HomeMy WebLinkAbout2008-05-14 " I ORANGE COUNTY SANITATION DISTRICT
May 9, 2008
phone:
(714)962-2411 NOTICE OF SPECIAL MEETING
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[7141962U355
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re.111 Qadd1s.: BOARD OF DIRECTORS
P.O. Box 8127
reuntah Velley.CA ORANGE COUNTY SANITATION DISTRICT
992E-B127
street address:
10844 Blis Avenue
`°aM9270a 7o a WEDNESDAY, MAY 14, 2008 - 5:00 P.M.
Member
Agenci
es
DISTRICT'S ADMINISTRATIVE OFFICES
c1ne. 10844 Ellis Avenue
Fountain Valley, California 92708
Anaheim
Brae
Buena Park
Lyprass
Fountain Way
F Udrten A Special Meeting of the Board of Directors of the Orange County Sanitation
Garden Sr..
Handngton Bach District will be held at the above location, time and date.
Irvine
Le Habra
La Palma
Las Alamitos
Newport Beach
Orange
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Villa Palk Perk
lbrbs Linda Steering Committee -Wednesday, May 28, 2008 at 5:30 p.m.
County of orange Regular Board Meeting -Wednesday, May 28, 2008 at 6:30 p.m.
Operations Committee -Thursday, June 12, 2008 at 5:00 p.m.
9a.1t.,y ol.trlet. Administration Committee -Thursday,June 12, 2008 at 6:00 p.m.
Ceara Mesa
Midway Gty
Water ol..rl.t.
Irvne Ranch
To maintain worldclees leedershW in wasceweter and water resource menegarnam
AGENDA
BOARD OF DIRECTORS
ORANGE COUNTY SANITATION DISTRICT
DISTRICT'S ADMINISTRATIVE OFFICES
10844 ELLIS AVENUE
FOUNTAIN VALLEY, CA 92708
SPECIAL MEETING
May 14, 2008 —5:00 P.M.
1. Invocation and Pledge of Allegiance
2. Roll Call
3. Public Comments
5. The Chair, General Manager and General Counsel may present verbal reports on
miscellaneous matters of general interest to the Directors. These reports are for
information only and require no action by the Directors.
CONSENTCALENDAR
6. No items to be considered.
NON-CONSENT CALENDAR
7. Adopt Resolution No. OCSD08-05, a Resolution of the Board of Directors of the Orange
County Sanitation District Authorizing the Execution and Delivery by the District of an
Installment Purchase Agreement, a Trust Agreement, and a Continuing Disclosure
Agreement in connection with the execution and delivery of Orange County Sanitation
District Certificates of Participation, Refunding Series 2008A, Authorizing the Execution
and Delivery of such Certificates Evidencing Principal in an Aggregate Amount of Not to
Exceed $85,000,000, Authorizing the Distribution of an Official Notice Inviting Bids and
an Official Statement in Connection with the Offering and Sale of such Certificates and
Authorizing the Execution of Necessary Documents and Related Actions.
8. Recess by Board of Directors, Orange County Sanitation District
9. Call to Order, Board of Directors, Orange County Sanitation District Financing
Corporation:
a. Roll Call
b. Report of the Director of Finance
05/14/08
Page 2
d. Adopt Resolution No. FC-06, a Resolution of the Board of Directors of the
Orange County Sanitation District Finance Corporation Authorizing the Execution
and Delivery by the Corporation of an Installment Purchase Agreement, a Trust
Agreement, and a Continuing Disclosure Agreement in connection with the
execution and delivery of Orange County Sanitation District Certificates of
Participation, Refunding Series 2008A, Authorizing the Execution and Delivery of
such Certificates Evidencing Principal in an Aggregate Amount of Not to Exceed
$85,000,000, Authorizing the Distribution of an Official Notice Inviting Bids and
an Official Statement in Connection with the Offering and Sale of such
Certificates and Authorizing the Execution of Necessary Documents and Related
Actions.
10. Adjourn, Board of Directors, Orange County Sanitation District Financing Corporation.
11. Reconvene, Board of Directors, Orange County Sanitation District
12. Closed Session
CLOSED SESSION: During the course of conducting the business set forth on this
agenda as a regular meeting of the Board, the Chair may convene the Board in
closed session to consider matters of pending real estate negotiations, pending or
potential litigation, or personnel matters, pursuant to Government Code Sections
54956.8. 54956.9, 54957 or 54957.6, as noted.
Reports relating to (a) purchase and sale of real property; (b) matters of pending or
potential litigation; (c) employment actions or negotiations with employee
representatives; or which are exempt from public disclosure under the California
Public Records Act, may be reviewed by the Board during a permitted closed
session and are not available for public inspection. At such time as the Board takes
final action on any of these subjects, the minutes will reflect all required disclosures
of information.
a. Convene in closed session, if necessary
b. Reconvene in regular session
C. Consideration of action, if any, on matters considered in closed session
13. Other business and communications or supplemental agenda items, If any.
14. Adjournment-The next Board of Directors regular meeting is scheduled for May 28,
2008, at 6:30 p.m.
05/14/08
Page 3
Agenda Posfina: In accordance with the requirements of California Government Code Section 54954.2,this agenda
has been posted in the main lobby of the District's Administrative offices not leas than 72 hours prior to the meeting
date and time above. All written materials relating to each agenda item are available for public inspection in the
office of the Clerk of the Board.
Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Board for
discussion and/or action,it will be done in compliance with Section 54954.2(b)as an emergency Item or because
there is a need to take immediate action,which need came to the attention of the Board subsequent to the posting of
agenda,or as set forth on a supplemental agenda posted in the manner as above,not less than 72 hours prior to the
meeting date.
Public Comments: Any member of the public may address the Board of Directors on specific agenda items or
matters of general interest. As determined by the Chair,speakers may be defamed until the specific item is taken for
discussion and remarks may be limited to three minutes.
Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by
the Board of Directors except as authorized by Section 54954.2(b). If you wish to speak, please complete a
Speakers Forth(located at the table outside of the Board Room)and give it to the Clark of the Board.
Consent Calendar:All matters placed on the Consent Calendar are considered as not requiring discussion or further
explanation and unless any particular item is requested to be removed from the Consent Calendar by a Director,staff
member or member of the public in attendance,there will be no separate discussion of these items. All items on the
Consent Calendar will be enacted by one action approving all motions,and casting a unanimous ballot for resolutions
included on the consent calendar. All items removed from the Consent Calendar shall be considered in the regular
order of business.
Members of the public who wish to remove an item from the Consent Calendar shall, upon recognition by the Chair,
state their name,address and designate by number the item to be removed from the Consent Calendar.
The Chair will determine if any items are to be deleted from the Consent Calendar.
Items Continued: Items may be continued from this meeting without further notice to a Committee or Board meeting
held within five(5)days of this meeting per Government Code Section 54954.2(b)(3).
Meeting Adioummenl: This meeting may be adjourned to a later time and items of business from this agenda may
be considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code
Section 54955(posted within 24 hours).
Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require
any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the
Board's office at(714)593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature
of the disability and the type of accommodation requested.
.......
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NOTICE TO DIRECTORS: To place items on the agenda for the Regular Meeting of the Board of
Directors, items shall be submitted to the Clerk of the Board no later than the close of business 14 days j
preceding the Board meeting. The Clerk of the Board shall include on the agenda all items submitted by
Directors, the General Manager and General Counsel and all formal communications.
General Manager James D.Ruth (714)593-7110 iruth� cs od.cam
Assistant General Manager Bob Ghirelli (714)593-7400 rohirellitMomd.wm
Clerk of the Board Penny Kyle (714)593-7130 pkvleGpocsd.wm
Director of Engineering Jim Herberg (714)593-7020 iherbergOocsd.wm
Director of Fin.8 Admin Services Lorenzo Tyner (714)593-7550 Itvner0oced.com
Director of Operations 3 Nick Arhonles (714)593-7210 narhomesfi)ocsd.00
Maintenance
Director of Technical Services Ed Tortes (714)593-7080 etorresaocsd.com I
General Counsel Brad Hogin.......................................(714)415:1006.,-., o cos -I w. .--.............--.....-._,
H:WepNgenda\Board Agandas\2008 Board Agendos\051408 agende.special.dom
BOARD OF DIRECTORS Meeting Date To6d.01Dlr.
05/14/0a
AGENDA REPORT Item Itemrvumber
Orange County Sanitation District
FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
SUBJECT: CERTIFICATES OF PARTICIPATION (COPS), REFUNDING SERIES 2008A
GENERAL MANAGER'S RECOMMENDATION
Adopt Resolution No. OCSD08-05, a Resolution of the Board of Directors of the Orange County
Sanitation District Authorizing the Execution and Delivery by the District of an Installment
Purchase Agreement, a Trust Agreement, and a Continuing Disclosure Agreement In
connection with the execution and delivery of Orange County Sanitation District Certificates of
Participation, Refunding Series 2008A, Authorizing the Execution and Delivery of such
Certificates Evidencing Principal in an Aggregate Amount of Not to Exceed $85,000,000,
Authorizing the Distribution of an Official Notice Inviting Bids and an Official Statement in
Connection with the Offering and Sale of such Certificates and Authorizing the Execution of
Necessary Documents and Related Actions.
SUMMARY
As a result of the financial problems of the District's bond Insurer on the District's COP
Refunding Series 1992 debt issue, the District's remarketing agent is having difficulty in
remarketing this variable rate debt on a weekly basis. It's critical that the District take action to
remove these difficulties In order to avoid additional Interest expense throughout the remaining
five-year life of this issue totaling $6.4 million. This special meeting was necessary to avoid
$300,000 to$400,000 in additional interest costs that would occur as a result of delaying action
until the regularly scheduled board meeting.
The District's$160.6 million COP Refunding Synthetic Fixed Rate debt was issued in 1992 as
weekly variable rate debt and simultaneously converted by the District to fixed rate debt through
a swap agreement with American International Group, Inc. (AIG). This agreement requires the
District to pay AIG a 5.55 percent fixed rate on the outstanding debt while AIG paid the going
variable market rate. The District's underlying insurer on this debt issue, Ambac Financial
Group, Inc. (Ambac), is currently experiencing financial problems due to difficulties stemming
from the subprime housing crisis and, as result, the remarketing agent, UBS, is having difficulty
remarketing the COP Series 1992 on a weekly basis. In addition, UBS, an investment bank
headquartered in Switzerland, announced last week that they were exiting the U.S. public
finance market. UBS remarketing support for the COP Series 1992 is, at best, questionable,
given the lack of interest from investors and complicated by the announced departure of UBS
from the public finance market.
Fmm No.DW-102 Agenda Report-Beard
Revised: 1VNMB
Page 1
Options Available to the District
1. Do Nothing
The District has enjoyed present value savings of$6.5 million since 1992 as a result of entering
Into the swap agreement over issuing plain fixed rate debt. However, if the District was to take
no action at this time, there is a high probability that UBS may be unable to successfully
remarket these COPS to investors. If this were to occur, unsold cops would be sent back to the
liquidity facility bank(the bank that supports the underlying par value of the bonds until they are
sold to a new buyer or redeemed), Lloyds Bank. This action would trigger an alternative interest
rate as defined within the swap agreement that more than doubles the District's existing 5.5
percent negotiated fixed rate with AIG. Based on current market conditions,this higher
interest rate would result in a present value cost to the District to final maturity in 2013 of
36.4 million which negates almost all the original realized savings to date from the swap.
2. Refund COP Series 1092 as a New Refunding COP Synthetic Fixed Rate Debt Issue
In doing so,we would be Issuing this debt under the District's credit rating without outside
insurance as we did with the COP Series 2006 Variable Rate Debt issue, thereby eliminating
the underlying insurer problems with Ambac. In the current market, investors have no issues
with purchasing the District's unenhanced (without bond insurance)variable rate debt due to the
District's double-A credit ratings bated by a bank liquidity facility.
This structure would also be amend the AIG swap agreement from the COP Series 1992 to the
new refunding issue without Incurring any termination fees. (AIG would be entitled to a
termination fee as high as$6.4 million if the District were to terminate the swap. This structure
was put Into place back in 1992 to offset some of the risk exposure to AIG should interests rate
become favorable to them. In a rising Interest rate environment, AIG would lose money as a
result of the swap; in a declining interest rate environment, AIG makes money as a result of the
swap. The termination fee structure is to ensure that AIG is not penalized due to the risk they
have undertaken by the issuer refunding the debt in a low interest rate environment.)
Total estimated cost that would be incurred under this alternative would be:
Cost of Issuance $ 545,000
Underwriter Costs 360,000
Additional 25 basis paints
In Liquidity fees to Lloyds
to maturity(current market
Rates) 495,000
Additional interest expense
in the paying off of the 1992
debt Issue for one month 770,000
Total Estimated Cost g2.tt
Additional concerns with this option.
Farm Ne,M-102 Agenda R,.d—Board
Revised: 1WO6106
Page 2
v
1. The District would be exposed to bank facility provider credit risk and renewal risk In
three years and continue to retain some level of put risk based on unforeseeable future
market disruptions.
2. Negotiations could be Involved and time consuming with AIG, Lloyds, and the
remarketing agent successor to UBS.
3. Cost of issuance cannot be funded from bond proceeds(must be funded from District
available reserves).
3. Refund COP Series 1992 as New Refunding COP Fixed Rate Debt
Refunding the debt at a fixed rate would require the termination of the AIG swap agreement that
has a current market value of approximately$6.4 million that would be owed by the District,
although it is possible a lower termination fee will be negotiated.
However, since current fixed rate refunding borrowing costs are approximate 3 percent, the
present value in interest rate savings over the remaining five-year life will offset much of the
termination fee.
Total estimated cost that would be incurred under this alternative would be:
Cost of Issuance $ 400,000
Estimated Swap termination
Fee 6,400,000
Present Value Debt
Service Savings (4,700,000)
Total Estimated Cost $2.100.000
Additional benefits with refunding with fixed rates:
1. The District can fund all costs with new bond Issue (no out-of-pocket costs).
2. Fixed rate refunding will require less negotiations with third parties.
3. Obtaining ratings from bond rating agencies will be simpler and faster.
4. Once the debt is issued, there will be no further outside risks to the District.
Staff is recommending Option 3, the refunding of the COP Series 1992 Synthetic Fixed Rate
Debt Issue as a standalone fixed rate debt issue that will preserve the majority of the original
expected swap savings, has less risk associated with it, and can be completed sooner than
Option 2.
This refunding financing will be structured as new fixed rate Certificates of Participation that is to
be sold in a competitive sale. Staff and consultants will make a brief presentation and provide
an overview of the draft documents and the financing schedule at the Board meeting.
Farm No.DW-1M Agend,ftW-8o
Ravin: 1MMS
Page 3
PRIOR COMMITTEE/BOARD ACTIONS
N/A
ADDITIONAL INFORMATION
The $85 million that is borrowed will be repaid with interest over the next 6 years. The total
interest cost Is expected to approximate 3.0% (or less than approximately$8 million).
The Board of Directors and the Financing Corporation will each be required to adopt separate
Resolutions to complete this borrowing. Drafts of these two Resolutions are attached for
review. A Financing Corporation is required by the structure of the COPs and was formed in
April 2000, solely to satisfy this need. The Board of Directors of the Corporation is the same as
the Board of Directors of the District and the Corporation meets after an adjournment of the
OCSD Board.
The OCSD Resolution authorizes the execution and delivery of certain legal documents and the
execution and delivery of Certificates of Participation evidencing principal in an aggregate
amount of not to exceed $85,000,000 all as spelled out in the title as follows:
"A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY
SANITATION DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY BY THE
DISTRICT OF AN INSTALLMENT PURCHASE AGREEMENT, A TRUST AGREEMENT,AND
A CONTINUING DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION
AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT CERTIFICATES OF
PARTICIPATION, SERIES 2008A, AUTHORIZING THE EXECUTION AND DELIVERY OF
SUCH CERTIFICATES EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO
EXCEED$85,000,000, APPROVING A NOTICE OF INTENTION TO SELL, AUTHORIZING
THE DISTRIBUTION OF AN OFFICIAL NOTICE INVITING BIDS AND AN OFFICIAL
STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH
CERTIFICATES, AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS
AND RELATED ACTIONS."
The Resolution of the Corporation is somewhat shorter and simpler. It authorizes three actions
that are similarly enumerated in the title as follows:
"A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY
SANITATION DISTRICT FINANCING CORPORATION AUTHORIZING THE EXECUTION AND
DELIVERY BY THE CORPORATION OF AN INSTALLMENT PURCHASE AGREEMENT AND
A TRUST AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF
ORANGE COUNTY SANITATION DISTRICT CERTIFICATES OF PARTICIPATION, SERIES
2008A; AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH CERTIFICATES
EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT-TO-EXCEED $85,000,000
AND; AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND
CERTIFICATES AND RELATED ACTIONS."
Fora No.M-102 Agenda Repon-Board
Revise: 1900N6
Page 4
Following is a chart listing the remaining steps to be completed for the issuance of the COP
Series 2008A debt issuance:
D Board approval of legal and disclosure documents
D Publish Notice of Intention to Sell
May D Receive Ratings from Bond Rating Agencies
D Competitive Pricing
D Closing
Redemption Notice
ATTACHMENTS
N/A
JDR:LT:MW
Fq WM-102 And.Rep."—eperd
Revised: 1DO6106
Page 5
ROLL CALL
BOARD OF DIRECTORS
ORANGE COUNTY SANITATION DISTRICT
MEETING DATE & TIME: 05/14/08 (liftQ (lido
(SHANKS) ........................ANTOS .........................
(QUIRK) ...........................BANKHEAD................... ✓ ✓
(AYER)..............................CRANDALL................... ✓
(JONES)............................DALTON....................... v y ✓ ✓
(PALMER).........................DAVERT......................
(CAVECCHE)....................DUMITRU ...................
(GOMEZ) ..........................ESPIN07A................... 1T� OL, — L0. a.
(OOTEN)...........................FERRYMAN................... �G ✓
(REESE)............................FRESCHI .............. ..... — ✓
(HARDY) ..........................HANSEN ...................... — ✓ v
(NARAIN) ..........................LUEBBEN..................... v v v
(DOW)...............................MARSHALL.................. 0-
(REINHART) .....................MILLER .........................
(GARCIA)..........................MOORE........................ ✓ ✓
(KRIPPNER) .....................NEUGEBAUER.............. ✓
(NGUYEN) ........................NORBY....................... ✓ ✓
(DRISCOLL)......................PARKER....................... v v
(CADENA) ........................SHAWVER.................. ✓ v
(CHOI)...............................SHEA.......................... y
(KRING) ............................SIDHU.......................... a, 0 . a —
(BENAVIDES)...................TINAJERO.................... cz — LL, — A— cL
(AGUIRRE) .......................UNDERHILL ................. v v ✓
(CHAROEN)......................WALDMAN....................
(DAIGLE) ..........................WEBB .......................... a-- — a v-
(ANDERSON) ...................WINDER ...................... v v v
STAFF:
Arhontes ✓ 1Z 7�z n m
Colson
Ghirelli ✓ 5/
Herberg
Kovac ✓
Kyle
Ruth
Torres
Tyner ✓
OTHERS: '
Ho in ✓
04/23/08
H:Wept\edmin\8S0lRECT0R\Directors Roll Call.doc
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May 12, 2008
Penny Kyle l2 copies no label)
Clerk of the Board
TO: Bm itation District
FROM: Lon nistrative Services
SUBJECT: Spr _ ._... ..— 1, oupplemental Documents
This package includes the following documents which supplement Item No. 7 of the
Special Meeting Agenda of May 14, 2008:
1. Trust Agreement
2. Installment Purchase Agreement
3. Offich*Notice Inviting Bids
4. Notice of Intention to Sell
5. Continuing Disclosure Agreement
6. Preliminary Official Statement
7. Escrow Agreement
8. Resolution No. FC-04
9. Resolution 08-XX
LT:Ic
H:Wepfiasd12Y01CRANENDMINISTRATION COMMITTEEADMIN 2008VMYSOD081208.docx
CSDOC P.O.Box 8127 Fountain Vaney,C 92720-0127 (714)902-2411
Fulbright& Jaworski L.L.P. Draft-5/12/08
TRUST AGREEMENT
by and among
U.S. BANK NATIONAL ASSOCIATION,
as Trustee,
ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION
and
ORANGE COUNTY SANITATION DISTRICT
Dated as of May 1, 2008
Relating to
$[PAR]
Orange County Sanitation District
Refunding Certificates of Participation
Series 2008A
80198094.3
i TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS;EQUAL SECURITY
Section 1.01. Definitions........................................................................................................2
Section 1.02. Definitions in Installment Purchase Agreement..............................................9
Section 1.03. Equal Security..................................................................................................9
ARTICLE 11
TERMS AND CONDITIONS OF CERTIFICATES
Section 2.01. Preparation and Delivery of Certificates..........................................................9
Section 2.02. Denomination,Medium and Dating of Certificates....................................... 10
Section 2.03. Payment Dates of Certificates;Interest Computation.................................... 10
Section 2.04. Form of Certificates....................................................................................... 11
Section 2.05. Execution of Certificates and Replacement Certificates............................... l l
Section 2.06. Transfer and Payment of Certificates;Exchange of Certificates................... I I
Section 2.07. Certificate Registration Books....................................................................... I I
Section2.08. Temporary Certificates.................................................................................. l l
Section 2.09. Certificates Mutilated,Lost,Destroyed or Stolen......................................... 12
Section2.10. Book-Entry System........................................................................................ 12
ARTICLE III
PROCEEDS OF CERTIFICATES
Section 3.01. Delivery of Certificates.................................................................................. 15
Section 3.02. Deposit of Proceeds of Certificates................................................................ 15
Section3.03. Costs of Issuance Fund.................................................................................. 15
Section3.04. Reserved......................................................................................................... 15
ARTICLE IV
NO PREPAYMENT OF CERTIFICATES
Section4.01. Prepayment.................................................................................................... 15
ARTICLE V
ASSIGNMENT AND PLEDGE;FUNDS AND ACCOUNTS
Section 5.01. Assignment and Pledge.................................................................................. 16
Section5.02. Installment Payment Fund............................................................................. 16
Section 5.03. Reserve Fund................................................................................................. 17
Section5.04. Rebate Fund................................................................................................... 19
Section5.05. Investment of Moneys.................................................................................... 19
ARTICLE VI
COVENANTS
Section 6.01. Compliance with Trust Agreement................................................................20
Section 6.02. Compliance with Installment Purchase Agreement.......................................20
Section 6.03. Compliance with Master Agreement.............................................................20
90198094.3 i
TABLE OF CONTENTS
(continued)
Page
Section6.04. Observance of Laws and Regulations............................................................20
Section6.05. Other Liens.....................................................................................................20
Section 6.06. Prosecution and Defense of Suits..................................................................20
Section 6.07. Accounting Records and Statements.............................................................20
Section6.08. Tax Covenants...............................................................................................21
Section6.09. Continuing Disclosure...................................................................................24
Section6.10. Further Assurances.........................................................................................24
ARTICLE VII
DEFAULT AND LIMITATIONS OF LIABILITY
Section 7.01. Action upon Event of Default........................................................................25
Section 7.02. Other Remedies of the Trustee......................................................................25
Section7.03. Non-Waiver....................................................................................................25
Section7.04. Remedies Not Exclusive................................................................................26
Section 7.05. Application of Amounts After Default..........................................................26
Section 7.06. Trustee May Enforce Claims Without Possession of Certificates.................27
Section7.07. Limitation on Suits.........................................................................................27
Section 7.08. No Liability by the Corporation to the Owner...............................................27
Section 7.09. No Liability by the District to the Owners.....................................................27
Section 7.10. No Liability of the Trustee to the Owners.....................................................27
ARTICLE Vlll
THE TRUSTEE
Section8.01. Employment of the Trustee;Duties...............................................................28
Section 8.02. Removal and Resignation of the Trustee.......................................................28
Section 8.03. Compensation and Indemnification of the Trustee........................................29
Section8.04. Protection of the Trustee................................................................................30
ARTICLE IX
AMENDMENT OF OR SUPPLEMENT TO TRUST AGREEMENT
Section 9.01. Amendment or Supplement........................................................................... 31
Section 9.02. Disqualified Certificates................................................................................ 32
Section 9.03. Endorsement or Replacement of Certificates After Amendment or
Supplement .................................................................................................... 32
Section 9.04. Amendment by Mutual Consent.................................................................... 32
ARTICLE X
DEFEASANCE
Section 10.01. Discharge of Certificates and Trust Agreement............................................. 33
Section10.02. Unclaimed Moneys........................................................................................ 34
ARTICLE XI
MISCELLANEOUS
Section 11.01. Benefits of Trust Agreement..........................................................................34
801980%.3 ii
TABLE OF CONTENTS
(continued)
Page
Section 11.02. Successor Deemed Included in all References to Predecessor......................34
Section 11.03. Execution of Documents by Owners.............................................................35
Section 11.04. Waiver of Personal Liability..........................................................................35
Section 11.05. Acquisition of Certificates by District...........................................................35
Section 11.06. Content of Certificates...................................................................................35
Section 11.07. Funds and Accounts.......................................................................................36
Section 11.08. Article and Section Headings, Gender and References.................................36
Section 11.09. Partial Invalidity.............................................................................................36
Section11.10. California Law...............................................................................................37
Section11.11. Notices...........................................................................................................37
Section 11.12. Effective Date................................................................................................37
Section 11.13. Execution in Counterparts..............................................................................37
EXHIBIT A-FORM OF CERTIFICATE
80198 j iii
1 TRUST AGREEMENT
THIS TRUST AGREEMENT (this "Trust Agreement), dated as of May 1, 2008, by
and among U.S. BANK NATIONAL ASSOCIATION, a national banking association organized
and existing under the laws of the United States of America, as Trustee (the "Trustee"), the
ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION, a nonprofit
public benefit corporation organized and existing under the laws of the State of California (the
"Corporation"), and the ORANGE COUNTY SANITATION DISTRICT, a county sanitation
district organized and existing under the laws of the State of California (the"District").
WITNESSETH:
WHEREAS, to refinance the acquisition, construction and installation of certain
improvements to the wastewater system (the "Prior Project") of certain predecessor county
sanitation districts of the District, to wit, County Sanitation District Nos. 1, 2, 3, 5, 6, 7 and 11
(collectively, the "Predecessor Districts"), the Predecessor Districts purchased the Prior Project
by agreeing to make installment payments (the "Prior Installment Payments' pursuant to the
Amendatory Agreement for Acquisition and Construction, dated as of October 1, 1992, by and
among the Predecessor Districts;
WHEREAS, to provide the funds necessary to refinance the Prior Project, the
Predecessor Districts caused the execution and delivery of the Refunding Certificates of
Participation, Series 1992 (the "Prior Certificates"), evidencing direct, undivided fractional
interests in the Prior Installment Payments;
WHEREAS, the District desires to refinance all of the Prior Project by prepaying all of
the remaining principal components of the Prior Installment Payments, and the interest
components thereof to the date of prepayment, thereby causing all of the Prior Certificates to be
prepaid;
WHEREAS, to provide the funds necessary to prepay the Prior Installment Payments to
be so prepaid, the District and the Corporation desire that the Corporation purchase the Prior
Project from the District and the District sell the Prior Project to the Corporation, and that the
District then purchase the Prior Project from the Corporation and the Corporation sell the Prior
Project to the District, for the installment payments (the "Installment Payments") to be made by
the District pursuant to this Installment Purchase Agreement the Corporation and the District
have agreed to finance such prepayment by executing and delivering Orange County Sanitation
District Refunding Certificates of Participation, Series 2008A (the"Certificates");
[ADD SWAP SETTLEMENT OR TERMINATION PAYMENT AS APPLICABLE]
WHEREAS, pursuant to the Master Agreement for District Obligations, dated as of
August 1,2000, by and between the District and the Corporation,the District has established and
declared the conditions and terms upon which obligations such as this Installment Purchase
Agreement, and the Installment Payments, and the interest thereon, are to be incurred and
secured;
801980 3
WHEREAS, the Corporation proposes to assign without recourse certain of its rights ,
under and pursuant to this Installment Purchase Agreement to the Trustee; and
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 Trust 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 deliver this Trust Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
and covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged,the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS; EQUAL SECURITY
Section 1.01. Definitions. Except as provided in Section 1.02 hereof or 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 the Certificates and of any certificate,
opinion, request 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:
"Authorized Corporation Representative" means the President,the Vice President, the
Treasurer and the Secretary of the Corporation,and any other Person authorized by the President
of the Corporation to act on behalf of the Corporation under or with respect to this Trust
Agreement.
"Authorized Denominations"means$5,000 and integral multiples thereof.
"Authorized District Representative" means the General Manager of the District, the
Director of Finance and Administrative Services of the District,the Controller of the District and
any other Person authorized by the Director of Finance and Administrative Services of the
District to act on behalf of the District under or with respect to this Trust Agreement.
"Beneficial Owners" means those individuals, partnerships, corporations or other
entities for which the Participants have caused the Depository to hold Book-Entry Certificates.
"Book-Entry Certificates" means the Certificates registered in the name of the nominee
of DTC,or any successor securities depository for the Certificates,as the Owner thereof pursuant
to the terms and provisions of Section 2.10 hereof.
"Business Day" means a day other than (a) Saturday or Sunday, (b)a day on which
banking institutions in the city in which the Principal Office is located are authorized or required
by law to be closed, and (c)a day on which the New York Stock Exchange is authorized or
obligated by law or executive order to be closed.
$0198094.3 2
"Cede & Co." means Cede & Co., the nominee of DTC, and any successor nominee of
DTC with respect to the Certificates.
"Certificate Year" means each twelve-month period beginning on August 2 in each year
and extending to the next succeeding August 1, both dates inclusive, except that the first
Certificate Year shall begin on the Closing Date and end on August 1,2009.
"Certificates" means the Orange County Sanitation District Refunding Certificates of
Participation,Series 2008A, executed and delivered by the Trustee pursuant hereto.
"Closing Date"means May_, 2008.
"Code"means the Internal Revenue Code of 1986.
"Continuing Disclosure Agreement" means the Continuing Disclosure Agreement,
dated as of the date hereof, by and between the District and the Trustee, as originally executed
and as it may from time to time be amended in accordance with the terms thereof.
"Corporation" means the Orange County Sanitation District Financing Corporation, a
nonprofit public benefit corporation organized and existing under the laws of the State.
"Costs of Issuance" means all the costs of executing and delivering the Certificates,
including, but not limited to, all printing and document preparation expenses in connection with
this Trust Agreement,the Installment Purchase Agreement, the Certificates and any preliminary
official statement and final official statement pertaining to the Certificates, rating agency fees,
market study fees, legal fees and expenses of counsel with respect to the execution and delivery
of the Certificates, the initial fees and expenses of the Trustee and its counsel and other fees and
expenses incurred in connection with the execution and delivery of the Certificates, to the extent
such fees and expenses are approved by the District.
"Costs of Issuance Fund" means the fund by that name established in accordance with
Section 3.03 hereof.
"Depository" means the securities depository acting as Depository pursuant to
Section 2.10 hereof.
"District" means the Orange County Sanitation District, a county sanitation district
organized and existing under the laws of the State, and any successor thereto.
"DTC"means The Depository Trust Company,New York,New York and its successors.
"Escrow Agent" means U.S. Bank National Association, a national banking association,
duly organized and existing under and by virtue of the laws of the United States of America, its
successors and assigns.
"Escrow Agreement" means the Escrow Agreement, dated as of May I, 2008, by and
between the District and the Escrow Agent, providing for the defeasance and refunding of the
Refunded Certificates.
801980N.3 3
"Escrow Fund" means the Escrow Fund established and held by the Escrow Agent
pursuant to the Escrow Agreement.
"Event of Default" shall have the meaning set forth in Section 6.01 of the Installment
Purchase Agreement.
"Government Obligations" means any of the following which are noncallable by the
issuer thereof except to the extent not permitted by the laws of the State as an investment for the
moneys to be invested therein at the time of investment:
(i) (a)direct general obligations of the United States of America,
(b) obligations the payment of the principal of and interest on which are unconditionally
guaranteed as to the full and timely payment by the United States of America, or (c)any
fund or other pooling arrangement whose assets consist exclusively of the obligations
listed in clause(a) or (b) of this clause(i) and which is rated at least "P-l" by Moody's;
provided that, such obligations shall not include unit investment trusts or mutual fund
obligations;
(ii) advance refunded tax-exempt obligations secured by the obligations
specified in clause(i) which tax-exempt obligations are rated "Aaa" by Moody's and
"AAA"by S&P as a result of such obligations being secured by said obligations;
(iii) bonds, debentures or notes issued by any of the following federal
agencies: Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation or
Federal National Mortgage Association; provided that such bonds, debentures or notes
shall be the senior obligations of such agencies (including participation certificates) and
rated"Aaa"by Moody's and"AAA"by S&P; and
(iv) bonds,debentures or notes issued by any Federal agency hereafter created
by an act of Congress, the payment of the principal of and interest on which are
unconditionally guaranteed by the United States of America as to the full and timely
payment; provided, that, such obligations shall not include unit investment trusts or
mutual fund obligations.
"Installment Payment Fund" means the fund by that name established in accordance
with Section 5.02 hereof.
"Installment Payments" means the Installment Payments required to be made by the
District pursuant to Section 3.02 of the Installment Purchase Agreement.
"Installment Purchase Agreement" means the Installment Purchase Agreement, dated
as of the date hereof, by and between the District and the Corporation, as originally executed and
as it may from time to time be amended in accordance with the provisions thereof
"Interest Account" means the account by that name within the Installment Payment
Fund established in accordance with Section 5.02 hereof.
801980 3 4
"Interest Payment Date" means February 1 and August I of each year, commencing
August 1,2008.
"Letter of Representations" means the letter of the District delivered to and accepted by
the Depository on or prior to the 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 maybe supplemented or revised or replaced by a letter to a substitute
Depository.
"Master Agreement" means the Master Agreement for District Obligations, dated as of
August 1, 2000, by and between the District and the Corporation, as originally executed and as it
may from time to time be amended or supplemented in accordance with the terms thereof
"Moody's" means Moody's Investors Service, a corporation organized and existing
under the laws of the State of Delaware, its successors and assigns, except that if such
corporation shall no longer perform the function of a securities rating agency for any reason, the
term "Moody's" shall be deemed to refer to any other nationally recognized securities rating
agency selected by the District.
"Nominee" means the nominee of the Depository, which may be the Depository, as
determined from time to time pursuant to Section 2.11 hereof.
"Opinion of Counsel" means a written opinion of Fulbright& Jaworski L.L.P. or any
other counsel of recognized national standing in the field of law relating to municipal bonds,
appointed and paid by the District and reasonably satisfactory to and approved by the Trustee.
"Outstanding,"when used as of any particular time with reference to Certificates, means
(subject to the provisions of Section 9.02 hereof) all Certificates except (a) Certificates
previously canceled by the Trustee or delivered to the Trustee for cancellation, (b) Certificates
paid or deemed to have been paid within the meaning of Section 10.01 hereof, and
(c)Certificates in lieu of or in substitution for which other Certificates shall have been executed
and delivered by the Trustee pursuant to Section 2.09 hereof.
"Owner" means any Person who shall be the registered owner of any Outstanding
Certificate as indicated in the registration books of the Trustee required to be maintained
pursuant to Section 2.07 hereof
"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.
"Participating Underwriter" has the meaning ascribed thereto in the Continuing
Disclosure Agreement.
"Permitted Investments"means any of the following, except to the extent not permitted
by the laws of the State as an investment for the moneys to be invested therein at the time of
investment:
(1) Government Obligations;
80198M.J 5
(2) Bonds, debentures, notes, participation certificates or other evidences of
indebtedness issued, or the principal of and interest on which are unconditionally
guaranteed, by the Federal Intermediate Credit Bank, the Federal Home Loan Bank
System, the Government National Mortgage Association or any other agency or
instrumentality of or corporation wholly owned by the United States of America when
such obligations are backed by the full faith and credit of the United States for the full
and timely payment of principal and interest;
(3) Obligations of any state of the United States or any political subdivision
thereof, which at the time of investment are rated "Aa3" or higher by Moody's and
"AA-" or higher by S&P;or which are rated by Moody's"VMIGI"or better and by S&P
"A-1+" or better with respect to commercial paper, or "VMIGI" and "SP-1",
respectively,with respect to municipal notes;
(4) Bank time deposits evidenced by certificates of deposit, deposit accounts,
and bankers' acceptances, issued by any bank, trust company or national banking
association insured by the Federal Deposit Insurance Corporation(including the Trustee);
provided that (a) such bank, trust company or national banking association be rated
"Aa3" or better by Moody's and "AA-" or better by S&P; and (b)the aggregate of such
bank time deposits and bankers' acceptances issued by any bank, trust company or
banking association does not exceed at any one time 10% of the aggregate of the capital
stock, surplus and undivided profits of such bank, trust company or banking association
and that such capital stock, surplus and undivided profits shall not be less$15,000,000;
(5) Repurchase agreements with any bank, trust company or national banking
association insured by the Federal Deposit Insurance Corporation (including the Trustee),
with subsidiaries (of a parent company), provided the obligations of the subsidiary under
the agreement are unconditionally guaranteed by the parent, or with any government
bond dealer recognized as a primary dealer by the Federal Reserve Bank of New York,
which agreements are fully and continuously secured by a valid and perfected first
priority security interest in obligations described in paragraph (1) or(2) of this definition,
provided that either such bank, trust company or national banking association which (or
senior debt or claims paying ability of the financial entity's guarantor) is rated, at the time
of investment, "Aa3" or better by Moody's and"AA-"or better by S&P;
(6) Repurchase agreements with maturities of not more than one year entered
into with financial institutions such as banks or trust companies organized under state law
or national banks or banking associations(including the Trustee), insurance companies or
government bond dealers reporting to, trading with, and recognized as a primary dealer
by, the Federal Reserve Bank of New York and a member of the Securities Investor
Protection Corporation or with a dealer or parent holding company that is rated, at the
time of investment, or whose long-term debt obligations(or senior debt or claims paying
ability of the financial entity's guarantor) are rated, at the time of investment, "Aa3" or
better by Moody's and"AA-"or better by S&P,provided such repurchase agreements are
in writing, secured by obligations described in paragraphs(1) and (2) of this definition
having a fair market value, exclusive of accrued interest, at least equal to the amount
90198094.3 6
invested in the repurchase agreements and in which the Trustee has a perfected first lien
in,and retains possession of,such obligations free from all third party claims;
(7) Investment agreements, forward purchase agreements and reserve fund put
agreements with any corporation, including banking or financial institutions, or
agreements entered into with subsidiaries(of a parent company), provided the obligations
of the subsidiary under the agreement are unconditionally guaranteed by the parent, the
corporate debt of which (or senior debt or claims paying ability of the financial entity's
guarantor) is rated, at the time of investment, "Aa3" or better by Moody's and "AA-" or
better by S&P;
(8) Guaranteed investment contracts or similar funding agreements issued by
insurance companies, provided that either the long term corporate debt of such insurance
company,at the time of investment, is rated, at the time of investment,"Aa3"or better by
Moody's and "AA-" or better by S&P or which agreements are fully and continuously
secured by a valid and perfected first priority security interest in obligations described in
paragraph(I) or (2) of this definition, or that the following conditions are met: (a)the
market value of the collateral is maintained at levels acceptable to Moody's and S&P,
(b)the Trustee or a third party acting solely as agent for the Trustee has possession of the
collateral, (c)the Trustee has a perfected first priority security interest in the collateral,
(d)the collateral is free and clear of third-party liens, and (e)failure to maintain the
requisite collateral level will require the Trustee to liquidate collateral;
(9) Corporate commercial paper rated "P-1"or better by Moody's and "A-I+"
or better by S&P at the time of investment;
(10) Taxable government money market portfolios restricted to obligations the
payment of principal and interest with respect to which is guaranteed by the United States
of America or repurchase agreements secured by such obligations, and which are rated
"AAAm" or "AAAm-G" by S&P and "P-1" by Moody's (including funds for which the
Trustee or an affiliate provides investment advice or similar services);
(11) Deposits with the Local Agency Investment Fund of the State, as may
otherwise be permitted by law; and
(12) Shares in the Franklin Adjustable U.S. Government Securities Fund or any
other similar fund having at least $1,000,000,000 in assets and invested solely in
securities directly guaranteed by the U.S. government or its agencies and rated "AAAf'
by S&P or a comparable rating by Moody's.
"Person" means an individual, corporation, limited liability company, firm, association,
partnership, trust, or other legal entity or group of entities, including a governmental entity or
any agency or political subdivision thereof.
"Principal Account" means the account by that name within the Installment Payment
Fund established in accordance with Section 5.02 hereof.
80198M.3 7
"Principal Once" means the Trustee's principal corporate trust office in Los Angeles,
California.
"Principal Payment Date" means a date on which an Installment Payment evidenced by
the Certificates becomes due and payable.
"Project"has the meaning ascribed thereto in the recitals hereto.
"Rebate Fund" means the fund by that name established in accordance with
Section 5.04 hereof.
"Rebate Requirement"has the meaning ascribed thereto in the Tax Certificate.
"Record Date" means,with respect to the interest payable on any Interest Payment Date,
the 15th day of the calendar month immediately preceding such Interest Payment Date, whether
or not such day is a Business Day.
"Refunded Certificates" means the District's Refunding Certificates of Participation,
1992 Series,maturing in the years 2008 through 2013, inclusive.
"Reserve Facility" means any line of credit, letter of credit, insurance policy, surety
bond or other funding instrument issued by an entity the long-term unsecured obligations of
which are rated "Aa3"or better by Moody's and "AA-"or better by S&P and deposited with the
Trustee pursuant to Section 5.03 hereof.
"Reserve Fund" means the fund by that name established in accordance with
Section 5.03 hereof.
"Reserve Requirement" means, as of any date of calculation, an amount equal to the
least of(a) 10% of the original aggregate amount of principal evidenced by the Certificates (or if
the amount of original issue discount or premium applicable to the Certificates exceeds 2%, then
10% of the issue price of the Certificates), (b)the maximum amount of remaining Installment
Payments, and the interest thereon,coming due in any one Certificate Year, and (c) 125% of the
average amount of remaining Installment Payments,and the interest thereon, coming due in each
Certificate Year.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., a corporation organized and existing under the laws of the State of New York,
its successors and assigns, except that if such entity shall no longer perform the functions of a
securities rating agency for any reason, the tern "S&P" shall be deemed to refer to any other
nationally recognized securities rating agency selected by the District.
"State" means the State of California.
"Tax Certificate" means the Tax Certificate executed by the District at the time of
execution and delivery of the Certificates relating to the requirements of section 148 of the Code,
as originally executed and as it may from time to time be amended in accordance with the
provisions thereof.
80198M.3 8
"Trust Agreement" means this Trust Agreement, dated as of May 1, 2008, by and
among the Trustee,the Corporation and the District, as originally executed and delivered and as
it may from time to time be amended or supplemented in accordance with the provisions hereof.
"Trustee" means U.S. Bank National Association, a national banking association duly
organized and existing under the laws of the United States of America, or any other bank or trust
company which may at any time be substituted in its place as provided in Section 10.02 hereof.
"Written Certificate"and"Written Request' mean (a)with respect to the Corporation,
a written certificate or written request, respectively, signed in the name of the Corporation by an
Authorized Corporation Representative, and (b)with respect to the District, a written certificate
or written request, respectively, signed in the name of the District by an Authorized District
Representative. Any such certificate or request may, but need not, be combined in a single
instrument with any other instrument, opinion or representation, and the two or more so
combined shall be read and construed as a single instrument.
Section 1.02. Definitions in Installment Purchase Agreement. Except as otherwise
herein defined and unless the context otherwise requires, the terms defined in the Installment
Purchase Agreement shall for all purposes hereof and of any amendment hereof or supplement
hereto and of any report or other document mentioned herein have the meanings defined therein,
such definitions to be equally applicable to both the singular and plural forms of any of the terms
defined therein. With respect to any defined term which is given a different meaning under this
Trust Agreement than under the Installment Purchase Agreement, as used herein it shall have the
meaning given herein.
Section 1.03. Equal Security. In consideration of the acceptance of the Certificates by
the Owners, this Trust Agreement shall be deemed to be and shall constitute a contract between
the Trustee and the Owners to secure the full and final payment of the interest and principal
evidenced by the Certificates which may be executed and delivered hereunder, subject to each of
the agreements, conditions, covenants and terms contained herein; and all agreements,
conditions, covenants and terms contained herein required to be observed or performed by or on
behalf of the Trustee shall be for the equal and proportionate benefit, protection and security of
all Owners without distinction, preference or priority as to security or otherwise of any
Certificates over any other Certificates by reason of the number or date thereof or the time of
execution or delivery thereof or for any cause whatsoever, except as expressly provided herein or
therein.
ARTICLE 11
TERMS AND CONDITIONS OF CERTIFICATES
Section 2.01. Preparation and Delivery of Certificates. The Trustee is hereby
authorized,upon the Written Request of the District,to execute and deliver the Certificates in the
aggregate principal amount of $[PAR], evidencing the aggregate principal amount of the
Installment Payments and each evidencing a direct, fractional undivided interest in the
Installment Payments, and the interest thereon. The Installment Payments evidenced by each
Certificate shall constitute the principal evidenced thereby and the interest on such Installment
80198M.3 9
Payments shall constitute the interest evidenced thereby. The Certificates shall be numbered,
with or without prefixes,as directed by the Trustee.
Section 2.02. Denomination. Medium and Dating of Certificates. The Certificates
shall be designated "Orange County Sanitation District Refunding Certificates of Participation,
Series 2008A" shall be prepared in the form of fully registered Certificates, without coupons, in
Authorized Denominations and shall be payable in lawful money of the United States of
America.
The Certificates shall be dated as of the Closing Date. Each Certificate shall evidence
interest from the Interest Payment Date next preceding its date of execution to which interest has
been paid in full, unless such date of execution shall be after a Record Date and on or prior to the
following Interest Payment Date, in which case such Certificate shall evidence interest from such
Interest Payment Date, or unless such date of execution shall be on or prior to July 15, 2008, in
which case such Certificate shall represent interest from the Closing Date. Notwithstanding, the
foregoing, if, as shown by the records of the Trustee, interest evidenced by the Certificates shall
be in default, each Certificate shall evidence interest from the last Interest Payment Date to
which such interest has been paid in full or duly provided for.
Section 2.03. Payment Dates of Certificates: Interest Computation. (a)Method and
Place of Payment. The principal evidenced by the Certificates shall become due and payable on
August 1 of the years, in the amounts, and shall evidence interest seeming at the rates per annum
set forth below:
Principal Payment Date Principal Interest
(August 1) Component Rate
2008 $ %
2009
2010
2011
2012
2013
Except as otherwise provided in the Letter of Representations, payments of interest
evidenced by the Certificates shall be made to the Owners thereof(as determined at the close of
business on the Record Date next preceding the related Interest Payment Date) by check or draft
of the Trustee mailed to the address of each such Owner as it appears on the registration books
maintained by the Trustee pursuant to Section 2.07 hereof, or to such other address as may be
furnished in writing to the Trustee by each such Owner. Except as otherwise provided in the
Letter of Representations, payment of principal evidenced by the Certificates, on their stated
Principal Payment Dates, shall be made only upon presentation and surrender of the Certificates
at the Principal Office.
(b) Computation of Interest. The interest evidenced by the Certificates shall be
payable on each Interest Payment Date to and including their respective Principal Payment
Dates, and shall represent the sum of the interest on the Installment Payments coming due on the
90198094.3 10
Interest Payment Dates in each year. The principal evidenced by the Certificates shall be
payable on their respective Principal Payment Dates in each year and shall represent the
Installment Payments coming due on the Principal Payment Dates in each year. Interest
evidenced by the Certificates shall be computed on the basis of a 360-day year consisting of
twelve 30-day months.
Section 2.04. Form of Certificates. The Certificates shall be in substantially the form
of Exhibit A hereto, with necessary or appropriate insertions, omissions and variations as
permitted or required hereby.
Section 2.05. Execution of Certificates and Reolacemeot Certificates. The
Certificates shall be executed by the Trustee by the manual signature of an authorized signatory
of the Trustee. The Trustee shall deliver replacement Certificates in the manner and as
contemplated by this Article. Such replacement Certificates shall be executed as herein provided
and shall be in Authorized Denominations.
Section 2.06. Transfer and Payment of Certificates: Exchange of Certificates. Each
Certificate is transferable by the Owner thereof, in person or by his attorney duly authorized in
writing, at the Principal Office, on the registration books maintained by the Trustee pursuant to
the provisions of Section 2.07 hereof, upon surrender of such Certificate for cancellation
accompanied by delivery of a duly executed written instrument of transfer in a form acceptable
to the Trustee. The Trustee may treat the Owner of any Certificate as the absolute owner of such
Certificate for all purposes, whether or not the principal or interest evidenced by such Certificate
shall be overdue, and the Trustee shall not be affected by any knowledge or notice to the
contrary; and payment of the interest and principal evidenced by such Certificate shall be made
only to such Owner, which payments shall be valid and effectual to satisfy and discharge the
liability evidenced by such Certificate to the extent of the sum or sums so paid.
Whenever any Certificate shall be surrendered for transfer, the Trustee shall execute and
deliver a new Certificate or Certificates evidencing principal in the same aggregate amount and
having the same stated Principal Payment Date. The Trustee shall 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.
Each Certificate may be exchanged at the Principal Office for Certificates evidencing
principal in a like aggregate principal amount having the same stated Principal Payment Date in
such Authorized Denominations as the Owner thereof may request. The Trustee shall 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.
Section 2.07. Certificate Registration Books. The Trustee shall keep at its Principal
Office sufficient books for the registration and transfer of the Certificates, which books shall be
available for inspection and copying by the District at reasonable hours and under reasonable
conditions; and upon presentation for such purpose the Trustee shall, under such reasonable
regulations as it may prescribe, register or transfer the Certificates on such books as hereinabove
provided.
8019M.3 ]]
Section 2.08. Temporary Certificates. The Certificates may be initially delivered in
temporary form exchangeable for definitive Certificates when ready for delivery, which
temporary Certificates shall be printed, lithographed or typewritten, shall be of such
denominations as may be determined by the Trustee, shall be in fully registered form and shall
contain such reference to any of the provisions hereof as may be appropriate. Every temporary
Certificate shall be executed and delivered by the Trustee upon the same conditions and terms
and in substantially the same manner as definitive Certificates. If the Trustee executes and
delivers temporary Certificates, it shall prepare and execute definitive Certificates without delay,
and thereupon the temporary Certificates may be surrendered at the Principal Office in exchange
for such definitive Certificates, and until so exchanged such temporary Certificates shall be
entitled to the same benefits hereunder as definitive Certificates executed and delivered
hereunder.
Section 2.09. Certificates Mutilated, Lost, Destroyed or Stolen. If any Certificate
shall become mutilated, the Trustee, at the expense of the Owner thereof, shall execute and
deliver a new Certificate evidencing a like principal amount and having the same stated Principal
Payment Date and number 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. 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,
the Trustee, at the expense of the Owner thereof, shall execute and deliver a new Certificate
evidencing a like principal amount and having the same stated Principal Payment Date,
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 and delivered by it under this Section and of the
expenses which may be incurred by it under this Section. Any Certificate executed and delivered
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 hereof with all other
Certificates executed and delivered hereunder, and 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 amount of Certificates which may be executed and delivered hereunder or for
the purpose of determining any percentage of Certificates Outstanding hereunder, but both the
original and replacement Certificate shall be treated as one and the same. Notwithstanding any
other provision of this Section, in lieu of executing and delivering a new Certificate for a
Certificate which has been lost, destroyed or stolen and which evidences principal that is then
payable,the Trustee may make payment of such Certificate to the Owner thereof if so instructed
by the District.
Section 2.10. Book-Entry System. (a)The Certificates shall be initially executed and
delivered as Book-Entry Certificates, and the Certificates for each stated Principal Payment Date
shall be in the form of a separate single fully registered Certificate (which may be typewritten).
Upon initial execution and delivery, the ownership of each Certificate shall be registered in the
registration books maintained by the Trustee in the name of the Nominee, as nominee of the
Depository.
80198099.1 12
Payment of principal or interest evidenced by any Book-Entry Certificate registered in
the name of the Nominee shall be made on the applicable Interest Payment Date by wire transfer
of New York clearing house or equivalent next day funds or by wire transfer of same day funds
to the account of the Nominee. Such payments shall be made to the Nominee at the address
which is, on the Record Date, shown for the Nominee in the registration books maintained by the
Trustee.
(b) With respect to Book-Entry Certificates, the District, the Corporation 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, the Corporation and the Trustee shall have no
responsibility or obligation with 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
registration books maintained by the Trustee, of any notice with respect to Book-Entry
Certificates, (iii)the selection by the Depository and its Participants of the beneficial interests in
Book-Entry Certificates to be prepaid in the event Certificates are prepaid in part, (iv)the
payment to any Participant or any other Person,other than an Owner as shown in the registration
books maintained by the Trustee, of any amount with respect to principal, premium, if any, or
interest evidenced by Book-Entry Certificates, or(v)any consent given or other action taken by
the Depository as Owner.
(c) The District,the Corporation and the Trustee may treat and consider the Person in
whose name each Book-Entry Certificate is registered in the registration books maintained by the
Trustee as the absolute Owner of such Book-Entry Certificate for the purpose of payment of
principal and interest evidenced by such Certificate, for the purpose of selecting any Certificates,
or portions thereof, to be prepaid, for the purpose of giving notices of matters with respect to
such Certificate, for the purpose of registering transfers with respect to such Certificate, for the
purpose of obtaining any consent or other action to be taken by Owners and for all other
purposes whatsoever, and the District, the Corporation and the Trustee shall not be affected by
any notice to the contrary.
(d) Reserved.
(e) The Trustee shall pay all principal, premium, if any,and interest evidenced by the
Certificates to the respective Owner, as shown in the registration books maintained by the
Trustee, or his respective attorney duly authorized in writing, and all such payments shall be
valid and effective to fully satisfy and discharge the obligations with respect to payment of
principal, premium, if any, and interest evidenced by the Certificates to the extent of the sum or
sums so paid. No Person other than an Owner,as shown in the registration books maintained by
the Trustee, shall receive a Certificate evidencing principal, premium, if any, and interest
evidenced by the Certificates. Upon delivery by the Depository to the Owners, the Trustee and
the District 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.
80198094.3 13
(t) In order to qualify the Book-Entry Certificates for the Depository's book-entry
system,the District 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
Corporation, 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
registration books maintained by the Trustee. Such Letter of Representations may provide the
time, form, content and manner of transmission, of notices to the Depository. In addition to the
execution and delivery of a Letter of Representations by the District,the District,the Corporation
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.
(g) In the event the District determines that it is in the best interests of the Beneficial
Owners that they be able to obtain certificated Certificates and that such Certificates should
therefore be made available and notifies the Depository and the Trustee of such determination,
the Depository will notify the Participants of the availability through the Depository of
certificated Certificates. In such event, the Trustee shall transfer and exchange certificated
Certificates as requested by the Depository and any other Owners in appropriate amounts. In the
event(i)the Depository determines not to continue to act as securities depository for Book-Entry
Certificates, or (ii)the Depository shall no longer so act and gives notice to the Trustee of such
determination, then the District shall discontinue the Book-Entry system with the 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 stated Principal Payment Date of such Book-Entry Certificates,registered in
the name of such successor or substitute qualified securities depository or its nominee. If the
District fails to identify another qualified securities depository to replace the Depository,then the
Certificates shall no longer be restricted to being registered in the registration books maintained
by the Trustee 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 2.06 and 2.09 hereof. Whenever the Depository requests the District to do
so, the District will cooperate with the Depository in taking appropriate action after reasonable
notice (i)to make available one or more separate certificates evidencing the Book-Entry
Certificates to any Participant having Book-Entry Certificates credited to its account with the
Depository, and (ii)to arrange for another securities depository to maintain custody of
certificates evidencing the Book-Entry Certificates.
(h) Notwithstanding any other provision of this Trust Agreement to the contrary, if
DTC is the sole Owner of the Certificates, so long as any Book-Entry Certificate is registered in
the name of the Nominee, all payments of principal, premium, if any, and interest evidenced by
such Certificate and all notices with respect to such Certificate shall be made and given,
respectively, as provided in the Letter of Representations or as otherwise instructed by the
Depository.
(i) In connection with any notice or other communication to be provided to Owners
pursuant to the Trust Agreement by the District, the Corporation or the Trustee, with respect to
any consent or other action to be taken by Owners, the Trustee shall establish a record date for
such consent or other action and give the Depository notice of such record date not less than 15
80198M.3 14
calendar days in advance of such record date to the extent possible. Notice to the Depository
shall be given only when OTC is the sole Owner of the Certificates.
ARTICLE III
PROCEEDS OF CERTIFICATES
Section 3.01. Delivery of Certificates. The Trustee is hereby authorized to execute the
Certificates and deliver the Certificates to the original purchaser thereof upon receipt of a
Written Request of the District and upon receipt of the proceeds of sale thereof.
Section 3.02. Deposit of Proceeds of Certificates. The net proceeds received by the
Trustee from the sale of the Certificates in the amount of$ shall be deposited by
the Trustee as follows:
(a) the Trustee shall deposit in the Costs of Issuance Fund the amount of
(b) the Trustee shall deposit in the Reserve Fund the amount of $ ,
which is equal to the initial Reserve Requirement;
(c) the Trustee shall transfer to the Escrow Agent for deposit in the Escrow Fund the
amount of$ ; and
(d) the Trustee shall transfer to AIG Financial Products Corp. the amount of
$ . representing the settlement amount owed in connection with the termination of
the interest rate swap agreement relating to the Refunded Certificates.
Section 3.03. Costs of Issuance Fund. The Trustee shall establish and maintain a
separate special fund to be held by the Trustee known as the Costs of Issuance Fond. There shall
be deposited in the Costs of Issuance Fund on the Closing Date the amount required to be
deposited therein pursuant to Section 3.02 hereof. The Trustee shall disburse moneys from the
Costs of Issuance Fund on such dates and in such amounts as are necessary to pay Costs of
Issuance, in each case upon the Written Request 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
and that such payment is a proper charge against the Costs of Issuance Fund. On the date that is
six months after the Closing Date, the Trustee shall transfer any amounts then remaining in the
Costs of Issuance Fund to the Installment Payment Fund. Upon such transfer, the Costs of
Issuance Fund shall be closed.
Section 3.04. Reserved.
ao198094.3 15
ARTICLE IV
NO PREPAYMENT OF CERTIFICATES
Section 4.01. Prepayment. The Certificates are not subject to prepayment prior to their
stated Principal Payment Dates.
ARTICLE V
ASSIGNMENT AND PLEDGE; FUNDS AND ACCOUNTS
Section 5.01. Assignment and Pledge. The Corporation hereby transfers, conveys and
assigns to the Trustee, for the benefit of the Owners, all of the Corporation's rights, title and
interest in and to the Installment Purchase Agreement (excepting its rights to indemnification
thereunder), including the right to receive Installment Payments, and the interest thereon, from
the District and the right to exercise any remedies provided therein in the event of a default by
the District thereunder. The Trustee hereby accepts said transfer, conveyance and assignment,
solely in its capacity as Trustee, for the benefit of the Owners, subject to the provisions of this
Trust Agreement. All Installment Payments, and the interest thereon, shall be paid directly by
the District to the Trustee, and if received by the Corporation at any time shall be deposited by
the Corporation with the Trustee immediately upon the receipt thereof.
In order to secure the respective rights of the Owners to the payments required to be
made thereto as provided herein, the Corporation and the District hereby irrevocably pledge to
the Trustee, for the benefit of the Owners, all of their right, title and interest, if any, in and to all
amounts on deposit from time to time in the funds and accounts established hereunder (other
than the Rebate Fund). This pledge shall constitute a first lien on the amounts on deposit in such
funds and accounts.
