HomeMy WebLinkAbout07-14-2010 Administration Committee AgendaAGENDA
REGULAR MEETING OF THE
ADMINISTRATION COMMITTEE
ORANGE COUNTY SANITATION DISTRICT
WEDNESDAY, JULY 14, 2010, AT 5:30 P.M.
ADMINISTRATIVE OFFICE
10844 Ellis Avenue
Fountain Valley, California 92708
www.ocsd.com
PLEDGE OF ALLEGIANCE
DECLARATION OF QUORUM
PUBLIC COMMENTS
REPORT OF COMMITTEE CHAIR
REPORT OF GENERAL MANAGER
REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES
CONSENT CALENDAR ITEMS
1. Approve minutes of the June 9, 2010, meeting of the Administration Committee.
2. Recommend to the Board of Directors to Adopt Resolution No. OCSD 10-XX, Delegating Authority to the General Manager to Act on Behalf of the Orange
County Sanitation District with respect to the California State Association of
Counties Excess Insurance Authority.
3. Recommend to the Board of Directors to Adopt Resolution No. OCSD 10-XX,
Adopting the Records Management Program Policy and Procedures, Retention
Schedule and Record Series Definitions, Authorizing Destruction of Obsolete
Records, and Repealing Resolution No. OCSD 09-07.
July 14, 2010 Page 2
ACTION ITEMS 4. Recommend to the Board of Directors to: a) Adopt Resolution
No. OCSD 10-XX, to Authorize the Execution and Delivery by the District of
a First Supplemental Trust Agreement and Replacement of the Standby
Certificate Purchase Agreement with Lloyds TSB Bank as Credit Facility on the Orange County Sanitation District Refunding Certificates of Participation, Series 2000-A and Series 2000-B; Approving a Negotiated
Agreement with Lloyds TSB Bank as Credit Facility on the Orange County
Sanitation District Refunding Certificates of Participation, Series 2000-A and
Series 2000-B; Authorizing the Distribution of a Remarketing Memorandum in Connection Therewith, and Authorizing the Execution of Necessary Documents and Related Actions; and,
b) That the Orange County Sanitation District Financing Corporation approve
the draft documents supporting the Replacement of the Orange County Sanitation District Refunding Certificates of Participation, Series 2000-A and Series 2000-B, Standby Certificate Purchase Agreement.
5. Recommend to the Board of Directors to Adopt Resolution No. OCSD 10-XX,
Authorizing the Orange County Sanitation District’s Treasurer to Invest and/or Reinvest District’s Funds; Adopting District’s Investment Policy Statement and
Performance Benchmarks for FY 2010-11; and, Repealing Resolution No.
OCSD 09-10.
INFORMATIONAL ITEMS
None.
CLOSED SESSION
During the course of conducting the business set forth on this agenda as a regular meeting of the Committee,
the Chair may convene the Committee 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)
employee actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of
these subjects, the minutes will reflect all required disclosures of information.
July 14, 2010 Page 3
A. Convene in closed session.
CONFER WITH DISTRICT LABOR NEGOTIATORS (Government Code Section 54954.5(f))
1. Agency Designated Representatives: James D. Ruth, General
Manager; Robert Ghirelli, Assistant General Manager; Lorenzo Tyner, Director of Finance and Administrative Services; Jeff Reed, Human Resources and Employee Relations Manager; and
Paul Loehr, Human Resources Supervisor.
2. Employee Organization: a) Peace Officers Council of California representing employees in the Professional Group and Supervisor Group.
B. Reconvene in regular session.
C. Consideration of action, if any, on matters considered in closed session.
Other business and communications or supplemental agenda items, if any.
Adjournment: The next regular Administration Committee meeting is scheduled for
Wednesday, September 8, 2010, at 5:30 p.m.
July 14, 2010 Page 4
H:\dept\asd\210\crane\AdminComm\ADMIN2010\July\03 071410 Admin Agenda.docx
Agenda Posting: 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 less than 72 hours prior to the meeting
date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all, or a majority of all, of the members of District’s Board, are available for public
inspection in the office of the Clerk of the Board, located at 10844 Ellis Avenue, Fountain Valley, California.
Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Committee 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 Committee 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 Administration Committee on specific agenda items or matters of general interest. As determined by the Chair, speakers may be deferred 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 Committee except as authorized by Section 54954.2(b).
Consent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further
explanation, and unless a particular item is requested to be removed from the consent calendar by a Director or staff member, 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.
The Committee 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 meeting held
within five (5) days of this meeting per Government Code Section 54954.2(b)(3).
Meeting Adjournment: 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.
Notice to Committee Members: For any questions on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair or Clerk of the Board ten days in advance of the Committee meeting.
Committee Chair: Phil Luebben (714) 686-1426 pluebben@ci.cypress.ca.us Committee Secretary: Lilia Kovac (714) 593-7124 lkovac@ocsd.com
General Manager: Jim Ruth (714) 593-7110 jruth@ocsd.com Assistant General Manager Bob Ghirelli (714) 593-7400 rghirelli@ocsd.com
Director of Finance and Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com Administrative Services Human Resources and Employee Jeff Reed (714) 593-7144 jreed@ocsd.com
Relations Manager
Form No. DW-102.3 Revised: 01/11/2010 Page 1
ADMINISTRATION COMMITTEE Meeting Date 07/14/10 To Bd. of Dir. 07/28/10
AGENDA REPORT Item Number 2 Item Number
Orange County Sanitation District FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
GENERAL MANAGER'S RECOMMENDATION
Adopt Resolution No. OCSD 10-XX, Delegating Authority to the General Manager to Act on Behalf of the Orange County Sanitation District with respect to the California State
Association of Counties Excess Insurance Authority.
SUMMARY
The Orange County Sanitation District has purchased insurance from the California
State Association of Counties Excess Insurance Authority (CSAC EIA) since 2003.
CSAC EIA is a large risk pool wherein the Sanitation District as a member has certain
rights, including voting rights. CSAC EIA has recently informed us that while they have contact names for us, they can find no Board resolution designating a person/position to act officially on behalf of the Sanitation District. The resolution provides this to
CSAC EIA.
PRIOR COMMITTEE/BOARD ACTIONS March 2007 - Board approved: (a) the amended Joint Powers Agreement of the CSAC
(California State Association of Counties) Excess Insurance Authority which superseded
the California Public Entities Insurance Authority (CPEIA) that provided the District’s
excess workers’ compensation insurance coverage, in a form approved by General Counsel; and, (b) the CSAC Excess Insurance Authority’s amended Memorandum of Understanding for the Excess Workers’ Compensation Program to incorporate non-
county public entity membership in the program, in a form approved by General
Counsel.
July 2003 - Board approved the Joint Powers Agreement creating the California Public Entity Insurance Company and the CPEIA MOU for the Excess Workers Compensation
Program.
ADDITIONAL INFORMATION None.
Form No. DW-102.3 Revised: 01/11/2010 Page 2
CEQA
N/A
BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A
JDR:LT:MW:RK:lc
Page 1
ADMINISTRATION COMMITTEE Meeting Date
07/14/10
To Bd. of Dir.
