect:
(i) The statements contained in the Official Statement on the cover page and under the captions “INTRODUCTION,” “THE CERTIFICATES;” “SECURITY FOR THE CERTIFICATES,” and “TAX MATTERS,” and in Appendix A thereto, insofar as such statements expressly summarize certain provisions of the Certificates, the Trust Agreement, the Installment Purchase Agreement and the Escrow Agreement, and Special Counsel’s opinion concerning certain federal tax matters relating to the Certificates, are accurate in all material respects; and
(ii) The Certificates are not subject to the registration requirements
of the Securities Act of 1933, as amended, and the Trust Agreement is
exempt from qualification pursuant to the Trust Indenture Act of 1939, as
amended.
(3) City Attorney Opinion. An opinion of the City Attorney, as counsel to
the District, dated the date of the Closing and addressed to the Underwriter, in form and substance acceptable to the Underwriter substantially to the following effect:
(i) The District is a municipal water district duly organized and validly existing under the Constitution and the laws of the State of
California;
(ii) The District has full legal power and lawful authority to enter
into the District Documents;
(iii) The District Documents have been duly authorized, executed
and delivered by the District and constitute the valid and binding
agreements of the District enforceable against the District in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization moratorium or similar laws or
equitable principles relating to or limiting creditors’ rights generally;
(iv) The resolution (“District Resolution”) of the District approving and authorizing the execution and delivery of the District Documents, and approving the Official Statement, was duly adopted at a meeting of
the Board of Directors of the District called and held pursuant to law
and with all public notice required by law and at which a quorum was
-8-
present and acting throughout and the District Resolution is in full force and effect and has not been modified, amended or rescinded;
(v) The execution and delivery of the District Documents and compliance with the provisions thereof, under the circumstances
contemplated thereby, do not and will not in any material respect conflict
with, or constitute on the part of the District a breach of or default under, any agreement or other instrument to which the District is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the District is subject;
(vi) No additional authorization, approval, consent, waiver or any other action by any person, board or body, public or private, not previously obtained is required as of the date of the Closing for the
District to enter into the District Documents, or to perform its obligations
thereunder;
(vii) Except as otherwise disclosed in the Official Statement, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental agency or body, pending or, to the best knowledge of such counsel after due investigation, threatened against the District, challenging the creation, organization or existence of the District, or the validity of the District Documents or seeking to
restrain or enjoin the Installment Payments or in any way contesting or
affecting the validity of the District Documents or any of the transactions
referred to therein or contemplated thereby or contesting the authority of
the District to enter into or perform its obligations under any of the District Documents, or under which a determination adverse to the District would have a material adverse effect upon the financial condition or the revenues of the District, or which, in any manner, questions or affects the right or ability of the District to enter into the District Documents or affects in any manner the right or ability of the District to
make Installment Payments; and
(viii) That nothing has come to the attention of such counsel which
would lead it to believe that the Official Statement (excluding therefrom
the financial and statistical data and forecasts included therein and
information about the Insurer and The Depository Trust Company, as to
which no opinion need be expressed) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(4) Trustee and Escrow Agent Counsel Opinion. The opinion of counsel to the Trustee and the Escrow Agent, dated the date of the Closing, addressed to the
Underwriter, to the effect that:
(i) The Trustee has all necessary power to enter into, accept and administer the trust created under the Trust Agreement;
(ii) The Trust Agreement, the Escrow Agreement and the Assignment Agreement have been duly authorized, executed and delivered by the Trustee and each of the Trust Agreement, the Escrow Agreement and the Assignment Agreement constitutes the legal, valid and binding obligation of the Trustee
-9-
enforceable in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other laws affecting the enforcement of
creditors’ rights generally and by the application of equitable principles, if
equitable remedies are sought; and
(iii) The Certificates have been executed by a duly authorized officer of the Trustee.
(5) District Certificate. A certificate of the District, dated the date of the Closing,
signed on behalf of the District by the General Manager, the Administrative Manager or
other duly authorized officer of the District to the effect that:
(i> The representations, warranties and covenants of the District contained herein are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing and the District has complied with all of the terms and conditions of this Purchase Contract required to be complied with by the District at or prior to the date of the Closing; and
(ii) No event affecting the District has occurred since the date of the Official Statement which has not been disclosed therein or in any supplement or amendment thereto which event should be disclosed in the Official Statement in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(6) Corporufion Certificate. A certificate of the Corporation, dated the date of the
Closing, signed on behalf of the Corporation by a duly authorized officer of the
Corporation to the effect that:
(i) The Corporation is a nonprofit public benefit corporation, duly created and lawfully existing under the laws of the State, with full right, power and authority to execute, deliver and perform its obligations under the Corporation
Documents and to carry out and consummate the transactions on its part contemplated by the Corporation Documents and the Official Statement;
(ii) By all necessary official action, the Corporation has duly authorized and approved the execution and delivery of, and the performance by the Corporation of the obligations on its part contained in the Corporation Documents and as of the Closing Date, such authorizations and approvals are in
full force and effect and have not been amended, modified or rescinded. The
Corporation is in compliance in all material respects with the terms of the
Corporation Documents;
(iii) The Corporation is not, in any manner which would adversely affect the transactions contemplated by the Corporation Documents, in breach of or in default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Corporation is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute, in any manner which would adversely affect the transactions contemplated by the Corporation Documents, a default or event of default under any such instrument; and the authorization, execution and delivery of the Corporation Documents and compliance with the provisions of each of such agreements or instruments do not
-lO-
and will not conflict with or constitute a breach of or default under any
applicable constitutional provision, law or administrative rule or regulation of the State or the United States or any applicable judgment, decree, license, permit,
trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Corporation (or any of its officers in their respective capacities as such) is subject, or by which it or any of its properties is bound, nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument, except as may be
provided by the Corporation Documents;
(iv) There is no action, suit, proceeding, inquiry or investigation, at law or
in equity, before or by any court, government agency, public board or body, pending with respect to which the Corporation has been served with process or,
to the best knowledge of the Corporation after due investigation, threatened (a) in any way questioning the existence of the Corporation or the titles of the officers of the Corporation to their respective offices; (b) affecting, contesting or seeking to prohibit, restrain or enjoin the execution and delivery of the Certificates, or in any way contesting or affecting the validity of the Corporation Documents or the consummation of the transactions contemplated thereby, or contesting the powers of the Corporation to enter into the Corporation Documents; or (c) which may result in any material adverse impact on the
financial condition of the Corporation, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (a) through (12) of this sentence;
(v) The Corporation Documents are valid and binding obligations of the Corporation enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’
rights generally;
(vi) All authorizations, approvals, licenses, permits, consents and orders
of or filings with any governmental authority, legislative body, board, agency or
commission having jurisdiction in the matters which are required for the due
authorization of, which would constitute a condition precedent to or the absence
of which would adversely affect the due performance by the Corporation of its
obligations in connection with, the Corporation Documents have been duly
obtained or made, except as may be required under the Blue Sky or securities
laws of any state in connection with the offering and sale of the Certificates; and
(vii) No event affecting the Corporation has occurred since the date of the
Official Statement which has not been disclosed therein or in any supplement or
amendment thereto which event should be disclosed in the Official Statement in
order to make the statements with respect to the Corporation therein, in the light
of the circumstances under which they were made, not misleading.
(7) Trustee’s and Escrow Agent’s Certificate. A certificate of the Trustee and Escrow
Agent, dated the date of Closing, addressed to the District and the Underwriter, in form and substance acceptable to the Underwriter, to the following effect:
(i) The Trustee has all necessary power to enter into, accept and administer the trust created under the Trust Agreement;
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(ii) The Trust Agreement, the Escrow Agreement and the Assignment Agreement have been duly authorized, executed and delivered by the Trustee and each of the Trust Agreement, the Escrow Agreement and the Assignment Agreement constitutes the legal, valid and binding obligation of the Trustee enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought;
(iii) No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the execution and delivery of the Trust Agreement, the Escrow Agreement or the Assignment Agreement or the performance by the Trustee of its duties and obligations under the Trust Agreement, the Escrow Agreement or the Assignment Agreement;
(iv) The Certificates have been executed by a duly authorized officer of the Trustee;
(v) The execution and delivery by the Trustee of the Trust Agreement, the Escrow Agreement and the Assignment Agreement and compliance with the terms thereof will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties (except that no representation, warranty or agreement need be made by such counsel with respect to any federal or State securities or blue sky laws or regulations); and
(vi) There is no action, suit, proceeding or investigation, at law or in
equity, before or by any court or governmental agency, public board or body
pending, or to the best knowledge of the Trustee, threatened against the Trustee
which in the reasonable judgment of the Trustee would affect the existence of the
Trustee or in any way contesting or affecting the validity or enforceability of the Trust Agreement, the Escrow Agreement or the Assignment Agreement or contesting the powers of the Trustee or its authority to enter into and perform its
obligation thereunder.
(8) Escrow Verification. Evidence satisfactory to the Underwriter, Special Counsel
and counsel to the Underwriter reflecting the defeasance in whole of the 1988 COPS;
(9) Underwriter’s Counsel Opinion. An opinion of Jones Hall, A Professional Law Corporation, counsel to the Underwriter, dated the Closing Date, and addressed to the Underwriter, to the effect that:
(9 during the course of serving as Underwriter’s Counsel in connection with the execution and delivery of the Certificates and without having undertaken to determine independently or assuming any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement, no information came to the attention of the attorneys in such firm rendering legal services in connection with the issuance of the Certificates that would lead them to believe that the Official Statement (excluding therefrom the
-12-
financial statements, any financial or statistical data, or forecasts, charts, numbers, estimates, projections, assumptions or expressions of opinion included in the Official Statement, information regarding DTC, and the appendices to the Official Statement as to which no opinion need be expressed), as of the date thereof or the Closing Date, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they
were made, not misleading; and
(8 the Certificates are exempt from registration pursuant to the Securities Act of 1933, as amended;
(10) Trunscripts. Two transcripts of all proceedings relating to the authorization,
execution and delivery of the District Documents, the Corporation Documents and the
Certificates.
(11) Official Statement. The Official Statement and each supplement or amendment, if any, thereto, executed on behalf of the District by a duly authorized officer of the District.
(12) Documents. An original executed copy of each of the Corporation Documents and each of the District Documents.
(13) District Resolution. Certified copies of the District Resolution, certified by the District Clerk.
(14) 8038. Evidence that the federal tax information form 8038-G has been prepared for filing.
(15) Nonarbitrage Certificate. A tax and nonarbitrage certificate in form
satisfactory to Special Counsel.
(16) CDAC Statements. A copy of the Notices of Sale required to be delivered to the California Debt Advisory Commission pursuant to Section 53583 of the California Government Code.
[(17) Bond hsurunce Policy. A municipal bond insurance policy (the “Bond
Insurance Policy”) issued by the Insurer.]
[(18) insurer Certifications. A certificate or opinion of counsel, satisfactory to the District and Special Counsel, of the Insurer regarding the enforceability of the Bond Insurance Policy and the statements in the Official Statement regarding the Insurer and
the Bond Insurance Policy.]
(19) Additional Documents. Such additional certificates, instruments and other documents as the Underwriter or its counsel may reasonably deem necessary.
If the District shall be unable to satisfy the conditions contained in this Section 7, or if the obligations of the Underwriter shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and neither the Underwriter nor the District shall be under further obligation hereunder, except as further set forth in Section 8 hereof.
8. Expenses. The Underwriter shall be under no obligation to pay, and the District shall pay or cause to be paid, the expenses incident to the performance of the obligations of the
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District hereunder including but not limited to (a) the costs of the preparation and printing, or other reproduction (for distribution on or prior to the date hereof) of the Corporation Documents, the District Documents and this Agreement, and the cost of preparing, printing, executing and delivering the Certificates; (b) the fees and disbursements of the Trustee, any accountants or other experts or consultants retained by the District; (c) the fees and disbursements of Special Counsel and Disclosure Counsel; (d) the cost of preparation and printing of the Preliminary Official Statement and any supplements and amendments thereto and the cost of preparation and printing of the Official Statement, including a reasonable number of copies thereof for distribution by the Underwriter; and (e) the costs of any rating agency presentations.
The Underwriter shall pay, and the District shall be under no obligation to pay, all expenses incurred by it in connection with the public offering and distribution of the Certificates
(including the fees and expenses of its counsel), applicable CDAC fees and any advertising
expenses.
9. Liauidated Damages. In the event that the Underwriter fails (other than for a reason permitted by this Purchase Contract) to accept and pay for the Certificates at the Closing, the amount of one percent (1%) of the principal amount of the Certificates will be accepted as liquidated damages for such failure and any and all defaults hereunder on the part of the Underwriter. Acceptance of such amount by the District shall constitute a full release and discharge of all claims and rights of the District against the Underwriter. The parties hereto agree that the amount of actual damages to the District that would result from a default on the part of the Underwriter is difficult to determine, and the parties further agree that the amount specified above is acceptable to both parties as fair and reasonable damages.
10. Notice. Any notice or other communication to be given to the District under this Purchase Contract may be given by delivering the same in writing to such entity at 1200 Carlsbad Village Drive, Carlsbad, California 92008-1989.
Any notice or other communication to be given to the Underwriter under this Purchase Contract may be given by delivering the same in writing to Dean Witter Reynolds Inc., 101 California Street, 7th Floor, San Francisco, California 94111.
11. Entire Agreement. This Purchase Contract, when accepted by the District, shall constitute the entire agreement between the District and the Underwriter and is made solely for
the benefit of the District and the Underwriter (including the successors or assigns of any Underwriter). No other person shall acquire or have any right hereunder by virtue hereof, except
as provided herein. All of the District’s representations, warranties and agreements in this
Purchase Contract shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter, until the earlier of (a) delivery of and payment for the Certificates hereunder, and (b) any termination of this Purchase Contract.
12. Counterparts. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.
13. Severabilitv. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof.
14. State Law Governs. The validity, interpretation and performance of this Purchase Contract shall be governed by the laws of the State.
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15. No Assignment. The rights and obligations created by this Purchase Contract shall
not be subject to assignment by the Underwriter or the District without the prior written consent of the other party hereto.
DEAN WITTER REYNOLDS INC.
BY
Accepted as of the date first stated above:
CARLSBAD MUNICIPAL WATER DISTRICT
By: Executive Manager
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Principal
Payment Date
w
Principal Interest
Amount Rate
1999
2000
2001
2002
2003
2004
APPENDIX A
Price Yield
A-l
TRUST AGREEMENT
by and among
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION
as Trustee
and
CITY OF CARLSBAD PUBLIC IMPROVEMENT CORPORATION
as Corporation
and
CARLSBAD MUNICIPAL WATER DISTRICT
Dated as of September 1, 1997
Relating to
$[Certificate Amount] 1997 WATER REVENUE CERTIFICATES OF PARTICIPATION
(1988 REFUNDING PROJECT)
505281.3YZ2062.0024
Section 1.1.
Section 1.2.
Section 1.3.
Section 1.4.
Definitions. .................................................................................................................... 1
Rules of Construction. .................................................................................................. .9
Content of Statements and Opinions. ............................................................................ ,9
Recitals. ....................................................................................................................... 10
ARTICLE II
CERTIFICATES; TERMS AND PROVISIONS
Section 2.1.
Section 2.2.
Section 2.3.
Section 2.4.
Section 2.5.
Section 2.6.
Section 2.7.
Section 2.8.
Section 2.9.
Section 2.10.
Preparation of Certificates ............................................................................................ 10
Denominations; Medium and Place of Payment; Dating. ............................................. 10
Payment of Principal and Interest with Respect to Certificates. ................................... 11
Form of Certificates. ................................................................................................... .12
Execution. ................................................................................................................... .I2
Transfer of Certificates. .............................................................................................. .12
Exchange of Certificates. ............................................................................................. 12
Certificate Registration Books. .................................................................................... 12
Certificates Mutilated, Lost, Destroyed or Stolen ....................................................... .13
Bock-Entry System. .................................................................................................... .I3
DELIVERY OF CERTIFICATES; DELIVERY COST FUND
Section 3.1.
Section 3.2.
Section 3.3.
Section 3.4.
Section 3.5.
Delivery of Certificates. ............................................................................................... 16
Application of Proceeds of Certificates and Certain Other Moneys. ............................ 16
[HELD] ....................................................................................................................... 16
Validity of Certificates ................................................................................................. 17
Delivery Cost Fund . ..................................................................................................... 17
ARTICLE Iv
PREPAYMENT OF CERTIFICATES
Section 4.1.
Section 4.2.
Section 4.3.
Section 4.4.
Section 4.5.
Terms of Prepayment ................................................................................................... 17
Selection of Certificates for Prepayment. ..................................................................... 17
Notice of Prepayment . ................................................................................................. 17
Partial Prepayment of Certificate. ................................................................................ 18
Effect of Prepayment ................................................................................................... 18
ARTICLE V
INSTALLMENT PAYMENTS
Section 5.1. Pledge and Deposit of Installment Payments. ............................................................. .18
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION; CONTENTS OF
CERTIFICATES AND OPINIONS; RECITALS
505281.3U2062.0024 i
Section 5.2.
Section 5.3.
Section 5.4.
Section 5.5.
Section 5.6.
Section 5.7.
Section 6.1.
Section 6.2.
Section 6.3.
Section 6.4.
Section 6.5.
Section 6.6.
Section 6.7.
Section 6.8.
Section 6.9.
Section 6.10.
Section 6.11.
Section 6.12.
Section 7.1.
Section 7.2.
Section 7.3.
Section 7.4.
Section 7.5.
Section 7.6.
Section 7.7.
Section 7.8.
Section 7.9.
Section 7.10.
Section 7.1 I.
Section 7.12.
Section 7.13.
Section 8. I.
TABLE OF CONTENTS
(continued)
Certificate Payment Fund ............................................................................................. 19
Investment of Moneys in Special Funds.. .................................................................... .20
Reserve Fund. ............................................................................................................. .20
Pledge of Moneys in Funds.. ....................................................................................... .2 1
Rebate Fund ................................................................................................................ .2 1
Payments under the Bond Insurance Policy ................................................................ .23
ARTICLE VI
COVENANTS
Corporation and District to Perform Under Installment Purchase
Agreement. ................................................................................................................. .24
Budgets.. ..................................................................................................................... .25
Tax Covenants. ........................................................................................................... .25
Accounting Records and Reports ................................................................................ .26
Compliance with Trust Agreement. ............................................................................ .26
Observance of Laws and Regulations. ........................................................................ .26
Compliance with Contracts. ........................................................................................ .26
Prosecution and Defense of Suits.. .............................................................................. .26
Recordation and Filing. ............................................................................................... .27
Eminent Domain. ........................................................................................................ .27
Further Assurances. .................................................................................................... .27
Continuing Disclosure.. ............................................................................................... .27
ARTICLE VII
DEFAULT AND LIMJTATION OF LIABILITY
Notice of Non-Payment. ............................................................................................. .28
Action on Default or Termination. .............................................................................. .28
Other Remedies of the Trustee . ................................................................................... 28
Non-Waiver. ............................................................................................................... .28
Remedies Not Exclusive. ............................................................................................ .29
No Obligation by the District to Owners.. ................................................................... .29
Trustee Appointed Agent for Certificate-owners: Direction of
Proceedings.. ............................................................................................................... .29
Power of Trustee to Control Proceedings . ................................................................... 29
Limitation on Certificate-Owners’ Right to Sue. ......................................................... .3 0
No Obligation with Respect to Performance by Trustee. ............................................ .30
No Liability to Owners for Payment ............................................................................ 30
No Responsibility for Sufficiency ................................................................................ 30
Indemnification of Trustee ........................................................................................... 31
ARTICLE VIII
THE TRUSTEE
Employment of Trustee.. ............................................................................................. .3 1
505281.3i22062.0024 ii
Section 8.2.
Section 8.3.
Section 8.4.
Section 8.5.
Section 8.6.
Acceptance of Employment. ....................................................................................... .3 1
Trustee: Duties, Removal and Resignation. ................................................................ .3 1
Compensation of the Trustee. ..................................................................................... .32
Protection of the Trustee. ............................................................................................ .3 2
Merger or Consolidation. ............................................................................................ .3 4
ARTICLE IX
AMENDMENT OF TRUST AGREEMENT
Section 9.1,
Section 9.2.
Section 9.3.
Amendments Permitted. ............................................................................................. .3 4
Endorsement or Replacement of Certificates After Amendment or
Supplement. ................................................................................................................ .3 5
Amendment of Particular Certificates. ........................................................................ .3 5
ARTICLE X
DEFEASANCE
Section 10. I. Discharge of Trust Agreement .................................................................................... .3 5
Section 10.2. Deposit of Money or Securities with Trustee. ............................................................. .36
Section 10.3. Unclaimed Moneys. .................................................................................................... .3 6
ARTICLE XI
MISCELLANEOUS
Section 11.1.
Section 11.2.
Section 11.3.
Section 11.4.
Section 11.5.
Section 11.6.
Section 11.7.
Section 11.8.
Section 11.9.
Benefits of Trust Agreement Limited to Parties .......................................................... .3 7
Successor Deemed Included in all References to Predecessor. ................................... .3 7
Execution of Documents by Owners ........................................................................... .3 7
Disqualified Certificates .............................................................................................. .3 7
Waiver of Personal Liability ........................................................................................ .3 8
Acquisition of Certificates by the District; Destruction of Certificates ........................ .3 8
Headings.. ................................................................................................................... .38
Funds and Accounts .................................................................................................... .38
Partial Invalidity. ......................................................................................................... .3 8
TABLE OF CONTENTS
(continued)
Section 11.10. California Law. ........................................................................................................... .39
Section 11.11. Notices ......................................................................................................................... 39
Section 11.12. Execution in Counterparts.. ......................................................................................... .39
EXHIBIT A FORM OF CERTIFICATE OF PARTICIPATION .................................................. A- 1
505281.3U2062.0024 . . . 111
C
TRUST AGREEMENT
THIS TRUST AGREEMENT, made and entered into as of September I, 1997 (the
“Agreement”), by and among FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, as
trustee (the “Trustee”), a national banking association duly organized and existing under the laws of the
United States of America, and CITY OF CARLSBAD PUBLIC IMPROVEMENT CORPORATION,
as the seller of the 1988 Project, hereinafter defined, a nonprofit public benefit corporation duly
organized and existing under the laws of the State of California (the “Corporation”), and CARLSBAD
MUNICIPAL WATER DISTRICT, a municipal water district duly organized and existing under the
laws of the State of California, formerly known as the Costa Real Municipal Water District (the
“District”);
WITNESSETH:
In consideration of the mutual covenants herein contained and for other valuable consideration,
the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION; CONTENTS OF
CERTIFICATES AND OPINIONS; RECITALS
Section 1.1. Definitions. Unless the context otherwise requires, the terms defined in this
section shall for all purposes hereof and of any amendment hereof or supplement hereto and of any
report or other document mentioned herein or therein have the meanings defined herein, the following
definitions to be equally applicable to both the singular and plural forms of any of the terms defined
herein. All capitalized terms used herein and not defined herein shall have the meanings ascribed
thereto in the InstaIlment Purchase Agreement:
Aareement. The term “Agreement” means this Trust Agreement, as originally executed or as it
may from time to time be amended or supplemented as provided for herein.
Assignment Agreement. The term “Assignment Agreement” means that certain Assignment
Agreement, by and between the Corporation and the Trustee, dated as of September 1,1997 as
originally executed or as it may from time to time be amended or supplemented in accordance with its
terms.
JBond Insurance Policv. The term “Bond Insurance Policy” means the municipal bond
insurance policy issued by the Bond Insurer insuring payment when due of the principal of and interest
with respect to the Certificates as provided therein.]
IBond Insurer. “Bond Insurer” means [Bond Insurer], a
insurance company.]
-domiciled stock
505281.3U2062.0024
Certificate Pavment Fund. The term “Certificate Payment Fund” means the fund by that name
established in Section 5.2 hereof.
Certificates. The term “Certificates” means the certificates of participation executed and
delivered by the Trustee pursuant to this Agreement.
The term “Code” means the Internal Revenue Code of 1986, as amended, and the Code.
United States Treasury Regulations in effect with respect thereto.
Defeasance Securities. The term “Defeasance Securities” shah mean:
1. Cash
2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government
Series -- “S,,“)
3. Direct obligations of the Treasury which have been stripped by the Treasury itself,
CATS, TIGRS and similar securities
.4. The interest component of Resolution Funding Corp (‘REFCORP”) strips which have
been stripped by request to the Federal Reserve Bank of New York in book-entry form.
5. Pre-refunded municipal bonds rated “Aaa” by Moody’s and “AAA” by Standard &
Poor’s. If, however, the issue is only rated by Standard & Poor’s (ie., there is no
Moody’s rating), then the pre-refunded bonds must have been pre-refunded with cash
direct U.S. or U.S. guaranteed obligations, or AAA rated pre-refunded municipals to
satisfy this condition.
6. Obligations issued by the following agencies which are backed by the full faith and
credit of the U.S.:
a U.S. Exnort-Import Bank @&bank)
Direct obligations or fully guaranteed certificates of beneficial ownership
b. Farmers Home Administration (FmHA)
Certificates of beneficial ownership
C. Federal Financimz Bank
d. General Services Administration
Participating certificates
e. U.S. Maritime Administration
Guaranteed Title XI financing
505281.3U2062.0024 2
f. U.S. Department of Housing and Urban Development (HUD)
Project Notes
Local Corporation Bonds
New Communities Debentures - U.S. government guaranteed debentures
U.S. Public Housing Notes and Bonds - U.S. government guaranteed public
housing notes and bonds
Delivery Cost Fund. The term “Delivery Cost Fund” means the fund by that name established
in Section 3.5 hereof
Delivery Costs. The term “Delivery Costs” means all items of expense directly or indirectly
payable by or reimbursable to the District and related to the authorization, execution, sale and delivery
of the Certificates, including but not limited to costs of preparation and reproduction of documents,
printing expenses, filing and recording fees, initial fees and charges of the Trustee and counsel to the
Trustee, legal fees and charges, fees and disbursements of consultants and professionals, rating agency
fees, title insurance premiums, letter of credit fees and bond insurance premiums (if any), fees and
charges for preparation, execution and safekeeping of the Certificates and any other cost, charge or fee
in connection with the original execution and delivery of the Certificates.
Depository or DTC. The term “Depository” or “DTC” means The Depository Trust Company,
New York, New York, a limited purpose trust company organized under the laws of the State of New
York in its capacity as securities depository for the Certificates.
Escrow Apent. The term “Escrow Agent” means First Trust of California, National
Association, as escrow agreement pursuant to the terms of the Escrow Agreement, or its successor
thereunder.
Escrow APreement. The term “Escrow Agreement” means the Escrow Agreement, dated as of
September 1, 1997, by and between the District and the Escrow Agent, as originally executed or as it
may from time for time be amended or supplemental in accordance with its terms.
Escrow Fund. The term “Escrow Fund” means the fund of that name created pursuant to the
Escrow Agreement.
Information Services. The term “Information Services” means Financial Information, Lnc’s
“Daily Called Bond Service,” 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302,
Attention: Editor; Kenny Information Services’ “Called Bond Service,” 65 Broadway, 16th Floor, New
York, New York 10006; Moody’s Investors Service “Municipal and Government,” 99 Church Street,
8th Floor, New York, New York 10007, Attention: Municipal News Reports; Standard and Poor’s
Corporation “Called Bond Record,” 25 Broadway, 3rd Floor, New York, New York 10004; and, in
accordance with then current guidelines of the Securities and Exchange Commission, such other
addresses and/or such other services providing information with respect to called bonds as the District
may designate in a Written Request of the District delivered to the Trustee.
505281.3U2062.0024 3
.-
, .
Installment Pavments. The term “Installment Payments” means the installment payments
payable by the District pursuant to the Installment Purchase Agreement and in the amounts and at the
times set forth in the Installment Purchase Agreement.
Installment Payment Date. The term “Installment Payment Date” means each date on which
Installment Payments are scheduled to be paid by the District pursuant to the Lnstallment Purchase
Agreement.
Installment Purchase Agreement. The term “Installment Purchase Agreement” means the
Installment Purchase Agreement, dated as of September 1,1997, by and between the District and the
Corporation, as originally executed or as it may from time to time be amended or supplemented in
accordance with its terms.
Interest Fund. The term “Interest Fund” means the fund by that name established in
Section 5.2 hereof
Letter of Remesentations. The term “Letter of Representations” means the letter of the District
and the Trustee delivered to and accepted by the Depository on or prior to delivery of the Certificates
as book-entry certificates setting forth the basis on which the Depository serves as depository for such
book-entry certificates, as originally executed or as it may be supplemented or revised or replaced by a
letter from the District and the Trustee delivered to and accepted by the Depository.