Section 5.02. Installment Payment Fund. (a)The Trustee shall establish and maintain
the Installment Payment Fund until all required Installment Payments, and the interest thereon,
are paid in full pursuant to the Installment Purchase Agreement and until the first date upon
which the Certificates are no longer Outstanding. The Trustee shall deposit in the Installment
Payment Fund all Installment Payments, and the interest thereon, paid by the District and
received by the Trustee. The moneys in the Installment Payment Fund shall be held in trust by
the Trustee for the benefit of the Owners and shall be used and disbursed only for the purposes
and uses herein authorized.
(b) The Trustee shall transfer the amounts on deposit in the Installment Payment
Fond, at the times and in the manner hereinafter provided, to the following respective accounts
within the Installment Payment Fund, each of which the Trustee hereby agrees to establish and
maintain until all required Installment Payments, and the interest thereon, are paid in full
pursuant to the Installment Purchase Agreement and until the first date upon which the
Certificates are no longer Outstanding. The moneys in each of such accounts shall be held in
must by the Trustee for the benefit of the Owners and shall be used and disbursed only for the
purposes and uses herein authorized.
80198M 3 16
(i) Interest Account. The Trustee, on each Interest Payment Date, shall
deposit in the Interest Account that amount of moneys representing the interest on the
Installment Payments coming due on such Interest Payment Date. Moneys in the Interest
Account shall be used by the Trustee for the purpose of paying the interest evidenced by
the Certificates when due and payable.
(ii) Principal Account. The Trustee, on each Principal Payment Date, shall
deposit in the Principal Account that amount of moneys representing the Installment
Payments coming due on such Principal Payment Date. Moneys in the Principal Account
shall be used by the Trustee for the purpose of paying the principal or Mandatory Sinking
Account Payments evidenced by the Certificates when due and payable.
Section 5.03. Reserve Fund. (a)The Trustee shall establish and maintain the Reserve
Fund until all required Installment Payments,and the interest thereon, are paid in full pursuant to
the Installment Purchase Agreement and until the first date upon which no Certificates are
Outstanding. The moneys in the Reserve Fund, and any Reserve Facility, shall be held in trust
by the Trustee for the benefit of the Owners and shall be used and disbursed only for the
purposes and uses herein authorized. There shall be deposited in the Reserve Fund on the
Closing Date the amount required to be deposited therein pursuant to Section 3.02 hereof
(b) The District may substitute a Reserve Facility for all or a part of the moneys on
deposit in the Reserve Fund by depositing such Reserve Facility with the Trustee so long as, at
the time of such substitution, the amount on deposit in the Reserve Fund, together with the
amount available under such Reserve Facility and any previously substituted Reserve Facilities,
shall be at least equal to the Reserve Requirement. Moneys for which a Reserve Facility has
been substituted as provided herein shall be transferred, at the election of the District, to the
Installment Payment Fund, or upon receipt of an Opinion of Counsel to the effect that such
transfer, in and of itself, will not adversely affect the exclusion of interest evidenced by the
Certificates from gross income for federal income tax purposes, to a special account to be held
by the Trustee and applied to the payment of capital costs of the District,as directed in a Written
Request of the District. Any amounts paid pursuant to any Reserve Facility shall be deposited in
the Reserve Fund.
(c) If, on any Interest Payment Date,the amount on deposit in the Interest Account is
insufficient to pay the interest evidenced by the Certificates on such Interest Payment Date, the
Trustee shall transfer from the Reserve Fund and deposit in the Interest Account an amount
sufficient to make up such deficiency. If a Reserve Facility is credited to the Reserve Fund to
satisfy a portion of the Reserve Requirement, the Trustee shall make a claim for payment under
such Reserve Facility, in accordance with the provisions thereof, in an amount which, together
with other available moneys in the Reserve Fund, will be sufficient to make said deposit in the
Interest Account.
If, on any Principal Payment Date, the amount on deposit in the Principal Account is
insufficient to pay the principal evidenced by the Certificates on such Principal Payment Date,
the Trustee shall transfer from the Reserve Fund and deposit in the Principal Account an amount
sufficient to make up such deficiency. If a Reserve Facility is credited to the Reserve Fund to
satisfy a portion of the Reserve Requirement, the Trustee shall make a claim for payment under
soreso 4.3 17
such Reserve Facility, in accordance with the provisions thereof, in an amount which, together
with other available moneys in the Reserve Fund, will be sufficient to make said deposit in the
Principal Account.
Moneys, if any, on deposit in the Reserve Fund shall be withdrawn and applied by the
Trustee for the final payment of principal and interest evidenced by the Certificates.
(d) Amounts on deposit in the Reserve Fund which were not derived from payments
under any Reserve Facility credited to the Reserve Fund to satisfy a portion of the Reserve
Requirement shall be used and withdrawn by the Trustee prior to using and withdrawing any
amounts derived from payments under any such Reserve Facility. In order to accomplish such
use and withdrawal of such amounts not derived from payments under any such Reserve Facility,
the Trustee shall, as and to the extent necessary, liquidate any investments purchased with such
amounts. If and to the extent that more than one Reserve Facility is credited to the Reserve Fund
to satisfy a portion of the Reserve Requirement,drawings thereunder, and repayment of expenses
with respect thereto, shall be made on a pro rasa basis (calculated by reference to the policy
limits available thereunder).
(e) In the event of any transfer from the Reserve Fund or the making of any claim
under any Reserve Facility, the Trustee shall, within five days thereafter, provide written notice
to the District of the amount and the date of such transfer or claim.
(f) The Trustee shall, from amounts received from the District pursuant to
Section 3.03 of the Installment Purchase Agreement, deposit in the Reserve Fund an amount of
money which, together with the amount already on deposit therein and the amounts available
under all Reserve Facilities,will be equal to the Reserve Requirement. No deposit need be made
in the Reserve Fund so long as there shall be on deposit therein a sum equal to the amount which,
together with the amounts available under all Reserve Facilities, is at least the Reserve
Requirement. The Trustee shall promptly notify the District in writing if the amount on deposit
is less than the Reserve Requirement.
(g) If, as a result of the scheduled payment of principal or interest evidenced by the
Certificates, the Reserve Requirement is reduced, the Trustee shall transfer an amount equal to
the amount of such reduction to the Installment Payment Fund.
(h) On any date on which Certificates are defeased in accordance with Article X
hereof, the Trustee shall, if so directed in a Written Request of the District, transfer any moneys
in the Reserve Fund in excess of the Reserve Requirement resulting from such defeasance to the
entity or fund so specified in such Written Request of the District, to be applied to such
defeasance.
Section 5.04. Rebate Fund. (a)In addition to the other funds and accounts created
pursuant hereto, the Trustee shall establish and maintain the Rebate Fund. The District shall
deliver to the Trustee for deposit in the Rebate Fund such amounts as are required to be
deposited therein pursuant to the Tax Certificate. All money at any time deposited in the Rebate
Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate
Requirement, for payment to the United States of America upon the Written Request of the
e01980N.3 18
District. Notwithstanding defeasance of the Certificates pursuant to Article X hereof or anything
to the contrary contained herein, all amounts required to be deposited into or on deposit in the
Rebate Fund shall be governed exclusively by this Section and by the Tax Certificate (which is
incorporated herein by reference). The Trustee shall be deemed conclusively to have complied
with such provisions if it follows the written directions of the District, and shall have no liability
or responsibility to enforce compliance by the District with the terms of the Tax Certificate. The
Trustee may conclusively rely upon the District's determinations, calculations and certifications
required by the Tax Certificate. The Trustee shall have no responsibility to independently make
any calculation or determination or to review the District's calculations.
(b) Any funds remaining in the Rebate Fund after payment in full of all of the
principal and interest evidenced by the Certificates and after payment of any amounts described
in this Section,shall be withdrawn by the Trustee and remitted to the District.
Section 5.05. Investment of Moneys. Except as otherwise provided herein, all moneys
in any of the funds or accounts established pursuant to this Trust Agreement shall be invested by
the Trustee solely in Permitted Investments, as directed by the District pursuant to a Written
Request of the District at least two Business Days prior to the making of such investment.
Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments
maturing not later than the date on which it is estimated that such moneys will be required for the
purposes specified in this Trust Agreement; provided, however, that Permitted Investments in
which moneys in the Reserve Fund are so invested shall mature no later than the final Principal
Payment Date of the Certificates. Absent timely written direction from the District, the Trustee
shall invest any funds held by it in Permitted Investments described in clause(10) of the
definition thereof. Permitted Investments that are registerable securities shall be registered in the
name of the Trustee.
All interest,profits and other income received from the investment of moneys in any fund
or account established pursuant to this Trust Agreement (other than the Reserve Fund) shall be
retained therein. All interest, profits and other income received from the investment of moneys
in the Reserve Fund shall be deposited in the Installment Payment Fund; provided, however,
that,notwithstanding the foregoing,any such transfer shall be made only if and to the extent that,
after such transfer, the amount on deposit in the Reserve Fund is at least equal to the Reserve
Requirement.
Permitted Investments acquired as an investment of moneys in any fund or account
established under this Trust Agreement shall be credited to such fund or account. For the
purpose of determining the amount in any fund, all Permitted Investments credited to such fund
shall be valued by the Trustee at the market value thereof, such valuation to be performed not
less frequently than semiannually on or before each January 15 and July 15.
The Trustee may act as principal or agent in the making or disposing of any investment.
The Trustee shall sell or present for redemption any Permitted Investment whenever it shall be
necessary to provide moneys to meet any required payment,transfer, withdrawal or disbursement
from the fund or account to which such Permitted Investment is credited, and the Trustee shall
not be liable or responsible for any loss resulting from any investment made or sold pursuant to
80198M 3 19
this Section. For purposes of investment, the Trustee may commingle moneys in any of the
funds and accounts established hereunder.
The Trustee is hereby authorized, in making or disposing of any investment permitted by
this Section, to deal with itself (in its individual capacity) or with any one or more of its
affiliates, whether or not such affiliate is acting as an agent of the Trustee or for any third Person
or dealing as principal for its own account.
ARTICLE VI
COVENANTS
Section 6.01. Compliance with Trust Agreement. The Trustee will not execute or
deliver any Certificates in any manner other than in accordance with the provisions hereof, and
the Corporation and the District will not suffer or permit any default by them to occur hereunder,
but will faithfully comply with, keep, observe and perform all the agreements, conditions,
covenants and terms hereof required to be complied with, kept,observed and performed by them.
Section 6.02. Compliance with Installment Purchase Agreement. The Corporation
and the District will faithfully comply with, keep, observe and perform all the agreements,
conditions, covenants and terms contained in the Installment Purchase Agreement required to be
complied with, kept, observed and performed by them and, together with the Trustee, will
enforce the Installment Purchase Agreement against the other party thereto in accordance with its
terms.
Section 6.03. Compliance with Master Agreement. The Corporation and the District
will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants
and terms contained in the Master Agreement required to be complied with, kept, observed and
performed by them and,together with the Trustee,will enforce the Master Agreement against the
other party thereto in accordance with its terms.
Section 6.04. Observance of Laws and Regulations. The Corporation and the District
will faithfully comply with, 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 each and every franchise,
right or privilege now owned or hereafter acquired by them, including their right to exist and
carry on their respective businesses,to the end that such franchises, rights and privileges shall be
maintained and preserved and shall not become abandoned, forfeited or in any manner impaired.
Section 6.05. Other Liens. None of the Trustee, the Corporation or the District shall
create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds
or accounts created hereunder, other than the pledge and lien hereof.
Section 6.06. Prosecution and Defense of Suits. The District will defend against every
action, suit or other proceeding at any time brought against the Trustee or any Owner upon any
claim arising out of the receipt, deposit or disbursement of any of the Installment Payments, or
the interest thereon, or involving the rights of the Trustee or any Owner hereunder; provided,
80198094.3 20
however, that the Trustee or any Owner at its or his election may appear in and defend any such
action, suit or other proceeding.
Section 6.07. Accounting Records and Statements. The Trustee will keep proper
accounting records in which complete and correct entries shall be made of all transactions
relating to the receipt, deposit and disbursement of the Installment Payments, and the interest
thereon, and such accounting records shall be available for inspection by the Corporation and the
District at reasonable hours and under reasonable conditions. The Trustee shall not be obligated
to provide an accounting for any fund or account that (a) has a balance of$0.00 and (b)has not
had any activity since the last reporting date. The Trustee will, upon written request, make
copies of the foregoing available to any Owner(at the expense of such Owner).
Section 6.08. Tax Covenants. [TO BE REVISED)
(a) Special Definitions. When used in this Section,the following terms shall have the
following meanings:
"Code"means the Internal Revenue Code of 1986.
"Computation Date" has the meaning set forth in section 1.148-1(b) of the Tax
Regulations.
"Gross Proceeds" means any Proceeds and any replacement proceeds as defined in
section 1.148-1(c)of the Tax Regulations,of the Certificates.
"Investment"has the meaning set forth in section 1.148-1(b) of the Tax Regulations.
"Nonpurpose Investment"means any investment property, as defined in section 148(b) of
the Code, in which Gross Proceeds of the Certificates are invested and that is not acquired to
carry out the governmental purposes of that series of Certificates.
"Proceeds," with respect to an issue of governmental obligations, has the meaning set
forth in has the meaning set forth in section 1.148-1(b)of the Tax Regulations(referring to sales,
investment and transferred proceeds).
"Rebate Amount"has the meaning set forth in section 1.148-1(b) of the Tax Regulations.
`Special Counser' means Fulbright & Jaworski L.L.P. or any other firm of nationally
recognized standing in the field of municipal finance selected by the District.
"Tax Regulations" means the United States Treasury Regulations promulgated pursuant
to sections 103 and 141 through 150 of the Code.
"Yield" of any Investment has the meaning set forth in section 1.148-5 of the Tax
Regulations; and of any issue of governmental obligations has the meaning set forth in section
1.148-4 of the Tax Regulations.
01980943 21
(b) Not to Cause Interest to Become Taxable. The District covenants that it shall not
use, and shall not permit the use of, and shall not omit to use Gross Proceeds or any other
amounts(or any property the acquisition,construction or improvement of which is to be financed
directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively,
could cause the interest with respect to any Certificate to fail to be excluded pursuant to section
103(a) of the Code from the gross income of the owner thereof for federal income tax purposes.
Without limiting the generality of the foregoing, unless and until the Trustee receives a written
opinion of Special Counsel to the effect that failure to comply with such covenant will not
adversely affect such exclusion of the interest with respect to any Certificate from the gross
income of the owner thereof for federal income tax purposes,the District shall comply with each
of the specific covenants in this Section.
(c) Private Use and Private Payments. Except as would not cause any Certificate to
become a "private activity bond" within the meaning of section 141 of the Code and the Tax
Regulations, the District shall take all actions necessary to assure that the District at all times
prior to the final cancellation of the last of the Certificates to be retired:
(i) exclusively owns, operates,possesses and provides any services necessary
to allow and maintain each function of every property the acquisition, construction or
improvement of which is to be financed or refinanced directly or indirectly with Gross
Proceeds of the Certificates and not use or permit the use of such Gross Proceeds
(including through any contractual arrangement with terms different than those applicable
to the general public) or any property acquired,constructed or improved with such Gross
Proceeds in any activity carried on by any person or entity (including the United States or
any agency, department and instrumentality thereof) other than a state or local
government, unless such use is solely as a member of the general public;and
(ii) does not directly or indirectly impose or accept any charge or other
payment by or for the benefit of any person or entity (other than a state or local
government) who is treated as using any Gross Proceeds of the Certificates or any
property the acquisition, construction or improvement of which is to be financed or
refinanced directly or indirectly with such Gross Proceeds.
(d) No Private Loan. Except as would not cause any Certificate to become a "private
activity bond" within the meaning of section 141 of the Code and the Tax Regulations and
rulings thereunder, the District shall not use or permit the use of Gross Proceeds of the
Certificates to make or finance loans to any person or entity other than a state or local
government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be
"loaned" to a person or entity if: (i) property acquired,constructed or improved with such Gross
Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal
income tax purposes; (ii) capacity in or service from such property is committed to such person
or entity under a take-or-pay, output or similar contract or arrangement; or(iii) indirect benefits
of such Gross Proceeds, or burdens and benefits of ownership of any property acquired,
constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that
is the economic equivalent of a loan.
80198094.3 22
(e) Not to Invest at Higher Yield. Except as would not cause the Certificates to
become "arbitrage bonds" within the meaning of section 148 of the Code and the Tax
Regulations and rulings thereunder,the District shall not (and shall not permit any person to), at
any time prior to the final cancellation of the last Certificate to be retired, directly or indirectly
invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any
Investment acquired with Gross Proceeds, whether then held or previously disposed of, would
materially exceed the Yield of the Certificates within the meaning of said section 148.
(0 Not Federally Guaranteed. Except to the extent permitted by section 149(b)of the
Code and the Tax Regulations and rulings thereunder, the District shall not take or omit to take
(and shall not permit any person to take or omit to take) any action that would cause any
Certificate to be"federally guaranteed'within the meaning of section 149(b) of the Code and the
Tax Regulations and rulings thereunder.
(g) Information Report. The District shall timely file any information required by
section 149(e) of the Code with respect to Certificates with the Secretary of the Treasury on
Form 8038-G or such other form and in such place as the Secretary may prescribe.
(h) Rebate of Arbitrage Profits. Except to the extent otherwise provided in section
148(f)of the Code and the Tax Regulations:
(i) The District shall account for all Gross Proceeds (including all receipts,
expenditures and investments thereof) on its books of account separately and apart from
all other funds (and receipts, expenditures and investments thereof) and shall retain all
records of accounting for at least six years after the day on which the last Certificate is
discharged. However,to the extent permitted by law, the District may commingle Gross
Proceeds of Certificates with its other monies, provided that it separately accounts for
each receipt and expenditure of Gross Proceeds and the obligations acquired therewith.
(ii) Not less frequently than each Computation Date (and so long as amounts
remain on deposit in the f-1 Fund, not less frequently than annually), the District
shall calculate the Rebate Amount in accordance with rules set forth in section 148(f) of
the Code and the Tax Regulations and rulings thereunder. The District shall maintain a
copy of the calculation with its official transcript of proceedings relating to the execution
and delivery of the Certificates until six years after the final Computation Date.
(iii) In order to assure the excludability pursuant to section 103(a) of the Code
of the interest with respect to the Certificates from the gross income of the owners thereof
for federal income tax purposes, within 60 days of each Computation Date the District
shall pay to the United States the amount that when added to the future value of previous
rebate payments made for the Certificates equals (i) in the case of the Final Computation
Date as defined in section 1.148-3(e)(2) of the Tax Regulations, one hundred percent
(100%)of the Rebate Amount on such date; and(ii) in the case of any other Computation
Date,ninety percent (90%)of the Rebate Amount on such date. In all cases, such rebate
payments shall be made by the District at the times and in the amounts as are or may be
required by section 148(f) of the Code and the Tax Regulations and rulings thereunder,
and shall be accompanied by Forth 8038-T or such other forms and information as is or
88198asa.7 23
may be required by section 148(f) of the Code and the Tax Regulations and rulings
thereunder for execution and filing by the District.
(i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of
the Code and the Tax Regulations and rulings thereunder, the District shall not and shall not
permit any person to,at any time prior to the final cancellation of the last of the Certificates to be
retired, enter into any transaction that reduces the amount required to be paid to the United States
pursuant to paragraph (H)of this Section because such transaction results in a smaller profit or a
larger loss than would have resulted if the transaction had been at arm's length and had the Yield
on the Certificates not been relevant to either party.
(j) Certificates Not Hedge Bonds.
(i) The District represents that none of the Certificates is or will become a
"hedge bond"within the meaning of section 149(g)of the Code.
(ii) Without limitation of paragraph (i) above: (A)the District will not execute
and deliver the Certificates unless as of the date of execution and delivery of the
Certificates the District reasonably expects that at least 85% of the spendable proceeds of
the Certificates will be expended within the three-year period commencing on such date
of execution and delivery, and (B) no more than 50% of the proceeds of the Certificates
will be invested in Nonpurpose Investments having a substantially guaranteed yield for a
period of four years or more.
(k) Elections. The District hereby directs and authorizes any Authorized
Representative to make elections permitted or required pursuant to the provisions of the Code or
the Tax Regulations, as such Authorized Representative (after consultation with Special
Counsel) deems necessary or appropriate in connection with the Certificates, in the Tax
Certificate or similar or other appropriate certificate, form or document.
(1) Tax Certificate. The District agrees to execute and deliver in connection with the
execution and delivery of the Certificates a Tar Certificate as to Arbitrage and the Provisions of
Sections 141-I50 of the Internal Revenue Code of 1986, or similar document containing
additional representations and covenants pertaining to the exclusion of interest with respect to
the Certificates from the gross income of the owners thereof for federal income tax purposes (the
"Tax Certificate"),which representations and covenants are incorporated as though expressly set
forth herein.
Section 6.09. Continuing Disclosure. Each of the District and the Trustee will comply
with and carry out all of the provisions of the Continuing Disclosure Agreement applicable to it.
Notwithstanding any other provision of this Trust Agreement, failure of the District or the
Trustee to comply with the Continuing Disclosure Agreement shall not be considered an Event
of Default; provided, however, the Trustee may (and, at the request of any Participating
Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding
Certificates and upon being indemnified to its reasonable satisfaction, shall) or any Owner or
Beneficial Owner of Certificates may take such actions as may be necessary and appropriate to
compel performance,including seeking mandate or specific performance by court order.
$0198094.3 24
Section 6.10. Further Assurances. The District will promptly execute and deliver or
cause to be executed and delivered all such other and further assurances, documents or
instruments and promptly do or cause to be done all such other and further things as may be
necessary or reasonably required in order to carry out the purposes and intentions of this Trust
Agreement and for preserving and protecting the rights and interests of the Owners.
ARTICLE VII
DEFAULT AND LIMITATIONS OF LIABILITY
Section 7.01. Action anon Event of Default. An Event of Default under the Installment
Purchase Agreement shall constitute an Event of Default hereunder and an Event of Default
under the Master Agreement shall constitute an Event of Default hereunder. The Trustee may
give notice, as assignee of the Corporation, of an Event of Default under the Installment
Purchase Agreement to the District, and shall do so if directed to do so by the Owners of not less
than 5% of the aggregate principal evidenced by Certificates then Outstanding. In each and
every case during the continuance of an Event of Default, the Trustee may and, at the direction
of the Owners of not less than a majority of the aggregate principal evidenced by Certificates
then Outstanding, shall, upon notice in writing to the District and the Corporation (a) exercise
any of the remedies granted to the Corporation under the Installment Purchase Agreement,
(b) exercise any of the remedies granted to the Trustee under the Master Agreement, and (c)take
whatever action at law or in equity may appear necessary or desirable to enforce its rights
pursuant to this Trust Agreement, the Installment Purchase Agreement or the Master Agreement
or to protect and enforce any of the rights vested in the Trustee or the Owners by this Trust
Agreement, the Certificates, the Installment Purchase Agreement or the Master Agreement,
either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement or for the enforcement of any other legal or equitable right, including
any one or more of the remedies set forth in Section 9.02 hereof.
Section 7.02. Other Remedies of the Trustee. Subject to the provisions of Section 7.01
hereof,the Trustee shall have the right:
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce
its rights against the Corporation or the District or any member, director, officer or employee
thereof, and to compel the Corporation or the District or any such member, director, officer or
employee to perform or carry out its or his or her duties under law and the agreements and
covenants required to be performed by it or him or her contained herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the
rights of the Trustee;or
(c) by suit in equity upon the happening of any Event of Default hereunder to require
the Corporation and the District to account as the trustee of an express trust.
Section 7.03. Non-Waiver. A waiver of any default or breach of duty or contract by the
Trustee or the Owners 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
801990W.3 25
delay or omission by the Trustee or the Owners to exercise any right or remedy accruing upon
any default or breach of duty or contract shall impair any such right or remedy or shall be
construed to be a waiver of any such default or breach of duty or contract or an acquiescence
therein, and every right or remedy conferred upon the Trustee or the Owners by law or by this
Article may be enforced and exercised from time to time and as often the Trustee shall deem
expedient.
If any action, proceeding or suit to enforce any right or to exercise any remedy is
abandoned or determined adversely to the Trustee or any Owner, then subject to any adverse
determination, the Trustee, such Owner, the Corporation and the District shall be restored to their
former positions, rights and remedies as if such action, proceeding or suit had not been brought
ortaken.
Section 7.04. Remedies Not Exclusive. Subject to the provisions of Section 7.01
hereof, 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. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other
appropriate right or remedy.
Section 7.05. Application of Amounts After Default. All damages or other payments
received by the Trustee for the enforcement of any rights and powers of the Trustee under this
Article shall be deposited into the Installment Payment Fund and as soon as practicable thereafter
applied:
(a) to the payment of all amounts due the Trustee under Section 8.03 hereof;
(b) unless the unpaid Installment Payments, and the interest thereon, shall have
become, and shall remain, immediately due and payable pursuant to the Master Agreement:
(i) to the payment of all amounts then due for interest evidenced by the
Certificates, in respect of which, or for the benefit of which, money has been collected
(other than Certificates which have become payable prior to such Event of Default and
money for the payment of which is held by the Trustee), ratably without preference or
priority of any kind, according to the amounts of interest evidenced by such Certificates
due and payable; and
(ii) to the payment of all amounts then due for principal evidenced by the
Certificates, in respect of which, or for the benefit of which, money has been collected
(other than Certificates which have become payable prior to such Event of Default and
money for the payment of which is held by the Trustee), ratably without preference or
priority of any kind, according to the amounts of principal evidenced by such Certificates
due and payable.
(c) if the unpaid Installment Payments, and the interest thereon, shall have become,
and shall remain, immediately due and payable pursuant to the Master Agreement, to the
90199W3 26
payment of all amounts then due for principal and interest evidenced by the Certificates and, if
the amount available therefor shall not be sufficient to pay in full the whole amount so due and
unpaid, then to the payment thereof ratably, without preference or priority of principal over
interest, or of interest over principal, or of any installment of interest over any other installment
of interest, or of any Certificate over any other Certificate, to the persons entitled thereto without
any discrimination or preference.
Section 7.06. Trustee May Enforce Claims Without Possession of Certificates. All
rights of action and claims under this Trust Agreement or the Certificates may be prosecuted and
enforced by the Trustee without the possession of any of the Certificates or the production
thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, he for the ratable benefit of the Owners of
the Certificates in respect of which such judgment has been recovered.
Section 7.07. Limitation on Suits. No Owner shall have any right to institute any
proceeding,judicial or otherwise,with respect to this Trust Agreement, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless (a)such Owner shall have
previously given written notice to the Trustee of a continuing Event of Default hereunder, (b)the
Owners of not less than a majority of the aggregate principal evidenced by Certificates then
Outstanding shall have made written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder, (c) such Owner or Owners shall
have afforded to the Trustee indemnity reasonably satisfactory to the Trustee against the costs,
expenses and liabilities to be incurred in compliance with such request, (d) the Trustee for 60
days after its receipt of such notice, request and offer of indemnity shall have failed to institute
any such proceedings,and(e)no direction inconsistent with such written request shall have been
given to the Trustee during such 60-day period by the Owners of a majority of the aggregate
principal evidenced by Certificates then Outstanding; it being understood and intended that no
one or more Owners of Certificates shall have any right in any manner whatever by virtue of, or
by availing of, any provision of this Trust Agreement to affect, disturb or prejudice the rights of
any other Owner of Certificates, or to obtain or seek to obtain priority or preference over any
other Owner or to enforce any right under this Trust Agreement, except in the manner herein
provided and for the equal and ratable benefit of all the Owners of Certificates.
Section 7.08. No Liability by the Corporation to the Owner. Except as expressly
provided herein, the Corporation shall not have any obligation or liability to the Owners with
respect to the payment when due of the Installment Payments, and the interest thereon, by the
District, or with respect to the performance by the District of the other agreements and covenants
required to be performed by it contained in the Installment Purchase Agreement, the Master
Agreement or herein,or with respect to the performance by the Trustee of any right or obligation
required to be performed by it contained herein.
Section 7.09. No Liability by the District to the Owners. Except for the payment
when due of the Installment Payments, and the interest thereon, and the performance of the other
agreements and covenants required to be performed by it contained in the Installment Purchase
Agreement,the Master Agreement or herein,the District shall not have any obligation or liability
80198094.3 27
to the Owners with respect to this Trust Agreement or the preparation, execution, delivery or
transfer of the Certificates or the disbursement of the Installment Payments, and the interest
thereon, by the Trustee to the Owners, or with respect to the performance by the Trustee of any
right or obligation required to be performed by it contained herein.
Section 7.10. No Liability of the Trustee to the Owners. Except as expressly provided
herein, the Trustee shall not have any obligation or liability to the Owners with respect to the
payment when due of the Installment Payments, and the interest thereon, by the District, or with
respect to the performance by the Corporation or the District of the other agreements and
covenants required to be performed by them, respectively contained in the Installment Purchase
Agreement or herein.
ARTICLE VIII
THE TRUSTEE
Section 8.01. Employment of the Trustee: Duties. The Corporation and the District
hereby appoint and employ the Trustee to receive, deposit and disburse the Installment
Payments, and the interest thereon, to prepare, execute, deliver and transfer the Certificates and
to perform the other functions contained herein, all in the manner provided herein and subject to
the conditions and terms hereof. By executing and delivering this Trust Agreement, the Trustee
accepts the appointment and employment hereinabove referred to and accepts the rights and
obligations of the Trustee provided herein, subject to the conditions and terms hereof. Other
than when an Event of Default hereunder has occurred and is continuing, the Trustee undertakes
to perform such duties and only such duties as are specifically set forth in this Trust Agreement,
and no implied covenants or obligations shall be read into this Trust Agreement against the
Trustee. In case an Event of Default has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Trust Agreement, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
Section 8.02. Removal and Resignation of the Trustee. The Corporation and the
District may, by an instrument in writing, remove the Trustee initially a party hereto and any
successor thereto unless an Event of Default shall have occurred and then be continuing, and
shall remove the Trustee initially a party hereto and any successor thereto if at any time
(a) requested to do so by an instrument or concurrent instruments in writing signed by the
Owners of a majority of the aggregate principal evidenced by the Certificates at the time
Outstanding (or their attorneys duly authorized in writing), or (b)the Trustee shall cease to be
eligible in accordance with the following sentence, and shall appoint a successor Trustee. The
Trustee shall be a bank having trust powers or a trust company in good standing in or
incorporated under the laws of the United States or any state thereof, having (or if such bank or
trust company is a member of a bank holding company system, its parent bank holding company
shall have) a combined capital and surplus of at least $75,000,000, and be subject to supervision
or examination by federal or state banking 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
80198M.3 28
and surplus of such bank or trust company shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
The Trustee may at any time resign by giving written notice of such resignation to the
Corporation and the District and by giving notice, by first class mail, postage prepaid, of such
resignation to the Owners at their addresses appearing on the registration books maintained by
the Trustee. Upon receiving such notice of resignation, the Corporation and the District shall
promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the
event the District and the Corporation do not appoint a successor Trustee within 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 a Trustee and appointment of a successor Trustee shall become
effective only upon acceptance of appointment by the successor Trustee. Any successor Trustee
appointed under this Trust Agreement shall signify its acceptance of such appointment by
executing and delivering to the District and the Corporation and to its predecessor Trustee a
written acceptance thereof, and thereupon such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the moneys, estates, properties, rights, powers,
trusts, duties and obligations of such predecessor Trustee,with like effect as if originally named
Trustee herein;but,nevertheless,at the written request of the District or of the successor Trustee,
such predecessor Trustee shall execute and deliver any and all instruments of conveyance or
further assurance and do such other things as may reasonably be required for more fully and
certainly vesting in and confirming to such successor Trustee all the right, title and interest of
such predecessor Trustee in and to any properly held by it under this Trust Agreement and shall
pay over, transfer, assign and deliver to the successor Trustee any money or other property
subject to the trusts and conditions herein set forth.
Any corporation, association or agency into which the Trustee may be converted or
merged, or with which it may be consolidated, or to which it may sell or transfer its corporate
trust business and assets as a whole or substantially as a whole, or any corporation or association
resulting from any such conversion,sale, merger,consolidation or transfer to which it is a party,
provided that such entity meets the combined capital and surplus requirements of this Section,
ipso facto, shall be and become successor trustee under this Trust Agreement and vested with all
the trusts, powers, discretion, immunities, privileges and all other matters as was its
predecessor, without the execution or filing of any instrument or any further act, deed or
conveyance on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 8.03. Compensation and Indemnification of the Trustee. The District shall
from time to time, subject to any written agreement then in effect with the Trustee, pay the
Trustee reasonable compensation for all its services rendered hereunder and reimburse the
Trustee for all its reasonable advances and expenditures (which shall not include "overhead
expenses" except as such expenses are included as a component of the Trustee's stated annual
fees or disclosed transaction fees) hereunder, including but not limited to advances to and
reasonable fees and reasonable expenses of accountants, agents, appraisers, consultants or other
experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys
retained by the Trustee, employed by it in the exercise and performance of its rights and
obligations hereunder; provided, however, that the Trustee shall not have any lien for such
$0198094.3 29
compensation or reimbursement against any moneys held by it in any of the funds or accounts
established hereunder. The Trustee may take whatever legal actions are lawfully available to it
directly against the Corporation or the District.
Except as otherwise expressly provided herein, no provision of this Trust Agreement
shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of any of its rights or powers
hereunder.
The District, to the extent permitted by law, agrees to indemnify and save the Trustee, its
directors, officers, employees and agents harmless against any liabilities which it may incur in
the exercise and performance of its powers and duties hereunder, including but not limited to
costs and expenses incurred in defending against any claim or liability, which are not due to its
negligence or willful misconduct.
Section 8.04. Protection of the Trustee. The Trustee shall be protected and shall incur
no liability in acting or proceeding in good faith upon any affidavit, bond, certificate, consent,
notice, request, requisition, resolution, statement, waiver or other paper or document which it
shall in good faith believe to be genuine and to have been adopted, executed or delivered by the
proper party or pursuant to any of the provisions hereof, and the Trustee shall be under no duty
to make any investigation or inquiry as to any statements contained or matters referred to in any
such instrument, but may accept and rely upon the same as conclusive evidence of the truth and
accuracy of such statements. The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Trust Agreement at the request or direction of any of the
Owners of the Certificates pursuant to this Trust Agreement, unless such Owners shall have
offered to the Trustee security or indemnity, reasonably satisfactory to the Trustee, against the
reasonable costs, expenses and liabilities which might be incurred by it in compliance with such
request or direction. 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 to any action taken or suffered by it
hereunder in good faith in accordance therewith.
The Trustee shall not be responsible for the sufficiency of the Certificates or the
Installment Purchase Agreement, or of the assignment made to it hereunder, or for statements
made in the preliminary or final official statement relating to the Certificates.
The Trustee shall not be required to take notice or be deemed to have notice of any
default or Event of Default hereunder, except failure of any of the payments to be made to the
Trustee required to be made hereunder or under the Installment Purchase Agreement, unless the
Trustee shall be specifically notified in writing of such default or Event of Default by the
District, the Corporation or the Owners of not less than 5% of the aggregate principal evidenced
by the Certificates then Outstanding.
Whenever in the administration of its rights and obligations hereunder the Trustee shall
deem it necessary or desirable that a matter be proved or established prior to taking or suffering
any action hereunder, such matter(unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a Written Certificate of
80198094.3 30
the District or a Written Certificate of the Corporation, and such certificate shall be full wan-ant
to the Trustee for any action taken or suffered under the provisions hereof upon the faith thereof,
but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may
require such additional evidence as it deems reasonable.
The Trustee may buy, sell, own, hold and deal in any of the Certificates 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 hereto. The Trustee,either as principal or agent,may also engage in or be interested in any
financial or other transaction with the Corporation or the District, and may act as agent,
depository or trustee for any committee or body of Owners or of owners of obligations of the
Corporation or the District as freely as if it were not the Trustee hereunder.
The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers
hereof and perform any rights and obligations required of it hereunder by or through agents,
attorneys or receivers, and shall be entitled to advice of counsel concerning all matters of trust
and its rights and obligations hereunder, and the Trustee shall not be answerable for the
negligence or misconduct of any such agent, attorney or receiver selected by it with reasonable
care;provided, however,that in the event of any negligence or misconduct of any such attorney,
agent or receiver, the Trustee shall diligently pursue all remedies of the Trustee against such
agent, attorney or receiver. The Trustee shall not be liable for any error of judgment made by it
in good faith unless it shall be proved that the Trustee was negligent in ascertaining the pertinent
facts.
The Trustee shall not be answerable for the exercise of any trusts or powers hereunder or
for anything whatsoever in connection with the funds established hereunder, except only for its
own willful misconduct,negligence or breach of an obligation hereunder.
The Trustee may, on behalf of the Owners, intervene in any judicial proceeding to which
the Corporation or the District is a party and which, in the opinion of the Trustee and its counsel,
affects the Certificates or the security therefor, and shall do so if requested in writing by the
Owners of at least 5% of the aggregate principal evidenced by Certificates then Outstanding,
provided the Trustee shall have no duty to take such action unless it has been indemnified to its
reasonable satisfaction against all risk or liability arising from such action.
ARTICLE IX
AMENDMENT OF OR SUPPLEMENT TO TRUST AGREEMENT
Section 9.01. Amendment or Suoolement. (a)This Trust Agreement and the rights
and obligations of the Corporation, the District, the Owners and the Trustee hereunder may be
amended or supplemented at any time by an amendment hereof or supplement hereto which shall
become binding when the prior written consents of the Owners of a majority of the aggregate
principal evidenced by the Certificates then Outstanding, exclusive of Certificates disqualified as
provided in Section 9.02 hereof, are filed with the Trustee. No such amendment or supplement
shall (i)extend the stated Principal Payment Date of any Certificate or reduce the rate of interest
evidenced thereby or extend the time of payment of such interest or reduce the amount of
principal evidenced thereby, (ii)reduce the percentage of Owners whose consent is required for
80198M.3 31
the execution of any amendment hereof or supplement hereto without the prior written consent of
the Owners of all Certificates then Outstanding. (iii)modify any of the rights or obligations of
the Trustee without the prior written consent of the Trustee, or (iv)amend this Section without
the prior written consent of the Owners of all Certificates then Outstanding.
(b) This Trust Agreement and the rights and obligations of the Corporation, the
District, the Owners and the Trustee hereunder may also be amended or supplemented at any
time by an amendment hereof or supplement hereto which shall become binding upon execution,
without the written consents of any Owners,but only to the extent permitted by law and only for
any one or more of the following purposes:
(i) to add to the agreements,conditions, covenants and terms required by the
Corporation or the District to be observed or performed herein other agreements,
conditions, covenants and terms thereafter to be observed or performed by the
Corporation or the District, or to surrender any right or power reserved herein to or
conferred herein on the Corporation or the District;
(ii) to make such provisions for the purpose of curing any ambiguity or of
correcting,curing or supplementing any defective provision contained herein or in regard
to questions arising hereunder which the Corporation or the District may deem desirable
or necessary and not inconsistent herewith;
(iii) to make such additions,deletions or modifications as may be necessary or
appropriate to assure the exclusion from gross income for federal income tax purposes of
interest evidenced by the Certificates;or
(iv) for any other reason, provided such amendment or supplement does not
adversely affect the rights or interests of the Owners.
Section 9.02. Disqualified Certificates. Certificates owned or held by or for the
account of the District (but excluding Certificates held in any pension or retirement fund of the
District) shall not be deemed Outstanding for the purpose of any consent or other action or any
calculation of Outstanding Certificates provided in this Article, and shall not be entitled to
consent to or take any other action provided in this Article, and the Trustee may adopt
appropriate regulations to require each Owner, before his consent provided for herein shall be
deemed effective, to reveal if the Certificates as to which such consent is given are disqualified
as provided in this Section.
Section 9.03. Endorsement or Replacement of Certificates After Amendment or
Supplement. After the effective date of any action taken as hereinabove provided in this
Article, the Trustee may determine that the Certificates may bear a notation by endorsement in
faun approved by the Trustee as to such action, and in that case upon demand of the Owner of
any Outstanding Certificate and presentation of such Certificate for such purpose at the Principal
Office a suitable notation as to such action shall be made on such Certificate. If the Trustee shall
receive an Opinion of Counsel advising that new Certificates modified to conform to such action
are necessary, modified Certificates shall be prepared, and in that case upon demand of the
Owner of any Outstanding Certificates such new Certificates shall be exchanged at the Principal
801980943 32
Office without cost to each Owner for Certificates then Outstanding upon surrender of such
Outstanding Certificates.
Section 9.04. Amendment by Mutual Consent. The provisions of this Article shall not
prevent any Owner from accepting any amendment as to the particular Certificates owned by
such Owner,provided that due notation thereof is made on such Certificates.
ARTICLE X
DEFEASANCE
Section 10.01. Discharge of Certificates and Trust Agreement (a) If the Trustee
shall pay or cause to be paid or there shall otherwise be paid(i)to the Owners of all Outstanding
Certificates the interest and principal evidenced thereby at the times and in the manner stipulated
herein and therein, and (ii)all other amounts due hereunder and under the Installment Purchase
Agreement, then such Owners shall cease to be entitled to the pledge of and lien on the amounts
on deposit in the funds and accounts established hereunder, as provided herein, and all
agreements and covenants of the Corporation, the District, and the Trustee to such Owners
hereunder shall thereupon cease, terminate and become void and shall be discharged and
satisfied.
(b) Any Outstanding Certificate shall be deemed to have been paid within the
meaning and with the effect expressed in this Section when the whole amount of the principal,
premium, if any, and interest evidenced by such Certificate shall have been paid or when
(i) [Reserved), (ii)there shall be on deposit with the Trustee, moneys, or Government
Obligations, or any combination thereof,the principal of and the interest on which when due, and
without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due
the principal, premium, if any,and interest evidenced by such Certificate and due and to become
due on or prior to its stated Principal Payment Date,and(iii)if the stated Principal Payment Date
of such Certificate will not occur, and said Certificate is not to be prepaid, within the next
succeeding 60 days, the District shall have given the Trustee irrevocable instructions to give
notice, as soon as practicable to the Owner of such Certificate,stating that the deposit of moneys
or Government Obligations required by clause(ii) of this subsection has been made with the
Trustee and that such Certificate, or portion thereof, is deemed to have been paid in accordance
with this Section and stating such Principal Payment Date upon which moneys are to be
available for the payment of the principal, premium, if any, and interest evidenced by said
Certificate,or portion thereof.
Neither the moneys nor the Government Obligations deposited with the Trustee pursuant
to this Section nor principal or interest payments on any such Government Obligations shall be
withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the
payment of the principal, premium, if any, and interest evidenced by said Certificate, or portions
thereof. If payment of less than all of the Certificates is to be provided for in the manner and
with the effect expressed in this Section, the Trustee or the District, as applicable, shall select
such Certificates, or portions thereof in the principal amounts designated to the Trustee by the
District.
90198094.3 33
(c) After the payment of all the interest and principal evidenced by all Outstanding
Certificates and all other amounts due hereunder and under the Installment Purchase Agreement
as provided in this Section, the Trustee shall execute and deliver to the Corporation and the
District all such instruments as may be necessary or desirable to evidence the discharge and
satisfaction of this Trust Agreement, the Trustee shall pay over or deliver to the District all
moneys or securities held by it pursuant hereto which are not required for the payment of the
interest and principal evidenced by such Certificates and all other amounts due hereunder and
under the Installment Purchase Agreement.
(d) Prior to any defeasance becoming effective under this Article, the District shall
cause to be delivered (i)an executed copy of a report, addressed to the Trustee and the District,
in form and in substance acceptable to the Trustee and the District, of a nationally recognized
certified public accountant, or firm of such accountants, verifying that the Government
Obligations and cash, if any, satisfy the requirements of clause(ii) of subsection(b) of this
Section (a "Verification'), (ii)a copy of the escrow deposit agreement entered into in connection
with such defeasance, which escrow deposit agreement shall provide that no substitution of
Government Obligations shall be permitted except with other Government Obligations and upon
delivery of a new Verification and no reinvestment of Government Obligations shall be
permitted except as contemplated by the original Verification or upon delivery of a new
Verification, and (iii)a copy of an Opinion of Counsel, dated the date of such defeasance and
addressed to the Trustee and the District, in form and in substance acceptable to the Trustee and
the District, to the effect that such Certificates have been paid within the meaning and with the
effect expressed in this Trust Agreement, all agreements and covenants of the Corporation, the
District and the Trustee to the Owners of such Certificates under this Trust Agreement have
ceased,terminated and become void and have been discharged and satisfied.
Section 10.02. Unclaimed Moneys. Any moneys held by the Trustee in trust for the
payment and discharge of the interest or principal evidenced by any of the Certificates which
remain unclaimed for two years after the date when such interest or principal evidenced by such
Certificates have become payable, if such moneys were held by the Trustee at such date, or for
two years after the date of deposit of such moneys if deposited with the Trustee after the date
when the interest and principal evidenced by such Certificates have become payable, shall be
repaid by the Trustee to the District as its absolute property free from trust, and the Trustee shall
thereupon be released and discharged with respect thereto and the Owners shall look only to the
District for the payment of the interest and principal evidenced by such Certificates.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Benefits of Trust Agreement. Nothing contained herein, expressed or
implied, is intended to give to any Person other than the Corporation, the District, the Trustee
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
Corporation or the District shall be for the sole and exclusive benefit of the Trustee and the
Owners.
801980943 34
(e) Not to Invest at Higher Yield. Except as would not cause the Certificates to
become "arbitrage bonds" within the meaning of section 148 of the Code and the Tax
Regulations and rulings thereunder, the District shall not (and shall not permit any person to), at
any time prior to the final cancellation of the last Certificate to be retired, directly or indirectly
invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any
Investment acquired with Gross Proceeds, whether then held or previously disposed of, would
materially exceed the Yield of the Certificates within the meaning of said section 148.
(0 Not Federally Guaranteed. Except to the extent permitted by section 149(b)of the
Code and the Tax Regulations and rulings thereunder, the District shall not take or omit to take
(and shall not permit any person to take or omit to take) any action that would cause any
Certificate to be"federally guaranteed" within the meaning of section 149(b)of the Code and the
Tax Regulations and rulings thereunder.
(g) Information Report. The District shall timely file any information required by
section 149(e) of the Code with respect to Certificates with the Secretary of the Treasury on
Form 8038-G or such other form and in such place as the Secretary may prescribe.
(h) Rebate of Arbitrage Profits. Except to the extent otherwise provided in section
148(f)of the Code and the Tax Regulations:
(i) The District shall account for all Gross Proceeds (including all receipts,
expenditures and investments thereof) on its books of account separately and apart from
all other funds (and receipts, expenditures and investments thereof) and shall retain all
records of accounting for at least six years after the day on which the last Certificate is
discharged. However,to the extent permitted by law, the District may commingle Gross
Proceeds of Certificates with its other monies, provided that it separately accounts for
each receipt and expenditure of Gross Proceeds and the obligations acquired therewith.
(ii) Not less frequently than each Computation Date (and so long as amounts
remain on deposit in the I-1 Fund, not less frequently than annually), the District
shall calculate the Rebate Amount in accordance with rules set forth in section 148(f) of
the Code and the Tax Regulations and rulings thereunder. The District shall maintain a
copy of the calculation with its official transcript of proceedings relating to the execution
and delivery of the Certificates until six years after the final Computation Date.
(iii) In order to assure the excludability pursuant to section 103(a) of the Code
of the interest with respect to the Certificates from the gross income of the owners thereof
for federal income tax purposes, within 60 days of each Computation Date the District
shall pay to the United States the amount that when added to the future value of previous
rebate payments made for the Certificates equals (i) in the case of the Final Computation
Date as defined in section 1.148-3(e)(2) of the Tax Regulations, one hundred percent
(100%)of the Rebate Amount on such date; and (ii) in the case of any other Computation
Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, such rebate
payments shall be made by the District at the times and in the amounts as are or may be
required by section 148(f) of the Code and the Tax Regulations and rulings thereunder,
and shall be accompanied by Form 8038-T or such other forms and information as is or
801"094.3 23
may be required by section 148(f) of the Code and the Tax Regulations and rulings
thereunder for execution and filing by the District.
(i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of
the Code and the Tax Regulations and rulings thereunder, the District shall not and shall not
permit any person to, at any time prior to the final cancellation of the last of the Certificates to be
retired, enter into any transaction that reduces the amount required to be paid to the United States
pursuant to paragraph (H) of this Section because such transaction results in a smaller profit or a
larger loss than would have resulted if the transaction had been at arm's length and had the Yield
on the Certificates not been relevant to either party.
(j) Certificates Not Hedge Bonds.
(i) The District represents that none of the Certificates is or will become a
"hedge bond"within the meaning of section 149(g)of the Code.
(ii) Without limitation of paragraph (i) above: (A) the District will not execute
and deliver the Certificates unless as of the date of execution and delivery of the
Certificates the District reasonably expects that at least 85%of the spendable proceeds of
the Certificates will be expended within the three-year period commencing on such date
of execution and delivery, and (B) no more than 50% of the proceeds of the Certificates
will be invested in Nonpurpose Investments having a substantially guaranteed yield for a
period of four years or more.
(k) Elections. The District hereby directs and authorizes any Authorized
Representative to make elections permitted or required pursuant to the provisions of the Code or
the Tax Regulations, as such Authorized Representative (after consultation with Special
Counsel) deems necessary or appropriate in connection with the Certificates, in the Tax
Certificate or similar or other appropriate certificate, form or document.
(1) Tax Certificate. The District agrees to execute and deliver in connection with the
execution and delivery of the Certificates a Tax Certificate as to Arbitrage and the Provisions of
Sections 141-150 of the Internal Revenue Code of 1986, or similar document containing
additional representations and covenants pertaining to the exclusion of interest with respect to
the Certificates from the gross income of the owners thereof for federal income tax purposes (the
"Tax Certificate"),which representations and covenants are incorporated as though expressly set
forth herein.
Section 6.09. Continuing Disclosure. Each of the District and the Trustee will comply
with and carry out all of the provisions of the Continuing Disclosure Agreement applicable to it.
Notwithstanding any other provision of this Trust Agreement, failure of the District or the
Trustee to comply with the Continuing Disclosure Agreement shall not be considered an Event
of Default; provided, however, the Trustee may (and, at the request of any Participating
Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding
Certificates and upon being indemnified to its reasonable satisfaction, shall) or any Owner or
Beneficial Owner of Certificates may take such actions as may be necessary and appropriate to
compel performance, including seeking mandate or specific performance by court order.
80199094.3 24
Section 6.10. Further Assurances. The District will promptly execute and deliver or
cause to be executed and delivered all such other and further assurances, documents or
instruments and promptly do or cause to be done all such other and further things as may be
necessary or reasonably required in order to carry out the purposes and intentions of this Trust
Agreement and for preserving and protecting the rights and interests of the Owners.
ARTICLE VII
DEFAULT AND LIMITATIONS OF LIABILITY
Section 7.01. Action upon Event of Default. An Event of Default under the Installment
Purchase Agreement shall constitute an Event of Default hereunder and an Event of Default
under the Master Agreement shall constitute an Event of Default hereunder. The Trustee may
give notice, as assignee of the Corporation, of an Event of Default under the Installment
Purchase Agreement to the District, and shall do so if directed to do so by the Owners of not less
than 5% of the aggregate principal evidenced by Certificates then Outstanding. In each and
every case during the continuance of an Event of Default, the Trustee may and, at the direction
of the Owners of not less than a majority of the aggregate principal evidenced by Certificates
then Outstanding, shall, upon notice in writing to the District and the Corporation (a) exercise
any of the remedies granted to the Corporation under the Installment Purchase Agreement,
(b) exercise any of the remedies granted to the Trustee under the Master Agreement, and (c)take
whatever action at law or in equity may appear necessary or desirable to enforce its rights
pursuant to this Trust Agreement, the Installment Purchase Agreement or the Master Agreement
or to protect and enforce any of the rights vested in the Trustee or the Owners by this Trust
Agreement, the Certificates, the Installment Purchase Agreement or the Master Agreement,
either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement or for the enforcement of any other legal or equitable right, including
any one or more of the remedies set forth in Section 9.02 hereof.
Section 7.02. Other Remedies of the Trustee. Subject to the provisions of Section 7.01
hereof, the Trustee shall have the right:
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce
its rights against the Corporation or the District or any member, director, officer or employee
thereof, and to compel the Corporation or the District or any such member, director, officer or
employee to perform or carry out its or his or her duties under law and the agreements and
covenants required to be performed by it or him or her contained herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the
rights of the Trustee; or
(c) by suit in equity upon the happening of any Event of Default hereunder to require
the Corporation and the District to account as the trustee of an express trust.
Section 7.03. Non-Waiver. A waiver of any default or breach of duty or contract by the
Trustee or the Owners 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
80198094.3 25
delay or omission by the Trustee or the Owners to exercise any right or remedy seeming upon
any default or breach of duty or contract shall impair any such right or remedy or shall be
construed to be a waiver of any such default or breach of duty or contract or an acquiescence
therein, and every right or remedy conferred upon the Trustee or the Owners by law or by this
Article may be enforced and exercised from time to time and as often the Trustee shall deem
expedient.
If any action, proceeding or suit to enforce any right or to exercise any remedy is
abandoned or determined adversely to the Trustee or any Owner, then subject to any adverse
determination, the Trustee, such Owner,the Corporation and the District shall be restored to their
former positions, rights and remedies as if such action, proceeding or suit had not been brought
ortaken.
Section 7.04. Remedies Not Exclusive. Subject to the provisions of Section 7.01
hereof, 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. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other
appropriate right or remedy.
Section 7.05. Anrlication of Amounts After Default. All damages or other payments
received by the Trustee for the enforcement of any rights and powers of the Trustee under this
Article shall be deposited into the Installment Payment Fund and as soon as practicable thereafter
applied:
(a) to the payment of all amounts due the Trustee under Section 8.03 hereof;
(b) unless the unpaid Installment Payments, and the interest thereon, shall have
become,and shall remain, immediately due and payable pursuant to the Master Agreement:
(i) to the payment of all amounts then due for interest evidenced by the
Certificates, in respect of which, or for the benefit of which, money has been collected
(other than Certificates which have become payable prior to such Event of Default and
money for the payment of which is held by the Trustee), ratably without preference or
priority of any kind, according to the amounts of interest evidenced by such Certificates
due and payable; and
(ii) to the payment of all amounts then due for principal evidenced by the
Certificates, in respect of which, or for the benefit of which, money has been collected
(other than Certificates which have become payable prior to such Event of Default and
money for the payment of which is held by the Trustee), ratably without preference or
priority of any kind, according to the amounts of principal evidenced by such Certificates
due and payable.
(c) if the unpaid Installment Payments, and the interest thereon, shall have become,
and shall remain, immediately due and payable pursuant to the Master Agreement, to the
80198M.3 26
payment of all amounts then due for principal and interest evidenced by the Certificates and, if
the amount available therefor shall not be sufficient to pay in full the whole amount so due and
unpaid, then to the payment thereof ratably, without preference or priority of principal over
interest, or of interest over principal, or of any installment of interest over any other installment
of interest,or of any Certificate over any other Certificate, to the persons entitled thereto without
any discrimination or preference.
Section 7.06. Trustee May Enforce Claims Without Possession of Certificates. All
rights of action and claims under this Trust Agreement or the Certificates may be prosecuted and
enforced by the Trustee without the possession of any of the Certificates or the production
thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Owners of
the Certificates in respect of which such judgment has been recovered.
Section 7.07. Limitation on Suits. No Owner shall have any right to institute any
proceeding,judicial or otherwise,with respect to this Trust Agreement, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless (a)such Owner shall have
previously given written notice to the Trustee of a continuing Event of Default hereunder,(b)the
Owners of not less than a majority of the aggregate principal evidenced by Certificates then
Outstanding shall have made written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder, (c) such Owner or Owners shall
have afforded to the Trustee indemnity reasonably satisfactory to the Trustee against the costs,
expenses and liabilities to be incurred in compliance with such request, (d)the Trustee for 60
days after its receipt of such notice, request and offer of indemnity shall have failed to institute
any such proceedings,and(e)no direction inconsistent with such written request shall have been
given to the Trustee during such 60-day period by the Owners of a majority of the aggregate
principal evidenced by Certificates then Outstanding; it being understood and intended that no
one or more Owners of Certificates shall have any right in any manner whatever by virtue of, or
by availing of, any provision of this Trust Agreement to affect, disturb or prejudice the rights of
any other Owner of Certificates, or to obtain or seek to obtain priority or preference over any
other Owner or to enforce any right under this Trust Agreement, except in the manner herein
provided and for the equal and ratable benefit of all the Owners of Certificates.
Section 7.08. No Liability by the Corporation to the Owner. Except as expressly
provided herein, the Corporation shall not have any obligation or liability to the Owners with
respect to the payment when due of the Installment Payments, and the interest thereon, by the
District,or with respect to the performance by the District of the other agreements and covenants
required to be performed by it contained in the Installment Purchase Agreement, the Master
Agreement or herein,or with respect to the performance by the Trustee of any right or obligation
required to be performed by it contained herein.
Section 7.09. No Liability by the District to the Owners. Except for the payment
when due of the Installment Payments, and the interest thereon, and the performance of the other
agreements and covenants required to be performed by it contained in the Installment Purchase
Agreement,the Master Agreement or herein,the District shall not have any obligation or liability
80198094.3 27
to the Owners with respect to this Trust Agreement or the preparation, execution, delivery or
transfer of the Certificates or the disbursement of the Installment Payments, and the interest
thereon, by the Trustee to the Owners, or with respect to the performance by the Trustee of any
right or obligation required to be performed by it contained herein.
Section 7.10. No Liability of the Trustee to the Owners. Except as expressly provided
herein, the Trustee shall not have any obligation or liability to the Owners with respect to the
payment when due of the Installment Payments, and the interest thereon, by the District, or with
respect to the performance by the Corporation or the District of the other agreements and
covenants required to be performed by them, respectively contained in the Installment Purchase
Agreement or herein.
ARTICLE MI
THE TRUSTEE
Section 8.01. Employment of the Trustee: Duties. The Corporation and the District
hereby appoint and employ the Trustee to receive, deposit and disburse the Installment
Payments, and the interest thereon, to prepare, execute, deliver and transfer the Certificates and
to perform the other functions contained herein, all in the manner provided herein and subject to
the conditions and terms hereof. By executing and delivering this Trust Agreement, the Trustee
accepts the appointment and employment hereinabove referred to and accepts the rights and
obligations of the Trustee provided herein, subject to the conditions and terms hereof. Other
than when an Event of Default hereunder has occurred and is continuing,the Trustee undertakes
to perform such duties and only such duties as are specifically set forth in this Trust Agreement,
and no implied covenants or obligations shall be read into this Trust Agreement against the
Trustee. In case an Event of Default has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Trust Agreement, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
Section 8.02. Removal and Resignation of the Trustee. The Corporation and the
District may, by an instrument in writing, remove the Trustee initially a party hereto and any
successor thereto unless an Event of Default shall have occurred and then be continuing, and
shall remove the Trustee initially a party hereto and any successor thereto if at any time
(a)requested to do so by an instrument or concurrent instruments in writing signed by the
Owners of a majority of the aggregate principal evidenced by the Certificates at the time
Outstanding (or their attorneys duly authorized in writing), or (b)the Trustee shall cease to be
eligible in accordance with the following sentence, and shall appoint a successor Trustee. The
Trustee shall be a bank having trust powers or a trust company in good standing in or
incorporated under the laws of the United States or any state thereof, having (or if such bank or
trust company is a member of a bank holding company system, its parent bank holding company
shall have) a combined capital and surplus of at least$75,000,000, and be subject to supervision
or examination by federal or state banking 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
80198094.3 28
and surplus of such bank or trust company shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
The Trustee may at any time resign by giving written notice of such resignation to the
Corporation and the District and by giving notice, by first class mail, postage prepaid, of such
resignation to the Owners at their addresses appearing on the registration books maintained by
the Trustee. Upon receiving such notice of resignation, the Corporation and the District shall
promptly appoint a successor Trustee by an instrument in writing; provided, however,that in the
event the District and the Corporation do not appoint a successor Trustee within 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 a Trustee and appointment of a successor Trustee shall become
effective only upon acceptance of appointment by the successor Trustee. Any successor Trustee
appointed under this Trust Agreement shall signify its acceptance of such appointment by
executing and delivering to the District and the Corporation and to its predecessor Trustee a
written acceptance thereof, and thereupon such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the moneys, estates, properties, rights, powers,
trusts, duties and obligations of such predecessor Trustee,with like effect as if originally named
Trustee herein;but,nevertheless,at the written request of the District or of the successor Trustee,
such predecessor Trustee shall execute and deliver any and all instruments of conveyance or
further assurance and do such other things as may reasonably be required for more fully and
certainly vesting in and confirming to such successor Trustee all the right, title and interest of
such predecessor Trustee in and to any property held by it under this Trust Agreement and shall
pay over, transfer, assign and deliver to the successor Trustee any money or other property
subject to the trusts and conditions herein set forth.