07/28/10
AGENDA REPORT Item Number 3 Item Number
Orange County Sanitation District
FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
GENERAL MANAGER'S RECOMMENDATION
Adopt Resolution No. OCSD 10-XX, Adopting the Records Management Program Policy and Procedures, Retention Schedule and Record Series Definitions, Authorizing
Destruction of Obsolete Records, and Repealing Resolution No. OCSD 09-07.
SUMMARY
The Sanitation District’s Records Management Program is updated annually to meet
new statutory regulations and agency changes to better serve the operational needs of
OCSD. The Record Retention Review Committee, comprised of the Assistant General
Manager, Clerk of the Board, Risk Management, Manager, Information Technology, General Counsel’s Office, and the Records Management Specialist, has reviewed and
recommend all the proposed changes.
PRIOR COMMITTEE/BOARD ACTIONS
June 2009 - Board adopted Resolution No. OCSD 09-07, Adopting the Records
Management Program Policy and Procedures, Retention Schedule and Record Series
Definitions, Authorizing Destruction of Obsolete Records, and Repealing Resolution No.
OCSD 08-06.
ADDITIONAL INFORMATION
The Sanitation District’s Records Management Program documents how long various
types of information are to be kept, as dictated by the legal, fiscal, audit and operational
needs of the Sanitation District. As a public agency, there is an obligation to effectively
manage and maintain the Sanitation District’s information, most of which is classified as
public information.
Proposed changes for this update focus on the following:
Addition of two new Record Series (RS):
RS 267 – Specifications, Bid – Records of the precise details and description of the service or project to be completed, as bid. Office of Record is Asset
Management, the format electronic and the retention is Closed + 6 years.
Page 2
RS 268 – Specifications, Conformed – Records of the precise details and
description of the service or project once completed. Office of Record is Asset Management, the format is electronic and the retention is Life of the Asset.
Changes were approved on retention periods, reflecting operational use, for the
following:
RS 121 – Board Administrative Files from 2 years to 10 years RS 214 – Recorded Documents from Life of the Organization to Closed + 6 yrs RS 246 – IT Service Tickets from 7 years to 5 years
RS 253 – Laboratory Data Backup Tapes from 10 years to 90 days
Electronic format was added to a number of Record Series media identification due to OCSD’s movement toward more electronic records and less in hardcopy/paper format.
Various housekeeping changes were approved to existing Record Series, such as
updating the Office of Record, due to Department/Divisional changes or minor changes
to the definitions as requested by the business/operational unit for clarification. If a copy of the Records Retention Schedule or Record Series Definitions is desired,
please contact Juanita Skillman, CRM, Records Management Specialist.
CEQA
N/A
BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A
JDR:LT:JS
Page 1
ADMINISTRATION COMMITTEE Meeting Date
07/14/10
To Bd. of Dir.
07/28/10
AGENDA REPORT Item Number 4 Item Number
Orange County Sanitation District
FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
GENERAL MANAGER'S RECOMMENDATION
1) Adopt Resolution No. OCSD 10-XX, Authorizing the Execution and Delivery by the
District of a First Supplemental Trust Agreement and Replacement of the Standby
Certificate Purchase Agreement with Lloyds TSB Bank as Credit Facility on the Orange County Sanitation District Refunding Certificates of Participation, Series
2000-A and Series 2000-B; Approving a Negotiated Agreement with Lloyds TSB
Bank as Credit Facility on the Orange County Sanitation District Refunding
Certificates of Participation, Series 2000-A and Series 2000-B; Authorizing the Distribution of a Remarketing Memorandum in Connection Therewith, and Authorizing the Execution of Necessary Documents and Related Actions; and,
2) That the Orange County Sanitation District Financing Corporation approve the draft
documents supporting the Replacement of the Orange County Sanitation District Refunding Certificates of Participation, Series 2000-A and Series 2000-B, Standby Certificate Purchase Agreement.
SUMMARY
A Standby Certificate Purchase Agreement is an agreement with a commercial bank whereby the bank agrees to purchase demand bonds, or COPs, when the remarketing
agent is unable to remarket to other parties, and is a requirement of the original Series
2000-A and Series 2000-B COP documents.
On August 24, 2009, Dexia Credit Local Bank (Dexia) notified the District that it was exercising its option not to renew the Standby Certificate Purchase Agreement by and
between the District and Dexia covering the Orange County Sanitation District
Refunding Certificates of Participation (COP), Series 2000-A and Series 2000-B that is
set to expire on August 31, 2010. The underlying reason given by Dexia is that the recent disruptions in the financial markets have caused them to reduce the amount of their market place exposure. Dexia was the original liquidity facility bank when the COP
Series 2000 was issued under a seven-year agreement, and that agreement was
extended an additional five years in 2005.
The current agreement with Dexia requires an annual commitment fee, paid quarterly, equal to thirteen basis points of the total outstanding COP Series 2000-A and Series
2000-B debt. However, the ongoing global financial crisis has negatively impacted the
financial strength and ratings of many financial institutions that provide bank liquidity
Page 2
facilities securing variable rate bonds issued by municipal entities. As such, the number of liquidity facility banks has diminished, and those who have remained in the market place are now requiring a premium for products such as a standby certificate purchase
agreement.
Up until about a year ago, the annual commitment fee for this product was priced in excess of 100 basis points, or one percent, per year. Similar agreements for other California utilities in April and May of this year have priced at 65 to 85 basis points,
depending on the number of years in the agreement. In April of this year, the District
was approached by Lloyds TSB Bank offering to replace Dexia as the liquidity facility
bank on the COP Series 2000-A and Series 2000-B debt. In the past, Lloyds TSB Bank had provided approximately $107 million in insured liquidity support to the District’s COP Refunding Series 1992 that were redeemed in May 2008. Lloyds TSB Bank had
initially proposed a negotiated commitment fee of 50 basis points for a two-year period
and 60 basis points for a three-year commitment fee. After negotiating with Lloyds TSB
Bank, the commitment fees were reduced by one basis point for both the two-year and three-year agreements, to 49 basis points and 59 basis points, respectively. District staff, in consultation with the District’s financial advisor (Public Resources Advisory
Group) believes that the fee would be higher if we were to bid the agreement out
competitively (which Lloyds TSB Bank also discussed when providing its bids) and the
District would best be served by the two-year negotiated agreement proposed by Lloyds TSB Bank, because (1) the fee proposed by Lloyds TSB Bank is extremely attractive in the current market and probably could not be improved upon in the open market; and,
(2) future commitment fee rates in two years would more likely be lower than higher
than current rates.
PRIOR COMMITTEE/BOARD ACTIONS
August 2000 – Board approved the issuance of Refunding COP Series 2000-A
and Series 2000-B, in the amount of $218.6 million.