1988 Certificates. The term “1988 Certificates” means the outstanding Costa Real Municipal
Water District Certificates of Participation, 1988 Refunding and Financing Project.
1988 Project. The term “1988 Project” means the additions, betterments, extensions and
improvements to the Water System described in Exhibit B to the Lnstallment Purchase Agreement.
The term “Parity Project” means any additions, betterments, extensions or improvements to the
District’s Water System designated by the Board of Directors of the District as a Parity Project, the
acquisition and construction of which is to be paid for with the proceeds of any Contracts or Bonds.
1988 Trustee. The term “1988 Trustee” means First Trust of California, National Association,
as trustee under the Trust Agreement, dated as of November 1, 1988 by and between Independent
Public Facilities Corporation, the District and First Trust of California, National Association, as
successor trustee.
Nominee. The term “Nominee” means the nominee of the Depository, which may be the
Depository, as determined from time to time pursuant to Section 2.10 hereof
Outstanding. The term “Outstanding,” when used as of any particular time with reference to
Certificates, means (subject to the provisions of Section 11.4) all Certificates except: (1) certificates
canceled by the Trustee or delivered to the Trustee for cancellation; (2) certificates paid or deemed to
have been paid within the meaning of Section 10.1; and (3) certificates in lieu of or in substitution for
which other Certificates shall have been executed and delivered by the Trustee pursuant to
Section 2.10.
505281.3U2062.0024 4
The term “Owner” or “Certificate Owner” or “Owner of Certificates” or any similar Owner.
term, when used with respect to the Certificates, means any person who shall be the registered owner
of any Outstanding Certificate.
Particinants. The term “Participants” means those broker-dealers, banks and other financial
institutions from time to time for which the Depository holds book-entry certificates as securities
depository.
Pavrnent Dates: Pavment Date. The term “Payment Dates” means May 1 and November 1 in
each year commencing May 1, 1998 and any date on which the unpaid Series 1997A Installment
Payments are declared to be due and payable immediately and provided such declaration is not
rescinded or annulled, all in accordance with Section 8.1 of the Installment Purchase Agreement.
Permitted Investments. The term “Permitted Investments” means any of the following which
at the time of investment are legal investments under the laws of the State for the moneys proposed to
be invested therein as shall be certified by the City to the Trustee:
A. Direct 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) or obligations the
principal of and interest on which are unconditionally guaranteed by the United States of
America
B. Bonds, debentures, notes or other evidence of indebtedness issued or
guaranteed by any of the following federal agencies and provided such obligations are backed
by the full faith and credit of the United States of America (stripped securities are only
permitted if they have been stripped by the agency itself):
1. Farmers Home Administration (FmHA)
Certificates of beneficial ownership
2. Federal Housing Administration Debentures (FHA)
3. General Services Administration
Participation certificates
4. Government National Mortgage Association (GNMA or “Ginnie Mae”)
GNMA-guaranteed mortgage-backed bonds
GNMA-guaranteed pass-through obligations
5. U.S. Maritime Administration
Guaranteed Title XI financing
505281.3U2062.0024 5
6. U.S. Department of Housing and Urban Development (HUD)
Project Notes
Local Corporation Bonds
C. Bonds, debentures, notes or other evidence of indebtedness issued or
guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped
securities are only permitted if they have been stripped by the agency itself):
1. Federal Home Loan Bank Svstem
Senior debt obligations (consolidated debt obligations)
2. Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mat”)
Participation certificates (mortgage-backed securities)
Senior debt obligations
3. Federal National Mortgaae Association (FNMA or “Fannie Mae”)
Mortgage-backed securities and senior debt obligations (excluding stripped
mortgage securities which are valued greater than par on the portion of unpaid
principal)
4. Student Loan Marketing Association (SLMA or “Sallie Mae”)
Senior debt obligations
5. Resolution Funding Corn (REFCORP)
The interest only component of REFCORP strips which have been stripped by
request to the Federal Reserve Bank of New York
6. Farm Credit Svstem Corp. - Consolidated system-wide bonds and notes
D. Money market funds registered under the Investment Company Act of 1940,
whose shares are registered under the Securities Act of 1933, and having a rating by Standard
& Poor’s of Adam-G, AAAm, or AAm and by Moody’s of Aaa, Aal or Aa (including those
of the Trustee and its &&es).
E. Certificates of deposit secured at all times by collateral described in (A) and/or
(B) above and having a maturity of one year or less. Such certificates must be issued by
commercial banks, savings and loan associations or mutual savings banks whose short-term
obligations are rated “A-l+” by Standard & Poor’s. The collateral must be held by a third party
and the Bondholders must have a perfected first security interest in the collateral.
505281.3U2062.0024 6
F. Certificates of deposit, savings accounts, deposit accounts or money market
deposits which are lily insured by FDIC (including those of the Trustee and its affiliates).
G. Commercial paper rated “Prime - 1” by Moody’s and “A- l+” or better by
Standard & Poor’s.
H. Bonds or notes issued by any state or municipality which are rated by Moody’s
and Standard & Poor’s in one of the two highest rating categories assigned by such agencies.
I. Federal l%mds or bankers acceptances with a maximum term of one year of any
bank which has an unsecured, uninsured or unguaranteed obligation rating of “Prime - 1” or
“A3” or better by Moody’s and “A-l+” or better by Standard & Poor’s
J. Repurchase agreements approved by the Insurer with prior written notice to
Moody’s and Standard & Poor’s providing for the transfer of securities from a dealer bank or
securities firm (seller/borrower) to the Trustee, or a third party acting on behalf of the Trustee,
and the transfer of cash from the Trustee to the dealer bank or securities firm with an
agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee,
in exchange for the securities at a specified date or dates.
K. Pre-refunded municipal bonds rated “Aaa” by Moody’s and “AAA” by
Standard & Poor’s. If, however, the issue is only rated by Standard & Poor’s (i.e., there is no
Moody’s rating), then the pre-refunded bonds must have been pre-refunded with cash, direct
U.S. or U.S. guaranteed obligations, or AAA rated pre-refunded municipals to satis@ this
condition.
L. The Local Agency Investment Fund of the State.
M. A guaranteed investment contract or any other investment which the District is
permitted by law to make, but only with the prior written consent of the Insurer and prior
written notice to Moody’s and Standard and Poor’s.
“Value” of the above investments shall be determined as of the end of each month, and
the value of any investments shall be calculated as follows:
(a) as to investments the bid and asked prices of which are published on a regular
basis in The Wall Street Journal (or, if not there, then in The New York Times):
the average of the bid and asked prices for such investments so published on or
most recently prior to such time of determination;
(b) as to investments the bid and asked prices of which are not published on a
regular basis in The Wall Street Journal or The New York Times: the average
bid price at such time of determination for such investments by any two
nationally recognized government securities dealers (selected by the City) at
the time making a market in such investments or the bid price published by a
nationally recognized pricing service;
505281.3i22062.0024 7
(c) as to certificates of deposit and bankers acceptances: the face amount thereof,
plus accrued interest; and
(4 as to any investment not specified above: the value thereof established by prior
agreement between the City and the Insurer and specified in writing to the
Trustee.
Prepavment Fund. The term “Prepayment Fund” means the fund by that name established in
Section 5.2 hereof
Prepavment Price. The term “Prepayment Price” means, with respect to any Certificate (or
portion thereof), the principal amount with respect to such Certificate (or portion) plus the applicable
premium, if any, payable upon prepayment thereof pursuant to the provisions of such Certificate and
this Agreement.
Principal Corporate Trust Office. The term “Principal Corporate Trust Office” means the
principal corporate trust office of the Trustee in Los Angeles, California, or such other office as the
Trustee may from time to time designate in writing to the District, the Corporation and the Owners.
Principal Fund. The term “Principal Fund” means the fund by that name established in
Section 5.2 hereof
Rebate Fund. The term “Rebate Fund” means the fund by that name established in Section 5.6
hereof
Record Date. The term “Record Date” means, with respect to any Payment Date for the
Certificates, the fifteenth day of the calendar month prior to such Payment Date.
Reserve Fund. The term “Reserve Fund” means the fund by that name established in
Section 5.2 hereof
Securities Depositories. The term “Securities Depositories” means: The Depository Trust
Company, 711 Stewart Avenue, Garden City, New York 11530, Fax-(516) 227-4039 or 4190;
Midwest Securities Trust Company, Capital Structures-Call Notification, 440 South LaSalle Street,
Chicago, Illinois 60605, Fax-(3 12) 663-2343; Philadelphia Depository Trust Company, Reorganization
Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond Department, Dex-
(215) 496-5058; and, in accordance with then current guidelines of the Securities and Exchange
Commission, such other addresses as such depositories may specify and/or such other securities
depositories as the District may designate in a Written Request of the District delivered to the Trustee.
Snecial Counsel. The term “Special Counsel” means any attorney at law or firm of attorneys
selected by the District, of nationally-recognized standing in matters pertaining to the federal tax
exemption of interest on bonds issued by states and political subdivisions, and duly admitted to practice
law before the highest court of any state of the United States of America
State -* The term “State” means the State of California.
505281.3YZ2062.0024 8
Statement of the Cornoration or District. The term “Statement of the Corporation or District”
means a statement signed by or on behalf of(i) the Corporation by its President or a Vice President or
(ii) the District by the President and by the Secretary or by any two persons (whether or not members
of the Board of Directors) who are specifically authorized by resolution of the District to sign or
execute such a document on its behalf If and to the extent required by the provisions of Section 1.3,
each Statement of the Corporation or District shall include the statements provided for in Section 1.3.
Tax Certificate. The Term “Tax Certificate” means the Tax Certificate dated as of
September 24, 1997, concerning certain matters pertaining to the use and investment of proceeds of the
Certificates executed by and delivered to the District on the date of execution and delivery of the
Certificates, including any and all exhibits attached thereto.
Trustee. The term “Trustee” means First Trust of California, National Association, a national
banking association duly organized and existing under and by virtue of the laws of the United States of
America having a principal corporate trust office in Los Angeles, California, or such other office as the
Trustee may from time to time designate in writing to the District, the Corporation and the Owners, or
its successor as Trustee hereunder.
Written Consent of the Cornoration or District Written Order of the Cornoration or District.
Written Request of the Corporation or District, Written Requisition of the Corporation or District. The
terms “Written Consent of the Corporation or District,” “Written Order of the Corporation or District,”
“Written Request of the Corporation or District,” and “Written Requisition of the Corporation or
District” mean, respectively, a written consent, order, request or requisition signed by or on behalf of
(i) the Corporation by its President or a Vice President or (ii) the District by the President or Executive
Manager or its Financial Management Director or by the Secretary or by any two persons (whether or
not members of the Board of Directors) who are specifically authorized by resolution of the District to
sign or execute such a document on its behalf.
Section 1.2. Rules of Construction. Words of any gender shall be deemed and construed to
include all genders, and words importing persons shall include corporations and associations, including
public bodies, as well as natural persons. Unless the context otherwise indicates, words importing the
singular number shall include the plural number and vice versa.
Section 1.3. Content of Statements and Oninions. Every statement or opinion with respect
to compliance with a condition or covenant provided for in this Agreement, including each Statement of
the Corporation, shall include (a) a statement that the person or persons making or giving such
statement or opinion have read such covenant or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the
statements or opinions contained in such statement or opinion are based; (c) a statement that, in the
opinion of the signers, they have made or caused to be made such examination or investigation as is
necessary to enable them to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (d) a statement as to whether, in the opinion of the signers, such
condition or covenant has been complied with.
Any such statement or opinion made or given by an officer of the Corporation may be based,
insofar as it relates to legal or accounting matters, upon a statement or opinion of or representations by
counsel, accountants or consultants, unless such officer knows, or in the exercise of reasonable care
should have known, that the statement or opinion or representations with respect to the matters upon
505281.3Y22062.0024 9
which his statement or opinion may be based, as aforesaid, are erroneous. Any such statement or
opinion made or given by counsel, accountants or consultants may be based, insofar as it relates to
factual matters, upon information with respect to which is in the possession of the Corporation, or upon
the statement or opinion-of or representations by an officer or officers of the Corporation, unless such
counsel, accountant or consultant knows, or in the exercise of reasonable care should have known, that
the statement or opinion or representations with respect to the matters upon which his opinion may be
based as aforesaid are erroneous.
Section 1.4. Recitals.
(4 Installment Purchase Agreement. The Corporation and the District have
entered into the Installment Purchase Agreement whereby the Corporation has agreed to assist
the District in refinancing the 1988 Project and defeasing the 1988 Certificates and the District
has agreed to purchase the 1988 Project from the Corporation.
04 Installment Pavments. Under the Installment Purchase Agreement, the District
is obligated to pay to the Corporation or its assigns Installment Payments for the purchase of
the 1988 Project.
(4 Assignment Ameement. For the purpose of obtaining the moneys required to
be deposited by the Corporation with the Trustee, and for the purpose of securing the
obligations of the Corporation hereunder, the Corporation has assigned and transferred certain
of its rights under the Installment Purchase Agreement to the Trustee, pursuant to the
Assignment Agreement; and in consideration of such assignment and the execution of this
Agreement, the Trustee has agreed to execute and deliver certificates of participation, each
evidencing an interest in the Installment Payments in an aggregate amount equal to the
aggregate principal amount of certificates of participation so executed and delivered.
(4 Conditions Precedent Satisfied. The District and the Corporation hereby certify
that all acts, conditions and things required by law to exist, happen and be performed precedent
to and in connection with the execution and entering into of this Agreement have happened and
have been performed in regular and due time, form and manner as required by law, and the
parties hereto are now duly empowered to execute and enter into this Agreement.
ARTICLE II
CERTIFICATES; TERMS AM3 PROVISIONS
Section 2.1. Preparation of Certificates. The Trustee is hereby authorized to execute
certificates of participation, to be denominated “1997 Water Revenue Certificates of Participation
(1988 Refunding Project)” in an aggregate principal amount of $[Certiticate Amount] evidencing
undivided interests in Installment Payments to be paid by the District under the Tnstallment Purchase
Agreement.
Section 2.2. Denominations: Medium and Place of Pavment: Dating. The Certificates shall
be delivered in the form of fully registered Certificates in the denomination of $5,000 each or any
505281.3Q2062.0024 10
I ’ ,’
integral multiple thereoc provided that no Certificate shall have principal represented thereby maturing
in more than one year.
The principal and Prepayment Price with respect to all Certificates shall be payable in lawful
money of the United States of America upon presentation and surrender thereof at the Principal
Corporate Trust Office of the Trustee. Interest with respect to Certificates shall be payable by check or
draft of the Trustee mailed by first class mail on each Payment Date of such Certificates to the
respective Certificate Owners of record thereof as of the close of business on the Record Date at the
addresses shown on the books required to be kept pursuant to Section 2.8 or, upon the written request
received by the Trustee of an Owner of at least $l,OOO,OOO in aggregate principal amount of
Certificates, by wire transfer of immediately available funds to an account in the United States
designated by such Owner prior to the applicable Record Date, except in each case, that, if and to the
extent that there shall be a default in the payment of the interest due on such Payment Date, such
defaulted interest shall be paid to the Owners in whose names any such Certificates are registered at
the close of business on a special record date as determined by the Trustee.
The Certificates shall be dated September 1, 1997. Interest with respect to Certificates shall be
payable from the Payment Date preceding their date of execution, unless such date shall be after a
Record Date and on or before the succeeding Payment Date, in which case interest shall be payable
from such Payment Date or unless such date shall be on or before the first Record Date, in which case
interest shall be payable from September 1, 1997, provided, however, that if, as shown by the records
of the Trustee, interest represented by the Certificates shall be in default, Certificates executed in
exchange for Certificates surrendered for transfer or exchange shall represent interest from the last date
to which interest has been paid in full or duly provided for with respect to the Certificates, or, if no
interest has been paid or duly provided for with respect to the Certificates, from September 1, 1997.
Section 2.3. Pavment of Princinal and Interest with ResDect to Certificates.
(4 Certificates shall become payable on May 1 in the years and in the amounts and
with an interest component as provided in subsection (b) below at the rates, as follows:
Payment Date Principal
1 Mav Amount
Interest
&&
1998
1999
2000
2001
2002
2003
2004
Principal or Prepayment Price due with respect to the Certificates at maturity or prepayment thereof,
whichever is earlier, shall, to the extent of the aggregate principal amount stated upon the Certificates,
represent the sum of those portions of the Jnstallment Payments designated as principal coming due on
the Installment Payment Dates immediately preceding the Payment Dates in each year.
505281.3D2062.0024 11
( w Interest with respect to the Certificates shall be payable on each Payment Date,
and continuing to and including the date of maturity or prior prepayment, whichever is earlier. Said
interest shall represent the sum of those portions of the Installment Payments designated as interest
coming due on the Instahment Payment Dates, at the rates set forth in subsection (a) above. Interest
with respect to the Certificates shall be calculated on the basis of a 360-day year of twelve 30-day
months.
Section 2.4. Form of Certificates. The Certificates and the form of assignment to appear
thereon shah be in substantially the form set forth in Exhibit A hereto with necessary or appropriate
variations, omissions and insertions as permitted or required by this Agreement.
Section-2.5. Execution. The Certificates shall be executed by and in the name of the
Trustee, as trustee under this Agreement, by the manual signature of an authorized officer or signatory
of the Trustee.
Section 2.6. Transfer of Certificates. Any Certificate may, in accordance with its terms, be
transferred, upon the books required to be kept pursuant to the provisions of Section 2.8, by the person
in whose name it is registered, in person or by such person’s duly authorized attorney, upon surrender
of such Certificate for cancellation at the Principal Corporate Trust Office of the Trustee, accompanied
by delivery of a duly executed written instrument of transfer in a form approved by the Trustee.
Whenever any Certificate or Certificates shah be surrendered for transfer, the Trustee shall
execute and deliver a new Certificate or Certificates of the same maturity, for a like aggregate principal
amount and of authorized denomination or denominations. The Trustee may charge a sum for each new
Certificate executed and delivered upon any transfer. The Trustee may require the payment by any
Certificate Owner requesting any such transfer of any tax or other governmental charge required to be
paid with respect to such transfer. Following any transfer of Certificates the Trustee shah cancel and
destroy the Certificates it has received.
Section 2.7. Exchange of Certificates. Certificates may be exchanged at the Principal
Corporate Trust Office of the Trustee, for a like aggregate principal amount of Certificates of other
authorized denominations of the same maturity. The Trustee may charge a sum for each new
Certificate executed and delivered upon any exchange except in the case of any exchange of temporary
Certificates for definitive Certificates. The Trustee may require the payment by the Owner requesting
such exchange of any tax or other governmental charge required to be paid with respect to such
exchange. Following any exchange of Certificates the Trustee shall cancel and destroy the Certificates
it has received.
The Trustee shall not be required to register the exchange, or transfer pursuant to Section 2.6
hereof, of any Certificate (i) within 15 days preceding selection of Certificates for prepayment or (ii)
selected for prepayment.
Section 2.8. Certificate Repistration Books. The Trustee will keep or cause to be kept, at
the office of First Trust of California, National Association, Los Angeles, California, sufficient books
for the registration and transfer of the Certificates, which shall upon reasonable prior notice and at all
reasonable times be open to inspection by the Corporation or the District; and, upon presentation for
such purpose, the Trustee shah, under such reasonable regulations as it may prescribe, register or
transfer or cause to be registered or transferred, on said books, Certificates as hereinbefore provided.
SO3281.3U2062.0024 12
The person in whose name any Certificate shall be registered shall be deemed the Owner
thereof for all purposes hereof, and payment of or on account of the interest with respect to and
principal of and Prepayment Price represented by such Certificate shall be made only to or upon the
order in writing of such tegistered Owner, which payments shall be valid and effectual to satisfjl and
discharge liability upon such Certificate to the extent of the sum or sums so paid.
Section 2.9. Certificates Mutilated. Lost. Destroyed or Stolen If any Certificate shall
become mutilated, the Trustee shall execute and deliver a new Certificate of like tenor, maturity and
principal amount in exchange and substitution for the Certificate so mutilated, but only upon surrender
to the Trustee of the Certificate so mutilated.
Every mutilated Certificate so surrendered to the Trustee shall be canceled by it and destroyed.
If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be
submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and indemnity satisfactory
to the Trustee shall be given indemnifying the Trustee, the Corporation and the District, the Trustee, at
the expense of the Certificate Owner, shall execute and deliver a new Certificate of like tenor and
maturity, and numbered as the Trustee shall determine, in lieu of and in substitution for the Certificate
so lost, destroyed or stolen. The Trustee may require payment of a sum not exceeding the actual cost of
preparing each new Certificate executed under this Section and of the expenses which may be incurred
by the Trustee under this Section. Any Certificate executed under the provisions of this Section in lieu
of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to
the benefits of this Agreement with all other Certificates secured by this Agreement. The Trustee shall
not be required to treat both the original Certificate and any replacement Certificate as being
Outstanding for the purpose of determining the principal amount of Certificates which may be executed
hereunder or for the purpose of determining any percentage of Certificates Outstanding hereunder, but
both the original and replacement Certificate shall be treated as one and the same. Notwithstanding any
other provision of this Section, in lieu of delivering a new Certificate for a Certificate which has been
mutilated, lost, destroyed or stolen and which has matured or has been selected for prepayment, the
Trustee may make payment of such Certificate upon receipt of indemnity satisfactory to the Trustee.
Section 2.10. Book-Entn, Svstem.
(a) Election of Book-En&v System. Prior to the execution and delivery of the
Certificates, the District may provide that such Certificates shall be initially executed and delivered
as book-entry Certificates. If the District shall elect to deliver any Certificates in book-entry form,
then the District shall cause the delivery of a separate single fully registered certificate (which may
be typewritten) for each maturity date of such Certificates in an authorized denomination
corresponding to that total principal amount of the Certificates designated to mature on such date.
Upon initial execution and delivery, the ownership of each such Certificate shall be registered in
the Certificate registration books in the name of the Nominee, as nominee of the Depository and
ownership of the Certificates, or any portion thereof may not thereafter be transferred except as
provided in Section 2.10(e).
With respect to book-entry Certificates, the District and the Trustee shall have no
responsibility or obligation to any Participant or to any person on behalf of which such a
Participant holds an interest in such book-entry Certificates. Without limiting the immediately
preceding sentence, the District and the Trustee shall have no responsibility or obligation with
505281.3U2062.0024 13
respect to (i) the accuracy of the records of the Depository, the Nominee, or any Participant with
respect to any ownership interest in book-entry Certificates, (ii) the delivery to any Participant or
any other person, other than an Owner as shown in the Certificate registration books, of any notice
with respect to book-entry Certificates, including any notice of prepayment, (iii) the selection by
the Depository and its Participants of the beneficial interests in book-entry Certificates to be
prepaid in the event the District prepays the Certificates in part, or (iv) the payment by the
Depository or any Participant or any other person, of any amount with respect to principal,
premium, if any, or interest with respect to book-entry Certificates. The District and the Trustee
may treat and consider the person in whose name each book-entry Certificate is registered in the
Certificate registration books as the absolute Owner of such book-entry Certificate for the purpose
of payment of principal, premium and interest with respect to such Certificate, for the purpose of
giving notices of prepayment and other matters with respect to such Certificate, for the purpose of
registering transfers with respect to such Certificate, and for all other purposes whatsoever. The
Trustee shall pay all principal, premium, if any, and interest with respect to the Certificates only to
or upon the order of the respective Owner, as shown in the Certificate register, or his respective
attorney duly authorized in writing, and all such payments shall be valid and effective to fully
satisfy and discharge the District’s obligations with respect to payment of principal of, premium, if
any, and interest evidenced and represented by the Certificates to the extent of the sum or sums so
paid. No person other than an Owner, as shown in the Certificate registration books, shall receive
a Certificate evidencing the obligation to make payments of principal, premium, if any, and interest
evidenced and represented by the Certificates. Upon delivery by the Depository to the Owner and
the Trustee, 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 such nominee of the Depository.
(b> Deliverv of Letter of Representations. In order to qualify the book-entry
Certificates for the Depository’s book-entry system, the District and the Trustee shall execute and
deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of
Representations shall not in any way impose upon the District or the Trustee any obligation
whatsoever with respect to persons having interests in such book-entry Certificates other than the
Owners, as shown on the Certificate registration books. By executing a Letter of Representations,
the Trustee shall agree to take all action necessary at all times so that the District will be in
compliance with all representations of the District in such Letter of Representations. In addition to
the execution and delivery of a Letter of Representations, the District and the Trustee shall take
such other actions, not inconsistent with this Trust Agreement, as are reasonably necessary to
qualify Book-Entry Certificates for the Depository’s book-entry program.
Cc) Selection of DeDository. In the event (i) the Depository determines not to continue
to act as securities depository for book-entry Certificates, or (ii) the District determines that
continuation of the book-entry system is not in the best interest of the beneficial owners of the
Certificates or the District, then the District will discontinue the book-entry system with the I
Depository. If the District determines to replace the Depository with another qualified securities
depository, the District shall prepare or direct the preparation of a new single, separate, fully
registered Certificate for each of the maturity dates of such book-entry Certificates, registered in
the name of such successor or substitute qualified securities depository or its Nominee as provided
in subsection (e) hereof. If the District fails to identify another qualified securities depository to
505281.3\22062.0024 14
, ’ ,
replace the Depository, then the Certificates shall no longer be restricted to being registered in such
Certificate register in the name of the Nominee, but shall be registered in whatever name or names
the Owners transferring or exchanging such Certificates shall designate, in accordance with the
provisions of Sections 2.6 and 2.7 hereof.
Cd) Pavments To DeDositorv. Notwithstanding any other provision of this Trust
Agreement to the contrary, so long as all Outstanding Certificates are held in book-entry form and
registered in the name of the Nominee, all payments with respect to principal, prepayment
premium, if any, and interest with respect to such Certificate and all notices with respect to such
Certificate shall be made and given, respectively to the Nominee, as provided in the Letter of
Representations or as otherwise instructed by the Depository and agreed to by the Trustee
notwithstanding any inconsistent provisions herein.
(e) Transfer of Certificates to Substitute DeDositorv.
(0 The Certificates shall be initially executed and delivered as provided in
Section 2.1 hereof. Registered ownership of such Certificates, or any portions thereof,
may not thereafter be transferred except:
(A) to any successor of DTC or its nominee, or of any substitute
depository designated pursuant to clause (B) of subsection (i) of this Section 2.10(e)
(“Substitute Depository”); provided that any successor of DTC or Substitute
Depository shall be qualified under any applicable laws to provide the service
proposed to be provided by it;
(B) to any Substitute Depository, upon (1) the resignation of DTC or its
successor (or any Substitute Depository or its successor) from its functions as
depository, or (2) a determination by the District that DTC (or its successor) is no
longer able to carry out its functions as depository; provided that any such
Substitute Depository shall be qualified under any applicable laws to provide the
services proposed to be provided by it; or
(C) to any person as provided below, upon (1) the resignation of DTC
or its successor (or any Substitute Depository or its successor) from its functions as
depository, or (2) a determination by the District that DTC or its successor (or
Substitute Depository or its successor) is no longer able to carry out its functions as
depository.
(ii) In the case of any transfer pursuant to clause (A) or clause (B) of
subsection (i) of this Section 2.10(e), upon receipt of all Outstanding Certificates by the
Trustee, together with a written request of the District to the Trustee designating the
Substitute Depository, a single new Certificate, which the District shall prepare or cause to
be prepared, shall be executed and delivered for each maturity of Certificates then
Outstanding, registered in the name of such successor or such Substitute Depository or
their Nominees, as the case may be, all as specified in such written request of the District.
In the case of any transfer pursuant to clause (C) of subsection (i) of this Section 2.10(e),
505281.3\22062.0024 15
upon receipt of all Outstanding Certificates by the Trustee, together with a written request
of the District to the Trustee, new Certificates, which the District shall prepare or cause to
be prepared, shall be executed and delivered in such denominations and registered in the
names of such persons as are requested in such written request of the District, subject to the
limitations of Section 2.1 hereof, provided that the Trustee shall not be required to deliver
such new Certificates within a period of less than sixty (60) days from the date of receipt of
such written request from the District.
(iii) In the case of a partial prepayment or an advance refunding of any
Certificates evidencing a portion of the principal maturing in a particular year, DTC or its
successor (or any Substitute Depository or its successor) shall make an appropriate notation
on such Certificates indicating the date and amounts of such reduction in principal, in form
acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee
shall not be liable for such Depository’s failure to make such notations or errors in making
such notations.