Any corporation, association or agency into which the Trustee may be converted or
merged, or with which it may be consolidated, or to which it may sell or transfer its corporate
trust business and assets as a whole or substantially as a whole, or any corporation or association
resulting from any such conversion,sale, merger, consolidation or transfer to which it is a party,
provided that such entity meets the combined capital and surplus requirements of this Section,
ipso facto, shall be and become successor trustee under this Trust Agreement and vested with all
the trusts, powers, discretions, immunities, privileges and all other matters as was its
predecessor, without the execution or filing of any instrument or any further act, deed or
conveyance on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 8.03. Compensation and Indemnification of the Trustee. The District shall
from time to time, subject to any written agreement then in effect with the Trustee, pay the
Trustee reasonable compensation for all its services rendered hereunder and reimburse the
Trustee for all its reasonable advances and expenditures (which shall not include "overhead
expenses" except as such expenses are included as a component of the Trustee's stated annual
fees or disclosed transaction fees) hereunder, including but not limited to advances to and
reasonable fees and reasonable expenses of accountants, agents, appraisers, consultants or other
experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys
retained by the Trustee, employed by it in the exercise and performance of its rights and
obligations hereunder; provided, however, that the Trustee shall not have any lien for such
80198M.3 29
compensation or reimbursement against any moneys held by it in any of the funds or accounts
established hereunder. The Trustee may take whatever legal actions are lawfully available to it
directly against the Corporation or the District.
Except as otherwise expressly provided herein, no provision of this Trust Agreement
shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of any of its rights or powers
hereunder.
The District, to the extent permitted by law, agrees to indemnify and save the Trustee, its
directors, officers, employees and agents harmless against any liabilities which it may incur in
the exercise and performance of its powers and duties hereunder, including but not limited to
costs and expenses incurred in defending against any claim or liability, which are not due to its
negligence or willful misconduct.
Section 8.04. Protection of the Trustee. The Trustee shall be protected and shall incur
no liability in acting or proceeding in good faith upon any affidavit, bond, certificate, consent,
notice, request, requisition, resolution, statement, waiver or other paper or document which it
shall in good faith believe to be genuine and to have been adopted, executed or delivered by the
proper party or pursuant to any of the provisions hereof, and the Trustee shall be under no duty
to make any investigation or inquiry as to any statements contained or matters referred to in any
such instrument, but may accept and rely upon the same as conclusive evidence of the truth and
accuracy of such statements. The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Trust Agreement at the request or direction of any of the
Owners of the Certificates pursuant to this Trust Agreement, unless such Owners shall have
offered to the Trustee security or indemnity, reasonably satisfactory to the Trustee, against the
reasonable costs, expenses and liabilities which might be incurred by it in compliance with such
request or direction. 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 to any action taken or suffered by it
hereunder in good faith in accordance therewith.
The Trustee shall not be responsible for the sufficiency of the Certificates or the
Installment Purchase Agreement, or of the assignment made to it hereunder, or for statements
made in the preliminary or final official statement relating to the Certificates.
The Trustee shall not be required to take notice or be deemed to have notice of any
default or Event of Default hereunder, except failure of any of the payments to be made to the
Trustee required to be made hereunder or under the Installment Purchase Agreement, unless the
Trustee shall be specifically notified in writing of such default or Event of Default by the
District, the Corporation or the Owners of not less than 5% of the aggregate principal evidenced
by the Certificates then Outstanding.
Whenever in the administration of its rights and obligations hereunder the Trustee shall
deem it necessary or desirable that a matter be proved or established prior to taking or suffering
any action hereunder, such matter(unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a Written Certificate of
80199094.3 30
the District or a Written Certificate of the Corporation, and such certificate shall be full warrant
to the Trustee for any action taken or suffered under the provisions hereof upon the faith thereof,
but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may
require such additional evidence as it deems reasonable.
The Trustee may buy, sell, own, hold and deal in any of the Certificates 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 hereto. The Trustee,either as principal or agent, may also engage in or be interested in any
financial or other transaction with the Corporation or the District, and may act as agent,
depository or trustee for any committee or body of Owners or of owners of obligations of the
Corporation or the District as freely as if it were not the Trustee hereunder.
The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers
hereof and perform any rights and obligations required of it hereunder by or through agents,
attorneys or receivers, and shall be entitled to advice of counsel concerning all matters of trust
and its rights and obligations hereunder, and the Trustee shall not be answerable for the
negligence or misconduct of any such agent, attorney or receiver selected by it with reasonable
care; provided, however, that in the event of any negligence or misconduct of any such attorney,
agent or receiver, the Trustee shall diligently pursue all remedies of the Trustee against such
agent, attorney or receiver. The Trustee shall not be liable for any error of judgment made by it
in good faith unless it shall be proved that the Trustee was negligent in ascertaining the pertinent
facts.
The Trustee shall not be answerable for the exercise of any trusts or powers hereunder or
for anything whatsoever in connection with the funds established hereunder, except only for its
own willful misconduct,negligence or breach of an obligation hereunder.
The Trustee may, on behalf of the Owners, intervene in any judicial proceeding to which
the Corporation or the District is a party and which, in the opinion of the Trustee and its counsel,
affects the Certificates or the security therefor, and shall do so if requested in writing by the
Owners of at least 5% of the aggregate principal evidenced by Certificates then Outstanding,
provided the Trustee shall have no duty to take such action unless it has been indemnified to its
reasonable satisfaction against all risk or liability arising from such action.
ARTICLE IX
AMENDMENT OF OR SUPPLEMENT TO TRUST AGREEMENT
Section 9.01. Amendment or Suoolement. (a) This Trust Agreement and the rights
and obligations of the Corporation, the District, the Owners and the Trustee hereunder may be
amended or supplemented at any time by an amendment hereof or supplement hereto which shall
become binding when the prior written consents of the Owners of a majority of the aggregate
principal evidenced by the Certificates then Outstanding, exclusive of Certificates disqualified as
provided in Section 9.02 hereof, are filed with the Trustee. No such amendment or supplement
shall (i)extend the stated Principal Payment Date of any Certificate or reduce the rate of interest
evidenced thereby or extend the time of payment of such interest or reduce the amount of
principal evidenced thereby, (ii)reduce the percentage of Owners whose consent is required for
80198094.3 31
the execution of any amendment hereof or supplement hereto without the prior written consent of
the Owners of all Certificates then Outstanding, (iii)modify any of the rights or obligations of
the Trustee without the prior written consent of the Trustee, or (iv)amend this Section without
the prior written consent of the Owners of all Certificates then Outstanding.
(b) This Trust Agreement and the rights and obligations of the Corporation, the
District, the Owners and the Trustee hereunder may also be amended or supplemented at any
time by an amendment hereof or supplement hereto which shall become binding upon execution,
without the written consents of any Owners, but only to the extent permitted by law and only for
any one or more of the following purposes:
(i) to add to the agreements, conditions, covenants and terms required by the
Corporation or the District to be observed or performed herein other agreements,
conditions, covenants and terms thereafter to be observed or performed by the
Corporation or the District, or to surrender any right or power reserved herein to or
conferred herein on the Corporation or the District;
(ii) to make such provisions for the purpose of curing any ambiguity or of
correcting, curing or supplementing any defective provision contained herein or in regard
to questions arising hereunder which the Corporation or the District may deem desirable
or necessary and not inconsistent herewith;
(iii) to make such additions,deletions or modifications as may be necessary or
appropriate to assure the exclusion from gross income for federal income tax purposes of
interest evidenced by the Certificates;or
(iv) for any other reason, provided such amendment or supplement does not
adversely affect the rights or interests of the Owners.
Section 9.02. Disqualified Certificates. Certificates owned or held by or for the
account of the District (but excluding Certificates held in any pension or retirement fund of the
District) shall not be deemed Outstanding for the purpose of any consent or other action or any
calculation of Outstanding Certificates provided in this Article, and shall not be entitled to
consent to or take any other action provided in this Article, and the Trustee may adopt
appropriate regulations to require each Owner, before his consent provided for herein shall be
deemed effective, to reveal if the Certificates as to which such consent is given are disqualified
as provided in this Section.
Section 9.03. Endorsement or Replacement of Certificates After Amendment or
Supplement. After the effective date of any action taken as hereinabove provided in this
Article, the Trustee may determine that the Certificates may bear a notation by endorsement in
faun approved by the Trustee as to such action, and in that case upon demand of the Owner of
any Outstanding Certificate and presentation of such Certificate for such purpose at the Principal
Office a suitable notation as to such action shall be made on such Certificate. If the Trustee shall
receive an Opinion of Counsel advising that new Certificates modified to conform to such action
are necessary, modified Certificates shall be prepared, and in that case upon demand of the
Owner of any Outstanding Certificates such new Certificates shall be exchanged at the Principal
80198(&1.3 32
Office without cost to each Owner for Certificates then Outstanding upon surrender of such
Outstanding Certificates.
Section 9.04. Amendment by Mutual Consent. The provisions of this Article shall not
prevent any Owner from accepting any amendment as to the particular Certificates owned by
such Owner,provided that due notation thereof is made on such Certificates.
ARTICLE X
DEFEASANCE
Section 10.01. Discharge of Certificates and Trust Agreement. (a) If the Trustee
shall pay or cause to be paid or there shall otherwise be paid(i)to the Owners of all Outstanding
Certificates the interest and principal evidenced thereby at the times and in the manner stipulated
herein and therein, and (ii)all other amounts due hereunder and under the Installment Purchase
Agreement,then such Owners shall cease to be entitled to the pledge of and lien on the amounts
on deposit in the funds and accounts established hereunder, as provided herein, and all
agreements and covenants of the Corporation, the District, and the Trustee to such Owners
hereunder shall thereupon cease, terminate and become void and shall be discharged and
satisfied.
(b) Any Outstanding Certificate shall be deemed to have been paid within the
meaning and with the effect expressed in this Section when the whole amount of the principal,
premium, if any, and interest evidenced by such Certificate shall have been paid or when
(i) [Reserved], (ii)there shall be on deposit with the Trustee, moneys, or Government
Obligations, or any combination thereof,the principal of and the interest on which when due, and
without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due
the principal,premium, if any,and interest evidenced by such Certificate and due and to become
due on or prior to its stated Principal Payment Date, and(iii)if the stated Principal Payment Date
of such Certificate will not occur, and said Certificate is not to be prepaid, within the next
succeeding 60 days, the District shall have given the Trustee irrevocable instructions to give
notice, as soon as practicable to the Owner of such Certificate,stating that the deposit of moneys
or Government Obligations required by clause(ii) of this subsection has been made with the
Trustee and that such Certificate, or portion thereof, is deemed to have been paid in accordance
with this Section and stating such Principal Payment Date upon which moneys are to be
available for the payment of the principal, premium, if any, and interest evidenced by said
Certificate, or portion thereof.
Neither the moneys nor the Government Obligations deposited with the Trustee pursuant
to this Section nor principal or interest payments on any such Government Obligations shall be
withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the
payment of the principal, premium, if any, and interest evidenced by said Certificate, or portions
thereof. If payment of less than all of the Certificates is to be provided for in the manner and
with the effect expressed in this Section, the Trustee or the District, as applicable, shall select
such Certificates, or portions thereof in the principal amounts designated to the Trustee by the
District.
90198094.3 33
(c) After the payment of all the interest and principal evidenced by all Outstanding
Certificates and all other amounts due hereunder and under the Installment Purchase Agreement
as provided in this Section, the Trustee shall execute and deliver to the Corporation and the
District all such instruments as may be necessary or desirable to evidence the discharge and
satisfaction of this Trust Agreement, the Trustee shall pay over or deliver to the District all
moneys or securities held by it pursuant hereto which are not required for the payment of the
interest and principal evidenced by such Certificates and all other amounts due hereunder and
under the Installment Purchase Agreement.
(d) Prior to any defeasance becoming effective under this Article, the District shall
cause to be delivered (i) an executed copy of a report, addressed to the Trustee and the District,
in form and in substance acceptable to the Trustee and the District, of a nationally recognized
certified public accountant, or firm of such accountants, verifying that the Government
Obligations and cash, if any, satisfy the requirements of clause(ii) of subsection(b) of this
Section (a "Verification'), (ii)a copy of the escrow deposit agreement entered into in connection
with such defeasance, which escrow deposit agreement shall provide that no substitution of
Government Obligations shall be permitted except with other Government Obligations and upon
delivery of a new Verification and no reinvestment of Government Obligations shall be
permitted except as contemplated by the original Verification or upon delivery of a new
Verification, and (iii) a copy of an Opinion of Counsel, dated the date of such defeasance and
addressed to the Trustee and the District, in form and in substance acceptable to the Trustee and
the District, to the effect that such Certificates have been paid within the meaning and with the
effect expressed in this Trust Agreement, all agreements and covenants of the Corporation, the
District and the Trustee to the Owners of such Certificates under this Trust Agreement have
ceased,terminated and become void and have been discharged and satisfied.
Section 10.02. Unclaimed Moneys. Any moneys held by the Trustee in trust for the
payment and discharge of the interest or principal evidenced by any of the Certificates which
remain unclaimed for two years after the date when such interest or principal evidenced by such
Certificates have become payable, if such moneys were held by the Trustee at such date, or for
two years after the date of deposit of such moneys if deposited with the Trustee after the date
when the interest and principal evidenced by such Certificates have become payable, shall be
repaid by the Trustee to the District as its absolute property free from trust, and the Trustee shall
thereupon be released and discharged with respect thereto and the Owners shall look only to the
District for the payment of the interest and principal evidenced by such Certificates.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Benefits of Trust Agreement. Nothing contained herein, expressed or
implied, is intended to give to any Person other than the Corporation, the District, the Trustee
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
Corporation or the District shall be for the sole and exclusive benefit of the Trustee and the
Owners.
80198M.3 34
Section 11.02. Successor Deemed Included in all References to Predecessor.
Whenever the Corporation, the District 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 Corporation, the District 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 Corporation, the District 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 11.03. Execution of Documents by Owners. Any declaration, request or other
instrument which is permitted or required herein to be executed by Owners may be in one or
more instruments of similar tenor and may be executed by Owners in person or by their attorneys
appointed in writing. The fact and date of the execution by any Owner or his attorney of any
declaration, request or other instrument or of any writing appointing such attorney may be
proved by the certificate of any notary public or other officer authorized to 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 affidavit of a witness of such execution duly sworn to before such
notary public or other officer, or by such other proof as the Trustee may accept which it may
deem sufficient.
The ownership of any Certificates and the amount, payment date, number and date of
owning the same may be proved by the registration books maintained by the Trustee pursuant to
the provisions of Section 2.07 hereof.
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 Corporation,the District or the Trustee in good faith and in accordance therewith.
Section 11.04. Waiver of Personal Liability. Notwithstanding anything contained
herein to the contrary, no member, officer or employee of the District or the Corporation shall be
individually or personally liable for the payment of any moneys, including without limitation,the
interest or principal evidenced by the Certificates, but nothing contained herein shall relieve any
member, officer or employee of the District or the Corporation from the performance of any
official duty provided by any applicable provisions of law, by the Installment Purchase
Agreement or hereby.
Section 11.05. Acquisition of Certificates by District. All Certificates acquired by the
District, whether by purchase or gift or otherwise, shall be surrendered to the Trustee for
cancellation.
Section 11.06. Content of Certificates. Every Written Certificate of the District and
every Written Certificate of the Corporation with respect to compliance with any agreement,
condition,covenant or tern contained herein shall include(a)a statement that the Person making
or giving such certificate has read such agreement, condition, covenant or term and the
definitions herein relating thereto, (b)a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in such certificate are based,
80198094.3 35
(c)a statement that, in the opinion of the signer, the signer has made or caused to be made such
examination or investigation as is necessary to enable the signer to express an informed opinion
as to whether or not such agreement, condition, covenant or term has been complied with, and
(d) a statement as to whether, in the opinion of the signer, such agreement, condition, covenant
or teem has been complied with.
Any Written Certificate of the District and any Written Certificate of the Corporation
may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless the
Person making or giving such certificate knows that the Opinion of Counsel with respect to the
matters upon which each Person's certificate may be based, as aforesaid, is erroneous, or in the
exercise of reasonable care should have known that the same was erroneous. Any Opinion of
Counsel may be based, insofar as it relates to factual matters, upon information which is in the
possession of the District or the Corporation upon a representation by an officer or officers of the
District or the Corporation, as the case may be, unless the counsel executing such Opinion of
Counsel knows that the representation with respect to the matters upon which such counsel's
opinion may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should
have known that the same was erroneous.
Section 11.07. Funds and Accounts. Any fund or account required to be established
and maintained herein by the Trustee may be established and maintained in the accounting
records of the Trustee either as an account or a fund, and may, for the purposes of such
accounting records, any audits thereof and any reports or statements with respect thereto, be
treated either as an account or a fund, but all such records with respect to all such funds and
accounts shall at all times be maintained in accordance with sound accounting practice and with
due regard for the protection of the security of the Certificates and the rights of the Owners. The
Trustee may establish such funds and accounts as it deems necessary to perform its obligations
hereunder.
Trustee may commingle any of the moneys held by it hereunder for investment purposes
only; provided, however, that the Trustee shall account separately for the moneys in each fund or
account established pursuant to this Trust Agreement.
Section 11.08. Article and Section Headings. Gender and References. The singular
form of any word used herein, including the terms defined in Section 1.01 hereof, shall include
the plural, and vice versa, unless the context otherwise requires. The use herein of a pronoun of
any gender shall include correlative words of the other genders. The headings or titles of the
several Articles and Sections hereof and the table of contents appended hereto shall be solely for
convenience of reference and shall not affect the meaning, construction or effect hereof. All
references herein to "Articles," "Sections," subsections or clauses are to the corresponding
Articles, Sections, subsections or clauses hereof, and the words "hereby," "herein," "hereof,"
"hereto," "herewith," "hereunder" and other words of similar import refer to this Trust
Agreement as a whole and not to any particular Article, Section, subsection or clause thereof.
Section 11.09. Partial Invalidity. If any one or more of the agreements, conditions,
covenants or terms required herein to be observed or performed by or on the part of the
Corporation, the District or the Trustee shall be contrary to law, then such agreement or
agreements, such condition or conditions, such covenant or covenants or such term or terms shall
80198094.3 36
be null and void to the extent contrary to law and shall be deemed separable from the remaining
agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof
or of the Certificates,and the Owners shall retain all the benefit, protection and security afforded
to them under any applicable provisions of law. The Corporation, the District and the Trustee
hereby declare that they would have executed this Trust Agreement,and each and every Article,
Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized
the execution and delivery of the Certificates pursuant hereto irrespective of the fact that any one
or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the
application thereof to any Person or circumstance may be held to be unconstitutional,
unenforceable or invalid.
Section 11.10. California Law. This Trust Agreement shall be governed by and
construed in accordance with the laws of the State.
Section 11.11. Notices. Any written notice, statement, demand, consent, approval,
authorization, offer, designation, request or other communication to be given hereunder shall be
given to the party entitled thereto at its address set forth below, or at such other address as such
party may provide to the other parties in writing from time to time, namely:
If to the District: Orange County Sanitation District
10844 Ellis Avenue
Fountain Valley,California 92708
Attention: Director of Finance and Administrative Services
If to the Corporation: Orange County Sanitation District Financing Corporation
c/o Orange County Sanitation District
10844 Ellis Avenue
Fountain Valley,California 92708
Attention: Treasurer
If to the Trustee: U.S. Bank National Association
Attention:
Each such notice, statement, demand,consent,approval, authorization,offer, designation,
request or other communication hereunder shall be deemed delivered to the party to whom it is
addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic
communication, whether by telex, telegram or telecopier, upon the sender's receipt of an
appropriate answerback or other written acknowledgment, (c) if given by registered or certified
mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours
after such notice is deposited with the United States mail, (d)if given by overnight courier, with
courier charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any
other means, upon delivery at the address specified in this Section.
Section 11.12. Effective Date. This Trust Agreement shall become effective upon its
execution and delivery.
801998 3 37
Section 11.13. Execution in Counterparts. This Trust Agreement may be
simultaneously executed in several counterparts, each of which shall be deemed an original, and
all of which shall constitute but one and the same instrument.
801990943 38
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be
executed by their respective officers thereunto duly authorized, all as of the day and year first
written above.
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
Authorized Officer
ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION
By:
Treasurer
ORANGE COUNTY SANITATION DISTRICT
By:
Chair of the Board of Directors
(S E A L)
Attest:
By:
Secretary of the Board of Directors
80198094.3 39
EXHIBIT A
FORM OF CERTIFICATE
No. R— ***$***
Unless this Certificate is presented by an authorized representative of The Depository
Trust Company to the Trustee for registration of transfer, exchange or payment, and any
Certificate executed and delivered is registered in the name of Cede & Co. or such other name
as requested by an authorized representative of The Depository Trust Company and any payment
is made to Cede& Co.,ANY TRANSFER,PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the Registered
Owner hereof,Cede&Co.,has an interest herein.
ORANGE COUNTY SANITATION DISTRICT
REFUNDING CERTIFICATE OF PARTICIPATION
SERIES 2008A
PRINCIPAL
PAYMENT DATE INTEREST RATE DATED DATE CUSH,
,2008
REGISTERED OWNER: Cede&Co.
PRINCIPAL AMOUNT: DOLLARS
THIS IS TO CERTIFY that the Registered Owner of this Certificate of Participation
(this "Certificate"), as identified above, is the owner of a direct, fractional undivided interest in
certain installment payments (`'Installment Payments"), and the interest thereon, payable under
and pursuant to the Installment Purchase Agreement, dated as of May 1, 2008 (the "Installment
Purchase Agreement"), by and between the Orange County Sanitation District(the "District"), a
county sanitation district organized and existing under the laws of the State of California, and the
Orange County Sanitation District Financing Corporation (the"Corporation'), a nonprofit public
benefit corporation organized and existing under the laws of the State of California. Certain of
the rights of the Corporation under the Installment Purchase Agreement, including the right to
receive the Installment Payments, and the interest thereon,have been assigned without recourse
by the Corporation to U.S. Bank National Association, a national banking association duly
organized and existing under the laws of the United States of America,as trustee(the "Trustee')
under the Trust Agreement, dated as of May 1,2008(the"frost Agreement'),by and among the
Trustee, the District and the Corporation. Capitalized undefined terms used herein shall have the
meanings ascribed thereto in the Trust Agreement.
The District has executed and delivered the Master Agreement for District Obligations,
dated as of August 1, 2000 (the "Master Agreement'), by and between the District and the
Corporation, pursuant to which the District establishes and declares the conditions and terms
80199 9.3 A-1
upon which obligations such as the Installment Purchase Agreement, and the Installment
Payments and the interest thereon, will be incurred and secured.
This Certificate is one of the duly authorized Orange County Sanitation District
Refunding Certificates of Participation, Series 2008A (the "Certificates") evidence principal in
the aggregate amount of$[PAR], executed pursuant to the terms of the Trust Agreement. The
Certificates evidence direct, fractional undivided interests in the Installment Payments, and the
interest thereon, payable under the Installment Purchase Agreement. The Certificates are
executed and delivered to refinance certain improvements to the wastewater collection,treatment
and disposal facilities of the District(the"Wastewater System"),to finance a reserve fund for the
Certificates,to pay the costs of issuance incurred in connection therewith and to pay certain other
related costs.
The Installment Payments, and the interest thereon,are to be paid by the District pursuant
to the Installment Purchase Agreement in consideration for the purchase of certain improvements
to the Wastewater System and for the other agreements and obligations undertaken by the
Corporation under the Installment Purchase Agreement and the Trust Agreement.
The income and revenue received by the District from the operation of the Wastewater
System remaining after the payment of maintenance and operation or ownership costs of the
Wastewater System (as more fully described in the Installment Purchase Agreement, the "Net
Revenues") are, pursuant to the Master Agreement, pledged to the payment of the Senior
Obligations and Reimbursement Obligations with respect to Senior Obligations (as such terms
are defined in the Master Agreement).
The Installment Purchase Agreement constitutes a Senior Obligation and, as such, shall
be subject to the provisions of the Master Agreement,and shall be afforded all of the advantages,
benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement.
The Installment Purchase Agreement is payable on a parity with the other existing Senior
Obligation. The District may at any time incur Senior Obligations in addition to existing Senior
Obligations and the Installment Purchase Agreement payable from Net Revenues as provided in
the Master Agreement on a parity with all other Senior Obligations theretofore incurred, but only
subject to the conditions and upon compliance with the procedures set forth in the Master
Agreement.
The District is not required to advance any moneys derived from any source of income
other than Net Revenues and the other funds provided in the Installment Purchase Agreement for
the payment of the Installment Payments, and the interest thereon, and other payments required
to be made by it under the Installment Purchase Agreement, or for the performance of any
agreements or covenants required to be performed by it contained therein. The obligation of the
District to pay the Installment Payments, and the interest thereon,and other payments required to
be made by it under the Installment Purchase Agreement is a special obligation of the District
payable, in the manner provided in the Installment Purchase Agreement, solely from such Net
Revenues and other funds provided for therein, 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.
80198094.3 A-2
Reference is hereby made to the Master Agreement,the Installment Purchase Agreement
and to the Trust Agreement and any and all amendments thereof and supplements thereto for a
description of the terms under which the District's obligation to pay the Installment Payments,
and the interest thereon, is incurred, the Certificates are executed and delivered, the provisions
with regard to the nature and extent of the Net Revenues, and the rights of the Owners of the
Certificates. All of the terms of the Master Agreement, the Installment Purchase Agreement and
the Trust Agreement are hereby incorporated herein. The Trust Agreement constitutes a contract
among the District, the Corporation and the Trustee for the benefit of the Owners of the
Certificates, to all the provisions of which the Owner of this Certificate, by acceptance hereof,
agrees and consents.
The Registered Owner of this Certificate is entitled to receive, subject to the terms of the
Trust Agreement on the Principal Payment Date set forth above, upon presentation and surrender
of this Certificate at the principal corporate trust office of the Trustee in Los Angeles, California
(the "Principal Office"),the Principal Amount specified above, evidencing the Owner's interest
in the Installment Payments coming due on the Principal Payment Date, and to receive on
February I and August 1 of each year, commencing on August 1, 2008 (the "Interest Payment
Dates'), interest accrued thereon at the Interest Rate specified above,computed on the basis of a
360-day year consisting of twelve 30-day months, until said Principal Amount is paid in full,
evidencing the Registered Owner's interest in the interest evidenced by the Installment Payments
coming due on each of said dates.
This Certificate shall evidence interest from the Interest Payment Date next preceding its
date of execution to which interest has been paid in full, unless such date of execution shall be
after the 15th day of the month next preceding an Interest Payment Date,whether or not such day
is a business day (each such date, a "Record Date"), and on or prior to the following Interest
Payment Date, in which case this Certificate shall evidence interest from such Interest Payment
Date,or unless such date of execution shall be on or prior to the first Record Date,in which case
this Certificate shall evidence interest from the Dated Date specified above. Notwithstanding the
foregoing, if, as shown by the records of the Trustee, interest evidenced by the Certificates shall
be in default,this Certificate shall evidence interest from the last Interest Payment Date to which
interest has been paid in full or duly provided for.
Payments of interest evidenced by the Certificates shall be made to the Owners thereof
(as determined at the close of business on the Record Date next preceding the related Interest
Payment Date) by check or draft of the Trustee mailed to the address of each such Owner as it
appears on the registration books maintained by the Trustee pursuant to the Trust Agreement,or
to such other address as may be furnished in writing to the Trustee by such Owner. Payment of
principal evidenced by the Certificates, on their stated principal payment dates, shall be made
only upon presentation and surrender of the Certificates at the Principal Office. All such
amounts are payable in lawful money of the United States of America.
The Certificates are authorized to be executed and delivered in the form of fully
registered certificates in denominations of$5,000 or any integral multiple thereof("Authorized
Denominations").
80198094.3 A-3
This Certificate may be transferred or exchanged by the Registered Owner hereof, in
person or by his attorney duly authorized in writing, at the Principal Office, but only in the
manner, subject to the limitations and upon payment of the charges provided in the Trust
Agreement.
The Trustee may treat the Registered Owner hereof as the absolute owner hereof for all
purposes, whether or not the principal or interest evidenced by this Certificate shall be overdue,
and the Trustee shall not be affected by any knowledge or notice to the contrary; and payment of
the principal and interest evidenced by this Certificate shall be made only to such Registered
Owner, which payments shall be valid and effectual to satisfy and discharge the liability
evidenced by this Certificate to the extent of the sum or sums so paid.
The Certificates are not subject to prepayment prior to their stated Principal Payment
Dates.
To the extent and in the manner permitted by the terms of the Trust Agreement,the Trust
Agreement and the rights and obligations of the Corporation, the District, the Owners and the
Trustee under the Trust Agreement may be amended or supplemented at any time by an
amendment or supplement thereto which shall become binding when the prior written consents
of the Owners of a majority of the aggregate principal evidenced by the Certificates then
outstanding, exclusive of Certificates disqualified as provided under the Trust Agreement, are
filed with the Trustee. No such supplement or amendment shall (a)extend the stated Principal
Payment Date of any Certificate or reduce the rate of interest evidenced thereby or extend the
time of payment of such interest or reduce the amount of principal evidenced thereby, (b) reduce
the percentage of Owners whose consent is required for the execution of any amendment of or
supplement to the Trust Agreement without the prior written consent of the Owners of all
Certificates then outstanding, (c)modify any of the rights or obligations of the Trustee without
the prior written consent of the Trustee, or (d)amend the amendment provisions of the Trust
Agreement without the prior written consent of the Owners of all Certificates then outstanding.
To the extent and in the manner permitted by the terms of the Trust Agreement,the Trust
Agreement and the rights and obligations of the Corporation, the District, the Owners and the
Trustee under the Trust Agreement may also be amended or supplemented at any time by an
amendment or supplement thereto which shall become binding upon execution, without the
written consents of any Owners, but only to the extent permitted by law and only (a)to add to the
agreements, conditions, covenants and terms required by the Corporation or the District to be
observed or performed under the Trust Agreement other agreements, conditions, covenants and
terms thereafter to be observed or performed by the Corporation or the District, or to surrender
any right or power reserved therein to or conferred therein on the Corporation or the District,and
which in either case shall not adversely affect the rights or interests of the Owners, (b)to make
such provisions for the purpose of curing any ambiguity or of correcting, curing or
supplementing any defective provision contained in the Trust Agreement or in regard to
questions arising thereunder which the Corporation or the District may deem desirable or
necessary and not inconsistent therewith, (c)to make such additions, deletions or modifications
as may be necessary or appropriate to assure the exclusion from gross income for federal income
tax purposes of interest evidenced by the Certificates, or (d)for any other reason, provided such
amendment or supplement does not adversely affect the rights or interests of the Owners.
801980W.3 A-4
THE DISTRICT HAS CERTIFIED that all acts, conditions and things required by the
statutes of the State of California and by the Tmst Agreement to exist, to have happened and to
have been performed precedent to and in connection with the execution and delivery of this
Certificate do exist, have happened and have been performed in regular and due time, form and
manner as required by law, and that the Trustee is duly authorized to execute and deliver this
Certificate.
B0198094.3 A-5
IN WITNESS WHEREOF, this Certificate has been executed by the manual signature
of an authorized signatory of the Trustee as of the date set forth below.
Date: , 2008
U.S. BANK NATIONAL ASSOCIATION, as
Trustee
By:
Authorized Officer
8019SM4.3 A-6
i
i
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 books of the Trustee with full power of substitution in the premises.
Dated:
Note: The signature(s)on this Assignment must correspond with the name(s)as written on the
face of the within registered Certificate in every particular, without alteration or
enlargement or any change whatsoever.
Tax I.D. M
Signature Guaranteed:
Note: Si®mmre(s)must be guaranteed by an eligible Note: The signatures)on this Assignment must correspond
gumnntor. with the retests)as written on the face ofthe within Certificate
in every particular without altemaon or enlargement or any
choose whatsoever.
80199M.7 A-7
�.. Fulbright&Jaworski L.L.P. Draft-5/12/08
$
INSTALLMENT PURCHASE AGREEMENT
by and between
ORANGE COUNTY SANITATION DISTRICT
and
ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION
Dated as of May 1,2008
Relating to
$[PAR]
Orange County Sanitation District
Refunding Certificates of Participation
Series2008A
8019832]1
< TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................................................................2
Section 1.01. Definitions............................................................................................2
Section 1.02. Definitions in Master Agreement and Trust Agreement......................3
ARTICLE II PURCHASE OF PROJECT BY,AND SALE THEREOF TO, THE
CORPORATION; PAYMENT........................................................................4
Section 2.01. Acquisition,Construction and Installation of the Project....................4
Section2.02. Payment................................................................................................4
ARTICLE III PURCHASE OF PROJECT BY,AND SALE THEREOF TO,THE
DISTRICT; INSTALLMENT PAYMENTS...................................................4
Section 3.01. Purchase and Sale of Project................................................................4
Section3.02. Installment Payments...........................................................................4
Section3.03. Reserve Fund Payments.......................................................................5
Section 3.04. Obligation Absolute.............................................................................5
Section3.05. Nature of Agreement............................................................................6
ARTICLE IV NO PREPAYMENT OF INSTALLMENT PAYMENTS;
DISCHARGE...................................................................................................6
Section 4.01. No Prepayment of Installment Payments.............................................6
Section 4.02. Discharge of Obligations.....................................................................6
ARTICLE V COVENANTS.................................................................................................6
Section 5.01. Compliance with Master Agreement...................................................6
Section 5.02. Compliance with Installment Purchase Agreement.............................6
Section 5.03. Protection of Security and Rights........................................................7
Section 5.04. Indemnification of Corporation........................................................... 7
Section5.05. Further Assurances............................................................................... 7
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES OF THE
CORPORATION.............................................................................................7
Section6.01. Events of Default................................................................................. 7
Section 6.02. Remedies on Default............................................................................8
Section6.03. Non-Waiver..........................................................................................8
Section 6.04. Remedies Not Exclusive......................................................................8
ARTICLE VII AMENDMENTS...................................................................I.........................9
Section7.01. Amendments........................................................................................9
ARTICLE Vlll MISCELLANEOUS...................................................................................... 10
Section 8.01. Liability of District Limited............................................................... 10
Section 8.02. Limitation of Rights........................................................................... 10
Section8.03. Assignment........................................................................................ 10
Section8.04. Notices............................................................................................... 10
80199327.2 -1-
TABLE OF CONTENTS t
(continued)
Page
Section 8.05. Successor Is Deemed Included in all References to Predecessor...... I 1
Section 8.06. Waiver of Personal Liability.............................................................. 11
Section 8.07. Article and Section Headings,Gender and References..................... 11
Section 8.08. Partial Invalidity................................................................................. 11
Section 8.09. Law Governing.................................................................................. 12
Section 8.10. Execution in Counterparts.................................................................. 12
EXHIBIT A DESCRIPTION OF PROJECT........................................................A-1
80198327.2 -Il-
INSTALLMENT PURCHASE AGREEMENT
THIS INSTALLMENT PURCHASE AGREEMENT (this "Installment Purchase
Agreement'), dated as of May 1, 2008, is by and between the ORANGE COUNTY
SANITATION DISTRICT, a county sanitation district organized and existing under the laws of
the State of California (the "District'), and the ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION, a nonprofit public benefit corporation organized and existing
under the laws of the State of California(the"Corporation").
WITNESSETH:
WHEREAS, to refinance the acquisition, construction and installation of certain
improvements to the wastewater system (the "Prior Project') of certain predecessor county
sanitation districts of the District, to wit, County Sanitation District Nos. 1, 2, 3, 5, 6, 7 and 11
(collectively, the "Predecessor Districts"), the Predecessor Districts purchased the Prior Project
by agreeing to make installment payments (the `Prior Installment Payments") pursuant to the
Amendatory Agreement for Acquisition and Construction, dated as of October 1, 1992, by and
among the Predecessor Districts;
WHEREAS, to provide the funds necessary to refinance the Prior Project, the
Predecessor Districts caused the execution and delivery of the Refunding Certificates of
Participation, Series 1992 (the "Prior Certificates"), evidencing direct, undivided fractional
interests in the Prior Installment Payments;
WHEREAS, the District desires to refinance all of the Prior Project by prepaying all of
the remaining principal components of the Prior Installment Payments, and the interest
components thereof to the date of prepayment,thereby causing all of the Prior Certificates to be
prepaid;
WHEREAS, to provide the funds necessary to prepay the Prior Installment Payments to
be so prepaid, the District and the Orange County Sanitation District Financing Corporation (the
"Corporation") desire that the Corporation purchase the Prior Project from the District and the
District sell the Prior Project to the Corporation, and that the District then purchase the Prior
Project from the Corporation and the Corporation sell the Prior Project to the District, for the
installment payments (the "Installment Payments") to be made by the District pursuant to this
Installment Purchase Agreement the Corporation and the District have agreed to finance such
prepayment by executing and delivering Orange County Sanitation District Refunding
Certificates of Participation, Series 2008A (the"Certificates");
WHEREAS, pursuant to the Master Agreement for District Obligations, dated as of
August 1, 2000, by and between the District and the Corporation,the District has established and
declared the conditions and terms upon which obligations such as this Installment Purchase
Agreement, and the Installment Payments, and the interest thereon, are to be incurred and
secured;
80198327.2
1
WHEREAS, the Corporation proposes to assign without recourse certain of its rights
under and pursuant to this Installment Purchase Agreement to U.S. Bank National Association,
as trustee (the"Trustee");
WHEREAS, in consideration of such assignment and the execution and delivery of the
Trust Agreement, dated as of the date hereof, by and among the Trustee, the Corporation and the
District, the Trustee has agreed to execute and deliver the Certificates, evidencing direct,
undivided fractional interests in the Installment Payments, and the interest thereon, payable
hereunder;
WHEREAS, a portion of the Certificates will be used to prepay certain of the Prior
Installment Payments; and
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 the covenants and provisions herein set forth
and for other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Except as provided in Section 1.02 hereof or 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:
"Business Day" means a day other than (a) Saturday or Sunday, (b) a day on which
banking institutions in the city in which the Principal Office is located are authorized or required
by law to be closed, and (c) a day on which the New York Stock Exchange is authorized or
obligated by law or executive order to be closed.
"Certificates" means the Orange County Sanitation District Refunding Certificates of
Participation, Series 2008A,executed and delivered under and pursuant to the Trust Agreement.
"Closing Date" means May_,2008.
"Corporation" means the Orange County Sanitation District Financing Corporation, a
nonprofit public benefit corporation organized and existing under the laws of the State, and any
successor thereto.
80198327.2 2
Q,
"District" means the Orange County Sanitation District, a county sanitation district
organized and existing under and by virtue of the laws of the State, and any successor thereto.
"Event of Default"means an event described in Section 6.01 hereof.
"Installment Payments" means the Installment Payments required to be made by the
District pursuant to Section 3.02 hereof.
"Installment Payment Date"means each August 1, commencing 1,200.
"Installment Purchase Agreement" means this Installment Purchase Agreement, dated
as of May 1, 2008, by and between the District and the Corporation, as originally executed and
as it may from time to time be amended or supplemented in accordance with the teens hereof.
"Interest Payment Date" means February 1 and August 1 of each year, commencing
August 1,2008.
"Master Agreement" means the Master Agreement for District Obligations, dated as of
August 1,2000, by and between the District and the Corporation,as originally executed and as it
may from time to time be amended or supplemented in accordance with the terms thereof.
"Person" means an individual, corporation, limited liability company, firm, association,
partnership, trust, or other legal entity or group of entities, including a governmental entity or
any agency or political subdivision thereof.
"Principal Office" means the Trustee's principal corporate trust office in Los Angeles,
California.
"Project"means the improvements to the Wastewater System, as described in Exhibit A
hereto.
"Trust Agreement" means the Trost Agreement, dated as of May 1, 2008, by and
among the Trustee, the Corporation and the District, as originally executed and as it may from
time to time be amended or supplemented in accordance with its terms.
"Trustee" means U.S. Bank National Association, a national banking association duly
organized and existing under the laws of the United States of America, or any other bank or trust
company which may at any time be substituted in its place as provided in the Trost Agreement.
Section 1.02. Definitions in Master Agreement and Trust Agreement Except as
otherwise herein defined and unless the context otberwise requires, the terms defined in the
Master Agreement or the Trust Agreement shall for all purposes hereof and of any amendment
hereof or supplement hereto and of any report or other document mentioned herein have the
meanings defined therein, such definitions to be equally applicable to both the singular and
plural forms of any of the terms defined therein. With respect to any defined term which is given
a different meaning under this Installment Purchase Agreement than under the Master
Agreement or the Trust Agreement,as used herein it shall have the meaning given herein.
80198327.2 3
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ARTICLE 11
PURCHASE OF PROJECT BY,AND SALE THEREOF TO,
THE CORPORATION; PAYMENT
Section 2.01. Acquisition, Construction and Installation of the Project. The District
represents and warrants that it is the sole and exclusive owner of the Project. The Corporation
hereby purchases from the District,and the District hereby sells to the Corporation, the Project in
accordance with the provisions of this Installment Purchase Agreement. All right, title and
interest in the Project shall immediately vest in the Corporation on the Closing Date without
further action on the part of the Corporation or the District.
Section 2.02. Payment. On the Closing Date, the Corporation shall pay to the District,
as the purchase price of the Project, the amount of$[PAR],which amount shall be paid from the
proceeds of the Certificates.
ARTICLE III
PURCHASE OF PROJECT BY,AND SALE THEREOF TO,THE DISTRICT;
INSTALLMENT PAYMENTS
Section 3.01. Purchase and Sale of Project. The District hereby purchases from the
Corporation, and the Corporation hereby sells to the District, the Project in accordance with the
provisions of this Installment Purchase Agreement. All right, title and interest in and to the
Project shall immediately vest in the District on the Closing Date without further action on the
part of the District or the Corporation.
Section 3.02. Installment Payments. The District shall pay to the Corporation, solely
from Net Revenues and from no other sources, the purchase price of the Project in Installment
Payments, with interest thereon, as provided herein. The Installment Payments shall be in the
aggregate principal amount of$[PAR], and shall be payable on the Business Day immediately
preceding each of the Installment Payment Dates in the principal amounts and shall accrue
interest at the rates per annum set forth in the following schedule:
80199327.2 4
9
Installment
Payment Date
(August 1)_ Installment Payment Interest Rate
2008 $ %
2009
2010
2011
2012
2013
The Installment Payments shall accrue interest from the Closing Date, at the rates set
forth above, payable on the Interest Payment Dates in each year. Such interest shall accrue on
the basis of a 360-day year consisting of twelve 30-day months. Each Installment Payment, and
each payment of interest thereon, shall be deposited with the Trustee, as assignee of the
Corporation, no later than the Business Day next preceding the Installment Payment Date or
Interest Payment Date on which such Installment Payment or payment of interest is due, in
lawful money of the United States of America, in immediately available funds. If and to the
extent that, on any such date, there are amounts on deposit in the Installment Payment Fund
established under the Trust Agreement, or in any of the accounts therein, which amounts are not
being held for the payment of specific Certificates, such amounts shall be credited against the
Installment Payment,or payment of interest thereon,as applicable, due on such date.
Section 3.03. Reserve Fund Payments. The District shall maintain or cause to be
maintained in the Reserve Fund established under the Trust Agreement an amount equal to the
Reserve Requirement;provided, however, that any replenishment thereof shall be payable solely
from Net Revenues. On or before the last Business Day of each month, commencing on or
before the last Business Day of each month during which an event occurs that causes the amount
on deposit in the Reserve Fund to be reduced below, or further below, the Reserve Requirement,
the District shall transfer, from Net Revenues, to the Trustee for deposit in the Reserve Fund,
1/12 of the amount of such reduction, except that no such transfer to the Trustee and deposit in
the Reserve Fund need be made if the amount available and contained therein is at least equal to
the Reserve Requirement.
Section 3.04. Obligation Absolute. The obligation of the District to make the
Installment Payments,and payments of interest thereon, and other payments required to be made
by it under this Article, solely from Net Revenues, is absolute and unconditional, and until such
time as the Installment Payments, payments of interest thereon, and such other payments shall
have been paid in full (or provision for the payment thereof shall have been made pursuant to
Article IV),the District shall not discontinue or suspend any Installment Payments, or payments
of interest thereon, or other payments required to be made by it hereunder when due, whether or
not the Project or any part thereof is operating or operable or has been completed, or its use is
suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such
Installment Payments, payments of interest thereon, and other 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.
80199327.2 5
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Section 3.05. Nature of Agreement. This Installment Purchase Agreement constitutes
a Senior Obligation and, as such, shall be subject to the provisions of the Master Agreement and
shall be afforded all of the advantages, benefits, interests and security afforded Senior
Obligations pursuant to the Master Agreement.
ARTICLE IV
NO PREPAYMENT OF INSTALLMENT PAYMENTS; DISCHARGE
Section 4.01. No Prepayment of Installment Payments. (a) Installment Payments
shall not be subject to prepayment prior to their respective Installment Payment Dates.
Section 4.02. Discharge of Obligations. If all Installment Payments, and the interest
thereon, shall be paid as and when due in accordance with the terms hereof, or prepaid in
accordance with Section 4.01 hereof, and if all Certificates shall be fully paid, or provision
therefor made in accordance with Article X of the Trust Agreement, and the Trust Agreement
shall be discharged by its terms, then all agreements, covenants and other obligations of the
District hereunder shall thereupon cease, terminate and become void and be discharged and
satisfied.
ARTICLE V
COVENANTS
Section 5.01. Compliance with Master Agreement. The District will faithfully
observe and perform all the agreements, conditions, covenants and terms contained in the Master
Agreement required to be observed and performed by it and will not cause, suffer or permit any
default to occur thereunder.
Section 5.02. Compliance with Installment Purchase Agreement. The District will
punctually pay the Installment Payments, and interest thereon, and other payments required to be
made by it hereunder 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, will not cause, suffer or permit any default to occur hereunder and
will not terminate this Installment Purchase 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 frustration of purpose, any
change in the tax or other laws of the United States of America or of the State or any political
subdivision of either or any failure of the Corporation to observe or perform any agreement,
condition, covenant or term contained herein required to be observed and performed by it,
whether express or implied, or any duty, liability or obligation arising out of or connected
herewith or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the
Corporation or any force majeure, including acts of God, tempest, storm, earthquake, war,
rebellion, riot, civil disorder, acts of public enemies, blockade or embargo, strikes, industrial
disputes, lock outs, lack of transportation facilities, fire, explosion, or acts or regulations of
governmental authorities.
80199327.2 6
v
Section 5.03. Protection of Security and Rights. The District will preserve and protect
the security hereof and the rights of the Trustee, as assignee of the Corporation, to the
Installment Payments, and interest thereon, and other payments required to be made by the
District hereunder and will warrant and defend such rights against all claims and demands of all
Persons.
Section 5.04. Indemnification of Corporation. To the extent permitted by law, the
District hereby agrees to indemnify and hold the Corporation and its members and officers
harmless against any and all liabilities which might arise out of or are related to the Project, this
Installment Purchase Agreement or the Certificates, and the District further agrees to defend the
Corporation and its members and officers in any action arising out of or related to the Project,
this Installment Purchase Agreement or the Certificates.
Section 5.05. 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 confirming onto the Corporation, or unto the Trustee, as assignee of the Corporation, the
rights and benefits provided herein to the Corporation, or to the Trustee, as assignee of the
Corporation.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES OF THE CORPORATION
Section 6.01. Events of Default. The following shall be Events of Default under this
Installment Purchase Agreement, and "Event of Default' shall mean any one or more of the
following events:
(a) if default shall be made by the District in the due and punctual payment of or on
account of any Senior Obligation as the same shall become due and payable;
(b) if default shall be made by the District in the performance of any of the
agreements or covenants required herein, in the Trust Agreement or in the Master Agreement to
be performed by it (other than as specified in (a) above), and such default shall have continued
for a period of 30 days after the District shall have been given notice in writing of such default
by the Corporation or the Trustee;provided, however,that the party or parties giving such notice
may agree in writing to a reasonable extension of such period prior to the expiration of such 30
day period and, provided further, that if the District shall proceed to take curative action which,
if begun and prosecuted with due diligence, cannot be completed within such a period of 30
days, then such period shall be increased without such written extension to such extent as shall
be necessary to enable the District to diligently complete such curative action and such default
shall not become an Event of Default for so long as shall be necessary to diligently complete
such curative action;or
(c) 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
801983273 7
9
without the consent of the District seeking arrangement or reorganization under the federal
bankruptcy laws or any other applicable law of the United States of America or any state therein,
or if under the provisions of any other law for the relief or aid of debtors any court of competent
jurisdiction shall assume custody or control of the District or of the whole or any substantial part
of its property.
Section 6.02. Remedies on Default. Upon the occurrence of an Event of Default, the
Trustee, as assignee of the Corporation, shall have the right:
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce
its rights against the District and to compel the District to perform and carry out its duties under
applicable law and the agreements and covenants required to be performed herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the
rights of the Trustee,as assignee of the Corporation;
(c) by suit in equity require the District to account as the trustee of an express trust;
and to have a receiver or receivers appointed for the Wastewater System and of the issues,
earnings, income, products and profits thereof, pending such proceedings, with such powers as
the court making such appointment shall confer.
Section 6.03. 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, and the interest thereon,to the Trustee,as assignee of the Corporation,
at the respective due dates from the Net Revenues and the other funds herein committed for such
payment, or shall affect or impair the right of the Trustee, as assignee 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 Trustee, as assignee of 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 Trustee,as assignee of 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 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, as assignee of the Corporation, by
applicable 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,as assignee of the Corporation.
If any action,proceeding or suit to enforce any right or exercise any remedy is abandoned
or determined adversely to the Trustee, as assignee of the Corporation, the District and the
Trustee, as assignee of the Corporation, shall be restored to their former positions, rights and
remedies as if such action,proceeding or suit had not been brought or taken.
Section 6.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved
to the Trustee, as assignee of the Corporation, 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
90198327.2 8
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 law.
ARTICLE VII
AMENDMENTS
Section 7.01. Amendments. (a) This Installment Purchase Agreement and the rights
and obligations of the District, the Corporation and the Trustee, as assignee of the Corporation,
may be amended or modified from time to time and at any time by a written amendment hereto
executed by the District, the Corporation and the Trustee, as assignee of the Corporation, with
the written consent of the Owners of a majority of the aggregate principal evidenced by
Certificates then Outstanding. No such amendment shall (i) extend the payment date of any
Installment Payment or reduce the amount of any Installment Payment, or the interest rate
applicable thereto,without the prior written consent of the Owner of each affected Certificate, or
(ii) reduce the percentage of Owners of the Certificates whose consent is required to effect any
such amendment or modification, without the prior written consent of the Owners of all
Certificates then Outstanding.
(b) This Installment Purchase Agreement and the rights and obligations of the
District, the Corporation and the Trustee, as assignee of the Corporation, may be amended or
modified from time to time and at any time by a written amendment hereto executed by the
District, the Corporation and the Trustee, as assignee of the Corporation, without the written
consents of any Owners of the Certificates, but only to the extent permitted by law and only for
any one or more of the following purposes:
(i) to add to the agreements, conditions, covenants and terms required by the
District, the Corporation or the Trustee, as assignee of the Corporation, to be observed
or performed herein other agreements, conditions, covenants and terms thereafter to be
observed or performed by the District,the Corporation or the Trustee,as assignee of the
Corporation, or to surrender any right or power reserved herein to or conferred herein
on the District,the Corporation or the Trustee,as assignee of the Corporation;
(ii) to make such provisions for the purpose of curing any ambiguity or of
correcting, curing or supplementing any defective provision contained herein or in
regard to questions arising hereunder which the District,the Corporation or the Trustee,
as assignee of the Corporation, may deem desirable or necessary and not inconsistent
herewith;
(iii) to make such additions, deletions or modifications as may be necessary or
appropriate to assure the exclusion from gross income for federal income tax purposes
of interest on the Installment Payments;and
(iv) to make such other changes herein or modifications hereto as the District,
the Corporation or the Trustee, as assignee of the Corporation, may deem desirable or
necessary,and which shall not materially adversely affect the interests of the Owners of
the Certificates.
80198327.2 9
e
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Liability of District Limited. Notwithstanding anything contained herein
to the contrary, the District shall not be required to advance any moneys derived from any source
of income other than Net Revenues and the other funds provided herein for the payment of the
Installment Payments, and the interest thereon, and other payments required to be made by it
hereunder, or for the performance of any agreements or covenants required to be performed by it
contained herein. The District may, however, but in no event shall be obligated to, 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 pay the Installment Payments, and the interest thereon,
and other payments required to be made by it hereunder is a special obligation of the District
payable, in the manner provided herein, solely from Net Revenues and other funds provided for
herein, and does not constitute a debt of the District or of the State, or of any political
subdivision thereof, in contravention of any constitutional or statutory debt limitation or
restriction. Neither the faith and credit nor the taxing power of the District or the State, or any
political subdivision thereof, is pledged to the payment of the Installment Payments, or the
interest thereon, or other payments required to be made hereunder.
Section 8.02. Limitation of Rights. Nothing in this Installment Purchase Agreement
expressed or implied is intended or shall be construed to give to any Person other than the
District, the Corporation and the Trustee, as assignee of the Corporation, any legal or equitable
right, remedy or claim under or in respect of this Installment Purchase Agreement or any
covenant, condition or provision therein or herein contained, and all such covenants, conditions
and provisions are and shall be held to be for the sole and exclusive benefit of the District, the
Corporation and the Trustee,as assignee of the Corporation.
Section 8.03. Assienment. The District and the Corporation hereby acknowledge the
transfer,conveyance and assignment by the Corporation to the Trustee of all of the Corporation's
rights, title and interest in and to this Installment Purchase Agreement (excepting its rights to
indemnification hereunder), including the right to receive Installment Payments, and the interest
thereon,from the District,pursuant to the Trust Agreement.
Section 8.04. Notices. Any written notice, statement, demand, consent, approval,
authorization, offer, designation, request or other communication to be given hereunder shall be
given to the party entitled thereto at its address set forth below, or at such other address as such
party may provide to the other parties in writing from time to time,namely:
If to the District: Orange County Sanitation District
10844 Ellis Avenue Fountain Valley,California 92708
Attention: Director of Finance and Administrative Services
If to the Corporation: Orange County Sanitation District Financing Corporation
c/o Orange County Sanitation District
80IM3272 10
10844 Ellis Avenue Fountain Valley,California 92708
Attention:Treasurer
If to the Trustee: U.S. Bank National Association
Attention:
Each such notice,statement, demand,consent,approval, authorization, offer,designation,
request or other communication hereunder shall be deemed delivered to the party to whom it is
addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic
communication, whether by telex, telegram or telecopier, upon the sender's receipt of an
appropriate answerback or other written acknowledgment, (c) if given by registered or certified
mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours
after such notice is deposited with the United States mail, (d) if given by overnight courier, with
courier charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any
other means, upon delivery at the address specified in this Section.
Section 8.05. Successor Is Deemed Included in all References to Predecessor.
Whenever the District or the Corporation 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 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.
Section 8.06. Waiver of Personal Liability. No official, officer or employee of the
District shall be individually or personally liable for the payment of the Installment Payments,or
the interest thereon,or other payments required to be made by the District hereunder, but nothing
contained herein shall relieve any official, officer or employee of the District from the
performance of any official duly provided by any applicable provisions of law or hereby.
Section 8.07. Article and Section Headings. Gender and References. The headings
or titles of the several Articles and Sections hereof and the table of contents appended hereto
shall be solely for convenience of reference and shall not affect the meaning, construction or
effect hereof,and words of any gender shall be deemed and construed to include all genders. All
references herein to "Articles," "Sections" and other subsections or clauses are to the
corresponding articles, sections, subsections or clauses hereof; and the words"hereby,"`herein,"
"hereof.. "hereto," "herewith" and other words of similar import refer to this Installment
Purchase Agreement as a whole and not to any particular Article, Section, subdivision or clause
hereof.
Section 8.08. Partial Invalidity. If any one or more of the agreements or covenants or
portions thereof required hereby to be performed by or on the part of the District or the
Corporation shall be contrary to law, then such agreement or agreements, such covenant or
covenants or such portions thereof shall be null and void and shall be deemed separable from the
remaining agreements and covenants and portions thereof and shall in no way affect the validity
hereof.
80198327.2 11
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Section 8.09. Law Governing. This Installment Purchase Agreement shall be construed
and governed in accordance with the laws of the State.
Section 8.10. Execution in Counterparts. This Installment Purchase 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.
80198327.2 12
C
IN WITNESS WHEREOF, the parties hereto have executed this Installment Purchase
Agreement by their officers thereunto duly authorized as of the day and year first written above.
ORANGE COUNTY SANITATION DISTRICT
By:
Chair of the Board of Directors
(SEAL)
Attest:
By:
Secretary of the Board of Directors
ORANGE COUNTY SANITATION
DISTRICT FINANCING CORPORATION
By:
Treasurer
90199327.2 13
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EXH@IT A
DESCRIPTION OF PROJECT
80198327.2 A-1
.i Fulbright&Jaworski L.L,P. Draft-5/12/08
OFFICIAL NOTICE INVITING BIDS
$80,255,000-
ORANGE COUNTY SANITATION DISTRICT
REFUNDING CERTIFICATES OF PARTICIPATION
SERIES 2008A
(Book-Entry-Only)
NOTICE IS HEREBY GIVEN that bids will be received by the Orange County Sanitation
District (the "District) for the purchase of$80,255,000* original principal amount of Orange County
Sanitation District Refunding Certificates of Participation,Series 2008A(the"Certificates"). Bids for less
than all of the Certificates will not be accepted.The bids will be received in the form,at the place,and up
to the time specified below(unless postponed as described herein):
Date: Thursday,May 22,2008
10:00 a.m.,New York Time
Place: Orange County Sanitation District
10844 Ellis Avenue
Fountain Valley,CA 92708-7018
Electronic Bids: As an accommodation to bidders,electronic proposals may be submitted
to Ipero LLC; at www.newissuehome.i-deal.com and the Parity bid
delivery system (the "Electronic Service"). The Electronic Service will
act as agent of the bidder and not of the District in connection with the
submission of bids and the District assumes no responsibility or liability
for bids submitted through the Electronic Service. See "Information
Regarding Electronic Proposals"herein.
No Facsimile Bids: No bids will be accepted by facsimile.