ADDITIONAL INFORMATION
The Board of Directors and the Financing Corporation will each be required to
adopt separate Resolutions to complete the substitution of this Standby Certificate
Purchase Agreement. 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, 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 as spelled out in the title as follows:
Page 3
“A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY BY THE DISTRICT OF A FIRST SUPPLEMENTAL TRUST AGREEMENT AND
REPLACEMENT OF THE STANDBY CERTIFICATE PURCHASE AGREEMENT
WITH LLOYDS TSB BANK AS CREDIT FACILITY ON THE ORANGE COUNTY
SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION, SERIES 2000-A AND SERIES 2000-B; APPROVING A NEGOTIATED AGREEMENT WITH LLOYDS TSB BANK AS CREDIT FACILITY ON THE
ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF
PARTICIPATION, SERIES 2000-A AND SERIES 2000-B; AUTHORIZING THE
DISTRIBUTION OF A REMARKETING MEMORANDUM IN CONNECTION THEREWITH, AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND RELATED ACTIONS.”
The Resolution of the Corporation is similar, 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 A FIRST
SUPPLEMENTAL TRUST AGREEMENT AND A STANDBY CERTIFICATE
PURCHASE AGREEMENT AS CREDIT FACILITY ON THE ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION, SERIES 2000-A AND SERIES 2000-B AND; APPROVING A REMARKETING
MEMORANDUM IN CONNECTION WITH THE EXECUTION OF THE STANDBY
CERTIFICATE PURCHASE AGREEMENT, AND AUTHORIZING THE EXECUTION
OF OTHER NECESSARY DOCUMENTS AND RELATED ACTIONS.” Following is a chart listing the remaining steps to be completed for the issuance of
the replacement standby certificate purchase agreement supporting the outstanding
COP Series debt issuance:
July
Notice to bond holders on substitution of SCPA
Board approval of legal and disclosure documents
August Receive Ratings from Bond Rating Agencies
Closing
CEQA
N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE
N/A
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ATTACHMENTS (Attachments will be posted to OCSD’s website with the Board package.)
1. District Resolution
2. Corporation Resolution 3. Remarketing Memorandum, together with Appendix B
4. First Amendment to Trust Agreement
5. First Amendment to Installment Purchase Agreement
6. Standby Certificate Purchase Agreement
90099925.3
RESOLUTION NO. OCSD 10-__
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE
COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION
AND DELIVERY BY THE DISTRICT OF A FIRST SUPPLEMENTAL TRUST AGREEMENT AND REPLACEMENT OF THE STANDBY CERTIFICATE PURCHASE AGREEMENT WITH LLOYDS TSB BANK AS CREDIT FACILITY ON THE ORANGE COUNTY SANITATION
DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION, SERIES
2000-A AND SERIES 2000-B; APPROVING A NEGOTIATED AGREEMENT WITH LLOYDS TSB BANK AS CREDIT FACILITY ON THE ORANGE COUNTY SANITATION DISTRICT REFUNDING CERTIFICATES OF PARTICIPATION, SERIES 2000-A AND SERIES
2000-B; AUTHORIZING THE DISTRIBUTION OF A REMARKETING
MEMORANDUM IN CONNECTION THEREWITH, AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND RELATED ACTIONS
WHEREAS, the Orange County Sanitation District (the “District”) has previously
caused there to be executed and delivered the Orange County Sanitation District Refunding
Certificates of Participation, Series 2000-A and the Orange County Sanitation District Refunding Certificates of Participation, Series 2000-B (collectively, the “Series 2000 Certificates”) to
finance and refinance the acquisition, construction and installation of certain improvements to
the District’s wastewater system;
WHEREAS, the Series 2000 Certificates were executed and delivered as variable rate
obligations supported by a Standby Certificate Purchase Agreement, dated as of August 1, 2000, by and between Dexia Public Finance Bank, acting through its New York Agency, and the
District;
WHEREAS, the District desires to cause the delivery of an Alternate Standby
Agreement in the form of a Standby Certificate Purchase Agreement (the “Standby Certificate
Purchase Agreement”) by and between the District and Lloyds TSB Bank plc, acting through its New York Branch, in accordance with the Trust Agreement, dated as of August 1, 2000 (the
“Trust Agreement”), by and among the District, the Orange County Sanitation District Financing
Corporation (the “Corporation”) and the predecessor trustee, State Street Bank and Trust
Company of California, N.A. (the current Trustee being U.S. Bank National Association), to
support the Series 2000 Certificates;
WHEREAS, in connection with the execution and delivery of the Alternate Standby
Agreement, the District and the Corporation desire to amend the Trust Agreement and the
Installment Purchase Agreement, dated as of August 1, 2000 (the “Installment Purchase
Agreement”), by and between the District and the Corporation;
WHEREAS, in connection with the remarketing of the Series 2000 Certificates with the support of the Standby Certificate Purchase Agreement, a Remarketing Memorandum has been
prepared by the District;
WHEREAS, there have been prepared and submitted to this meeting forms of:
90099925.3 2
(a) the First Amendment to Installment Purchase Agreement;
(b) the First Amendment to Trust Agreement;
(c) the Remarketing Memorandum; and
(d) the Standby Certificate Purchase 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 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
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;
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 First Amendment to 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 officers 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 First Amendment to 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 such First Amendment to Installment Purchase Agreement by such Authorized
Officer.
Section 3. The First Amendment to 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 First Amendment to
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 First Amendment to Trust Agreement by such Authorized Officer.
Section 4. The Standby Certificate Purchase 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 Standby Certificate Purchase Agreement in the form presented to this meeting, with such changes, insertions and
90099925.3 3
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 Standby Certificate
Purchase Agreement by such Authorized Officer.
Section 5. The Remarketing Memorandum, 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 Remarketing Memorandum in connection with the remarketing of the Series 2000
Certificates is hereby authorized and approved.
Section 6. 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 First Amendment to Installment Purchase Agreement, the First Amendment to Trust
Agreement, the Standby Certificate Purchase Agreement, the Remarketing Memorandum, and
the transactions contemplated by the agreements or documents referenced in this Resolution.
Section 7. All actions heretofore taken by the officers and agents of the Corporation with respect to the execution and delivery of the Standby Certificate Purchase Agreement, the
First Amendment to Installment Purchase Agreement, the First Amendment to Trust Agreement,
the Remarketing Memorandum, or in connection with or related to any of the agreements or
documents referenced in this Resolution, are hereby approved, confirmed and ratified.
Section 8. This Resolution shall take effect immediately upon its adoption.
PASSED AND ADOPTED at a regular meeting held on July 28, 2010.
Chair of the Board of Directors
ATTEST:
Clerk of the Board of Directors
APPROVED:
General Counsel
Orange County Sanitation District
90099925.3
STATE OF CALIFORNIA )
) ss
COUNTY OF ORANGE )
I, ______________, Clerk of the Board of Directors of the Orange County Sanitation
District, do hereby certify that the foregoing Resolution No. OCSD 10-__ was passed and
adopted at a regular meeting of said Board on the 28th
day of July 2010, 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 28th
day of July 2010.