09 The District and the Trustee shall be entitled to treat the person in whose
name any Certificate is registered as the Owner thereof for all purposes of this Trust
Agreement and any applicable laws, notwithstanding any notice to the contrary received by
the Trustee or the District; and the District and the Trustee shall not have responsibility for
transmitting payments to, communicating with, notifying, or otherwise dealing with any
beneficial owners of the Certificates. Neither the District nor the Trustee shall have any
responsibility or obligation, legal or otherwise, to any such beneficial owners or to any
other party, including DTC or its successor (or Substitute Depository or its successor),
except to the Owner of any Certificates, and the Trustee may rely conclusively on its
records as to the identity of the Owners of the Certificates.
ARTICLE III
DELIVERY OF CERTIFICATES; DELIVERY COST FUND
Section 3.1. Deliver-v of Certificates. The Trustee is hereby authorized to execute and
deliver Certificates in an aggregate principal amount of $[Certificate Amount], upon the Written Order
of the District.
Section 3.2. ADDhdOn of Proceeds of Certificates and Certain Other Monevs. The
proceeds received from the sale of the Certificates [(other than $ paid by the initial
purchasers of the Certificates directly to the Bond Insurer)], shall be deposited with the Trustee, who
shall deposit the sum of $ , representing accrued interest, in the Certificate Payment Fund,
thesumof% to the 1988 Trustee for deposit in the Escrow Fund for application to the
defeasance of the 1988 Certificates and the sum of $ for deposit in the Delivery Cost
Fund.
Section 3.3. [HELD1
505281.3\22062.0024 16
Section 3.4. Validitv of Certificates. The validity of the execution and delivery of the
Certificates is not dependent on and shall not be affected in any way by any proceedings taken by the
District, the Corporation or the Trustee with respect to or in connection with the Installment Purchase
Agreement. The recital dontained in the Certificates that all acts, conditions and things required by the
Constitution and statutes of the State of California and this Agreement to exist, to have happened and
to have been performed precedent to and in the delivery thereof do exist, have happened and have been
performed in due time, form and manner as required by law shall be conclusive evidence of their
validity and of compliance with the provisions of law in their delivery.
Section 3.5. Deliver-v Cost Fund. There is hereby established with the Trustee the Delivery
Cost Fund which the Trustee shall establish and maintain and hold in trust separate and apart from
other funds held by it. The moneys in the Delivery Cost Fund shall be used and withdrawn by the
Trustee to pay Delivery Costs upon submission of Written Requisitions of the District stating the
person to whom payment is to be made, the amount to be paid, the purpose for which the obligation
was incurred, that such payment is a proper charge against said fund and that payment for such charge
has not previously been made. On January 1, 1998, or upon the earlier Written Request of the District,
all amounts remaining in the Delivery Cost Fund shall be deposited by the Trustee in the Certificate
Payment Fund and the Delivery Cost Fund shall be closed.
ARTICLE IV
PREPAYM-ENT OF CERTIFICATES
Section 4.1. Terms of Prepavment.
(4 The Certificates shall be subject to prepayment prior to their respective stated
maturities, as a whole or in part on any date in the order of maturity as directed by the District in a
Written Request provided to the Trustee at least 60 days prior to such date and by lot within each
maturity in integral multiples of $5,000 from prepaid IMalhnent Payments made by the District from
Net Proceeds, upon the terms and conditions of, and as provided for in, Section 6.10 of this
Agreement, and Sections 6.10 and 6.16 of the Installment Purchase Agreement, at a Prepayment Price
equal to the principal amount thereof plus accrued interest evidenced and represented thereby to the
date fixed for prepayment, without premium.
09 Except as set forth in (a) above, the Certificates are not subject to prepayment
prior to their stated maturities at the election of the District.
Section 4.2. Selection of Certificates for Prepavment. Whenever less than all of the ’
Certificates are called for prepayment, the Trustee shall select the Certificates or portions thereof to be
prepaid from the Outstanding Certificates in accordance with Section 4.1 hereof The Trustee shah
promptly notify the District in writing of the numbers of the Certificates or portions thereof so selected
for prepayment.
Section 4.3. Notice of Prenavment. Notice of prepayment shall be mailed, first class
postage prepaid, to the respective Owners of any Certificates designated for prepayment at their
addresses appearing on the Certificate registration books and to the Information Services and by
505281.3\22062.0024 17
registered or certified or overnight mail to the Securities Depositories at least 30 days but not more
than 60 days prior to the prepayment date.
Each notice of prepayment shall state the date of notice, the prepayment date, the place or
places of prepayment and the Prepayment Price, shall designate the maturities, CUSIP numbers, if any,
and, if less than all Certificates of any such maturity are to be prepaid, the serial numbers of the
Certificates of such maturity to be prepaid by giving the individual number of each Certificate or by
stating that all Certificates between two stated numbers, both inclusive, have been called for
prepayment and, in the case of Certificates to be prepaid in part only, the respective portions of the
principal amount thereof to be prepaid. Each such notice shall also state that on said date there will
become due and payable on each of said Certificates the Prepayment Price thereof or of said specified
portion of the principal represented thereby in the case of a Certificate to be prepaid in part only,
together with interest accrued with respect thereto to the prepayment date, and that (provided that
moneys for prepayment have been deposited with the Trustee) from and after such prepayment date
interest with respect thereto shall cease to accrue, and shall require that such Certificates be then
surrendered to the Trustee. Any defect in the notice or the mailing thereof will not affect the validity of
the prepayment of any Certificate.
Notice of prepayment of Certificates shall be given by the Trustee on behalf of and at the
expense of the District.
Section 4.4. Partial Prepavrnent of Certificate. Upon surrender of any Certificate prepaid in
part only, the Trustee shall execute and deliver to the Owner thereof, at the expense of the District, a
new Certificate or Certificates of authorized denominations equal in aggregate principal amount to the
unprepaid portion of the Certificate surrendered and of the same interest rate and maturity.
Section 4.5. Effect of Prepavment. When notice of prepayment has been duly given as
aforesaid, and moneys for payment of the Prepayment Price of, together with interest accrued to the
prepayment date with respect to, the Certificates (or portions thereof) so called for prepayment are held
by the Trustee, the Certificates (or portions thereof) so called for prepayment shah, on the prepayment
date designated in such notice, become due and payable at the Prepayment Price specified in such
notice and interest accrued thereon to the prepayment date; and from and after the prepayment date
interest represented by the Ceticates so called for prepayment shall cease to accrue, said Certificates
(or portions thereof) shall cease to be entitled to any benefit or security under this Agreement, and the
Owners of said Certificates shall have no rights in respect thereof except to receive payment of said
Prepayment Price and accrued interest.
All Certificates prepaid pursuant to the provisions of this Article shall be canceled upon
surrender thereof and destroyed by the Trustee.
ARTICLE V
INSTALLMENT PAYMENTS
Section 5.1. Pledpe and Deposit of Installment Pavments. The Instalhnent Payments are
hereby irrevocably pledged to, and shall be used for, the punctual payment of the Certificates, and the
Installment Payments shall not be used for any other purpose while any of the Certificates remain
505281.3\32062.0024 18
Outstanding. This pledge shall constitute a first and exclusive lien on the Installment Payments in
accordance with the terms hereof
All Installment Payments to which the Corporation may at any time be entitled (including
income or profit from investments pursuant to Section 5.3) shall be paid directly to the Trustee
pursuant to the terms of the Assignment Agreement, and if received by the Corporation at any time
shall be deposited by the Corporation with the Trustee within one business day after the receipt thereof,
and the Trustee shah deposit all Installment Payments as and when received in the Certificate Payment
Fund. All moneys at any time deposited in the Certificate Payment Fund shall be held by the Trustee in
trust for the benefit of the Owners from time to time of the Certificates, but shall nevertheless be
disbursed allocated and applied solely for the uses and purposes herein set forth.
Section 5.2. Certificate Pavment Fund. There is hereby established with the Trustee each of
the Certificate Payment Fund and the Reserve Funds each of which the Trustee covenants to maintain
and hold-in trust separate and apart from other funds held by it so long as any Installment Payments
remain unpaid. All moneys on deposit in the Certificate Payment Fund (including income or profit from
investments) shall be retained therein except as expressly provided herein.
The Trustee shall transfer from the Certificate Payment Fund the following amounts at the
times and in the manner hereinafter provided, and shall deposit such amounts in one or more of the
following respective funds, each of which the Trustee shall establish and maintain and hold in trust
separate and apart from other funds held by it, and each of which shall be disbursed and applied only as
hereinafter authorized. Such amounts shall be so transferred to and deposited in the following
respective funds in the following order of priority, the requirements of each such fund at the time of
deposit to be satisfied before any transfer is made to any fund subsequent in priority:
6) Interest Fund. The Trustee, on the last business day before each Interest
Payment Date (commencing on the last business day of April, 1998), shall deposit in the Interest Fund
an amount representing the portion of the Installment Payments designated as interest coming due on
the next succeeding May 1 or November 1, as the case may be.
No deposit need be made into the Interest Fund so long as there shall be in such fund
moneys sufkient to pay the interest portion of all Certificates then Outstanding on the next May 1 or
November 1, as the case may be.
Except as hereinafter provided, moneys in the Interest Fund shall be used and
withdrawn by the Trustee solely for the purpose of paying the interest with respect to the Certificates
when due and payable (including accrued interest on any Certificates prepaid prior to maturity pursuant
to this Agreement).
(W Principal Fund. The Trustee, on the last business day before each May 1
(commencing on the last business day of April, 1998), shah deposit in the Principal Fund an amount
equal to the principal coming due with respect to the Certificates on the next succeeding May 1.
No deposit need be made into the Principal Fund so long as there shall be in such fund
moneys sufficient to pay the portion of all Certificates then Outstanding designated as principal and
coming due on the next succeeding May 1.
505281.3Y22062.0024 19
Except as hereinafter provided, moneys in the Principal Fund shall be used and
withdrawn by the Trustee solely for the purpose of paying the principal with respect to the Certificates
when due and payable.
Cc) Prenavment Fund. Moneys to be used for prepayment pursuant to Section 4.1
hereof and paid by the District pursuant to Section 7.1 of the Installment Purchase Agreement shah be
transferred by the Trustee from the Certificate Payment Fund and deposited in the Prepayment Fund on
the prepayment date specified in the Written Request of the District filed with the Trustee pursuant to
Section 7.2 of the Installment Purchase Agreement. Said moneys shall be set aside in the Prepayment
Fund solely for the purpose of prepaying the Certificates in advance of their respective stated maturities
and shall be applied on or after the date specified for prepayment pursuant to Section 4.1 hereof to the
payment of the Prepayment Price with respect to the Certificates to be prepaid upon presentation and
surrender of such Certificates.
Section 5.3. Investment of Monevs in Special Funds. Any moneys in the Delivery Cost
Fund, the Certificate Payment Fund, the Interest Fund, the Principal Fund, the Reserve Fund and the
Prepayment Fund shall be invested by the District or, upon the Written Request of the District, by the
Trustee, in Permitted Investments which will mature on or before the dates when such moneys are
scheduled to be needed for payment from such fund. Securities acquired as an investment of moneys in
a fund shall be credited to such fund.
In the absence of written investment direction from the District, the Trustee shall invest moneys
held by it solely in Permitted Investments specified in clause D. of the definition thereof
Any interest, profit or other income on such investments will be deposited when received by
the Trustee in the Reserve Fund to the extent the amount available and contained therein is less than the
Reserve Requirement and thereafter in the Certificate Payment Fund established hereunder.
Subject to the further provisions of Section 6.3 hereof, the Trustee may sell or present for
prepayment any obligations so purchased at the direction of the District whenever it shall be necessary
in order to provide moneys to meet any payment, and the Trustee shall not be liable or responsible for
any loss resulting from such investment. The Trustee may act as principal or agent in the acquisition or
disposition of any investment. The Trustee may commingle any of the funds or accounts established
pursuant to this Agreement into a separate fund or funds for investment purposes only; provided,
however, that all funds or accounts held by the Trustee hereunder shall be accounted for separately
notwithstanding such commingling.
Section 5.4. Reserve Fund. The Trustee shall deposit in the Reserve Fund the amounts
required to be deposited therein pursuant to the Installment Purchase Agreement and this Agreement
and apply moneys in the Reserve Fund in accordance with this Section 5.4.
If one business day prior to any Payment Date the moneys in the Certificate Payment Fund are
insufficient to make the payments required by this Agreement with respect to Certificates on such
Payment Date, the Trustee shah transfer from the Reserve Fund to the Certificate Payment Fund the
amount of such insufficiency.
In the event that the Trustee has transferred moneys from the Reserve Fund to the Certificate
Payment Fund in accordance with this Section 5.4, upon receipt of the moneys from the District to
505281.3\22062.0024 20
increase the balance in the Reserve Fund to the Reserve Requirement, the Trustee shall deposit such
moneys in the Reserve Fund.
If the amount available and contained in the Reserve Fund exceeds an amount equal to the
Reserve Requirement and if the District is not then in default under the Installment Purchase
Agreement, the Trustee shall semiannually on or before each Payment Date withdraw the amount of
such excess from the Reserve Fund and shall deposit such amount in the Certificate Payment Fund,
and for this determination the Trustee shall make a valuation of the Reserve Fund as often as it may
deem appropriate, and in any event on or before each Payment Date in each year. In addition, the
Trustee shall, on the date all or any portion of the Certificates are discharged in accordance with
Section 10.2 hereof, value the Reserve Fund in accordance with this Section and withdraw the excess,
if any, on deposit in the Reserve Fund and transfer such amount to or in accordance with the written
direction of the District. Except for such withdrawals, all moneys in the Reserve Fund shah be used
and withdrawn by the Trustee solely for the purpose of paying principal and interest with respect to the
Certificates in the event that no other moneys of the District are available therefor.
For the purpose of dete rmining the amount in the Reserve Fund, all Permitted Investments
credited to the Reserve Fund shah be valued at the lower of cost (inclusive of all interest accrued but
not paid), or market value.
The District may substitute a municipal bond debt service reserve fund policy or a surety bond
or a letter of credit (a “Reserve Insurance Policy”) or money for any Reserve Insurance Policy or money
held by the Trustee in the Reserve Fund; provided, that (i) in the case of a municipal bond debt service
reserve fund policy or a surety bond, bonds which are insured by the issuer thereof are rated in the
highest rating category by Standard & Poor’s Ratings Group and Moody’s Investors Service
(collectively, the “Rating Agencies”), or, in the case of a letter of credit, the unsecured debt obligations
of the issuing bank thereof are rated in the highest short-term rating category by the Rating Agencies;
(ii) the sum of the money and face amount of any Reserve Insurance Policy in effect af’Ier such
substitution will be equal to the Reserve Requirement; (iii) in the case of the substitution of a new
Reserve Insurance Policy for money or an existing Reserve Insurance Policy, the Trustee receives an
opinion of Special Counsel to the effect that such substitution will not adversely afhect the exclusion
from gross income for federal income tax purposes of interest with respect to the Certificates; [and (iv)
in the case of the substitution of a Reserve Insurance Policy for money, so long as the Bond Insurance
Policy is in full force and effect, the Trustee shall have received the Bond Insurer’s consent thereto].
Section 5.5. Pledge of Monevs in Funds. All amounts on deposit in the Certificate Payment
Fund, the Interest Fund, the Principal Fund, the Prepayment Fund and the Reserve Fund are hereby
irrevocably pledged to the Owners of the Certificates as provided herein. This pledge shall constitute a
first and exclusive lien on the Certificate Payment Fund, the Interest Fund, the Principal Fund, the
Prepayment Fund and the Reserve Fund for the benefit of the Owners of the Certificates in accordance
with the terms hereof and of the Installment Purchase Agreement.
Section 5.6. Rebate Fund.
(4 Establishment. The Trustee shall establish separate accounts for the Certificates
designated the “Rebate Fund.” Absent an opinion of Special Counsel that the exclusion from gross
income for federal income tax purposes of interest with respect to the Certificates will not be adversely
affected, the District shall cause to be deposited in the Rebate Fund such amounts as are required to be
505281.3L22062.0024 21
deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in
the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All
amounts on deposit in the Rebate Fund for the Certificates shall be governed by this Section and the
Tax Certificate for the Certificates, unless and to the extent that the District delivers to the Trustee an
opinion of Special Counsel that the exclusion from gross income for federal income tax purposes of
interest with respect to the Certificates will not be adversely affected if such requirements are not
satisfied.
(0 Annual Computation. Within 55 days of the end of each fifth Certificate Year
(as such term is defined in the Tax Certificate), the District shall calculate or cause to be
calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code
and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions
with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax
Certificate (e.g., the temporary investments exceptions of Section 148@(4)(B) and (C) of the
Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the
Code (the “I’/% Penalty”) has been made), for this purpose treating the last day of the
applicable Certificate Year as a computation date, within the meaning of Section 1.148-l(b) of
the Treasury Regulations (the “Rebatable Arbitrage”). The District shall obtain expert advice
as to the amount of the Rebatable Arbitrage (or the manner of computation of such amount) to
comply with this Section.
(ii) Annual Transfer. Within 55 days of the end of each fifth Certificate Year, upon
the written Request of the District, an amount shall be deposited to the Rebate Fund by the
Trustee from any Revenues legally available for such purpose (as specified by the District in
the aforesaid written Request), if and to the extent required so that the balance in the Rebate
Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with (i) of this
Subsection (a). In the event that immediately following the transfer required by the previous
sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount
required to be on deposit therein, upon written Request of the District, the Trustee shall
withdraw the excess from the Rebate Fund and then credit the excess to the Revenue Fund.
(iii) Payment to the Treasury. The Trustee shall pay, as directed by Request of the
District, to the United States Treasury, out of amounts in the Rebate Account,
(A) Not later than 60 days after the end of(X) the fifth Certificate
Year, and (Y) each applicable fifth Certificate Year thereafter, an amount equal
to at least 90% of the Rebatable Arbitrage calculated as of the end of such
Certificate Year; and
(B) Not later than 60 days after the payment of all the Certificates,
an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of
such applicable Certificate Year, and any income attributable to the Rebatable
Arbitrage, computed in accordance with Section 148(f) of the Code.
In the event that, prior to the time of any payment required to be made from the
Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment
when such payment is due, the District shall calculate or cause to be calculated the
amount of such deficiency and deposit an amount received from any legally available
505281.3U2062.0024 22
source equal to such deficiency prior to the time such payment is due. Each payment
required to be made pursuant to this Subsection (a) shall be made to the Internal
Revenue Service Center, Philadelphia, Pennsylvania 19255 on or before the date on
which such payment is due, and shall be accompanied by Internal Revenue Service
Form 8038-T, or shall be made in such other manner as provided under the Code.
@I Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund
after redemption and payment of the Certificates and the payments described in Subsection (a) above
being made may be withdrawn by the District and utilized in any manner by the District.
w Survival of Defeasance. Notwithstanding anything in this Section to the
contrary, the obligation to comply with the requirements of this Section shall survive the defeasance or
payment in full of the Certificates.
[Section 5.7. Payments under the Bond Insurance Policy. FSERT IF APPLICABLE.] As
long as the Bond Insurance Policy shall be in full force and effect, the District and the Trustee agree to
comply with the following provisions:
(a) At least one (1) day prior to all Payment Dates the Trustee will determine
whether there will be sufiicient funds in the Certificate Payment Fund and Reserve Fund to pay the
principal of or interest represented by the Certificates on such Payment Date. If the Trustee determines
that there will be insticient funds in such Certificate Payment Fund and Reserve Fund, the Trustee
shall so not@ the Bond Insurer, Such notice shall specify the amount of the anticipated deficiency, the
Certificates to which such deficiency is applicable and whether such Certificates will be deficient as to
principal or interest, or both. If the Trustee has not so notified the Insurer at least one (1) day prior to a
Payment Date, the Insurer will make payments of principal or interest due represented by the
Certificates on or before the first (1st) day next following the date on which the Bond Insurer shall have
received notice of nonpayment from the Trustee.
C-9 The Trustee shall, after giving notice to the Bond Insurer as provided in (a)
above, make available to the Bond Insurer and, at the Bond Insurer’s direction, to the
, as insurance trustee for the Bond Insurer or any
successor insurance trustee (the “Insurance Trustee”), the registration books of the District maintained
by the Trustee and all records relating to the funds and accounts maintained under this Agreement.
(cl The Trustee shall provide the Bond Insurer and the Insurance Trustee with a
list of registered Owners of Certificates, entitled to receive Installment Payments designated and
comprising principal or interest from the Bond Insurer under the terms of the Bond Insurance Policy,
and shall make arrangements with the Insurance Trustee (i) to mail checks or drafks to the registered
Owners of Certificates entitled to receive full or partial interest payments from the Insurer and (ii) to
pay principal represented by the Certificates surrendered to the Insurance Trustee by the registered
Owners of Certificates entitled to receive full or partial principal payments from the Bond Insurer.
ta The Trustee shall, at the time it provides notice to the Bond Insurer pursuant to
(a) above, notify registered Owners of Certificates entitled to receive the payment of principal or
interest thereon from the Bond Insurer (i) as to the fact of such entitlement, (ii) that the Bond Insurer
will remit to them all or a part of the interest payments next coming due upon proof of the Owner
entitlement to interest payments and delivery to the Insurance Trustee, in form satisfactory to the
505281.3U2062.0024 23
. c
Insurance Trustee, of an appropriate assignment of the registered owner’s right to payment, (iii) that
should they be entitled to receive full payment of principal from the Bond Insurer, they must surrender
their Certificates (along with an appropriate instrument of assignment in form satisfactory to the
Insurance Trustee to permit ownership of such Certificates to be registered in the name of the Insurer)
for payment to the Insurance Trustee, and not the Trustee, and (iv) that should they be entitled to
receive partial payment of principal from the Bond Insurer, they must surrender their Certificates for
payment thereon first to the Trustee, who shall note on such Certificates the portion representing
principal paid by the Trustee and then, along with an appropriate instrument of assignment in form
satisfactory to the Insurance Trustee, to the Insurance Trustee, which will then pay the unpaid portion
representing principal.
(4 In the event that the Trustee has notice that any payment of principal of or
interest represented by a Certificate which has become Due for Payment and which is made to an
Owner by or on behalf of the District has been deemed a preferential transfer and theretofore recovered
from its registered owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in
accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee
shall, at the time the Bond Insurer is notified in the manner set forth in (a) above, notify all registered
owners that in the event that any registered owner’s payment is so recovered, such registered Owner
will be entitled to payment from the Bond Insurer to the extent of such recovery if sufficient funds are
not otherwise available, and the Trustee shall furnish to the Bond Insurer its records evidencing the
payments of principal of and interest represented by the Certificates which have been made by the
Trustee and subsequently recovered from registered Owners and the dates on which such payments
were made.
0 In addition to those rights granted the Bond Insurer under this Trust
Agreement, the Insurer shah, to the extent it makes payment of principal of or interest represented by
the Certificates, become subrogated to the rights of the recipients of such payments in accordance with
the terms of the Bond Insurance Policy, and to evidence such subrogation (i) in the case of subrogation
as to claims for past due interest, the Trustee shall note the Insurer’s rights as subrogee on the
registration books of the District maintained by the Trustee upon receipt from the Bond Insurer of
proof of the payment of interest thereon to the registered owners of the Certificates, and (ii) in the case
of subrogation as to claims for past due principal, the Trustee shall note the Bond Insurer’s rights as
subrogee on the registration books of the District maintained by the Trustee upon surrender of the
Certificates by the registered owners thereof together with proof of the payment of principal thereof]
ARTICLE VI
COVENANTS
Section 6.1. Corporation and District to Perform Under Installment Purchase Agreement.
The Corporation and District covenant and agree with the Owners of the Certificates to perform all
obligations and duties imposed on them under the Installment Purchase Agreement and, together with
the Trustee, to enforce such Installment Purchase Agreement against the other party thereto in
accordance with its terms.
505281.3U2062.0024 24
The Corporation and the District will in all respects promptly and faithfully keep, perform and
comply with all the terms, provisions, covenants, conditions and agreements of the Installment
Purchase Agreement to be kept, performed and complied with by it.
The Corporation and the District agree not to do or permit anything to be done, or omit or
refrain from doing anything, in any case where any such act done or permitted to be done, or any such
omission of or re&ining from action, would or might be a ground for cancellation or termination of the
Installment Purchase Agreement.
Section 6.2. Budgets. The District in each Fiscal Year shall include in its annual budget
such amounts for payment of Installment Payments as are fully adequate for the payment of all
Installment Payments due under the Installment Purchase Agreement for such Fiscal Year. If the
amounts so budgeted are not adequate for the payment of Installment Payments due under the
Installment Purchase Agreement, the District will take such action as may be necessary to cause such
annual budget to be amended, corrected or augmented so as to include therein the amounts required to
be raised by the District in the then ensuing Fiscal Year for the payment of Installment Payments due
under the Installment Purchase Agreement and will not@ the Trustee of the proceedings then taken or
proposed to be taken by the District.
Section 6.3. Tax Covenants. Notwithstanding any other provision of this Agreement,
absent an opinion of Special Counsel that the exclusion from gross income of interest with respect to
the Certificates will not be adversely affected for federal income tax purposes, the District covenants to
comply with all applicable requirements of the Code necessary to preserve such exclusion from gross
income and specifically covenants, without limiting the generality of the foregoing, as follows:
(4 Private Activity. The District will not take or omit to take any action or make
any use of the proceeds of the Certificates or of any other moneys or property which would cause the
Certificates to be “private activity bonds” within the meaning of Section 141 of the Code.
09 Arbitrwe. The District will make no use of the proceeds of the Certificates or
of any other amounts or property, regardless of the source, or take or omit to take any action which
would cause the Certificates to be “arbitrage bonds” within the meaning of Section 148 of the Code.
(cl Federal Guarantee. The District will make no use of the proceeds of the
Certificates or take or omit to take any action that would cause the Certificates to be “federally
guaranteed” within the meaning of Section 149(b) of the Code.
69 Information Reporting. The District will take or cause to be taken all necessary
action to comply with the informational reporting requirement of Section 149(e) of the Code.
te) Miscellaneous. The District will take no action inconsistent with its
expectations stated in any Tax Certificate executed with respect to the Certificates and will comply
with the covenants and requirements stated therein and incorporated by reference herein.
This Section and the covenants set forth herein shall not be applicable to, and nothing
contained herein shall be deemed to prevent the District from issuing, Certificates the interest with
respect to which has been determined by Special Counsel to be subject to federal income taxation.
505281.3U2062.0024 25
Section 6.4. Accounting Records and Reports. The Trustee shall keep or cause to be kept
proper books of record and account in which complete and correct enties shall be made of all
transactions made by it relating to the receipts, disbursements, allocation and application of the
Installment Payments, and such books shall be available upon reasonable prior notice for inspection by
the District and by any Owner of Certificates, or his agent or representative, at reasonable hours and
under reasonable conditions. Each month, so long as the Certificates are Outstanding, the Trustee shah
furnish to the District a statement covering receipts, disbursements, allocation and application of
amounts on deposit in the funds and accounts created hereunder held by it.
Section 6.5. Compliance with Trust Agreement. The Trustee will not execute, or permit to
be executed, any Certificates in any manner other than in accordance with the provisions of this
Agreement, and the District will not suffer or permit any default by it to occur under this Agreement,
but will faithfully observe and perform all the covenants, conditions and requirements hereof
Section 6.6. Observance of Laws and Regulations. To the extent necessary to assure their
performance hereunder, the Corporation and the District will well and truly keep, observe and perform
all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or
prescribed by any law of the United States of America, or of the State, or by any officer, board or
commission having jurisdiction or control, as a condition of the continued enjoyment of any and every
right, privilege or franchise now owned or hereafter acquired by the Corporation or the District,
respectively, including its right to exist and carry on its business, to the end that such contracts, rights
and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any
manner impaired.
Section 6.7. Compliance with Contracts. The District shall comply with the terms,
covenants and provisions, express or implied, of all contracts for the use of the 1988 Project by the
District, and all other contracts and agreements affecting or involving the 1988 Project to the extent
that the District is a party thereto.
Section 6.8. Prosecution and Defense of Suits. The District 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 Water System or any part thereof, whether
now existing or hereafter developing, shah prosecute all such suits, actions and other proceedings as
may be appropriate for such purpose and shall indemnify and save the Trustee (including all of its
employees, officers and directors), the Corporation and every Certificate Owner harmless from all loss,
cost, damage and expense, including attorneys’ fees, which they or any of them may incur by reason of
any such defect, cloud, suit, action or proceeding.