Terms of the Certificates
The Preliminary Official Statement for the Certificates, May 16, 2008, including the cover page
and all appendices thereto (the "Preliminary Official Statement"), provides certain information
conceming the sale and delivery of $80,255,000* aggregate principal amount of the Certificates
evidencing direct, undivided fractional interests in the Installment Payments (the "Installment
Payments"), and the interest thereon, payable by the District pursuant to the Installment Purchase
Agreement,dated as of May 1,2008(the`Installment Purchase Agreement'),by and between the District
and the Orange County Sanitation District Financing Corporation (the"Corporation'). Each bidder must
have obtained and reviewed the Preliminary Official Statement prior to bidding for the Certificates. This
Official Notice Inviting Bids contains certain information for quick reference only, is not a summary of
the issue and governs only the terms of the sale of,bidding for and closing procedures with respect to the
Certificates.Bidders must read the entire Preliminary Official Statement to obtain information essential to
making an informed investment decision.
Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000 (the
"Master Agreement'), by and between the District and the Corporation, the District has established and
declared the conditions and terms upon which obligations such as the Installment Purchase Agreement,
and the Installment Payments and the interest thereon,will be incurred and secured. Installment Payments
Preliminary,subject to change.
B
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under the Installment Purchase Agreement are payable solely from Net Revenues, as provided in the
Master Agreement and the Installment Purchase Agreement, consisting primarily of all income and
revenue received by the District from the operation or ownership of the Wastewater System of the
District(the"Wastewater System")remaining after payment of Maintenance and Operation Costs.
The Issue
The proceeds from the sale of the Certificates will be used to: (i)prepay all or a portion of certain
outstanding certificates of participation of the District, (ii) at the discretion of the District, finance any
settlement amount or termination payment relating to any certificates of participation prepaid by the
District (iii)fund a reserve fund for the Certificates and (iv) pay costs of execution and delivery of the
Certificates.The Certificates are to be executed and delivered pursuant to a Trust Agreement, dated as of
May 1, 2008 (the "Trust Agreement"), by and among the District, the Corporation and U.S. Bank
National Association,as trustee (the"Trustee"). Capitalized terms not defined herein shall have the same
definitions as used in the Trust Agreement or the Master Agreement.
Authorization
On May 14, 2008, the District and the Corporation authorized the execution and delivery of the
Installment Purchase Agreement and the Trust Agreement in connection with the execution and delivery
of the Certificates.
Outstanding Senior Obligations
The District has outstanding Senior Obligations, evidenced by seven series of certificates of
participation and two interest rate swaps, payable on a parity with the Installment Payments under the
Installment Purchase Agreement. The two swap agreements were executed by the predecessor special
districts to the District in connection with the execution and delivery of certain outstanding Senior
Certificates.The payments under these swaps are payable on a parity with the Installment Payments under
the Installment Purchase Agreement and other Senior Obligations, as provided in the Master Agreement.
The term "Existing Senior Obligations" as used in the Preliminary Official Statement refers to the 1992
Agreement for Acquisition and Construction, the 1992 Swap, the 1993 Agreement for Acquisition and
Construction, the 1993 Swap, the 2000 Installment Purchase Agreement, the 2003 Installment Purchase
Agreement, the 2006 Installment Purchase Agreement, 2007 Series A Installment Purchase Agreement
and the 2007 Series B Installment Purchase Agreement.
Security and Source of Payments
The Certificates evidence direct, undivided fractional interests in the Installment Payments, and
the interest thereon, paid by the District pursuant to the Installment Purchase Agreement. The obligation
of the District to pay the Installment Payments and the interest thereon and other payments required to be
made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the
manner provided under the Installment Purchase Agreement, solely from Net Revenues and other funds
as provided in the Installment Purchase Agreement. Net Revenues generally consist of all income and
revenue received by the District from the operation or ownership of the Wastewater System remaining
after payment of Maintenance and Operation Costs,all as further provided in the Master Agreement.
The District's obligation to make Installment Payments from Net Revenues is on a parity with the
District's obligation to make payments with respect to its other outstanding obligations described as
Senior Obligations and all Reimbursement Obligations with respect to Senior Obligations, as provided in
the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and is
80198354.3 2
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subject to the provisions of the Master Agreement and is afforded all of the advantages,benefits, interests
and security for Senior Obligations pursuant to the Master Agreement. Pursuant to the Master
Agreement, the District pledges all Net Revenues to the payment of the Senior Obligations and
Reimbursement Obligations with respect to Senior Obligations,and the Net Revenues will not be used for
any other purpose while any of the Senior Obligations or Reimbursement Obligations with respect to
Senior Obligations remain unpaid; provided, however, that out of the Net Revenues there may be
apportioned such sums for such purposes as are expressly permitted by the Master Agreement. This
pledge constitutes a first lien on the Net Revenues for the payment of the Senior Obligations and
Reimbursement Obligations with respect to Senior Obligations. The term Senior Obligations, generally
means all revenue bonds or notes(including bond anticipation notes and commercial paper)of the District
authorized, executed, issued and delivered under and pursuant to applicable law,the Installment Purchase
Agreement and all other contracts (including financial contracts) or leases of the District authorized and
executed by the District under and pursuant to applicable law, the installment, lease or other payments
under which are, in accordance with the provisions of the Master Agreement,payable from Net Revenues
on a parity with the payments under the Master Agreement.
The District may at any time incur Subordinate Obligations; provided, however, that prior to
incurring such Subordinate Obligations,the District will have determined that the incurrence thereof will
not materially adversely affect the District's ability to comply with the requirements of the Master
Agreement. The District may at any time incur Reimbursement Obligations with respect to Subordinate
Obligations. For a description of the District's outstanding Senior Obligations and Subordinate
Obligations, we "FINANCIAL OBLIGATIONS — Existing Indebtedness" in the Preliminary Official
Statement.
The District may, in connection with the incurrence of Subordinate Obligations, pledge Net
Revenues to the payment of Subordinate Obligations and Reimbursement Obligations with respect to
Subordinate Obligations; provided, however, that such pledge, and any lien created thereby, shall be
junior and subordinate to the pledge of, and lien on,Net Revenues for the payment of Senior Obligations
and Reimbursement Obligations with respect to Senior Obligations.
Pursuant to the Master Agreement, the District is required,to the extent permitted by law,to fix,
prescribe and collect fees and charges for the services and facilities of the Wastewater System which will
be at least sufficient to yield during each Fiscal Year(a)Net Revenues equal to 125%of Debt Service on
Senior Obligations for such Fiscal Year and (b)Net Operating Revenues equal to 1000% of Debt Service
on all Obligations for such Fiscal Year.The District may make adjustments from time to time in such fees
and charges and may make such classification thereof as it deems necessary, but shall not reduce the fees
and charges then in effect unless the Revenues and Net Revenues from such reduced fees and charges will
at all times be sufficient to mcet the requirements of the Master Agreement. See "SECURITY AND
SOURCES OF PAYMENT FOR THE CERTIFICATES— Rate Covenant" in the Preliminary Official
Statement.
The Trust Agreement provides for the funding of the Reserve Fund in an amount equal to the
"Reserve Requirement,"which is defined as an amount,as of any date of calculation,equal to the least of
(a) 10% of the original aggregate amount of principal evidenced by the Certificates(or if the amount of
original issue discount or premium applicable to the Certificates exceeds 2%,than 10"/u of the issue price
of the Certificates), (b) the maximum amount of remaining Installment Payments, and the interest
thereon, coming due in any one Certificate Year, and (c) 125% of the average amount of remaining
Installment Payments, and the interest thereon, coming due in each Certificate Year. Amounts in the
Reserve Fund may be used to pay principal of and interest evidenced by the Certificates to the extent that
amounts in the Principal Account and Interest Account are insufficient therefore. A portion of the
80199354.3 3
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proceeds of the Certificates and, at the District's option, certain other available monies of the District, in
an amount equal to the Reserve Requirement will be deposited into the Reserve Fund.
Additional Obligations
In addition to the Existing Senior Obligations, the District may at any time incur Obligations
payable on a parity or on a subordinate basis to the payment by the District of the Installment Payments
upon satisfaction of conditions provided in the Master Agreement. See `SECURITY AND SOURCES
OF PAYMENT FOR THE CERTIFICATES—Limitations on Issuance of Additional Obligations"in the
Preliminary Official Statement.
Book-Entry-Only
The Certificates will be executed and delivered in the form of fully registered certificates payable
in lawful money of the United States of America.The Certificates will be initially delivered only in book-
entry form and will be registered in the name of Cede & Co., as nominee of The Depository Trust
Company, New York, New York ("DTC"), which will act as securities depository for the Certificates.
Individual purchases of the Certificates will be made in book-entry form only. Purchasers of Certificates
will not receive physical certificates representing their ownership interests in the Certificates purchased.
The Certificates will be delivered in Authorized Denominations of $5,000 and any integral multiple
thereof. Payments of principal and interest evidenced by the Certificates are payable directly to DTC by
the Trustee. Upon receipt of payments of such principal and interest, DTC will in turn distribute such
payments to the beneficial owners of the Certificates. So long as the Certificates are in the DTC book-
entry system,the interest,principal and prepayment premiums, if any, due with respect to the Certificates
will be payable by the Trustee,or its agent,to DTC or its nominee.
Principal and Interest Payments
The Certificates will be dated as of the date of initial delivery and will evidence interest from that
date (computed on the basis of a 360-day year of twelve 30-day months). Interest evidenced by the
Certificates is payable semiannually on February 1 and August I of each year,commencing on August 1,
2008.Payment of principal and prepayment premium, if any, evidenced by the Certificates will be paid in
lawful money of the United States of America upon presentation and surrender thereof at the Principal
Office of the Trustee.
Principal Amortization
The Certificates will be executed and delivered in the approximate aggregate original principal
amount of$80,255,000' and will be subject to principal amortization through serial maturities on August
1 in the years 2008 though 2013 in the amounts set forth in the Official Bid Form.
No Prepayment
The Certificates are not subject to prepayment prior to maturity.
Interest Rates,Reoffering Prices,and Premium or Discount Bids
Bidders must bid to purchase all and not part of the Certificates and must submit their bids on the
Official Bid Form. Bidders must specify a rate of interest for each maturity of the Certificates. The rates
Preliminary,subject to change.
80198354.3 4
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of interest must be expressed in multiples of one-eighth (Is)or one-twentieth (Vm)of one percent (1%),
and no interest rate can exceed 4% per annum. All Certificates of the same maturity must evidence
interest at the same rate.
The successful bidder will,within 30 minutes after being notified of the award of the Certificates,
advise the District of the initial bona fide public reoffering prices of each maturity of the Certificates on
the date of award. The successful bidder will also be required, prior to delivery of the Certificates, to
furnish to the District a certificate("Bidder's Certificate")acceptable to Special Counsel and taking into
account any post bid adjustment of the principal amount of any of the maturities of the Certificates,which
states with respect to each maturity of the Certificates that such successful bidder either(A)has purchased
the applicable maturity of the Certificates for its own account and not with a view to distribution or resale
and not in the capacity of a bond house,broker or other intermediary and the price at which such purchase
was made,or(B)(1)has made a bona fide public offering to the public of each applicable maturity of the
Certificates at the prices indicated in the information supplied on the date of the award,and(2)an amount
at least equal to 10 percent of each such maturity of the Certificates was sold to the public at the prices
indicated on the date of the award, with the exception of those maturities, if any, identified in such
Bidder's Certificate,as to which such certificate shall explain the reasons why at least 10 percent of each
such maturity was not sold to the public at the price indicated for each such maturity on the date of the
award. For the purposes of the information submitted on the date of the award and the Bidder's
Certificate, the"public"does not include bond houses, brokers or similar persons or organizations acting
in the capacity of underwriters or wholesalers.In making such representations, the successful bidder must
reflect the anticipated existence, if any, of a "derivative product" (e.g., a tender option) offered or to be
offered by the bidder or its affiliate in connection with the initial sale of any of the Certificates. The
successful bidder may also be asked by Special Counsel to clarify any discrepancies between the Bidder's
Certificate and publicly available information relating to trades of the Certificates and to explain the
failure to sell at least 100/9 of each maturity to the public at the prices indicated on the date of the award.
Bidders may bid to purchase Certificates from the District at a discount or with a premium;
however, no bid will be considered if the bid is to purchase Certificates at an aggregate price less than
99% or more than 103% of the aggregate principal amount of the Certificates. No bid will be accepted
which contemplates the waiver of any interest or other concession by the bidder as substitute for payment
in full of the purchase price. Bids which do not conform to the terms of this section may be rejected. See
"Right to Reject Bids,Waive Irregularities"below.
Adjustment of Principal Amounts After Receipt of Bids
The principal amounts of the Certificates set forth in the Official Bid Form reflect estimates of the
District as to the likely interest rates of the winning bid and the premium or discount contained in the
winning bid. After selecting the winning bid the amortization schedule for the Certificates may be
adjusted in $5,000 increments if the District elects to do so, to reflect the actual interest rates and any
discount or premium in the winning bid to properly fund the prepayment escrow and any swap settlement
or termination amount and to accommodate certain other requirements or preferences of the District.
Such adjustments will not change any Certificate in any year by more than 10%. The dollar amount bid
for the Certificates by the winning bidder will be adjusted to reflect any such adjustment in the applicable
amortization schedule. Any such adjustment will change the total (but not the per Certificate) dollar
amount of purchaser's discount and original issue discount or premium,if any,provided in such bid. Any
such adjustment will be communicated to the winning bidder within 24 hours after receipt of such bid by
the District. Changes in the amortization schedule made as described in this paragraph will not affect the
determination of the winning bidder or give the winning bidder any right to reject the Certificates.
80198354.3 5
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Insurance
The successful bidder may purchase municipal bond insurance,if available,for some or all of the
Certificates. However, the delivery of the Certificates shall not be conditioned upon the issuance of any
such insurance. The District makes no representation as to whether the Certificates qualify for insurance.
Payment of any insurance premium and satisfaction of any conditions to the issuance of a municipal bond
insurance policy, including payment for any legal opinion to be delivered to any insurer, shall be the sole
responsibility of the bidder. In particular, the District, at its option, may not enter into any additional
agreements with respect to the provision of any such insurance. FAILURE OF THE INSURANCE
PROVIDER TO ISSUE ITS POLICY SHALL NOT JUSTIFY FAILURE OR REFUSAL BY THE
SUCCESSFUL BIDDER TO ACCEPT DELIVERY OF, OR PAY FOR, THE CERTIFICATES. Each
successful bidder must provide the District with the municipal bond insurance commitment, if any,
including the amount of the policy premium, and information with respect to the municipal bond
insurance policy and insurance provider for the inclusion in the final Official Statement within one
business days following the award of the bid by the District.The successful bidder will be required,prior
to the delivery of the Certificates, to famish to the District a certificate acceptable to Special Counsel,
Fulbright&Jaworski L.L.P.,stating that,in its opinion,the amount of the premium paid for the municipal
bond insurance policy is not in excess of the present value of the expected interest savings as a result of
such policy.
Form of Bid
BIDS FOR LESS THAN ALL OF THE CERTIFICATES WILL NOT BE ACCEPTED. Each
bid must be on the Official Bid Form. All electronic proposals shall be deemed to incorporate the
provisions of the Official Bid Form and must be unconditional and irrevocable. Except for proposals
submitted in accordance with the following paragraph, each bid must be accompanied by the applicable
bid check or Surety Bond described under the caption "Bid Check" below. In addition, each bidder is
requested to supply an estimate of the true interest cost resulting from its bid, computed as prescribed
below under the caption"Award Delivery and Payment,"which shall be considered as informative only
and not binding on either the bidder or the District. Each bid must be in accordance with the terms and
conditions set forth in this Official Notice Inviting Bids.
The District will make its best efforts to accommodate the electronic bids;however,the District,
the Financial Advisor(Public Resources Advisory Group)and Special Counsel assume no responsibility
for any error contained in any electronic bid, or for the failure of any electronic bid to be transmitted or
received at the official time for receipt of such bids. The official time for receipt of bids will be
determined by the District at the place of the bid opening, and the District shall not be required to accept
the time kept by Electronic Service as the official time. The District assumes no responsibility for
informing any bidder prior to the deadline that its bid is incomplete,or not received
If multiple timely bids are received from a single bidder the District shall accept the best of such
bids and each bidder agrees that by submitting any bid to be bound by its best bid.
Information Regarding Electronic Proposals
Electronic proposals must be submitted through the Electronic Service. If any provision of this
Official Notice Inviting Bids conflicts with information provided by the Electronic Service, this Official
Notice Inviting Bids shall control. The District is not responsible for the proper operation of, and shall
have no liability for any delays or interruptions of or any damages caused by the Electronic Service. The
District is using the Electronic Service as a communication mechanism and not as the District's agent to
conduct electronic bidding for the Certificates. The District is not bound by any advice of or
80198354.3 6
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determination by the Electronic Service to the effect that any particular bid complies with the terms of
this Official Notice Inviting Bids. All costs and expenses incurred by prospective bidders in connection
with their submission of bids through the Electronic Service are the sole responsibility of such bidders
and the District is not responsible for any such costs or expenses. Further information about the Electronic
Service, including any fee charged, may be obtained from Ipero LLC, 1359 Broadway, Second Floor,
New York, NY 10018 (212-849-5021). The District assumes no responsibility or liability for bids
submitted through the Electronic Service. The District shall be entitled to assume that any bid submitted
through the Electronic Service has been made by a duly authorized agent of the bidder.
Bid Check
Each bidder must provide with its bid a certified or cashier's check payable in same day or next
day funds drawn on a responsible bank having an office in Orange County, California equal to
$850,000.00 ("Bid Check Amount") payable to the order of"Orange County Sanitation District," or a
financial surety bond ("Surely Bond") in the amount of the Bid Check Amount issued by an insurance
company rated AAA by Standard & Poor's and licensed to issue such a bond in the State of California,
naming the District as the beneficiary and identifying the bidder whose deposit is guaranteed by the
Surety Bond. If the successful bidder has provided a Surety Bond, such bidder shall wire transfer to the
District the amount of the Bid Check Amount in immediately available federal funds not later than 3:00
p.m. (New York Time) on the business day next succeeding the day of acceptance of the proposal which
amount shall be deposited in an escrow fund or account or a similar fund and applied to the purchase
price of the Certificates. If the District has not received such federal funds wire transfer by the time stated
the District may draw upon the Surety Bond to satisfy the successful bidder's deposit requirements.The
check accompanying any accepted proposal shall be cashed and deposited in an escrow fund or account or
a similar fund and applied to the purchase price of the Certificates at the time of delivery of the
Certificates. If after the award of the Certificates,the successful bidder fails to complete the purchase on
the terms stated in its proposal,unless such failure of performance shall be caused by any act or omission
of the District,any amount received from such bidder by the District,whether by paid check or pursuant
to the Surety Bond procedure set forth above, shall be retained by the District as stipulated liquidated
damages.Any check accompanying an unaccepted proposal will be returned promptly.No interest will be
paid upon the deposit made by any bidder.
Official Statement
The District has approved a Preliminary Official Statement for the Certificates, dated the date of
this Official Notice Inviting Bids, which the District has "deemed feral" for purposes of Rule 15c2.12
promulgated by the Securities and Exchange Commission, as amended(the "Rule"), although subject to
revision,amendment and completion in conformity with the Rule.The District will provide the successful
bidder such reasonable number of printed copies of the feral Official Statement w such bidder may
reasonably request no later than seven business days after the day the Certificates are awarded.Up to 250
copies of the final Official Statement will be famished without cost to the successful bidder and further
copies, if desired, will be made available at the successful bidder's expense. The successful bidder shall
file the final Official Statement with a nationally recognized municipal securities information repository
on a timely basis. The successful bidder shall, by accepting the award agree at all times to comply with
the provisions of the Rule and with all applicable rules of the Municipal Securities Rulemaking Board.
Award,Delivery and Payment
If satisfactory bids are received, the Certificates will be awarded to the highest responsible bidder
not later than 24 hours after the time established for the receipt of bids. The highest bidder shall be the
bidder submitting the best price for the Certificates,which best price shall be that resulting in the lowest
80399354.3 7
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true interest cost with respect to the Certificates.The true interest cost shall be computed by doubling the
semi-annual interest rate (compounded semi-annually) necessary to discount the debt service payments
from their respective payment dates to the date of the Certificates and to the price bid. If two or more
bidders have bid the same true interest cost,the award shall be made at the sole discretion of the District.
Delivery of the Certificates is expected to omur on or about May 29, 2008. The Certificates will
be delivered through the facilities of DTC,New York,New York. The successful bidder shall pay for the
Certificates on the date of delivery in Los Angeles, California in immediately available federal funds.
Any expenses of providing federal funds shall be home by the purchaser. Payment on the delivery date
shall be made in amount equal to the price bid for the Certificates less the amount of the good-faith
deposit.
Right to Reject Bids,Waive Irregularities
The District reserves the right to reject any and all bids and to the extent permitted by law to
waive any irregularity or informality in any bid.
CUSIP Numbers
It is anticipated that CUSIP numbers will be printed on the Certificates, but the District will
assume no obligation for the assignment or printing of such numbers on the Certificates or for the
correctness of such numbers,and neither the failure to print such numbers on any Certificate nor any error
with respect thereto shall constitute cause for a failure or refusal by the purchasers thereof to accept
delivery of and make payment for the Certificates.The cost for the assignment of CUSIP numbers to the
Certificates will be the responsibility of the successful bidder.
California Debt and Investment Advisory Commission
The successful bidder will be required to pay all fees due to the California Debt and Investment
Advisory Commission ("CDIAC") under California law. CDIAC will invoice the successful bidder after
the delivery of the Certificates.
Legal Opinions
The District will furnish to the successful bidder at the closing of the Certificates, the legal
opinion of Special Counsel to the effect that,in the opinion of Special Counsel, based upon an analysis of
existing laws, regulations,rulings and court decisions, and assuming, among other matters, the accuracy
of certain representations and compliance with certain covenants, the interest component of each
Installment Payment and the allocable portion thereof distributable in respect of each Certificate is
excluded from gross income for federal income tax purposes under section 103 of the Internal Revenue
Code of 1986 and is exempt from State of California personal income taxes, and that in the further
opinion of Special Counsel the interest component of each Installment Payment and the allocable portion
thereof distributable in respect of each Certificate is not a specific preference item for purposes of the
federal individual or corporate alternative minimum taxes, although Special Counsel observes that such
interest is included in adjusted current earnings when calculating corporate alternative minimum taxable
income. Special Counsel will express no opinion regarding any other tax consequences related to the
ownership or disposition of,or the accrual or receipt of interest on,the Certificates.
80198354.3 8
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Change in Tax Exempt Status
At any time before the Certificates are tendered for delivery,the successful bidder may disaffirm
and withdraw its proposal if the interest on the same type and character as that evidenced by the
Certificates(as determined by Special Counsel) shall be declared to be includable in gross income under
federal income tax laws, either by a ruling of the Internal Revenue Service or by a final decision of any
federal court, or shall be declared taxable by the terms of any federsl income tax law enacted subsequent
to the date of this Official Notice Inviting Bids.
Closing Documents
The District will furnish to the successful bidder at the time of delivery of the Certificates: (1)a
certificate certifying (i) that as of and at the time of delivery of the Certificates,there is no action, suit,
proceeding or investigation, pending or, to the best knowledge of the District, threatened against or
affecting the District, (A)which affects or seeks to prohibit, restrain or enjoin the execution and delivery
of the Certificates or the Trust Agreement, (B)in any way contesting the validity of the Certificates, the
Installation Purchase Agreement or the Trust Agreement or the powers of the District to enter into or
perform its obligations under such documents to which it is a party or the existence of the District, or
(C)wherein an unfavorable decision, oiling or finding would materially and adversely affect the District,
or the validity or enforceability of the Certificates, the Installation Purchase Agreement or the Trust
Agreement or the ability of the District to perform its obligations under such documents to which it is a
party, (ii)that the Preliminary Official Statement did not on the date of sale of the Certificates and the
Official Statement does not on the date of delivery contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements contained therein, in the light of the
circumstances under which they were made,not misleading, and(2)a receipt of the District showing that
the purchase price of the Certificates has been received by the District.
Continuing Disclosure
To assist the successful bidder in complying with the Rule,the District will undertake, pursuant
to the Continuing Disclosure Agreement, to provide certain annual financial information, and notices of
the occurrence of certain events, if material. A description of the Continuing Disclosure Agreement is ad
forth in the Preliminary Official Statement and will be set forth in the final Official Statement.
Additional Information
Electronic copies of the Trust Agreement, the Installment Purchase Agreement, the Master
Agreement, this Official Notice Inviting Bids, the Official Bid Form, and the Preliminary Official
Statement will be famished to any potential bidder upon request made to the District's Financial Advisor
at: Public Resources Advisory Group, 11845 West Olympic Boulevard, Suite 640, Los Angeles, CA
90064,310-477-8487, via e-mail at Ichoi@pmgla.com.
Right to Modify or Amend
The District reserves the right to modify or amend this Official Notice Inviting Bids, including
but not limited to the right to adjust and change the principal amount of the Certificates being offered;
provided,however, that such notifications or amendments shall be made not later than May 21, 2008, by
3:00 p.m.,New York Time and communicated through Thomson Municipal Market Monitor(available at
http://www.tm3.com) and by facsimile transmission to any qualified bidder timely requesting such notice.
Bidders are required to bid upon the Certificates as so modified.
80199354.3 9
Cancellation or Postponement
The District reserves the right to cancel or postpone, from time to time,the date established for
the receipt of bids for any reason at any time. Any such postponement will be announced by Thomson
Municipal Market Monitor. If any date fixed for the receipt of bids and the sale of the Certificates is
postponed, any alternative sale date (either a Tuesday, Wednesday or Thursday) will be announced via
Thomson Municipal Market Monitor at least 48 hours prior to such alternative sale date and will be
provided by facsimile transmission to any qualified bidder timely requesting such notice. On any such
alternative sale date,any bidder may submit a sealed bid for the purchase of the Certificates in conformity
in all respects with the provisions of this Official Notice Inviting Bids except for the date of sale and
except for the changes announced by Thomson Municipal Market Monitor at the time the sale date and
time are announced.
Dated:May 16,2008
90198354.3 10
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OFFICIAL BID FORM
S80,255,000-
ORANGE COUNTY SANITATION DISTRICT
REFUNDING CERTIFICATES OF PARTICIPATION
SERIES 2008A
May_, 2008
Orange County Sanitation District
10844 Ellis Avenue
Fountain Valley,CA 92708-7018
Attn: Lorenzo Tyner
Ladies and Gentlemen:
We hereby offer to purchase all of the $80,255,000• aggregate principal amount of the Orange County
Sanitation District, Refunding Certificates of Participation Series 2008A (the "Certificates"), more
particularly described in your Official Notice Inviting Bids dated May 16, 2008, which is incorporated
herein by reference, and made a part thereof, at a purchase price of$ (which purchase price
is not less than 99% or more than 103% of the aggregate principal amount of the Certificates).This offer
is for Certificates evidencing interest at the rates and in the form of serial maturities as set forth in the
table on the following page.
The bid is subject to acceptance not later than 24 hours after the expiration of the time established for the
final receipt of bids.
Our calculation of the true interest cost, which is considered to be informative only and not a part of the
bid,is %.
(PLEASE CHECK ONE OF THE FOLLOWING TWO PARAGRAPHS)
[ ] There is enclosed herewith a certified check or cashier's check for $850,000 drawn on a
responsible bank having an office in Orange County, California payable in same day or next day funds to
the order of the Orange County Sanitation District(the"District').
[ ] A surety bond has been provided to the District in the amount of $850,000 issued by an
insurance company rated AAA by Standard & Poor's and licensed to issue such a bond in the State of
California, naming the District as beneficiary and identifying the bidder whose deposit is guaranteed by
the surety bond.
We have noted that payment of the purchase price is to be made in immediately available Federal Funds
at the time of delivery of the Certificates. If we are the successful bidder,we will(1)within one hour after
being notified of the award of the Certificates, advise the District of the initial public offering prices of
the Certificates, (2) prior to delivery of the Certificates, furnish a certificate, acceptable to Special
Counsel, Fulbright& 3aworski L.L.P., as to the "issue price" of the Certificates within the meaning of
Section 1273 of the Internal Revenue Code of 1986; and (3) if municipal bond insurance has been
purchased for some or all of the Certificates, prior to delivery of the Certificates furnish a certificate,
Preliminary,subject to change.
i
acceptable to said Special Counsel, as to the present value of the expected interest savings as a result of
such insurance.
Maturity Principal Interest
August 1 Amount Rate
2008 $16,080,000
2009 15,800,000
2010 16,315,000
2011 5,395,000
2012 7,060,000
2013 19,605,000
Total $80,255,000
We represent that we have full and complete authority to submit this bid on behalf of our bidding
syndicate and the undersigned will serve as the lead manager for the group if the Certificates are awarded
pursuant to this bid. We certify (or declare) under penalty of perjury under the laws of the State of
California that this proposal is genuine, and not a sham or collusive, nor made in the interest of or on
behalf of any person not herein named, and that the bidder has not directly or indirectly induced or
solicited any other bidder to put in a sham bid or any other person, firm or corporation to refrain from
bidding,and that the bidder has not in any manner sought by collusion to secure for himself an advantage
over any other bidder.
Respectfully Submitted,
Account Manager:
By:
Address(for Return of Unsuccessful Bid Check):
City:
State:
Telephone:
Following(or attached)is a list of the members of our account on whose behalf this bid is made.
Preliminary,subject to change.
80199354.3 2
Fulbright& Jaworski L.L.P. Draft-5/12/08
NOTICE OF INTENTION TO SELL
$80,255,000*
Orange County Sanitation District
Refunding Certificates of Participation
Series 2008A
NOTICE IS HEREBY GIVEN that the Orange County Sanitation District(the"District")
intends to receive sealed bids and electronic bids until 10:00 a.m.,New York time,on Thursday,
May 22,2008,
through the use of an electronic bidding service offered by (Pero LLC; at www.newissuehome.i-
deal.com and the Parity bid delivery service, for the purchase of all of the above-captioned
Refunding Certificates of Participation (the"Certificates") dated as of the date of initial delivery,
and maturing on such dates as described in the related Official Notice Inviting Bids (the
"Notice"). No bids will be accepted by facsimile. Bids for less than all of the Certificates will
not be accepted. The District reserves the right to postpone the date established for the receipt of
bids as more fully described under the paragraph"Cancellation or Postponement" in the Notice.
NOTICE IS HEREBY FURTHER GIVEN that electronic copies of the Notice and the
Preliminary Official Statement issued in connection with the sale of the Certificates may be
obtained from the District's financial advisor, Public Resources Advisory Group, 11845 West
Olympic Blvd., Suite 640, Los Angeles, California 90064, 310-477-8487, via e-mail:
Ichoi(a)oraela.com.
Orange County Sanitation District
Dated: May_, 2008
Preliminary,subject to change.
80198346.3
Fulbright& Jaworski L.L.P. Draft-5/12/08
CONTINUING DISCLOSURE AGREEMENT
by and between
ORANGE COUNTY SANITATION DISTRICT
and
DIGITAL ASSURANCE CERTIFICATION LLC,
as Dissemination Agent
Dated as of May 1, 2008
Relating to
$[PAR]
Orange County Sanitation District
Refunding Certificates of Participation
Series2008A
80198333.2
v
CONTINUING DISCLOSURE AGREEMENT
THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"),
dated as of May 1,2008, is by and between the ORANGE COUNTY SANITATION DISTRICT,
a county sanitation district organized and existing under the laws of the State of California (the
"District"), and DIGITAL ASSURANCE CERTIFICATION LLC, as Dissemination Agent (the
"Dissemination Agent").
WITNESSETH:
WHEREAS, the District has caused to be executed and delivered Orange County
Sanitation District Refunding Certificates of Participation, Series 2008A (the "Certificates"),
evidencing principal in the aggregate amount of$[PAR],pursuant to a Trust Agreement,dated as
of the date hereof(the "Trust Agreement"), by and among U.S. Bank National Association, as
trustee (the "Trustee"), the Orange County Sanitation District Financing Corporation (the
"Corporation")and the District;and
WHEREAS, this Disclosure Agreement is being executed and delivered by the District
and the Dissemination Agent for the benefit of the owners and beneficial owners of the
Certificates and in order to assist the underwriters of the Certificates in complying with the Rule
(as defined herein);
NOW, THEREFORE, for and in consideration of the mutual promises and covenants
herein contained, and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged,the parties hereto agree as follows:
Section 1. Definitions. Capitalized undefined terms used herein shall have the
meanings ascribed thereto in the Trust Agreement or, if not defined therein, in the Master
Agreement, dated as of August 1, 2000, by and between the District and the Corporation. In
addition,the following capitalized terms shall have the following meanings:
"Annual Report" means any Annual Report provided by the District pursuant to, and as
described in, Sections 2 and 3 hereof.
"Annual Report Date" means the date in each year that is eight months after the end of
the District's fiscal year,which date, as of the date of this Disclosure Certificate, is March 1.
"Disclosure Representative" means the Director of Finance of the District, or such other
officer or employee of the District as the District shall designate in writing to the Trustee from
time to time.
"Dissemination Agent" means an entity selected and retained by the District, or any
successor thereto selected by the District. The initial Dissemination Agent shall be Digital
Assurance Certification LLC.
"Listed Events" means any of the events listed in subsection(a)of Section 4 hereof.
80199333.2
"National Repository" means any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule. As of the date hereof, the National
Repositories approved by the Securities and Exchange Commission are identified at
http://www.sec.gov/info/municipal/nrmsir.htm.
"Official Statement"means the Official Statement, dated May_, 2008, relating to the
Certificates.
"Participating Underwriter" means any of the original underwriters of the Certificates
required to comply with the Rule in connection with the offering of the Certificates.
"Repository"means each National Repository and each State Repository.
"Rule" means Rule 15c2-12 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 Repository" means any public or private repository or entity designated by the
State of California as a state repository for the purpose of the Rule and recognized by the
Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no
State Repository.
Section 2. Provision of Annual Reports. (a)The District shall, or shall cause the
Dissemination Agent to, not later than the Annual Report Date, commencing with the report for
the 2008-2009 Fiscal Year, provide to each Repository an Annual Report which is consistent
with the requirements of Section 3 hereof. The Annual Report may be submitted as a single
document or as separate documents comprising a package, and may include by reference other
information as provided in Section 3 hereof;provided that the audited financial statements of the
District may be submitted separately from the balance of the Annual Report, and later than the
date required above for the filing of the Annual Report if not available by that date. If the
District's fiscal year changes, it shall give notice of such change in the same manner as for a
Listed Event under subsection(f)of Section 4 hereof.
(b) Not later than 15 business days prior to the date specified in subsection(a)
of this Section for the providing of the Annual Report to the Repositories, the District
shall provide the Annual Report to the Dissemination Agent and the Trustee. If by such
date,the Trustee has not received a copy of the Annual Report,the Trustee shall contact
the District and the Dissemination Agent to determine if the District is in compliance
with the first sentence of this subsection (b).
(c) If the Dissemination Agent is unable to confirm that an Annual Report has
been provided to Repositories by the date required in subsection (a) of this Section, the
Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board
and each State Repository,if any, in substantially the form attached as Exhibit A.
80198333.2 2
(d) The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual
Report the name and address of each National Repository and each State
Repository, if any;and
(ii) file a report with the District and(if the Dissemination Agent is not
the Trustee) the Trustee certifying that the Annual Report has been provided
pursuant to this Disclosure Agreement, stating the date it was provided and listing
all the Repositories to which it was provided.
Section 3. Content of Annual Reports. The District's Annual Report shall contain
or incorporate by reference the following:
(a) Audited financial statements prepared in accordance with generally
accepted accounting principles as promulgated to apply to governmental entities from
time to time by the Governmental Accounting Standards Board. If the District's audited
financial statements are not available by the time the Annual Report is required to be
filed pursuant to subsection(a) of Section 2 hereof, the Annual Report shall contain
unaudited financial statements in a format similar to the financial statements contained in
the Official Statement, and the audited financial statements shall be filed in the same
manner as the Annual Report when they become available.
(b) The following information with respect to the Certificates:
(i) The principal evidenced by the Certificates Outstanding as of the
January 1 next preceding the Annual Report Date and the principal amount of
other Senior Obligations outstanding as of the January 1 next preceding the
Annual Report Date.
(ii) The balance in the Reserve Fund, and a statement of the Reserve
Requirement, as of the January I next preceding the Annual Report Date.
(c) A summary report showing in reasonable detail Revenues, Operating
Revenues, Maintenance and Operation Costs, Net Revenues, Net Operating Revenues
and debt service with respect to the Senior Obligations for the fiscal year ended the
June 30 next preceding the Annual Report Date.
(d) An update, for the fiscal year ended the June 30 next preceding the Annual
Report Date, of the information contained in the Official Statement in Table Nos. 2, 4, 6
(only with respect to information on 6 under the headings Fiscal Year and Sewer Service
Charge), 8 (not to include projections), 9, 10, 11, 12, 13, 14 and 16.
(e) In addition to any of the information expressly required to be provided
under subsections(a), (b), (c) and (d) of this Section, the District shall provide such
further information, if any, as may be necessary to make the specifically required
statements, in the light of the circumstances under which they are made,not misleading.
80198333.2 3
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 or the Securities and Exchange
Commission. If the document included by reference is a final official statement, it must be
available from the Municipal Securities Rulemaking Board. The District shall clearly identify
each such other document so included by reference.
Section 4. Reporting of Significant Events. (a)Pursuant to the provisions of this
Section, 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.
(3) Unscheduled draws on debt service reserves reflecting financial
difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial
difficulties.
(5) Substitution of credit or liquidity providers, or their failure to
perform.
(6) Adverse tax opinions or events affecting the tax-exempt status of
the security.
(7) Modifications to rights of security holders.
(8) Contingent or unscheduled Certificate calls.
(9) Defeasances.
(10) Release, substitution, or sale of property securing repayment of the
securities.
(II) Rating changes.
(b) The District shall, within one business day of obtaining actual knowledge
of the occurrence of any of the Listed Events, contact the Disclosure Representative,
inform such person of the event, and request that the District promptly notify the Trustee
in writing whether or not to report the event pursuant to subsection(f)of this Section.
(c) Whenever the District obtains knowledge of the occurrence of a Listed
Event, whether because of a notice from the Trustee pursuant to subsection (b) of this
Section or otherwise, the District shall as soon as possible determine if such event would
be material under applicable Federal securities law.
80198333.2 4
(d) If the District has determined that knowledge of the occurrence of a Listed
Event would be material under applicable Federal securities law, the District shall
promptly notify the Trustee in writing. Such notice shall instruct the Trustee to report the
occurrence pursuant to subsection (f) of this Section.
(e) If in response to a request under subsection (b) of this Section,the District
determines that the Listed Event would not be material under applicable Federal
securities law, the District shall so notify the Trustee in writing and instruct the Trustee
not to report the occurrence pursuant to subsection (f)of this Section.
(f) If the Dissemination Agent has been instructed by the District to report the
occurrence of a Listed Event, the Dissemination Agent shall file a notice of such
occurrence with the Municipal Securities Rulemaking Board and each Repository.
Notwithstanding the foregoing, notice of Listed Events described in paragraphs(8) and
(9) of subsection(a) of this Section need not be given under this subsection any earlier
than the notice(if any) of the underlying event is given to holders of affected Certificates
pursuant to the Trust Agreement.
Section 5. Electronic Filing. Submission of Annual Reports and notices of Listed
Events to DisclosureUSA.org or another "Central Post Office" designated and accepted by the
Securities and Exchange Commission shall constitute compliance with the requirement of filing
such reports and notices with each Repository hereunder, and the District may satisfy its
obligations hereunder to file any notice, document or information with a Repository by filing the
same with any dissemination agent or conduit, including DisclosureUSA.org or another"Central
Post Office" or similar entity, assuming or charged with responsibility for accepting notices,
documents or information for transmission to such Repository, to the extent permitted by the
Securities and Exchange Commission or Securities and Exchange Commission staff or required
by the Securities and Exchange Commission. For this purpose, permission shall be deemed to
have been granted by the Securities and Exchange Commission staff if and to the extent the
agent or conduit has received an interpretive letter, which has not been revoked, from the
Securities and Exchange Commission staff to the effect that using the agent or conduit to
transmit information to the Repository will be treated for purposes of the Rule as if such
information were transmitted directly to the Repository.
Section 6. Termination of Reporting Obligation. The District's obligations under
this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or
payment in full of all of the Certificates. If such termination occurs prior to the final maturity of
the Certificates, the District shall give notice of such termination in the same manner as for a
Listed Event under subsection (f) of Section 4 hereof.
Section 7. Dissemination Agent. The District may, from time to time, appoint or
engage another Dissemination Agent to assist it in carrying out its obligations under this
Disclosure Agreement, and may discharge any such Dissemination Agent, with or without
appointing a successor Dissemination Agent. If at any time there is not any other designated
Dissemination Agent, the Trustee shall be the Dissemination Agent; provided it shall receive
written notice of such designation at the time of such designation.
801983312 5
Section 8. Amendment Waiver. Notwithstanding any other provision of this
Disclosure Agreement, the District and the Dissemination Agent may amend this Disclosure
Agreement (and the Dissemination Agent shall agree to any amendment so requested by the
District), and any provision of this Disclosure Agreement may be waived, provided that the
following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of subsection(a) of
Section 2 hereof, Section 3 hereof or subsection(a) of Section 4 hereof, it may only be
made in connection with a change in circumstances that arises from a change in legal
requirements, change in law, or change in the identity, nature or status of an obligated
person with respect to the Certificates,or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in
the opinion of nationally recognized bond counsel, have complied with the requirements
of the Rule at the time of the primary offering of the Certificates, after taking into
account any amendments or interpretations of the Rule, as well as any change in
circumstances;and
(c) the proposed amendment or waiver (i) is approved by holders of the
Certificates in the manner provided in the Trust Agreement for amendments to the Trust
Agreement with the consent of holders, or (ii)does not, in the opinion of the Trustee or
nationally recognized bond counsel, materially impair the interests of holders.
If the annual financial information or operating data to be provided in the Annual Report
is amended pursuant to the provisions hereof, the annual financial information containing the
amended operating data or financial information shall explain, in narrative form, the reasons for
the amendment and the impact of the change in the type of operating data or financial
information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be
followed in preparing financial statements,the annual financial information for the year in which
the change is made shall present a comparison between the financial statements or information
prepared on the basis of the new accounting principles and those prepared on the basis of the
former accounting principles. The comparison shall include a qualitative discussion of the
differences in the accounting principles and the impact of the change in the accounting principles
on the presentation of the financial information, in order to provide information to investors to
enable them to evaluate the ability of the District to meet its obligations. To the extent
reasonably feasible, the comparison shall be quantitative. A notice of the change in the
accounting principles shall be sent to the Repositories.
Section 9. Additional Information. Nothing in this Disclosure Agreement shall be
deemed to prevent the District from disseminating any other information, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Annual Report or notice of occurrence of a Listed Event,
in addition to that which is required by this Disclosure Agreement. If the District chooses to
include any information in any Annual Report or notice of occurrence of a Listed Event in
addition to that which is specifically required by this Disclosure Agreement, the District shall
801983331 6
have no obligation under this Disclosure Agreement to update such information or include it in
any future Annual Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the District or the Dissemination
Agent to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the
written direction of any Participating Underwriter or the holders of at least 25% of the aggregate
amount of principal evidenced by Outstanding Certificates and upon being indemnified to its
reasonable satisfaction, shall), or 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,Trustee or the Dissemination Agent,as the case
may be, to comply with its obligations under this Disclosure Agreement. A default under this
Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement, and
the sole remedy under this Disclosure Agreement in the event of any failure of the District, the
Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action
to compel performance.
Section 11. Duties. Immunities and Liabilities of Trustee and Dissemination
Agent. Article VIII of the Trust Agreement is hereby made applicable to this Disclosure
Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Trust
Agreement. Neither the Trustee nor the Dissemination Agent shall be responsible for the form or
content of any Annual Report or notice of Listed Event. The Dissemination Agent shall receive
reasonable compensation for its services provided under this Disclosure Agreement. The
Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination
Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and
the District agrees to indemnify and save the Dissemination Agent, its officers, directors,
employees and agents, harmless against any loss, expense and liabilities which it may incur
arising out of or in the exercise or performance of its powers and duties hereunder, including the
costs and expenses (including attorneys fees) of defending against any claim of liability, but
excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The
obligations of the District under this Section shall survive resignation or removal of the
Dissemination Agent and payment of the Certificates.
Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit
of the District, the Trustee, the Dissemination Agent, the Participating Underwriter and holders
and beneficial owners from time to time of the Certificates,and shall create no rights in any other
person or entity.
Section 13. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
80198333.2 7
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement
as of the date first above written.
ORANGE COUNTY SANITATION DISTRICT
By:
Lorenzo Tyner
Director of Finance and Administrative Services
DIGITAL ASSURANCE CERTIFICATION LLC,
as Dissemination Agent
By:
Authorized Representative
Acknowledged and Accepted:
U.S.BANK NATIONAL ASSOCIATION,
as Trustee
By:
Authorized Officer
801993331 8
EXHIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE
TO FILE ANNUAL REPORT
Name of Issuer: Orange County Sanitation District
Name of Issue: Orange County Sanitation District
Refunding Certificates of Participation, Series 2008A
Date of Issuance: , 2008
NOTICE IS HEREBY GIVEN that the Orange County Sanitation District(the"District')
has not provided an Annual Report with respect to the above-named Certificates as required by
Section 6.09 of the Trust Agreement, dated as of May 1, 2008, by and among U.S. Bank
National Association, as Trustee, the Orange County Sanitation District Financing Corporation
and the District. [The District anticipates that the Annual Report will be filed by
Dated: ORANGE COUNTY SANITATION
DISTRICT
By:
cc: Trustee
Dissemination Agent
80198333.2 A-I
EXIIIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE
TO FILE ANNUAL REPORT
Name of Issuer: Orange County Sanitation District
Name of Issue: Orange County Sanitation District
Refunding Certificates of Participation, Series 2008A
Date of Issuance: , 2008
NOTICE IS HEREBY GIVEN that the Orange County Sanitation District(the"Distrien
has not provided an Annual Report with respect to the above-named Certificates as required by
Section 6.09 of the Trust Agreement, dated as of May 1, 2008, by and among U.S. Bank
National Association, as Trustee, the Orange County Sanitation District Financing Corporation
and the District. [The District anticipates that the Annual Report will be filed by
Dated: ORANGE COUNTY SANITATION
DISTRICT
By:
cc: Trustee
Dissemination Agent
801983332 A-1
„$ DRAFT OF
Is 5 05/12/08
PRELIMINARY OFFICIAL STATEMENT DATED MAY 16,2008
S NEW ISSUE—BOOK—ENTRY—ONLY Ratings:
.5` Moody's: ”
ra
E.g S&P: a
1; Fitch:
5 (See'RATINGS'herelm)
In the opinion of Fulbright& Jaworshi L.L.P., Los Angeles, California, Special Cormsel, under existing law, the Interest
c5 Component of each Installment Payment, and the allocoble portion thereof distributable in respect of any Certificate. a exempt
c from personal income taxes of the State of California and, assuming compliance with the tar covenants described herein, the
8.� Interest Component of each Installment Payment and the allocable portion thenuif distributable in respect of any Certificate, a
y „ excluded pursuant to section 103(a) of the Internal Revem ur Code of 1986 (the "Code')from the gross income of the owners
g thereoffor federal income tax piapmes and is not an item of tax preference under section 57(a) of the Code for purposes ofthe
2.8
federal alternative minimum tax. See "TAX MATTERS"herein.
e9
o a ]District Logo] $80,255,011 W ]DAC Logo]
ORANGE COUNTY SANITATION DISTRICT
REFUNDING CERTIFICATES OF PARTICIPATION,SERIES 2008A
a�
S Dated: Date of Delivery Due: August 1,as shown below
gm
5 The Orange County Sanitation District Refunding Certificates of Participation, Series 2008A (the "Certificates") evidence
E c direct, fincrional undivided interests of the Owners thereof in the installment payments (the "Installment Paymems"), and the
a_
interest thereon, to be made by the Orange County Sanitation District (the "District") pursuant to the Installment Purchase
cmg Agreement, dated as of May 1, 2008 (the "Installment Purchase Agreement"I by and between the District and the Orange
_ § County Sanitation District Financing Corporation (the "Corporation"). Pursuant to the Master Agreement for District
B Obligations,dated as of August 1,2000(the"Master Agreement"),by and between the District and the Corporation,the District
has established conditions and terms upon which obligations such as the Installment Payments and the interest thereon,will be
§& S incurred and secured. Installment Payments under the Installment Purchase Agreement are payable solely from Net Revenues
E (as more fully described in the Master Agreement, the "Net Revenues') as provided in the Installment Purchase Agreement,
j e a consisting loca
tion of all income and revenue received by the District from the operation or ownership of the Wastewater g
`o System of the District (the "Wastewater System") remaining after payment of Maintenance and Operation Costs, as further
S described in "SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES" herein. The Installment Purchase
g Agreement provides that the obligation of the District to pay the Installment Payments, and payments of interest thereon, and
s certain other payments required to be made in accordance with the Installment Purchase Agreement,solely from Net Revenues,
e § is absolute and unconditional. See"SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES"herein.
Lyg
The proceeds of the Certificates, together with other available moneys, will be used to (i)refund all of the District's
-5 outstanding Refunding Certificates of Participation, 1992 Series(the"Refunded Certificates")and pay a settlement amount to
s0 the provider of an interest rate swap agreement relating to the Refunded Certificates,(ii)fund a reserve fund for the Certificates
ar" and(iii)pay the costs incurred in connection with the execution and delivery of the Certificates. See "REFUNDING PLAN"
a ` € herein.
a a
€ P Interest evidenced by the Certificates will be payable semiannually on February 1 and August 1 of each year,commencing on
S a August 1, 2008. See"THE CERTIFICATES"herein The Certificates will be initially delivered only in book-entry form and
will be registered in the time of Cede&Co.,as nominee of The Depository Trust Company,New York,New York("DTC"),
8 which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry
s S form only. Purchasers of Certificates will not receive physical certificates representing then ownership interests in the
3 Certificates purchased. The Certificates will be delivered in denominations of$5,000 and any integral multiple thereof.
5,a 9 Payments of principal and interest evidenced by the Certificates are payable directly to DTC by U.S.Bank National Association,
€ e- as trustee(the"Trustee"). Upon receipt of payments of such principal and interest,DTC will in turn distribute such payments to
11.8 o the beneficial owners of the Certificates. See APPENDIX E—"BOOK-ENTRY SYSTEM"herein.
as
yes
o 0
a
5 e o Prelimin
g ary;subject to change.
So
90198915.1
s
THE OBLIGATION OF THE DISTRICT TO PAY THE INSTALLMENT PAYMENTS, AND THE INTEREST
THEREON, AND OTHER PAYMENTS REQUIRED TO BE MADE BY IT TINDER THE INSTALLMENT PURCHASE I
AGREEMENT IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE, IN THE MANNER PROVIDED IN THE
INSTALLMENT PURCHASE AGREEMENT, SOLELY FROM NET REVENUES AND OTHER FUNDS PROVIDED FOR
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. NEITHER THE FAITH AND
CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA. OR ANY POLITICAL SUBDIVISION
THEREOF, IS PLEDGED TO THE PAYMENT OF THE INSTALLMENT PAYMENTS, OR THE INTEREST THEREON,
OR OTHER PAYMENTS REQUIRED TO BE MADE UNDER THE INSTALLMENT PURCHASE AGREEMENT. SEE
"SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES"HEREIN.
This cover page contains information intended for quick reference only. It is not a summary of this issue. Investors must
reed the entire Official Statement to obtain information essential to making an informed investment decision.
The Certificates me offered when, ar and if memaed and delivered and received by as the Initial
Purchaser,subject to the approval of Fulbright&Jaworski L.L.P.,Los Angeles, California,Special Coensel to the District, and
certain other milittons. Certain legal matters will be parsed upon for the District and the Corporation by Woodntf,Sp wWln
&Stuart, a Professional Corporation, Costa Mesa, Cal farnia. Public Resources Advisory Group, Los Angeles, Cal feria, has
served ar financial advisor to the District in connection with the esecutton and delivay of the Certficates. his anticipated that
the Certificates in definitive form will be availablefor delivery to DTC in New York,Nnv York on or about May 28,2008.
BIDS FOR THE PURCHASE OF THE CERTIFICATES WILL BE RECEIVED BY
THE DISTRICT UNTIL 11:30 A.M.NEW YORK TINE ON MAY 22,2008 UNLESS
POSTPONED OR CANCELLED AS SET FORTH IN THE OFFICIAL NOTICE INVITING BIDS
Dated: May_,2007
80198915.1
MATURITY SCHEDULE
$80,255,000'
Orange County Sanitation District
Refunding Certificates of Participation,Series 2008A
Maturity Principal Interest Price or CUSM
(August 1 Amount Rate Yield 68f 428P1
2008 $ % %
2009
2010
2011
2012
2013
Preliminary;subject to change.
f CUSIP® A registered trademark of the American Bankers Association.Copyright® 1999-2007 Standard &Pom's, a Division of
The McGraw-Hill Companies, Inc.All rights reserved. CUSEM numbers herein are provided by Standard&Peer's CUSIP Service
Bureau and are for convenience of reference only.The District does not assume any responsibility for the accuracy of such numbers.
80198915.1
20,989s.,
1
ORANGE COUNTY SANITATION DISTRICT
Board of Directors
James Ferryman(Chair)—Costa Mesa Sanitary District
Doug Davert(Vice Chair)— Tustin
Harry Sidhu—Anaheim Don Webb—Newport Beach
Roy Moore—Brea Jon Dumitru—Orange
Patsy Marshall—Buena Park Constance Underhill—Placentia
Phil Luebben—Cypress Sal Tinajero—Santa Ana
Larry Crandall—Fountain Valley Charles Antos—Seal Beach
Don Bankhead—Fullerton David Shawver—Stanton
Bill Dalton—Garden Grove Rich Freschi— Villa Park
Cathy Omen—Huntington Beach Jim Winder-Yorba Linda
Steven Choi—Irvine Joy L.Neugebauer—Midway City Sanitary District
Steve Anderson—La Habra Darryl Miller—Irvine Ranch Water District
Mark Waldman—La Palma Chris Norby—Member of the Orange County
Ken Parker—Los Alamitos Board of Supervisors
Executive Management of the District
James D. Ruth,General Manager
Robert P. Ghirelli, PhD.,Assistant General Manager
Lorenzo Tyner,Director of Finance and Administrative Services
James Herberg, Director of Engineering
Ed Torres,Director of Technical Services
Nick Arhontes, Director of Operations &Maintenance
Special Services
Special Counsel and Disclosure Counsel
Fulbright&Jaworski L.L.P.
Los Angeles,California
District General Counsel
Bradley R. Hogan
Woodruff, Spradlin& Smart,a Professional Corporation
Costa Mesa,California
Financial Advisor
Public Resources Advisory Group
Los Angeles,California
Trustee and Escrow Agent
U.S. Bank National Association
Los Angeles,California
Verification Agent
[to come]
80198915.1
This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor ,
shall there be any sale of the Certificates by any person in any jurisdiction in which it is unlawful for such
person to make such an offer, solicitation or sale. The information set forth herein has been provided by
the District and other sources that are believed by the District to be reliable. No dealer, broker,
salesperson or other person has been authorized to give any information or to make any representations
other than those contained in this Official Statement. If given or made, such other information or
representations must not be relied upon as having been authorized by the District,the Corporation or the
Initial Purchaser in connection with any reoffering.
This Official Statement is not to be construed as a contract with the purchasers of the Certificates.
Statements contained in this Official Statement which involve estimates,projections, 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 facts.
The information and expressions of opinion herein are subject to change without notice and
neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the District or the Corporation since
the date hereof. This Official Statement is submitted with respect to the sale of the Certificates referred to
herein and may not be reproduced or used, in whole or in part,for any other purpose,unless authorized in
writing by the District. All summaries of the documents and laws are made subject to the provisions
thereof and do not purport to be complete statements of any or all such provisions. Preparation of this
Official Statement and its distribution have been duly authorized and approved by the District and the
Corporation.
In connection with the offering of the Certificates, the Initial Purchaser in connection with any
reoffering may over-allot or effect transactions which stabilize or maintain the market price of the
Certificates at a level above that which might otherwise prevail in the open market. Such stabilizing, if
commenced may be discontinued at any time. The Initial Purchaser in connection with any reoffering
may offer and sell the Certificates to certain dealers,institutional investors and others at prices lower than
the public offering prices stated on the cover page hereof and such public offering prices may be changed
from time to time by the Initial Purchaser.
Certain statements included or incorporated by reference in this Official Statement constitute
forward-looking statements. Such statements are generally identifiable by the terminology used such as
"Plan,""expect,""estimate,""budget'or other similar words. The achievement of certain results or other
expectations contained in such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause actual results,performance or achievements described to
be materially different from any future results, performance or achievements expressed or implied by
such forward-looking statements.
80198915.1
TABLE OF CONTENTS
EM
INTRODUCTION......................................................................................................................... I
General............................................................................................................................... I
TheDistrict........................................................................................................................2
Security and Sources of Payment for the Certificates.......................................................2
ContinuingDisclosure.......................................................................................................3
Miscellaneous....................................................................................................................3
REFUNDINGPLAN.....................................................................................................................4
SOURCES AND USES OF PROCEEDS OF THE CERTIFICATES..........................................5
THECERTIFICATES...................................................................................................................5
General...............................................................................................................................5
NoOptional or Mandatory Prepayment.............................................................................6
SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES...............................6
Installment Payments.........................................................................................................6
NetRevenues.....................................................................................................................7
RateStabilization Account................................................................................................8
Allocationof Revenues......................................................................................................8
RateCovenant....................................................................................................................9
ReserveFund................................................................................................................... 10
Limitations on Issuance of Additional Obligations......................................................... 11
Insurance.......................................................................................................................... 13
Allocation of Installment Payments................................................................................. 13
THEDISTRICT........................................................................................................................... 14
Background...................................................................................................................... 14
Organizationand Administration..................................................................................... 15
Services............................................................................................................................ 16
ServiceArea..................................................................................................................... 17
Employees........................................................................................................................ 18
RetirementPlan................................................................................................................ 19
Other Post-Employment Benefits....................................................................................20
RiskManagement............................................................................................................21
ExistingFacilities.............................................................................................................21
Permits, Licenses and Other Regulations........................................................................23
CapitalImprovement Program.........................................................................................24
Groundwater Replenishment System...............................................................................27
Preferred Level of Treatment...........................................................................................27
BiosolidsManagement.....................................................................................................28
Urban Runoff...................................................................................................................29
IntegratedEmergency Response Program.......................................................................30
DISTRICTREVENUES..............................................................................................................31
SewerService Charges....................................................................................................31
AdditionalRevenues........................................................................................................33
80198915.1 1
TABLE OF CONTENTS
(continued)
Page
Wastewater Treatment History........................................................................................35
Customers........................................................................................................................35
AssessedValuation..........................................................................................................37
Tax Levies and Delinquencies.........................................................................................38
BudgetaryProcess............................................................................................................39
Reserves...........................................................................................................................40
Summary of Operating Data............................................................................................41
ProjectedOperating Data.................................................................................................42
Management's Discussion and Analysis of Operating Data............................................43
Investment of District Funds............................................................................................45
FINANCIALOBLIGATIONS....................................................................................................45
ExistingIndebtedness......................................................................................................45
Variable Rate and Swap Obligations...............................................................................46
AnticipatedFinancings....................................................................................................48
Direct and Overlapping Bonded Debt..............................................................................48
THE CORPORATION................................................................................................................50
LIMITATIONS ON TAXES AND REVENUES........................................................................51
Article XIIIA of the California Constitution...................................................................51
Legislation Implementing Article XIIIA.........................................................................51
Article XIIIB of the California Constitution....................................................................52
PropositionIA.................................................................................................................53
Proposition62..................................................................................................................53
Article XIIIC and Article XIIID of the California Constitution......................................53
Other Initiative Measures.................................................................................................56
LEGALMATTERS.....................................................................................................................56
FINANCIALADVISOR.............................................................................................................56
ABSENCEOF LITIGATION..................................................................................................... 56
FINANCIALSTATEMENTS.....................................................................................................56
TAXMATTERS..........................................................................................................................57
CONTINUINGDISCLOSURE...................................................................................................59
VERIFICATION OF MATHEMATICAL COMPUTATIONS..................................................60
RATINGS....................................................................................................................................60
PURCHASEAND REOFFERING.............................................................................................60
MISCELLANEOUS....................................................................................................................60
90199915.1 ii
TABLE OF CONTENTS
(continued)
Page
APPENDIX A — COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE.ORANGE
COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED
JUNE30,2007...................................................................................................A-1
APPENDIX B — THE COUNTY OF ORANGE—ECONOMIC AND DEMOGRAPHIC
INFORMATION................................................................................................B-1
APPENDIX C — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS....................................C-1
APPENDIX D — FORM OF CONTINUING DISCLOSURE AGREEMENT.............................D-1
APPENDIX E — BOOK-ENTRY SYSTEM.................................................................................E-1
APPENDIX F — FORM OF APPROVING OPINION OF SPECIAL COUNSEL......................F-1
80198915.1 iii
OFFICIAL STATEMENT
$80,255,0W
ORANGE COUNTY SANITATION DISTRICT
REFUNDING CERTIFICATES OF PARTICIPATION,SERIES 2008A
INTRODUCTION
This introduction contains only a brief summary of certain of the terms of the Certificates being
offered and a briefdescription ofthe Official Statement. All statements contained in this introduction are
qualified in their entirely by reference to the entire Oficial Statement. References to, and summaries of,
provisions of the Constitution and laws of the Sate of California (the "State') and any documents
referred to herein do not purport to be complete and such references are qualified in their entirety by
reference to the complete provisions. All capitalized terms used in this Official Statement and not
otherwise defined herein have the meanings set forth in the Trust Agreement, the Installment Purchase
Agreement and the Master Agreement (each, as hereinafter defined). See APPENDIX C— "SUMMARY
OF PRINCIPAL LEGAL DOCUMENTS—Definitions"herein.