Clerk of the Board of Directors
Orange County Sanitation District
90099898.3
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 A FIRST AMENDMENT TO INSTALLMENT PURCHASE AGREEMENT AND A FIRST AMENDMENT TO TRUST AGREEMENT IN CONNECTION WITH THE EXECUTION AND
DELIVERY OF AN ALTERNATE STANDBY AGREEMENT AND
AUTHORIZING THE EXECUTION AND DELIVERY OF NECESSARY DOCUMENTS AND RELATED ACTIONS.
WHEREAS, the Orange County Sanitation District (the “District”) has previously
caused there to be executed and delivered the Orange County Sanitation District Refunding
Certificates of Participation, Series 2000-A and the Orange County Sanitation District Refunding
Certificates of Participation, Series 2000-B (collectively, the “Series 2000 Certificates”) to finance and refinance the acquisition, construction and installation of certain improvements to
the District’s wastewater system;
WHEREAS, the Series 2000 Certificates were executed and delivered as variable rate
obligations supported by a Standby Certificate Purchase Agreement, dated as of August 1, 2000,
by and between Dexia Public Finance Bank, acting through its New York Agency, and the District;
WHEREAS, the District desires to cause the delivery of an Alternate Standby
Agreement, in the form of a Standby Certificate Purchase Agreement (the “Standby Certificate
Purchase Agreement”) by and between the District and Lloyds TSB Bank plc, acting through its
New York Branch, in accordance with the Trust Agreement, dated as of August 1, 2000 (the “Trust Agreement”), by and among the District, the Orange County Sanitation District Financing
Corporation (the “Corporation”) and the predecessor trustee, State Street Bank and Trust
Company of California, N.A. (the current Trustee being U.S. Bank National Association), to
support the Series 2000 Certificates;
WHEREAS, in connection with the execution and delivery of the Alternate Standby Agreement, the District and the Corporation desire to amend the Trust Agreement and the
Installment Purchase Agreement, dated as of August 1, 2000 (the “Installment Purchase
Agreement”), by and between the District and the Corporation;
WHEREAS, there have been prepared and submitted to this meeting forms of:
(a) the First Amendment to Installment Purchase Agreement; and
(b) the First Amendment to Trust 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 actions authorized hereby do exist, have happened and
90099898.3 2
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 First Amendment to 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 officers 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 First Amendment to 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 such First Amendment to Installment Purchase Agreement by
such Authorized Officer.
Section 3. The First Amendment to 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 First Amendment
to 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 such First Amendment
to Trust Agreement by such Authorized Officer.
Section 4. The Authorized Officers 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 Alternate Standby Agreement, the First Amendment to Installment
Purchase Agreement, the First Amendment to Trust Agreement and the transactions
contemplated by the agreements or documents referenced in this Resolution.
Section 5. All actions heretofore taken by the officers and agents of the Corporation with respect to the execution and delivery of the First Amendment to Installment Purchase Agreement, the First Amendment to Trust Agreement, or in connection with or related to any of
the agreements or documents referenced in this Resolution, are hereby approved, confirmed and
ratified.
Section 6. This Resolution shall take effect immediately upon its adoption.
90099898.3 3
PASSED AND ADOPTED at a meeting held on July 28, 2010.
President, Orange County Sanitation District
Financing Corporation
ATTEST:
Secretary, Orange County Sanitation
District Financing Corporation
APPROVED:
General Counsel, Orange County Sanitation District Financing Corporation
90099898.3
STATE OF CALIFORNIA )
) ss
COUNTY OF ORANGE )
I, _________________, Secretary 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 28th
day of July 2010, 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 28th day of July 2010.
Secretary,
Orange County Sanitation District
Financing Corporation
55621720.5
Fulbright & Jaworski L.L.P. – Draft 07/07/10
REMARKETING MEMORANDUM DATED AUGUST __, 2010
REMARKETED ISSUE—BOOK-ENTRY-ONLY RATINGSS&P: “___”/“___” Fitch: “___”/“___”
:
(See “RATINGS” herein.)
[District Logo] $194,000,000 [DAC Logo] ORANGE COUNTY SANITATION DISTRICT
Refunding Certificates of Participation Series 2000-A and Series 2000-B
$90,900,000 Series 2000-A Term Certificates due August 1, 2029 CUSIP No.: 684285BR9
$103,100,000 Series 2000-B Term Certificates due August 1, 2030 CUSIP No.: 684285BS7
Dated: August 31, 2000 Price: 100% Due: August 1, as shown above
The Orange County Sanitation District Refunding Certificates of Participation, Series 2000-A (the “Series
2000-A Certificates”) and the Orange County Sanitation District Refunding Certificates of Participation, Series 2000-B (the “Series 2000-B Certificates” and, together with the Series 2000-A Certificates, the “Series 2000
Certificates”), were executed and delivered pursuant to a Trust Agreement, dated as of August 1, 2000 (the “Trust Agreement”), by and among U.S. Bank National Association, as successor trustee (the “Trustee”), the Orange
County Sanitation District Financing Corporation (the “Corporation”) and the Orange County Sanitation District (the “District”).
The Certificates evidence direct, fractional undivided interests of the Owners thereof in certain installment payments (the “Installment Payments”), and the interest thereon, to be made by the District pursuant to the
Installment Purchase Agreement, dated as of August 1, 2000 (the “Installment Purchase Agreement”), by and between the District and 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 as 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 more fully described in the Master Agreement, the “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, as further described in “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2000 CERTIFICATES” herein. The Installment Purchase Agreement provides that
the obligation of the District to pay the Installment Payments, and payments of interest thereon, and certain other payments required to be made in accordance with the Installment Purchase Agreement, solely from Net Revenues, is
absolute and unconditional. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2000
CERTIFICATES” herein.
The Series 2000 Certificates currently evidence interest in the Daily Rate Mode and were delivered in Authorized Denominations of $100,000 and whole multiples thereof, except that one Series 2000 Certificate for
each stated Principal Payment Date may be in the amount of $100,000 and a whole multiple of $5,000 in excess thereof. While in the Daily Rate Mode and the Weekly Rate Mode, the interest evidenced by the Series 2000 Certificates will be computed on the basis of the actual days elapsed and a 365 day or 366-day year, as applicable,
and interest evidenced by the Series 2000 Certificates is payable on the first Business Day of each calendar month.
This Remarketing Memorandum describes terms of the Series 2000 Certificates only while they evidence interest in the Daily Rate Mode or the Weekly Rate Mode. There are significant differences in the terms of the Series 2000 Certificates evidencing interest in other interest rate Modes. This Remarketing
Memorandum is not intended to provide information with respect to the Series 2000 Certificates evidencing interest in a Mode other than in the Daily Rate Mode or the Weekly Rate Mode.