The District shall defend against every suit, action or proceeding at any time brought against
the Trustee (including all of its employees, officers and directors), the Corporation or any Certificate
Owner upon any claim arising out of the receipt, application or disbursement of any of the Installment
Payments or involving the rights of the Trustee, the Corporation or any Certificate Owner under this
Agreement; provided that the Trustee, the Corporation or any Certificate Owner at such party’s election
may appear in and defend any such suit, action or proceeding. The District shall indemnify and hold
harmless the Trustee, the Corporation and the Certificate Owners against any and all liability claimed
or asserted by any person, arising out of such receipt, application or disbursement, and shall indemnify
and hold harmless the Certificate Owners against any attorneys’ fees or other expenses which any of
505281.3U2062.0024 26
them may incur in connection with any litigation (including pre-litigation activities) to which any of
them may become a party by reason of ownership of Certificates. The District shall promptly reimburse
the Corporation or any Certificate Owner in the full amount of any attorneys’ fees or other expenses
which the Corporation or such Owner may incur in litigation or otherwise in order to enforce such
partying rights under this Agreement or the Certificates, provided that such litigation shah be
concluded favorably to such party’s contentions therein.
Section 6.9. Recordation and Filing. The Trustee, upon written direction of the District,
shall record, register, file, renew, refile and re-record all such documents, including financing
statements, as may be required by law in order to maintain a security interest in this Agreement and the
Assignment Agreement, all in such manner, at such times and in such places as may be required by,
and to the extent permitted by, law in order fully to preserve, protect and perfect the security of the
Certificate Owners and the rights and security interests of the Trustee. The Trustee, upon written
direction of the District, shall (subject to Section 8.5) do whatever else may be necessary or be
reasonably required in order to perfect and continue the lien of this Agreement and the Assignment
Agreement.
Notwithstanding anything to the contrary above, the Trustee shall have no duty or liability
whatsoever to monitor or notify any party with respect to the timeliness, sufIiciency or validity of any
such recording, re-recording, filing, filing of continuation statements and the like with respect to this
Agreement; it being expressly understood and agreed that the Trustee’s duties under this Section shall
be exclusively limited to following the express written filing or recording instructions of the District,
from time to time with respect to the above described actions so long as the District shall supply said
recording or filing instruments.
Section 6.10. Eminent Domain. Ifall or any part of the 1988 Project shall be taken by
eminent domain proceedings (or sold to a government threatening to exercise the power of eminent
domain), the Net Proceeds therefrom shall be applied in the manner specified in Section 6.16 of the
Installment Purchase Agreement.
Section 6.11. Further Assurances. Whenever and so often as requested so to do by the
Trustee or any Certificate Owner, the Corporation and the District will promptly execute and deliver or
cause to be executed and delivered all such other and further instruments, documents or assurances,
and promptly do or cause to be done all such other and further things, as may be necessary or
reasonably required in order to further and more fully vest in the Trustee and the Certificate Owners all
rights, interest, powers, benefits, privileges and advantages conferred or intended to be conferred upon
them by this Agreement.
Section 6.12. Continuing Disclosure. The District hereby covenants and agrees that it will
comply with and carry out all of its obligations under the continuing disclosure certificate to be
executed and delivered by the District in connection with the delivery of the Certificates.
Notwithstanding any other provision of this Agreement, failure of the District to comply with the
continuing disclosure certificate shall not be considered an Event of Default; however, any Owner or
Beneficial Owner may take such actions as may be necessary and appropriate, including seeking
mandate or specific performance by court order, to cause the District to comply with its obligations
under this Section 6.12. For purposes of this Section, “Beneficial Owner” means any person which has
or shares the power, directly or indirectly, to make investment decisions concerning ownership of any
505281.3U2062.0024 27
Certificates (including persons holding Certificates through nominees, depositories or other
intermediaries).
ARTICLE VII
DEFAULT AND LIMITATION OF LIABILJTY
Section 7.1. Notice of Non-Payment. In the event of delinquency in the payment of any
Installment Payments due by the District pursuant to the Installment Purchase Agreement, the Trustee
shall, after one business day following the date upon which such delinquent Installment Payment was
due, as soon as practicable give written notice of the delinquency and the amount of the delinquency to
the District and the Corporation.
Section 7.2. Action on Default or Termination. Upon the occurrence of an Event of Default
(as that term is defined in the Installment Purchase Agreement), which event shall constitute a default
hereunder, and in each and every such case during the continuance of such Event of Default, the
Trustee or the Owners of not less than a majority in aggregate principal amount of Certificates at the
time Outstanding shall be entitled, [with the written consent of the Bond Insurer so long as the Bond
Insurance Policy is in full force and effect,] upon notice in writing to the District, to exercise the
remedies provided to the Corporation in the Installment Purchase Agreement.
Upon declaration of the entire principal amount of the unpaid Installment Payments and the
accrued interest thereon to be due and payable immediately and provided such declaration is not
rescinded or annulled, all in accordance with Section 8.1 of the Installment Purchase Agreement, the
Trustee shall apply all moneys received as Installment Payments and all moneys held in any fund or
account hereunder to the payment of the entire principal amount of the Certificates and the accrued
interest with respect thereto, with interest on the overdue Certificates at the rate or rates of interest
applicable to the Certificates if paid in accordance with their terms.
Section 7.3. Other Remedies of the Trustee. The Trustee shah have the right [with the
written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect], --
(a) by mandamus or other action or proceeding or suit at law or in equity to
enforce its rights against the District or any board member, officer or employee thereof, and to compel
the District or any such board member, officer or employee to perform or carry out its or his duties
under law and the agreements and covenants required to be performed by it or him contained herein;
tw by suit in equity to enjoin any acts or things which are unlawful or violate the
rights of the Trustee; or
(cl by suit in equity upon the happening of any default hereunder to require the
District and its directors, officers and employees to account as the trustee of an express trust.
Section 7.4. Non-Waiver. A waiver of any default or breach of duty or contract by the
Trustee shall not affect any subsequent default or breach of duty or contract or impair any rights or
remedies on any such subsequent default or breach of duty or contract. No delay or omission by the
Trustee to exercise any right or remedy accruing upon any default or breach of duty or contract shah
505281.3U2062.0024 28
impair any such right or remedy or shall be construed to be a waiver of any such default or breach of
duty or contract or an acquiescence therein, and every right or remedy conferred upon the Trustee by
law or by this article may be enforced and exercised from time to time and as often as shall be deemed
expedient by the Trustee.
If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or
determined adversely to the Trustee, the Trustee and the District shall be restored to their former
positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
Section 7.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the
Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in
equity or by statute or otherwise and may be exercised without exhausting and without regard to any
other remedy conferred by any law.
Section 7.6. No Obligation by the District to Owners. Except for the payment of
Installment Payments when due in accordance with the Installment Purchase Agreement and the
performance of the other covenants and agreements of the District contained in said Installment
Purchase Agreement and herein the District shall have no obligation or liability to the Owners of the
Certificates with respect to this Agreement or the execution, delivery or transfer of the Certificates, or
the disbursement of hrstallment Payments to the Owners by the Trustee; provided however that nothing
contained in this Section shall tiect the rights, duties or obligations of the Trustee expressly set forth
herein.
Section 7.7. Trustee Appointed Agent for Certificate-owners: Direction of Proceedings.
The Trustee is hereby appointed the agent and attorney of the Owners of all Certificates outstanding
hereunder for the purpose of filing any claims relating to the Certificates. The Owners of a majority in
aggregate principal amount of the Certificates Outstanding hereunder shall, upon tender to the Trustee
of reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with
such direction, have the right to direct the method and place of conducting all remedial proceedings by
the Trustee, provided such direction shall be in accordance with law and the provisions of this Trust
Agreement and that the Trustee shah have the right to decline to follow any such direction which in the
opinion of the Trustee would be unjustly prejudicial to Certificate-owners not parties to such a
direction.
Section 7.8. Power of Trustee to Control Proceedings. In the event that the Trustee, upon
the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise,
pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of
a majority in aggregate principal amount of the Certificates then outstanding pursuant to Section 7.7
hereof, it shall have full power, in the exercise of its discretion for the best interests of the Owners of
the Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement
or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer
continues an Event of Default hereunder, discontinue, withdraw, compromise or settle, or otherwise
dispose of, any litigation pending at law or in equity, if at the time there has been filed with it a written
request signed by the Owners of at least a majority in principal amount of the Certificates Outstanding
hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such
litigation.
505281.3U2062.0024 29
Section 7.9. Limitation on Certificate-Owners’ Right to Sue. No Owner of any Certificate
executed and delivered hereunder shall have the right to institute any suit, action or proceeding at law
or in equity, for any remedy under or upon this Agreement, unless (a) such Owner shall have
previously given to the Trustee written notice of the occurrence of an Event of Default hereunder; (b)
the Owners of at least a majority in aggregate principal amount of all the Certificates then Outstanding
shah 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 shah have been made to, the Trustee.
Such notification, request, tender or indemnity and refusal or omission are hereby declared, in
every case, to be conditions precedent to the exercise by any Owner of Certificates of any remedy
hereunder; it being understood and intended that no one or more Owners of Certificates shah have any
right in any manner whatever by his or their action to enforce any right under this Agreement, except in
the manner herein provided, and that all proceedings at law or in equity to enforce any provision of this
Agreement shall be instituted, had and maintained in the manner herein provided and for the equal
benefit of all owners of the Outstanding Certificates.
The right of any Owner of any Certificate to receive payment of the principal of (and premium,
if any) and interest on such Certificate out of Revenues, as herein and therein provided, on and after the
respective due dates expressed in such Certificate, or to institute sun for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected without the consent of such
Owner, notwithstanding the foregoing provisions of this Section or Section 7.10 or any other provision
of this Agreement.
Section 7.10. No Obligation with Respect to Performance bv Trustee. Neither the District
nor the Corporation shall have any obligation or liability to any of the other parties hereto or to the
Owners of the Certificates with respect to the performance by the Trustee of any duty imposed upon it
under this Agreement.
Section 7.11. No Liabilitv to Owners for Pavment. The Corporation shall not have any
obligation or liability to the Owners of the Certificates with respect to the payment of the Installment
Payments by the District when due, or with respect to the performance by the District of any other
covenant made by it in the Installment Purchase Agreement or herein. Except as provided in this
Agreement, the Trustee shall not have any obligation or liability to the Owners of the Certificates with
respect to the payment of the Installment Payments by the District when due, or with respect to the
performance by the District of any other covenant made by it in the Installment Purchase Agreement or
herein.
Section 7.12. No Responsibilitv for SuBiciencv. The Trustee shah not be responsible for the
sticiency of this Agreement, the Installment Purchase Agreement, or of the assignment made to it by
the Assignment Agreement of rights to receive Installment Payments pursuant to the Instahment
Purchase Agreement, or the value of or title to the 1988 Project. The Trustee shall not be responsible or
liable for selection or liquidation of investments or any loss suffered in connection with any investment
of funds made by it under the terms of and in accordance with this Agreement.
505281.3U2062.0024 30
Section 7.13. Indemnification of Trustee. The District shah indemnify the Trustee (including
all of its employees, officers and directors) and hold it harmless against any loss, liability, expenses or
advances, including but not limited to fees and expenses of counsel and other experts, incurred or made
without negligence or willll misconduct on the part of the Trustee, (i) in the exercise and performance
of any of the powers and duties hereunder or under the mstallment Purchase Agreement by the
Trustee, (ii) relating to or arising out of the 1988 Project, or the conditions, occupancy, use, possession,
conduct or management of, or work done in or about, or from the planning, design, acquisition,
installation or construction of the 1988 Project or any part thereof, or (iii) arising out of or relating to
any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to
state a material fact necessary to make the statements made, in light of the circumstances under which
they were made, not misleading in any official statement or other offering circular utilized in connection
with the sale of the Certificates, including the costs and expenses of defending itself against any claim
of liability arising under this Agreement. Such indemnity shall survive payment of the Certificates and
discharge of this Agreement or resignation or removal of the Trustee.
ARTICLE VIII
THE TRUSTEE
Section 8.1. Emplovment of Trustee. In consideration of the recitals hereinabove set forth
and for other valuable consideration, the District hereby agrees to employ the Trustee to receive, hold,
invest and disburse the moneys received pursuant to the Installment Purchase Agreement for credit to
the various funds and accounts established by this Agreement; to execute, deliver and transfer the
Certificates; and to apply and disburse the Installment Payments received from the District to the
Owners of Certificates; and to perform certain other functions; all as herein provided and subject to the
terms and conditions of this Agreement.
Section 8.2. Acceptance of Emplovment. In consideration of the compensation herein
provided for, the Trustee accepts the employment above referred to subject to the terms and conditions
of this Agreement.
Section 8.3. Trustee: Duties. Removal and Resignation. By executing and delivering this
Agreement, the Trustee accepts the duties and obligations of the Trustee provided in this Agreement,
but only upon the terms and conditions set forth in this Agreement.
The District may, by written request to the Trustee, remove the Trustee and appoint a
successor Trustee; provided, however, that if the District is in default under the Installment Purchase
Agreement, the Owners of a majority in aggregate principal amount of all Certificates Outstanding
may, by written request to the Trustee, remove the Trustee and appoint a successor Trustee. Any such
successor shall be a bank or trust company doing business and having a corporate trust office in
California, which has (or the parent holding company of which has) a combined capital (exclusive of
borrowed capital) and surplus of at least fifty million dollars ($50,000,000) and subject to supervision
or examination by federal or state authorities. 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 purposes of this Section the combined capital and surplus of
such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published.
505281.3U2062.0024 31
-
The Trustee may at any time resign by giving written notice to the District and by giving to the
Certificate Owners notice of such resignation by mail at the addresses shown on the registration books
maintained by the Trustee. Upon receiving such notice of resignation, the District shall promptly
appoint a successor Trustee by an instrument in writing; provided, however, that in the event that the
District does not appoint a successor Trustee within thirty (30) days following receipt of such notice of
resignation, the resigning Trustee may at the expense of the District petition the appropriate court
having jurisdiction to appoint a successor Trustee. Any resignation or removal of the Trustee and
appointment of a successor Trustee shall become effective upon written acceptance of appointment by
the successor Trustee.
Section 8.4. Comnensation of the Trustee. The District shall from time to time, subject to
any agreement in effect with the Trustee, pay to the Trustee reasonable compensation for its services
and shall reimburse the Trustee (including all of its employees, officers and directors) for all its
advances and expenditures, including but not limited to advances to and fees and expenses of
independent appraisers, accountants, consultants, counsel, agents and attorneys-at-law or other experts
employed by it in the exercise and performance of its powers and duties hereunder. Such compensation
and reimbursement shall be paid by the District and amounts owing therefor shah constitute a charge
on the moneys in the Acquisition Fund and payable by the District; provided, however, that the Trustee
shall not otherwise have any claims, except in accordance with Section 7.13 hereof and Section 8.2 of
the InstaHment Purchase Agreement, or lien for payment of compensation for its services against any
other moneys held by it in the funds or accounts established hereunder but may take whatever legal
actions are lawfully available to it directly against the District. The obligations of the District under this
Section shall survive resignation or removal of the Trustee and payment of the Certificates and
discharge of this Agreement.
Section 8.5. Protection of the Trustee. The Trustee shall be protected and shall incur no
liability whatsoever in acting or refraining from acting or proceeding in good faith upon any resolution,
notice, telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or
other paper or document which it shah in good faith believe to be genuine and to have been adopted,
executed or delivered by the proper party or pursuant to any of the provisions of this Agreement, and
the Trustee shah be under no duty to make any investigation or inquiry as to any statements contained
or matters referred to in any such instrument, but may accept and rely upon the same as conclusive
evidence of the truth and accuracy of such statements. The Trustee shall not be bound to recognize any
person as an Owner of any Certificate or to take any action at the request of any such person unless
such Certificate shah be deposited with the Trustee or satisfactory evidence of the ownership of such
Certificate shall be furnished to the Trustee. The Trustee may consult with counsel, who may be
counsel to the Corporation or the District, with regard to legal questions, and the opinion of such
counsel shall be full and complete authorization and protection in respect of any action taken or
suffered by it hereunder in good faith in accordance therewith.
Whenever in the administration of its duties under this Agreement, the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or suffering any action
hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) shall
be deemed to be conclusively proved and established by a certificate of the Corporation or the District
and such certificate shall be full warranty to the Trustee for any action taken or suffered under the
provisions of this Agreement upon the faith thereof, but in its discretion the Trustee may (but shall have
505281.3Y22062.0024 32
no duty), in lieu thereof, accept other evidence of such matter or may require such additional evidence
as to it may seem reasonable.
The Trustee may buy, sell, own hold and deal in any of the Certificates provided pursuant to
this Agreement, and may join in any action which any Owner may be entitled to take with like effect as
if the Trustee were not a party to this Agreement. The Trustee, either as principal or agent, may also
engage in or be interested in any financial or other transaction with the District or the Corporation, and
may act as depository, trustee, or agent for any committee or body of Owners of Certificates or of
obligations of the Corporation or the District as freely as if it were not Trustee hereunder.
The Trustee may, to the extent reasonably necessary, 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 duties 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 Agreement or in the performance of its duties hereunder or for anything whatever in
connection with the funds and accounts established hereunder, except only for its own willll
misconduct or negligence.
The recitals, statements and representations by the District or the Corporation contained in this
Agreement or in the Certificates shah be taken and construed as made by and on the part of the District
or Corporation and not by the Trustee and the Trustee does not assume, and shall not have, any
responsibility or obligations for the correctness of any thereof
The Trustee undertakes to perform such duties, and only such duties as are specifically set
forth in this Agreement and no implied duties or obligations shall be read into this Agreement against
the Trustee.
No provision in this Agreement shall require the Trustee to risk or expend its own funds or
otherwise incur any financial liability in the performance of any of its duties hereunder if it shall have
reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk
or liability is not assured to it.
In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and not
in its individual capacity and all persons, including without limitation the Owners and the District or the
Corporation having any claim against the Trustee arising from this Agreement shall look only to the
funds and accounts held by the Trustee hereunder for payment except as otherwise provided herein.
Under no circumstances shall the Trustee be liable in its individual capacity for the obligations
evidenced by the Certificates.
The Trustee makes no representation or warranty, express or implied as to the title, value,
design compliance with specifications or legal requirements, quality, durability, operation, condition,
merchantability or fitness for any particular purpose or fitness for the use contemplated by the District
or the Corporation of the 1988 Project. In no event shall the Trustee be liable for incidental, indirect,
special or consequential damages in connection with or arising from the Instillment Purchase
Agreement or this Agreement for the existence, furnishing or use of the 1988 Project.
505281.3U2062.0024 33
The Trustee shall not be deemed to have knowledge of any Event of Default hereunder or
under the Installment Purchase Agreement unless and until it shall have actual knowledge thereof or
have received notice thereof at its corporate trust office at the address set forth in Section 11.11 hereof
The Trustee shall, during the existence of any Event of Default (which has not been cured) use the
same degree of care and skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
The Trustee shall not be accountable for the use or application by the District, or the
Corporation or any other party of any funds which the Trustee has released in accordance with the
terms of this Agreement.
Section 8.6. Merger or Consolidation. Any company 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 shah be a party or any company to which the Trustee may sell
or transfer all or substantially all of its corporate trust business (provided such company is eligible
under Section 8.3 hereof), shah be the successor to the Trustee without the execution or filing of any
paper or further act, anything herein to the contrary notwithstanding.
ARTICLE IX
AMENDMENT OF TRUST AGREEMENT
Section 9.1. Amendments Permitted.
(a) This Agreement and the rights and obligations of the District and of the
Owners of the Certificates and of the Trustee may be modified or amended at any time by an
amendment hereto which shall become binding when the written consents of the Owners of a
majority in aggregate principal amount of the Certificates then Outstanding, exclusive of
Certificates disqualified as provided in Section 11.4 hereof, shall have been filed, [together
with the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full
force and effect,] with the Trustee. No such modification or amendment shall (1) extend the
stated maturities of the Certificates, or reduce the rate of interest represented thereby, or extend
the time of payment of interest, or reduce the amount of principal represented thereby, or
reduce any premium payable on the prepayment thereof, witbout the consent of the Owner of
each Certificate so affected, or (2) reduce the aforesaid percentage of Owners of Certificates
whose consent is required for the execution of any amendment or modification of this
Agreement, or (3) modi@ any of the rights or obligations of the Trustee or the Corporation
without its written consent thereto.
@I This Agreement and the rights and obligations of the Corporation and the
District and of the Owners of the Certificates may also be modified or amended at any time by
an amendment hereto which shall become binding upon adoption, without the consent of the
Owners of any Certificates, but only to the extent permitted by law and only for any one or
more of the following purposes -
(9 to add to the covenants and agreements of the Corporation or the
District contained in this Agreement other covenants and agreements thereafter to be
505281.3U2062.0024 34
observed or to surrender any right or power herein reserved to or conferred upon the
Corporation or the District, and which shah not adversely affect the interests of the
Owners of the Certificates;
(ii) to cure, correct or supplement any ambiguous or defective provision
contained in this Agreement or in regard to questions arising under this Agreement, as
the Corporation or the District may deem necessary or desirable and which shah not
adversely affect the interests of the Owners of the Certificates; and
(iii) to make such other amendments or modifications as may be in the best
interests of the Owners of the Certificates.
[The Trustee shall promptly upon execution and delivery of any amendment pursuant to clause
(b) above send by first class mail a copy of such amendment to the Bond Insurer.]
Section 9.2. Endorsement or Renlacement of Certificates After Amendment or Supplement.
After the effective date of any action taken as hereinabove provided, the Trustee may determine that the
Certificates may bear a notation by endorsement in form approved by the Trustee as to such action, and
in that case upon demand of the Trustee to the Owner of any Outstanding Certificate and presentation
of such Owner’s Certificate for such purpose at the principal corporate trust office of the Trustee a
suitable notation as to such action shall be made on such Certificate. If the Trustee shall so determine,
new Certificates so modified as in the opinion of the Trustee shall be necessary to conform to such
action shah be prepared, and in that case upon demand of the Trustee to the Owner of any Outstanding
Certificates such new Certificates shah be exchanged at the principal corporate trust office of the
Trustee without cost to each Owner for Certificates then Outstanding upon surrender of such
Outstanding Certificates.
Section 9.3. Amendment of Particular Certificates. The provisions of this article shall not
prevent any Owner from accepting any amendments to the particular Certificates held by him, provided
that due notation thereof is made on such Certificates.
ARTICLE X
DEFEASANCE
Section 10.1. Discharge of Trust Agreement. When the obligations of the District under the
Installment Purchase Agreement shall cease pursuant to Article IX of the Installment Purchase
Agreement (except for the right of the Trustee and the obligation of the District to have the money and
Defeasance Securities mentioned therein applied to the payment of Installment Payments as therein set
forth and the obligation to apply moneys on deposit in the Rebate Fund as provided in Section 5.6),
then and in that case the obligations created by this Agreement shall thereupon cease, terminate and
become void except for the obligation of the District to direct the Trustee to apply money on deposit in
the Rebate Fund as provided herein which shah continue until such moneys are so applied and the right
of the Owners to have applied and the obligation of the Trustee to apply such moneys and Defeasance
Securities to the payment of the Certificates as herein set forth, and subject to application of moneys on
deposit in the Rebate Fund as provided in Section 5.6, the Trustee shall turn over to the District, after
provision for payment of amounts due the Trustee hereunder, as an overpayment of Installment
505281.3U2062.0024 35
Payments, any surplus in the Certificate Payment Fund and all balances remaining in any other funds or
accounts other than moneys and Defeasance Securities held for the payment of the Certificates at
maturity or on prepayment which moneys and Defeasance Securities shall continue to be held by the
Trustee in trust for the benefit of the Owners and shall be applied by the Trustee to the payment, when
due, of the principal and interest and premium, if any, represented by the Certificates, and after such
payment, this Agreement shall become void.
If moneys or Defeasance Securities are deposited with and held by the Trustee as hereinabove
provided, the Trustee shah within thirty (30) days after such moneys or Permitted Investments shall
have been deposited with it, mail a notice, first class postage prepaid, to the Owners at the addresses
listed on the registration books kept by the Trustee pursuant to Section 2.8, setting forth (a) the date
fixed for prepayment of the Certificates, (b) a description of the moneys or Defeasance Securities
described so held by it, and (c) that this Agreement has been released in accordance with the provisions
of this Section.
Section 10.2. Deposit of Monev or Securities with Trustee. Whenever in this Agreement or
the Installment Purchase Agreement it is provided or permitted that there be deposited with or held in
trust by the Trustee money or securities in the necessary amount to pay or prepay any Certificates, the
money or securities to be so deposited or held may include money or securities held by the Trustee in
the funds and accounts established pursuant to this Agreement and shall be -
(4 lawful money of the United States of America in an amount equal to the
principal amount represented by such Certificates and all unpaid interest represented thereby to
maturity, except that, in the case of Certificates which are to be prepaid prior to maturity and in
respect of which notice of such prepayment shall have been given as in Article IV provided or
provision satisfactory to the Trustee shall have been made for the giving of such notice, the
amount to be deposited or held shall be the principal amount or Prepayment Price and all
unpaid interest to such date of prepayment if any, represented by such Certificates; or
(‘4 Defeasance Securities which will provide money sufficient to pay the principal
at maturity or upon prepayment plus all accrued interest to maturity or to the prepayment date,
as the case may be, represented by the Certificates to be paid or prepaid, as such amounts
become due, plus premium, if any, provided that, in the case of Certificates which are to be
prepaid prior to the maturity thereof, notice of such prepayment shall have been given as in
Article IV provided or provision satisfactory to the Trustee shah have been made for the giving
of such notice;
provided, in each case, that the Trustee shah have been irrevocably instructed (by the terms of this
Agreement and the Installment Purchase Agreement or by Written Request of the District) to apply
such money or securities to the payment of such principal or Prepayment Price and interest represented
by such Certificates.
Section 10.3. Unclaimed Monevs. Anything contained herein to the contrary
notwithstanding, any moneys held by the Trustee in trust for the payment and discharge of the interest
or principal or Prepayment Price represented by any of the Certificates which remain unclaimed for
two years after the date of deposit of such moneys if deposited with the Trustee after the date when the
interest and principal or Prepayment Price represented by such Certificates have become payable, shah
at the Written Request of the District be repaid by the Trustee to the District as its absolute property
505281.3U2062.0024 36
.-
I ( )’ I I--
free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the
Owners shall look only to the District for the payment of the interest and principal or Prepayment Price
represented by much Certificates; provided however, that before being required to make any such
payment to the District, the Trustee shall, at the written request and expense of the District, first mail a
notice to the owners of the Certificates so payable that such moneys remain unclaimed and that after a
date named in such notice, which date shall not be less than thirty (30) days after the date of the mailing
of such notice, the balance of such moneys then unclaimed will be returned to the District.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Benefits of Trust Agreement Limited to Parties. Nothing contained herein,
expressed or implied, is intended to give to any person other than the District, the Trustee, the
Corporation and the Owners any claim, remedy or right under or pursuant hereto, and any agreement,
condition, covenant or term required herein to be observed or performed by or on behalf of the District
shall be for the sole and exclusive benefit of the Trustee, the Corporation and the Owners.
Section 11.2. Successor Deemed Included in all References to Predecessor. Whenever either
the District, the Corporation or the Trustee or any officer thereof is named or referred to herein, such
reference shall be deemed to include the successor to the powers, duties and functions that are
presently vested in the District, the Corporation or the Trustee or such officer, and all agreements,
conditions, covenants and terms required hereby to be observed or performed by or on behalf of the
District, the Corporation or the Trustee or any officer thereof shall bind and inure to the benefit of the
respective successors thereof whether so expressed or not.
Section 11.3. Execution of Documents bv Owners. Any declaration, request or other
instrument which is permitted or required herein to be executed by Owners may be in one or more
instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed
in writing. The fact and date of the execution by any Owner or such Owner’s attorney of any
declaration, request or other instrument or of any writing appointing such attorney may be proved by
the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be
recorded in the state or territory in which he purports to act that the person signing such declaration,
request or other instrument or writing acknowledged to him the execution thereof, or by an a&la& of
a witness of such execution duly sworn to before such notary public or other officer, or by such other
proof as the Trustee may accept which it may deem sticient.
The ownership of any Certificates and the amount, payment date, number and date of owning
the same may be proved by the books required to be kept by the Trustee pursuant to the provisions of
Section 2.8.