General
This Official Statement, including the cover page, inside cover and all appendices hereto,
provides certain information concerning the sale and delivery of $80,255,000* aggregate principal
amount of the Orange County Sanitation District Refunding Certificates of Participation, Series 2008A
(the "Certificates") evidencing direct, fractions] undivided interests in the Installment Payments (the
"Installment Payments") and the interest thereon, to be made by the Orange County Sanitation District
(the "District") pursuant to the Installment Purchase Agreement, dated as of May 1, 2008 (the
"Installment Purchase Agreement"),to be entered into by and between the District and the Orange County
Sanitation District Financing Corporation (the "Corporation"). Pursuant to the Master Agreement for
District Obligations, dated as of August 1, 2000(the "Master Agreement"), by and between the District
and the Corporation, the District has established and declared the conditions and terms upon which
obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest
thereon, will be incurred and secured. Installment Payments under the Installment Purchase Agreement
are payable solely from Net Revenues (as defined hereinafter) as provided in the Installment Purchase
Agreement,consisting primarily of all income and revenue received by the District from the operation or
ownership of the Wastewater System of the District(the"Wastewater System")remaining after payment
of Maintenance and Operation Costs, as further described in "SECURITY AND SOURCES OF
PAYMENT FOR THE CERTIFICATES"herein.
The Certificates are to be executed and delivered pursuant to a Trust Agreement, dated as of
May 1, 2008 (the "Crust Agreement"), by and among the District, the Corporation and U.S. Bank
National Association, as trustee(the"Trustee"). Proceeds from the sale of the Certificates, together with
other available moneys,will be used to(i)refund all of the District's outstanding Refunding Certificates
of Participation, 1992 Series(the"Refunded Certificates")and pay a settlement amount to the provider of
an interest rate swap agreement relating to the Refunded Certificates, (ii)fund a reserve fund for the
Preliminary;subject to change.
80198915.1
i
Certificates and (iii)pay the costs incurred in connection with the execution and delivery of the
Certificates. See"REFUNDING PLAN"herein.
The Certificates will be executed and delivered in the form of fully registered certificates, dated
as of the date of initial delivery thereof and will mature on August i in each year as set forth on the inside
cover page hereof. Interest evidenced by the Certificates will be payable semiannually on February 1 and
August 1 of each year, commencing on August 1, 2008. See "THE CERTIFICATES" herein. The
Certificates will be initially delivered only in book-entry, form and will be registered in the time of Cede
&Co.,as nominee of The Depository Trust Company,New York, New York("DTC"),which will act as
securities depository for the Certificates. The Certificates will be delivered in denominations of$5,000
and any integral multiple thereof. So long as the Certificates are in the DTC book-entry system, the
interest, principal, purchase price and prepayment premiums, if any, due with respect to the Certificates
will be payable by the Trustee, or its agent, to DTC or its nominee. DTC, in arm, will make payments
pursuant to its procedures as described under APPENDIX E—"BOOK—ENTRY SYSTEM"herein.
The District
The District is a public agency responsible for regional wastewater collection, treatment and
disposal. The District is the sixth largest wastewater discharger in the United States. The District
provides service to an area with a population of approximately 2.5 million people in the northern and
central portion of the County of Orange (the "County"), in a service area of approximately 479 square
miles, treating 229 million gallons per day ("mg/d") of wastewater in Fiscal Year 2006-07. See "THE
DISTRICT,""DISTRICT REVENUES"and"FINANCIAL OBLIGATIONS"herein.
Security and Sources of Payment for the Certificates
The Certificates evidence direct, fractional undivided interests in the Installment Payments, and
the interest thereon,paid by the District pursuant to the Installment Purchase Agreement The obligation
of the District to pay the Installment Payments and the interest thereon and other payments required to be
made by it under the Installment Purchase Agreement is a special obligation of the District payable,in the
manner provided under the Installment Purchase Agreement, solely from Net Revenues, and other funds
as provided in the Installment Purchase Agreement. Net Revenues generally consist of all income and
revenue received by the District from the operation or ownership of the Wastewater System remaining
after payment of Maintenance and Operation Costs,all as further provided in the Master Agreement. The
Installment Purchase Agreement constitutes a Senior Obligation and, as such,is subject to the provisions
of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded
Senior Obligations pursuant to the Master Agreement.
The District has Senior Obligations Outstanding evidenced by seven series of certificates of
participation and two related interest rate swap agreements, payable on a parity with the Installment
Payments under the Installment Purchase Agreement. The two interest rate swap agreements were
executed by the predecessor special districts in connection with the execution and delivery of certain
Outstanding Senior Certificates. The payments under these swap agreements are payable on a parity with
the Installment Payments under the Installment Purchase Agreement and other Senior Obligations, as
provided in the Master Agreement. See"FINANCIAL OBLIGATIONS—Existing Indebtedness"herein
and APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement"
attached hereto. The term "Existing Senior Obligations" as used in this Official Statement refers to the
1992 Agreement for Acquisition and Construction, the 1992 Swap, the 1993 Agreement for Acquisition
and Construction, the 1993 Swap, the 2000 Installment Purchase Agreement the 2003 Installment
Purchase Agreement, the 2006 installment Purchase Agreement, the 2007A Installment Purchase
Agreement and the 2007B Installment Purchase Agreement, and the term"Senior Obligations"as used in
80199915.1 2
• this Official Statement refers to the Existing Senior Obligations and any additional Senior Obligations,
such as the Installment Purchase Agreement, that may be made payable on a parity basis to the
Installment Payments as provided in the Master Agreement. The District will terminate the 1992
Agreement for Acquisition and Construction and the 1992 Swap in connection with its refunding of the
Refunded Certificates. See "REFUNDING PLAN' and "SOURCES AND USES OF PROCEEDS OF
THE CERTIFICATES." Senior Obligations, together with any Subordinate Obligations payable on a
subordinate basis to the Installment Payments executed and delivered as provided in the Master
Agreement,are referred to collectively as the"Obligations."
Pursuant to the Master Agreement,the District will,to the extent permitted by law, fix,prescribe
and collect fees and charges for the services and facilities of the Wastewater System which will be at least
sufficient to yield during each Fiscal Year (a)Net Revenues equal to 125% of Debt Service on Senior
Obligations for such Fiscal Year and (b)Net Operating Revenues equal to 100% of Debt Service on all
Obligations for such Fiscal Year. The District may make adjustments from time to time in such fees and
charges and may make such classification thereof as it deems necessary,but shall not reduce the fees and
charges than in effect unless the Revenues and Net Revenues from such reduced fees and charges will at
all times be sufficient to meet the requirements of the Master Agreement. See "SECURITY AND
SOURCE OF PAYMENT FOR THE CERTIFICATES—Rate Covenant"herein.
The obligation of the District to pay the Installment Payments and the interest thereon,and
other payments required to be made by it under the Installment Purchase Agreement is a special
obligation of the District payable,in the manner provided in the Installment Purchase Agreement,
solely from Net Revenues and other funds provided for in the Installment Purchase Agreement,and
does not constitute a debt of the District or of the State, or of any political subdivision thereof, in
contravention of any constitutional or statutory debt limitation or restriction. Neither the faith and
credit nor the taxing power of the District or the State or any political subdivision thereof, is
pledged to the payment of the Installment Payments, or the interest thereon, or other payments
required to be made under the Installment Purchase Agreement. The Installment Purchase
Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master
Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior
Obligations pursuant to the Master Agreement. See"SECURITY AND SOURCES OF PAYMENT
FOR THE CERTIFICATES"herein.
Continuing Disclosure
The District has covenanted for the benefit of holders and beneficial owners of the Certificates
(a)to provide certain financial information and operating data (the "Annual Repoli') relating to the
District and the property in the District not later than eight months after the end of the District's Fiscal
Year(which currently would be March 1), commencing with the report for the 2007-08 Fiscal Year, and
(b)to provide notices of the occurrence of certain enumerated events, if material. The specific nature of
the information to be contained in the Annual Report or the notices of material events is set forth in the
Continuing Disclosure Agreement. See "CONTINUING DISCLOSURE" herein and APPENDIX D —
"FORM OF CONTINUING DISCLOSURE AGREEMENT."
Miscellaneous
The descriptions herein of the Trust Agreement, the Master Agreement,the Installment Purchase
Agreement and any other agreements relating to the Certificates are qualified in their entirety by reference
to such documents. Copies of the documents are on file and available for inspection at the corporate trust
office of the Trustee at U.S. Bank National Association, 633 West 5th Street, 24th Floor, Los Angeles,
CA 90071,Attention:
80198915.1 3
REFUNDING PLAN
A portion of the net proceeds from the sale of the Certificates, together with other available
moneys, will be used to prepay all of the prior installment payments (the "Refunded Installment
Payments") to be made by the District pursuant to the Amendatory Agreement for Acquisition and
Construction, dated as of October 1, 1992 (the "1992 Agreement") which was executed in connection
with the execution and delivery of the Refunding Certificates of Participation, 1992 Series (the "1992
Certificates") evidencing $160,600,000 original aggregate principal amount, of which $77,340,000 in
aggregate principal amount remains outstanding(the"Refunded Certificates").
Pursuant to the terms of the Trust Agreement, dated as of October 1, 1992 (the "Prior Trust
Agreement"),pursuant to which such 1992 Certificates were executed and delivered,the refunding of the
Refrmded Certificates will be effected by depositing a portion of the proceeds of the Certificates,together
with other available moneys, in an escrow fund(the"Escrow Fond")to be created and established under
the Escrow Agreement, dated as of May 1, 2008, by and between the District and U.S. Bank National
Association, as escrow agent. Such proceeds and other moneys deposited by the District in the Escrow
Fond will be used to purchase Government Obligations,the principal of and interest on which when due,
together with uninvested proceeds,will be sufficient to provide for the payment of the interest component
of the Refunded Installment Payments through and including July 1,2008(the"Prepayment Date")and to
provide the prepayment of the principal component of the Refunded Installment Payments on the
Prepayment Date at a prepayment price (the `Prepayment Price")equal to the principal amount thereof,
without premium. hi accordance with the Prior Trust Agreement, the Refunded Installment Payments
will be applied to the payment of interest with respect to the outstanding Refunded Certificates through
and including the Prepayment Date and to the prepayment of the principal of the outstanding Refunded
Certificates on the Prepayment Date at the Prepayment Price. See "VERIFICATION OF
MATHEMATICAL COMPUTATIONS."
The maturing principal of and the investment income to be derived from the Government
Obligations in the Escrow Fund will be held in trust solely for the Refunded Certificates and will not be
available to pay the principal and interest evidenced by the Certificates or any obligations other than the
Refunded Certificates.
Another portion of the net proceeds from the sale of the Certificates will be used to pay the
settlement amount payable by the District arising from the termination of an interest rate swap agreement
with AIG Financial Products Corp, relating to the Refunded Certificates. See"SOURCES AND USES
OF PROCEEDS OF THE CERTIFICATES."
80199915.1 4
' SOURCES AND USES OF PROCEEDS OF THE CERTIFICATES
The estimated sources and uses of funds with respect to the delivery of the Certificates are
presented below.
Sources
Certificate Proceeds $
Original Issue Premium
Total Sources $
Uses
Escrow Fund $
Swap Settlement Amount
Reserve Fund
Initial Purchaser's Discount
Costs of Issuance("
Total Uses $
Costs include, among other things, fees of rating agencies, initial fees of the Trustee and Special
Comsat fees and expenses.
THE CERTIFICATES
General
The Certificates will be prepared in the form of fully registered certificates in denominations of
$5,000 and any integral multiple thereof. The Certificates will be dated as of the date of initial delivery
thereof and will mature on August l in each year as set forth on the inside cover page hereof. Interest
evidenced by the Certificates will be payable semiannually on February 1 and August I of each year,
commencing on August I, 2008. See "THE CERTIFICATES" herein. The Certificates will be initially
delivered only in book-entry form and will be registered in the time of Cede&Co.,as nominee of The
Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for
the Certificates. Individual purchases of the Certificates will be made in book-entry form only.
Purchasers of Certificates will not receive physical certificates representing their ownership interests in
the Certificates purchased.
The interest evidenced by the Certificates shall be payable on each Interest Payment Date to and
including their respective Principal Payment Dates or prepayment prior thereto, and shall represent the
sum of the interest on the Installment Payments coming due on the Interest Payment Dates in each year.
The principal evidenced by the Certificates shall be payable on their respective Principal Payment Dates
in each year and shall represent the Installment Payments coming due on the Principal Payment Dates in
each year. Each Certificate shall evidence interest from the Interest Payment Date next preceding its date
of execution to which interest has been paid in full, unless such date of execution shall be after a Record
Date and on or prior to the following Interest Payment Date,in which case such Certificate shall evidence
interest from such Interest Payment Date, or unless such date of execution shall be on or prior to July 15,
2008, in which case such Certificate shall represent interest from its date of initial delivery.
Notwithstanding, the foregoing, if, as shown by the records of the Trustee, interest evidenced by the
Certificates shall be in default,each Certificate shall evidence interest from the last Interest Payment Date
80198913.1 5
to which such interest has been paid in full or duly provided for. Interest evidenced by the Certificates
shall be computed on the basis of a 360-day year consisting of twelve 30-day months. See APPENDIX C
—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Trust Agreement."
Payments of principal and interest evidenced by the Certificates are payable directly to DTC by
U.S. Bank National Association,as trustee. Upon receipt of payments of such principal and interest,DTC
will in turn distribute such payments to the beneficial owners of the Certificates. So long as the
Certificates am in the DTC book-entry system, the interest, principal, purchase price and prepayment
premiums,if any,due with respect to the Certificates will be payable by the Trustee, or its agent,to DTC
or its nominee. DTC, in turn, will make payments pursuant to its procedures as described under
APPENDIX E- "BOOK-ENTRY SYSTEM" herein. So long as the Certificates are in the DTC book-
entry system,the interest,principal and prepayment premiums, if any, due with respect to the Certificates
will be payable by the Trustee, or its agent, to DTC or its nominee. DTC, in turn, will make payments
pursuant to its procedures as described under APPENDIX E-"BOOK-ENTRY SYSTEM"herein.
No Optional or Mandatory Prepayment
The Certificates are not subject to optional or mandatory prepayment prior to their stated
Principal Payment Dates.
SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES
Installment Payments
Pursuant to the Installment Purchase Agreement,the Project will be acquired by the District from
the Corporation. The District has covenanted to, subject to any rights of prepayment under the
Installment Purchase Agreement, pay to the Corporation, solely from Net Revenues and from no other
sources,the Purchase Price in Installment Payments, with interest thereon, as provided in the Installment
Purchase Agreement. Pursuant to the Master Agreement, the District has established and declared the
conditions and terms upon which obligations such as the Installment Purchase Agreement, and the
Installment Payments and the interest thereon payable under the Installment Purchase Agreement,will be
incurred and secured. The obligation of the District to make the Installment Payments, and payments of
interest thereon,and other payments required to be made by it under the Installment Purchase Agreement,
solely from Net Revenues,is absolute and unconditional,and until such time as the Installment Payments,
payments of interest thereon, and such other payments shall have been paid in full (or provision for the
payment thereof shall have been made pursuant to the Installment Purchase Agreement), the District has
covenanted that it will not discontinue or suspend any Installment Payments when due,whether or not the
Project or any part thereof is operating or operable or has been completed, or its use is suspended,
interfered with, reduced or curtailed or terminated in whole or in part, and such Installment Payments,
payments of interest thereon, and other payments shall not be subject to reduction whether offset or
otherwise and shall not be conditional upon the performance or nonperformance by any party of any
agreement or any cause whatsoever. The District's obligation to make Installment Payments from Net
Revenues is on a parity with the District's obligation to make payments with respect to its Outstanding
Senior Obligations. See'-Net Revenues"below. Pursuant to the Trust Agreement,the Corporation has
assigned to the Trustee for the benefit of the Owners of the Certificates substantially all of its rights,title
and interest in the Installment Purchase Agreement, including its right to receive Installment Payments
and the interest thereon.
The District has Senior Obligations Outstanding evidenced by six series of certificates of
participation and two related interest rate swap agreements, payable on a parity with the Installment
Payments under the Installment Purchase Agreement. The two interest rate swap agreements were
90198915.1 6
executed by the predecessor special districts in connection with the execution and delivery of certain
Outstanding Senior Certificates. The payments under these swap agreements are payable on a parity with
the Installment Payments under the Installment Purchase Agreement and other Senior Obligations, as
provided in the Master Agreement. See"FINANCIAL OBLIGATIONS—Existing Indebtedness"herein
and APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement"
attached hereto.
The obligation of the District to pay the Installment Payments,and the interest thereon, and other
payments required to be made by it under the Installment Purchase Agreement and Master Agreement, is
a special obligation of the District payable, in the manner provided in the Installment Purchase
Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase
Agreement, and does not constitute a debt of the District,the State or of any political subdivision thereof,
in contravention of any constitutional or statutory debt limitation or restriction. Neither the faith and
credit nor the taxing power of the District,the State or any political subdivision thereof, is pledged to the
payment of the Installment Payments, or the interest thereon, or other payments required to be made
under the Installment Purchase Agreement. The Installment Purchase Agreement constitutes a Senior
Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the
advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master
Agreement. See"SECURITY AND SOURCES OF PAYMENT FOR TBE CERTIFICATES"herein.
Net Revenues
The District is obligated to make Installment Payments solely from Net Revenues as provided in
the Master Agreement, which consist of Revenues remaining after payment of costs paid by the District
for maintaining and operating the Wastewater System ("Maintenance and Operation Costs"). Revenues
are defined in the Master Agreement to mean, for any period, all income and revenue received by the
District during such period from the operation or ownership of the Wastewater System, determined in
accordance with generally accepted accounting principles, including all fees and charges received during
such period for the services of the Wastewater System, investment income received during such period
(but only to the extent that such investment income is generally available to pay costs with respect to the
Wastewater System, including Maintenance and Operation Costs), Net Proceeds of business interruption
insurance received during such period,ad valorem taxes received during such period,payments under the
Agreement Acquiring Ownership Interests, Assigning Rights and Establishing Obligations, entered into
on February 13, 1986, and amendment No. I thereto dated December 10, 1986, by and between
predecessor County Sanitation District No. 14 of Orange County and the Wine Rench Water District(the
"IRWD Agreement") received during such period and all other money received during such period
howsoever derived by the District from the operation or ownership of the Wastewater System or arising
from the Wastewater System (including any standby or availability charges), but excluding (a)Capital
Facilities Capacity Charges, (b)payments received under Financial Contracts,and(c)refundable deposits
made to establish credit and advances or contributions in aid of construction (which, for purposes of the
Master Agreement, shall not include payments under the IRWD Agreement); provided, however, that
(i)Revenues shall be increased by the amounts, if any, transferred during such period from the Rate
Stabilisation Account to the Revenue Account and shall be decreased by the amounts, if any, transferred
during such period from the Revenue Account to the Rate Stabilisation Account,and(ii)Revenues shall
include Capital Facilities Capacity Charges collected during such period to the extent that such Capital
Facilities Capacity Charges could be properly expended on a Capital Facilities Capacity Charge Eligible
Project for which the proceeds of Subject Obligations were used or are available to be used. See
"DISTRICT REVENUES—Additional Revenues"herein.
The District's obligation to make the Installment Payments from its Net Revenues is on a parity
with the District's obligation to make payments with respect to its other outstanding obligations described
80199915.1
as Senior Obligations and all Reimbursement Obligations with respect to Senior Obligations,as provided
in the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as
such, is subject to the provisions of the Master Agreement and is afforded all of the advantages,benefits,
interests and security afforded Senior Obligations pursuant to the Master Agreement. Pursuant to the
Master Agreement, the District pledges all Net Revenues to the payment of the Senior Obligations and
Reimbursement Obligations with respect to Senior Obligations,and the Net Revenues will not be used for
any other purpose while any of the Senior Obligations or Reimbursement Obligations with respect to
Senior Obligations remain unpaid; provided however, that out of the Net Revenues there may be
apportioned such sums for such purposes as are expressly permitted by the Master Agreement. This
pledge constitutes a first lien on the Net Revenues for the payment of the Senior Obligations and
Reimbursement Obligations with respect to Senior Obligations. The term Senior Obligations, generally
means all revenue bonds or notes(including bond anticipation notes and commercial paper)of the District
authorized,executed,issued and delivered under and pursuant to applicable law,the Installment Purchase
Agreement and all other contracts (including financial contracts) or leases of the District authorized and
executed by the District under and pursuant to applicable law, the installment, lease or other payments
under which are,in accordance with the provisions of the Master Agreement,payable from Net Revenues
on a parity with the payments under the Master Agreement.
The District may at any time incur Subordinate Obligations payable on a subordinate basis to the
Installment Payments executed and delivered as provided in the Master Agreement; provided,however,
that prior to incurring such Subordinate Obligations,the District will have determined that the incurrence
thereof will not materially adversely affect the District's ability to comply with the requirements of the
Master Agreement. The District may at any time incur Reimbursement Obligations with respect to
Subordinate Obligations. For a description of the District's Outstanding Senior Obligations and
Subordinate Obligations, see "FINANCIAL OBLIGATIONS — Existing Indebtedness" herein. There
are currently no Subordinate Obligations or Reimbursement Obligations with respect to Subordinate
Obligations outstanding.
The District may, in connection with the incurrence of Subordinate Obligations, pledge Net
Revenues to the payment of Subordinate Obligations and Reimbursement Obligations with respect to
Subordinate Obligations; provided, however, that such pledge, and any lien created thereby, shall be
junior and subordinate to the pledge of, and lien on,Net Revenues for the payment of Senior Obligations
and Reimbursement Obligations with respect to Senior Obligations.
Rate Stabilization Account
To avoid fluctuations in its fees and charges of the Wastewater System, from time to time the
District may deposit in the Rate Stabilization Account from Net Revenues such amounts as the District
deems necessary or appropriate. From time to time, the District may also transfer moneys from the Rate
Stabilization Account to the Revenue Account to be used by the District,first to pay all Maintenance and
Operations Costs as and when the same shall be due and payable. In addition, any such amount
transferred from the Rate Stabilization Account to the Revenue Account by the District is included as
Revenues for any period, but such transferred amount is excluded from determining Operating Revenues
for any period. Revenues will be decreased by the amounts,if any,transferred from the Revenue Account
to the Rate Stabilization Account. There are presently no funds in the Rate Stabilization Account.
Allocation of Revenues
To carry out and effectuate the pledge of Net Revenues under the Master Agreement as described
above, the District agrees and covenants that all Operating Revenues received by the District will be
deposited when and as received in the Revenue Account. Additionally, amounts may,from time to time
$0199915.1 8
f
as the District deems necessary or appropriate, be transferred from the Rate Stabilization Account and
deposited in the Revenue Account, as described above under "— Rate Stabilization Account" The
District will pay from the Revenue Account all Maintenance and Operations Costs (including amounts
reasonably required to be set aside in contingency reserves for Maintenance and Operations Costs, the
payment of which is not immediately required)as and when the same shall be due and payable.
After having paid, or having made provisions for the payment of, Maintenance and Operations
Costs, the District shall set aside and deposit or transfer,as the case may be,from the Revenue Account
such amounts at such times as provided in the Master Agreement in the following order of priority:
(1) Senior Obligation Payment Account;
(2) Senior Obligation Reserve Funds;
(3) Subordinate Obligation Payment Account;
(4) Subordinate Obligation Reserve Funds;and
(5) Rate Stabilization Account.
Amounts required or permitted to be deposited or transferred as described in items 2, 3, 4 and 5
above, shall not be so deposited or transferred unless the District shall have determined that there will be
sufficient Net Revenues available to make the required deposits or transfers on the dates on which such
deposits or transfers are required to be made as described above. So long w the District has determined
that Net Revenues will be sufficient to make all of the deposits or transfers required to be made pursuant
to items 1, 2, 3, 4 and 5 above, on the dates on which such deposits or transfers are required to be made,
Net Revenues on deposit in the Revenue Account may from time to time be used for any purpose for
which the District funds may be legally applied. For additional information, we APPENDIX C —
"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Master Agreement."
Rate Covenant
Pursuant to the Master Agreement,the District will,to the extent permitted by law, fix,prescribe
and collect fees and charges for the services of the Wastewater System which will be at least sufficient to
yield during each Fiscal Year(a)Net Revenues equal to 125%of Debt Service on Senior Obligations for
such Fiscal Year and (b)Net Operating Revenues equal to 100% of Debt Service on all Obligations for
such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may
make such classification thereof as it deems necessary, but will not reduce the fees and charges then in
effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be
sufficient to meet the requirements of the Master Agreement.
In addition, the District has covenanted in the Master Agreement to prepare and adopt an annual
budget for the Wastewater System for each Fiscal Year. Such budget will set forth in reasonable detail
the Revenues anticipated to be derived in such Fiscal Year and the expenditures anticipated to be paid or
provided for therefrom in such Fiscal Year, including, without limitation,the amounts required to pay or
provide for the payment of the Obligations during such Fiscal Year, the amounts required to pay or
Provide for the payment of Maintenance and Operations Costs during such Fiscal Year and the amounts
required to pay or provide for the payment of all other claims or obligations required to be paid from
Revenues in such Fiscal Year, and will show that Revenues and Net Revenues will be at least sufficient to
satisfy the requirements of the Master Agreement. On or before September I of each Fiscal Year, the
District will file with the Trustee a copy of the adopted budget for such Fiscal Year. See APPENDIX C
80198915.1 9
— "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement' for additional
information.
Reserve Fund
The Trust Agreement provides for the funding of the Reserve Fund in an amount equal to the
"Reserve Requirement,"which is defined as an amount,as of any date of calculation,equal to the least of
(a) 10%of the original aggregate amount of principal evidenced by the Certificates(or if the amount of
original issue discount or premium applicable to the Certificates exceeds 2%,then 10%of the issue price
of the Certificates), (b)the maximum amount of remaining Installment Payments, and the interest
thereon, coming due in any one Certificate Year, and (c) 125% of the average amount of remaining
Installment Payments, and the interest thereon, coming due in each Certificate Year. Amounts in the
Reserve Fund may be used to pay principal and interest evidenced by the Certificates to the extent that
amounts in the Principal Account and interest Account are insufficient therefor. The Trustee shall
establish and maintain the Reserve Fund until all required Installment Payments,and the interest thereon,
are paid in full pursuant to the Installment Purchase Agreement and until the first date upon which no
Certificates are Outstanding. The Reserve Fund will be funded with a portion of the net proceeds of the
Certificate in the amount of S ,which amount is sufficient to satisfy the Reserve Requirement.
See"SOURCES AND USES OF PROCEEDS OF THE CERTIFICATES."
The District may substitute a Reserve Facility for all or a part of the moneys on deposit in the
Reserve Fund by depositing such Reserve Facility with the Trustee so long as, at the time of such
substitution, the amount on deposit in the Reserve Fund, together with the amount available under such
Reserve Facility and any previously substituted Reserve Facilities, shall be at least equal to the Reserve
Requirement. Moneys for which a Reserve Facility has been substituted as provided in the Trust
Agreement shall be transferred, at the election of the District, to the Installment Payment Fund, or upon
receipt of an Opinion of Counsel to the effect that such transfer, in and of itself, will not adversely affect
the exclusion of interest evidenced by the Certificates from gross income for federal income tax purposes,
to a special account to be held by the Trustee and applied to the payment of capital costs of the District,as
directed in a Written Request of the District. Any amounts paid pursuant to any Reserve Facility shall be
deposited in the Reserve Fund.
If a Reserve Facility is credited to the Reserve Fund to satisfy a portion of the Reserve
Requirement,the Trustee shall make a claim for payment under such Reserve Facility, in accordance with
the provisions thereof, in an amount which, together with other available moneys in the Reserve Fond,
will be sufficient to make said deposit in the Interest Account or Principal Account.
The moneys in the Reserve Fond, and any Reserve Facility, shall be held in trust by the Trustee
for the benefit of the Owners and shall be used and disbursed only for the purposes and uses authorized in
the Trust Agreement. Moneys,if any, on deposit in the Reserve Fund shall be withdrawn and applied by
the Trustee for the final payment of principal and interest evidenced by the Certificates.
Amounts on deposit in the Reserve Fund which were not derived from payments under any
Reserve Facility credited to the Reserve Fund to satisfy a portion of the Reserve Requirement shall be
used and withdrawn by the Trustee prior to using and withdrawing any amounts derived from payments
under any such Reserve Facility. In order to accomplish such use and withdrawal of such amounts not
derived from payments under any such Reserve Facility, the Trustee shall, as and to the extent necessary,
liquidate any investments purchased with such amounts. If and to the extent that more than one Reserve
Facility is credited to the Reserve Fund to satisfy a portion of the Reserve Requirement, drawings
thereunder,and repayment of expanses with respect thereto, shall be made on a pro-rata basis(calculated
by reference to the policy limits available thereunder).
80198915.1 10
The Trustee shall, from amounts received from the District pursuant to the Installment Purchase
Agreement, deposit in the Reserve Fund an amount of money which,together with the amount already on
deposit therein and the amounts available under all Reserve Facilities, will be equal to the Reserve
Requirement. No deposit need be made in the Reserve Fund so long as there shall be on deposit therein a
sum equal to the amount which, together with the amounts available under all Reserve Facilities, is at
least the Reserve Requirement. The Trustee shall promptly notify the District in writing if the amount on
deposit is less than the Reserve Requirement.
If, as a result of the scheduled payment of principal or interest evidenced by the Certificates, the
Reserve Requirement is reduced, the Trustee shall transfer an amount equal to the amount of such
reduction to the Installment Payment Fond. See APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL
DOCUMENTS—Trust Agreement."
Limitations on Issuance of Additional Obligations
Senior Obligations. The District may at any time incur Senior Obligations in addition to the
Existing Senior Obligations payable from Net Revenues as provided in the Master Agreement on a parity
with all other Senior Obligations theretofore incurred but only subject to the following conditions under
the Master Agreement:
(1) Upon the incurrence of such Senior Obligations, no Event of Default will be continuing
under the Master Agreement;and
(2) Subject to the provisions of the Master Agreement,the District will have received either
one of the following:
(i) A Written Certificate of the District certifying that, for a 12 consecutive calendar
month period during the 24 consecutive calendar month period ending in the
calendar month prior to the incurrence of such Senior Obligations (which 12
consecutive calendar month period will be specified in such certificate or
certificates):
(A) Net Revenues,as shown by the books of the District,will have amounted
to at least 125% of Maximum Annual Debt Service on all Senior
Obligations to be outstanding immediately after the incurrence of such
Senior Obligations,and
(B) Net Operating Revenues,as shown by the books of the District,will have
amounted to at least 100% of Maximum Annual Debt Service on all
Obligations to be outstanding immediately after the incurrence of such
Senior Obligations.
For purposes of demonstrating compliance with the foregoing,Net Revenues and
Net Operating Revenues may be adjusted for(x)any changes in fees and charges
for the services of the Wastewater System which have been adopted and are in
effect on the date such Senior Obligations are incurred, but which, during all or
any part of such 12 consecutive calendar month period, were not in effect,
(y)customers added to the Wastewater System subsequent to such 12
consecutive calendar month period but prior to the date such Senior Obligations
are incurred, and (z) the estimated change in available Net Revenues and Net
Operating Revenues which will result from the connection of existing residences
80198915.1 11
or businesses to the Wastewater System within one year following completion of
any project to be funded or any system to be acquired from the proceeds of such
Senior Obligations;or
(ii) A certificate or certificates from one or more Consultants which, when taken
together, project that, for each of the two Fiscal Years next succeeding the
incurrence of such Senior Obligations:
(A) Net Revenues will amount to at least 125% of Maximum Annual Debt
Service on all Senior Obligations to be outstanding immediately after the
incurrence of such Senior Obligations,and
(B) Net Operating Revenues will amount to at least 100% of Maximum
Annual Debt Service on all Obligations to be outstanding immediately
after the incurrence of such Senior Obligations.
For purposes of demonstrating compliance with the foregoing,Net Revenues and
Net Operating Revenues may be adjusted for(z)any changes in fees and charges
for the services of the Wastewater System which have been adopted and are in
effect on the date such Senior Obligations are incurred or will go into effect prior
to the end of such two Fiscal Year period,(y)customers expected to be added to
the Wastewater System prior to the and of such two Fiscal Year period, and (z)
the estimated change in available Net Revenues and Net Operating Revenues
which will result from the connection of existing residences or businesses to the
Wastewater System within one year following completion of any project to be
funded or any system to be acquired from the proceeds of such Senior
Obligations. For purposes of preparing the certificate or certificates described
above,the Consultant may rely upon financial statements prepared by the District
that have not been subject to audit by an independent certified public accountant
if audited financial statements for the period are not available.
See, also "FINANCIAL OBLIGATIONS — Existing Indebtedness" herein. The provisions
described above in paragraph (2)need not be complied with if the Senior Obligations being incurred are
Short-Term Obligations excluded from the calculation of Assumed Debt Service pursuant to clause(F)of
the definition thereof See APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS —
Defmitions"herein.
The determination of Net Revenues for use in the calculation described above is more fully
described in APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master
Agreement—Senior Obligations" attached hereto. The provisions described in paragraph(2) above need
not be complied with for such portion of such Senior Obligations incurred for the purpose of providing
£ands to refund or refinance such Obligations if(i)a portion(which may be alp of the Senior Obligations
are incurred for the purpose of providing funds to refund or refinance any Obligations, (ii)upon such
refunding or refinancing, debt service on such refunded or refinanced Obligations, or debt service on
bonds,notes or other obligations of an entity other than the District,the debt service on which is payable
from Obligation Payments for such Obligations(the"Related Bonds"),will no longer be included in the
calculation of Assumed Debt Service either because such Obligations, or the Related Bonds of such
Obligations,will have been paid in full or because such debt service is disregarded pursuant to clause(L)
of the definition of Assumed Debt Service, and (iii)Assumed Debt Service in each Fiscal Year for the
portion of such Senior Obligations incurred for the purpose of providing funds to refund or refinance such
Obligations is less than or equal to 105% of Assumed Debt Service in such Fiscal Year for such
80198915.1 12
Obligations being refunded or refinanced (assuming for such purposes that debt service on such refunded
or refinanced Obligations, or debt service on the Related Bonds of such Obligations, is not disregarded
pursuant to clause (L) of the definition of Assumed Debt Service). See APPENDIX C— "SUMMARY
OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement' attached hereto for additional
information.
The District may at my time incur Reimbursement Obligations with respect to Senior
Obligations.
Subordinate Obligations. The District may at any time incur Subordinate Obligations upon
satisfaction of the conditions provided in the Master Agreement. See APPENDIX C—"SUMMARY OF
PRINCIPAL LEGAL DOCUMENTS—Master Agreement'herein for a description of such conditions.
Insurance
The District will procure and maintain or cause to be procured and maintained casualty insurance
on the Wastewater System with responsible insurers,or provide self insurance(which may be provided in
the forth of risk-sharing pools), in such amounts and against such risks (including accident to or
destruction of the Wastewater System) as are usually covered in connection with facilities similar to the
Wastewater System. The District will procure and maintain such other insurance which it will deem
advisable or necessary to protect its interests and the interests of the Corporation. See "THE DISTRICT
—Risk Management' and APPENDIX C— "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—
Master Agreement'herein.
Allocation of Installment Payments
Table 1 below sets forth the scheduled Installment Payments with respect to the Certificates.
Also set forth are the payments due on Outstanding Senior Obligations.
80198915.1 13
i
Table 1
Estimated Installment Payments of the District
Fiscal Installment Payments Outstanding Senior
Year Relating to Certificates Oblization PavmeMa
Ending
ne30 Principal Interest Principal Interest('1 Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2029
2029
2030
2031
2032
2033
2034
2035
2036
2037
Total
Ass�annum interest rate of 3.75%for all un-hedged variable rate obligations and actual swap rates for
swapped variable rate obligations. See "FINANCIAL OBLIGATIONS — Existing Indebtedness" and
APPENDIX A — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY
SANITATION DISTRICT FOR FISCAL YEAR ENDED TUNE 30,2007"herein.
THE DISTRICT
Background
The Orange County Sanitation District is a public agency responsible for regional wastewater
collection, treatment and disposal. The District is the sixth largest wastewater discharger in the United
States. The District provides service to an area with a population of approximately 2.5 million people in
the northern and central portion of the County by treating 229 mg/d of wastewater in Fiscal Year 2006-07.
80198915.1 14
The District serves approximately 81% of the County population in approximately 479 square miles, or
59%of the County.
The service area which comprises the District was originally formed in 1954 pursuant to the
County Sanitation District Act, as amended, Section 4700 at seq. of the Health and Safety Code of the
State. The District's service area originally consisted of seven independent special districts in the County
which were each responsible for matters relating to their individual districts. These special districts were
jointly responsible for the treatment and disposal facilities which they each used. The seven independent
districts were successors to the Joint Outfall Sewer Organization, which was formed in 1923 among the
Cities of Anaheim, Santa Ana, Fullerton,and Orange, and the sanitary districts of Placentia, Buena Park,
La Habra, and Garden Grove. The Joint Outfall Sewer Organization constructed a treatment plant and
outfall in the early 1920's to serve its members. It was reorganized in 1947 and 1948 into seven county
sanitation districts - District Nos. 1, 2, 3, 5, 6, 7 and 11. These prior districts were formed based on
engineers' analyses of the gravity flows in the service area. District No. 13 was formed in 1985 and
District No. 14 was added in 1986. These districts were co-participants in a Joint Agreement which
provided for thejoint construction,ownership,and operation of the prior districts'joint facilities.
In April 1998, at the request of the District's Board of Directors (the "Board of Directors'), the
Board of Supervisors of the County of Orange (the "County Board") passed Resolution No. 98-140
approving the consolidation of the than existing nine special districts into a new, single sanitation district,
to be known as the Orange County Sanitation District This action was designed to simplify govemance
structures, reduce the size of the Board of Directors, ease administrative processes, streamline decision-
making and consolidate accounting and auditing processes. The consolidation was effective on July 1,
1998.
Pursuant to the Resolution and Government Code Section 57500, the prior districts transferred
and assigned all of their powers, rights, duties, obligations, functions and properties to the District' and
the District assumed all obligations of the prior districts which were several and not joint including,
without limitation, them obligations to repay the than outstanding certificates of participation. See
"FINANCIAL OBLIGATIONS—Existing Indebtedness"herein. The boundaries of the nine predecessor
special districts were initially used by the District to delineate separate revenue areas (the "Revenue
Areas") for budgeting and accounting purposes and in order to facilitate the imposition of fees and
charges imposed by the District. See"DISTRICT REVENUES—Sewer Service Charges"herein.
The District is managed by the Board of Directors,whose members are appointed by twenty-five
member cities and agencies which are serviced by the District. The District is responsible for
construction and maintenance of a major portion of the wastewater collection, treatment and disposal
facilities within its boundaries. Revenue Area No. 7 is responsible for approximately 152 miles of local
sewers in its service area, whereas local sanitary districts, water districts and cities are responsible for
local sewers in the remainder of the District's service area.
Organization and Administration
The District is independent of and overlaps other political jurisdictions. There sure: many
governmental entities,including the County,that operate within the District's jurisdiction. These entities
are exclusively responsible fm the administration of their own fiscal affairs,and the District is not entitled
to operating surpluses of,or responsible for operating deficits of,any of the other entities.
The twenty-five member Board of Directors is comprised of representatives from twenty-one
cities, unincorporated areas of the County and three special districts,including mayors of cities,members
of city councils, directors of independent special districts and one member from the County Board.
90198915.1 15
Several board committees, made up of members of the Board of Directors, consider topics for action by
the Board of Directors and make recommendations to the Board of Directors. The Chair and the Vice
Chair of the Board of Directors are elected every year by a majority of the Board of Directors,and serve
at the pleasure of the majority of the Board of Directors.
The District has a general manager, general counsel, administrative and operating staff, with
offices located at Reclamation Plant No. 1 in Fountain Valley, California. The District currently employs
an administrative and operating staff of over 600 under the direction of its General Manager, James D.
Ruth.
James D. Ruth is the District's General Manager, and has served in that capacity since
December 2005. Prior to that time, from January 2003 to October 2004, Mr. Ruth served as Chief
Executive Officer for the County of Orange. Mr. Ruth had previously provided 22 years of service to the
city of Anaheim as parks and recreation director, deputy city manager, assistant city manager and chief
executive officer, a post he held for I 1 years.
Robert P. Ghirelli, Ph.D. is the District's Assistant General Manager, and has served in that
capacity since July 2006. Mr. Ghirelli previously served as Director of Technical Services for the District
since his joining the District in 1998. Prior to joining the District,Mr. Ghirelli served for just over a year
as managing principal of the Los Angeles office of a national environmental consulting firm, served 20
years in supervisory positions with the State and Regional Water Boards,with 13 years Executive Officer
of the California Regional Water Quality Control Board,Los AngelesNentura Region.
Lorenzo Tyner is the District's Director of Finance and Administrative Services. In
September 2005, Mr. Tyner joined the District with nearly 15 years of public finance and budgeting
experience,most recently serving as the Los Angeles Unified School District Budget Director and Deputy
Chief Financial Officer. Mr. Tyner previously worked in large government organizations including the
City of Los Angeles and the Los Angeles County Metropolitan Transportation Authority and private
sector companies IBM Global Services and Northrop.
James Herberg, P.E. is the District's Director of Engineering, and has served in that capacity
since November 2006. Prior to becoming Director of Engineering, he was the District's Director of
Operations and Maintenance. Mr. Herberg has over twenty years of experience in water and wastewater
including project management, construction management, design, strategic planning, and operations &
maintenance.
Ed Torres is the District's Director of Technical Services for the District. He has served in this
position since November 2006. Prior to joining the District in 1991, Mr. Tortes served in a professional
capacity for the California State University System and TRW Electronics and Defense Sector. Mr.Torres
has twenty-four years of public and private sector experience in protecting public health and the
environment.
Nick Arhontes, P.E. is the District's Director of Operations and Maintenance and has served the
District since 1988. Mr. Arhontes has over 30 years of experience managing various engineered systems
in the private and public sectors regionally,nationally,and internationally.
Services
The District owns and operates regional wastewater collection, treatment, and disposal facilities
for the metropolitan area in the northern and central portion of the County. The District receives
80198915.1 16
wastewater from the collection systems of the cities, sanitary districts and unincorporated areas of the
County located within the District. See"THE DISTRICT—Service Areas"herein.
Generally, local agency systems collect wastewater from residential and industrial customers and
convey the wastewater to District trunk sewer pipelines for conveyance to the District's wastewater
treatment plants.
The District's staff is responsible for operating and maintaining the District's infrastructure,
although some operations are provided by external contractors.
Currently, the District has established supply contracts for all chemicals necessary to the
operation and maintenance of the facilities of the District. The District has sufficient standby systems in
the event of equipment failures or system outages.
Service Area
The map on the first page of this Official Statement shows the District's boundaries and selected
cities located within the District. District boundaries were originally established in 1947 and 1948 based
on drainage basins. As the existing cities have grown and new areas have incorporated,city limits have
come to overlap District boundaries. The District currently serves an approximately 471 square-mile area
including 23 of the County's 33 cities and unincorporated areas of the County. The District serves a
population of approximately 2.5 million residents and owns sanitary sewerage facilities with a
replacement value of approximately$5.56 billion.
90198915.1 17
Table 2 below sets forth the estimated populations of cities and unincorporated areas served by
the District as of June 30,2007.
Table 2
Estimated Populations of Cities and Unincorporated Areas
Served by the Orange County Sanitation District
As of June 30,2007
Citv Population
Anaheim 345,560
Brea 39,870
Buena Park 82,450
Costa Mesa 113,810
Cypress 49,280
Fountain Valley 57,740
Fullerton 137,370
Garden Grove 172,780
Huntington Beach 202,250
Wine 202,080
La Habra 62,480
La Palma 16,160
Los Alamitos 12,150
Newport Beach 84,220
Orange 138,640
Placentia 51,600
Santa Ana 353,430
Seal Beach 25,960
Stanton 38,980
Tustin 70,350
Villa Park 6,250
Westminster 92,870
Yorba Linda 67,900
Cities Subtotal(') 2,424,180
Unincorporated Areas(" 81,000
Total 2,505,180
Sources:— State Celifomin Department of Finance,Demographic Research Unit and
(t)Orange County Sanitation District.
Employees
As of June 30,2007,the District had 634 full-time equivalent C FTE")staff positions. Most of the
employees who occupy these positions are represented by recognized employee organizations, which
include the following:the Orange County Employees Association ("OCEA"), the International Union of
Operating Engineers-Local 501 ("Local 501"), the Supervisor Group, and the Professional Group. As
of October 1, 2007,the District had 591 represented and non-represented employees. Total represented
employees as of October 1,2007 numbered 535,as follows: 99 were represented by the OCEA, 196 were
represented by Local 501 and 240 were represented by the Supervisor and Professional Groups. New
agreements with each of these employee organizations took effect on July 1,2007. The OCEA and Local
80199915.1 18
501 agreements are in effect through June 30, 2011; the Supervisor and Professional Group agreements
are in effect through June 30,2010. The OCEA has represented administrative/clerical,technical services
and engineering employees since 1979. Local 501 has represented operations and maintenance
employees since October 1985. The Supervisor and professional Groups have represented supervisory
and professional employees since 1991. The District has historically enjoyed a good working relationship
with the employee organizations and has experienced no work stoppages by represented personnel in the
past.
For a description of the Orange County Employee's Retirement System, in which the District
participates, and the District's deferred compensation plan, see "Retirement Plan" below and Note 7 to
the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year
Ended June 30,2007, set forth in Appendix A.
Retirement Plan
The District participates in the Orange County Employee's Retirement System ("OCERS"), a
cost-sharing multiple-employer, defined benefit pension plan which is governed and administered by a
nine-member Board of Retirement. OCERS was established in 1945 under the provisions of the County
Employees Retirement Lew of 1937,and provides members with retirement,death,disability,and cost of-
living benefits.
All District full-time employees participate in OCERS. The amount of the retirement allowance
is based upon the member's age at retirement, the member's "final compensation" as defined in
Section 31462 of the Retirement Law of 1937, the total years of service under OCERS, and the
employee's classification as a Tier 1 or Tier 11 member. As of July 1, 2006, the formula to calculate
retirement benefits was enhanced to 2.5%at age 55,or employees retiring at age 55 or older receive 2.5%
of thew average salary for every year of service. Average salary is the highest consecutive 12 months of
compensation for Tier 1 employees and the highest consecutive 36 months of compensation divided by
three for Tier II employees. Benefits fully vest under the OCERS retirement plan on reaching five years
of service. Employees who retire at or after age 50 with ten or more years of service are entitled to an
annual retirement allowance. OCERS also provides death and disability benefits.
As a condition of participation under the provisions of the County Employees Retirement Law of
1937, members are required to contribute a percentage of their annual compensation to OCERS. The
District is required to make periodic contributions to OCERS in amounts that are estimated to remain a
constant percentage of covered employees' compensation such that, when combined with covered
employees' contributions,will fully provide for all covered employees' benefits by the time they retire.
A current comparison of OCERS costs for Fiscal Years 2002-03 through 2006.07 and projected
costs for Fiscal Years 2007-08 through 2008-09 is shown in the following table.
80199915.1 19
Table 3
Orange County Sanitation District
Comparison of OCERS Costs for Fiscal Years 2002-03 through 2NS-09
Fiscal Year Rate"' Cost•')
2002-03 5.50% $ 1,943,056
2003-04 9.15 3,668,650
2004-05 12.37 5,524,673
2005-06 15.21 7,416,556
2006-07 19.78 9,848,854
2007-08t31 20.87 11,724,637
2008-09tr1 21.34 12,275,695
Regm uved contribution as a percent of covered payroll. Includes amortization of Unfunded Accrued Actuarial
Liability.
rr1 Amounts represents employer contributions made by the District.
tr1 Projected.
For Fiscal Years 2002-03 through 2005-06, the District's required contribution was equal to the
contribution that the District actually made. As noted,the required contribution set forth above includes
amortiration of Unfunded Accrued Actuarial Liability ("UAAL:'). For the fiscal year ended June 30,
2007, total payroll costs of employees covered by OCERS was $49,788,835. As of the December 31,
2006 valuation,OCERS has an aggregate UAAL ratio of 73.8%,for a total UAAL of$2.29 billion.
For more information regarding OCERS and the District's retirement plan as of Jane 30, 2007,
we Note 7 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for
Fiscal Year Ended June 30,2007 set forth in Appendix A. The Comprehensive Annual Financial Reports
of the Orange County Employees Retirement System are available on the OCERS website at
http:Ilw .omrs.org. The information on such website is not incorporated herein by such reference or
otherwise.
Other Post-Employment Benefits
The Governmental Accounting Standards Board ("GASB') in April 2004 issued Statement No.
43, which requires state and local governmental employers to determine, on an actuarial basis, the total
liability of post-employment benefits other than pension benefits (known as other post-employment
benefits or "OPEB"), including healthcare and life insurance expenses and related liabilities, and an
annual required contribution to fund such liabilities. In June 2004, GASB issued Statement No. 45,
which requires state and local governmental employers to fund the actuarially determined annual required
contribution ("ARC") for its OPEB or record the entire amount of the unfunded liability of its OPEB in
its financial statements. The District was required to implement GASB Statement No. 43 by June 30,
2007,and is required to implement GASB Statement No.45 by June 30,2008.
The District's OPEB program currently includes medical and prescription drug benefits and a
program of cash payments, known as Additional Retiree Benefit Account ("ARBA") benefits. Benefits
vest upon retirement after qualifying public service of 10 years. Most of the District's retirees under the
age of 65 am covered under the same medical and prescription drug plans as active employees of the
District,but an additional retiree-only fee for service plan called"Blue Card"is also available.
90198915.1 20
According to the District's actuary, Demsey Filliger Associates (the "Actuary"), the unfunded
OPEB liability as of July 1, 2007 is approximately$17.4 million. The ARC is$1,763,605 for fiscal year
2007-08. Calculation of the ARC is based on the present value of benefits accruing in the current year,a
30-year amortization of the unfunded OPEB liability and an assumed rate of return on investments in the
retiree fund of 5%per arum.
The Actuary has proposed various methods of funding the District's future OPEB liability and the
District is presently considering such proposed alternatives. The District does not believe that its OPEB
liability will have a material impact on its operational results.
Risk Management
As of the date hereof, the District has in force basic all risk property and casualty insurance,
including theft, fire, flood, terrorism and boiler and machinery losses to the Wastewater System. The
District is self-insured for portions of workers' compensation,property damage and general liability. The
self-insurance portion of workers' compensation is $500,000 per person per occurrence with outside
excess insurance coverage to $300 million. The self-insured portion for property damage covering fire
and other disasters is $25,000 per occurrence with outside excess insurance coverage to $1 billion. The
self-insured portion for property damage covering flood is$100,000 per occurrence with outside excess
insurance coverage to$300 million. The District is self-insured for all property damage from the perils of
earthquakes. See "DISTRICT REVENUES — Reserves." The District also maintains outside
comprehensive boiler and machinery insurance, including business interruption insurance, with a $100
million limit with deductibles ranging from $25,000 to $350,000. The District is substantially self-
insured for general liability coverage with a $250,000 self-insured deductible, but has excess general
liability coverage to $25 million.
During the past three fiscal years there have been no settlements in excess of covered amounts.
Claims against the District are processed by outside insurance administrators. The District believes that
there are no unrecorded claims as of October 1,2007 that would materially affect the financial position of
the District.
For more information regarding the District's insurance cevemge as of June 30,2007, see Note I
to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year
Ended June 30,2007 set forth in Appendix A.
Existing Facilities
The District's Wastewater System presently consists of two wastewater treatment plants, an
influent metering and diversion structure, 16 pump stations, various interplant pipelines and connections,
and the ocean outfell facilities. The District's Wastewater System includes approximately 584 miles of
sewers within 12 trunk sewer systems, 152 miles of local sewers located within Revenue Area No. 7,two
treatment plants, two discharge outfalls and two emergency weir outlets. The existing treatment plants
have a rated primary treatment capacity of 366 million gallons per day,including standby capacity.
Treatment Plant No. 1 ("Plant No. 1")is located in the City of Fountain Valley,about four miles
from the coast, adjacent to the Santa Ana River. Secondary treatment capabilities are provided by a
trickling filter plant and a conventional air activated sludge plant. Up to 15 million gallons per day
("mg/d") of secondary treated effluent is conveyed to an Orange County Water District (the "OCWD")
Plant for tertiary treatment prior to ground water recharge.
80199915.1 21
Treatment Plant No. 2("Plant No. 2")is located in the City of Huntington Beach, 1,500 feet from
the ocean,at the mouth of the Santa Ana River. Secondary treatment capabilities are provided by a pure
oxygen activated sludge plant.
The District employs several phases in the treatment of wastewater. The first phase,preliminary
treatment,removes debris such as eggshells, send and biodegradable items. See also"Preferred Level of
Treatment" and "Biosolids Management" below. In the next phase, primary treatment, wastewater is
pumped to large settling basins. The liquids are separated from the remaining solids which settle or float
as the wastewater passes through large settling basins called clarifiers. The settled solids are sent to solids
treatment facilities. Approximately half of the primary treated wastewater flows into the ocean outfall
pumping station where it is blended with secondary treated wastewater before being discharged into the
ocean. The other half is sent to secondary treatment for further processing. During secondary treatment,
the wastewater is placed in aeration basins to which naturally occurring bacteria are added to remove
most of the remaining dissolved and suspended microscopic organic solids. The treated wastewater from
both plants is mixed together at Plant No. 2, where it is then pumped through the ocean outfall pipe that
extends five miles offshore.
Table 4 below sets forth the treatment plants' approximate current and future treatment capacities.
Table 4
Wastewater System Treatment Capacities
(MG/D)
2006-07 Existing Primary Total Planned
Actual Treatment Existing Secondary Secondary
Flows Canacity Treatment Capacity Capacity1n
Plant No. 1 90 198 110 170
Plant No. 2 139 168 90 150
Aggregate Treatment 229 366 200 320
Plant Facilities
The D� istrices"Planned Total Capacity" is based on the Strategic Plan for planned capacity by 2020, which
estimated the District's requirements to meet future expected primary and secondary capacity demands.
The District has the capability to divert a portion of the influent flow from Plant No. 1 to Plant
No.2 through interplant connections. A portion of the flow destined for Plant No.2 can also be diverted
to Plant No. 1. The treated wastewater from Plant No. 1 flows by gravity to the outfall system through
interconnecting lines. The combined Plant No. 1 and Plant No. 2 effluent is then pumped through a
120-inch diameter ocean outfall which is approximately five miles long. The last mile of the outfall pipe
is a diffuser that dilutes the wastewater with seawater in a ratio of 148 parts seawater to one pan treated
wastewater at an average depth of 185 feet. The 120-inch outfall has a capacity of 480 million gallons per
day at high tide. A smaller 78-inch diameter outfall that terminates at a shallower depth is still
maintained, although it is reserved for use in emergencies. This smaller outfall is estimated to have a
capacity of approximately 230 million gallons a day. There is an interplant gas pipeline between Plant
No. 1 and Plant No.2 which allows digester gas(which is used as fuel for many of the facilities' engines)
from one plant to be used at the other to balance the supply and demand, which results in efficient gas
utilisation.
80198915.1 22
Permits,Licenses and Other Regulations
The Wastewater System is subject to regulations imposed by the 1972 Clean Water Act, Public
Law 92-500 (the "Clean Water Act"), the California Environmental Quality Act of 1970, as amended
("CEQA") and the Federal Clean Air Act. The regulatory requirements are administered by the United
States Environmental Protection Agency(the"EPA")and the California Regional Water Quality Control
Board("RWQCB"). Regulations of these agencies deal primarily with the quality of effluent which may
be discharged from the treatment plants and the nature of waste material discharged into the collection
system. The Clean Water Act directs the EPA to monitor and to regulate the discharge of pollution into
navigable waterways and to enforce the requirements that all wastewater treatment plants in the nation
provide full secondary treatment for sewage. In 1977, Congress amended the Clean Water Act to allow
waivers of secondary treatment standards for certain ocean dischargers if they can demonstrate, to the
satisfaction of the EPA, that significant adverse environmental impacts would not occur. The District
currently has all applicable permits and licenses necessary to operate its facilities.
The District has discharged treated wastewater into the Pacific Ocean under a permit issued by
the EPA and the RWQCB. The discharge permit included a waiver under the 301(h) provisions of the
Clean Water Act, allowing for less than full secondary treatment based on an ocean discharge of
sufficient depth, distance and dilution. The permit was initially issued in 1985 and was the first modified
Section 301(h) permit issued to a major wastewater treatment facility. The District's permit, which
included the Section 301(h)waiver of secondary treatment requirements,was issued on May 6, 1998 and
expired on June 8,2003.
In July 2002, the Board of Directors approved a change from the existing level of treatment, a
blend of 50 percent advanced primary and 50 percent secondary treated wastewater, to full secondary
treatment standards. See "Preferred Level of Treatment" and "Urban Runoff' below. As a result, the
District established a policy to subject all wastewater discharges into the ocean to secondary treatment
standards. See "Preferred Level of Treatment" below. To implement this policy, District staff was
directed to immediately proceed with the planning,design,and implementation of treatment methods with
the expressed purposes of eliminating the need for the permit wavier received under Section 301(h).