While the Daily Rate Mode or the Weekly Rate Mode are in effect, Owners of the Series 2000 Certificates
(other than Provider Certificates (described herein)) may elect to have their Series 2000 Certificates (or portions thereof in Authorized Denominations) purchased at a purchase price equal to the principal amount thereof, without
55621720.5
premium, plus any accrued but unpaid interest thereon to the Purchase Date (the “Purchase Price”). Subject to
certain termination events described herein, payment of the Purchase Price will be made pursuant to a Standby
Certificate Purchase Agreement, dated as of August __, 2010 (the “Standby Agreement”), by and between Lloyds TSB Bank, plc, acting through its New York Branch (the “Provider”)
[insert bank logo]
The Provider’s obligation to purchase Series 2000 Certificates under the Standby Agreement will terminate immediately without notice to the Owners and without a mandatory tender of the Series 2000 Certificates upon certain events of default. See “STANDBY AGREEMENT – Events of Default” herein.
The Series 2000 Certificates are subject to optional and mandatory sinking fund prepayment prior to maturity as more fully described herein. See “THE SERIES 2000 CERTIFICATES – Prepayment Provisions” herein. The Series 2000 Certificates are also subject to mandatory tender for purchase in certain circumstances,
including conversion to a different Mode, all as more particularly described herein. See “THE SERIES 2000 CERTIFICATES – Mandatory Tender provisions” herein.
The Series 2000 Certificates were delivered in fully registered from and are registered in the name of Cede
& Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). While the Series 2000 Certificates are in the DTC’s book-entry system, the provisions described in APPENDIX D – “BOOK-ENTRY SYSTEM” shall apply and the term “Owner” as used herein shall refer to DTC or its nominee as the registered
owner of the Series 2000 Certificates. Payments to beneficial owners of the Series 2000 Certificates, including
payment of Purchase Price to the beneficial owners of the Series 2000 Certificates, will be made in accordance with the provisions described in APPENDIX D – “BOOK-ENTRY SYSTEM.”
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 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 SERIES 2000 CERTIFICATES” HEREIN.
This cover page contains information intended for quick reference only. It is not a summary of this issue. Investors must read the entire Remarketing Memorandum to obtain information essential to making
an informed investment decision.
On the date of original execution and delivery of the Series 2000 Certificates, Orrick Herrington & Sutcliffe LLP rendered its opinion that based upon an analysis of existing laws, regulations, rulings and court decisions, interest evidenced by the Series 2000 Certificates 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. The opinion of Orrick, Herrington & Sutcliffe LLP has not been updated as of the date of this Remarketing Memorandum. A copy of the approving opinion of Orrick, Herrington & Sutcliffe LLP delivered in connection with the original issuance of the Series 2000 Certificates is attached hereto as Appendix E. Fulbright & Jaworski L.L.P. is currently serving as Special Counsel and Disclosure Counsel to the District. As Special Counsel, Fulbright & Jaworski L.L.P. is not providing any opinion to the Owners with respect to the validity and enforceability of the Series 2000 Certificates or with respect to any tax matters in connection with Series 2000 Certificates. Certain legal matters will be passed on for the District and the Corporation by Woodruff, Spradlin & Smart, a Professional Corporation, Costa Mesa, California and for the Provider by Nixon Peabody LLP, as domestic counsel to the Provider, and ___________, as foreign counsel to the Provider.
55621720.5
[MAP]
55621720.5
ORANGE COUNTY SANITATION DISTRICT
Larry Crandall (Chair) — Fountain Valley
Board of Directors
Troy Edgar — (Vice Chair) — Los Alamitos
Harry Sidhu — Anaheim Constance Underhill — Placentia
Roy Moore — Brea Sal Tinajero — Santa Ana
Patsy Marshall — Buena Park Charles Antos — Seal Beach Phil Luebben — Cypress David Shawver — Stanton
Sharon Quirk-Silva — Fullerton Doug Davert — Tustin
Bill Dalton — Garden Grove Brad Reese — Villa Park
Cathy Green — Huntington Beach John Anderson — Yorba Linda
Christina Shea — Irvine James M. Ferryman — Costa Mesa Sanitary District
Tom Beamish — La Habra John Withers — Irvine Ranch Water District
Mark Waldman — La Palma Joy L. Neugebauer — Midway City Sanitary
District
Don Webb — Newport Beach Janet Nguyen — Member of the Orange County Jon Dumitru — Orange Board of Supervisors
James D. Ruth, General Manager Robert P. Ghirelli, D.Env., 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
Executive Management of the District
Special Counsel and Disclosure Counsel
Fulbright & Jaworski L.L.P.
Los Angeles, California
Special Services
District General Counsel
Bradley R. Hogin
Woodruff, Spradlin & Smart, a Professional Corporation Costa Mesa, California
Financial Advisor
Public Resources Advisory Group
Los Angeles, California
55621720.5
Trustee U.S. Bank National Association
Los Angeles, California
This Remarketing Memorandum does not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of the Series 2000 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 Remarketing Memorandum. 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 Remarketing Agent in connection with any reoffering.
This Remarketing Memorandum is not to be construed as a contract with the purchasers of the
Series 2000 Certificates. Statements contained in this Remarketing Memorandum 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 Remarketing Memorandum 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 Remarketing Memorandum is submitted with respect to the sale of the Series 2000 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 Remarketing Memorandum and its distribution have been duly
authorized and approved by the District and the Corporation.
CUSIP is a registered trademark of the American Bankers Association. CUSIP data on the cover
hereof and herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services
LLC on behalf of The American Bankers Association. This data is not intended to create a database and does
not serve in any way as a substitute for the CUSIP Services. The District, the Financial Advisor and the
Remarketing Agents are not responsible for the selection or correctness of the CUSIP numbers set forth on the
cover hereof or herein.
FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Remarketing Memorandum constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “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. No assurance is given that actual results will meet the forecasts of the
Authority in any way. The District does not plan to issue any updates or revisions to those forward-
looking statements if or when any of its expectations, or events, conditions or circumstances on which
such statements are based occurs.