Any declaration, request or other instrument in writing of the Owner of any Certificate shall
bind all future Owners of such Certificate with respect to anything done or suffered to be done by the
District or the Trustee in good faith and in accordance therewith.
Section 11.4. Disaualified Certificates. Certificates owned or held by or for the account of
the Corporation or the District (but excluding Certificates held in any pension or retirement fund) shah
505281.3D2062.0024 37
not be deemed Outstanding for the purpose of any consent or other action or any calculation of
Outstanding Certificates provided for in this Agreement, and shall not be entitled to consent to or take
any other action provided for in this Agreement.
The Trustee may adopt appropriate regulations to require each Owner of Certificates, before
his consent provided for in this Agreement shall be deemed effective, to reveal if the Certificates as to
which such consent is given are disqualified as provided in this Section.
Section 11.5. Waiver of Personal Liabilitv. No director, officer or employee of the District or
the Corporation shah be individually or personally liable for the payment of the interest or principal or
the prepayment premiums, if any, represented by the Certificates, but nothing contained herein shah
relieve any director, officer or employee of the District or Corporation from the performance of any
official duty provided by any applicable provisions of law or by the Installment Purchase Agreement or
hereby.
Section 11.6. Acquisition of Certificates bv the District: Destruction of Certificates. All
Certificates acquired by the District, whether by purchase or gift or otherwise shall be surrendered to
the Trustee for cancellation. Whenever in this Agreement provision is made for the cancellation by the
Trustee of any Certificates, the Trustee shall destroy such Certificates and upon written request deliver
a certificate of such destruction to the District.
Section 11.7. Headings. Headings preceding the text of the several Articles and Sections
hereof, and the table of contents, are solely for convenience of reference and shall not constitute a part
of this Agreement or affect its meaning, construction or effect.
All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding
Articles, Sections or subdivisions of this Agreement; and the words “herein,” “hereof,” “hereunder” and
other words of similar import refer to this Agreement as a whole and not to any particular Article,
Section or subdivision hereof
Section 11.8. Funds and Accounts. Any fund required by this Agreement to be established
and maintained by the Trustee may be established and maintained in the accounting records of the
Trustee either as a fund or an account, and may, for the purposes of such records, any audits thereof
and any reports or statements with respect thereto, be treated either as a fund or as an account; but all
such records with respect to all such funds shall at all times be maintained in accordance with sound
industry practices and with due regard for the protection of the security of the Certificates and the
rights of every Owner thereof
Section 11.9. Partial Invaliditv. If any one or more of the agreements, conditions, covenants
or terms required herein to be observed or performed by or on the part of the District, the Corporation
or the Trustee shall be contrary to law, then such agreement or agreements, such condition or
conditions, such covenant or covenants or such term or terms shah be null and void and shah be
deemed separable from the remaining agreements, conditions, covenants and terms hereof and shah in
no way afYect the validity hereof or of the Certificates, and the Owners shah retain all the benefit,
protection and security afforded to them under any applicable provisions of law. The District, the
Corporation and the Trustee hereby declare that they would have executed this Agreement, and each
and every other article, section, paragraph, subdivision, sentence, clause and phrase hereof and would
have authorized the execution and delivery of the Certificates pursuant hereto irrespective of the fact
505281.3L22062.0024 38
that any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or phrases hereof
or the application thereof to any person or circumstances may be held to be unconstitutional,
unenforceable or invalid.
Section 11.10. California Law. THIS AGREEMENT SHALL BE CONSTRUED AND
GOVERNED IN ACCORDANCE WlTH THE LAWS OF THE STATE.
Section 11.11. Notices. All written notices to be given under this Agreement to the parties
hereto 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 parties in writing from time to time.
If to the District: 1200 Carlsbad Village Drive
Carlsbad , California 92008-1989
Attention: Executive Manager
If to the Corporation: 1200 Carlsbad Village Drive
Carlsbad , California 92008- 1989
Attention: President
If to the Trustee: 550 S. Hope Street, Suite 500
Los Angeles, California 90071
Attention: Corporate Trust
Section 11.12. Execution in Counteruarts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall constitute but one and
the same instrument.
505281.3D2062.0024 39
IN WITNESS WHEREOF, the parties have executed and attested this Agreement by their
officers hereunto duly authorized as of the date and year first written above.
FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, as Trustee
By:
Authorized Officer
CITY OF CARLSBAD PUBLIC IMPROVEMENT
CORPOIUTION
By:
President
By:
Secretary
CARLSBAD MUNICIPAL WATER DISTRICT
By:
President
By:
Secretary
505281.3\22062.0024 40
EXHIBIT A
[FORM OF CERTIFICATE OF PARTICIPATION]
INTEREST
RATE
CARLSBAD MUNICIPAL WATER DISTRICT
1997 WATER REVENUE CERTIFICATE OF PARTICIPATION
(1988 REFUNDING PROJECT)
Evidencing an Interest of the Owner Hereof
in Installment Payments to be Made by the
CARLSBAD MUNICIPAL WATER DISTRICT
CERTIFICATE ORIGINAL
PAYMENT ISSUE
DATE DATE CUSIP
September 1, 1997
REGISTERED OWNER:
PRINCIPAL AMOUNT: DOLLARS
THIS IS TO CERTIFY that the Registered Owner (specified above) of this Certificate of
Participation (herein called the “Certificate”) is the owner of an undivided interest in the right to receive
certain Installment Payments (as that term is defined in the Trust Agreement hereinafter mentioned)
under that certain Installment Purchase Agreement (the “Installment Purchase Agreement”), dated as of
September 1,1997, by and between City of Carlsbad Public Improvement Corporation (the
“Corporation”) and the Carlsbad Municipal Water District (the “District”). The Installrnent Payments to
be made thereunder have been assigned to First Trust of California, National Association, as trustee
(the “Trustee”), having a corporate trust office in Los Angeles, California. The Trustee has executed
and delivered %[Certificate Amount] aggregate principal amount of Certificates.
The Registered Owner of this Certificate is entitled to receive, subject to the terms of the
Installment Purchase Agreement and the Trust Agreement, dated as of September 1,1997, by and
among the Trustee, the Corporation and the District (the “Trust Agreement”) on the Certificate
Payment Date (specified above) the Principal Amount (specified above) representing a portion of the
Installment Payments designated as principal coming due on the Certificate Payment Date, and to
505281.3t22062.0024 A-l
receive an interest component on such principal component at the interest rate per annum specified
above, from the Interest Payment Date (as hereinafter defined) preceding the date of execution hereof
by the Trustee, unless such date of execution is after a Record Date (as hereinafter defined) and on or
before the succeeding Interest Payment Date, in which case interest shall be payable from such Interest
Payment Date, or unless such date of execution is on or before the first Record Date, in which case
interest shall be payable from September 1, 1997; provided, however, that if, as shown by the records
of the Trustee, interest represented by this Certificate is in default, Certificates executed in exchange
for this Certificate surrendered for transfer or exchange shah represent interest from the last date to
which interest has been paid in full or duly provided for with respect to this Certificate, or, if no interest
has been paid or duly provided for with respect to this Certificate, from September 1, 1997. Interest
with respect to this Certificate shall be paid on May 1 and November 1 in each year, commencing
May 1, 1998 (each, an “Interest Payment Date”), and continuing to and including the Certificate
Payment Date or the date of prior prepayment hereof, whichever is earlier. Interest with respect to this
Certificate shall be calculated on the basis of a 360-day year of twelve 30&y months. The principal
with respect hereto and prepayment premiums, if any, are payable in lawful money of the United States
of America upon presentation and surrender at the principal corporate trust office of the Trustee in Los
Angeles, California or such other office as the Trustee may from time to time designate in writing to
the District, the Corporation and the registered owners (the “Principal Corporate Trust Office”).
Interest with respect hereto is payable by check or draft of the Trustee mailed by first class mail on
each Interest Payment Date to the Registered Owner hereof as of the close of business on the fifteenth
day of the calendar month prior to such Interest Payment Date (the “Record Dates) at the address
shown on the books maintained by the Trustee or, upon the written request received by the Trustee of
an Owner of at least $l,OOO,OOO in aggregate principal amount of Certificates, by wire transfer of
immediately available funds to an account in the United States designated by such Owner prior to the
applicable Record Date, except, in each case that, if and to the extent that there is a default in the
payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the
owner in whose name this Certificate is registered at the close of business on a special record date as
determined by the Trustee.
This Certificate has been executed by the Trustee pursuant to the terms of the Trust
Agreement. Copies of the Trust Agreement and the Installment Purchase Agreement are on file at the
corporate trust office of the Trustee in Los Angeles, California, and reference is made to the Trust
Agreement and the Installment Purchase Agreement and any and all amendments thereto for a
description of the pledges and covenants securing the Certificates, the nature, extent and manner of
enforcement of such pledges, the rights and remedies of the registered owners of the Certificates with
respect thereto and the other terms and conditions upon which the Certificates are delivered thereunder.
The Certificates are payable from Installment Payments payable by the District and other
amounts on deposit in certain funds and accounts held under the Trust Agreement, including but not
limited to the Reserve Fund, all in accordance therewith. All Revenues of the Water System and all
amounts on deposit in the Revenue Fund (as such terms are defined in the Installment Purchase
Agreement) are irrevocably pledged to the payment of the Instalhnent Payments and the Revenues shall
not be used for any other purpose while any of the Installment Payments remain unpaid; provided that
out of Revenues there may be apportioned such sums for such purposes as are expressly permitted in’
the Installment Purchase Agreement. Such pledge constitutes a lien on Revenues, and, subject to
application of amounts on deposit therein as permitted in the Installment Purchase Agreement, the
Revenue Fund and the other funds and accounts created under the Installment Purchase Agreement for
the payment of the Installment Payments and all other Contracts and Bonds (as such terms are defined
505281.3V22062.0024 A-2
in the Installment Purchase Agreement) in accordance with the terms of the Installment Purchase
Agreement and of the Trust Agreement. The obligation of the District to make Installment Payments is
a special obligation of the District payable solely from Net Revenues (as defined in the Installment
Purchase Agreement) of-the Water System and other funds described in the Installment Purchase
Agreement and does not constitute a debt of the District or of the State of California or of any political
subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction.
The District may at any time execute any Contract, the installment payments under which, or
issue any Bonds (as such terms are defined in the Installment Purchase Agreement) the payments of
which, as the case may be, are on a parity with the Installment Payments and which are secured by a
pledge of and lien on the Revenues in accordance with the Installment Purchase Agreement.
The Certificates are authorized to be executed and delivered in the form of fully registered
Certificates in the denomination of $5,000 each or any integral multiple thereof; provided that no
Certificate shall have principal represented thereby maturing in more than one year. Subject to the
limitations and conditions and upon payment of the taxes and governmental charges provided in the
Trust Agreement, Certificates may be exchanged for a like aggregate principal amount of Certificates
of the same Certificate Payment Date of other authorized denominations at the Principal Corporate
Trust Office of the Trustee.
This Certificate is transferable by the Registered Owner hereof, in person or by such person’s
duly authorized attorney, but only in the manner, subject to the limitations and conditions and upon
payment of the taxes and governmental charges provided in the Trust Agreement, and upon surrender
of this Certificate for cancellation at the Principal Corporate Trust Office of the Trustee, accompanied
by delivery of a duly executed written instrument of transfer, in a form approved by the Trustee. Upon
such transfer a new Certificate or Certificates of the same Certificate Payment Date and of authorized
denomination or denominations, for a like aggregate principal amount will be delivered to the
transferee in exchange herefor.
The Trustee may treat the Registered Owner hereof as the absolute owner hereof for all
purposes, and the Trustee shah not be affected by any notice to the contrary.
The Trustee shah not be required to register the transfer or exchange of any Certificate (i)
within 15 days preceding selection of Certificates for prepayment or (ii) selected for prepayment.
The Certificates are subject to prepayment prior to their respective stated maturities, as a whole
or in part on any date in the order of maturity as directed by the District in a written request to the
Trustee and by lot within each maturity in integral multiples of $5,000, from prepaid Installment
Payments made by the District from Net Proceeds (as defined in the Installment Purchase Agreement),
under the circumstances and upon the terms prescribed in the Trust Agreement and the Installment
Purchase Agreement, at a prepayment price equal to the principal amount thereof plus accrued interest
evidenced and represented thereby to the date fixed for prepayment, without premium.
As provided in the Trust Agreement, notice of prepayment hereof shah be mailed, first class
postage prepaid, not less than 30 days nor more than 60 days prior to the prepayment date, to the
Registered Owner of this Certificate at the address thereof appearing on the Certificate registration
books. If this Certificate is called for prepayment and payment is duly provided therefor as specified in
the Trust Agreement, interest represented hereby shah cease to accrue from and after the date fixed for
505281.3\22062.0024 A-3
prepayment. Any defect in the notice or the mailing thereof will not affect the validity of the
prepayment of this Certificate.
To the extent and in the manner permitted by the terms of the Trust Agreement and the
Installment Purchase Agreement, as the case may be, the Trust Agreement and the rights and
obligations of the District and of the registered owners of the Certificates and of the Trustee or the
Installment Purchase Agreement and the rights and obligations of the Corporation and the District and
the registered owners of the Certificates and the Trustee, respectively, may be modified or amended
with the written consents of the registered owners of a majority in aggregate principal amount of the
Certificates then outstanding, but no such modification or amendment shah (1) extend the stated
maturities of the Certificates, or reduce the rate of interest represented thereby, or extend the time of
payment of interest, or reduce the amount of principal represented thereby, or reduce any premium
payable on the prepayment thereof, without the consent of the registered owner of each Certificate so
affected, or (2) reduce the percentage of registered owners of Certificates whose consent is required for
the execution of any amendment or modification of the Trust Agreement or the Installment Purchase
Agreement, or (3) modify any of the rights or obligations of the Trustee or the Corporation without its
written consent thereto.
To the extent and in the manner permitted by the terms of the Trust Agreement and the
Installment Purchase Agreement, as the case may be, the Trust Agreement and the rights and
obligations of the Corporation and the District and of the registered obligations of the Corporation and
the District and of the registered owners of the Certificates or the Installment Purchase Agreement and
the rights and obligations of the Corporation and the District also be modified or amended, without the
consent of the registered owners of any Certificates, but only to the extent permitted by law and only
for any one or more of the following purposes - -
(1) to add to the covenants and agreements of the Corporation or the District contained in the
Trust Agreement or the Installment Purchase Agreement other covenants and agreements
thereafter to be observed or to surrender any right or power in the Trust Agreement or the
Installment Purchase Agreement reserved to or conferred upon the Corporation or the
District, and which shall not adversely a&& the interests of the registered owners of the
Certificates;
(2) to cure, correct or supplement any ambiguous or defective provision contained in the Trust
Agreement or the Installment Purchase Agreement or in regard to questions arising under
the Trust Agreement or the Installment Purchase Agreement, as the Corporation or the
District may deem necessary or desirable and which shall not adversely affect the interests
of the registered owners of the Certitkates; and
(3) to make such other amendments or modifications as may be in the best interests of the
registered owners of the Certificates.
Upon acceleration, the Installment Payments and the Certificates shah become due and payable
immediately from the sources described in the Installment Purchase Agreement and the Trust
Agreement, respectively.
The Trustee has no obligation or liability to the registered owners of the Certificates for the
payment of interest, principal or prepayment premium, if any, with respect to the Certificates out of the
SO5281.3\22062.0024 A-4
Trustee’s own funds; the Trustee’s sole obligations are those described in the Trust Agreement. The
recitals of facts herein shall be taken as statements of the District and the Corporation and the Trustee
does not have any responsibility for the accuracy thereof
The District has certified that all acts, conditions and things required by the Constitution and
statutes of the State of California and the Trust Agreement to exist, to have happened and to have been
performed precedent to and in the delivery of this Certificate, do exist, have happened and have been
performed in due time, form and manner as required by law.
505281.3\22062.0024 A-5
IN WITNESS WHEREOF, this Certificate has been executed by the manual signature of an
authorized signatory of the Trustee, all as of the date set forth below.
Execution date: - FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION,
as Trustee
Authorized Signatory
505281.3Y22062.0024 A-6
[FORM OF ASSIGNMENT]
ASSIGNMENT
For value received the undersigned do(es) hereby sell, assign and transfer unto
the within mentioned Certificate and hereby irrevocably
constitute(s) and appoint(s) attorney, to transfer
the same on the Certificate register of the Trustee with full power of substitution in the premises.
Dated:
Note: The signature(s) to this Assignment
must correspond with the name(s) as written on
the face of the within Certificate in every
particular, without alteration or enlargement or
any change whatsoever.
Signature Guaranteed:
Note: Signature(s) must be guaranteed by an
eligible guarantor institution.
505281.3k22062.0024 A-7
INSTALLMENT PURCHASE AGREEMENT
by and between
CARLSBAD MUNICIPAL WATER DISTRICT
and
CITY OF CARLSBAD PUBLIC IMPROVEMENT CORPORATION
Dated as of September 1, 1997
relating to %[Certificate Amount]
CARLSBAD MUNICIPAL WATER DISTRICT
1997 WATER REVENUE CERTIFICATES OF PARTICIE’ATION
(1988 Refunding Project)
505278.3D2062.0024
I ! TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
REPRESENTATIONS AND W- S: OPINIONS OF COUNSEL
Section 2.1. Representations by the District ..................................................................................... .8
Section 2.2. Representations and Warranties by the Authority ......................................................... .9
Section 2.3. Opinion of Counsel for the District ............................................................................... .9
Section 2.4. Opinion of Counsel for the Authority.. ......................................................................... 10
ARTICLE lIl
ACQUISITION OF THE PROJECT
Section 3.1.
Section 3.2.
Section 3.3.
Sale and Purchase of Project., ...................................................................................... 10
Purchase and Sale of the Project.. ................................................................................ 10
Title .............................................................................................................................. 10
ARTICLE IV
INSTALLMEm PAYMENTS
Section 4.1.
Section 4.2.
Purchase Price ............................................................................................................. 10
Installment Payments ................................................................................................... 1 1
ARTICLE V
SECURITY
Section 5.1.
Section 5.2.
Section 5.3.
Section 5.4.
Pledge of Revenues ...................................................................................................... 11
Allocation of Revenues ................................................................................................ 11
Additional Contracts and Bonds .................................................................................. 12
Investments.. ................................................................................................................ 13
ARTICLE VI
COVENANTS OF THE DISTRICT
Section 6.1.
Section 6.2.
Section 6.3,
Section 6.4.
Section 6.5.
Section 6.6.
Section 6.7.
Compliance with Installment Purchase Agreement and Ancillary
Agreements .................................................................................................................. 13
Against Encumbrances ............................................................................................... .14
Against Sale or other Disposition of Property ............................................................. 14
Against Competitive Facilities ..................................................................................... 14
Tax Covenants ............................................................................................................ .14
Reserved.. .................................................................................................................... 15
Maintenance and Operation of the Water System. ....................................................... 15
505278.3~2062.0024 i
Section 6.8.
Section 6.9.
Section 6.10.
Section 6.11.
Section 6.12.
Section 6.13.
Section 6.14.
Section 6.15.
Section 6.16.
Section 6.17.
Section 6.18.
Section 6.19.
Payment of Claims ....................................................................................................... 15
Compliance with Contracts .......................................................................................... 15
Insurance ...................................................................................................................... 16
Accounting Records; Financial Statements and Other Reports .................................... 17
Protection of Security and Rights of the Authority ....................................................... 17
Payment of Taxes and Compliance with Governmental Regulations ........................... 17
Amount of Rates and Charges ..................................................................................... 17
Collection of Rates and Charges .................................................................................. 18
Eminent Domain Proceeds ........................................................................................... 18
Further Assurances.. .................................................................................................... 18
Enforcement of Contracts ............................................................................................ 18
Continuing Disclosure.. ................................................................................................ 18
ARTICLE VII
PREPAYMENT OF INSTALLMENT PAYMENTS
Section 7.1. Prepayment .................................................................................................................. 19
Section 7.2. Method of Prepayment ................................................................................................ .19
Section 8.1.
Section 8.2.
Section 8.3.
Section 8.4.
Section 8.5.
Section 8.6.
Events of Default and Acceleration of Maturities ........................................................ 19
Application of Funds Upon Acceleration.. ................................................................... 20
Non-Waiver ................................................................................................................ .2 1
Remedies Not Exclusive ............................................................................................. .2 1
Covenants to Bond Insurer .......................................................................................... .22
Notices.. ...................................................................................................................... .22
ARTICLE Ix
DISCHARGE OF OBLIGATIONS
Section 9.1. Discharge of Obligations ............................................................................................ .22
ARTICLE X
MISCELLANEOUS
Section 10.1.
Section 10.2.
Section 10.3.
Section 10.4.
Section 10.5.
Section 10.6.
Section 10.7.
Section 10.8.
Section 10.9.
Liability of District Limited to Revenues .................................................................... .23
Benefits of Installment Purchase Agreement Limited to Parties ................................. .23
Successor Is Deemed Included in all References to Predecessor ................................. 23
Waiver of Personal Liability.. ...................................................................................... .24
Article and Section Headings, Gender and References.. .............................................. 24
Partial Invalidity ........................................................................................................... 24
Assignment.. ................................................................................................................ 24
Net Contract ................................................................................................................ .24
California Law ............................................................................................................. 24
TABLE OF CONTENTS
(continued)
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF THE AUTHORITY
505278.3l22062.0024 ii
TABLE OF CONTENTS
(continued)
Section 10.10. Notices.. ...................................................................................................................... .24
Section 10.11. Effective Date.. ........................................................................................................... .25
Section 10.12. Execution in Counterparts ........................................................................................... .25
Section 10.13. Indemnification of Corporation. .................................................................................. .25
Section 10.14. Amendments Permitted .............................................................................................. .25
EXHIBIT A PURCHASE PRICE .................................................................................................. A- 1
EXHIBIT B DESCRIPTION OF THE PROJECT ........................................................................ B- 1
505278.3\22062.0024 . . . 111
INSTALLMENT PURCHASE AGREEMENT
This INSTALLMENT PURCHASE AGREEMENT, made and entered into as of
September 1,1997 by and between CARLSBAD MUNICIPAL WATER DISTRICT, a municipal
water district duly organized and existing under and by virtue of the laws of the State of California and
formerly known as the Costa Real Municipal Water District (the “District”), and CITY OF
CARLSBAD PUBLIC IMPROVEMENT CORPORATION, a nonprofit public benefit corporation
duly organized and existing under and by virtue of the laws of the State of California (the
“Corporation”).
WITNESSETa:
WHEREAS, the District proposes to refinance certain water reservoir and other facilities
within its water system described in Exhibit B and C to the Installment Sale Agreement, dated as of
November 1, 1988, each by and between the Independent Public Facilities Corporation and the District
(the “Project”);
WHEREAS, the Corporation has agreed to assist the District in refinancing the Project;
WHEREAS, the District is authorized by Division 20 of the Water Code of the State of
California, including but not limited to Section 71690 and Article 11 of Chapter 3 of Part 1 of Division
2 of Title 5 of the Government Code of the State of California (together, the “Law”) to refinance the
acquisition of property for its water system;
WHEREAS, the District and the Corporation have duly authorized the execution of this
Agreement;
WHEREAS, all acts, conditions and things required by law to exist, to have happened and to
have been performed precedent to and in connection with the execution and delivery of this Installment
Purchase Agreement do exist, have happened and have been performed in regular and due time, form
and manner as required by law, and the parties hereto are now duly authorized to execute and enter
into this Installment Purchase Agreement;
NOW, THEREFORE, IN CONSIDERATION OF THESE PREMISES AND OF THE
MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER
VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS
FOLLOWS:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Unless the context otherwise requires, the terms defined in this
section shall for all purposes hereof and of any amendment hereof or supplement hereto and of any
report or other document mentioned herein or therein have the meanings defined herein, the following
definitions to be equally applicable to both the singular and plural forms of any of the terms defined
505278.3\22062.0024
herein. Unless the context otherwise requires, all capitalized terms used herein and not defined herein
shall have the meanings ascribed thereto in the Trust Agreement.
Accountant’s Report -
The term “Accountant’s Report” means a report signed by an Independent Certified Public
Accountant.
Agreement
The term “Agreement” means this Agreement, by and between the District and the
Corporation, dated as of September 1, 1997, as originally executed and as it may from time to time be
amended or supplemented in accordance herewith.
Bonds
The term “Bonds” means all revenue bonds or notes of the District authorized, executed, issued
and delivered by the District, the payments of which are on a parity with the Installment Payments and
which are secured by a pledge of and lien on the Revenues.
Business Dav
The term “Business Day” means a day other than: a Saturday or Sunday or a day on which (i)
banks located in the city in which the principal corporate trust office of the Trustee is located are not
required or authorized to remain closed, and (ii) on which The New York Stock Exchange is not
closed.
Certificates
The term “Certificates” means the $[Certificate Amount] aggregate principal amount of
Carlsbad Municipal Water District 1997 Water Revenue Certificates of Participation (1988 Refunding
Project), executed and delivered on behalfof the District and at any time Outstanding pursuant to the
Trust Agreement.
Continuing Disclosure Certificate
The term “Continuing Disclosure Certificate” shall mean that certain Continuing Disclosure
Certificate executed by the District and dated the date of execution and delivery of the Certificates, as
originally executed and as it may be amended from time to time in accordance with the terms thereof
Contracts
The term “Contracts” means this Instalhnent Purchase Agreement and any amendments and
supplements hereto, and all contracts of the District previously or hereafter authorized and executed by
the District, the Parity Installment Payments under which are on a parity with the Installment Payments
and which are secured by a pledge and lien on the Revenues, excluding contracts entered into for
operation and maintenance of the Water System.
505278.3V22062.0024 2
Corporation
The term “Corporation” means the City of Carlsbad Public Improvement Corporation, a
nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the
State of California.
Date of Operation
The term “Date of Operation” means, with respect to any uncompleted component Parity
Project, the estimated date by which such uncompleted component Parity Project will have been
completed and, in the opinion of an engineer, will be ready for operation by or on behalf of the District.
Debt Service
The term “Debt Service” means, for any Fiscal Year, the sum of
(1) the interest accruing during such Fiscal Year on all outstanding Bonds,
assuming that all outstanding serial Bonds are retired as scheduled kd that all
outstanding term Bonds are prepaid or paid from sinking fund payments as scheduled
(except to the extent that such interest is capitalized);
(2) those portions of the principal amount of all outstanding serial Bonds
maturing in such Fiscal Year and in the next succeeding Fiscal Year accruing during
such Fiscal Year, in each case computed as if such principal amounts were deemed to
accrue daily during such Fiscal Year in equal amounts;
(3) those portions of the principal amount of all outstanding term Bonds
required to be prepaid or paid in such Fiscal Year and during the next succeeding
Fiscal Year accruing during such Fiscal Year, in each case computed as if such
principal amounts were deemed to accrue daily during such Fiscal Year in equal
amounts; and
(4) those portions of the Parity Installment Payments required to be made
during such Fiscal Year and during the next succeeding Fiscal Year accruing during
such Fiscal Year, in each case computed as if such Parity Installment Payments were
deemed to accrue daily during such Fiscal Year in equal amounts (except to the extent
the interest evidenced and represented thereby is capitalized);
but minus the earnings to be derived from the investment of moneys on deposit in the Reserve Fund,
and any other debt service reserve funds established for Bonds or Contracts;
505278.3\22062.0024 3
provided that, as to any such Bonds or Parity Installment Payments bearing or comprising interest at
other than a fixed rate, the rate of interest used to calculate Debt Service shall, for all purposes, be
assumed to bear interest at a fixed rate equal to the higher of
(9 8.0%, and
(ii) the highest variable rate borne over the preceding 24 months by outstanding
variable rate debt issued by the District or, if no such variable rate debt is at the
time outstanding, by variable rate debt of which the interest rate is computed
by reference to an index comparable to that to be utilized in determining the
interest rate for the debt then proposed to be issued;
and provided further that if any series or issue of such Bonds or Parity Installment Payments have
twenty-five percent (25%) or more of the aggregate principal amount of such series or issue due in any
one year, Debt Service shall be determined for the Fiscal Year of determination as if the principal of
and interest on such series or issue of such Bonds or Parity Installment Payments were being paid from
the date of incurrence thereof in substantially equal annual amounts over a period of twenty-five (25)
years from the date of calculation;
and provided further that, as to any such Bonds or Parity Jnstallment Payments or portions thereof
bearing no interest but which are sold at a discount and which discount accretes with respect to such
Bonds or Parity Jnstallment Payments or portions thereof, such accreted discount shah be treated as
interest in the calculation of Debt Service;
and provided further that the amount on deposit in a debt service reserve fund on any date of
calculation of Debt Service shall be deducted from the amount of principal due at the final maturity of
the Bonds and Contracts for which such debt service reserve fund was established and in each
preceding year until such amount is exhausted.