Following determination by the Board of Directors in July 2002 to implement full secondary
standards, staff prepared the Secondary Treatment National Pollutant Discharge Elimination System
("NPDES") Permit Application that was required to be submitted to the regional office of the EPA and
the RWQCB in December2002. The NPDES Permit is separate and apart from the permit waiver
received under Section 301(h), and once awarded would negate any necessary waiver. Achieving
secondary treatment standards will take approximately 6 years to complete, with completion expected in
December 2012. But ocean discharge permits are issued for 5 years, and the EPA has no authority to
waive the discharge limits requirements or grant a longer permit(except per Sec. 301(h)). The alternative
was to voluntarily seek a consent decree concurrently with the issuance of the new ocean discharge
permit. This negotiated consent decree(the"Consent Decree")approves the schedule and decrees that no
penalties will be imposed for discharges that exceed the secondary treatment limits during the period of
construction. The Consent Decree was signed by the District, EPA, and the RWQCB and filed with the
U.S. District Court on November 15, 2004. The District is in compliance with the decree and has
successfully completed three of the seven milestones within the specified time deadline required by the
decree.
The South Coast Air Quality Management District ("AQMD") is the regional governmental
agency charged with implementing the Federal Clam Air Act. AQMD permits me required before a
sewage treatment improvement project can be constructed. Such permits are project specific and contain
construction process requirements, required equipment and standards for predicted air quality. After
80199915.1 23
construction is completed,the AQMD issues an operation permit. These permits are also project specific
and contain air quality standards and other appropriate operational guidelines. Most of the District's
facilities are enclosed in order to trap emissions,which are cleaned by air scrubbers that remove odors. In
addition,the District has implemented an air quality risk reduction program which includes a twenty-year
Plan to improve treatment plant operations and reduce industrial toxic pollutants. The District currently
has all necessary AQMD permits to operate the Wastewater System.
Capital Improvement Program
The Master Plan. The District's 1989 master plan consisted of a 30-year plan of action for
managing wastewater activities to the year 2020, entitled "2020 Vision, Action Plan for Wastewater
Management and Environmental Protection 1990-2020"(the"Master Plan"). The Master Plan integrated
research facilities planning, environmental analysis, toxic control, water conservation and reclamation,
sludge reuse, other wastewater programs and financial planning into a single unified approach. In
connection with the preparation of the Master Plan,an in-depth land use study was performed,resulting in
the creation of a uniform land use classification system and a map of the District's service area. Land use
designations and unit flow factors were used to project wastewater flows in the District's trunk sewers for
then present conditions, through the year 2020. These flows were included in a computer model of the
District's Wastewater System which identified future sewer capacity improvements. A thirty-year capital
improvement program was developed to implement the required sewer capacity improvements. This land
use study included the collection and compilation of the latest available land use plans,reports,maps and
studies from the cities within the District and the County, and interviews with the planning directors or
key staff within the District. Land use planning within the District's service area is the responsibility of
the County for unincorporated areas and cities for areas within thew boundaries. The California Coastal
Commission has some land use authority within the District's coastal areas.
The Strategic Plan. In October 1999,the District updated the Master Plan with a strategic plan
(the "Strategic Plan"). The Strategic Plan updated the planning process set forth in the Master Plan
through the year 2020 and defined the District's goals, responsibilities, and requirements over the then
following twenty years, including projections through the assumed "build-out" of the District's service
area to the year 2050. In addition to updating the population and flow assumptions, the Strategic Plan
provided for an operations and financial plan, including a review of the collection,treatment and disposal
facilities, and the District's ocean outfalls. Studies on a preferred level of wastewater treatment and in-
sourcing of the ocean monitoring program were prepared and incorporated in the Strategic Plan. Water
and air regulatory agencies require that all wastewater facilities be designed to meet the needs of
anticipated growth and provide a reasonable reserve capacity. With the adoption of the Strategic Plan,the
District's planning process met these requirements by shifting its approach for the development of master
plans from a"size and build"approach to a broad-based multi-agency cooperative evaluation process.
Many of the assumptions used to develop the Strategic Plan, such as inflation, the projected
service population, the level of building activity, and the volume of wastewater treated, were quite
different from what was assumed ten years earlier under the Master Plan. Critical factors such as
population growth, new construction, the volume of wastewater delivered to the plants and viable water
conservation and reclamation programs were reevaluated.
interim Strategic Plan. In June 2002, an Interim Strategic Plan Update (the "Interim Strategic
Plan")was completed to further update and revise many of the assumptions used to develop the District's
previous planning documents,including population and land-use projections,the level of building activity
in the District's service area and the volume of wastewater to be treated. The Interim Strategic Plan also
provides for an operations and financial plan including a review of the District's collection,treatment and
80198915.1 24
disposal facilities,and a study of the District's ocean outfall system. In addition,potential changes in the
regulatory climate for the beneficial reuse of bicsolids were also considered.
On July 17, 2002, the Board of Directors approved Resolution No. OCSD-14, "Establishing the
Policy for Level of Treatment of Wastewater Discharged into the Ocean." This resolution established the
District's policy to treat all wastewater discharges into the ocean to secondary treatment standards thereby
providing for continued public safety,marine ecosystem protection, and water reclamation opportunities.
To implement this policy, the District staff was directed to immediately proceed with the planning,
design, and implementation of treatment methods that will allow the agency to meet Clean Water Act
secondary treatment standards. The District currently estimates that it will take 5 years (through
December 2012) and additional capital improvement costs of$539 million to mach secondary treatment
discharge standards. In the interim, the District will operate the plants to maximize available secondary
treatment and to reduce effluent biochemical oxygen demand and suspended solid discharges below
currently allowed limits. The current 50 percent secondary portion will increase incrementally as
operations change and new facilities are constructed and placed in service. See "Preferred Level of
Treatment"below.
The District's planning process for development of the Interim Strategic Plan incorporated an
analysis of population growth, dry weather and peak wet weather flows and the maximum use of existing
facilities. The population of the District's service area was projected to grow to 2.7 million by the year
2020. Average flow rates at both treatment plants were projected to increase to 278 million gallons a day
by 2020(134 million gallons a day of treatment at Plant No. 1 and 144 million gallons a day at Plant No.
2),up 15%from the Fiscal Year 2005-06 flow.
In combination with the Interim Strategic Plan, the District developed its current Capital
Improvement Program ("CIP"). The District expects to meet future demands on the Wastewater System
through the CIP. This program has been developed to satisfy anticipated regulatory requirements,
increased population, additional treatment requirements, conservation, energy and other resource savings
considerations, odor control improvements, and air quality protection needs. Through 2020,the District's
CIP is scheduled to accomplish:
• Major rehabilitation of the existing headworks, primary treatment, secondary treatment,
outfall pumping, and solids handling facilities at both treatment plants;
• Replace and rehabilitate 16 of the District's outlying pumping stations, and 44 trunk
sewer improvement projects;
• Fund cooperative projects to help cities upgrade their sewer systems;
• Disinfect the District's ocean discharge to reduce bacterial levels below State bathing
standards;
• Reclaim 70 millions of gallons per day of the District's effluent,or nearly one-third of the
total daily flow(Groundwater Replenishment System);and
• Achieve full secondary treatment standards.
CIP Validation Study. In preparation of each year's Budget,the District conducts an Annual CIP
Validation Study to ensure that the scopes of the projects were necessary, and that the cost estimates were
accurate. As a result of the completion of the CIP Validation Study and the Secondary Treatment Peer
Review in Match 2007, a revised CIP was further developed to meet secondary treatment standards as
8019a915.1 25
quickly as possible while providing for increased flows and rehabilitation and refurbishment of existing
facilities. As identified within the Interim Strategic Plan, and verified through the CIP Validation Study
and Secondary Treatment Review,$538 million of additional capital improvements over the next 5 years
(through December 2012)are needed to reach full secondary standards.
The CIP Validation Study resulted in a revised CIP consisting of 107 large capital projects
managed by the Engineering Department through 2020-21 at a total cost of$2.3 billion, approximately
$750 million of which has been spent to date. The bulk of construction is scheduled during the next ten
years, with average annual expenditures of nearly $300 million projected over the next five years.
Implementation of full secondary treatment standards is scheduled to be completed on or before
December 31, 2012. A summary of total estimated capital costs for the CIP for Fiscal Years 2007-08
through 2020.21 is set forth in Table 5 below.
Table 5
Estimated Capital Costs
Fiscal Years 2007-08 through 2020-21to
Protect cost
Collection System Capacity $ 169,005,450
Collection System Repair,Rehabilitation, Replacement 192,087,530
Treatment Plant Capacity 18,329,380
Additional Secondary Treatment 489,817,580
Groundwater Replenishment System,Phase 1 15,793,000
Improved Treatment 110,905,800
Treatment Plant Repair,Rehabilitation,Replacement 505,453,550
Support Facilities 105,791.810
Total Validated Capital Improvement Program $.LW .134,100
All com sts ere estimated as of March 23,2007 and are derived from the CIP Validation Study.
Source: Orange County Sanitation District.
Of the Fiscal Year 2007-08 proposed CIP cash flow outlay of $302.7 million, the largest cash
outlay within the plant facilities is$54.3 million for the new trickling filters at Treatment Plant No. 2 with
a total project cost of$221.2 million. The Headworks replacement at Treatment Plant No. 2 requires
$53.4 million in Fiscal Year 2007-08,with a total project cost of$257.8 million. Another$36.6 million is
required for the replacement of the interplant pumping station on Ellis Avenue to be located at
Reclamation Plant No. 1,with a total project cost of$78.5 million. Of the Fiscal Year 2008-09 proposed
CIP cash flow budget of$356.0 million, the largest budgeted expenditure within the plant facilities is
$71.8 million for the new secondary treatment facility 2 at Reclamation Plant No. 1. The new trickling
filters at Treatment Plant No. 2 are expected to require $54.1 million in Fiscal Year 2008-09. Another
$39.3 million is being proposed for the Headworks replacement at Treatment Plant No. 2.
The largest project in the collection system, in the Fiscal Year 2007-08 CIP, is $8.5 million for
the Bushard Trunk Sewer project,which was completed in July 2007. For Fiscal Year 2008-09,the three
largest projects include $10.8 million for Gisler-Redhill North Trunk Improvements, $15.2 million for
replacement of the Bitter Point Pump Station, and$20.5 million for the Newport Trunk Sewer and Force
Mains project. The total budgets for these three projects are $16.1 million, $34.1 million and $24.4
million,respectively.
80198915.1 26
Board ojDirecror's Sewer Service Cimrges Review. In April 2007,the Board of Directors began
consideration of increased sanitary sewer service charges for all single family and multi-family residential
units and most commercial and industrial properties. Any increases in sanitary sewer charges are subject
to approval by ordinance adopted by a 2/3 vote of the Board of Directors after a noticed public hearing in
compliance with all laws. See "LIMITATION ON TAXES AND REVENUES — Article XIIIC and
Article XBID of the California Constitution" herein. District staff expects sewer service charges to
increase as a result the Board of Director's review. However, specific increases have not yet been
adopted and there can be no assurance that any particular service charge considered during the review
process will be adopted by the Board of Directors.
Groundwater Replenishment System
The District has taken a mufti-jurisdictional approach to planning for capital facilities because
many of the methods for reducing or managing flows involve other jurisdictions. One such project is the
Groundwater Replenishment System ("GWRS"). In March 2001,the District entered into an agreement
with the OCWD to design and construct Phase 1 of the GWRS. The cost of this project is to be paid
equally(50 percent shares) by each agency. The GWRS is ajoint effort by the two agencies to provide
reclaimed water for replenishment of the Orange County Groundwater Basin and to augment the seawater
intrusion barrier. The GWRS is planned for three phases, Phase 1 will produce approximately 72,000
acre-feet per year of recycled water by June 2007, Phase 2 will increase the total capacity to 112,000
acre-feet by the year 2010, and Phase 3 will increase the total capacity to 145,600 acre-feet by the year
2020. Following the completion of Phase 1,the extent of the District's commitment to date,the GWRS
will have the capacity to divert up to 100 million gallons per day of flow from the District's ocean
discharge. Costs for Phases 2 and 3 have yet to be approved and programmed.
As of June 30, 2007, the total estimated cost of GWRS Phase I was $492.2 million. Of this
amount, up to $90.0 million may be reimbursed through grants from the U.S. Environmental Protection
Agency, the U.S. Bureau of Reclamation, the State Water Resources Control Board, and others. The
District's estimated share is $246.1 million. Costs incurred by the District through June 30, 2007 total
$186.4 million. As noted above,Phase I of the GWRS is nearing completion and the GWRS will require
a cash outlay of$15.6 million in Fiscal Year 2007-08.
Preferred Level of Treatment
In July 2002, the Board of Directors approved a change from the existing level of treatment, a
blend of 50 percent advanced primary and 50 percent secondary treated wastewater, to full secondary
treatment standards. The reasoning behind the decision to move to full secondary standards included(1)
the possibility (no matter how remote) that bacteria from the ocean outfall may at times reach the
shoreline, (2) upgraded treatment will aid additional water reclamation with the Orange County Water
District,(3)and the public clearly stated preference for upgrading wastewater treatment at the time.
In an effort to eliminate most bacteria from being released from the ocean outfall, in 2002 the
District began to use chlorine bleach to disinfect the effluent and then apply sodium bisulfate to remove
any remaining chlorine prior to releasing the treated wastewater to the ocean. In order to protect the
animal life living in the ocean, the District continues to take measures to limit the chlorine residual to a
very low level-essentially non-detectable. This mode of disinfection is anticipated to occur for the short-
term, possibly two or three years, while the District studies, designs and constructs permanent facilities,
and considers alternate disinfection technologies. Beginning in Fiscal Year 2006-07, the addition of
disinfection treatment required an annual outlay of$7 million in additional chemicals within the joint
operating budget of the District.
80198915.1 27
Following determination by the Board of Directors in July 2002 to implement full secondary
standards, staff prepared the Secondary Treatment NPDES Permit Application that was required to be
submitted to the regional office of Environmental Protection Agency ("EPA") and the RWQCB in
December 2002. An NPDES permit has been issued to the District and the District is currently operating
under the Consent Decree. See"THE DISTRICT—Permits,Licenses and Othm Regulations."
The District estimates that it will take approximately six years and require additional capital
improvement costs of approximately $649 million to add additional secondary treatment capacity to the
Wastewater System,with completion expected in December 2012. In addition, based upon the District's
most recent projections, upon completion of facilities necessary to meet secondary treatment standards,
operating costs will increase by approximately $7.2 million annually. In the interim, the District will
operate the plants to maximize available secondary treatment and to reduce effluent biochemical oxygen
demand and suspend solid discharges below those currently allowed limits. Each year, the current 50
percent secondary portion will increase incrementally as operations change and new facilities are
constructed and placed in service over the coming years.
Biosolids Management
The District produces approximately 650 tons of digested and dewetered(Class B) biosolids per
day. By 2020,the Distrid's biosolids production is projected to increase by 20 percent,to 285,000 tons
annually. The District relies on the following technologies and locations for the management of its
biosolids: land application of Class B biosolids in Arizona, land application of chemically-stabilized
Class A biosolids in Kent County, composting to Class A biosolids in Riverside County, Kern County
and La Paz County,Arizona,and landfrlling of Class B biosolids in Yuma County,Arizona.
Counties throughout California and Arizona have developed, or are in the process of developing,
ordinances that severely restrict or ban the land application of Class B biosolids. In June 2006, Kern
County voters approved an anti-sludge initiative that bens the land application of both Class B and Class
A biosolids. It has become clear that certain land application options currently available to the District
are anticipated to be eliminated in the new future due to these developments. The District, as well as
most of California's wastewater agencies, is working to develop sustainable products and management
locations for its biosolids.
The dynamic regulatory issues, land application ordinances and bans, and public perception
challenges have prompted the District, with the help of CH2MHill, to develop a Long-Range Boosolids
Management Plan ("LUMP"). This LRBMP was approved by the Board in December 2003. The goal
of the LRBMP was to develop a sustainable, reliable, and economical program for long-range biosolids
management providing environmentally sound practices that meet the stringent federal, state, and local
regulatory requirements. The LRBMP recommendations included new in-plant technologies to reduce
the volume of biosolids, explore the production of Class A biosolids products, and move into the energy
and fuel production and compost markets.
As a result of the LRBMP recommendations,the existing Synagro biosolids management contract
was amended in April 2004 to have 250 tons per day of the District's Class B biosolids composted at
Synagro's South Kern Industrial Center("SKIC")facility, and was scheduled to open in December 2007.
This composting facility is now in operation and receiving the full allocation of contracted biosolids In
May 2006,the District entered into a contract with EnerTech Environmental, Inc.to convert 225 tons of
biosolids per day to a renewable fuel at EnerTech's proposed facility in Rialto,California. The EnerTech
solution is a relatively new,patented heat treatment process that increases the ability to dewater biosolids
in order to maximize the efficiency of the production of fuel. By decreasing the moisture content of
biosolids prior to drying, a smaller dryer is needed, thus reducing capital and energy consumption. The
8019s915.1 28
fuel product will be recycled and reused, under agreements with area cement kilns and other fuel users.
Residual ash from the fuel combustion becomes part of the cement product,resulting in no residual waste
product liability. The EnerTech facility is expected to come on-line in late 2008.
Also in April 2005,the Board of Directors approved the amendment of the existing memorandum
of understanding ("MOU") with South Orange County Wastewater Authority ("SOCWA") for
preliminary facility design, permitting, and community relations activities for the development of a
composting facility at the Prima Deshecha Landfill in South Orange County. For the past two years
under the previous existing MOU, SOC WA and the District have been working with the Orange County
Integrated Waste Management Department's Biosolids Committee to site an enclosed biosolids and green
waste composting facility at the Prima Deshecha Landfill in South Orange County. The proposed"South
Orange County Composting Facility" would take in approximately 100 to 110 tons of Class B biosolids
daily from the District and SOC WA and,combined with like amounts of wood chips and yard trimmings,
produce approximately 65 to 75 tons of compost per day. The MOU reflects a 50-50 participation
commitment and ownership in the facility between SOCWA and the District, and consent to initiate and
fund the tasks for the initial planning,permitting and concept design of the project. This project is still in
the development process.
As a result of the transition to biosolids-based compost and energy products the cost to the
District for biosolids management has increased. The Fiscal Year 2005-06 management budget for
biosolids was $9.7 million. The Fiscal Year 2006-07 management budget for biosolids was $12.8
million. The actual cost of biosolids management in Fiscal Year 2005-06 and Fiscal Year 2006-07 was
$10.4 million and $11.7 million, respectively. The Fiscal Year 2007-08 biosolids management budget is
currently estimated to be$14.3 million.
Urban Runoff
For a two-month period during the summer of 1999, eight miles of beaches in Huntington Beach
were closed by the OCHCA due to excessive levels of bacteria in the water. A three-month interagency
source investigation did not identify a definitive source of the contamination, but determined that the
District was not at fault. Although the initial "signature" of the pollution strongly suggested sewage
contamination, the investigation concluded that none of the District's facilities caused the excessive
bacteria levels and that there was no adverse impact on the capacity of the Wastewater System.
In June 2002, the District's charter was amended by an act of the State Legislature to include
permissive language authorizing the diversion and management of dry weather urban runoff Flows. This
charter change will allow the District, in its discretion, to acquire, construct, operate, maintain, and
furnish facilities for the diversion of urban nmoff from drainage courses within the District,the treatment
of the urban runoff,the return of the water to the drainage courses,or the beneficial use of the water.
As noted above, in July 2002, the Board of Directors approved the implementation of full
secondary standards. The District is currently discharging treated wastewater into the Pacific Ocean
under a permit issued by the EPA and the RWQCB on May 6, 1998 and currently under an administrative
grant of permission until the EPA/RWQCB issue a new permit to replace it. Following determination by
the Board of Directors in July 2002 to implement full secondary standards, staff prepared the Secondary
Treatment NPDES Permit Application that was required to be submitted to the regional office of the EPA
and the RWQCB. See"THE DISTRICT—Permits,Licenses and Other Regulations."
80198915.1 29
Integrated Emergency Response Program
In recognition of the potential damage which could occur in the event of a major earthquake,
flood, or other disaster, the District has implemented an Integrated Emergency Response Program (the
"IERP") in 1979. The IERP is a two-volume plan which contains policies, plans and procedures
preparing for, and responding to, emergencies. The District also analyzed disaster preparedness issues
and policies within the Master Plan, and within a 1994 document titled Fault Rupture Hazard
Investigation-Wastewater Treatment Plant No. 2.
According to the Master Plan, earthquakes are considered to be the most potentially devastating
natural disaster events which confront the District. The disaster preparedness plan included in the Master
Plan reviewed two possible major earthquake scenarios: an 8.3 Richter magnitude ("M") earthquake on
the southern San Andreas fault system and an M 7.0 earthquake 7.0 Newport-Inglewood fault zone,which
includes Plant No. 2. An M 8.3 earthquake on the southern San Andreas fault,while on the whole more
destructive than the M 7.0 Newport-Inglewood fault even, would probably result in less damage to the
District's service area due to the distance of the fault from most of the service area. However,the 1989
Master Plan stated that damage from such a major earthquake on the San Andreas £soft would be
extensive. Also, the Master Plan indicated that an M 7.0 earthquake on the Newport-Inglewood fault
within five miles of the District's sewerage facilities could cause major destruction to those facilities.
The disaster preparedness plan in the Master Plan indicated that it would not be economically feasible to
upgrade all of the existing sanitary sewerage facilities to survive an earthquake of this magnitude along
the Newport-Inglewood fault. The IERP outlines the policies and employee actions to be taken before,
during and after an earthquake,earthquake response guidelines and damage assessment procedures.
The Master Plan analyzed the vulnerability of the sanitary sewerage facilities and operations of
the District and planned a risk reduction program wherein the vulnerability of many of the District's
sanitary sewerage facilities to an earthquake could be reduced by recommended retrofit construction
measures. The Master Plan also recommended that designs of existing major structures which were
constructed prior to development of current seismic design standards be reviewed and the structures
strengthened, if necessary.
Since the 1989 Master Plan and the 1994 Report, the District has completed retrofitting where
deemed appropriate. Pursuant to the Master Plan, all recent and future projects have been, and will be,
designed to the same high earthquake code standards as set for other essential services, such as hospitals
and fire stations. Many of the older buildings analyzed in the Master Plan have been replaced by
structures built after 1989.
The Army Corps of Engineers' "All-River Plan" has mitigated any future flooding of the Santa
Ana River system and potential threats to the District's Wastewater System. Also, both Plant No. 1 and
Plant No.2 are surrounded by three-foot to six-foot high walls,built to federal standards.
The disaster preparedness plan in the Strategic Plan investigates the damage potential posed by
coastal flooding, tsunamis(large ocean waves generated by seismic activity) and windstorms. However,
based on available information, the District does not believe that any of such events would have a
material adverse impact on the Wastewater System.
The Strategic Plan also makes recommendations regarding fire protection of the Wastewater
System and most of the structures at Plant No. 1 and Plant No. 2 are constructed of fire-resistant
materials. The ARP describes the procedures needed to respond to a possible disaster. For more
information regarding emergency response policies, the disaster preparedness plan described in the
Strategic Plan and the IERP can be reviewed at the District's office.
80198915.1 30
DISTRICT REVENUES
Sewer Service Charges
General. The District has the power to establish fees and charges for services of the Wastewater
System. Such fees and charges are established by the District's Board of Directors and are not subject to
review or approval by any other agencies.
In Fiscal Year 1997-98, a Rate Advisory Committee (the"RAC") was established comprised of
representatives from industrial, commercial and residential users. The goal of the RAC was to examine
the then current rate structure and, if needed, develop recommendations for change. The RAC analyzed
the District's rate structure to determine whether its then current sewer service user fees (now known as
"Sewer Service Charges") were equitable among residences and industry. This review resulted in a
proposal to expand the number of non-residential user categories from one to twenty-three and to provide
for gradual rate increases in seven of the nine Revenue Areas. The increase in the number of categories
provided a more equitable fee structure and also provided for future reductions in single-family residential
Sewer Service Charges. The Sewer Service Charges for those categories were based on the average flow
and strength of wastewater discharged for each property type.
Annually, the Board of Directors adopts an ordinance establishing the annual sanitary sewer
service charges. These ordinances are adopted by a two-thirds vote of the Board of Directors as required
under law after conducting a noticed public hearing in compliance with Proposition 218. See
"LIMITATIONS ON TAXES AND REVENUES - Article XIIIC and Article XIIID of the California
Constitution." In May 2002,the Board of Directors adopted District Ordinance No. OCSD 18 (the"2002
Ordinance") which was effective on July 1, 2002. The 2002 Ordinance included a single family
residential ("SFR") rate increase, the underlying basis for all sanitary sewer service charges including
sanitary sewer rates for multi-family residential units as well as most commercial and industrial
properties, of $7.50 per year, or 9.4%, to $87.50 per year. In June 2003, the Board of Directors
authorized a Proposition 218 notice on proposed"not to exceed"rate increases for each year over the next
five years. Each year thereafter,the Board of Directors has ratified the next year's actual rate.
Table 6 below sets forth the annual ordinance adoptions following the last Proposition 218 notice
and presents a five-year comparison of the Sewer Service Charge rate for single-family residences.
Table 6
Annual Sewer Service Charges
Single Family Residence Rate
Five Year Rate Schedule
Fiscal Years 2003-04 through 2007-08
Effective Sewer Service Percent
Fiscal Year Ordinance No. Date Char¢e Increase
2003-04 OCSD-20 7/l/03 $100.00 14.3%
2004-05 OCSD-20 7/l/04 115.00 15.0
2005-06 OCSD-26 7/l/05 151.00 31.3
2006-07 OCSD-30B 7/I/06 165.80 9.8
2007-08 OCSD-32 7/l/07 182.00 9.8
Source: Orange County Sanitation District.
90198913.1 31
On February 27, 2008, the Board of Directors approved increases in its sanitary sewer service
charges for all single family and multi-family residential units as well as most commercial and industrial
properties. The Board increased the single family residential rate, which is the basis for all of the
District's sewer service charges, by 10.5% for Fiscal Year 2008-09, 100/0 for Fiscal Year 2009-10, 10%
for Fiscal Year 2010-11,9.8%for Fiscal Year 2011-12 and 9.8%for Fiscal Year 2012.13.
Assuming an average annual rate increase of 10%,the projected SFR rate of$293.00 in five years
would remain below the current average annual sewer rate of$370.00 per year according to a 2007 survey
of 725 agencies encompassing all 58 counties in California conducted by the State Water Resources
Control Board.
This increase was necessary to meet the District's cash flow needs due to the addition of
disinfection treatment and other operating requirements.As discussed under the caption"TILE DISTRICT
— Capital Improvement Program," the CIP Validation Study in the Spring of 2005 and further in
March 2007 developed a capital improvement program to meet secondary treatment standards as quickly
as possible while providing for increased flows and rehabilitation and refurbishment of existing facilities.
As projected out to Fiscal Year 2020-21 the cash flow needs of the CIP total approximately$2.3 billion,
approximately$750 million of which has been spent to date.The bulk of construction is scheduled during
the next ten years, with average annual expenditures of nearly $300 million projected over the next five
years.
The District collects Sewer Service Charges from property owners through the semi-annual
property tax bill distributed by the County throughout the District, except in Revenue Area No. 14.
Pursuant to the IRWD Agreement, the District receives payments from the Wine Ranch Water District
(the "IRWD") which directly collects fees from customers through a monthly billing procedure in
Revenue Area No. 14.
The District has covenanted in the Master Agreement to fix, prescribe and collect fees and
charges to satisfy certain coverage requirements as further described under "SECURITY AND
SOURCES OF PAYMENT FOR THE CERTIFICATES—Rate Covenant"herein.
Residential Sewer Service Charges. Pursuant to the 2002 Ordinance, the District established
residential Sewer Service Charges upon a rational basis between the fees charged each customer and the
services and facilities provided to each customer of the District. In accordance with the 2002 Ordinance
and the noticed public hearing held at that time which considered increases in the amount of the annual
charges by approximately 20%par year for each of the then following five years, in May 2005,the Board
of Directors adopted Ordinance No. OCSD-26 increasing the Fiscal Year 2005-06 single family
residential rate 31%, from $115.00 to $151.00 for such year for all ratepayers, except those located in
Revenue Area 14. In May 2006, the Board of Directors adopted Ordinance No. OCSD-30B increasing
the Fiscal Year 2006-07 single family residential rate 9.8%, from $151.00 to $165.80 for such year,
except those located in Revenue Area 14. The average total of fees and charges for Revenue Area No. 14
are $70.80 per year per single-family residential unit and are levied and collected directly by the IRWD
on a monthly basis. The IRWD subsequently pays fees to the District on a quarterly basis pursuant to the
IRWD Agreement. This increase was necessary in order to meet the District's cash flow needs.
Table 7 below sets forth total average annual Sewer Service Charge for single-family residences
within the District,together with comparable total average annual charges for wastewater service within
thejurlsdictions of certain other cities and districts within the State as of July 1,2007.
90198915.1 32
Table 7
Comparison of Total Sewer Service Charges
For Single-Family Residences
As of July 1, 2007
Average Dry Annual
Weather Sewer Property
Flow Service Treatment Collection Tax
Eati (mald)131 Chore e 1) Levelr'113I Resuonsibili Income(')
City of San Diego I80 $460 2 Yes No
City of Los Angeles 447 345 4 Yes No
East Bay MUD 80 238 4 No Yes
Sacramento 155 222 3 No Yes
Orange County 250 182 2 No Yes
Sanitation District
Los Angeles County 513 108 4 No Yes
So=w Inf6 mation obtained from respective entities listed.
1�1 Treatment Level Categories:
"9"-Primary treatment.
"2"-Advanced primary or primary with some secondary treatment.
"3"-Secondary treatment.
"4"-Advanced secondary or secondary with some tertiary treatment.
n1 "5"-Tertiary treatment.
Source: 2006-07 Wastewater User Charge Survey Report by the California State Water Resources Control
Board.
Industrial Sewer Service Charges. The District charges industrial Sewer Service Charges to
customers discharging high-strength or high-volume wastes into the sewer systems. Customers subject to
industrial Sewer Service Charges are billed directly by the District. The fee charged to each customer is
based on the customer's sewage volume, the concentration of suspended solids and biochemical oxygen
demand. Pursuant to the 2002 Ordinance, rates for each component factor were revised for certain
industrial users in order to be consistent with the rates charged to residential users. Total industrial Sewer
Service Charges in Fiscal Year 2006-07 were approximately $13 million. Industrial Sewer Service
Charges are applied to both the operating and capital funds.
Additional Revenues
The District has several sources of additional revenue, including property taxes,Capital Facilities
Capacity Charges,capacity rights,permit and inspection fees and interest earnings.
Property Tazes. The District receives approximately 2.5%of the one percent County ad valorem
property tax levy, based on the allocation procedure under State law. Property tax revenues were$41.1
million in Fiscal Year 2001-02, $44.6 million in Fiscal Year 2002-03, $46.9 million in Fiscal Year 2003-
04, $35.8 million in Fiscal Year 2004-05, $40.0 million in Fiscal Year 2005-06 and $55.6 million in
Fiscal Year 2006-07. The $11.2 million decrease in property tax revenues from Fiscal Year 2003-04 to
Fiscal Year 2004-05 is reflective of the State of California's then current fiscal crisis and the
implementation of the first year of a two-year 40%9 secured property tax shift away from independent
special districts. During the 2004-05 State Budget process, the State Legislature and the Governor
enacted Senate Bill 1096 and Assembly Bill 2115, effectively shifting an additional $1.3 billion in local
property tax revenues from counties, cities, special districts and redevelopment agencies to schools and
community colleges. This shift was effective fm Fiscal Year 2004-05 and Fiscal Year 2005-06, resulting
in a 40%secured property loss for the District. See "LIMITATIONS ON TAXES AND REVENUES-
80198915.1 33
Proposition IA." This 40% reduction for Fiscal Year 2004-05 was somewhat offset by the continuing
uptum in the real estate market. Total assessed valuations increased over the 2004-05 Fiscal Year by
10.3%, and the full value of these increases was received on all non-secured property tax distributions.
The District expects to receive property tax revenues in its full allotment (no State property tax shift) of
$58.9 million in Fiscal Year 2007-08. Current projections indicate that property tax revenues received by
the District are expected to increase by approximately 6.0OA in fiscal year 2007-08 and then 5%each year
thereafter. The apportionment of the ad valorem tax is pursuant to a revenue program adopted by the
District in April 1979 to comply with the EPA, the RWQCB, legal and contractual requirements and
Board of Directors policy.
Capital Facilities Capacity Charges. Capital Facilities Capacity Charges (formerly known as
connection fees) are one-time fees with two components, paid at the time property is developed and
connected to the Wastewater System. The fees are imposed by the District pursuant to Section 5471 of
the Califomia Health and Safety Code and are levied to pay a portion of the District's capital costs and for
access to capacity in the Wastewater System. Currently, the District has Capital Facilities Capacity
Charges of $4.517 per residential unit (three-bedroom); however, under the current industrial use
ordinance, additional Capital Facilities Capacity Charges can be imposed on industrial users who place
larger than average demand on the Wastewater System. Member cities and sanitary districts collect
Capital Facilities Capacity Charges for the District when building permits are issued. Capital Facilities
Capacity Charges are reviewed annually to reflect the changes in the value of the Wastewater System to
which a new customer is connecting.
On December 15, 1999, the Board of Directors approved District Ordinance No. OCSD 99-11
(the"1999 Ordinance")which established a comprehensive Capital Facilities Capacity Charge. The 1999
Ordinance, effective as of January 1, 2000, renamed connection fees as Capital Facilities Capacity
Charges and provided a more equitable schedule of fees among industrial, commercial and residential
users. Pursuant to the 1999 Ordinance,Capital Facilities Capacity Charges were revised for high demand
industrial users in five incremental increases from 1999 through 2001.
Pursuant to an agreement with the IRWD, the IRWD is not required to pay Capital Facilities
Capacity Charges and in exchange,the IRWD provides funding to the District for the construction costs
of certain wastewater collection,transmission, treatment and disposal facilities to be used by the IRWD
and is obligated to make certain payments to the District for certain services arising from the Wastewater
System(including any standby or availability charges).
Sale ojCapacily. The District has entered into agreements with the Santa Ana Watershed Project
Authority ("SAWPA") whereby wastewater from Upper Santa Ana River Basin dischargers can be
transported through the District's Santa Ana River Interceptor to the District's wastewater treatment
facilities. This program was developed in the early 1970's.The agreements establish control mechanisms
regarding the quality of wastes deposited into the Wastewater System. At the present time, SAWPA has
purchased and paid for 30 million gallons a day of capacity rights in the District's Santa Ana River
Interceptor and 13 million gallons a day of capacity in the District's wastewater treatment plants.
Additional treatment plant capacity can be purchased in increments at the District's current replacement
cost.
The Santa Ana River Interceptor Line ("SARI') was built in the Chino Basin Preserve Area in
order to remove dairy farm wastes and accommodate future when development. Salts in the washwater
generated from the cleaning of cows and milking equipment were leaching into the groundwater in the
Chino Basin and the SARI was built to divert the washwater from this area. However, due to the nature
of the Chino Basin Preserve,the development of any infrastructure in the area to accommodate the SARI
was limited. The current SARI multi-phase project is designed to connect several dairies to the SARI.
90198915.1 34
Future expansions of this project could include connecting other dairies and other waste streams with the
SARI line. See"THE DISTRICT—Capital Improvement Program"herein.
Wastewater Treatment History
The average yearly influent flow to the District has remained relatively stable for the preceding
five years. The wastewater flow for Fiscal Year 2004-05 was 243 mg/d, for Fiscal Year 2005-06 was 235
mg/d and for Fiscal Year 2006-07 was 229 mg/d. The highest flow rate experienced was during El Nino
storm periods. Peak flows of 500 mg/d were recorded in December 1997 and February 1998. Them were
no sewer failures or overflows during these events.
Customers
The historical number of customers served by the District for the Fiscal Years 2002-03 through
2006-07 and the projected number of customers served by the District for the Fiscal Years 2007-08
through 2011-12, identified in Equivalent Dwelling Units ("EDUs"), are set forth in Table 8 below. As
discussed below, sewer service charges are based on the expected amount of wastewater flow for a single
family dwelling. This base amount is considered the"equivalent dwelling unit." The EDU's set forth in
Tables 8 and 9 below equate to total Sewer Service Charge levies.
Table 8
Historical and Projected Equivalent Dwelling Units
Fiscal Years 2002-03 through 2011-12
Historical Projected
Fiscal Year EDUs Fiscal Year QUstt1
2002-03 897,757 2007-08 911,033
2003-04trt 884,169 2008-09 914,677
2004-05") 893,501 2009-10 918,336
2005-06 910,469 2010-11 922,009
2006-07 907,986 2011-12 925,697
EDU� growth during the projection period is estimated at approximately 0.4%per mum.
With respect to this Fiscal Year,presentation in the Statistical Section of the Comprehensive Annual Financial
Report set forth in Appendix A include EDU's which equate to total Sewer Service Charge collections.
Source: Orange County Sanitation District.
80198915.1 35
Table 9 below shows the number of residential and commercial customers and industrial
customers and the approximate percentages of Sewer Service Charge revenues derived from the
combined residential and commercial use and industrial use for the last five fiscal years.
Table 9
Number of Accounts and Revenues
by Customer Class
for the Fiscal Years 2002-03 through 2006-07
($in Millions)
Residential/Commercial Industrial
Numberof Percentage Percentage
Equivalent of Sewer of Sewer
Single- Service Number of Service
Family Total Charge Customer Total Charge
Fiscal Year Dwellings Revenue Revenues Accounts Revenue Revenues
2002-03 897,757 $77.0 92% 603 $6.3 8%
2003-04111 860,156 86.0 92 530 7.5 8
2004.05111 860,634 99.0 90 568 10.5 10
2005-06 872,859 132.0 92 557 12.2 8
2006-07 867,035 143.8 91 531 13.4 9
With Fiscal Years. presentation in the Statistical Sectionof the Comprehensive Annual
Financial Report set forth in Appendix A include EDU's which equate to total Sewer Service Charge
collections rather than levies.
Source:Orange County Sanitation District.
The ten largest principal sewer service customers of the District for the Fiscal Year ended
June 30, 2007 are shown in Table 10 below. These principal sewer service customers paid a total of
$6,817,325.08 for wastewater service from the District.
Table 10
Largest Principal Sewer Service Customers of the District
for the Fiscal Year Ended June 30,2007
Percentage of Total
Sewer Service Sewer Service
User Charges Charee Revenues
Kimberly-Clark Worldwide, Inc. $1,114,919.81 0.66%
Alstyle Apparel—A&G Inc. 1,049,362.16 0.63
Stremicks Heritage Foods,LLC 974,473.67 0.58
MPC Foods, Inc. 921,316.91 0.58
Disneyland Resort 791,746.84 0.47
Disneyland Resort-DCA 567,484.57 0.34
House Foods America Corp. 410,058.85 0.24
Pepsi-Cola Bottling Group 374,306.33 0.22
Seven-Up Bottling Company 335,177.79 0.20
Ameripec Inc. 278,478.15 0.17
TOTAL $6,817,325.08 4.09%
Source: Orange County Sanitation District.
80198915.1 36
Assessed Valuation
The assessed valuation of property in the County is established by the County Assessor, except
for public utility property which is assessed by the State Board of Equalization. Due to changes in
assessment required under State Constitution Article XIIIA, the County assessment roll no longer
purports to be proportional to market value. See "LIMITATIONS ON TAXES AND REVENUES"
herein. Generally, property can be reappraised to market value only upon a change in ownership or
completion of new construction. The assessed value of property that has not incurred a change of
ownership or new construction must be adjusted annually to reflect inflation at a rate not to exceed 2%
per year based on the State consumer price index. In the event of declining property value caused by
substantial damage, destruction, economic or other factors, the assessed value must be reduced
temporarily to reflect market value. For the definition of full cash value and more information on
property tax limitations and adjustments,see"LIMITATIONS ON TAXES AND REVENUES"herein.
The County Assessor determines and emolls a value for each parcel of taxable real property in the
County every year. The value review may result in a reduction in value. Taxpayers in the County also
my appeal the determination of the County Assessor with respect to the assessed value of their property.
Table I I below shows a five-year history of assessed valuations in the District since Fiscal Year
2003-04.
Table 11
Assessed Valuations of Property in the District
Fiscal Years 2003-04 through 2007-M
(S in Billions)
Fiscal Year Value %Change
2003-04 201.4 6.660/0
2004-05 219.3 8.85
2005-06 241.8 10.30
2006-07 270.7 11.93
2007-08 [ 1 [ 1
Source: County of(range Auditor-Controller.
Prior to 2006, the housing market in Southern California experienced significant price
appreciation and accelerated demand. Over the past five years, many homebuyers financed the purchase
of their new homes using non-conventional loans. Such loans were made with little or no down payment
and with adjustable interest rates that are subject to being reset at higher rates on a specified date or upon
the occurrence of specified conditions. In addition,many of these loans allow the borrower to pay interest
only for an initial period,in some cases up to 10 years.
Starting in 2006, housing developers, appraisers and real estate consultants began to report
weakening of prices for single-family homes. There has been tightening of underwriting criteria for
mortgage loans such that most lenders now require down payments,stricter verification,higher income to
loan ratios, higher credit ratios or some combination of such factors. These factors have contributed to a
decrease in home sales as prospective purchasers are unable to qualify for loans. Declining home sales in
some areas of Southern California have resulted in a decrease in home prices. As home values decline,
90198915.1 37
homebuyers may not be able to obtain replacement financing because the outstanding loan balances
exceed the value of their homes. Under certain circumstances,the County may reduce the assessed value
of a property as a result of a decrease in the market value of such property.
Tax Levies and Delinquencies
Property taxes are based on assessed valuation which is determined as described under
"DISTRICT REVENUES-Assessed Valuation"herein. In accordance with the California Revenue and
Taxation Code,the County tax collector collects secured tax levies for each Fiscal Year. Property taxes
on the secured roll are due in two installments, on November I and February 1. The District currently
participates in the County's Teeter Plan under which the District receives annually 100% of the secured
property tax levies and Sewer Service Charges to which it otherwise is entitled, regardless of whether the
County has actually collected the levies. This alternative method provides for funding each taxing entity
included in the Teeter Plan with its total secured property taxes during the year the taxes are levied,
including any amount uncollected at fiscal year end. Under this plan,the District's general fund receives
the full amount of secured property taxes levied each year on its behalf and, for so long as such plan
remains in effect, the participating entities, such as the District, no longer experience delinquent taxes.
The County's general fund is the designated recipient of future collections of penalties and interest on all
delinquent taxes collected on behalf of participants in this alternative method of apportionment. In recent
years, the County has experienced delinquencies of Sewer Service Charges in the District of
approximately 2%.
Unpaid taxes become delinquent after December 10 and April 10, respectively,and a ten percent
penalty attaches to any delinquent payment. hi addition, property on the secured roll with respect to
which taxes are delinquent is declared taxdefaulted on or about June 30. Such property may thereafter be
redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption
penalty of one and one-half percent per month to the time of redemption. If taxes are unpaid for a period
of five years or more,the tax-defaulted property is subject to sale by the County Treasurer-Tax Collector.
Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent,
if unpaid, on August 31. A ten percent penalty attaches to delinquent taxes on property on the unsecured
roll and an additional penalty of one and one-half percent per month begins to aceme on November 1.
The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action
against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in
order to obtain a judgment lien on certain property of the taxpayer; (3)filing a certificate of delinquency
for recordation in the County Recorder's office in order to obtain a lien on certain property of the
taxpayer; and(4)seizure and sale of personal property, improvements or possessory interests belonging
or assessed to the taxpayer.
Table 12 below shows a five-year history of the District's ad valorem total property tax and
Sewer Service Charge levies. Pursuant to the Teeter Plan described above, which provides for the
Comity's financing of annual delinquencies, information with respect to outstanding delinquencies in
prim years collected in current fiscal years and the percent of delinquencies to the total tax and Sewer
Service Charge levies.
80198915.1 38
Table 12
Total Property Tax and Sewer Service Charge Levies
in the District for Fiscal Years 2002-03 through 2006-07
(In Thousands)
Total Tax and Sewer
Fiscal Year Service Charge Levy
2002-03 $122,210
2003-04 134,132
2004-05 152,745
2005-06 191,290
2006-07 209,206
Source: Orange County Auditor-Controller's Office.
Budgetary Process
The District's operating fund budget relies on revenues from property taxes and Sewer Service
Charges, both of which are collected on the property tax bill. See "DISTRICT REVENUES — Sewer
Service Charges" and"—Additional Revenues" The District receives tax revenues from the County in
eight allocations, with the largest receipts in December and April. The District operates on a Fiscal Year
beginning each July 1. The operating fund budgets include funds to cover the dry period of each tax year,
i.e., the period from the beginning of the Fiscal Year until the first taxes are received. The dry-period
requirement is budgeted at one-half of the annual operating fund budgeted expenditures. The District
uses the accrual method of accounting in its budgets. The District has conformed to its budgets for the
last five fiscal years and is conforming to its budget for the current fiscal year.
The District's annual budget preparation process begins in January of each year and concludes in
June upon its adoption. The General Manager reviews the final operating budgets and then distributes
them to the Directors and District Committees for consideration. The Board of Directors then adopts the
proposed momd budgets,with any revisions,in Jane of each year.
Budgetary control is exercised at the individual Department level and administrative policies
provide guidelines on budget transfers and the authorization necessary to implement transfers. A budget
adjustment is a transfer which does not change the total appropriated amount and does not require Board
of Directors action. Approval may be granted by the General Manager or the Department Head in certain
circumstances. Department Heads have the discretion to reapportion funds between certain line items
within a division but may not exceed total appropriated amounts for each department. They may also
transfer staff across divisional lines. The General Manager and Board of Directors must approve
additional capital outlay items.
A budget amendment is an adjustment to the total appropriated amount which was not included in
the original budget. These supplemental appropriations require formal action by the Board of Directors.
Prior year reserves or fund balances may be appropriated to fund items not previously included in the
adopted budget. Reserves or fund balances exceeding minimam amounts required by fiscal policies may
be appropriated if it is determined to be in the best interest of the District. Directors may also appropriate
reserves in case of emergencies or unusual circumstances.
90198915.1 39
Reserves
The District has an established reserve policy with eight separate categories for its reserve funds.
The following table sets forth actual reserves at June 30, 2006 and June 30, 2007, and projected reserves
at June 30, 2008, for each fund. Reserve levels are calculated in accordance with the District's reserve
policy.
Table 13
Actual and Projected Reserves
June 30,2006 through 2008
(In Millions)
June 30,2006 June 30,200 Juue 30.200>310
Cash Flow Requirements Reserve—
Operating Expenses $113 $132 $84
Certificates of Participation Payments — — 65
Operating Contingencies Reserve -- - --
Capital Improvement Program Reserve 189 51 86
Catastrophe and Self Insurance 57 57 57
Capital Replacement and Refurbishment 52 53 54
Debt Service Required Reserves 79 79 108
Rate Stabilization Reserve _
Total $490 $372 $454
Project7lf—
Source: Omnge County Sanitation District.
The Cash Flow Requirements Reserve was established to fund operation, maintenance and
certificates of participation debt service expenses for the first half of the fiscal year,prior to the receipt of
the first installment of the property tax allocation and sewer service user fees which are collected as a
separate line item on the property tax bill. The level of this reserve is established as the sum of an amount
equal to six months operations and maintenance expense and the total of certificates of participation debt
service expenses due in the subsequent fiscal year. The Operating Contingencies Reserve was established
to provide for non-recurring expenditures that were not anticipated when the annual budget and Sewer
Service Charges were adopted. [The level of this reserve is equal to 10% of the District's annual
operating budget.] [UPDATE]. The Capital Improvement Program Reserve was established to fund
annual increments of the Capital Improvement Program with a target level at one-half of the average
annual Capital improvement Program through the year 2020. Levels higher and lower than the target can
be expected while the long-term financing and capital improvement programs are being finalized. The
Catastrophic Loss,or Self-Insurance Reserve is established for property damage including fire,flood and
earthquake, general liability and workers' compensation. The level of reserve in this fund is maintained
at a level to fund the District's non-reimbursed costs which are estimated to be $57 million.The Capital
Replacement and Refurbishment Reserve was established to provide 30% of the funding to replace or
refurbish the current collection,treatment and disposal facilities. The current replacement value of these
facilities is estimated to be approximately $5.56 billion. The initial reserve level for this fund was
established at $50 million and is augmented by interest earnings and a portion of the annual Sewer
Service Charges. Debt Service Required Reserves(or Obligation Reserve Fonds as defined in the Master
Agreement)are controlled by a trustee pursuant to the provisions of certificates of participation issues and
am not available for the general needs of the District. The Rate Stabilization Reserve accumulates all
available funds which exceed the targets for all other reserves. The Rate Stabilization Reserve is a
separate fund from the Rate Stabilization Account established under the Trust Agreement. These funds
80198915.1 40
are applied to future years' needs and must be maintained at specified levels. There is currently no
established target for this reserve and, because the reserves of all other£ands have not been exceeded,the
reserve level for this reserve fund is zero for Fiscal Years 2005-06 through 2007-08. See APPENDIX A
— "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY
SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30,2007"herein.
Summary of Operating Data
Set forth in Table 14 below is a summary of historic operating results for the District for Fiscal
Years 2002-03 through 2006-07. The District's CEP cash Flow budget for Fiscal Year 2007-08 is$302.7
million, an increase of$36.6 million from the prior year total, for the financing of joint works treatment
and disposal system improvement projects, and collection system improvement projects. This increase is
attributable to the additional infrastructure needs identified in the Interim Strategic Plan and in the CIP
Validation Study. The information presented in the summary should be read in conjunction with the
financial statements and notes. See APPENDIX A — "COMPREHENSIVE ANNUAL FINANCIAL
REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED
JUNE 30,200T'herein.
80198915.1 41
Table 14
Summary of Historical District Revenues and Expenses
and Other Financial Information
For Fiscal Years 2002-03 Through 20064)7
($ In Millions)
2002-03 2003-04 2004-05 2005-06 2006-07
Revenues:
Sewer Service ChargesO $77.0 $86.0 $ 99.0 $ 132.0 $143.8
Industrial Sewer Service Charges 6.3 7.5 10.5 12.2 13.4
Revenue Area No. 14 Fees 3.2 5.8 6.9 5.3 5.2
Ad Valorem Taxes 44.6 46.9 35.8 40.0 60.6
Interest Earnings 25.9 6.8 15.1 10.4 22.2
Capital Facilities Capacity Charges 10.1 9.0 9.8 15.6 31.3
("CFCC")
Other Revenues 3.4 4 00 6.1 9.2 8.3
Total Revenues $170.5 $166.0 $183.2 $224.7 $284.8
Operations and Maintenance Expenses(�1 $79.7 $95.4 $101.8 $105.6 $112.2
Net Revenues(') S 90 s S0,_ 581.4 Sl 19A It=
Debt Service $22.4 $L4.1 _$_37.9 $ 3z slu
Coverage Ratios(') Lfift 1$1$ 1-Spx 4 QS
CIP Outlay $I]2.9 $14U M28 9 $260.8 $�
Ending Reserves(') $3 M $51U $407.0 MU
(r) et o re rues,r any,to commercte users.
(2) Excludes depreciation and amortization expenses.
Calculated in accordance with the Master Agreement(Net Revenues less CFCC divided by Debt Service).
u) Excludes debt service reserves in accordance with the District's reserve policy.
Source: Orange County Sanitation District.
Projected Operating Data
Set forth in Table 15 below are projected operating results for the District for Fiscal Years 2007-
08 through 2011-12. These projections assume the number of projects and scheduled build out set forth
in the CIP Validation Study,and projected increased sewer service rates of approximately ten percent per
year over this five-year period. Principal expenditure components of these projections are the Interim
Strategic Plan and CIP Validation Study, which identified 107 large capital projects managed by the
Engineering Department through 2020 at a total cost of$2.3 billion, and currently projected to include
nearly$1.5 billion in the next five years. The District's CIP cash flow budget for Fiscal Year 2007-08 is
$302.7 million, an increase of$36.6 million from the prior year total. This CIP budget finances joint
works treatment and disposal system improvement projects,and collection system improvement projects.
This increase is attributable to the additional infrastructure needs identified in the Interim Strategic Plan
and in the CIP Validation Study. The preparation of such projections was based upon certain assumptions
and certain forecasts with respect to conditions that may occur in the future. While the District believes
that these assumptions and forecasts are reasonable for the purposes of the projected selected operating
data, it makes no representations that they will in fact occur. To the extent that actual future conditions
differ from those assumed herein,the data will vary.
90198915.1 42
Table 15
Summary of Projected District Revenues and Expenses
and Other Financial Information
for Fiscal Years 2007-08 through 2011-12
($In Millions)
2007-08 2008A9 2009-10 2010-11 2011-12
Revenues:
Residential&Commercial
Sewer Service Charges $164.6 $182.5 $201.6 $222.7 $245.5
Industrial Sewer Service
Charges 18.2 20.1 22.3 24.6 27.1
Revenue Area No. 14 Fees 23.5 22.6 18.8 19.2 18.5
Ad Valorem Taxes 58.9 61.8 64.9 68.2 71.6
Interest Earnings 16.3 17.9 18.2 19.4 20.5
Capital Facilities Capacity
Charges 11.5 12.1 12.8 13.5 14.2
Other Revenues 9.0 5.8 6.2 5.9 5.6
Total Revenues $302.0 $322.8 $344.8 $373.5 $403.0
Operations and Maintenance Expenses 134.7 147.7 159.3 171.9 187.1
Net Revenues 0l $155.8 $163.0 $172.7 $188.1 $201.7
Debt Proceeds $300.0 $235.0 $175.0 $130.0 $100.0
Debt Service $ 65.3 $ 74.3 $ 87.1 $ 96.5 $103.4
CIP Outlays $302.7 $353.1 $236.9 $202.6 $179.5
Ending Reserves(2) $355.3 $317.0 $336.3 $355.3 $376.3
Coverage Ratios O1 2.39x 2.19x 1.98x 1.95x 1.95x
pt Cal�cordance with the Trust Agreement.
Excludes debt service reserves in accordance with the District's reserve policy.
lrr Calculated in accordance with the Moter Agreement(Net Revenues less CFCC divided by Debt Service).
Assumptions:
(a) Annual growth in equivalent dwelling units is projected to increase 0.4%over the next five years.
(b) The Residential and Commereial Sewer Service Charge and the Industrial Sewer Service Charges are
forecasts are based on the total projected equivalent dwelling units, the actual 9.8% increase for
2007-08, and the proposed rate increases of 10.5%, 10.0°%, 10.0%, and 9.8% far the following four
years,respectively.
(c) The Capital Facility Capacity Charge forecast is based on the total projected equivalent dwelling units
along with a 5.05/6project annual increase in the rate.
(d) Revenue Area No. 14 fees are derived based on the projected contribution of sewage flows to the
District from the Irvine Ranch Water District.
(a) Ad valorem tax revenues am projected to increase at 5.0%per year.
(D Interest earnings are projected as 4.0%of average annual cash balances.
(g) Operating and Maintenance Expenses are projected to increase 7.0%per year.
(h) Annual CIP Outlays is based on the cash flow projections developed from the CIP Validation Sandy.
Source: (range County Sanitation District.
Management's Discussion and Analysis of Operating Data
The District's Fiscal Year 2007-08 total operating and capital improvement budget is $513.2
million, a 12.5% increase over the prior year budget of$456.3 million. The District's Fiscal Yew 2007-
08 budget includes$302.7 million in capital improvement outlays as the District moves towards reaching
secondary treatment standards by the target date of December 31, 2012, as specified by the Board of
80199915.1 43
Directors'July 2002 resolution and in keeping with the terms and conditions of its ocean discharge permit
and related Consent Decree.
The Fiscal Year 2007-08 operations budget for the collection, treatment, and disposal of
wastewater is $142.6 million, an $11.3 million, or 8.6% increase from the prior year budget of$131.3
million. This increase is primarily attributable to the proposed increase in personnel costs due mostly to
the current capital improvement program, totaling $2.1 billion over the next 10 years. Personnel costs
were increased $5.5 million, or 7.40/6. Although staffing was approved at 634 full time equivalents, a
reduction of ten from the prior year, actual personnel costs will increase by $4.0 million as a result of
recently approved collective bargaining agreement impacts, including medical and other benefit cost
increases. The other significant increase in personnel cost is the$700,000,or 5.7%,increase in retirement
premiums. This increase reflects revised actuarial assumptions, low interest eamings in prior years, es
well as the enhanced retirement benefit program effective July 1, 2005. The contractual services budget
increased$4.1 million, or 23%. The major component of this category is biosolids removal and transport
costs. Contracts have been executed with firms for agricultural reuse of residual solids. Due to the
average removal rate per ton increasing from $46 to $53, biosolids removal increased $1.6 million, or
12.1%from the prior year. The utility budget increased $1.1 million,or 12.5%primarily as a result in the
increase in consumption of electricity compounded by increases in rates charged by utility providers.
Electricity is the largest utility cost incurred by the District and is used to run the plant processes. The
Fiscal Year 2007-08 budget reflects an increase in imported electricity because new government
regulations on air emission limits has forced a reduction in electrical power production at the District's
central generation facilities, a process that converts methane gas into electricity.
The Fiscal Year 2007-08 CIP cash flow budget was approved at$302.7 million,a 13.7%increase
from the prior year budget of$266.1 million. In preparation of the Fiscal Year 2006.07 and 2007-08
budgets, the Board of Directors established a CIP Oversight Committee to review the CIP program and
staffs annual validation effort of the CIP to ensure that the scope of the projects was appropriate and that
the cost estimates were accurate, and to gain an understanding of the impact from the CIP to the current
rate structure. The Fiscal Year 2007-08 CIP includes 79 large capital projects and 27 special projects
with a projected 14-year cash outlay of$1.62 billion. Over this time period,the CIP will accomplish:
• Rehabilitation of the existing headworks, primary treatment, secondary treatment, outfall
pumping, and solids handling facilities at both treatment plants;
• Replacement and rehabilitation of nine of the District's outlying pumping stations, and
rehabilitation and upgrade of 29 trunk sewer improvement projects;
• Optimization of the production of"power"and"biosolids"at each of the treatment plants;
• Reclamation of 70 million gallons per day of the District's effluent,or nearly one-third of the
total daily flow through the Groundwater Replenishment System;and
• Achieve secondary treatment standards by December 2012.
Based on the results of the CB'Oversight Committee, the Board of Directors adopted Ordinance
No.OCSD-32 increasing the sanitary sewer service charges by approximately 9.8%for Fiscal Year 2007-
08. This action increased the single family residence user rate, the basis for all sewer user fee rates, from
$165.80 to $182.00. The review completed by the CIP Oversight Committee in Fiscal Year 2006-07
reaffirmed the need for further rate increases in future years. Annual increases are ordered to be subject
to reaffirmation by the affirmative vote of two-thirds of the members of the Board of Directors prior to
80198915.1 44
implementation of any such charge for each fiscal year. See"DISTRICT REVENUES— Sewer Service
Charges."
Investment of District Funds
State statutes authorize the District to invest in obligations of the United States Government,state
and local governmental agencies, negotiable certificates of deposits, bankers acceptances, oommemial
papa, reverse repurchase agreements and a variety of other investment instruments which are allowable
under California Government Code Section 53600 et seq.
All District funds, except for Obligation Reserve Funds controlled by a bank trustee pursuant to
the provisions of Existing Senior Obligations, are managed by an external money manager, Pacific
Investment Management Company ("PIMCO"). Mellon Trust ("Mellon Trust") serves m the District's
independent custodian bank for its investment program. Callan Associates ("Callan") serves as the
District's independent advisor.
At June 30, 2007, the District's externally managed fund consisted of short-teml investment
portfolio of$87,568,000 with an average maturity of 72 days, and a long-term investment portfolio of
$173,811,000 with average maturities of 2.5 years. Investments consist of United States government
securities, corporate bonds and commercial paper. The District's portfolio contains no [structured
investment vehicles(SIVs)or]reverse purchase agreements.