TABLE OF CONTENTS
(continued)
Page
55621720.5 ii
INTRODUCTION ......................................................................................................................... 1
General ............................................................................................................................... 1 The District ........................................................................................................................ 2
The Series 2000 Certificates .............................................................................................. 2
Security and Sources of Payment for the Series 2000 Certificates .................................... 3
Reserve Fund ..................................................................................................................... 3
Interest Rate Modes ........................................................................................................... 4 Optional Tender ................................................................................................................. 4
Prepayment and Mandatory Tender Provisions ................................................................. 4
Standby Agreement ............................................................................................................ 4
No Continuing Disclosure.................................................................................................. 4
Miscellaneous .................................................................................................................... 5
THE SERIES 2000 CERTIFICATES ............................................................................................ 5
General ............................................................................................................................... 5
Optional Tender Provisions ............................................................................................... 6
Mandatory Tender Provisions ............................................................................................ 7
Purchase of Series 2000 Certificates.................................................................................. 9 Conversion to Other Modes ............................................................................................. 11
Prepayment Provisions..................................................................................................... 13
Special Considerations Relating to the Series 2000 Certificates ..................................... 16
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2000
CERTIFICATES .......................................................................................................................... 18 Installment Payments ....................................................................................................... 18
Limited Obligations ......................................................................................................... 18
Parity Obligations ............................................................................................................ 19
Net Revenues ................................................................................................................... 19
Rate Stabilization Account .............................................................................................. 20 Allocation of Revenues .................................................................................................... 20
Rate Covenant .................................................................................................................. 21
Reserve Fund ................................................................................................................... 22
Limitations on Issuance of Additional Obligations ......................................................... 22
Insurance .......................................................................................................................... 24 Allocation of Installment Payments ................................................................................. 24
THE STANDBY AGREEMENT ................................................................................................ 26
Alternate Standby Agreement .......................................................................................... 26
LIMITATIONS OF STANDBY LIQUIDITY FACILITIES ...................................................... 26
THE DISTRICT ........................................................................................................................... 27 Background ...................................................................................................................... 27
Organization and Administration ..................................................................................... 28
Services ............................................................................................................................ 29
Service Area ..................................................................................................................... 29
Employees ........................................................................................................................ 30
TABLE OF CONTENTS
(continued)
Page
55621720.5 ii
Retirement Plan ................................................................................................................ 31 Other Post-Employment Benefits .................................................................................... 32
Risk Management ............................................................................................................ 33
Existing Facilities............................................................................................................. 33
Permits, Licenses and Other Regulations ........................................................................ 34
2009 Facilities Master Plan and Capital Improvement Program ..................................... 36 Groundwater Replenishment System ............................................................................... 37
Preferred Level of Treatment ........................................................................................... 37
Biosolids Management..................................................................................................... 38
Urban Runoff ................................................................................................................... 39
Integrated Emergency Response Program ....................................................................... 39 Five-Year Strategic Planning ........................................................................................... 40
DISTRICT REVENUES .............................................................................................................. 41
Sewer Service Charges .................................................................................................... 41
Additional Revenues ........................................................................................................ 44
Wastewater Treatment History ........................................................................................ 45 Customers ........................................................................................................................ 46
Assessed Valuation .......................................................................................................... 48
Tax Levies and Delinquencies ......................................................................................... 49
Budgetary Process ............................................................................................................ 50
Reserves ........................................................................................................................... 51 Summary of Operating Data ............................................................................................ 52
Projected Operating Data ................................................................................................. 53
Management’s Discussion and Analysis of Operating Data............................................ 55
Investment of District Funds ............................................................................................ 56
FINANCIAL OBLIGATIONS .................................................................................................... 56 Existing Indebtedness ...................................................................................................... 56
Variable Rate Obligations ................................................................................................ 57
Anticipated Financings .................................................................................................... 57
Direct and Overlapping Bonded Debt.............................................................................. 57
THE CORPORATION ................................................................................................................ 60
LIMITATIONS ON TAXES AND REVENUES........................................................................ 60
Article XIIIA of the California Constitution ................................................................... 60
Legislation Implementing Article XIIIA ......................................................................... 61
Article XIIIB of the California Constitution .................................................................... 61
Proposition 1A ................................................................................................................. 62 Article XIIIC and Article XIIID of the California Constitution ...................................... 63
Other Initiative Measures ................................................................................................. 65
LEGAL MATTERS ..................................................................................................................... 65
FINANCIAL ADVISOR ............................................................................................................. 65
TABLE OF CONTENTS
(continued)
Page
55621720.5 iii
ABSENCE OF LITIGATION ..................................................................................................... 65
FINANCIAL STATEMENTS ..................................................................................................... 66
TAX MATTERS .......................................................................................................................... 66
NO CONTINUING DISCLOSURE ............................................................................................ 66
RATINGS .................................................................................................................................... 66
MISCELLANEOUS .................................................................................................................... 67
APPENDIX A – COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE
ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR
ENDED JUNE 30, 2009 ......................................................................... 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 – BOOK-ENTRY SYSTEM ...................................................................... D-1
APPENDIX E – APPROVING OPINION ......................................................................... E-1
55621720.5 1
REMARKETING MEMORANDUM
$194,000,000
ORANGE COUNTY SANITATION DISTRICT
Refunding Certificates of Participation
Series 2000-A and Series 2000-B
$90,900,000 Series 2000-A Term Certificates
due August 1, 2029
$103,100,000 Series 2000-B Term Certificates
due August 1, 2030
INTRODUCTION
This introduction contains only a brief summary of certain of the terms of the Series 2000 Certificates being offered and a brief description of the Remarketing Memorandum. All statements contained in this introduction are qualified in their entirety by reference to the entire Remarketing
Memorandum. References to, and summaries of, provisions of the Constitution and laws of the State 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 thereof. All capitalized terms used in this Remarketing Memorandum 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
The Orange County Sanitation District Refunding Certificates of Participation, Series 2000-A (the “Series 2000-A Certificates”) and the Orange County Sanitation District Refunding Certificates of Participation, Series 2000-B (the “Series 2000-B Certificates” and, together with the Series 2000-A
Certificates, the “Series 2000 Certificates”), were executed and delivered pursuant to a Trust Agreement, dated as of August 1, 2000 (the “Trust Agreement”), by and among U.S. Bank National Association (the “Trustee”), the Orange County Sanitation District Financing Corporation (the “Corporation”) and the
Orange County Sanitation District (the “District”).
The Certificates evidence direct, fractional undivided interests of the Owners thereof in certain installment payments (the “Installment Payments”), and the interest thereon, to be made by the District
pursuant to the Installment Purchase Agreement, dated as of August 1, 2000 (the “Installment Purchase Agreement”), by and between the District and 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 as 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 more fully described in the
Master Agreement, the “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, as further described in “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2000 CERTIFICATES” herein. The Installment Purchase Agreement provides that the
obligation of the District to pay the Installment Payments, and payments of interest thereon, and certain other payments required to be made in accordance with the Installment Purchase Agreement, solely from Net Revenues, is absolute and unconditional. See “SECURITY AND SOURCES OF PAYMENT FOR
THE SERIES 2000 CERTIFICATES” herein.
55621720.5 2
In connection with the remarketing of the Series 2000 Certificates, Lloyds TSB Bank plc, acting
through its New York Branch (the “Provider”), will deliver a Standby Certificate Purchase Agreement,
dated as of August __, 2010 (the “Standby Agreement”), by and between the District and Provider. The Standby Agreement will constitute an Alternate Standby Agreement under the Trust Agreement.
Simultaneously with the remarketing of the Series 2000 Certificates with the support of the Standby
Agreement, the Provider will consent to certain amendments to the Trust Agreement and the Installment Purchase Agreement. Owners will purchase Series 2000 Certificates subject to such amendments. See
APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Summary of Amendments” attached hereto.
Proceeds from the sale of the Series 2000 Certificates were used to (i) current refund all of the
outstanding principal amount of the District’s Certificates of Participation (Capital Improvement Program, 1990-92 Series A) and the Certificates of Participation (Capital Improvement Program, 1990-92 Series C) and advance refund all of the outstanding principal amount of the District’s Certificates of
Participation (Capital Improvement Program, 1990-92 Series B), all of which were executed and delivered to finance the acquisition, construction and installation of certain improvements to the Wastewater System, (ii) to finance or reimburse the acquisition, construction and installation of certain
additional capital improvements to the Wastewater System, (iii) to finance a reserve fund for the Series 2000 Certificates, and (iv) to pay costs of issuance of the Series 2000 Certificates.