District
The term “District” means Carlsbad Municipal Water District, a municipal water district duly
organized and existing under and by virtue of the laws of the State of California, formerly known as the
Costa Real Municipal Water District.
Event of Default
The term “Event of Default” means an event described in Section 8.1.
Fiscal Year
The term “Fiscal Year” means the period beginning on July 1 of each year and ending on the
last day of June of the next succeeding year, or any other twelve-month period selected and designated
as the official Fiscal Year of the District.
505278.3U2062.0024
Independent Certified Public Accountant
The term “Independent Certified Public Accountant” means any firm of certified public
accountants appointed by the District, each of whom is independent of the District and the Corporation
pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public
Accountants.
Independent Financial Consultant
The term “Independent Financial Consultant” means a financial consultant or firm of such
consultants appointed by the District, and who, or each of whom: (1) is in fact independent and not
under domination of the District; (2) does not have any substantial interest, direct or indirect, with the
District; and (3) is not connected with the District as an officer or employee thereof but who may be
regularly retained to make reports thereto.
Installment Pavment Date: Paritv Installment Pavment Date
The term “Installment Payment Date” means the fifth day prior to each Interest Payment Date,
or if said date is not a Business Day, then the preceding Business Day. The term “Parity Installment
Payment Date” means each date on which Parity Installment Payments are scheduled to be paid by the
District under and pursuant to any Contract.
Installment Pavments: Paritv Installment Payments
The term “Instailment Payments” means the Installment Payments of interest and principal
scheduled to be paid by the District under and pursuant hereto. The term “Parity Installment
Payments” means the payments of interest and principal scheduled to be paid by the District under and
pursuant to the Contracts.
Tnterest Pavment Date
The term “Interest Payment Date” means May 1 and November 1 of each year, commencing
May 1, 1998 and ending on May 1,2004.
The term “Law” means the Municipal Water District Law of the State of California (being
Division 20 of the Water Code of the State of California, as amended) and Article 11 of Chapter 3 of
Part 1 of Division 2 of Title 5 of the Government Code of the State of California and in each case all
laws amendatory thereof or supplemental thereto.
Manager
The Term “Manager” means the Executive Manager of the District, or any other person
designated by the Executive Manager to act on behalf of the Executive Manager.
505278.3\22062.0024 5
Net Proceeds
The term “Net Proceeds” means, when used with respect to any casualty insurance or
condemnation award, the proceeds from such insurance or condemnation award remaining after
payment of all expenses (including attorneys fees) incurred in the collection of such proceeds.
Net Revenues
The term “Net Revenues” means, for any Fiscal Year, the Revenues for such Fiscal Year less
the Operation and Maintenance Costs for such Fiscal Year,
Operation and Maintenance Costs
The term “Operation and Maintenance Costs” means costs spent or incurred for maintenance
and operation of the Water System calculated in accordance with generally accepted accounting
principles, including (among other things) the reasonable expenses of management and repair and other
expenses necessary to maintain and preserve the Water System in good repair and working order, and
including administrative costs of the District that are charged directly or apportioned to the Water
System, including but not limited to salaries and wages of employees, payments to the Public
Employees Retirement System, overhead, insurance, taxes (if any), fees of auditors, accountants,
attorneys, consultants or engineers and insurance premiums, and including all other reasonable and
necessary costs of the District or charges (other than Debt Service payments) required to be paid by it
to comply with the terms of this Agreement or any other Contract or of any resolution or indenture
author&g the issuance of any Bonds or of such Bonds, but excluding in all cases depreciation,
replacement and obsolescence charges or reserves therefor and amortization of intangibles or other
bookkeeping entries of a similar nature.
Particioating Underwriter
The term “Participating Underwriter” shall have the meaning ascribed thereto in the Continuing
Disclosure Certificate.
Proiect: Parity Prqiect
The term “Project” means the additions, betterments, extensions and improvements to the
Water System described in Exhibit B hereto. The term “Parity Project” means any additions,
betterments, extensions or improvements to the District’s Water System designated by the Board of
Directors of the District as a Parity Project, the acquisition and construction of which is to be paid for
with the proceeds of any Contracts or Bonds.
505278.3Y22062.0024 6
Purchase Price
The term “Purchase Price” means the principal amount plus interest thereon owed by the
District to the Corporation under the terms hereof as provided in Section 4.1.
Reserve Reauirement
The term “Reserve Requirement” means, initially $ and thereafter as of the date of
calculation shall be equal to the lesser of(i) such amount, (ii) an amount equal to 125% of the average
annual Instailment Payments due with respect to Outstanding Certificates, and (iii) maximum annual
Installment Payments in the current or any future Fiscal Year.
Revenue Fund
The term “Revenue Fund’ means the fund by that name established pursuant to Section 5.2
hereunder.
Revenues
The term “Revenues” means all income, rents, rates, fees, charges and other moneys derived
from the ownership or operation of the Water System, including, without limiting the generality of the
foregoing,
(1) all income, rents, rates, fees, charges, business interruption insurance
proceeds or other moneys derived by the District from the sale, furnishing and
supplying of the water or other services, facilities, and commodities sold, furnished or
supplied through the facilities of or in the conduct or operation of the business of the
Water System plus
(2) the proceeds of any stand-by, readiness to serve, or water availability
charges and (to the extent permitted by law, to be so pledged, proceeds of ad valorem
taxes levied by the county, apportioned to and received by the District pursuant to the
provisions of California Constitution Article XDIA and implementing legislation
thereof, and not otherwise pledged or payable to repayment of voter approved
indebtedness of the District), plus
(3) the earnings on and income derived from the investment of the amounts
described in clauses (1) and (2) hereof and the general unrestricted funds of the
District,
but excluding in all cases customer deposits or any other deposits or advances subject to refund until
such deposits or advances have become the property of the District, and excluding any proceeds of
taxes restricted by law to be used by the District to pay bonds hereafter or hereinbefore issued.
505278.3\22062.0024 7
Trust Agreement
The term “Trust Agreement” means the Trust Agreement, dated as of September 1, 1997, by
and between the District, the Corporation and the Trustee, relating to the Certificates, as originally
executed and as it may from time to time be amended or supplemented in accordance with its terms.
Trustee
The term “Trustee” means First Trust of California, N.A. acting in its capacity as Trustee under
and pursuant to the Trust Agreement, and its successors and assigns.
Water Service
The term “Water Service” means the water distribution service made available or provided by
the Water System.
Water Svstem
The term “Water System” means the whole and each and every part of the water system
(including reclaimed water) of the District, including the portion thereof existing on the date hereof,
and including the Project and all additions, betterments, extensions and improvements to such water
system or any part thereof hereafter acquired or constructed.
Written Consent of the Corooration or District Written Order of the Corooration or District. Written
Reauest of the Corooration or District. Written Reauisition of the Corporation or District
The terms “Written Consent of the Corporation or District,” “Written Order of the Corporation
or District,” “Written Request of the Corporation or District,” and “Written Requisition of the
Corporation or District” mean, respectively, a written consent, order, request or requisition signed by or
on behalf of(i) the Corporation by its Authorized Representative or (ii) the District by the President of
its Board of Directors or its Executive Manager or by the Secretary of its Board of Directors or by any
two persons (whether or not officers of the Board of Directors of the District) who are specifically
authorized by resolution of the District to sign or execute such a document on its behalf.
ARTICLE II
REPRESENTATIONS AND W- S: OPINIONS OF COUNSEL
Section 2.1.
representations:
Representations by the District. The District makes the following
(4 The District is a municipal water district duly organized and existing under and
pursuant to the laws of the State of California
04 The District has full legal right, power and authority to enter into this
Agreement and carry out its obligations hereunder, to carry out and consummate all other transactions
505278.3D2062.0024
contemplated by this Agreement, and the District has complied with the provisions of the Law in all
matters relating to such transactions.
(4 By proper action, the District has duly authorized the execution, delivery and
due performance of this Agreement.
(4 The District will not take or, to the extent within its power, permit any action to
be taken which results in the interest paid for the installment purchase of the Project under the terms of
this Agreement being included in the gross income of the Certificate Owners or its assigns for purposes
of federal or State of California income taxation.
(4 The District has determined that it is necessary and proper for District uses and
purposes within the terms of the Law that the District refinance the acquisition of the Project in the
manner provided for in this Agreement.
Section 2.2. Reoresentations and Warranties bv the Corporation. The Corporation makes
the following representations and warranties:
(a) The Corporation is a nonprofit public benefit corporation duly organized and in
good standing under the laws of the State of California, has full legal right, power and authority to enter
into this Agreement and to carry out and consummate all transactions contemplated by this Agreement
and by proper action has duly authorized the execution and delivery and due performance of this
Agreement.
Co) The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated will not violate any provision of law, any order of any court or other
agency of government, or any indenture, material agreement or other instrument to which the
Corporation is now a party or by which it or any of its properties or assets is bound, or be in conflict
with, result in a breach of or constitute a default (with due notice or the passage of time or both) under
any such indenture, agreement or other instrument, or result in the creation or imposition of any
prohibited lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets
of the Corporation.
(4 The Corporation will not take or permit any action to be taken which results in
interest paid for the instalhnent purchase of the Project under the terms of this Agreement being
included in the gross income of the Certificate Owners or its assigns for purposes of federal or State of
California income taxation.
Section 2.3. Oninion of Counsel for the District. Concurrently with the execution and
delivery of this Agreement, the District shall provide the Corporation with an opinion of counsel for the
District, satisfactory in form and substance to the Corporation, to the same effect as the representations
of the District set forth in subsections (a), (b) and (c) of Section 2.1 hereof and to the effect that this
Agreement has been duly authorized, executed and delivered by the District and that assuming this
Agreement constitutes a legal, valid and binding obligation of the Corporation, it is a legal, valid and
binding obligation of the District enforceable in accordance with its terms except as such enforceability
may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors remedies
generally or the application of equitable principles when equitable remedies are sought, or except as
rights of indemnity may be limited by principles of public policy.
505278.3D2062.0024 9
Section 2.4. Opinion of Counsel for the Corporation. Concurrently with the execution and
delivery of this Agreement, the Corporation shall provide the District an opinion of counsel for the
Corporation, satisfactory in form and substance to the District, to the same effect as the representations
of the Corporation set farth in subsections (a) and (b) of Section 2.2 hereof and to the effect that this
Agreement has been duly authotized, executed and delivered by the Corporation and that assuming this
Agreement constitutes a legal, valid and binding obligation of the District, it is a legal, valid and
binding obligation of the Corporation enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors remedies generally or the application of equitable principles when equitable remedies are
sought, or except as rights of indemnity may be limited by principles of public policy.
ARTICLE III
ACQULSTITON OF THE PROJECT
Section 3.1. Sale and Purchase of Proiect. In consideration for the Corporation’s assistance
in refinancing the Project, the District agrees to sell, and hereby sells, to the Corporation, and the
Corporation agrees to purchase and hereby purchases, from the District, the Project at the purchase
price specified in Section 4.1 hereof and otherwise in the manner and in accordance with the provisions
of this Agreement.
Section 3.2. Purchase and Sale of the Proiect. In consideration for the Installment Payments
as set forth in Section 4.2, the Corporation agrees to sell, and hereby sells, to the District, and the
District agrees to purchase, and hereby purchases, from the Corporation, the Project at the purchase
price specified in Section 4.1 hereof and otherwise in the manner and in accordance with the provisions
of this Agreement,
Section 3.3. T&. All right, title and interest in each component of the Project shall vest in
the District immediately upon execution and delivery of this Agreement.
ARTICLE IV
INSTALLMENT PAYMENTS
Section 4.1. Purchase Price.
(4 The Purchase Price to be paid by the District hereunder to the Corporation is
the sum of the principal amount of the District’s obligations hereunder plus the interest to accrue on the
unpaid balance of such principal amount from the effective date hereof over the term hereof, subject to
prepayment as provided in Article VII.
o-9 The principal amount of the payments to be made by the District hereunder is
set forth in Exhibit A hereto.
(4 The interest to accrue on the unpaid balance of such principal amount is as
specified in Section 4.2 and Exhibit A hereto, and shah be paid by the District as and constitute interest
paid on the principal amount of the District’s obligations hereunder.
505278.3l22062.0024 10
Section 4.2. Installment Pavments. The District shall, subject to any rights of prepayment
provided in Article VII, pay the Corporation the Purchase Price in installment payments of interest and
principal in the amounts and on the Installment Payment Dates as set forth in Exhibit B hereto.
Each Installment Payment shall be paid to the Corporation in lawful money of the United States
of America. In the event the District fails to make any of the payments required to be made by it under
this section, such payment shall continue as an obligation of the District until such amount shall have
been fully paid; and the District agrees to pay the same with interest accruing thereon at the rate or
rates of interest then applicable to the remaining unpaid principal balance of the Installment Payments if
paid in accordance with their terms.
The obligation of the District to make the Installment Payments is absolute and unconditional,
and until such time as the Purchase Price shall have been paid in full (or provision for the payment
thereof shall have been made pursuant to Article IX), the District will not discontinue or suspend any
Installment Payments required to be made by it under this section when due, whether or not the Water
System or any part thereof is operating or operable, or its use is suspended, interfered with, reduced or
curtailed or terminated in whole or in part, and whether or not the Project has been completed, and
such payments shall not be subject to reduction whether by offset or otherwise and shall not be
conditional upon the performance or nonperformance by any party of any agreement for any cause
whatsoever.
ARTICLE V
SEC-
Section 5.1. Pledge of Revenues. All Revenues and all amounts on deposit in the Revenue
Fund are hereby irrevocably pledged to the payment of the Instalhnent Payments as provided herein;
and the Revenues shall not be used for any other purpose while any of the Installment Payments remain
unpaid; provided that out of the Revenues there may be apportioned such sums for such purposes as
are expressly permitted herein. This pledge, together with the pledge created by all other Contracts
and Bonds, shall constitute a first and exclusive lien on Revenues and, subject to application of
amounts on deposit therein as permitted herein, the Revenue Fund and other funds and accounts
created hereunder for the payment of the Installment Payments and all other Contracts and Bonds in
accordance with the terms hereof and the Trust Agreement.
Section 5.2. Allocation of Revenues. In order to carry out and effectuate the pledge and lien
contained herein, the District agrees and covenants that all Revenues shall be received by the District in
trust hereunder and shall be deposited when and as received in a special fund designated as the
“Revenue Fund,” which fund is hereby established and which fund the District agrees and covenants to
maintain and to hold separate and apart from other funds so long as any Contracts or Bonds remain
unpaid. Moneys in the Revenue Fund shall be used and applied by the District as provided in this
Agreement.
The District shah, from the moneys in the Revenue Fund, pay all Operation and Maintenance
Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and
Maintenance Costs, the payment of which is not then immediately required) as such Operation and
Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund shall be set
505278.3Y22062.0024 11
aside by the District at the following times for the transfer to the following respective special funds in
the following order of priority; and all moneys in each of such funds shall be held in trust and shall be
applied, used and withdrawn only for the purposes set forth in this Section.
(4 Installment Pavments. Not later than each Installment Payment Date, the
District shall, from the moneys in the Revenue Fund, transfer to the Trustee the Tnstallment Payment
due and payable on that Installment Payment Date. The District shah also, from the moneys in the
Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without
preference or priority, and in the event of any insufliciency of such moneys ratably without any
discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or
Contract.
09 Reserve Fund. On or before each Installment Payment Date the District shall,
from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the
event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to
the Trustee for deposit in the Reserve Fund and to the applicable trustee for such other reserve funds
and/or accounts, if any, as may have been established in connection with Bonds or Contracts other than
this Agreement, that sum, if any, necessary to restore the Reserve Fund to an amount equal to the
Reserve Requirement; provided, however, that the District may provide for the Reserve Fund by
means other than cash and Permitted Investments pursuant to Section 5.4 of the Trust Agreement.
(c) Surplus. Moneys on deposit in the Revenue Fund on each Installment Payment
Date not necessary to make any of the payments required above may be expended by the District at any
time for any purpose permitted by law.
Section 5.3. Additional Contracts and Bonds. The District may at any time execute any
Contract or issue any Bonds, as the case may be, in accordance herewith; provided:
(a) The Net Revenues for the most recent 12 calendar month period preceding the
date of adoption by the Board of Directors of the District of the resolution author-king the issuance of
such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a
calculation prepared by the District and a special report prepared by an Independent Certified Public
Accountant or an Independent Financial Consultant on such calculation on file with the District, shall
have produced a sum equal to at least one hundred fifteen percent (115%) of the Debt Service for such
Fiscal Year; and
@I The Net Revenues for the most recent 12 calendar month period preceding the
date of the execution of such Contract or the date of adoption by the Board of Directors of the District
of the resolution author-king the issuance of such Bonds, as the case may be, including adjustments to
give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the
Water Service approved and in effect as of the date of calculation, as evidenced by both a calculation
prepared by the District and a special report prepared by an Independent Certified Public Accountant
or an Independent Financial Consultant on such calculation on file with the District, shall have
produced a sum equal to at least one hundred fifteen percent (115%) of the Debt Service for such
Fiscal Year plus the Debt Service which would have accrued on any Contracts executed or Bonds
issued since the end of such Fiscal Year assuming such Contracts had been executed or Bonds had
505278.3l22062.0024 12
been issued at the beginning of such Fiscal Year, plus the Debt Service which would have accrued had
such Contract been executed or Bonds been issued at the beginning of such Fiscal Year; and
(4 The estimated Net Revenues for the then current Fiscal Year and for each
Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation
of any uncompleted Parity Project to be financed from proceeds of such Contracts or Bonds, as
evidenced by a certificate of the Executive Manager of the District on file with the District, including
(after giving effect to the completion of all such uncompleted Parity Projects) an allowance for
estimated Net Revenues for each of such Fiscal Years arising from any increase in the income, rents,
fees, rates and charges estimated to be fixed, prescribed or received for the Water Service and which
are economically feasible and reasonably considered necessary based on projected operations for such
period, as evidenced by a certificate of the Executive Manager on file with the District, shall produce a
sum equal to at least one hundred fifteen percent (115%) of the estimated Debt Service for each of
such Fiscal Years, after giving effect to the execution of ah Contracts and the issuance of all Bonds
estimated to be required to be executed or issued to pay the costs of completing all uncompleted Parity
Projects within such Fiscal Years, assuming that all such Contracts and Bonds have maturities, interest
rates and proportionate principal repayment provisions similar to the Contract last executed or then
being executed or the Bonds last issued or then being issued for the purpose of acquiring and
constructing any of such uncompleted Parity Projects; and
(4 The Parity Project to be financed from the proceeds of such Contract or such
Bonds is technically feasible and the estimated cost of the acquisition and construction thereof is
reasonable, as evidenced by a certificate (prepared at the time of the execution of such Contract or
Bonds, as the case may be) of the Executive Manager of the District, which certificate shall be filed
with the District.
Nothing herein shall preclude the District from issuing any bonds or installment purchase
contracts the payments under which are subordinate to any Bonds or Contracts of the District.
Section 5.4. Investments All moneys held by the District in the Revenue Fund shall be
invested in Permitted Investments and the investment earnings thereon shall remain on deposit in such
fund, except as otherwise provided herein.
ARTICLE VI
COVENANTS OF THE DISTRICT
Section 6.1. Comoliance with Installment Purchase Agreement and Ancillarv Agreements.
The District wilI punctuaIly pay the Installment Payments in strict conformity with the terms hereof,
and will faithfully observe and perform all the agreements, conditions, covenants and terms contained
herein required to be observed and performed by it, and will not terminate this Agreement for any
cause including, without limiting the generality of the foregoing, any acts or circumstances that may
constitute failure of consideration, destruction of or damage to the Project, commercial titration of
purpose, any change in the tax or other laws of the United States of America or of the State of
California or any political subdivision of either or any failure of the Corporation to observe or perform
any agreement, condition, covenant or term contained herein required to be observed and performed by
505278.3Y22062.0024 13
it, whether express or implied, or any duty, liability or obligation arising out of or connected herewith
or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the Corporation or any force
majeure, including acts of Cod, tempest, storm, earthquake, war, rebellion, riot, civil disorder, acts of
public enemies, blockade or embargo, strikes, industrial disputes, lock outs, lack of transportation
facilities, fire, explosion, or acts or regulations of governmental authorities.
It is expressly understood and agreed by and among the parties to this Agreement that, subject
to Section 10.6 hereof, each of the agreements, conditions, covenants and terms contained in this
Agreement is an essential and material term of the purchase of and payment for the Project by the
District pursuant to, and in accordance with, and as authorized under the Law.
The District will faithfully observe and perform all the agreements, conditions, covenants and
terms required to be observed and performed by it pursuant to all outstanding Contracts and Bonds as
such may from time to time be executed or issued, as the case may be.
Section 6.2. Against Encumbrances. The District will not make any pledge of or place any
lien on Revenues or the moneys in the Revenue Fund except as provided herein. The District may at
any time, or from time to time, issue evidences of indebtedness or incur other obligations for any law-M
purpose which are payable from and secured by a pledge of and lien on Revenues or any moneys in the
Revenue Fund as may from time to time be deposited therein (as provided in Section 5.2), provided
that such pledge and lien shall be subordinate in all respects to the pledge of and lien thereon provided
herein.
Section 6.3. Against Sale or Other Disposition of Pronerty. The District will not enter into
any agreement or lease which impairs the operation of the Water System or any part thereof necessary
to secure adequate Revenues for the payment of the Instahment Payments, or which would otherwise
impair the rights of the Corporation hereunder or the operation of the Water System. Any real or
personal property which has become nonoperative or which is not needed for the efficient and proper
operation of the Water System, or any material or equipment which has become worn out, may be sold
if such sale will not impair the ability of the District to pay the Installment Payments and if the proceeds
of such sale are deposited in the Revenue Fund.
Nothing herein shah restrict the ability of the District to sell any portion of the Water System if
such portion is immediately repurchased by the District and if such arrangement cannot by its terms
result in the purchaser of such portion of the Water System exercising any remedy which would
deprive the District of or otherwise interfere with its right to own and operate such portion of the Water
System.
Section 6.4. Against Competitive Facilities . To the extent that it can so legally obligate
itself, the District covenants that it will not acquire, construct, maintain or operate and will not, to the
extent permitted by law and within the scope of its powers, permit any other public or private agency,
corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain
or operate within the District any water system competitive with the Water System.
Section 6.5. Tax Covenants. Notwithstanding any other provision of this Agreement,
absent an opinion of Special Counsel that the exclusion from gross income of interest with respect to
505278.3U2062.0024 14
the Certificates will not be adversely affected for federal income tax purposes, the District and the
Corporation covenant to comply with all applicable requirements of the Code necessary to preserve
such exclusion from gross income and specifically covenants, without limiting the generality of the
foregoing, as follows: -
(4 Private Activitv. The District and the Corporation will not take or omit to take
any action or make any use of the proceeds of the Certificates or of any other moneys or
property which would cause the Certificates to be “private activity bonds” within the meaning
of Section 141 of the Code.
w Arbitrage. The District and the Corporation will make no use of the proceeds
of the Certificates or of any other amounts or property, regardless of the source, or take or omit
to take any action which would cause the Certificates to be “arbitrage bonds” within the
meaning of Section 148 of the Code.
(4 Federal Guarantee. The District and the Corporation will make no use of the
proceeds of the Certificates or take or omit to take any action that would cause the Certificates
to be “federally guaranteed” within the meaning of Section 149(b) of the Code.
(4 Information Reeorting. The District and the Corporation will take or cause to
be taken all necessary action to comply with the informational reporting requirements of
Section 149(e) of the Code.
(e) Miscellaneous. The District and the Corporation will take no action
inconsistent with the expectations stated in any Tax Certificate executed with respect to the
Certificates and will comply with the covenants and requirements stated therein and
incorporated by reference herein.
This Section and the covenants set forth herein shall not be applicable to, and nothing contained
herein shah be deemed to prevent the District and the Corporation from issuing Certificates, the interest
with respect to which has been determined by Special Counsel to be subject to federal income taxation.
Section 6.6. Reserved.
Section 6.7. Maintenance and Operation of the Water Svstem. The District will maintain
and preserve the Water System in good repair and working order at all times and will operate the
Water System in an efficient and economical manner and will pay all Operation and Maintenance Costs
as they become due and payable.
Section 6.8. Pavment of Claims. The District will pay and discharge any and all lawful
claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the
funds or accounts created hereunder or on any funds in the hands of the District pledged to pay the
Installment Payments or to the Owners prior or superior to the lien of the Installment Payments or
which might impair the security of the Instalhnent Payments.
Section 6.9. Comoliance with Contracts. The District will neither take nor omit to take any
action under any contract if the effect of such act or failure to act would in any manner impair or
adversely affect the ability of the District to pay Installment Payments; and the District will comply
505278.3U2062.0024 15
with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied,
required to be performed by it contained in all other contracts affecting or involving the Water System,
to the extent that the District is a party thereto.
Section 6.10. Insurance.
(4 The District will procure and maintain or cause to be procured and maintained
insurance on the Water System with responsible insurers in such amounts and against such risks
(including damage to or destruction of the Water System) as are usually covered in connection with
facilities similar to the Water System so long as such insurance is available from reputable insurance
companies.
In the event of any damage to or destruction of the Water System caused by the perils
covered by such insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or
replacement of the damaged or destroyed portion of the Water System. The District shah begin such
reconstruction, repair or replacement promptly after such damage or destruction shah occur, and shall
continue and properly complete such reconstruction, repair or replacement as expeditiously as possible,
and shah pay out of such Net Proceeds all costs and expenses in connection with such reconstruction,
repair or replacement so that the same shah be completed and the Water System shah be free and clear
of all claims and liens.
If such Net Proceeds exceed the costs of such reconstruction, repair or replacement
portion of the Water System, and/or the cost of the construction of additions, betterments, extensions or
improvements to the Water System, then the excess Net Proceeds shall be applied in part to the
prepayment of Installment Payments as provided in Article VII and in part to such other fund or
account as may be appropriate and used for the retirement of Bonds and Contracts in the same
proportion which the aggregate unpaid principal balance of Installment Payments then bears to the
aggregate unpaid principal amount of such Bonds and Contracts. If such Net Proceeds are sufficient to
enable the District to retire the entire obligation evidenced hereby prior to the final due date of the
Installment Payments as well as the entire obligations evidenced by Bonds and Contracts then
remaining unpaid prior to their final respective due dates, the District may elect not to reconstruct,
repair or replace the damaged or destroyed portion of the Water System, and/or not to construct other
additions, betterments, extensions or improvements to the Water System; and thereupon such Net
Proceeds shall be applied to the prepayment of Installment Payments as provided in Article VII and to
the retirement of such Bonds and Contracts.
09 The District will procure and maintain such other insurance as it shah deem
advisable or necessary to protect its interests and the interests of the Corporation, which insurance shall
afford protection in such amounts and against such risks as are usually covered in connection with
municipal water systems similar to the Water System.
(4 Any insurance required to be maintained by paragraph (a) above and, if the
District determines to procure and maintain insurance pursuant to paragraph (b) above, such insurance,
may be maintained under a self-insurance program (including the Public Agency Risk Sharing
Authority of Califomia)so long as such se%.nsurance is maintained in the amounts and manner usually
maintained in connection with water systems similar to the Water System and is, in the opinion of an
accredited actuary, actuarially sound.
505278.3\22062.0024 16
All policies of insurance required to be maintained herein shall provide that the Corporation
and the Trustee shall be given thirty (30) days written notice of any intended cancellation thereof or
reduction of coverage provided thereby.
Section 6.11. Accounting Records; Financial Statements and Other Reports.
(4 The District will keep appropriate accounting records in which complete and
correct entries shall be made of all transactions relating to the Water System, which records shall be
available for inspection by the Corporation, [the Bond Insurer] and the Trustee at reasonable hours and
under reasonable conditions.
(b) The District will prepare and file with the Corporation and the Trustee annually
within two hundred seventy (270) days after the close of each Fiscal Year (commencing with the Fiscal
Year ending June 30, 1998) --
(1) financial statements of the District for the preceding Fiscal Year
prepared in accordance with generally accepted accounting principles, together with an
Accountant’s Report thereon; and
(2) a detailed report as to all insurance policies maintained and
self-insurance programs maintained by the District with respect to the Water System, as
of the close of such Fiscal Year, including the names of the insurers which have issued
the policies and the amounts thereof and the property or risks covered thereby.