Deposits in banks are maintained in financial institutions which provide deposit protection on the
bank balance from the Federal Deposit Insurance Corporation. The California Government Code requires
State banks and savings and loans to secure local government deposits by pledging government securities
equal to 110% of the deposits or by pledging first trust deed mortgage notes equal to 150°/a of the
deposits.
The District's Investment Policy requires that the District invest public funds in a manner which
ensures the safety and preservation of capital while meeting reasonable anticipated operating expenditure
needs, achieving a reasonable rate of term and conforming to all state and local statutes governing the
investment of public funds. The primary objectives, in order of the District's investment activities are
safety,liquidity and return on investments.
For more information regarding the District's investment portfolio as of June 30,2007, see Note
2 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year
Ended June 30,2007 set forth in Appendix A.
FINANCIAL OBLIGATIONS
Existing Indebtedness
Currently the District has Senior Obligations Outstanding payable on a parity with the Installment
Payments under the Installment Purchase Agreement.The table below describes the District's outstanding
certificates of participation as of May 1, 2008. The payment obligations in connection with each of these
obligations, together with the 1992 Swap and the 1993 Swap described below, constitutes a Senior
Obligation, subject to the provisions of the Master Agreement and shall be afforded all of the advantages,
benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. The
District has no outstanding general obligation bonds.
80199915.1 45
e
Table 16
Outstanding Certificates of Participation Debt
As of May 1,2008
Original Principal Issue Outstanding Final
Amount Date Balance Maturity
1992 Certiftcatesrri $160,600,000 12/03/92 $ 77,340,000 8/1/13
1993 Certificates 46,000,000 9/02193 26,900,000 8/1/16
2000 Certificates 218,600,000 8/13/00 196,600,000 8/1/30
2003 Certificates 280,000,000 8/26103 191,500,000 2/1/33
2006 Certificates 200,000,000 3108/06 196,600,000 2/1/36
2007A Certificates 95,180,000 5/22/07 95,180,000 2/1/30
2007E Certificates 300,000,000 12/20/07 300.000.000 2/1/37
Total Long-Term Debt $1,084,120,000
To be roPonded with the proceeds of the Certificates. See"REFUNDING PLAN."
In connection with the execution and delivery of the above-referenced outstanding certificates of
participation, the district entered into certain installment purchase agreements, or equivalent documents
providing for the payment of installment payments or similar payments.
Variable Rate and Swap Obligations
In December 1992, the District caused the execution and delivery of certain certificates of
participation which were subsequently designated as the County Sanitation Districts Refunding
Certificates of Participation, 1992 Series (the "1992 Certificates") in the original aggregate principal
amount of $160,600,000, of which $77,340,000 remains outstanding. The District entered into an
Amendatory Agreement for Acquisition and Construction (the "1992 Agreement for Acquisition and
Construction"), a Standby Certificate Purchase Agreement (including as thereafter amended and
substituted, the "1992 Standby Agreement") in order to provide for payment of the purchase price of
tendered and unremarketed 1992 Certificates, and an interest Rate Swap Agreement (as amended the
"1992 Swap'l with AIO Financial Products Corp. The District intends to refund all of the outstanding
1992 Certificates with proceeds of the Certificates. See"REFUNDING PLAN."
In September 1993, the District caused the execution and delivery of certain certificates of
participation which were subsequently designated as the County Sanitation Districts Refunding
Certificates of Participation, 1993 Series(the"1993 Certificates"). The District entered into an agreement
for acquisition and construction (the "1993 Agreement for Acquisition and Construction"), a
Reimbursement Agreement (including as thereafter amended and substituted, the "1993 Reimbursement
Agreement") in order to provide for payment of the purchase price of tendered and unremarketed 1993
Certificates, and an interest rate swap agreement, as amended (the "1993 Swap")with Societe Generale,
New York Branch.
In August 2000,the District caused the execution and delivery of the Orange County Sanitation
District Refunding Certificates of Participation, Series 2000-A (the "2000-A Certificates") and the
Orange County Sanitation District Refunding Certificates of Participation, Series 2000-B (the "2000-B
Certificates"and,together with the 2000-A Certificates,the"2000 Certificates") in the original aggregate
principal amount of$218,600,000, of which $196,600,000 remains outstanding. In connection with the
execution and delivery of the 2000 Certificates, the District entered into an installment purchase
agreement(the"2000 Installment Purchase Agreement")and a Standby Agreement,dated as of August 1,
80198915.1 46
2000 (the "2000 Standby Agreement"), by and among the District,the Trustee and Dexia Credit Local,
acting through its New York Agency.
In March 2006, the District caused the execution and delivery of the Orange County Sanitation
Refunding Certificates of Participation, 2006 Series (the "2006 Certificates") in the original aggregate
principal amount of$200,000,000, of which $196,600,000 remains outstanding. In connection with the
execution and delivery of the 2006 Certificates, the District and the Corporation entered into an
installment purchase agreement (the "2006 Installment Purchase Agreement") and the District entered
into a Standby Certificate Purchase Agreement, dated as of March 1, 2006 (the "2006 Standby
Agreement"), with DEPFA Bank plc,acting through its New York Branch,to provide for payment of the
purchase price of tendered and unremarketed 2006 Certificates.
The 1992 Standby Agreement, the 1993 Reimbursement Agreement, and the 2000 Standby
Agreement and the 2006 Standby Agreement each constitutes a Credit Facility Agreement and a Credit
Facility under the Master Indenture. The obligation of the District to repay amounts drawn on or paid
under these agreements,to pay interest on such amounts and to pay any other amounts in connection with
such draw or payment constitutes a Reimbursement Obligation,each with respect to a Senior Obligation.
The District entered into separate interest rate swap agreements in connection with the 1992
Certificates and the 1993 Certificates. The objective of the interest rate swaps is to lower the District's
borrowing costs when compared against fixed-rate bonds at the time of issuance. The swaps effectively
change the District's variable interest rate to a synthetic fixed rate of 5.55%on the 19,92 Certificates and
to a synthetic fixed rate of 4.56% on the 1993 Certificates. By their terms,the District receives payments
that are calculated by reference to a floating interest rate and makes payments that are calculated by
reference to a fixed interest rate. In its annual financial report, the interest rate swap agreements are
accounted for as a hedge by the District, and the associated interest rate differential to be paid or received
is charged to interest expense as interest rates change. See Note 5 to the Comprehensive Annual
Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2007 set forth
in Appendix A.
Under the 1992 Swap,the District receives a variable interest rate equal to the interest paid to the
holders of the 1992 Certificates which is based on a tax exempt daily interest rate as determined by the
remarketing agent on an initial notional amount of$160,600,000. The notional value of the swap declines
in tandem with the principal amount evidenced by the 1992 Certificates. The 1992 Swap matures on
August 1, 2013. Because interest rates have declined since execution of the 1992 Swap,the swap had an
estimated negative fair value of $5.11 million as of June 30, 2007. In connection with the District's
refunding of the 1992 Certificates,the District will terminate the 1992 Swap and pay a settlement amount
to AIG Financial Products Corp. See "REFUNDING PLAN" and "SOURCES AND USES OF
PROCEEDS OF THE CERTIFICATES."
Under the 1993 Swap, the District receives a variable interest rate equal to the interest paid to the
holders of the 1993 Certificates which is based on a tax exempt daily interest rate as determined by the
remarketing agent on an initial notional amount of$46,000,000. The notional value of the 1993 Swap
declines in tandem with the principal amount evidenced by the 1993 Certificates.The 1993 Swap matures
on August 1, 2016. Because interest rates have declined since execution of the 1993 Swap,the swap had
an estimated negative fair value of$1.57 million as of June 30,2007.
The interest rate swap agreements entail risk to the District. The emmunparty may fail or be
unable to perform, interest rates may vary from assumptions and the District may be required to make
significant payments in the event of an early termination of an interest rate swap. The District or the
counterparty may terminate a swap if the other party fails to perform under the terms of the contract. In
80199915.1 47
the event of termination due to default,the defaulting party will pay to the non-defaulting party the excess
(if any) of the sum of the settlement amount and the unpaid amounts owed less the unpaid amounts due
from the non-defaulting party. Each swap may be terminated by the District if the counterparty's credit
quality rating falls below"AA"by Standard& Pom's or"A0 by Moody's Investors Service. If a swap
is terminated, the related series of certificates of participation would no longer carry a synthetic interest
rate. The District believes that if any such an event were to occur, it would not have a material adverse
impact on its financial position.
As of June 30, 2007, the District was not exposed to credit risk associated with such swaps
because each swap had a negative fair value. However, should interest rates change, and the fair value of
the swap become positive,the District would be exposed to credit risk in the amount of the map's fair
value. Neither swap will expose the District to basis risk because the variable-rate interest paid to the
certificate holders is equal to the variable-rate interest earned on the notional amount of the swap.
Net payments under the terms of the interest rate swap agreements constitute Senior Obligations
under the Master Agreement and are on a parity with the District's payment obligations with respect to
the Certificates. Likewise, termination payments under the interest rate swap agreements would be
payable on a parity with the District's payment obligations with respect to the Certificates.
For more information regarding the District's interest rate swaps as of June 30,2007, see Notes 4
and 5 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal
Year Ended June 30,2007 set forth in Appendix A.
Anticipated Financings
From time to time the District expects to deliver other obligations to finance and refinance
portions of the CIP. N Fiscal Year 2008-09 the District expects to incur Additional Senior Obligations in
an aggregate principal amount of approximately$235 million.
Direct and Overlapping Bonded Debt
The Table 17 below presents the aggregate direct and overlapping bonded debt of the District as
of June 30,2007.
80199915.1 48
Table 17
Direct and Overlapping Bonded Debt of the District
as of June 30,2007
ORANGE COUNTY SANITATION DISTRICT
2006.07 Assessed Valuation(Land&Improvements Only): $238,965,565,239(after deducting$31,727,578,239
Redevelopment Incremental Valuation)
OVERLAPPING TAX AND ASSESSMENT DEBT(Based on redevelopment adjusted all property assessed
valuation of$244,881,211,608):
Tma1 Debt District's Share of
6/30/07 %Awlicable ul Debt 6/30/07
Orange County Teeter Plan Obligations $123,725,000 71.936% $ 99.940,954
The Metropolitan Water District of Southcm California 359.115,000 15.058 54.075,537
Coast Community College District 353203,967 99.517 351.497,892
North Orange County Joint Community College District 238.124.001 96.861 230,649289
Rancho Santiago Community College District 324,638,495 99.245 318.941,099
Brea-Olinda and Laguna Beach Unified School Districts 60.694,029 97.821&12.557 29,111312
Newport Mesa Unified School District 172.188,480 100. 172,188,480
Placentia-Yorba Linda Unified School District 92289.003 98.718 91,105,858
Saddleback Valley Unified School District 149,760,000 11.432 17,120,363
Santa Ana Unified School District 130.951207 100. 130,951207
Tustin Unified School District Scbool Facilities
Improvement District No.2002-1 24A81293 99.871 23,N9,415
Anaheim Unity High School District 126.153,955 100. 126.158.955
Fullerton Joint Union High School District 62,432,910 90.192 36354,596
Huntingtco Beach Union High School District 203,873,794 98.979 201,792243
School Districts 242,015,559 97.529-100. 241273,049
City of Anaheim 5.700.000 99.135 5.650,695
Wine Ranch Water District Improvement Districts 189,932,460 Various 199,997216
Rossamor Community Services District Special Tax Obligations 670,000 100. 670,000
Bonita Canyon Community Facilities District No.98-1 43,153,000 100. 43,155,000
Wine Unified School District Community Facilities Districts 271.130.000 99.998-100. 271.128265
Tustin Unified School District Community Facilities
District No.88-1 and 97-1 159.822.675 100. 159.822,675
Omoge County Community Facilities District No.87-4 63,414-W 99.971 63395.954
Other Community Facilities Districts 348350,oD0 Various 348U49982
Orange County Assessment Districts 113.2732% 100. 113,273296
City of Irvine 1915 Am Bonds(Estimate) 939,199,169 I00. 938,189,169
City of Tustin 1915 Act Bonds 55,962400 I00. 55,862A00
Other 1915 Act bonds 21,534.000 100. 21-534A00
TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $4244,788,681
DIRECT AND OVERLAPPING GENERAL FUND DEBT:
Orange County General Food Obligations $597.550,000 71.896% $ 429,554,793
Orange County Pension Obligations 89,893,078 71.886 64,620,538
Orange County Board of Education Certificates of Participation 19,720,000 71.886 14.175,919
Orange County Transit District Authority 1235,000 71.896 897,792
South Orange Comfy Community College District Certificates of Participation 36,910,000 35.123 12-00,399
Brea-Olinda Unified School District Certificates of Participation 30,710,000 97.921 30,040,829
Orange Unified School District Certificates of Participation 51,490,000 96.914 49,839,947
Placcam-Yorba Linda Unified School District Certificates of Participation 86.910,315 98.718 85,697,407
Sears Ana Unified School District Certificates of Participation 66,856251 100. 66.956251
Other Unified School District Certificates of Participation 40255254 Various 39.967.949
Union High School District Certificates of Participation 94,955,000 Various 82.445,164
School District Certificates of Participation 62305,000 Various 62.000.832
City of Anaheim General Food Obligations 696,064312 99.135 690,043.554
City of Costa Mesa General Fund Obligations 49,590.000 100. 48,590,000
(Table 17 continued on next page.)
80198915f 49
(Continued from previous page.)
City of Fullerton General Fund Obligations 30.142,730 100. 30.142.730
City of Huntington Beach General Food and Judgment Obligations 80.669.678 99.982 80,655.158
City of Irvine General Fund Obligations 30.945.000 100. 30.945.000
City of Santa Ana General Fund Obligations 121.725236 100. 121,725236
Other City General Fund Obligations 180.534,977 Various 152336.708
Orange County Sanitation District Certificates of t'amcipation 117.705.000 100. 117,705.000 on
Irvine Ranch Water District Certificates ofPanicipation 41,600,000 99.526 37,242,816
Municipal Water District ofOrenge County Water Facilities Corporation 20,800,000 66.493 13.930.544
Yorba Linda County Water District Certificates of Participation 10.070,000 97,751 9.943.526
Orange County Fire Authority 13.570,000 49.906 6,772.2
TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $2278,883.636
Less: Orange Cowry Transit District Authority(80%self-supporting) 710,234
City of Anaheim self-supporting obligations 409.384,622
Other City self-supporting obligations 8,404,628
MWDOC Water Facilities Corporation(100%self-supporting) 13,830,544
TOTAL NET OVERLAPPING GENERAL FUND DEBT $1.946.553.608
GROSS COMBINED TOTAL DEBT $6.523,672,317t3I
NET COMBINED TOTAL DEBT $6,091.342289
"'Percentage ofoverlapping agency's redevelopment adjusted all property assessed valuation($244.881,211,608)located within
boundaries ofthe district.
tat Excludes wastewater revenue certificates ofparticipation.
r'I Excludes tan and revenue anticipation notes,enterprise revenue,mortgage revenue and tax allocation bonds and non-bonded
capital lease obligations.
Ratios to: Total Overlapping Tax Goss Combined Net Combined
and Assessment Debt Total Debt Total Debt
Land and Improvement Assessed Valuation 1.57% 2.73% 2.55%
All Property Assessed Valuation N/A 2.66% 2.49%
STATE SCIIOOL BUILDING ID REPAYABLE AS OF 7: $0
Source: California Municipal Statistics
THE CORPORATION
The Corporation was organized June 19, 2000 as a nonprofit public benefit corporation pursuant
to the Nonprofit Public Corporation law of the State. The Corporation's purpose is to render assistance to
the District in its acquisition of equipment, real property and improvements on behalf of the District.
Under its articles of incorporation,the Corporation has all powers conferred upon nonprofit public benefit
corporations by the laws of the State,provided that it will not engage in any activity other than that which
is necessary or convenient for,or incidental to the purposes for which it was formed.
The Corporation is a separate legal entity from the District. It is governed by a twenty-five
member Board of Directors. The Corporation has no employees. All staff work is performed by
employees of the District. The members of the Corporation's Board of Directors are the Board of
Directors of the District.
The District's Director of Finance and Administrative Services and other District employees are
available to provide staffsupport to the Corporation.
801989MI 50
The Corporation has not entered into any material financing arrangements other than those
referred to in this Official Statement. Further information concerning the Corporation may be obtained
from the Orange County Sanitation District office at 10844 Ellis Avenue, Fountain Valley, California,
92708-7018.
LIMITATIONS ON TAXES AND REVENUES
Article XIIIA of the California Constitution
On June 6, 1978, California voters approved Proposition 13 ("Proposition 13"), which added
Article XIIIA to the State Constitution ("Article XIIIA"). Article XIIIA, as amended, 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 (i)indebtedness approved by the voters prior to
July 1, 1978,(ii)(as a result of an amendment to Article XIIIA approved by State 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-third of the voters on such indebtedness, and (iii)bonded indebtedness
incurred by a school district or community college district for the construction, reconstruction,
rehabilitation or replacement of school facilities or the acquisition or lease of real property for school
facilities, approved by 55% of the voters of the district, but only if certain accountability measures are
included in the proposition. Article XIIIA defines fall cash value to mean "the county assessor's
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." The full cash value may be adjusted m rually to reflect inflation at a
rate not to exceed 20/4 per year or to reflect a reduction in the consumer price index or comparable data for
the area under the taxing jurisdiction, or reduced in the event of declining property values caused by
substantial damage, destruction, or other factors. Legislation enacted by the State Legislature to
implement Article XIIIA provides that notwithstanding my other law,local agencies may not levy my ad
valorem property tax except to pay debt service on indebtedness approved by the voters as described
above.
Legislation Implementing Article XIIIA
Legislation has been enacted and amended a number of times since 1978 to implement Article
XIIIA. Under current law,local agencies are no longer permitted to levy directly my property tax(except
to pay voter-approved indebtedness). The one percent property tax is automatically levied by the County
and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in
proportion to the relative shares of taxes levied prior to 1989.
Increases of assessed valuation resulting from reappraisals of properly due to new construction,
change in ownership or from the two percent annual adjustment are allocated among the various
jurisdictions in the`4axing area"based upon their respective"situs." Any such allocation made to a local
agency continues as part of its allocation in future years.
Beginning in the 1981-82 fiscal year, assessors in the State no longer record property values on
tax rolls at the assessed value of 25%of market value which was expressed as$4 per$100 assessed value.
All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is
expressed as $1 per$100 of taxable value. All taxable property value included in this Official Statement
is shown at 100% of market value(unless noted differently) and all tax rates reflect the $1 per $100 of
taxable value.
80198915.1 51
Article XIIIB of the California Constitution
An initiative to amend the State Constitution entitled"Limitation of Government Appropriations"
was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution ("Article
XIIIB"). Under Article XIIIB,the State and each local governmental entity has an annual"appropriations
limit" and is not permitted to spend certain moneys that 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 that 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 terns, 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.
"Appropriations subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues, state subventions and certain other funds, including proceeds from regulatory
licenses, user charges or other fees to the extent that such proceeds exceed"the cost reasonably home by
such entity in providing the regulation, product or service,"but `proceeds of taxes"excludes tax refunds
and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of
funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non-
tax funds.
Not included in the Article XIIIB limit are appropriations for the debt service costs of bonds
existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations
required to comply with mandates of courts or the federal government and appropriations for qualified
capital outlay projects. The appropriations limit may also be exceeded in certain cases of emergency.
The appropriations limit for the District in each year is based on the District's limit for the prior
year, adjusted annually for changes in the cost of living and changes in population, and adjusted, where
applicable, for transfer of financial responsibility of providing services to or from another unit of
govemment. The change in the cost of living is,at the District's option, either(1)the percentage change
in State per capita personal income, or (2) the percentage change in the local assessment roll on
nonresidential property. Either test is likely to be greater than the change in the cost of living index,
which was used prior to Proposition 111. Change in population is to be measured either within the
jurisdiction of the District or the County as a whole.
As amended by Proposition 1 11, the appropriations limit is tested over consecutive two-year
periods. Any excess of the aggregate "proceeds of taxes" received by a District over such two-year
period above the combined appropriations limits for those two years is to be returned to taxpayers by
reductions in tax rates or fee schedules over the subsequent two years. As originally enacted in 1979,the
District's appropriations limit was based on 1978-79 authorizations to expend proceeds of taxes and was
adjusted annually to reflect changes in cost of living and population (using different definitions, which
were modified by Proposition 111). Starting with Fiscal Year 1990-91,the District's appropriations limit
was recalculated by taking the actual Fiscal Year 1986-87 limit, and applying the annual adjustments as if
Proposition I I I had been in effect. The District does not anticipate that any such appropriations
limitations will impair its ability to make Installment Payments as required by the Installment Purchase
Agreement.
80198913.1 52
Proposition IA
Proposition IA("Proposition IA"), proposed by the Legislature in connection with the 2004-05
Budget Act and approved by the voters in November 2004, restricts State authority to reduce major local
tax revenues such as the tax shifts permitted to take place in Fiscal Yews 2004-05 and 2005-06.
Proposition IA provides that the State may not reduce any local sales tax rate, limit existing local
government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject
to certain exceptions. Proposition 1 A generally prohibits the State from shifting to schools or community
colleges any share of property tax revenues allocated to local governments for any fiscal year,as set forth
under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues
among local govenunents within a county must be approved by two-thirds of both houses of the
Legislature.
Proposition IA provides,however, that beginning in Fiscal Year 2008A9, the State may shift to
schools and community colleges up to 8%of local government property tax revenues,which amount must
be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a
severe state financial hardship, the shift is approved by two thirds of both houses and certain other
conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax
revenues among local governments within a county.
Proposition IA also provides that if the State reduces the vehicle license fee ("VLF") rate
currently in effect, 0.65% of vehicle value, the State must provide local governments with equal
replacement revenues. Further, Proposition IA requires the State, beginning July 1, 2005, to suspend
State mandates affecting cities, counties and special districts, excepting mandates relating to employee
rights, schools or community colleges, in any year that the State does not fully reimburse local
governments for their costs to comply with such mandates.
Proposition 62
On November 4, 1986, California voters adopted Proposition 62, a statutory initiative which
amended the California Government Code by the addition of Sections 53720-53730. Proposition 62
requires that(i)any local tax for general governmental purposes(a"general tax")must be approved by a
majority vote of the electorate; (ii)any local tax for specific purposes (a"special tax")must be approved
by a two-thirds vote of the electorate; (iii)any general tax must be proposed for a vote by two-thirds of
the legislative body; and(iv)proceeds of any tax imposed in violation of the vote requirements must be
deducted from the local agency's property tax allocation. Provisions applying Proposition 62
retroactively from its effective date to 1985 are unlikely to be of any continuing importance; certain other
restrictions were already contained in the Constitution.
Most of the provisions of Proposition 62 were affirmed by the 1995 California Supreme Court
decision in Santa Clara County Local Transportation Authority v. Guardino,which invalidated a special
sales tax for transportation purposes because fewer than two-thirds of the voters voting on the measure
had approved the tax. The District has not imposed any taxes subject to the provisions of Proposition 62
and believes that it will not impair its ability to make its Installment Payments as required by the
Installment Purchase Agreement. The requirements of Proposition 62 have generally been superseded by
the enactment of Article XIIIC of the Constitution(Proposition 218)in 1996.
Article X111C and Article X111D of the California Constitution
Proposition 218, a State ballot initiative known as the "Right to Vote on Taxes Act," was
approved by the voters on November 5, 1996. The initiative added Articles XIIIC and XIIID to the
8098915.1 53
California Constitution,creating additional requirements for the imposition by most local governments of
"geneml taxes, "special taxes,""assessments,'"fees;'and"charges." Proposition 218 became effective,
pursuant to its terms, as of November 6, 1996, although compliance with some of its provisions was
deferred until July I, 1997, and certain of its provisions purport to apply to any tax imposed for general
govenunental purposes(i.e.,"general taxes")imposed,extended or increased on or after January 1, 1995
and prim to November 6, 1996.
Article XIIID imposes substantive and procedural requirements on the imposition, extension or
increase of any"fee"m"charge" subject to its provisions. A "fee"or"charge" subject to Article XIIID
includes any levy, other than an ad valorem tax,special tax or assessment, imposed by an agency upon a
parcel or upon a person as an incident of property ownership. Article XIIID prohibits, among other
things, the imposition of any proposed fee or charge, and, possibly, the increase of any existing fee or
charge, in the event written protests against the proposed fee or charge are presented at a required public
hearing on the fee or charge by a majority of owners of the parcels upon which the fee or charge is to be
imposed. Except for fees and charges fm water, sewer and refuse collection services, the approval of a
majority of the property owners subject to the fee or charge,or at the option of the agency,by a two-thirds
vote of the electorate residing in the affected area,is required within 45 days following the public hearing
on any such proposed new or increased fee or charge. The California Supreme Court decisions in
Richmond v. Shasta Community Services District, 32 Cal. 4th 409 (2004) ("Richmond'), and Bighorn-
Desert View Water Agency v. Yerjd,, 39 Cal. 4' 205 (2006) ("Bighorn') have clarified some of the
uncertainty surrounding the applicability of Section 6 of Article XIIID to service fees and charges. In
Richmond, the Shasta Community Services District charged a water connection fee, which included a
capacity charge for capital improvements to the water system and a fire suppression charge. The Court
held that both the capacity charge and the fire suppression charge were not subject to Article XIIID
because a water connection fee is not a property-related fee or charge because it results from the property
owner's voluntary decision to apply for the connection. In both Richmond and Bighorn, however, the
Court stated that a fee for ongoing water service through an existing connection is imposed "as an
incident of property ownership" within the meaning of Article XIIID, rejecting, in Bighorn, the water
agency's argument that consumption-based water charges are not imposed "as an incident of property
ownership"but as a result of the voluntary decisions of customers as to how much water to use.
Article XIIID also provides that"standby charges"are considered"assessments"and must follow
the procedures required for "assessments" under Article XIIID and imposes several procedural
requirements for the imposition of any assessment, which may include (1) various notice requirements,
including the requirement to mail a ballot to owners of the affected property; (2) the substitution of a
property owner ballot procedure for the traditional written protest procedure,and providing that"majority
protest" exists when ballots (weighted according to proportional financial obligation) submitted in
opposition exceed ballots in favor of the assessments; and (3) the requirement that the levying entity
"separate the general benefits from the special benefits conferred on a parcel"of land. Article XIIID also
precludes standby charges for services that are not immediately available to the parcel being charged.
Article XIIID provides that all existing, new or increased assessments are to comply with its
provisions beginning July 1, 1997. Existing assessments imposed on or before November 5, 1996, and
"imposed exclusively to finance the capital costs or maintenance and operations expenses for [among
other things] water" are exempted from some of the provisions of Article XIIID applicable to
assessments.
Article XIIIC extends the people's initiative power to reduce or repeal existing local taxes,
assessments,fees and charges. This extension of the initiative power is not limited by the terms of Article
XIIIC to fees, taxes, assessment fees and charges imposed after November 6, 1996 and absent other
authority could result in retroactive reduction in any existing taxes, assessments, fees or charges. In
80198915.1 54
Bighom, the Court concluded that under Article XIIIC local voters by initiative may reduce a public
agency's water rates and delivery charges. The Court noted, however, that it was not holding that the
authorized initiative power is free of all limitations, stating that it was not determining whether the
electorate's initiative power is subject to the public agency's statutory obligation to set water service
charges at a level that will "pay the operating expenses of the agency, . . . provide for repairs and
depreciation of works,provide a reasonable surplus for improvements,extensions,and enlargements,pay
the interest on any bonded debt, and provide a sinking or other fund for the payment of the principal of
such debt as it may become due."
The District implemented a five-year plan beginning in Fiscal Year 2002-03 which included a
rate increase of$7.50 per year,or 9.4%, for all ratepayers to $87.50 per year. In May 2003,the Board of
Directors approved consideration of a 15%rate increase a year,for each year,over the then following five
years, upon 2/3 vote of the Board of Directors after conducting a noticed public hearing in compliance
with Article XIIID. This level of increase was considered necessary to provide needed capital
improvements,to cover additional treatment and disinfection costs,and to minimize rate increases over an
extended period of time. On July 2, 2003, the Board of Directors adopted Ordinance No. OCSD-20
increasing sanitary sewer service charges for all single family and multi-family residential units as well as
most commercial and industrial properties. The Ordinance was adopted by a 2/3 vote of the Board of
Directors as required under law after conducting a noticed public hearing in compliance with all laws.
The Ordinance increases the amount of the annual charges by approximately 15%per year for each of the
following five years, commencing with Fiscal Year 2003.04, thereby raising the single family residence
user rate from the then current$87.50 to $100.00, $115.00, $132.00,$152.00,and$175.00 annually. The
Ordinance discounted by 5%the annual increases which were the subject of the required protest hearings
on the fee increase as described above. After the completion of the CIP Validation Study for Fiscal Year
2005-06 that increased its ten year CIP cash flow projects to $2.2 billion, or an average of$220 million
per year, the Board of Directors adopted Ordinance No. OCSD-26 increasing the Fiscal Year 2005-06
single family residential rate 31%,from $115 to$151 for such year. In May 2006,the Board of Directors
adopted Ordinance No. OCSD-30B increasing the Fiscal Year 2006-07 single family residential rate
9.8%, from$151.00 to $165.80 for such year, except those located in Revenue Area 14. These increases
represented the increase permitted under the protest hearings on the fee increase which was held in 2003.
In April 2007, the Board of Directors began consideration of increased sanitary sewer service
charges for all single family and multi-family residential units and most commercial and industrial
properties. Any such increases are subject to approval by ordinance adopted by a 2/3 vote of the Board of
Directors after conducting a noticed public hearing in compliance with all laws. See "DISTRICT
REVENUES—Sewer Service Charges"and'—Capital Improvement Program"herein.
Pursuant to the Master Agreement, the District will,to the extent permitted by law, fix,prescribe
and collect fees and charges for the services of the Wastewater System which will be at least sufficient to
yield during each Fiscal Year(a)Net Revenues equal to 125% of Debt Service on Senior Obligations for
such Fiscal Year, and (b)Net Operating Revenues equal to 100% of Debt Service on all Obligations for
such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may
make such classification thereof as it deems necessary, but will not reduce the fees and charges then in
effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be
sufficient to meet the requirements of the Master Agreement. In the event that service charges are
determined to be subject to Article XIIID,and proposed increased service charges cannot be imposed as a
result of a majority protest, such circumstances may adversely effect the ability of the District to generate
revenues in the amounts required by the Master Agreement, and to make Installment payments as
provided in the Installment Purchase Agreement. No assurance may be given that Articles XIIIC and
XIIID will not have a material adverse impact on Net Revenues.
80198915.1 55
Other Initiative Measures
Articles XIIIA, XIIIB, XIIIC and XIIID were adopted pursuant to California's constitutional
initiative process. From time to time other initiative measures could be adopted by California voters,
placing additional limitations on the ability of the District to increase revenues.
LEGAL MATTERS
The validity of the Certificates and certain other legal matter; are subject to the approving
opinion of Fulbright& Jaworski L.L.P., Los Angeles, California, Special Counsel to the District. A
complete copy of the proposed form of Special Counsel opinion is attached as Appendix F hereto.
Special Counsel, in its capacity as Special Counsel to the District, undertakes no responsibility for the
accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon
for the District and the Corporation by Woodruff, Spradlin & Smart, a Professional Corporation, Costa
Mesa, California, and for the District by Fulbright& Jaworski L.L.P. as Disclosure Counsel to the
District.
FINANCIAL ADVISOR
The District has retained Public Resources Advisory Group as financial advisor (the "Financial
Advisor") in connection with the execution and delivery of the Certificates. The Financial Advisor has
not been engaged nor have they undertaken,to audit,authenticate or otherwise verify the information set
forth in the Official Statement, or any other related information available to the District, with respect to
accuracy and completeness of disclosure of such information. The Financial Advisor has reviewed this
Official Statement but makes no guaranty, warranty or other representation respecting accuracy and
completeness of the information contained in this Official Statement.
ABSENCE OF LITIGATION
There is no action,suit,proceeding, inquiry or investigation, at law or in equity, before or by any
court, regulatory agency, public board or body, pending or, to the best knowledge of the District,
threatened against the District affecting the existence of the District or the titles of its directors or officers
to their offices or seeking to restrain or to enjoin the sale or delivery of the Certificates,the application of
the proceeds thereof in accordance with the Trust Agreement, or in any way contesting or affecting the
validity or enforceability of the Certificates,the Trust Agreement, the Master Agreement,the Installment
Purchase Agreement or any action of the District contemplated by any of said documents, or in any way
contesting the completeness or accuracy of this Official Statement, or contesting the powers of the
District or its authority with respect to the Certificates or any action of the District contemplated by any of
said documents,nor,to the knowledge of the District is there any basis therefor.
There is no action,suit,proceeding, inquiry or investigation, at law or in equity, before or by any
court, regulatory agency, public board or body pending or, to the best knowledge of the District,
threatened against the District contesting or affecting the ability of the District to collect amounts from
which Installment Payments are payable, or which would have a material adverse effect on the District's
ability to make Installment Payments.
FINANCIAL STATEMENTS
The basic financial statements of the District included in Appendix A to this Official Statement
have been audited by Mayer Hoffman McCann P.C., independent certified public accountants. In
January 2006 Mayer Hoffman McCann P.C. merged the District's former auditors, Conrad and
80198915.1 56
Associates, L.L.P., into its national practice. See APPENDDC A — "COMPREHENSIVE ANNUAL
FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR
ENDED JUNE 30, 2007" herein. The District has received the Government Finance Officer's
Association Certificate of Achievement for"Excellence in Financial Reporting"for 13 consecutive years
The audited financial statements, including the footnotes thereto, should be reviewed in their entirety.
Mayer Hoffman McCann P.C. has consented to the inclusion of its report as Appendix A but has not
undertaken to update its report or to take any action intended or likely to elicit information concerning the
accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is
expressed by Mayer Hoffman McCann P.C. with respect to any event subsequent to its report dated
October 25,2007.
TAX MATTERS
The Internal Revenue Code of 1986 (the"Code"), imposes certain requirements that must be met
subsequent to the issuance and delivery of the Certificates for the interest component of each Installment
Payment (the `Interest Component"), and the allocable portion thereof distributable in respect of each
Certificate (the "Certificate Interest Distribution"), to be and remain excluded from the gross income of
the owner of such Certificate for federal income tax purposes. Noncompliance with such requirements
could cause such amounts to be included in gross income for federal income tax purposes retroactive to
the date of delivery of the Installment Purchase Agreement and the Certificates. The District and the
Corporation have covenanted in the Installment Purchase Agreement and in the Trust Agreement to
maintain the exclusion pursuant to section 103(a) of the Code of the Interest Component from the gross
income of the District and its assigns, and of the Certifrcateholders, respectively, for federal income tax
purposes.
Upon the delivery of the Certificates, Fu(bright & Jaworski L.L.P., Los Angeles, California,
Special Counsel, will deliver its opinion that, under existing law, and assuming compliance with the
aforementioned covenants,the Interest Component allocable to and the Certificate Interest Distributions
in respect of a Certificate are excluded pursuant to section 103(a) of the Code from the gross income of
the owner of the Certificate for federal income tax purposes; inasmuch as the Installment Purchase
Agreement is not a"specified private activity bond"within the meaning of section 57(a)(5)of the Code,
neither the Interest Component nor any Certificate Interest Distribution is an item of tax preference for
purposes of computing the alternative minimum tax imposed by section 55 of the Code. It is noted that
the Interest Component allocable to and Certificate Interest Distributions in respect of a Certificate owned
by a corporation for federal income tax purposes may affect the computation of the alternative minimum
taxable income, upon which the alternative minimum tax is imposed to the extent that such amounts are
taken into account in determining the adjusted earnings of that corporation (75 percent of the excess(if
any)of such adjusted current earnings over the alternative minimum taxable income being an adjustment
to the alternative minimum taxable income (determined without regard to the adjustment or to the
alternative tax net operating loss deduction)). Further, on that same day Special Counsel will render its
opinion, based solely on the foregoing, and upon existing provisions of the laws of California, that such
Interest Component and Certificate Interest Distributions are exempt from personal income taxes of the
State of California.
To the extent that a purchaser of a Certificate acquires that Certificate at a price that exceeds the
aggregate amount of scheduled distributions(other than distributions of qualified stated interest within the
meaning of section 1.1273-1 of the Treasury Regulations) to be made on the Certificate (determined, in
the use of a prepayable Certificate, under the assumption described below) (the "Stated Redemption
Price at Maturity"), such excess will constitute "bond premium" under the Code. Section 171 of the
Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a
tax-exempt obligation must be amortized on a constant yield, economic accrual, basis; the amount of
$0198915.1 57
premium so amortized will reduce the owner's basis in such obligation for federal income tax purposes,
but such amortized premium will not be deductible for federal income tax purposes. In the case of a
purchase of a Certificate that is subject to prepayment, the determination whether there is amortizable
bond premium,and the computation of the accrual of that premium, must be made under the assumption
that the Certificate will be prepaid on the permitted date that would minimize the purchaser's yield on the
Certificate (or that the Certificate will not be prepaid prior to the stated maturity date in respect of that
Certificate if that would minimize the purchaser's yield). The rate and timing of the amortization of the
bond premium and the coresponding basis reduction may result in an owner realizing a taxable gain
when a Certificate owned by such owner is sold or disposed of for an amount equal to or in some
circumstances even less than the original cost of the Certificate to the owner.
The excess, if any, of the Stated Redemption Price at Maturity of a Certificate of a maturity over
the initial offering price to the public of the Certificates of that stated maturity set forth on the inside
cover page of this Official Statement is"original issue discount" Such original issue discount acoming in
respect of a Certificate is treated for federal income tax and California personal income tax purposes as
additional interest in respect of that Certificate and is excluded from the gross income of the owner
thereof for federal income tax purposes and exempt from the California personal income tax. Original
issue discount accruing in respect of any Certificate purchased at such initial offering price and pursuant
to such initial offering will accrue on a semiannual basis over the term to the stated maturity date in
respect of the Certificate on the basis of a constant yield method and,within each semiannual period,will
accrue on a ratable daily basis. The amount of original issue discount in respect of such a Certificate
accruing during each period is added to the adjusted basis of such Certificate to determine taxable gain
upon disposition (including upon sale, prepayment or payment on maturity) of such Certificate. The
Code includes certain provisions relating to the accrual of original issue discount in the case of a
purchaser of a Certificate who purchases that Certificate other than at the initial offering price and
pursuant to the initial offering of that Certificate.
Any person considering purchasing a Certificate at a price that includes bond premium should
consult his or her own tax advisors with respect to the amortization and treatment of such bond premium,
including,but not limited to,the calculation of gain or loss upon the sale,prepayment or other disposition
of the Certificate. Any person considering purchasing a Certificate of a maturity in respect of which there
is original issue discount should consult his or her own in advisors with respect to the tax consequences
of ownership of such Certificate, including the treatment of a purchaser who does not purchase in the
original offering and at the original offering price of that Certificate,the allowance of a deduction for any
loss on a sale or other disposition, and the treatment of accrued original issue discount in respect of such
Certificate under federal individual and corporate alternative minimum taxes.
Special Counsel has not undertaken to advise in the future whether any events after the date of
delivery of the Installment Purchase Agreement and the Certificates may affect the tax status of the
Interest Component and Certificate Interest Distributions. No assurance can be given that future
legislation, or amendments to statutes of the State of California or of the United States, if enacted into
law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of
such amounts from personal income taxes of the State of California or of the exclusion of such amounts
from the gross income of the owners of Certificates for Federal income tax purposes. Furthermore,
Special Counsel will express no opinion as to any federal, state, or local tax law consequences with
respect to the Installment Purchase Agreement, Certificates, himmst Component, or Certificate Interest
Distributions, if any action is taken with respect to the Installment Purchase Agreement, the Certificates,
or the proceeds thereof, or the Trust Agreement permitted or predicated upon the advice or approval of
counsel if such advice or approval is given by counsel other than Fulbright&Jaworski L.L.P.
80198915.1 58
Although Special Counsel is of the opinion that Interest Component and Certificate Interest
Distributions in respect of a Certificate are exempt from state personal income taxation and excluded
from the gross income of the owner thereof for federal income tax purposes, an owner's federal, state or
local tax liability may be otherwise affected by the ownership or disposition of the Certificate. The nature
and extent of these other tax consequences will depend upon the owner's other items of income or
deduction. Without limiting the generality of the foregoing,prospective purchasers of Certificates should
be aware that: (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or
continued to purchase or carry the Certificates or, in the case of financial institution, that portion of an
owner's interest expense allocated to the Certificates; (ii)with respect to insurance companies subject to
the tax imposed by section 831 of the Code, section 832(b)(5)(Bxi) reduces the deduction for loss
reserves by 15 percent of the sum of certain items, including Interest Component and Certificate Interest
Distributions in respect of Certificates owned by such companies;(iii)Interest Component and Certificate
Interest Distributions accrued in respect of Certificates owned by certain foreign corporations doing
business in the United States for federal income tax purposes could be subject to a branch profits tax
imposed by section 884 of the Code; (iv) passive investment income, including Interest Component and
Certificate Interest Distributions accrued in respect of Certificates,accruing to a Subchapter S corporation
that at the close of a taxable year has Subchapter C earnings and profits may be subject to federal income
taxation under section 1375 of the Code if greater than 25% of the gross receipts of such Subchapter S
corporation in passive investment income;(v)section 86 of the Code requires recipients of certain Social
Security and certain Railroad Retirement benefits to take into account, in determining the taxability of
such benefits, Installments Interest and Certificate Interest Distributions accrued in respect of Certificates
owned by such recipients for federal income tux purposes; and (A) under section 32(i) of the Code,
receipt of investment income, including Interest Component and Certificate Interest Distributions accrued
in respect of Certificates, may disqualify the owner thereof from obtaining the earned income credit.
Special Counsel has expressed no opinion regarding any such other tax consequences.
Special Counsel's opinion is not a guarantee of a result, but represents its legal judgment based
upon its review of existing statutes, regulations, published rulings and court decisions and the
representations and covenants of the District and the Corporation described above. No ruling has been
sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the
opinion of Special Counsel, and Special Counsel's opinion is not binding on the Service. The Service has
an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit
of the Certificates is commenced, under current procedures the Service is likely to treat the District as the
"taxpayer," and the Owners would have no right to participate in the audit process. In responding to or
defending an audit of the tax-exempt status of the interest with respect to the Certificates,the District may
have different or conflicting interest from the Owners. Further,the disclosure of the initiation of an audit
may adversely affect the market price of the Certificates, regardless of the final disposition of the audit.
The proposed form of opinion of Special Counsel is attached hereto as Appendix F.
CONTINUING DISCLOSURE
The District has covenanted for the benefit of holders and beneficial owners of the Certificates
(a)to provide certain financial information and operating data (the "Annual Report") relating to the
District and the properly in the District not later than eight months after the end of the District's Fiscal
Year(which currently would be March 1),commencing with the report for the 2007.08 Fiscal Yea, and
(b)to provide notices of the occurrence of certain enumerated events,if material. The Annual Report will
be filed by the Trustee on behalf of the District, with each Nationally Recognized Municipal Securities
Information Repository and with each State Repository, if any. The notices of material events will be
filed by the Trustee on behalf of the District with the Municipal Securities Rulemaking Board and with
each State Repository,if any. The specific nature of the information to be contained in the Annual Report
80199915.1 59
or the notices of material events is set forth in the Continuing Disclosure Agreement. See APPENDIX D
— "FORM OF CONTINUING DISCLOSURE AGREEMENT." These covenants have been made in
order to assist the Initial Purchaser in complying with S.E.C. Rule 15c2-12 (the"Rule"). The District has
not failed to comply in all material respects with any previous undertaking with respect to the Rule to
provide annual reports or notices of material events.
VERIFICATION OF MATHEMATICAL COMPUTATIONS
, certified public accountants (the "Verification Agent"), will
deliver a report stating that the firm has verified the accuracy of mathematical computations concerning
(a)the adequacy of the maturing principal amounts of and interest earned on the Government Obligations
initially deposited in the Escrow Fund to provide for the payment of the interest due on each of the
Refmnded Certificates to and including the Prepayment Date, and to pay on the Prepayment Date the
principal or redemption price thereof, and (b) the computations of yield on the Certificates and of
investments in the Escrow Fund.
The report of the Verification Agent will include the statement that the scope of its engagement
was limited to verifying the mathematical accuracy of the computations contained in such schedules
provided to it and that the Verification Agent has no obligation to update its report because of events
occurring,or data or information coming to its attention, subject to the date of its report.
RATINGS
The Certificates will be rated " " by Moody's Investors Service ("Moody's"), "_" by
Di Standard & Poor's Ratings Services, a vision of The McGraw-Hill Companies, Inc. ("S&P"), and
"_"by Fitch Ratings("Fitch"). Such ratings reflect only the views of the rating agencies, and do not
constitute a recommendation to buy, sell or hold the Certificates. Explanation of the significance of such
ratings may be obtained only from the respective organizations at: Standard&. Poor's Ratings Group,55
Water Street, New York, New York 10041; Moody's Investors Service, 7 World Trade Center, 250
Greenwich Street, New York, New York 10007; and Fitch Ratings, One State Street Plaza, New York,
New York 10004. There is no assurance that any such ratings will continue for any given period of time
or that they will not be revised downward or withdrawn entirely by the respective rating agencies,if in the
judgment of any such rating agency circumstances so warrant. Any such downward revision or
withdrawal of such ratings may have an adverse effect on the market price of the Certificates.
PURCHASE AND REOFFERING
(the"Initial Purchaser")has purchased the Certificates from
the District at a competitive sale for a purchase price of$ (representing the aggregate
principal amount of the Certificates, plus an original issue premium of $ , and less an
Initial Purchaser's discount of$ ). The public offering prices may be changed from time to
time by the Initial Purchaser. The Initial Purchaser may offer and sell Certificates to certain dealers and
others at prices lower than the offering prices shown on the inside cover page hereof.
MISCELLANEOUS
Included herein are brief summaries of certain documents and reports, which summaries do not
purport to be complete or definitive, and reference is made to such documents and reports for full and
complete statements of the contents thereof. Any statements in this Official Statement involving matters
of opinion, whether or not expressly so stated, are intended as such and not as representations of fact.
80199915.1 60
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.
The execution and delivery of this Official Statement has been duly authorized by the District
ORANGE COUNTY SANITATION DISTRICT
By:
Chair of the Board of Directors
$0198915.1 61
APPENDIX A
COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY
SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30,2007
8019"15.1 A-1
APPENDIX B
THE COUNTY OF ORANGE-ECONOMIC AND DEMOGRAPHIC INFORMATION
80198915.1 B-]
APPENDIX C
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
90198915.1 C-1
APPENDIX D
FORM OF CONTINUING DISCLOSURE AGREEMENT
THIS CONTINUING DISCLOSURE AGREEMENT(this"Disclosure Agreement"), dated as
of May 1, 2008, is by and between the ORANGE COUNTY SANITATION DISTRICT, a county
sanitation district organized and existing under the laws of the State of California (the "District"), and
DIGITAL ASSURANCE CERTIFICATION LLC,as Dissemination Agent(the"Dissemination Agent").
WITNESSETH:
WHEREAS, the District has caused to be executed and delivered Orange County Sanitation
District Refunding Certificates of Participation, Series 2008A(the"Certificates"), evidencing principal in
the aggregate amount of$80,255,000, pursuant to a Trust Agreement, dated as of the date hereof(the
"Trust Agreement"), by and among U.S. Bank National Association, as trustee (the "Trustee"), the
Orange County Sanitation District Financing Corporation(the"Corporation")and the District;and
WHEREAS, this Disclosure Agreement is being executed and delivered by the District and the
Dissemination Agent for the benefit of the owners and beneficial owners of the Certificates and in order
to assist the underwriters of the Certificates in complying with the Rule(as defined herein);
NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein
contained,the parties hereto agree as follows:
Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings
ascribed thereto in the Trust Agreement or, if not defined therein, in the Master Agreement, dated as of
August 1, 2000, by and between the District and the Corporation. In addition, the following capitalized
terms shall have the following meanings:
"Annual Report" means any Annual Report provided by the District pursuant to, and as
described in,Sections 2 and 3 hereof.
"Annual Report Date" means the date in each year that is eight months after the end of the
District's fiscal year,which date,as of the date of this Disclosure Certificate,is March 1.
"Disclosure Representative" means the Director of Finance of the District,or such other officer
or employee of the District as the District shall designate in writing to the Dissemination Agent and the
Trustee from time to time.
"Dissemination Agent" means an entity selected and retained by the District, or any successor
thereto selected by the District. The initial Dissemination Agent shall be Digital Assurance Certification
LLC.
"Listed Events"means any of the events listed in subsection(a)of Section 4 hereof.
"National Repository" means any Nationally Recognized Municipal Securities Information
Repository for purposes of the Rule. As of the date hereof, the National Repositories approved by the
Securities and Exchange Commission are identified at http://www.sec.gov/info/municipal/nrmsir.htm.
80198915.1 D-I
"Official Statement" means the Official Statement, dated May_, 2008, relating to the
Certificates.
"Participating Underwriter"means any of the original underwriters of the Certificates required
to comply with the Rule in connection with the offering of the Certificates.
"Repository"means each National Repository and each State Repository.
"Rule" means Rule ISc2-12 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 Repository" means any public or private repository or entity designated by the State of
California as a state repository for the purpose of the Rule and recognized by the Securities and Exchange
Commission. As of the date of this Disclosure Agreement,there is no State Repository.
Section 2. Provision of Annual Reports. (a) The District shall, or shall cause the
Dissemination Agent to,not later than the Annual Report Date,commencing with the report for the 2007-
08 Fiscal Year,provide to each Repository an Annual Report which is consistent with the requirements of
Section 3 hereof. The Annual Report may be submitted as a single document or as separate documents
comprising a package, and may include by reference other information as provided in Section 3 hereof;
provided that the audited financial statements of the District may be submitted separately from the
balance of the Annual Report,and later than the date required above for the filing of the Annual Report if
not available by that date. If the District's fiscal year changes, it shall give notice of such change in the
same manner as for a Listed Event under subsection(t)of Section 4 hereof.
(b) Not later than 15 business days prior to the date specified in subsection(a)of this Section
for the providing of the Annual Report to the Repositories,the District shall provide the Annual Report to
the Dissemination Agent and the Trustee. If by such date, the Dissemination Agent has not received a
copy of the Annual Report,the Dissemination Agent shall contact the District to determine if the District
is in compliance with the first sentence of this subsection(b).
(c) If the Dissemination Agent is unable to confirm that an Annual Report has been provided
to Repositories by the date required in subsection(a)of this Section,the Dissemination Agent shall send a
notice to the Municipal Securities Rulemaking Board and each State Repository, if any, in substantially
the form attached as Exhibit A.
(d) The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual Report the time
and address of each National Repository and each State Repository,if any; and
(ii) file a report with the District and(if the Dissemination Agent is not the Trustee)
the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure
Agreement, stating the date it was provided and listing all the Repositories to which it was
provided.
Section 3. Content of Annual Reports. The District's Annual Report shall contain or
incorporate by reference the following:
(a) Audited financial statements prepared in accordance with generally accepted accounting
principles as promulgated to apply to governmental entities from time to time by the Governmental
80198915.1 D-2
Accounting Standards Board. If the District's audited financial statements are not available by the time
the Annual Report is required to be filed pursuant to subsection(a)of Section 2 hereof,the Annual Report
shall contain unaudited financial statements in a format similar to the financial statements contained in the
Official Statement, and the audited financial statements shall be filed in the same manner as the Annual
Report when they become available.
(b) The following information with respect to the Certificates:
(i) The principal evidenced by the Certificates Outstanding as of the January I next
preceding the Annual Report Date and the principal amount of other Senior Obligations
outstanding as of the January 1 next preceding the Annual Report Date.
(ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as
of the January 1 next preceding the Annual Report Date.
(c) A summary report showing in reasonable detail Revenues, Operating Revenues,
Maintenance and Operation Costs,Net Revenues, Net Operating Revenues and debt service with respect
to the Senior Obligations for the fiscal year ended the June 30 next preceding the Annual Report Date.
(d) An update, for the fiscal year ended the June 30 next preceding the Annual Report Date,
of the information contained in the Official Statement in Table Nos. 2, 4, 6 (only with respect to
information on 6 under the headings Fiscal Year and Sewer Service Charge), 8 (not to include
projections),9, 10, 11, 12, 13, 14 and 16.
(e) In addition to any of the information expressly required to be provided under subsections
(a), (b), (c) and (d) of this Section, the District shall provide such further information, if any, as may be
necessary to make the specifically required statements, in the light of the circumstances under which they
are made,not misleading.
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 or the Securities and Exchange Commission. If the document
included by reference is a final official statement, it must be available from the Municipal Securities
Rulemaking Board. The District shall clearly identify each such other document so included by
reference.
Section 4. Reoortlne of Significant Events. (a)Pursuant to the provisions of this Section,
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.
(3) Unscheduled draws on debt service reserves reflecting financial
difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial
difficulties.
(5) Substitution of credit or liquidity providers,or their failure to perform.
80198915.1 D-3
(6) Adverse tax opinions or events affecting the tax-exempt status of the
security.
(7) Modifications to rights of security holders.
(8) Contingent or unscheduled Certificate calls.
(9) Defeasances.
(10) Release, substitution, or sale of property securing repayment of the
securities.
(11) Rating changes.
(b) The District shall, within one business day of obtaining actual knowledge of the
occurrence of any of the Listed Events,contact the Disclosure Representative, inform such person of the
event, and request that the District promptly notify the Dissemination Agent in writing whether or not to
report the event pursuant to subsection(f)of this Section.
(c) Whenever the District obtains knowledge of the occurrence of a Listed Event, whether
because of a notice from the Dissemination Agent pursuant to subsection (b) of this Section or otherwise,
the District shall as soon as possible determine if such event would be material under applicable Federal
securities law.
(d) If the District has determined that knowledge of the occurrence of a Listed Event would
be material under applicable Federal securities law, the District shall promptly notify the Dissemination
Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to
subsection(f)of this Section.
(e) If in response to a request under subsection (b) of this Section, the District determines
that the Listed Event would not be material under applicable Federal securities law, the District shall so
notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the
occurrence pursuant to subsection(f)of this Section.
(f) If the Dissemination Agent has been instructed by the District to report the occurrence of
a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal
Securities Rulemaking Board and each Repository. Notwithstanding the foregoing, notice of Listed
Events described in paragraphs(8)and(9)of subsection (a) of this Section need not be given under this
subsection any earlier than the notice (if any) of the underlying event is given to holders of affected
Certificates pursuant to the Trust Agreement.
Section 5. Electronic Filing. Submission of Annual Reports and notices of Listed Events
to DisclosureUSA.org or another "Central Post Office" designated and accepted by the Securities and
Exchange Commission shall constitute compliance with the requirement of filing such reports and notices
with each Repository hereunder, and the District may satisfy its obligations hereunder to file any notice,
document or information with a Repository by filing the same with any dissemination agent or conduit,
including DisclosureUSA.org or another"Central Post Office"or similar entity, assuming or charged with
responsibility for accepting notices,documents or information for transmission to such Repository,to the
extent permitted by the Securities and Exchange Commission or Securities and Exchange Commission
staff or required by the Securities and Exchange Commission. For this purpose, permission shall be
deemed to have been granted by the Securities and Exchange Commission staff if and to the extent the
90198915.1 D-4
agent or conduit has received an interpretive letter, which has not been revoked, from the Securities and
Exchange Commission staff to the effect that using the agent or conduit to transmit information to the
Repository will be treated for purposes of the Rule as if such information were transmitted directly to the
Repository.
Section 6. Termination of Reporting Obligation. The District's obligations under this
Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of
all of the Certificates. If such termination occurs prior to the final maturity of the Certificates,the District
shall give notice of such termination in the same manner as for a Listed Event under subsection If) of
Section 4 hereof.
Section 7. Dissemination Agent. The District may, from time to time, appoint or engage
another Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement,
and may discharge any such Dissemination Agent,with or without appointing a successor Dissemination
Agent. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the
Dissemination Agent; provided it shall receive written notice of such designation at the time of such
designation.
Section S. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Agreement the District and the Dissemination Agent may amend this Disclosure Agreement (and the
Dissemination Agent shall agree to any amendment so requested by the District), and any provision of
this Disclosure Agreement may be waived provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of subsection(a)of Section 2 hereof,
Section 3 hereof or subsection(a)of Section 4 hereof, it may only be made in connection with a change in
circumstances that arises from a change in legal requirements, change in law, or change in the identity,
nature or status of an obligated person with respect to the Certificates,or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived would, in the opinion of
nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the
primary offering of the Certificates, after taking into account any amendments or interpretations of the
Rule,as well as any change in circumstances;and
(c) the proposed amendment or waiver(i) is approved by holders of the Certificates in the
manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of
holders, or(ii)does not, in the opinion of the Trustee and nationally recognized bond counsel, materially
impair the interests of holders.
If the annual financial information or operating data to be provided in the Annual Report is
amended pursuant to the provisions hereof, the annual financial information containing the amended
operating data or financial information shall explain, in narrative form, the reasons for the amendment
and the impact of the change in the type of operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be followed
in preparing financial statements, the annual financial information for the year in which the change is
made shall present a comparison between the financial statements or information prepared on the basis of
the new accounting principles and those prepared on the basis of the former accounting principles. The
comparison shall include a qualitative discussion of the differences in the accounting principles and the
impact of the change in the accounting principles on the presentation of the financial information,in order
to provide information to investors to enable them to evaluate the ability of the District to meet its
80198915.1 D-5
obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the
change in the accounting principles shall be sent to the Repositories.
Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed
to prevent the District from disseminating any other information, using the means of dissemination set
forth in this Disclosure Agreement or any other means of communication, or including any other
information in any Annual Report or notice of occurrence of a Listed Event,in addition to that which is
required by this Disclosure Agreement. If the District chooses to include any information in any Annual
Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this
Disclosure Agreement, the District shall have no obligation under this Disclosure Agreement to update
such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 10. Default In the event of a failure of the District or the Dissemination Agent to
comply with any provision of this Disclosure Agreement,the Trustee may(and,at the written direction of
any Participating Underwriter or the holders of at least 25% of the aggregate amount of principal
evidenced by Outstanding Certificates and upon being indemnified to its reasonable satisfaction, shall),or
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,
Trustee or the Dissemination Agent, as the case may be, to comply with its obligations under this
Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of
Default under the Trust Agreement,and the sole remedy under this Disclosure Agreement in the event of
any failure of the District, the Trustee or the Dissemination Agent to comply with this Disclosure
Agreement shall be an action to compel performance.
Section 11. Duties. Immunities and Liabilities of Trustee and Dissemination Agent.
Article Vlll of the Trust Agreement is hereby made applicable to this Disclosure Agreement as if this
Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement. Neither the
Trustee nor the Dissemination Agent shall be responsible for the form or content of any Annual Report or
notice of Listed Event. The Dissemination Agent shall receive reasonable compensation for its services
provided under this Disclosure Agreement. The Dissemination Agent (if other than the Trustee or the
Trustee in its capacity as Dissemination Agent)shall have only such duties as are specifically set forth in
this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its
officers, directors, employees and agents,harmless against any loss, expense and liabilities which it may
incur arising out of or in the exercise or performance of its powers and duties hereunder, including the
costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding
liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the
District under this Section shall survive resignation or removal of the Dissemination Agent and payment
of the Certificates.
Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the
District, the Trustee, the Dissemination Agent, the Participating Underwriter and holders and beneficial
owners from time to time of the Certificates,and shall create no rights in any other person or entity.
Section 13. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the same
instrument.
80199915.1 D-6
IN WITNESS WHEREOF,the parties hereto have executed this Disclosure Agreement as of the
date first above written.