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 more than 2.5 million people in the northern and central
portion of the County of Orange (the “County”), in a service area of approximately 480 square miles, treating 211 million gallons per day (“mg/d”) of wastewater in Fiscal Year 2008-09. See “THE
DISTRICT,” “DISTRICT REVENUES” and “FINANCIAL OBLIGATIONS” herein.
The Series 2000 Certificates
The Series 2000 Certificates were delivered in fully registered from and, are registered in the
name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). While the Series 2000 Certificates are in the DTC’s book-entry system, the provisions described in APPENDIX D – “BOOK-ENTRY SYSTEM” shall apply and the term “Owner” as used herein shall refer
to DTC or its nominee as the registered owner of the Series 2000 Certificates. Payments to beneficial owners of the Series 2000 Certificates, including payment of Purchase Price to the beneficial owners of the Series 2000 Certificates, will be made in accordance with the provisions described in APPENDIX D –
“BOOK ENTRY SYSTEM.” The Series 2000 Certificates currently evidence interest accruing at the Daily Rate and while in a Daily Rate Mode or Weekly Rate Mode will be in the denomination of
$100,000 and whole multiples thereof, except that one Series 2000 Certificate for each stated Principal
Payment Date may be in the amount of $100,000 and a whole multiple of $5,000 in excess thereof (each an “Authorized Denomination”).
This Remarketing Memorandum describes terms of the Series 2000 Certificates only while
they evidence interest in the Daily Rate Mode or the Weekly Rate Mode. There are significant differences in the terms of the Series 2000 Certificates evidencing interest in other interest rate Modes. This Remarketing Memorandum is not intended to provide information with respect to the
Series 2000 Certificates evidencing interest in a Mode other than in the Daily Rate Mode or the Weekly Rate Mode.
55621720.5 3
Security and Sources of Payment for the Series 2000 Certificates
The Series 2000 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 currently has Outstanding Senior Obligations payable from Net Revenues on a parity
with the Installment Payments under the Installment Purchase Agreement. See “ESTIMATED SOURCES AND USES OF FUNDS,” “FINANCIAL OBLIGATIONS – Existing Indebtedness” and “THE DISTRICT” herein and APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS –
Master Agreement” attached hereto. The District has no Subordinate Obligations currently outstanding.
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 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. See “SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2000 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 SERIES 2000 CERTIFICATES” herein.
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, equal to the least of (i) the maximum amount of remaining Installment Payments, and the interest thereon, coming due in any one year; (ii) “10% of the proceeds of the issue” within the meaning of Section 148 of the Internal Revenue
Code of 1986 (the “Code”); and (iii) 125% of the average amount of remaining Installment Payments, and the interest thereon, coming due in each year; provided, however, that for purposes of calculating the Reserve Requirement, interest on Installment Payments evidenced by Series 2000 Certificates in a
55621720.5 4
Variable Rate Mode shall be deemed to accrue interest at a rate per annum of 5.75%. Amounts in the
Reserve Fund may be used to pay principal of and interest with respect to the Series 2000 Certificates to
the extent that amounts in the Principal Account and Interest Account are insufficient therefor. The Reserve Fund is funded in an amount sufficient to satisfy the Reserve Requirement. See APPENDIX C –
“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Trust Agreement.”
Interest Rate Modes
The Series 2000 Certificates currently evidence interest in the Daily Rate Mode. Upon
satisfaction of certain conditions provided in the Trust Agreement, the Series 2000 Certificates may be converted to the Weekly Rate Mode, the Extended Rate Mode or the Fixed Rate Mode (each, a “Mode”). Interest on the Series 2000 Certificates during the Daily Rate Mode and Weekly Rate Mode will be
payable on the first Business Day of each calendar month (each, an “Interest Payment Date”). See “THE SERIES 2000 CERTIFICATES” herein.
Optional Tender
While the Daily Rate Mode is in effect, Owners of Series 2000 Certificates (other than Provider Certificates) may elect to have their Series 2000 Certificates (or portions thereof in Authorized Denominations) purchased at a purchase price equal to the principal amount thereof, without premium,
plus any accrued but unpaid interest to the Purchase Date (“Purchase Price”) on any Business Day upon delivery of a written notice of tender meeting the requirements set forth in the Trust Agreement to the
Remarketing Agent and the Trustee not later than 9:45 a.m. (New York City time) on such Business Day.
While the Weekly Rate Mode is in effect, Owners of Series 2000 Certificates (other than Provider Certificates) may elect to have their Series 2000 Certificates (or portions thereof in Authorized
Denominations) purchased at the Purchase Price on any Business Day upon delivery of a written notice of
tender meeting the requirements set forth in the Trust Agreement to the Remarketing Agent and the Trustee not later than 5:00 p.m. (New York City time) on a Business Day not less than seven days prior to
the Purchase Date. See “THE SERIES 2000 CERTIFICATES – Optional Tender Provisions” herein.
Prepayment and Mandatory Tender Provisions
The Series 2000 Certificates will be subject to mandatory sinking fund and optional prepayment
prior to maturity as more fully described herein. See “THE SERIES 2000 CERTIFICATES – Prepayment Provisions” herein. The Series 2000 Certificates are also subject to mandatory tender for purchase in certain circumstances, including conversion to a different Mode, all as more particularly
described under the caption “THE SERIES 2000 CERTIFICATES – Mandatory Tender Provisions” herein.
Standby Agreement
Pursuant to the Standby Agreement, the Provider will provide funds for the purchase of the Series 2000 Certificates that are tendered for optional or mandatory purchase but are not remarketed. The
Standby Agreement will expire on August __, 2012, unless extended or earlier terminated upon the
occurrence of certain events, including termination at direction of the District. Under certain circumstances described herein, the obligation of the Provider to provide funds for the purchase of Series
2000 Certificates may be terminated immediately without notice to the Owners and without a mandatory
tender of the Series 2000 Certificates. See “THE STANDBY AGREEMENT” herein.
55621720.5 5
No Continuing Disclosure
The Series 2000 Certificates are currently exempt from the rules of the U.S. Securities and
Exchange Commission (“SEC”) relating to continuing disclosure of annual financial information and certain material events. In connection with the execution and delivery of prior series of certificates of
participation, the District has covenanted to provide or cause to be provided to the Municipal Securities
Rulemaking Board, each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State of California as a state repository (the
“Repositories”) for purposes of Rule 15c2-12 adopted by the SEC certain annual financial information and operating data relating to the District and, in a timely manner, notice of certain material events. Owners may obtain from the Repositories such information provided by the District.
Miscellaneous
The descriptions herein of the Trust Agreement, the Master Agreement, the Installment Purchase Agreement, the Standby Agreement and any other agreements relating to the Series 2000 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 U.S. Bank National Association, Los Angeles, California, Attention: Corporate Trust.