The Trustee makes no representation as to the sufficiency of any insurance policies or self-
insurance programs maintained by the District with respect to the Water System.
Section 6.12. Protection of Securitv and Rirzhts of the Corporation. The District will preserve
and protect the security hereof and the rights of the Corporation to the Installment Payments hereunder
and will warrant and defend such rights against all claims and demands of all persons.
Section 6.13. Pavment of Taxes and Comuliance with Governmental Regulations. The
District will pay and discharge all taxes, assessments and other governmental charges which may
hereafter be lawfully imposed upon the Water System, or any part thereof or upon the Revenues when
the same shah become due. The District will duly observe and conform with all valid regulations and
requirements of any governmental authority relative to the operation of the Water System, or any part
thereof, but the District shall not be required to comply with any regulations or requirements so long as
the validity or application thereof shall be contested in good faith.
Section 6.14. Amount of Rates and Charges. To the fullest extent permitted by law, the
District shall fix, prescribe and collect rates and charges for the Water Service which will be at least
sufficient to yield during each Fiscal Year Net Revenues equal to one hundred fifteen percent (115%)
of Debt Service for such Fiscal Year. The District may make adjustments from time to time in such
rates and charges and may make such classification thereof as it deems necessary, but shah not reduce
the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will
at all times be sufficient to meet the requirements of this section.
505278.3i22062.0024 17
Section 6.15. Collection of Rates and Charges. The District will have in effect at all times
by-laws, rules and regulations requiring each customer to pay the rates and charges applicable to the
Water Service and providing for the billing thereof and for a due date and a delinquency date for each
bill.
Section 6.16. Eminent Domain Proceeds. If all or any part of the Water System shah be
taken by eminent domain proceedings, the Net Proceeds thereof shall be applied as follows:
Go If (1) the District files with the Corporation and the Trustee a certificate
showing (i) the estimated loss of annual Net Revenues, if any, suffered or to be suffered by the District
by reason of such eminent domain proceedings, (ii) a general description of the additions, betterments,
extensions or improvements to the Water System proposed to be acquired and constructed by the
District from such Net Proceeds, and (iii) an estimate of the additional annual Net Revenues to be
derived from such additions, betterments, extensions or improvements, and (2) the District, on the
basis of such certificate filed with the Corporation and the Trustee, determines that the estimated
additional annual Net Revenues will sufikiently offset the estimated loss of annual Net Revenues
resulting from such eminent domain proceedings so that the ability of the District to meet its
obligations hereunder w-ill not be substantially impaired (which determination shall be final and
conclusive), then the District shall promptly proceed with the acquisition and construction of such
additions, betterments, extensions or improvements substantially in accordance with such certificate
and such Net Proceeds shall be applied for the payment of the costs of such acquisition and
construction, and any balance of such Net Proceeds not required by the District for such purpose shall
be deposited in the Revenue Fund.
@I If the foregoing conditions are not met, then such Net Proceeds shall be applied
by the District in part to the prepayment of Installrnent Payments as provided in Article VII and in part
to such other fknd or account as may be appropriate and used for the retirement of Bonds and
Contracts in the same proportion which the aggregate unpaid principal balance of Installment Payments
then bears to the aggregate unpaid principal amount of such Bonds and Contracts.
Section 6.17. Further Assurances. The District will adopt, deliver, execute and make any
and all further assurances, instruments and resolutions as may be reasonably necessary or proper to
carry out the intention or to facilitate the performance hereof and for the better assuring and confkrning
unto the Corporation of the rights and benefits provided to it herein.
Section 6.18. Enforcement of Contracts. The District will not voluntarily consent to or
permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or
in connection with any contracts previously or hereafter entered into if such rescission or amendment
would in any manner impair or adversely affect the ability of the District to pay Jnstallment Payments.
Section 6.19. Continuine Disclosure. The District hereby covenants and agrees that it will
comply with and carry out all of the provisions of the Continuing Disclosure Certificate.
Notwithstanding any other provision of this Agreement, failure of the District to comply with the
Continuing Disclosure Certificate shall not be considered an Event of Default; however, any Owner of
Certificates or Beneficial Owner may take such actions as may be necessary and appropriate, including
seeking mandate or specific performance by court order, to cause the District to comply with its
obligations under this Section. For purposes of this Section, “Beneficial Owner” means any person
which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of
505278.3i22062.0024 18
ownership of, any Certificates (including persons holding Certificates through nominees, depositories
or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax
purposes. ”
ARTICLE VII
PREPAYMENT OF INSTALLMENT PAYMENTS
Section 7.1. Prepavment.
(a) The District may or shall, as the case may be, prepay from the Net Proceeds as
provided herein on any date, all or any part on any Installment Payment Date, of the principal amount
of the unpaid Installment Payments at a prepayment price equal to the sum of the principal amount
prepaid plus accrued interest thereon to the date of prepayment.
Notwithstanding any such prepayment, the District shall not be relieved of its obligations
hereunder, including its obligations under Article IV, until the Purchase Price shah have been fully paid
(or provision for payment thereof shall have been provided to the written satisfaction of the
Corporation).
Section 7.2. Method of Prenavment. Before making any prepayment pursuant to Section
7.1(a), the District may, within five (5) days following the event permitting the exercise of such right to
prepay or creating such obligation to prepay, give written notice to the Corporation and the Trustee
describing such event and specifying the date on which the prepayment of the Certificates will be paid,
which date shall be not less than sixty (60) days from the date such notice is given, unless such
prepayment must occur on an Interest Payment Date, in which case such date shall be the next Interest
Payment Date with respect to which notice of prepayment may be timely given pursuant to the Trust
Agreement.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF THE CORPORATION
Section 8.1. Events of Default and Acceleration of Maturities. If one or more of the
following Events of Default shall happen, that is to say --
(4 if default shah be made by the District in the due and punctual payment of any
Installment Payment or any Contract or Bond when and as the same shah become due and payable;
(W if default shah be made by the District in the performance of any of the other
agreements or covenants required herein or in any Contract or Bond to be performed by it, and such
default shah have continued for a period of sixty (60) days after the District shah have been given
notice in writing of such default by the Corporation;
(4 if the District shall file a petition or answer seeking arrangement or
reorganization under the federal bankruptcy laws or any other applicable law of the United States of
America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or
without the consent of the District seeking arrangement or reorganization under the federal bankruptcy
505278.3U2062.0024 19
laws or any other applicable law of the United States of America or any state therein, or if under the
provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shah
assume custody or control of the District or of the whole or any substantial part of its property; or
(4 if payment of the principal of any Contract or Bond is accelerated in
accordance with its terms;
then and in each and every such case during the continuance of such Event of Default specified in
clauses (c) and (d) above, the Corporation shah, [with the written consent of the Bond Insurer so long
as the Bond Insurance Policy is in full force and effect,] and for any other such Event of Default the
Corporation may [with the written consent of the Bond Insurer so long as the Bond Insurance Policy is
in full force and effect,] and in each and every such case the Corporation, [at the written direction of the
Bond Insurer so long as the Bond Insurance Policy is in full force and effect] by notice in writing to the
District, shall declare the entire principal amount of the unpaid Installment Payments and the accrued
interest thereon to be due and payable immediately, and upon any such declaration the same shall
become immediately due and payable, anything contained herein to the contrary notwithstanding. This
subsection however, is subject to the condition that if at any time after the entire principal amount of
the unpaid Installment Payments and the accrued interest thereon shall have been so declared due and
payable and before any judgment or decree for the payment of the moneys due shah have been obtained
or entered the District shall deposit with the Corporation a sum sticient to pay the unpaid principal
amount of the Installment Payments and/or the unpaid payment of any other Contract or Bond referred
to in clause (a) above due prior to such declaration and the accrued interest thereon, with interest on
such overdue installments, at the rate or rates applicable to the remaining unpaid principal balance of
the Installment Payments or such Contract or Bond if paid in accordance with their terms, and the
reasonable expenses of the Corporation, and any and all other defaults known to the Corporation (other
than in the payment of the entire principal amount of the unpaid Installment Payments and the accrued
interest thereon due and payable solely by reason of such declaration) shall have been made good or
cured to the satisfaction of the Corporation [and the Bond Insurer] or provision deemed by the
Corporation [and the Bond Insurer] to be adequate shall have been made therefor, then and in every
such case the Corporation [and the Bond Insurer,] by written notice to the District, may rescind and
annul such declaration and its consequences; but no such rescission and annulment shah extend to or
shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon.
Section 8.2. Application of Funds Upon Acceleration. Upon the date of the declaration of
acceleration as provided in Section 8.1, all Revenues thereafter received shah be applied in the
following order -
First. to the payment, without preference or priority, and in the event of any insufikiency of
such Revenues ratably without any discrimination or preference, of the fees, costs and
expenses of the Corporation and Trustee, if any, including reasonable compensation to its
accountants and counsel;
Second, to the payment of the Operation and Maintenance Costs; and
Third, to the payment of the entire principal amount of the unpaid Installment Payments and the
unpaid principal amount of all Bonds and ,Contract.s and the accrued interest thereon, with
505278.3U2062.0024 20
interest on the overdue installments at the rate or rates of interest applicable to the Installment
Payments and such Bonds and Contracts if paid in accordance with their respective terms.
Section 8.3. Other Remedies of the Corporation. The Corporation shall have the right [with
the written consent of the Bond Insurer so long as the Bond Insurance Policy is in full force and effect]
and shall at the direction of the Bond Insurer so long as the Bond Insurance Policy is in full force and
effect:
(4 by mandamus or other action or proceeding or suit at law or in equity to
enforce its rights against the District or any director, officer or employee thereof, and to compel the
District or any such director, officer or employee to perform and carry out its or his duties under the
Law and the agreements and covenants required to be performed by it or him contained herein;
09 by suit in equity to enjoin any acts or things which are unlawful or violate the
rights of the Corporation; or
(4 by suit in equity upon the happening of an Event of Default to require the
District and its directors, officers and employees to account as the trustee of an express trust.
Notwithstanding anything contained herein, the Corporation shall have no security interest in or
mortgage on the Project, the Water System or other assets of the District, and no default hereunder
shah result in the loss of the Project, the Water System or other assets of the District.
Section 8.4. Non-Waiver. Nothing in this article or in any other provision hereof shall affect
or impair the obligation of the District, which is absolute and unconditional, to pay the Installment
Payments to the Corporation at the respective due dates or upon prepayment from the Net Revenues,
the Revenue Fund and the other funds herein pledged for such payment, or shah affect or impair the
right of the Corporation, which is also absolute and unconditional, to institute suit to enforce such
payment by virtue of the contract embodied herein.
A waiver of any default or breach of duty or contract by the Corporation shall not affect any
subsequent default or breach of duty or contract or impair any rights or remedies on any such
subsequent default or breach of duty or contract. No delay or omission by the Corporation to exercise
any right or remedy accruing upon any default or breach of duty or contract shall impair any such right
or remedy or shah be construed to be a waiver of any such default or breach of duty or contract or an
acquiescence therein, and every right or remedy conferred upon the Corporation by the Law or by this
article may be enforced and exercised from time to time and as often as shall be deemed expedient by
the Corporation.
If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or
determined adversely to the Corporation [or the Bond Insurer], the District, [the Bond Insurer] and the
Corporation shah be restored to their former positions, rights and remedies as if such action,
proceeding or suit had not been brought or taken.
Section 8.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the
Corporation is intended to be exclusive of any other remedy, and each such remedy shah be cumulative
and shah be in addition to every other remedy given hereunder or now or hereafter existing in law or in
505278.3\22062.0024 21
equity or by statute or otherwise and may be exercised without exhausting and without regard to any
other remedy conferred by the Law or any other law.
If any remedial action is discontinued or abandoned, the Trustee, the Bond Insurer and
Certificate Owners shall be restored to their former positions.
Section 8.6. Covenants to Bond Insurer. [INSERT IF APPLICABLE.] In addition, so long
as the Bond Insurance Policy is in full force and effect, the District shall permit the Bond Insurer to (i)
discuss the tiairs, finances and accounts of the District or any information the Bond Insurer may
reasonably request regarding the security for the Installment Payments with appropriate officers of the
District, and (ii) have access to and to make copies of all books and records relating to the Installment
Payments at any reasonable time; and the Bond Insurer shall have the right to direct an accounting at
the District’s expense, and the District’s failure to comply with such direction within thirty (30) days
after receipt of written notice of the direction from the Bond Insurer shall be deemed a default
hereunder; provided however, that if compliance cannot occur within such period, then such period
shall be extended so long as compliance is begun within such period and diligently pursued, but only if
such extension would not materially adversely affect the interests of any Owner of the Certificates.
Section 8.7. [INSERT IF APPLICABLE,] Notwithstanding any other provision Notices.
hereof, the Trustee shall immediately noti@ the Bond Insurer if at any time there are insufficient
moneys to make any Installment Payments as required and immediately upon the occurrence of any
event of default hereunder.
ARTICLE IX
DISCHARGE OF OBLIGATIONS
Section 9.1. DischarPe of Obligations.
(4 When all or any portion of the Instalhnent Payments shall have become due and
payable in accordance herewith or a written notice of the District to prepay all or any portion of the
Installment Payments shall have been filed with the Trustee; and
09 there shall have been deposited with the Trustee at or prior to the Installment
Payment Dates or date (or dates) specified for prepayment, in trust for the benefit of the Corporation or
its assigns and irrevocably appropriated and set aside to the payment of all or any portion of the
Instalhnent Payments, suflicient moneys and Defeasance Securities, the principal of and interest on
which when due will provide money sufficient to pay all principal, prepayment premium, if any, and
interest of such Installment Payments to their respective Installment Payment Dates or prepayment date
or dates as the case may be; and
(c) provision shall have been made for paying all fees and expenses of the Trustee,
then and in that event, if an opinion of Bond Counsel acceptable to the Trustee is filed with the
Trustee to the effect that the actions authorized by and taken pursuant to this Article IX shall not
adversely affect the exclusion from gross income for federal income tax purposes of the interest portion
of the Installment Payments, the right, title and interest of the Corporation herein and the obligations of
the District hereunder shall, with respect to all or such portion of the Installment Payments as have
505278.3U2062.0024 22
been so provided for, thereupon cease, terminate, become void and be completely discharged and
satisfied (except for the right of the Trustee and the obligation of the District to have such moneys and
such Permitted Investments applied to the payment of such Installment Payments).
In such event., upon request of the District the Trustee shall cause an accounting for such
period or periods as may be requested by the District to be prepared and filed with the District and
shah execute and deliver to the District all such instruments as may be necessary or desirable to
evidence such total or partial discharge and satisfaction, as the case may be, and, in the event of a total
discharge and satisfaction, the Trustee shall pay over to the District, after payment of all amounts due
the Trustee pursuant to the Trust Agreement, as an overpayment of Installment Payments, ah such
moneys or such Defeasance Securities held by it pursuant hereto other than such moneys and such
Defeasance Securities as are required for the payment or prepayment of the Installment Payments,
which moneys and Defeasance Securities shall continue to be held by the Trustee in trust for the
payment of the Tnstallment Payments and shall be applied by the Trustee to the payment of the
Installment Payments of the District.
ARTICLE X
MISCELLANEOUS
Section 10.1. Liability of District Limited to Revenues. Notwithstanding anything contained
herein the District shall not be required to advance any moneys derived from any source of income
other than the Revenues, the Revenue Fund and the other funds provided herein for the payment of
amounts due hereunder or for the performance of any agreements or covenants required to be
performed by it contained herein. The District may, however, advance moneys for any such purpose so
long as such moneys are derived from a source legally available for such purpose and may be legally
used by the District for such purpose.
The obligation of the District to make the Instalhnent Payments is a special obligation of the
District payable solely from the Net Revenues, and does not constitute a debt of the District, the City of
Carlsbad or of the State of California or of any political subdivision thereof in contravention of any
constitutional or statutory debt limitation or restriction.
Section 10.2. Benefits of Installment Purchase Agreement Limited to Parties. Nothing
contained herein, expressed or implied, is intended to give to any person other than the District, the
Bond Insurer or the Corporation any right, remedy or claim under or pursuant hereto, and any
agreement or covenant required herein to be performed by or on behalf of the District or the
Corporation shall be for the sole and exclusive benefit of the other party.
Section 10.3. Successor Is Deemed Included in all References to Predecessor. Whenever
either the District or the Corporation is named or referred to herein such reference shah be deemed to
include the successor to the powers, duties and functions that are presently vested in the District or the
Corporation, and all agreements and covenants required hereby to be performed by or on behalf of the
District or the Corporation shall bind and inure to the benefit of the respective successors thereof
whether so expressed or not.
505278.3\22062.0024 23
Section 10.4. Waiver of Personal Liabilitv. No director, officer or employee of the District
shah be individually or personally liable for the payment of the Iktallrnent Payments, but nothing
contained herein shah relieve any director, officer or employee of the District from the performance of
any official duty provided by any applicable provisions of law or hereby.
Section 10.5. Article and Section Headings. Gender and References. The headings or titles
of the several articles and sections hereof and the table of contents appended hereto shah be solely for
convenience of reference and shah not affect the meaning, construction or effect hereof, and words of
any gender shall be deemed and construed to include all genders. All references herein to “Articles,”
“Sections” and other subdivisions or clauses are to the corresponding articles, sections, subdivisions or
clauses hereofl and the words “hereby”, “herein,” “hereof,” “hereto,” “herewith” and other words of
similar import refer to this Agreement as a whole and not to any particular article, section, subdivision
or clause hereof
Section 10.6. Partial Invaliditv. If any one or more of the agreements or covenants or
portions thereof required hereby to be performed by or on the part of the District or the Corporation
shah be contrary to law, then such agreement or agreements, such covenant or covenants or such
portions thereof shall be null and void and shah be deemed separable from the remaining agreements
and covenants or portions thereof and shah in no way affect the validity hereof The District and the
Corporation hereby declare that they would have executed this Agreement, and each and every other
article, section, paragraph, subdivision, sentence, clause and phrase hereof irrespective of the fact that
any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or phrases hereof or the
application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or
invalid.
Section 10.7. Assignment. This Agreement and any rights hereunder may be assigned by the
Corporation, as a whole or in part, without the necessity of obtaining the prior consent of the District.
Section 10.8. Net Contract. This Agreement shall be deemed and construed to be a net
contract, and the District shall pay absolutely net during the term hereof the Installment Payments and
all other payments required hereunder, free of any deductions and without abatement, diminution or
set-off whatsoever.
Section 10.9. California Law. THE INSTALLMENT PURCHASE AGREEMENT SHALL
BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF CALIFORNIA.
Section IO. 10. All written notices to be given hereunder shall be given by mail to the Notices.
party entitled thereto at its address set forth below, or at such other address as such party may provide
to the other party in writing from time to time, namely:
If to the District: Carlsbad Municipal Water District
1200 Carlsbad Village Drive
Carlsbad, CA 92008-1989
Attention: Executive Manager
505278.3U2062.0024 24
Lf to the Corporation: City of Carlsbad Public Improvement Corporation
1200 Carlsbad Village Drive
Carlsbad, CA 92008- 1989
Attention: President
Section 10.11. Effective Date. This Agreement shall become effective upon its execution and
delivery, and shah terminate when the Purchase Price shah have been fully paid (or provision for the
payment thereof shah have been made to the written satisfaction of the Corporation).
Section 10.12. Execution in Counternarts. This Agreement may be executed in several
counterparts, each of which shah be deemed an original, and all of which shah constitute but one and
the same instrument.
Section 10.13. Indemnification of Corporation. The District hereby agrees to indemnify and
hold harmless the Corporation if and to the extent permitted by law, from and against all claims,
advances, damages and losses, including legal fees and expenses, arising out of or in connection with
the acceptance or the performance of its duties hereunder and under the Trust Agreement; provided
that no indemnification will be made for willlkl misconduct, negligence or breach of an obligation
hereunder or under the Trust Agreement by the Corporation.
Section 10.14. Amendments Permitted. This Agreement and the rights and obligations of the
Corporation, the District, the Owners of the Certificates and of the Trustee may be modified or
amended at any time by an amendment hereto which shall become binding when the written consents
of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding,
exclusive of Certificates disqualified as provided in the Trust Agreement, shall have been filed with the
Trustee [and, so long as the Bond Insurance Policy is in full force and effect, with the prior written
consent of the Bond Insurer]. No such modification or amendment shah (1) extend the stated
maturities of the Certificates, or reduce the rate of interest represented thereby, or change the method
of computing the rate of interest with respect thereto, or extend the time of payment of interest, or
reduce the amount of principal represented thereby, or reduce any premium payable on the prepayment
thereof, without the consent of the Owner of each Certificate so affected, or (2) reduce the aforesaid
percentage of Owners of Certificates whose consent is required for the execution of any amendment or
modification of this Agreement without the consent of the Owners of all Certificates then Outstanding,
or (3) modify any of the rights or obligations of the Trustee, the Corporation or [the Bond Insurer]
without its respective written consent thereto.
This Agreement and the rights and obligations of the Corporation, the District and of
the Owners of the Certificates may also be modified or amended at any time by an amendment hereto
which shall become binding upon adoption, without the consent of the Owners of any Certificates, but
only to the extent permitted by law and only for any one or more of the following purposes-
(4 to add to the covenants and agreements of the Corporation or the District
contained in this Agreement other covenants and agreements thereafter to be observed or to surrender
505278.3U2062.0024 25
any right or power herein reserved to or conferred upon the Corporation or the District, and which shall
not adversely affect the interests of the Owners of the Certificates;
(W to cure, correct or supplement any ambiguous or defective provision contained
in this Agreement or in regard to questions arising under this Agreement, as the Corporation or the
District may deem necessary or desirable and which shall not adversely affect the interests of the
Owners of the Certificates; and
(4 to make such other amendments or modifications as may be in the best
interests of the Owners of the Certificates.
[No amendment without consent of the Owners may modify any of the rights or obligations of
the Trustee without its written consent thereto or the rights or obligations of the Bond Insurer without
its written consent thereto.]
505278.3U2062.0024 26
.
IN WlTNESS WHEREOF, the parties hereto have executed and attested this Agreement by
their officers thereunto duly authorized as of the day and year first written above.
CARLSBAD MUNICIPAL WATER DISTRICT
ATTEST:
Secretary
President
CITY OF CARLSBAD PUBIkC IMPROVEMENT
CORPORATION
Executive Director
ATTEST:
Secretary
505278.3\22062.0024 27
EXHIBIT A
PURCHASE PRICE
1.
Amount].
The principal amount of payments to be made by the District hereunder is $[Certificate
2. The installment payments of principal and interest are payable in the amounts and on
the Installment Payment Dates as follows:
Tnstallment
Pavment Date
Amount Amount
Attributable Attributable
to Plincioal to Interest
05/01/1998
1 l/01/1998
05/01/1999
1 l/01/1999
05/01/2000
11/01/2000
05/01/2001
11/01/2001
05/01/2002
1 l/01/2002
05/01/2003
1 l/01/2003
05/01/2004
505278.3Q2062.0024 A-l
EXHlBlTB
DESCRIPTION OF THE PROJECT
[TO BE ATTACHED]
505278.3\22062.0024 B-l
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of September 1,1997, by and between the Carlsbad
Municipal Water District (the “District”) and First Trust of California, National Association as Escrow
Agent (the “Escrow Agent”) hereunder with respect to the Installment Sale Agreement referenced
herein is entered into in accordance with a Resolution of the District, adopted on August 26, 1997 (the
“Resolution”) to discharge the obligation of the District to make payments under the Installment Sale
Agreement (the “Installment Payments”).
WITNESSETH:
WHEREAS, the District has previously entered into that certain Installment Sale Agreement,
dated as of November 1,1998 by and between the Independent Public Facilities Corporation (the
“Prior Corporation”) and the District (the “Purchase Agreement”);
WHEREAS, the District has caused to be executed and delivered $[Certificate Amount]
aggregate principal amount of Carlsbad Municipal Water District 1997 Water Revenue Certificates of
Participation (1988 Refunding Project), (the “Certificates”), for, among other purposes, the purpose of
providing a portion of the funds to defease the Installment Payments on November 1,1988;
WHEREAS, by irrevocably depositing with the Escrow Agent moneys (as permitted by, in the
manner prescribed by, and all in accordance with the Purchase Agreement) which moneys will be used
to purchase direct non-callable and non-prepayable obligations of the United States of America and
securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the
United States of America, provided that the full faith and credit of the United States of America must
be pledged to any such direct obligation or guarantee (the “Federal Securities”) satisfying the criteria
set forth in Section 14.02 of the 1988 Indenture, the principal of and the interest on which when due
will provide money sufficient to pay on November 1,1997, the regularly scheduled principal and
interest portions of the Installment Payments maturing on such date and on November 1,1997, the
redemption premium, interest and principal portions of the Installment Payments maturing after
November 1,1997;
WHEREAS, in order to obtain a portion of the moneys needed for such purposes, in addition to
causing execution and delivery of the Certificates, the District has authorized the transfer of and,
concurrently with the delivery of this Agreement, is transferring certain moneys from the funds
established to secure the obligations of the District under the Purchase Agreement under and pursuant
to a Trust Agreement, dated as of November 1,1988, by and between the Prior Corporation, the
District and Security Pacific National Bank, as trustee (the “1988 Indenture”), which moneys shall be
deposited in the Escrow Fund created hereunder, all as provided herein;
NOW THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the District and the Escrow Agent agree as follows:
1. Deposit of Monevs. The District hereby deposits with the Escrow Agent in
immediately available funds (a) % representing a portion of the net proceeds of the
505273.3l22062.0024
4
Certificates, (b) $ of moneys from the Reserve Fund established pursuant to the 1988
Indenture and (c) $ transferred by the Escrow Agent from amounts received from the
District which was deposited in the Installment Payment Fund for deposit in the Interest Account and
Principal Account established under the 1988 Indenture on or prior to September 1, 1997, to be held in
irrevocable escrow by the Escrow Agent separate and apart from other funds of the District and the
Escrow Agent in a fund hereby created and established to be known as the “Escrow Fund” and to be
applied solely as provided in this Agreement. The moneys set forth above are at least equal to an
amount sufficient to purchase the Federal Securities.
2. Investment of Monevs. The Escrow Agent acknowledges receipt of the moneys
described in Section 1 and agrees immediately to invest such moneys in the Federal Securities set forth
in Schedule A hereto and to deposit such Federal Securities in the Escrow Fund. The Escrow Agent
may rely upon the conclusion of that the Federal Securities listed on Schedule A
hereto mature and bear interest payable in such amounts and at such times as, together with cash on
deposit in the Escrow Fund, will be necessary and sufficient to pay the regularly scheduled principal
and interest portions of the Installment Payments on November 1,1997 and also on November 1,1997,
the redemption, interest and principal portions of the Installment Payments maturing after November 1,
1997.
3. Investment of Any Remaining Monevs. At the written direction of the District, the
Escrow Agent may reinvest any other amount of principal and interest, or any portion thereof, received
from the Federal Securities prior to the date on which such payment is required for the purposes set
forth herein, in noncallable Federal Securities maturing not later than the date on which such payment
or portion thereof is required for the purposes set forth in Section 5, at the written direction of the
District, as verified in a report prepared by an independent certified public accountant or firm of
certified public accountants of favorable national reputation experienced in the refunding of obligations
of political subdivisions and provided the District has obtained and delivered to the Escrow Agent an
unqualified opinion of nationally recognized bond counsel that such reinvestment will not adversely
affect the exclusion from gross income of interest with respect to the portions of the Costa Real
Municipal Water District Certificates of Participation, 1988 Refunding and Financing Project issued
pursuant to the terms of the 1988 Indenture set forth in Exhibit C attached hereto (the “Refunded
Certificates”) and the Certificates for purposes of federal income taxation. Any interest income
resulting from investment or reinvestment of moneys pursuant to this Section 3 which are not required
for the purposes set forth in Section 5, as verified in the letter of Ernst & Young LLP originally
obtained by the District with respect to the refunding of the Refknded Certificates or in any other report
prepared by an independent certified public accountant or firm of certified public accountants of
favorable national reputation experienced in the refunding of obligations of political subdivisions, shall
be paid to the District promptly upon the receipt of such interest income by the Escrow Agent. The
District’s determination as to whether an accountant qualifies under this Agreement shall be conclusive.