ORANGE COUNTY SANITATION DISTRICT
By:
Lorenzo Tyner
Director of Finance and Administrative Services
DIGITAL ASSURANCE CERTIFICATION LLC,
as Dissemination Agent
By:
Authorized Representative
Acknowledged and Accepted:
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
Authorized Officer
80198915.1 D-]
EXHIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKINC BOARD OF FAILURE
TO FILE ANNUAL REPORT
Name of Issuer: Orange County Sanitation District
Name of Issue: Orange County Sanitation District
Refunding Certificates of Participation, Series 2008A
Date of Issuance: May_,2008
NOTICE IS HEREBY GIVEN that the Orange County Sanitation District(the"District")has not
provided an Annual Report with respect to the above-named Certificates as required by Section 6.09 of
the Trust Agreement,dated as of May I,2008,by and among U.S.Bank National Association,as Trustee,
the Orange County Sanitation District Financing Corporation and the District. [The District anticipates
that the Annual Report will be filed by j
Dated: ORANGE COUNTY SANITATION DISTRICT
By:
cc: Trustee
Dissemination Agent
801989131 D-A-I
APPENDIX E
BOOK-ENTRY SYSTEM
The description that follows of the procedures and recordkeeping with respect to beneficial
ownership interests in the Certificates,payment of principal and interest evidenced by the Certificates to
Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the
Certificates, and other Certificate-related transactions by and between DTC, Participants and Beneficial
Owners, is based on information furnished by DTC which the District and the Corporation each believes
to be reliable, but the District and the Corporation take no responsibility for the completeness or
accuracy thereof.
The Depository Trust Company—Book-Entry System
The Depository Trust Company("DTC" New York,NY,will act as securities depository for the
securities (the "Certificates"). The Certificates will be issued as fully-registered securities registered in
the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Certificate will be issued for the Certificates in
the aggregate principal amount of such issue,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 `blearing agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million U.S. and non-U.S.
equity issues, corporate and municipal debt issues, and money market instruments (from over 100
countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the
post-trade settlement among Direct Participants of sales and other securities transactions in deposited
securities,through electronic computerized book-entry transfers and pledges between Direct Participants'
accounts. This eliminates the need for physical movement of securities certificates. Direct Participants
include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing
corporations,and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust
& Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Cleating Corporation, all of which are registered clearing
agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also
available to others such as both U.S.and non-U.S. securities brokers and dealers,banks,trust companies,
and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA.
The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission.
More information about DTC can be found at www.dtcc.com and www.dtc.org. The information on such
websites is not incorporated herein by such reference or otherwise.
Purchases of Certificates under the DTC system must be made by or through Direct Participants,
which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual
purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation from DTC of their
purchase. Beneficial Owners are,however,expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the
Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their
90198915.1 E-I
ownership interests in the 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 Direct Participants with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be
requested by an authorized representative of DTC. The deposit of Certificates with DTC and their
registration in the name of Cede & Co. or such other nominee do not effect any 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 Direct and Indirect Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct
Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial
Owners will be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take
certain steps to augment transmission to them of notices of significant events with respect to the
Certificates, such as prepayments,tenders,defaults,and proposed amendments to the security documents.
For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the
Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the
alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request
that copies of the notices be provided directly to them.
Prepayment notices shall be sent to DTC. If leas than all of the Certificates within an issue are
being prepaid, DTC's practice is to determine by lot the amount of the interest of each Direct Participant
in such issue to be prepaid.
Neither DTC nor Cede&Co.(nor such other DTC nominee)will consent or vote with respect to
the Certificates unless authorized by a Direct Participant in accordance with DTC's MMI Procedures.
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).
Prepayment proceeds, distributions, and dividend payments on the Certificates will be made to
Cede &Co.,or such other nominee as may be requested by an authorized representative of DTC. DTC's
practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail
information from the District or the Trustee on payable date in accordance with their respective holdings
shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of such Participant and not of
DTC, not its nominee, the Trustee, or the District, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend
payments to Cede &Co. (or such other nominee as may be requested by an authorized representative of
DTC) is the responsibility of the District or the Trustee, disbursement of such payments to Direct
Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the
Certificates at any time by giving reasonable notice to the District or the Trustee. Under such
80199915.1 B-2
circumstances,in the event that a successor securities depository is not obtained,Certificates are required
to be printed and delivered.
The District may decide to discontinue use of the system of book-entry-only transfers through
DTC (or a successor securities depository). In that event, Certificates will be printed and delivered to
DTC.
The information in this section concerning DTC and DTC's book-entry system has been obtained
from sources that the District believes to be reliable, but the District takes no responsibility for the
accuracy thereof.
Discontinuance of DTC Services
In the event(i)DTC determines not to continue to act as securities depository for the Certificates,
(ii)DTC shall no longer act and give notice to the Trustee of such determination or (III)the District
determines that it is in the best interest of the Beneficial Owners that they be able to obtain Certificates
and delivers a written certificate to the Trustee to that effect, DTC services will be discontinued. If the
District determines to replace DTC 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 maturities of
the Certificates,registered in the name of such successor or substitute qualified securities depository or its
nominee. If the District fails to identify another qualified securities depository to replace DTC then the
Certificates shall no longer be restricted to being registered in the certificate registration books in the
name of Cede&Co.,but shall be registered in such names as are requested in a certificate of the District,
in accordance with the Trust Agreement.
All Certificates may be presented for transfer by the Owner thereof, in person or by his attorney
duly authorized in writing, at the Principal Office of the Trustee, on the books required to be kept by the
Trustee pursuant to the provisions of the Trust Indenture, upon surrender of such Certifications for
cancellation accompanied by delivery of a duly executed written instrument of transfer in a form
acceptable to the Trustee. The Trustee may treat the Owner of any Certificate as the absolute owner of
such Certificate for all purposes, whether or not such Certificate shall be overdue, and the Trustee shall
not be affected by any knowledge or notice to the contrary; and payment of the interest and principal
evidenced by such Certificate shall be made only to such Owner, which payments shall be valid and
effectual to satisfy and discharge the liability evidenced by such Certificate to the extent of the sum or
sums so paid.
Whenever any Certificates shall be surrendered for transfer, the Trustee shall execute and deliver
new Certificates representing the same principal amount in Authorized Denominations. The Trustee shall
require the payment of any Owner requesting such transfer of any tax or other governmental charge
required to be paid with respect to such transfer. Certificates may be presented for exchange at the
Principal Office of the Trustee for a like aggregate principal amount of Certificates of other Authorized
Denominations. The Trustee shall 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. The Trustee shall not be
required to transfer or exchange any Certificate during the period in which the Trustee is selecting
Certificates for prepayment, nor shall the Trustee be required to transfer or exchange any Certificate or
portion thereof selected for prepayment from and after the date of mailing the notice of prepayment
thereof.
80199915.1 E-3
APPENDIX F
FORM OF APPROVING OPINION OF SPECIAL COUNSEL
Upon the execution and delivery of the Certificates, Fulbright di Jaworski L.L.P., Los Angeles,
California, Special Counsel to the District will render its final approving opinion with respect to the
Certificates in substantially the followingform:
[Date of Delivery]
Orange County Sanitation District
10844 Ellis Avenue
Fountain Valley,California 92708-7018
Orange County Sanitation District
Refunding Certificates of Participation
Series 2008A
Ladies and Gentleman:
We have acted as Special Counsel in connection with the $ aggregate principal
amount of Orange County Sanitation District Refunding Certificates of Participation, Series 2008A (the
"Certificates") which evidence direct, fractions] undivided interests of the Owners thereof in the
installment payments (the "Installment Payments"), and the interest thereon, to be made by the Orange
County Sanitation District (the "District")pursuant to the Installment Purchase Agreement, dated as of
May 1,2008(the"Installment Purchase Agreement"),by and between the District and the Orange County
Sanitation District Financing Corporation (the "Corporation"). Pursuant to the Master Agreement for
District Obligations, dated as of August 1, 2000 (the "Master Agreement"), by and between the District
and the Corporation,the District has established conditions and terms upon which obligations such in;the
Installment Payments and the interest thereon,will be incurred and secured. Installment Payments under
the Installment Purchase Agreement are payable solely from Net Revenues as provided in the Installment
Purchase Agreement, consisting primarily of all income and revenue received by the District from the
operation or ownership of the Wastewater System of the District (the "Wastewater System") remaining
after payment of Maintenance and Operation Costs. Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to such terms in the Installment Purchase Agreement.
The Certificates are to be executed and delivered pursuant to a Trust Agreement, dated as of
May 1, 2008 (the "Trust Agreement"), by and among the District, the Corporation and U.S. Bank
National Association, as trustee(the"Trustee"). Proceeds from the sale of the Certificates,together with
other available moneys, will be used to (i)refund the District's Refunding Certificates of Participation,
1992 Series(the"Refunded Certificates")and pay a settlement amount to the provider of an interest rate
swap agreement relating to the Refimded Certificates, (ii)fund a reserve fund for the Certificates and
(iii)pay the costs incurred in connection with the execution and delivery of the Certificates.
80198915.1 F-I
As Special Counsel,we have examined copies certified to us as being true and complete copies of
the Master Agreement,the Trust Agreement and the Installment Purchase Agreement and the proceedings
of the District in connection with the execution and delivery of the Certificates. We have also examined
such certificates of officers of the District, the Corporation and others as we have considered necessary
for the purposes of this opinion.
Based upon the foregoing,we are of the opinion that:
1. The Master Agreement, the Installment Purchase Agreement and the Trust Agreement
have each been duly and validly authorized, executed and delivered by the District and, assuming the
Master Agreement, the Installment Purchase Agreement and the Trust Agreement each constitutes the
legally valid and binding obligation of the other parties thereto, enforceable against such parties in
accordance with its respective terms, each constitutes the legally valid and binding obligation of the
District,enforceable against the District in accordance with its respective terms.
2. The obligation of the District to pay the Installment Payments, and the interest thereon,
and other payments required to be made by it under the Installment Purchase Agreement is a special
obligation of the District payable, in the manner provided in the Installment Purchase Agreement, solely
from Net Revenues and other funds provided for in the Installment Purchase Agreement lawfully
available therefor.
3. Assuming due authorization, execution and delivery of the Trust Agreement and the
Certificates by the Trustee,the Certificates are entitled to the benefits of the Trust Agreement.
4. The Internal Revenue Code of 1986 (the"Code")imposes certain requirements that must
be met subsequent to the execution and delivery of the Certificates for the component of each Installment
Payment designated as interest in the Installment Purchase Agreement (the "Payment Interest"), and the
allocable portion thereof distributable in respect of each Certificate (the "Certificate Interest
Distribution"),to be and remain excluded from the gross income of the owner thereof for federal income
tax purposes. Noncompliance with such requirements could cause such amounts to be included in gross
income of such owner for federal income tax purposes retroactive to the date of delivery of the
Certificates. The Corporation and the District have each covenanted in the Trust Agreement, and the
District has covenanted in the Installment Purchase Agreement, to maintain the exclusion pursuant to
section 103(a)of the Code of the Payment Interest from the gross income of the owner thereof for federal
income tax purposes.
In our opinion, under existing law, and assuming compliance with the aforementioned covenant,
the Payment Interest allocable to and the Certificate Interest Distributions in respect of a Certificate are
excluded pursuant to section 103(a) of the Code from the gross income of the owner thereof for federal
income tax purposes; inasmuch as the Installment Purchase Agreement is not a"specified private activity
bond"within the meaning of section 57(a)(5)of the Code,neither the Payment Interest nor any Certificate
Interest Distribution is an item of tax preference for purposes of computing the alternative minimum tax
imposed by section 55 of the Code. It is noted that the accrual of Payment Interest allocable to and
Certificate Interest Distributions in respect of a Certificate owned by a corporation may affect the
computation of income, upon which the alternative minimum tax is imposed, to the extent that such
amounts are taken into account in determining the adjusted eamings of that corporation(75 percent of the
excess (if any) of such adjusted current earnings over the alternative minimum taxable income being an
adjustment to the alternative minimum taxable income(determined without regard to the adjustment or to
the alternative tax net operating loss deduction)). Further, based solely on the foregoing, and upon
existing provisions of the California Revenue and Tax Code, we are of the opinion that Payment Interest
80198915.1 F-2
allocable to and the Certificate Interest Distributions in respect of a Certificate are not subject to taxation
under the California personal income tax.
We have not undertaken to advise in the future whether any events after the date of delivery of
the Installment Purchase Agreement may affect the tax status of the Payment Interest or Certificate
Interest Distributions. No assurance can be given that future legislation, if enacted into law, will not
contain provisions that could directly or indirectly reduce the benefit of the exclusion of such amounts
from the gross income of the owner of Certificates for federal income tax purposes. Furthermore, we
express no opinion as to any federal, state,or local tax low consequences with respect to the Installment
Purchase Agreement, Certificates, Payment Interest, or Certificate Interest Distributions, if any action is
taken with respect to the Installment Purchase Agreement, the Master Agreement, the Trust Agreement,
the Certificates,or the proceeds thereof,permitted or predicated upon the advice or approval of counsel if
such advice or approval is given by counsel other than us.
Except as stated in the preceding three paragraphs, we express no opinion as to any federal or
state tax consequences of the ownership or disposition of the Installment Purchase Agreement or
Certificates. We have not been requested to express, and do not express, any view as to the compliance
by any person with federal and state securities laws. With the exception of the opinions expressed above,
we have not been requested to express and do not express, any opinion as to any matter affected by any
taxing or other law of the State of California,
The rights of the owners of the Certificates and the enforceability of the Certificates, the Master
Agreement, the Trust Agreement and the Installment Purchase Agreement may be subject to bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or
hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. The
enforceability of the Certificates, the Master Agreement, the Trust Agreement and the Installment
Purchase Agreement is subject to the effect of general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of
specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at
law, and to the limitations on legal remedies against governmental entities in California.
No opinion is expressed herein on the accuracy, completeness or fairness of the Official
Statement or other offering material relating to the Certificates.
Our opinions are based on existing law, which is subject to change. Such opinions are further
based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our
opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any
changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a
guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent
our legal judgment based upon our review of existing law that we deem relevant to such opinions and in
reliance upon the representations and covenants referenced above.
Respectfully submitted,
80198915.1 F-3
APPENDIX B
THE COUNTY OF ORANGE-ECONOMIC AND DEMOGRAPHIC INFORMATION
The County is bordered on the north by Los Angeles County,on the east by Riverside County,on
the southeast by San Diego County and on the west and southwest by the Pacific Ocean. Approximately
42 miles of ocean shoreline provide beaches. marinas and other recreational areas for use by residents
and visitors. The climate in the County is mild with an average annual rainfall of 13 inches.
Population
The County is the third most populous county in the State and the sixth most populous in the
nation. During the period 1999 through 2008, the population of the County increased by approximately
_ o, compared to_%for the State and %for the United States(reflects growth from 1999
through 2007,the most recent period for which United States population data is available).
TABLE B-1
COUNTY OF ORANGE,STATE OF CALIFORNIA AND
UNITED STATES POPULATION GROWTH
State of United States
Year Oranee Countvlrl Californian) of Americaol
1999 2,776,100 33,417,000 272,690,813
2000 2,863,706 34,098,740 282,216,592
2001 2,918,791 34,784,382 285,226,284
2002 2,963,394 35,392,960 288,125,973
2003 3,005,043 35,990,107 290,796,023
2004 3,037,949 36,522,026 293,638,158
2005 3,062,275 36,981,931 296,507,061
2006 3,083,894 37,444,385 299,398,484
2007 3,098,121 37,662,518
2008 [ ] ( ) Sao)
As of Jmmry I of each year.
ut As of July l of each year.
nr 2008 population data has not been released for the United States of America as of the date of this Official
Statement.
Source: Orange County and State of Caffornia Statistics-Calilm nia State Department of Finance, Demographic
Research Unit; United States Statistics-Population Estimates Program, Population Division, US Census
Bureau.
Public Schools(Elementary and Secondary)
Public instruction in the County is provided by twelve elementary school districts, three high
school districts and twelve unified (combined elementary and high school) districts. For the 2007-08
academic year, the largest district, the Santa Ana Unified School District, projects student enrollment of
53,693 (excluding charter schools). Public school enrollment for the academic calendar years 2002-03
through 2006-07 is presented in Table B-2.
70166678.2
B-1
TABLE B-2
COUNTY OF ORANGE
PUBLIC SCHOOL ENROLLMENT
2002-03 2003-04 2004-05 2005-06 2006-07
Grade Level
K-8 361,184 360,996 354,841 350,096 340,566
9-12 150921 154468 158 903903 160 018018 163389
Total Enrollment 512.IQ5 515,4 513.744 510.149 503.955
Source. California Department of Educarion,Educational Demographics Unit.
Colleges and Universities
The County has a number of top-rated, college-level educational institutions, including the
University of California at Irvine and California State University at Fullerton, several private colleges,
universities and law schools and four community college districts.
Employment
The following table summarizes the historical numbers of workers in the County over the period
2003 through 2007 by industry.
TABLE B-3
COUNTY OF ORANGE
INDUSTRY EMPLOYMENT AND LABOR FORCE-ANNUAL AVERAGE
2003 2004 2005 2006 2007
Farts 7,200 6,700 5,300 5,400
Natural Resources and Mining 500 600 700 600
Construction 83,700 92,200 99,300 107,000
Manufacturing 183,900 183,500 182,700 183,400
Wholesale Trade 83,200 82,400 83,000 82,900
Retail Trade 152,800 153,200 157,100 159,500
Transportation Warehousing Utilities 29,000 29,200 28,800 28,400
Information 35,200 33,800 32.800 31,700
Financial Activities 122,200 132,300 138,200 139,000
Professional and Business Services 252,600 254,900 267,000 274,800
Educational and Health Services 126,300 151,000 133,300 138,900
Leisure and Hospitality 158,600 162,900 164,400 169,500
Other Services 46.700 47,400 49,200 47,900
Government 154.200 153 400 155,300 156.500
Total All Industries(l) 1,438,103 1,512,900 1.541,800 1.527,506
Data may not add due to rounding.
Source: Calliamia Employmenr Development Department.
70166678.2
B-2
Major Employers
The following table lists the major employers in the County for 2007.
TABLE B-4
COUNTY OF ORANGE
MAJOR EMPLOYERS
2007
Employer Name Number of Employees
Walt Disney Company 20,250
University of California,Irvine 16,374
Boeing Company 11,242
St. Joseph Health System 9,482
YOM! Brands Inc. 7,000
AT&T Inc. 6,116
California State University,Fullerton 5,337
Hope Depot Inc. 5,200
Memorial Health Services Inc. 4,961
Supervalu hie. 4,819
Source: Orange County Businers Journal 2007 Book of Lists.
Labor Force,Employment and Unemployment
Table B-5 summarizes the labor force, employment and unemployment figures over the period
2003 through 2007 for the County and the State.
TABLE B-5
COUNTY OF ORANGE AND STATE OF CALIFORNIA
LABOR FORCE,EMPLOYMENT AND UNEMPLOYMENT
YEARLY AVERAGE
Unemployment
Year and Area Labor Force Employment Unemployment Rate
2003
Orange County 1,557,400 1,482,400 75,000 4.8%
California 17,403,900 16,212,200 1,191,300 6.8
2004
Orange County 1,580,800 1,512,800 68,000 4.3
California 17,499,600 16,407,900 1,091,700 6.2
2005
Orange County 1,602,200 1,541,800 60,400 3.8
California 17,695,600 16,746,900 948,700 5.4
2006
Orange County 1,623,600 1,568,300 55,300 3.4
California 17,901,900 17,029,300 872,600 4.9
2007
Orange County
California
Source: Califomia Bmploymmt D"elopmmt Depamnmt.
701666782
B-3
Personal Income and other Demographic Information
Table B-6 summarizes the persona] income, per capita persona] income, median family income,
public school enrollment and unemployment rate for the County of Orange.
TABLE B-6
COUNTY OF ORANGE
DEMOGRAPHIC INFORMATION')
Per
Total Personal Capita Median Public
Fiscal Income Personal Family"' School(1) Unemployment
Year (In thousands) Income Income Enrollment Rate
1997-98 $ 90,579,927(') $ 34,639 $ 61,812 458,000 2.9%
1998.99 96,288,099(2) 34,686 63,478 471,000 2.6
1999-00 106,003,904(2) 37,484 69,310 483,000 2.9
2000.01 109,010,27801 37,851 70,577 494,000 3.0
2001-02 111,750,294(2) 38,010 72.998 503,000 4.1
2002-03 117,722,500"1 39,517 73,572 512,000 4.0
2003-04 125,670,1000) 41,654 70,9W 517,000 3.6
2004-05 133,031,800(7) 43,660 73,545 514,000 3.9
2005-06 141,169,400f1 45,954 76,443 510,114 3.7
2006-07 $[148,916,000]() 48,068 [78,950] 503,955 3.9
The—Orange County Sanitation District services 471 square miles or 59%of the total 799 square miles that make
up the boundaries of the County of Orange.
O Bureau of Economic Analysis,U.S.Department of Commerce
(3) Anderson Center for Economic Research,Chapman University.
(4) California Department of Education,Educational Demographics Unit.
(3) State of California,Employment Development Department as of June 30 of each fiscal year.
70166678.2
B-4
Taxable Sales
Table B-7 summarizes the annual volume of taxable transactions in the County from 2002 to
2006.
TABLE B-7
COUNTY OF ORANGE
TAXABLE TRANSACTIONS
(in Thommads)
Type of Business 2002 2003 2004 2005 2006
Apparel stores group $ 1,508,011 $ 1,697,120 $ 1,881,882 $2.062,892 $
General merchandise group 4,618,932 4,855,674 5.205,075 5,467,357
Specialty stores group 4,837,212 5,085,612 5,700,317 6,028,089
Food stores group 1,551,611 1,574,528 1,563,145 1,716,228
Eating and drinking groups 3,884,388 4,149,117 4.475,791 4,798,676
Household group 1,722,573 1,995,255 2,135,876 2.269,650
Building material group 2,275,964 2,480,249 2,950,592 3,000,096
Automotive group 8,482,604 9,651,049 10,585,091 11,283,156
All other retail stores group 765,523 809,093 944,184 1,046,700
Retail Stores Totals 29,646,818 32,297,697 35,441,953 37,672,934
Business&Personal Services 2,615,150 2.6999250 2,819,934 2,938,129
All Other Outlets 12607188 12,530.119 13,420,172 14.452.253
TOTAL ALL OUTLETS $44,869,156 $47,517,066 $51,682,059 $55,063,246 $
Source: Calijomia Siate Board ojEgan7¢ation.
Housing Characteristics
The total number of housing units in the County was estimated by the California State
Department of Finance to be as of January 1, 2007. This compares to 1,024,692 reported by
the Department of Finance in January 2006. According to California Association of Realtors,the median
resale price of single-family dwelling units in Orange County was $ in [April 2008] competed
with$747,258 in April of 2007.
Building Permits
The total valuation of building permits issued in the County reached$ billion in 2007,which
represents about a %increase relative to 2003. Table B-8 provides a summary of residential building
permit valuations and the number of new dwelling units authorized in the County during the period 2003
through 2007.
70166678.2
B-5
TABLE B-8
COUNTY OF ORANGE
BUILDING PERMIT ACTIVITY
2003 through 2007
(In Thousands)
2003 2004 2005 Z0006 22007
Valuation:
Residential $2,076,977 $2,243,645 $2,100,436 $2,336,324
Non-Residential 1.005.547 1,132,946 1,494,755 2,397,248
Total $3,082,525 $3.376,491 $3,595,191 $4,733,572
New Housing Units:
Single Family 5,565 4,395 4,058 3,121
Multiple Family IZ4§ 4.927 3 148 5.219
Total 9,311 9,322 7,206 8,340
Source: Construction Industry Research Board.
Water Supply
Maintaining the County's water supply is the responsibility of the Orange County Water District
("OCWD"), manager of the County's groundwater basin, and the Municipal Water District of Orange
County("M WDOC'),the County's largest manager of imported water. More than 60%of the County's
water is from local groundwater sources; the rest is imported. The County's natural underground
reservoir is sufficient to carry it through temporary shortfall periods, but local supplies alone cannot
sustain the present population.
Recreation and Tourism
The County is a tourist center in Southern California because of the broad spectrum of
amusement parks and leisure, recreational and entertainment activities that it offers. These tourist
attractions are complimented by the year-round mild climate.
Along the County's Pacific Coast shoreline are five state beaches and parks, five municipal
beaches and five County beaches. There are two small-craft docking facilities in Newport Harbor,a third
located at Sunset Beach and a fourth at Dana Point.
Other major recreational and amusement facilities include Disneyland, Disney's California
Adventure,Knott's Berry Farm and the Spanish Mission of San Juan Capistrano. Also located within the
County are the Anaheim Convention Center, Edison International Field of Anaheim, Honda Center,
Orange County Performing Arts Center, Verizon Wireless Amphitheater and the Art Colony at Laguna
Beach with its annual art festival.
The Anaheim Convention Center is located adjacent to Disneyland. It is situated on 53 acres and
is one of the largest convention centers on the West Coast. Table B-9 summarizes the number of
conventions held in the County,as well as attendance for the period 1998 through 2007.
70166678.2
B-6
TABLE B-9
COUNTY OF ORANGE
CONVENTION ACTIVITY
Year Conventions Attendance
1998* 450 750,698
1999* 473 767,689
2000 470 858,593
2001 489 959,000
2002 547 1,008,171
2003 590 1,093,787
2004 666 1,211,476
2005 619 1,113,224
2006 633 1,125,895
2007 [ 1 1 1
Source: Anaheim/Orange County Visitor and Convention Bureau, 2007.
• A portion of the decrease in 1998 and 1999 from attendance and expenditure levels of prior yam is
attributable to the effects of the construction of Disney's California Adventure theme park and related
infrastructure projects.
Transportation
The County is situated in the most heavily populated area in Califomia and has access to
excellent roads, rail, air and sea transportation. The Santa Ana Freeway (Interstate 5) provides direct
access to downtown Los Angeles and connects with the San Diego Freeway(Interstate 405) southeast of
the City of Santa Ana,providing a direct link with San Diego. The Garden Grove Freeway(State 22)and
the Riverside Freeway(State 91)provide east-west transportation, linking the San Diego Freeway, Santa
Ana Freeway and the Newport Freeway (State 55). The Newport Freeway provides access to certain
beach communities.
Drivers in the County have access to two toll road systems of the Transportation Corridor
Agencies. The San Joaquin Toll Road (73) runs from Costa Mesa to San Juan Capistrano connecting to
the 405 and 5 interstate freeways. The Eastern and Foothill Toll Roads(241, 261 and 133)connect the
County to the 91 freeway in the north and the 5 freeway, City of Irvine other South County cities,as well
as Laguna Canyon Road The Transportation Corridor Agencies are planning to extend 241 to connect to
the 5 freeway,new San Clemente.
Rail freight service is provided by the Burlington Northern Santa Fe Railway and the Union
Pacific Railroad Company. Amtrak provides passenger service to San Diego to the south, Riverside and
San Bernardino Counties to the east, and Los Angeles and Santa Barbara to the north. Metro Link
provides passenger service to San Bernardino and Riverside counties to the east,the City of Oceanside to
the south and Los Angeles County to the north. Bus service is provided by Greyhound Bus Lines. The
Orange County Transportation Authority provides bus service between most cities in the County. Most
interstate common carrier truck lines operating in California serve the County.
The John Wayne Airport, owned and operated by the County, is the only commercial service
airport in the County. It is approximately thirty-five miles south of Los Angeles, between the cities of
Coast Mesa, Wine, Newport Beach and Santa Ana. Major airlines, including Alaska, Aloha, America
West, American, Continental, Delta, Frontier, Northwest, Southwest and United fly from the airport to
major cities throughout the country. In 2004,approximately 9.2 million passengers were served.
70166678.2
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i�
In 1993, the Defense Base Realignment and Closure Commission directed the closure of Marine
Corps Air Station (MCAS) El Toro ("El Toro" or "the base") effective July 1999. The County was
designated the Local Redevelopment Authority("LRA")for development of a Community Reuse Plan to
guide future development of the former MCAS El Toro. In 1994, Orange County voters narrowly
approved Measure A which zoned the property for use as an international airport. This touched off a
multi-year legal and political battle that ended when 58%of Orange County voters approved Measure W,
the Orange County Central Park and Nature Preserve Initiative, on March 5, 2002. Measure W repeals
Measure A and amends the County General Plan to prohibit aviation uses and limit future development
for the unincorporated portion of El Toro to park, open space, nature preserve and education and
compatible was. The day after Measure W was approved, the Department of the Navy issued a press
release stating that disposal of the former Base would be accomplished by means of a public auction. The
City of Wine responded by developing the Great Park Plan for El Toro. The City of Irvine was approved
by the Local Agency formation Commission("LAFCO")to annex to the City the property that comprises
the former MCAS El Toro. In light of the passage of Measure W,the County has discontinued all work
related to the planning or development of a commercial airport at El Toro.
Natural Disasters; Seismic Activity
Natural disasters, including floods, fires and earthquakes, have been experienced in the County.
Seismic records spanning the past half century and historic records dating from the 1700s through the
early 1900s;indicate that the County is a seismically active area. The State Office of Emergency Services
indicates that significant tremors are likely to occur in several fault zones during the next 50 to 100 years,
including a tremor of 7.0 on the Richter scale within the Newport-Inglewood fault system. The chance of
a Richter 7.0 earthquake occurring is estimated to be I to 2% in any year. For this reason, local building
codes require that structures be designed to withstand the expected accelerations for the area without
collapsing or suffering severe structural damage. Maps published by the State Department of
Conservation indicate that portions of the County may be subject to the risk of earthquake-induced
landslides or liquefaction.
70166679.2
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1
Fulbright&Jawerski L.L.P. Draft-5/12/08
ESCROW AGREEMENT
by and between
ORANGE COUNTY SANITATION DISTRICT
and
U.S. BANK NATIONAL ASSOCIATION,
AS ESCROW AGENT
Dated as of May 1, 2008
County Sanitation District Nos. 1, 2, 3, 5, 6, 7 and 11
Refunding Certificates of Participation
Series 1992
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Escrow Agreement"), dated as of May 1, 2008,
is by and between the ORANGE COUNTY SANITATION DISTRICT, a county sanitation
district organized and existing under the laws of the State of California (the"District"),and U.S.
BANK NATIONAL ASSOCIATION, a national banking association organized and existing
under the laws of the United States of America,as escrow agent(the"Escrow Agent").
WITNESSETH:
WHEREAS, to refinance the acquisition, construction and installation of certain
improvements to the wastewater system (the "Prior Project") of certain predecessor county
sanitation districts of the District, to wit, County Sanitation District Nos. 1, 2, 3, 5, 6, 7 and 11
(collectively, the "Predecessor Districts"), the Predecessor Districts purchased the Prior Project
by agreeing to make installment payments (the "Prior Installment Payments") pursuant to the
Amendatory Agreement for Acquisition and Construction, dated as of October 1, 1992, by and
among the Predecessor Districts;
WHEREAS, to provide the funds necessary to refinance the Prior Project, the
Predecessor Districts caused the execution and delivery of the Refunding Certificates of
Participation, Series 1992 (the "Prior Certificates"), evidencing direct, undivided fractional
interests in the Prior Installment Payments pursuant to a Trust Agreement,dated as of October 1,
1992 (the "Prior Trust Agreement") among the Predecessor Districts and U.S. Bank National
Association (the "Prior Trustee"),as successor trustee to State Street Bank and Trust Company;
WHEREAS, the District desires to refinance all of the Prior Project by prepaying all of
the remaining principal components of the Prior Installment Payments (the "Refunded
Installment Payments"), and the interest components thereof to the date of prepayment, thereby
causing all of the Prior Certificates to be prepaid;
WHEREAS, to provide the funds necessary to prepay the Prior Installment Payments to
be so prepaid, the District and the Orange County Sanitation District Financing Corporation (the
"Corporation") desire that the Corporation purchase the Prior Project from the District and the
District sell the Prior Project to the Corporation, and that the District then purchase the Prior
Project from the Corporation and the Corporation sell the Prior Project to the District, for the
installment payments (the "Installment Payments") to be made by the District pursuant to an
Installment Purchase Agreement by and between the District and the Corporation (the
"Installment Purchase Agreement");
WHEREAS, to provide the funds necessary to prepay the Refunded Installment
Payments, the District has caused to be executed and delivered the Orange County Sanitation
District Refunding Certificates of Participation, Series 2008A (the "Certificates"), evidencing
principal in the aggregate amount of$[PAR], pursuant to the Trust Agreement, dated as of the
date hereof(the "Trust Agreement"), by and among U.S. Bank National Association, as trustee
(the "Trustee"),the Corporation and the District;
90198279.2
i
WHEREAS, the District has determined to apply a portion of the proceeds of the
Certificates to prepay all of the outstanding Refunded Installment Payments on July 1, 2008 (the
"Prepayment Date") at a prepayment price equal to the principal amount thereof, without
premium(the"Prepayment Price"); and
WHEREAS, in accordance with the Prior Trust Agreement, the Refunded Installment
Payments, and the interest thereon, will be applied to the payment of the Prior Certificates
evidencing interests therein (the "Refunded Certificates") on the Prepayment Date at the
Prepayment Price;
NOW THEREFORE, in consideration of the premises and of the mutual agreements
and covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:
Section 1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Prior Trust Agreement.
Section 2. The Escrow Fund. (a) There is hereby established a fund (the "Escrow
Fund") to be held as an irrevocably pledged escrow by the Escrow Agent, which the Escrow
Agent shall keep separate and apart from all other funds of the District and the Escrow Agent
and to be applied solely as provided in this Escrow Agreement. Pending application as provided
in this Escrow Agreement, amounts on deposit in the Escrow Fund are hereby pledged solely to
the payment of the principal and interest evidenced by the Refunded Certificates to and including
the Prepayment Date and the payment of the Prepayment Price on the Prepayment Date, which
amounts shall be held in trust by the Escrow Agent for the Owners of the Refunded Certificates.
(b) [The Prior Trustee is hereby instructed to liquidate any investments held in the
Reserve Fund established under the Prior Trust Agreement.] As reflected in the report of the
nationally recognized firth of independent certified public accountants delivered in connection
herewith, upon the execution and delivery of the Certificates, there shall be deposited in the
Escrow Fund $ received from the proceeds of the sale of the Certificates and
[$ from the Reserve Fund established under the Prior Trust Agreement,] for a total
of$
(c) Upon the deposit of moneys pursuant to Section 2(b) hereof, the moneys on
deposit in the Escrow Fund will be at least equal to an amount sufficient to purchase the
aggregate principal amount of the Government Obligations set forth in Exhibit A hereto (the
"Exhibit A Securities"), which principal, together with all interest due or to become due on such
Exhibit A Securities, and any uninvested cash held by the Escrow Agent in the Escrow Fund,
will be sufficient to make the payments required by Section 4 hereof.
Section 3. Use and Investment of Moneys. (a) The Escrow Agent hereby
acknowledges deposit of the moneys described in Section 2(b) hereof and agrees to invest
$ of such moneys in the Exhibit A Securities The balance of the moneys described
in Section 2 in the amount of$ hereof shall be held uninvested in the Escrow Fund.
(b) All Government Obligations purchased pursuant to this Escrow Agreement shall
be deposited in and held for the credit of the Escrow Fund. Except as provided in this Section 3
80198279.2 2
t
e
hereof, no moneys or Government Obligations deposited with the Escrow Agent pursuant to this
Escrow Agreement nor principal of, or interest payments or other investment income on, any
such Government Obligations shall be withdrawn or used for any purpose other than, and shall
be held in trust for,the payment of the Refunded Certificates as provided in Section 4 hereof.
(c) The Owners of the Refunded Certificates shall have a first and exclusive lien on
the moneys and Government Obligations in the Escrow Fund until such moneys and Government
Obligations are used and applied as provided in this Escrow Agreement.
(d) The Escrow Agent shall not be held liable for investment losses resulting from
compliance with the provisions of this Escrow Agreement.
Section 4. Payment of Refunded Certificates. From the maturing principal of the
Government Obligations held in the Escrow Fund and the investment income and other earnings
thereon and any uninvested money then held in the Escrow Fund, the Escrow Agent shall apply
such amounts on the Prepayment Date in accordance herewith. To the extent that the amount on
deposit in the Escrow Fund on the Prepayment Date is in excess of the amount necessary to
make the required payments with respect to the Refunded Certificates, as shown in the then
applicable escrow verification of the nationally recognized firm of independent certified public
accountants, such excess shall be transferred to the Trustee for deposit in the Installment
Payment Account established under the Trust Agreement.
Section 5. Irrevocable Instructions to Mail Notices. The District hereby designates
the Refunded Certificates evidencing Refunded Installment Payments due on and after August I,
2008 for prepayment on the Prepayment Date and hereby irrevocably instructs the Prior Trustee,
to give, in accordance with the provisions of the Prior Trust Agreement, notice of prepayment of
such Refunded Certificates.
Section 6. Performance of Duties, Acknowledgement with Respect to
Irrevocable Instructions. The Escrow Agent hereby agrees to perform the duties set forth
herein and agrees that the irrevocable instructions to the Prior Trustee herein provided are in a
form satisfactory to it.
Section 7. Escrow Agent's Authority to Make Investments. The Escrow Agent
shall have no power or duty to invest any funds held under this Escrow Agreement except as
provided herein. The Escrow Agent shall have no power or duty to transfer or otherwise dispose
of the moneys held hereunder except as provided herein.
Section 8. Indemni . To the extent permitted by law, the District hereby assumes
liability for, and hereby agrees 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, expenses and disbursements) of whatsoever kind
and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any
time in any way relating to or arising out of the execution, delivery and performance of this
Escrow Agreement,the establishment hereunder of the Escrow Fund,the acceptance of the funds
and securities deposited therein, the purchase of any securities to be purchased pursuant thereto,
80198279.2 3
1
P
the retention of such 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 Escrow Agreement; provided, however, that the District shall not be required to indemnify
the Escrow Agent against the Escrow Agent's own negligence or willful misconduct or the
negligence or willful misconduct of the Escrow Agent's respective successors, assigns, agents
and employees or the material breach by the Escrow Agent of the terms of this Escrow
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 Escrow Agreement.
Section 9. Responsibilities of Escrow Agent. The Escrow Agent makes no
representation as to the sufficiency of the securities to be purchased pursuant hereto and any
uninvested moneys to accomplish the prepayment of the Refunded Certificates pursuant to the
Prior Trust Agreement or to the validity of this Escrow 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
Escrow Agreement except for its own negligence, willful misconduct or default, and the duties
and obligations of the Escrow Agent shall be determined by the express provisions of this
Escrow 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 Escrow Agreement, such matter (except the matters set forth herein as specifically
requiring a certificate of a nationally recognized firth of independent certified public accountants
or an opinion of counsel of recognized standing in the field of law relating to municipal bonds)
may be deemed to be conclusively established by a written certification of the District.
Whenever the Escrow Agent shall deem it necessary or desirable that a matter specifically
requiring a certificate of a nationally recognized firm of independent certified public accountants
or an opinion of counsel of recognized standing in the field of law relating to municipal bonds be
proved or established prior to taking, suffering, or omitting any such action, such matter may be
established only by a certificate signed by a nationally recognized firm of certified public
accountants or such opinion of counsel of recognized standing in the field of law relating to
municipal bonds.
The Escrow Agent undertakes to perform only such duties as are expressly set forth in
this Agreement and no implied duties, covenants or obligations shall be read into this Agreement
against the Escrow Agent.
The Escrow Agent may resign by giving written notice to the District,and upon receipt of
such notice the District shall promptly appoint a successor Escrow Agent. If the District does
not appoint a successor Escrow Agent within thirty days of receipt of such notice, the resigning
Escrow Agent may petition a court of competent jurisdiction for the appointment of a successor
Escrow Agent, which court may thereupon, upon such notice as it shall deem proper, appoint a
successor Escrow Agent. Upon acceptance of appointment by a successor Escrow Agent, the
resigning Escrow Agent shall transfer all amounts held by it in the Escrow Fund to such
successor Escrow Agent and be discharged of any further obligation or responsibility hereunder.
80198279.2 4
Section 10. Amendments. The District and the Escrow Agent may (but only with the
consent of the Owners of all of the Refunded Certificates) amend this Escrow Agreement or
enter into agreements supplemental to this Escrow Agreement.
Section 11. Term. This Escrow Agreement shall commence upon its execution and
delivery and shall terminate on the date upon which the Refunded Certificates have been paid in
accordance with this Escrow Agreement.
Section 12. Compensation. The District shall from time to time pay or cause to be
paid to the Escrow Agent the agreed upon compensation for its services to be rendered
hereunder, and reimburse the Escrow Agent for all of its reasonable advances in the exercise and
performance of its duties hereunder; 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 Escrow Agreement or otherwise.
Section 13. Severability. If any one or more of the covenants or agreements provided
in this Escrow 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 Escrow Agreement.
Section 14. Counterparts. This Escrow 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.
Section 15. Governing Law. This Escrow Agreement shall be construed under the
laws of the State of California.
80198279.2 5
f
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as
of the date first above written.
U.S. BANK NATIONAL ASSOCIATION, AS
ESCROW AGENT
By:
Authorized Officer
UNION BANK OF CALIFORNIA,N.A.,
AS PRIOR TRUSTEE
By:
Authorized Officer
ORANGE COUNTY SANITATION
DISTRICT
By:
Chairman of the Board of Directors
80198279.2 6
y
EXIMIT A
UNITED STATES TREASURY SECURITIES
Maturity Par Interest
Type Date Amount Rate Price
$ $
80198279.2 A-i
i
Notice of Defeasance
County Sanitation District Nos. 1,2, 3, 5, 6, 7 and I I
Refunding Certificates of Participation
Series 1992
CUSIP Nos.
to come
NOTICE IS HEREBY GIVEN that on May 29, 2008, moneys have been irrevocably set
aside in an escrow fund held by U.S. Bank National Association, as escrow agent and prior
trustee (the "Prior Trustee"), under the Trust Agreement, dated as of October 1, 1992 (the "Prior
Trust Agreement') among County Sanitation District Nos. 1, 2, 3, 5, 6, 7 and 11 and the Prior
Trustee, which the District has determined, when added to the investment eamings therefrom,
shall be sufficient to pay the principal and interest, without premium (the "Prepayment Price")
on the above-referenced certificates of participation (the "Refunded Certificates") on July 1,
2008 (the "Prepayment Date"). Such moneys have been invested in obligations the payment of
which the full faith and credit of the United States of America is pledged and the principal of and
interest on which when paid will provide moneys sufficient to the Prepayment Price with respect
to the Refunded Certificates the Prepayment Date.
In accordance with the Section 8.01 of the Trust Agreement the Certificates listed above are
deemed to have been paid and the obligations of the Corporation and the District under such
Trust Agreement have been released.
Dated: June 1, 2008
By: U.S. Bank National Association, as Trustee
on behalf of the Orange County Sanitation District
Nance
"The District and Trustee shall not be responsible for the use of the CUSIP numbers selected, nor is any
representation made as to their cormcmess indicated in the notice or as printed on any certificate. They are included
solely for the convenience of the Securityholders.
80198279.2
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RESOLUTION NO. OCSD 08-
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE
COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION
AND DELIVERY BY THE DISTRICT OF AN INSTALLMENT PURCHASE
AGREEMENT, A TRUST AGREEMENT, AND A CONTINUING
DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION
AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT
CERTIFICATES OF PARTICIPATION, SERIES 2008A, AUTHORIZING
THE EXECUTION AND DELIVERY OF SUCH CERTIFICATES
EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO
EXCEED $85,000,000, APPROVING A NOTICE OF INTENTION TO
SELL, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL NOTICE
INVITING BIDS AND AN OFFICIAL STATEMENT IN CONNECTION
WITH THE OFFERING AND SALE OF SUCH CERTIFICATES, AND
AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND
RELATED ACTIONS
WHEREAS, the Orange County Sanitation District (the 'District") desires to
finance the acquisition, construction and installation of certain improvements to its
wastewater system (the "Project');
WHEREAS, in order to finance the Project, the District desires to purchase the
Project from the Orange County Sanitation District Financing Corporation (the
"Corporation"), and the Corporation desires to sell the Project to the District, for the
installment payments (the "Installment Payments") to be made by the District pursuant
to the Installment Purchase Agreement, dated as of December 1, 2007 (the "Installment
Purchase Agreement"), by and between the District and the Corporation;
WHEREAS, the Corporation intends to assign without recourse certain of its
rights under and pursuant to the Installment Purchase Agreement to Union Bank of
California, N.A., as trustee (the "Trustee"), pursuant to a Trust Agreement among the
Trustee, the Corporation and the District (such Trust Agreement, in the form presented
to this meeting, with such changes, insertions and omissions as are made pursuant to
this Resolution, being referred to herein as the "Trust Agreement');
WHEREAS, in consideration of such assignment and the execution and entering
into of the Trust Agreement, the Trustee intends to execute and deliver Orange County
Sanitation District Certificates of Participation, in one or more series (the "Certificates"),
evidencing direct, undivided fractional interests in the Installment Payments, and the
interest thereon;
WHEREAS, the District desires to provide for the public sale of the Certificates;
WHEREAS, a form of the Notice of Intention to Sell to be published in connection
with the public offering and sale of the Certificates has been prepared (such Notice of
Intention to Sell, in the form presented to this meeting, with such changes, insertions
and omissions as are made pursuant to this Resolution, being referred to herein as the
"Notice of Intention to Sell");
57VI8.1
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WHEREAS, a form of the Official Notice Inviting Bids to be distributed in
connection with the public offering and sale of the Certificates has been prepared (such
Official Notice Inviting Bids, in the form presented to this meeting, with such changes,
insertions and omissions as are made pursuant to this Resolution, being referred to
herein as the "Notice Inviting Bids");
WHEREAS, a form of the Preliminary Official Statement to be distributed in
connection with the public offering of the Certificates has been prepared (such
Preliminary Official Statement in the form presented to this meeting, with such changes,
insertions and omissions as are made pursuant to this Resolution, being referred to
herein as the "Preliminary Official Statement');
WHEREAS, Rule 15c2-12 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended ('Rule 15c2-12"),
requires that the underwriter thereof must have reasonably determined that the District
has undertaken in a written agreement or contract for the benefit of the holders of the
Certificates to provide disclosure of certain financial information and certain material
events on an ongoing basis;
WHEREAS, to cause such requirement to be satisfied, the District desires to
enter into a Continuing Disclosure Agreement with the Trustee (such Continuing
Disclosure Agreement in the form presented to this meeting, with such changes,
insertions and omissions as are made pursuant to this Resolution, being referred to
herein as the "Continuing Disclosure Agreement");
WHEREAS, there have been prepared and submitted to this meeting forms of:
(a) the Installment Purchase Agreement;
(b) the Trust Agreement;
(c) the Notice of Intention to Sell;
(d) the Notice Inviting Bids;
(e) the Preliminary Official Statement; and
(f) the Continuing Disclosure Agreement;
WHEREAS, all acts, conditions and things required by the Constitution and laws
of the State of California to exist, to have happened and to have been performed
precedent to and in connection with the consummation of the financing authorized
hereby do exist, have happened and have been performed in regular and due time,
form and manner as required by law, and the District is now duly authorized and
empowered, pursuant to each and every requirement of law, to consummate such
financing for the purpose, in the manner and upon the terms herein provided;
2
576'_181
NOW, THEREFORE, the Board of Directors of the District DOES HEREBY
RESOLVE, DETERMINE AND ORDER:
Section 1. All of the recitals herein contained are true and correct and the
Board of Directors of the District (the "Board") so finds.
Section 2. The Installment Purchase Agreement, in substantially the form
submitted to this meeting and made a part hereof as though set forth herein, be and the
same is hereby approved. The Chair of the Board, and such other member of the Board
as the Chair may designate, the General Manager of the District, the Director of Finance
and Administrative Services of the District, and such other officer of the District as the
Director of Finance and Administrative Services may designate (the "Authorized
Officers") are, and each of them is, hereby authorized and directed, for and in the name
of the District, to execute and deliver the Installment Purchase Agreement in the form
submitted to this meeting, with such changes, insertions and omissions as the
Authorized Officer executing the same may require or approve, such requirement or
approval to be conclusively evidenced by the execution of the Installment Purchase
Agreement by such Authorized Officer; provided, however, that such changes,
insertions and omissions shall not result in an aggregate principal amount of Installment
Payments in excess of $85,000,000, shall not result in a true interest cost for the
Installment Payments in excess of 6% and shall not result in a final Installment Payment
later than February 1, 2037.
Section 3. The Trust Agreement, in substantially the form submitted to this
meeting and made a part hereof as though set forth in full herein, be and the same is
hereby approved. The Authorized Officers are, and each of them is, hereby authorized
and directed, for and in the name of the District, to execute and deliver the Trust
Agreement in the form presented to this meeting, with such changes, insertions and
omissions as the Authorized Officer executing the same may require or approve, such
requirement or approval to be conclusively evidenced by the execution of the Trust
Agreement by such Authorized Officer.
Section 4. The execution and delivery of Certificates evidencing principal in an
aggregate amount of not to exceed $85,000,000, payable in the years and in the
amounts, and evidencing principal of and interest on the Installment Payments as
specified in the Trust Agreement as finally executed, are hereby authorized and
approved.
Section 5. The form of Notice of Intention to Sell, in substantially the form
submitted to this meeting and made a part hereof as though set forth in full herein, with
such changes, insertions and omissions therein as may be approved by an Authorized
Officer, is hereby approved, and the use of the Notice of Intention to Sell in connection
with the offering and sale of the Certificates is hereby approved. The Authorized
Officers are each hereby authorized and directed, for and in the name and on behalf of
the District, to cause the Notice of Intention to Sell to be published once in The Bond
Buyer (or in such other financial publication generally circulated throughout the State of
California or reasonably expected to be disseminated among prospective bidders for the
Certificates as an Authorized Officer shall approve as being in the best interests of the
3
5]6318.1
District) at least five days prior to the date set for the opening of bids in the Notice
Inviting Bids, with such changes, insertions and omissions therein as an Authorized
Officer may require or approve, such requirement or approval to be conclusively
evidenced by such publishing of the Notice of Intention to Sell.
Section 6. The Notice Inviting Bids, in substantially the form submitted to this
meeting and made a part hereof as though set forth herein, with such changes,
insertions and omissions therein as may be approved by an Authorized Officer, be and
the same is hereby approved, and the use of the Notice Inviting Bids in connection with
the offering and sale of the Certificates is hereby authorized and approved. The terms
and conditions of the offering and sale of the Certificates shall be as specified in the
Notice Inviting Bids. Bids for the purchase of the Certificates shall be received at the
time and place set forth in the Notice Inviting Bids. The Authorized Officers are each
hereby authorized and directed, for and in the name and on behalf of the District, to
accept the bid for the Certificates with the lowest true interest cost, or to reject all bids
therefor, in accordance with the terms of the Notice Inviting Bids.
Section 7. The Preliminary Official Statement, in substantially the form
presented to this meeting and made a part hereof as though set forth in full herein, with
such changes, insertions and omissions therein as may be approved by an Authorized
Officer, is hereby approved, and the use of the Preliminary Official Statement in
connection with the offering and sale of the Certificates is hereby authorized and
approved. The Authorized Officers are each hereby authorized to certify on behalf of the
District that the Preliminary Official Statement is deemed final as of its date, within the
meaning of Rule 15c2-12 (except for the omission of certain information permitted by
Rule 15c2-12 to be omitted). The Authorized Officers are each hereby authorized and
directed to furnish, or cause to be furnished, to prospective bidders for the Certificates a
reasonable number of copies of the Preliminary Official Statement.
Section 8. The preparation and delivery of a final Official Statement (the
"Official Statement'), and its use in connection with the offering and sale of the
Certificates, be and the same is hereby authorized and approved. The Official
Statement shall be in substantially the form of the Preliminary Official Statement, with
such changes, insertions and omissions as may be approved by an Authorized Officer,
such approval to be conclusively evidenced by the execution and delivery thereof. The
Authorized Officers are, and each of them is, hereby authorized and directed to execute
the final Official Statement and any amendment or supplement thereto, for and in the
name of the District.
Section 9. The Continuing Disclosure Agreement, in substantially the form
submitted to this meeting and made a part hereof as though set forth herein, be and the
same is hereby approved. The Authorized Officers are, and each of them is, hereby
authorized and directed, for and in the name of the District, to execute and deliver the
Continuing Disclosure Agreement in the form submitted to this meeting, with such
changes, insertions and omissions as the Authorized Officer executing the same may
require or approve, such requirement or approval to be conclusively evidenced by the
execution of the Continuing Disclosure Agreement by such Authorized Officer.
4
576219 1
Section 10. The Authorized Officers are, 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 execution and delivery of the Certificates and the transactions
contemplated by the notices, agreements and documents referenced in this Resolution.
Section 11. All actions heretofore taken by the officers and employees of the
District with respect to the execution, delivery and sale of the Certificates, or in
connection with or related to any of the agreements or documents referenced in this
Resolution, are hereby approved, confirmed and ratified.
Section 12. This Resolution shall take effect immediately upon its adoption.
PASSED AND ADOPTED at a regular meeting held on May 28, 2008.
Chair
ATTEST:
Clerk of the Board
APPROVED:
General Counsel, Orange County
Sanitation District
5
D6218.1
I�
STATE OF CALIFORNIA )
ss
COUNTY OF ORANGE )
I, Penny M. Kyle, Clerk of the Board of Directors of the Orange County Sanitation
District, do hereby certify that the foregoing Resolution No. OCSD 08-—
was passed
and adopted at a regular meeting of said Board on the 281" day of May 2008, by the
following vote, to wit:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official
seal of Orange County Sanitation District this 28" day of May 2008.
Clerk of the Board of Directors
Orange County Sanitation District
ll5119.1
r�
RESOLUTION NO. FC-
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE
COUNTY SANITATION DISTRICT FINANCING CORPORATION
AUTHORIZING THE EXECUTION AND DELIVERY BY THE
CORPORATION OF AN INSTALLMENT PURCHASE AGREEMENT
AND A TRUST AGREEMENT IN CONNECTION WITH THE
EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION
DISTRICT CERTIFICATES OF PARTICIPATION, SERIES 2008A,
AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH
CERTIFICATES EVIDENCING PRINCIPAL IN AN AGGREGATE
AMOUNT OF NOT TO EXCEED $85,000,000 AND AUTHORIZING THE
EXECUTION OF NECESSARY DOCUMENTS AND RELATED
ACTIONS.
WHEREAS, the Orange County Sanitation District (the "District") desires to
finance the acquisition, construction and installation of certain improvements to its
wastewater system (the "Project");
WHEREAS, in order to finance the Project, the District desires to purchase the
Project from the Orange County Sanitation District Financing Corporation (the
"Corporation"), and the Corporation desires to sell the Project to the District, for the
installment payments (the "Installment Payments") to be made by the District pursuant
to the Installment Purchase Agreement, dated as of December 1, 2007 (the "Installment
Purchase Agreement"), by and between the District and the Corporation;
WHEREAS, the Corporation intends to assign without recourse certain of its
rights under and pursuant to the Installment Purchase Agreement to Union Bank of
California, N.A., as trustee (the "Trustee"), pursuant to a Trust Agreement among the
Trustee, the Corporation and the District (such Trust Agreement, in the form presented
to this meeting, with such changes, insertions and omissions as are made pursuant to
this Resolution, being referred to herein as the "Trust Agreement");
WHEREAS, in consideration of such assignment and the execution and entering
into of the Trust Agreement, the Trustee intends to execute and deliver Orange County
Sanitation District Certificates of Participation, in one or more series (the "Certificates"),
evidencing direct, undivided fractional interests in the Installment Payments, and the
interest thereon;
WHEREAS, there have been prepared and submitted to this meeting forms of:
(a) the Installment Purchase Agreement; and
(b) the Trust Agreement;
9Q14.1
WHEREAS, all ads, conditions and things required by the Constitution and laws
of the State of California to exist, to have happened and to have been performed
precedent to and in connection with the consummation of the actions authorized hereby
do exist, have happened and have been performed in regular and due time, form and
manner as required by law, and the Corporation is now duly authorized and
empowered, pursuant to each and every requirement of law, to consummate such
actions for the purpose, in the manner and upon the terms herein provided;
NOW, THEREFORE, the Board of Directors of the Corporation DOES HEREBY
RESOLVE, DETERMINE AND ORDER:
Section 1. All of the recitals herein contained are true and correct and the
Board of Directors of the Corporation (the "Board") so finds.
Section 2. The Installment Purchase Agreement, in substantially the form
submitted to this meeting and made a part hereof as though set forth herein, be and the
same is hereby approved. The President of the Corporation, the Vice-President of the
Corporation, the Treasurer of the Corporation and the Secretary of the Corporation, and
such other officer of the Corporation as the President may designate (the "Authorized
Officers") are, and each of them is, hereby authorized and directed, for and in the name
of the Corporation, to execute and deliver the Installment Purchase Agreement in the
form submitted to this meeting, with such changes, insertions and omissions as the
Authorized Officer executing the same may require or approve, such requirement or
approval to be conclusively evidenced by the execution of the Installment Purchase
Agreement by such Authorized Officer; provided, however, that such changes,
insertions and omissions shall not result in an aggregate principal amount of Installment
Payments in excess of $85,000,000, shall not result in a true interest cost for the
Installment Payments in excess of 6% and shall not result in a final Installment Payment
later than February 1, 2037.
Section 3. The Trust Agreement, in substantially the form submitted to this
meeting and made a part hereof as though set forth in full herein, be and the same is
hereby approved. The Authorized Officers are, and each of them is, hereby authorized
and directed, for and in the name of the Corporation, to execute and deliver the Trust
Agreement in the form presented to this meeting, with such changes, insertions and
omissions as the Authorized Officer executing the same may require or approve, such
requirement or approval to be conclusively evidenced by the execution of the Trust
Agreement by such Authorized Officer.
Section 4. The execution and delivery of Certificates evidencing principal in an
aggregate amount of not to exceed $85,000,000, payable in the years and in the
amounts, and evidencing direct, undivided fractional interests in the Installment
Payments, and the interest thereon, as specified in the Trust Agreement as finally
executed, are hereby authorized and approved.
2
576124.1
Section S. The officers and agents of the Corporation are, 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 execution and delivery of the Certificates and the
transactions contemplated by the agreements or documents referenced in this
Resolution.
Section 6. All actions heretofore taken by the officers and agents of the
Corporation with respect to the execution, delivery and sale of the Certificates, or in
connection with or related to any of the agreements or documents referenced in this
Resolution, are hereby approved, confirmed and ratified.
Section 7. This Resolution shall take effect immediately upon its adoption.
PASSED AND ADOPTED at a meeting held on May 28, 2008.
President, Orange County Sanitation
District Financing Corporation
ATTEST:
Clerk of the Board
Orange County Sanitation
District Financing Corporation
APPROVED:
General Counsel, Orange County
Sanitation District Financing
Corporation
3
576IIJ.1
STATE OF CALIFORNIA )
ss
COUNTY OF ORANGE )
I, Penny M. Kyle, Clerk of the Board of Directors of the Orange County Sanitation
District Financing Corporation, do hereby certify that the foregoing Resolution No. FC-
, was passed and adopted at a regular meeting of said Board on the 28" day
of May 2008, by the following vote, to wit:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official
seal of Orange County Sanitation District Financing Corporation this 28'" day of May
2008.
Clerk of the Board of Directors
Orange County Sanitation District
nan,i
SIAIE OF CALIFORNIA)
) SS.
COUNTY OF ORANGE )
Pursuant to California Government Code Section 54954.2, 1 hereby certify that
the Notice and Agenda for the Special Board Meeting of Orange County Sanitation
District, to be held on May 14, 2008, was duly posted for public inspection in the main
lobby of the Districts' offices on May 9, 2008.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of May,
2008.
jh
Penny M. K&,
Clerk of the Board
Orange County Sanitation District