4. Substitution of Securities. Upon the written request of the District, and subject to the
conditions and limitations herein set forth and applicable governmental rules and regulations, the
Escrow Agent shall sell, redeem or otherwise dispose of the Federal Securities, provided that there are
substituted therefor from the proceeds of the Federal Securities other Federal Securities, but only after
the District has obtained and delivered to the Escrow Agent (i) an unqualified opinion of nationaiIy
recognized bond counsel that such reinvestment will not adversely affect the exclusion from gross
income of interest payable with respect to the Refunded Certificates or the Certificates for purposes of
505273.3D2062.0024 2
federal income taxation, and (ii) a report by a nationally recognized consulting firm or firm of certified
public accountants to the effect that such reinvestment will not adversely affect the sufficiency of the
amounts of securities, investments and money in the Escrow Fund to pay on November 1, 1997 the
regularly scheduled principal and interest portion of the Installment Payments and also on November 1,
1997, redemption premium, interest and principal portion of the Installment Payments maturing after
November 1, 1997. The Escrow Agent shall not be liable or responsible for any loss resulting from
any reinvestment made pursuant to this Agreement and in full compliance with the provisions hereof
5. Pavment of Refunded Certificates.
(4 Pavment. From the maturing principal of the Federal Securities and the investment
income and other earnings thereon and other moneys on deposit, the Escrow Agent shall pay on
November 1, 1997, principal of and interest on the Refunded Certificates maturing on such date and
also on November 1,1997, redemption premium, interest and principal of the Refunded Certificates
maturing after November 1,1997.
(b) Irrevocable Instructions to Call the Refunded Certificates and to Provide Notice. The
Escrow Agent is hereby instructed to call the Refunded Certificates in whole in the manner provided in
the 1988 Indenture. The form of the notices required to be mailed pursuant to Section 4.03 and Section
14.02 of the 1988 Indenture are attached hereto as Exhibit A and Exhibit B.
(4 Unclaimed Monevs. Any moneys which remain unclaimed for two years after
November 1, 1997 shall be repaid by the Escrow Agent to the District.
(4 Prioritv of Pavments. The owners of the Refunded Certificates shall have a first and
exclusive lien on all moneys and securities in the Escrow Fund until such moneys and such securities
are used and applied as provided in this Agreement.
(e) Termination of Obligation. As provided in the Installment Sale Agreement and the
198 8 Indenture, upon deposit of moneys with the Escrow Agent in the Escrow Fund as set forth in
Section 1 hereof and the purchase of the various Federal Securities as provided in Section 2 hereof, the
obligations created by the Installment Sale Agreement shall thereupon cease, terminate, become void
and be completely discharged and satisfied.
6. Annlication of Certain Terms of the 1988 Indenti>. All of the terms of the 1988
Indenture relating to the making of payments of principal and interest with respect to the Refunded
Certificates are incorporated in this Agreement as if set forth in full herein. The procedures set forth in
Article IX of the 1988 Indenture relating to the resignation and removal and merger of the 1988
Trustee are also incorporated in this Agreement as if set forth in full herein and shall be the procedures
to be followed with respect to any resignation or removal of the Escrow Agent hereunder.
7. Performance of Duties. The Escrow Agent agrees to perform only the duties set forth
herein and shall have no responsibility to take any action or omit to take any action not set forth herein.
8. Escrow Agent’s Authoritv to Make Investments. Except as provided in Sections 2,3
and 4 hereof, the Escrow Agent shall have no power or duty to invest any funds held under this
Agreement or to sell, transfer or otherwise dispose of the moneys or Federal Securities held hereunder.
505273.3\22062.0024 3
9. The District hereby assumes liability for, and hereby agrees (whether or not Indemnity.
any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep
harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants,
from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever
kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any
time (whether or not also indemnified against the same by the District or any other person under any
other agreement or instrument, but without double indemnity) in any way relating to or arising out of
the execution, delivery and performance of this Agreement, the establishment hereunder of the Escrow
Fund, the acceptance of the funds and securities deposited therein, the purchase of the Federal
Securities, the retention of the Federal Securities or the proceeds thereof and any payment, transfer or
other application of moneys or securities by the Escrow Agent in accordance with the provisions of this
Agreement; provided, however, that the District shall not be required to indemnify the Escrow Agent
against the Escrow Agent’s own negligence or misconduct or the negligence or misconduct of the
Escrow Agent’s respective employees or the willful breach by the Escrow Agent of the terms of this
Agreement. In no event shall the District or the Escrow Agent be liable to any person by reason of the
transactions contemplated hereby other than to each other as set forth in this Section. The indemnities
contained in this Section shall survive the termination of this Agreement.
10. Responsibilities of Escrow Agent. The Escrow Agent and its agents and servants shall
not be held to any personal liability whatsoever, in tort, contract, or otherwise, in connection with the
execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the
moneys or securities deposited therein the purchase of the Federal Securities, the retention of the
Federal Securities or the proceeds thereof, the sticiency of the Federal Securities to pay the Refunded
Certificates or any payment, transfer or other application of moneys or obligations by the Escrow Agent
in accordance with the provisions of this Agreement or by reason of any non-negligent act,
non-negligent omission or non-negligent error of the Escrow Agent made in good faith in the conduct
of its duties. The recitals of fact contained in the “Whereas” clauses herein shall be taken as the
statements of the District, and the Escrow Agent assumes no responsibility for the correctness thereof
The Escrow Agent makes no representation as to the sticiency of the Federal Securities to
accomplish the discharge of the Installment Payments or the refunding of the Refunded Certificates or
to the validity of this Agreement as to the District and, except as otherwise provided herein, the Escrow
Agent shall incur no liability in respect thereof. The Escrow Agent shall not be liable in connection
with the performance of its duties under this Agreement except for its own negligence, misconduct or
default, and the duties and obligations of the Escrow Agent shall be determined by the express
provisions of this Agreement. The Escrow Agent may consult with counsel, who may or may not be
counsel to the District, and in reliance upon the written opinion of such counsel shall have full and
complete authorization and protection in respect of any action taken suffered or omitted by it in good
faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a
matter be proved or established prior to taking, suffering, or omitting any action under this Agreement,
such matter may be deemed to be conclusively established by a certificate signed by an officer of the
District.
11. Amendments. This Agreement is made for the benefit of the District and the owners
from time to time of the various Refunded Certificates and it shall not be repealed, revoked, altered or
amended without the written consent of all such owners, the Escrow Agent and the District; provided,
however, that the District and the Escrow Agent may, without the consent of, or notice to, such owners,
505273.3V22062.0024 4
amend this Agreement or enter into such agreements supplemental to this Agreement as shall not
adversely affect the rights of such owners and as shall not be inconsistent with the terms and provisions
of this Agreement, California Water Code Section 71000 et seq. or the Purchase Agreement, for any
one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this
Agreement; (ii) to grant to, or confer upon, the Escrow Agent for the benefit of the owners of the
various Refunded Certificates, any additional rights, remedies, powers or authority that may lawfully
be granted to, or conferred upon, such owners or the Escrow Agent; and (iii) to include under this
Agreement additional funds, securities or properties. The Escrow Agent shall be entitled to rely
conclusively upon an unqualified opinion of nationally recognized municipal bond attorneys with
respect to compliance with this Section, including the extent, if any, to which any change, modification,
addition or elimination affects the rights of the owners of the Refunded Certificates or that any
instrument executed hereunder complies with the conditions and provisions of this Section.
12. Notice to Rating Agencies and Insurer. In the event that this agreement or any
provision thereof is severed, amended or revoked the Escrow Agent shall provide prior written notice
of such severance, amendment or revocation to Standard & Poor’s Corporation, 25 Broadway, New
York, New York 10004, to Moody’s Investors Service at 99 Church Street, New York, New York
10007, Attention: Public Finance Rating Desk/Refunded Certificates and to [Bond Insurer] at
, Attention: General Counsel.
13. This Agreement shall commence upon its execution and delivery and shall Term.
terminate on the later to occur of either (i) the date upon which the Refunded Certificates have been
paid in accordance with this Agreement or (ii) the date upon which no unclaimed moneys remain on
deposit with the Escrow Agent pursuant to Section 5(c) of this Agreement.
14. Compensation. The Escrow Agent shall receive its reasonable fees and expenses as
previously agreed to by the Escrow Agent and the District and any other reasonable fees and expenses
approved by the District; provided, however, that under no circumstances shall the Escrow Agent be
entitled to any lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of
fees and expenses for services rendered or expenses incurred by the Escrow Agent under this
Agreement.
15. Severabilitv. If any one or more of the covenants or agreements provided in this
Agreement on the part of the District or the Escrow Agent to be performed should be determined by a
court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and
void and shall be deemed separate from the remaining covenants and agreements herein contained and
shall in no way affect the validity of the remaining provisions of this Agreement.
16. Counteroarts. This Agreement may be executed in several counterparts, all or any of
which shall be regarded for all purposes as an original but all of which shall constitute and be but one
and the same instrument.
17. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER THE
LAWS OF THE STATE OF CALIFORNIA.
18. Insufficient Funds. If at any time the moneys and investments in the Escrow Fund
including the anticipated proceeds of and earnings thereon, will not be sufficient to make all payments
required by this Agreement, the Escrow Agent shall not@ the District in writing, immediately upon
505273.3i22062.0024 5
becoming aware of such deficiency, of the amount thereof and the reason therefor. Except as set forth
under this caption, the Escrow Agent shall have no responsibility regarding any such deficiency.
19. Notice to District and Escrow Agent. Any notice to or demand upon the Escrow Agent
may be served or presented, and such demand may be made, at the principal corporate trust office of
the Escrow Agent specified by the Escrow Agent in accordance with the provisions of the 1988
Indenture. Any notice to or demand upon the District shall be deemed to have been sufficiently given
or served for all purposes by being mailed by registered or certified mail, and deposited postage
prepaid, in a post office letter box, addressed to the District at 1200 Carlsbad Village Drive, Carlsbad,
California 92008-I 989, Attention: Executive Manager (or such other address as may have been filed in
writing by the District with the Escrow Agent).
505273.3Y22062.0024 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their duly authorized officers and their seals to be hereunto atlixed and attested as of the date first
above written.
CARLSBAD MUNICIPAL WATER DISTRICT
By:
President
By:
Secretary
FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, as Escrow Agent and as 1988
Trustee
By:
Assistant Vice President
The Carlsbad Municipal Water District hereby irrevocably instructs the Escrow Agent (i) to
mail a notice to the owners of the Refunded Certificates in accordance with Section 14.02 of the 1988
Indenture that an irrevocable deposit has been made with the Escrow Agent, that the Refunded
Certificates have been deemed to be paid, all in accordance with the 1988 Indenture, and that on
November 1, 1997, sufficient moneys will be available for the payment of the interest, principal and
redemption premiums of the Refunded Certificates; and (ii) to mail a notice of redemption of the
Refunded Certificates in accordance with Section 4.02 of the 1988 Indenture as required to provide for
the redemption of the Refunded Certificates in accordance with Section 5 hereof
CARLSBAD MUNICIPAL WATER DISTRICT
By:
Executive Manager
505273.3\22062.0024 7
SCHEDULE A
Federal Securities
Securitv Maturitv Princiual Amount Interest Rate
503273.3V22062.0024 SCHEDULE A-l
SCHEDULE B
I Reinvestment Schedule
Security Interest Maturity Reinvestment Amount Reinvestment Date
505273.3i22062.0024
-NONE-
SCHEDULE B-l
SCHEDULE C
IRREVOCABLE INSTRUCTIONS AND
-mQUEST TO TRUSTEE AND ESCROW BANK
September 24, 1997
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION,
as Trustee and as Escrow Bank
$
COSTA REAL MUNICIPAL WATER DISTRICT
CERTIFICATES OF PARTICIPATION
1988 REFUNDING AND FINANCING PROJECT
(the “1988 Certificates”)
Ladies and Gentlemen:
As Trustee under that certain Trust Agreement, dated as of November 1, 1988 (the “1988
Indenture”), and as Escrow Bank under that certain Escrow Agreement, dated as of September 1,
1997 (the “Agreement”), you are hereby notified of the irrevocable election of the Carlsbad
Municipal Water District (formerly Costa Real Municipal Water District) to cause to be paid (i) on
November 1, 1997, the prepayment price evidenced and represented by the 1988 Certificates (as
listed in Exhibit C hereto), and (ii) principal and interest evidenced and represented by the 1988
Certificates to and including November 1, 1997.
You are hereby irrevocably instructed to mail, as soon as practicable, a notice to the
holders of such 1988 Certificates (in the form annexed hereto as Exhibit A) that the deposit of
investment securities and moneys has been made with you as such Escrow Bank and that the
projected withdrawals from such escrow have been calculated to be sufficient to pay: (a) on
November 1, 1997, regularly scheduled principal and interest on such 1988 Certificates and
(b) November 1, 1997, redemption premium and interest on the principal of such 1988 Certificates
maturing after November 1, 1997.
You are hereby further irrevocably instructed to mail, as provided in the 1988 Indenture,
notice of redemption of such principal amounts of such 1988 Certificates as are scheduled to be
called for redemption on November 1, 1997. Such notice shall substantially be in the form
annexed hereto as Exhibit B.
CARLSBAD MUNICIPAL WATER
DISTRICT
By:
Its: Executive Manager
505273.3\22062.0024 SCHEDULE C-l
.-
Receipt acknowledged and
consented to:
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION,
as Trustee and as Escrow Bank
Authorized Officer
505273.3\22062.0024 SCHEDULE C-2
Exhibit A
NOTICE OF DEFEASANCE
COSTA REAL MUNICIPAL WATER DISTRICT
CERTIFICATES OF PARTICIPATION
1988 REZ’UNDING AND FINANCING PROJECT
(the “1988 Certii%ates”)
NOTICE IS HEREBY GIVEN to the owners of the above-captioned Certificates of
Participation that there has been deposited with First Trust of California, National Association, Los
Angeles, California, the Trustee for said Certificates (the “1988 Trustee”) by Carlsbad Municipal
Water District (formerly Costa Real Municipal Water District), cash and obligations of the United
States of America, the principal of and interest on which when paid will provide moneys sufficient to
pay: (a) on November 1, 1997, regularly scheduled principal and interest on the Bonds referred to
below, and (b) also on November 1,1997, redemption premium and interest on and principal of such
Bonds maturing after November 1,1997.
Certificates to be defeased:
In accordance with the Trust Agreement, executed and entered into as of November 1,1988,
by and between the District, Independent Public Facilities Corporation and the 1988 Trustee (the “1988
Indenture”) such Certificates are deemed to have been paid in accordance with Section 14.02 thereof
and on November 1,1997, money will be available for the payment of the interest on, redemption
premium and principal of such Certificates and the obligations created by the 1988 Indenture shall
thereupon cease, terminate and become void with respect to such Certificates.
DATED this day of ,1997.
505273.3l22062.0024 EXHIBIT A-l
Exhibit B
NOTICE OF REDEMPTION
$
COSTA REAL MUNICIPAL WATER DISTRICT
CERTIFICATES OF PARTICIPATION
1988 REFUNDING AND FINANCING PROJECT
(the “1988 Certifkates”)
NOTICE IS HEREBY GIVEN to the owners of the above-captioned Certificates (the
“Certificates”) pursuant to the Trust Agreement, executed and entered into as of November 1, 1988, by
and between the Costa Real Municipal Water District, Independent Public Facilities Corporation and
Security Pacific National Bank (the “Trustee”), that the Certificates listed below (the “Refunded
Certificates”) and maturing on and after November 1,1997 in the amount of %8,500,000 have been
called for redemption on November 1,1997.
Certificates to be redeemed:
Owners of such Refunded Certificates should present and surrender such Refunded
Certificates on the redemption date at the applicable address of the Trustee set forth below:
Hand Delivetv Mailina Address
On November 1,1997, the Refunded Certificates will be payable at a redemption price of
102 percent of the principal amount plus accrued interest to such date. From and after November 1,
1997 interest with respect to the Refunded Certificates to be prepaid will cease to accrue.
DATED this day of , 1997.
505273.3t22062.0024 EXHIBIT B-l
CONTINUING DISCLOSURE CERTIFICATE
This ContinuingDisclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Carlsbad Municipal Water District (the “District”) in connection with the execution and delivery of $[Certificate Amount] 1997 Water Revenue Certificates of Participation (1988 Refunding Project), (the “Certificates”). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of September 1, 1997 (the “Trust Agreement”), by and among the District, the City of Carlsbad Public Improvement Corporation (the “Corporation”) and First Trust of California, National Association, as trustee (the “Trustee”). The District covenants and agrees as follows:
1. Purpose of this Disclosure Ceticate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Certificates and in order to assist the Participating Underwriter in complying with the Rule.
2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to
vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes.
“Fiscal Year” shall mean the one-year period ending on the last day of June of each year.
“Holder” means a registered owner of the Certificates.
“Installment Purchase Agreement” shall mean that certain Jnstallment Purchase Agreement executed and entered into as of September 1, 1997, by and between the District and the Corporation.
“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.
“National Repository” shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in Exhibit A.
“Participating Underwriter” shall mean any of the original underwriters of the Certificates required to comply with the Rule in connection with offering of the Certificates.
“Repository” shall mean each National Repository and each State Repository.
“Rule” shall mean Rule 15~2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
“State” shall mean the State of California
“State Repository” shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.
505271.3Q2062.0024
3. Provision of Annual Reports.
(4 The District shall provide not later than 270 days following the end of its Fiscal Year
(commencing with the Fiscal Year 1997-98) to each Repository an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate.
c-9 If the District is unable to provide to each Repository an Annual Report by the date required in subsection (a), the District shall send to each Repository a notice in substantially the form attached hereto as Exhibit B.
4. Content of Annual Renorts. The Annual Report shall contain or incorporate by reference the following:
(4 The audited financial statements of the City (which includes the financial information for the District) for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District’s audited financial statements are not available by the time
the Annual Report is required to be flied pursuant to Section 4(l), the Annual Report shall contain unaudited financing statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available.
09
thereto. (‘)
Principal amount of the Certificates outstanding.
Balance in the Reserve Fund and a statement of the reserve requirement with respect
(4 An update of the information in the following tables under (i) caption entitled
“CARLSBAD MUNICIPAL WATER DISTRICT” in the Official Statement:
Tables 2, 5,7,9, 12 and 13
and (ii) under caption entitled “FINANCIAL RESULTS OF THE DISTRICT” in the Official Statement:
[insert list]
Any or all of the items listed above may be included by specific reference to other documents,
including official statements of debt issues of the District or related public entities, which have been submitted to each of the Repositories; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the District shall clearly identity each such document so included by reference.
5. Reporting of Sirzniflcant Events.
(4 Pursuant to the provisions of this Section 5, the District shall give, or cause to be given,
notice of the occurrence of any of the following events with respect to the Certificates, if material:
1. principal and interest payment delinquencies.
2. non-payment related defaults.
505271.3i22062.0024 2
3.
4.
5.
6.
7.
Certificates.
8.
difficulties.
9.
10.
11.
modifications to rights of Certificateholders.
optional, contingent or unscheduled Certificate calls.
‘defeasances.
rating changes.
adverse tax opinions or events affecting the tax-exempt status of the
unscheduled draws on the debt service reserves reflecting financial
unscheduled draws on the credit enhancements reflecting financial difficulties.
substitution of the credit or liquidity providers or their failure to perform.
release, substitution or sale of property securing repayment of the Certificates.
04 Whenever the District obtains knowledge of the occurrence of a Listed Event, the
District shall as soon as possible determine if such event would be material under applicable federal securities laws.
w If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the District shall promptly file a notice of such occurrence with the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Certificates pursuant to the Trust Agreement.
6. Customarilv Prenared and Public Information. Upon request, the District shall provide
to any person financial information and operating data regarding the District which is customarily prepared by the District and is publicly available.
7. Termination of Obligation. The District’s obligations under this Disclosure Certificate
shall terminate upon the legal defeasance, prior prepayment or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).
8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the District may amend this Disclosure Certifkate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such
amendment or waiver is permitted by the Rule.
9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to
prevent the District from disseminating any other information., using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any tiormation in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event.
10. Default. In the event of a failure of the District to comply with any provision of this
505271.3V22062.0024 3
Disclosure Certificate, any Holder or Beneficial Owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.
No Holder or Beneficial Owner of the Certificates may institute such action, suit or proceeding
to compel performance unless they shall have first delivered to the District satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the District shall have refused to comply therewith within a reasonable time.
11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Certificates, and shall create no rights in any other person or entity.
Dated: September 24, 1997 CARLSBAD MUNICIPAL WATER DISTRICT
By: Its: President
505271.3U2062.0024
Nationally Recognized Municipal Securities Information Repositories approved by the Securities and Exchange Commission a;S of September 24, 1997:
Bloomberg Municipal Repository JJ Kenny Information Services
P.O. Box 840 The Repository Princeton, NJ 08542-0840 65 Broadway, 16th Floor Internet address: MUNIS@bloomberg.doc New York, NY 10006
(609) 279-3200 (2 12) 770-4568 FAX (609) 279-3235 (609) 279-5963 FAX (212) 797-7994 Contact: Dave Campbell Contact: Joan Horai, Repository
The Bond Buyer Secondary Market Disclosure 3 95 Hudson Street, 3 rd Floor New York, NY 10014 Internet address: Disclosure@muller.com (212) 807-3814 FAX (212) 989-9282
Contact: Thomas Garske
Disclosure, Inc. Document Augmentation/ Municipal Securities
5161 River Road
Bethesda, MD 20816 (301) 951-1450 FAX (301) 718-2329
Contact: Barry Sugarman (301) 215-6015
Moody’s NRMSIR Public Finance Information Center 99 Church Street New York, NY 10007-2796 (800) 339-6306 FAX (212) 553-1460 Contact: Claudette Stephenson (212) 553-0345
Donnelley Financial Municipal Securities Disclosure Archives 559 Main Street
Hudson, MA 01749
Internet address: HTlP:\\www.municipal.com (800) 580-3670
FAX (508) 562-1969
DPCData Inc. One Executive Drive Fort Lee, NJ 07024
(201) 346-0701 FAX (201) 947-0107 E-mail: nrmsir@dpcdata.com
505271.3L22062.0024 A-l
EXHIBIT B
NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: CARLSBAD MUNICIPAL WATER DISTRICT
Name of Issue: 1997 WATER REVENUE CERTIFICATES OF PARTICIPATION (1988 REFUNDING PROJECT)
Date of Issuance September 24, 1997
NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Certificates as required by the Continuing Disclosure Certificate approved pursuant to a Resolution adopted by the Board of Directors of the District on August 26, 1997. The District anticipates that the Annual Report will be filed by
Dated:
CARLSBAD MUNICIPAL WATER DISTRICT
505271.3\22062.0024 B-l
ASSIGNMENT AGREEMENT
by and between
CITY OF CARLSBAD PUBLIC IMPROVEMENT CORPORATION
and
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION,
as Trustee
Dated as of September 1,1997
relating to
$[Certifkate Amount]
CARLSBAD MUNICIPAL WATER DISTRICT
1997 WATER REVENUE CERTIFICATES OF PARTICIPATION
(1988 REFUNDING PROJECT)
505266.3D2062.0024
ASSIGNMENT AGREEMENT
This Assignment Agreement is made and entered into as of September 1, 1997 by and
between the City of Carlsbad Public Improvement Corporation, a nonprofit public benefit
corporation duly organ&d and existing under the laws of the State of California (the
“Corporation”) and First Trust of California, National Association, a national banking association
duly organ&l and existing under the laws of the United States of America as trustee (the
“Trustee”);
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS AND
COVENANTS CONTAINED HEREIN AND FOR OTHER VALUABLE CONSIDERATION,
THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS:
Section 1. Assienment
The Corporation, for good and valuable consideration in hand received, does hereby sell,
assign and transfer to the Trustee without recourse, for the benefit of the owners of the 1997 Water
Revenue Certificates of Participation (1988 Refunding Project) (the “Certificates”), to be executed
and delivered by the Trustee pursuant to the Trust Agreement, dated as of September 1, 1997 (the
“Trust Agreement”), by and among the Carlsbad Municipal Water District (the “District”), the
Corporation and the Trustee, all of its rights, title, and interest in the Installment Purchase
Agreement, dated as of September 1, 1997 (the “Installment Purchase Agreement”), by and
between the District and the Corporation including the right to receive all installment payments
from the District under the Installment Purchase Agreement (but not including the right to be
indemnified and the right to receive notices pursuant to the Installment Purchase Agreement),
together with any and all of the other rights of the Corporation under the Installment Purchase
Agreement as may be necessary to enforce payment of such installment payments when due or
otherwise to protect the interests of the owners of the Certificates, The assignment herein is
absolute and presently effective.
Section 2. Acceptance.
The Trustee hereby accepts the foregoing assignment for the purpose of securing the right
assigned to it to receive all such installment payments from the District under the Installment
Purchase Agreement and the other rights assigned to it, subject to the terms and provisions of the
Trust Agreement, and all such installment payments shall be applied and the rights so assigned
shall be exercised by the Trustee as provided in the Trust Agreement.
Section 3. Conditions.
This Assignment Agreement shall confer no rights and impose no obligations upon the
Trustee beyond those expressly provided in the Trust Agreement. This Assignment Agreement
shall constitute a complete assignment by the Corporation of all of its rights under and pursuant to
the Installment Purchase Agreement, except as otherwise provided herein.
505266.3U2062.0024
C
.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by
their officers thereunto duly authorized as of the day and year first written above.
i
CITY OF CARLSBAD PUBLIC IMPROVEMENT
CORPORATION
By:
Its: President
FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, as Trustee
By:
Its: Authorized Officer
505266.3U2062.0024 2
JUDIE KRAWIEC
DIRECT DIAL: (714) 7X-4053
JKRAWIEC@S’fCf?.COM
STRADLING YOCCA CARLSON & RAUTH
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
660 NEWPORT CENTER DRIVE. SUITE 1600
NEWPORT BEACH, CALIFORNIA 32660-6441
TELEPHONE (714) 725-4000
FACSIMILE (714) 725-4100
SAN FRANCISCO OFFICE
44 MONTGOMERY STREET. SUITE 2850
SAN FRANCISCO. CALIFORNIA 94104
TELEPHONE ,415) 765.9180
FACSIMILE (415) 765-9187
January 21, 1998
k%i UNITED PARCEL SERvlCE
To: Persons on the Attached Distribution List
Re: $7,400,000 Carlsbad Municipal Water District 1997 Water Revenue
Certificates of Participation (1988 Refunding Project)
Ladies and Gentlemen:
Please find enclosed a Transcript of Proceedings prepared in connection with the closing of the
above-referenced financing.
If you should need anything further, do not hesitate to call me or E. Kurt Yeager, Esq. at
714-725-4169.
Sincerely,
STRADLING, YOCCA, CARLSON & RAUTH
+d--.Aa
Judie Krawiec
Legal Assistant
Enclosure
557740.1\22062.0024
#
A .
Stradlingi, Yocca, Carlson & Rauth
%7,400,000
CARLSBAD MUNICIPAL WATER DISTRICT
1997 WATER REVENUE CERTIFICATES OF PARTICIPATION
(1988 REFUNDING PROJECT)
TRANSCRIPT DISTRIBUTION LIST
ISSUER
City of Carlsbad
Office of the City Manager
1200 Carlsbad VilIage Drive
Carlsbad, CA 92008-1989
Mr. James F. Elliott, Financial Management Director
Ms. Lisa Hildabrand, Finance Director
Jim Stanton, Treasurer
Jane Mobaldi, Esq., Deputy City Attorney
BOND COUNSEL
Stradhng, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
E. Kurt Yeager, Esq.
UNDERWRITER
Morgan Stanley Dean Witter
101 California Street, 7* Floor
San Francisco, CA 94111
Ms. Celeste E. Davis, Senior Vice President
Fax: (760) 720-9461
(760) 434-2948
(760) 434-2867
(760) 434-2891
Fax: (760) 434-8367
Fax: (714) 725-4100
(714) 725-4169
Fax: (415) 693-6668
(415) 693-6536
506017.1\22062.0024
UNDERWRITER’S COUNSEL
Jones Hall
650 California Street, 1 8h Floor
San Francisco, CA 94108
William H. Madison, Esq.
FINANCIAL ADVISOR
Dillon, Read & Co., Inc.
555 California Street, Suite 4360
San Francisco, CA 94104
Mr. Peter Ross
TRUSTEE
First Trust of California
550 South Hope Street, Suite 500
Los Angeles, CA 90071
Mr. John M&tire
INSURER
Financial Security Assurance Inc.
Steuart Tower, One Market
San Francisco, CA 94105-1413
Barry Scott, Associate General Counsel
Fax: (415) 391-5784
(415) 391-5780
Fax: (415) 296-8956
(415) 296-8065
Fax: (213) 533-8729
(213) 533-8711
(415) 995-8046
FAX: (415) 995-8008
506017.1'22062.0024 2