THE SERIES 2000 CERTIFICATES
General
The Series 2000 Certificates are in the form of fully registered certificates in Authorized
Denominations. The Series 2000 Certificates currently evidence interest at the Daily Rate. So long as the Series 2000 Certificates are in the DTC book-entry system, the interest, principal and prepayment
premiums, if any, due with respect to the Series 2000 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 and as described under APPENDIX D – “BOOK-ENTRY SYSTEM.”
The Series 2000 Certificates are dated August 31, 2000. The Series 2000-A Certificates will
mature on August 1, 2029 and the Series 2000-B Certificates will mature on August 1, 2030. During the Daily Rate Mode and Weekly Rate Mode, payment of interest with respect to the Series 2000 Certificates
is payable on the first Business Day of each calendar month. While the Series 2000 Certificates are in the Daily Rate Mode or the Weekly Rate Mode, interest evidenced by the Series 2000 Certificates will be computed on the basis of the actual days elapsed and a 365 or 366-day year, as applicable. Upon
satisfaction of the requirements provided in the Trust Agreement, the Series 2000 Certificates may be converted to the Weekly Rate Mode, Extended Rate Mode or the Fixed Rate Mode as provided in the Trust Agreement. Notwithstanding the foregoing, the interest on Installment Payments evidenced by
Provider Certificates shall accrue as provided in the Standby Agreement and the Trust Agreement. See APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Trust Agreement.”
Daily Rate Periods in the Daily Rate Mode are for one day. Weekly Rate Periods in the Weekly
Rate Mode will be from Thursday of each week to but excluding Thursday of the following week, except that (i) in the case of a conversion of the Series 2000 Certificates to a Weekly Rate Mode from an
Extended Rate Mode, the initial Weekly Rate Period upon such conversion shall be from the Conversion
Date to but excluding Thursday of the following week, (ii) in the case of a conversion of the Series 2000 Certificates from a Weekly Rate Mode to an Extended Rate Mode, the last Weekly Rate Period will end
on the Conversion Date, and (iii) in the case the Weekly Rate Mode is in effect as of the stated Principal
Payment Date for the Series 2000 Certificates, the last Weekly Rate Period will end on such stated Principal Payment Date.
55621720.5 6
This Remarketing Memorandum describes terms of the Series 2000 Certificates only while they evidence interest in the Daily Rate Mode or the Weekly Rate Mode. There are significant
differences in the terms of the Series 2000 Certificates evidencing interest in other interest rate Modes. This Remarketing Memorandum is not intended to provide information with respect to the Series 2000 Certificates evidencing interest in a Mode other than in the Daily Rate Mode or the
Weekly Rate Mode.
The Remarketing Agent determines the Daily Rate for each Daily Rate Period that is a Business
Day not later than 9:30 a.m. (New York City time) on such Business Day. The Daily Rate for any Daily Rate Period that is not a Business Day is the Daily Rate established for the immediately preceding Business Day. The Remarketing Agent will determine the Weekly Rate for each Weekly Rate Period not
later than 5:00 p.m. (New York City time) on the last Business Day which is immediately prior to the commencement date of the Weekly Rate Period to which such Weekly Rate relates. The Daily Rate or Weekly Rate so determined will be the lowest rate of interest which, in the judgment of the Remarketing
Agent, would cause the Series 2000 Certificates to produce as nearly as practicable a bid equal to the principal evidenced thereby, plus accrued interest evidenced thereby, under prevailing market conditions as of the date of determination of such Daily Rate or Weekly Rate. Notwithstanding the foregoing, in no
event will any Daily Rate or Weekly Rate exceed the Maximum Rate.
Notice of Daily Rates shall be given by the Remarketing Agent to the Trustee by facsimile,
electronic transmission or other similar means of communication (followed by notice in writing by an
authorized officer of the Remarketing Agent) not later than 9:30 a.m. on the date of determination. Notice of Weekly Rates shall be given by the Remarketing Agent to the Trustee by facsimile, electronic
transmission or other similar means of communication (followed by notice in writing by an authorized
officer of the Remarketing Agent) not later than 5:00 p.m. on the date of determination. The Trustee shall inform the Owners of the Series 2000 Certificates and the Provider of each Daily Rate and Weekly Rate
upon request.
All determinations of Daily Rates and Weekly Rates as provided in the Trust Agreement will be conclusive and binding upon the District, the Trustee, the Provider and the Owners of the Series 2000
Certificates. The District, the Trustee, the Provider and the Remarketing Agent will not be liable to the Owner of any Series 2000 Certificate for failure to give any notice required above or for failure of the Owner of any Series 2000 Certificate to receive any such notice.
No Variable Rate Period may extend beyond the Expiration Date. No Variable Rate Period may extend beyond the stated Principal Payment Date of the Series 2000 Certificates.
Optional Tender Provisions
Optional Tenders While Daily Rate Mode in Effect. While the Daily Rate Mode is in effect, Owners of Series 2000 Certificates (other than Provider Certificates) may elect to have their Series 2000
Certificates (or portions thereof in Authorized Denominations) purchased at the Purchase Price on any
Business Day upon delivery of a written notice of tender meeting the requirements set forth in the Trust Agreement to the Remarketing Agent and the Trustee not later than 9:45 a.m. (New York City time) on
such Business Day.
Not later than 10:00 a.m. on the date of receipt of any such notice of tender, the Trustee will notify the Provider and the Remarketing Agent of the principal evidenced by Series 2000 Certificates or
portions thereof to be tendered and remarketed and that such Series 2000 Certificates or portions thereof are to be tendered and remarketed on such date. Such notice will be given by telephone, telegram, telecopy, telex or other similar communication and will be promptly confirmed in writing.
55621720.5 7
Optional Tenders While Weekly Rate Mode in Effect. While the Weekly Rate Mode is in effect,
Owners of Series 2000 Certificates (other than Provider Certificates) may elect to have their Series 2000
Certificates (or portions thereof in Authorized Denominations) purchased at the Purchase Price on any Business Day upon delivery of a written notice of tender meeting the requirements set forth in the Trust
Agreement to the Remarketing Agent and the Trustee not later than 5:00 p.m. (New York City time) on a
Business Day not less than seven days prior to the Purchase Date.
Not later than 4:30 p.m. on the Business Day immediately following the date of receipt of any
notice of tender, the Trustee will notify the Provider of the principal evidenced by Series 2000 Certificates or portions thereof to be tendered and remarketed and the date on which such Series 2000 Certificates or portions thereof are to be tendered and remarketed. Such notice will be given by
telephone, telegram, telecopy, telex or other similar communication and will be promptly confirmed in writing.
Notice of Optional Tender While Daily Rate Mode or Weekly Rate Mode in Effect. Each notice
of tender: (i) must be delivered to the Trustee at its Principal Office and the Remarketing Agent at its principal office and be in form satisfactory to the Trustee; (ii) will state (A) the principal evidenced by the Series 2000 Certificate or portion of the Series 2000 Certificate to be purchased and the CUSIP number
thereof, (B) that the Owner irrevocably demands purchase of such Series 2000 Certificate or portion thereof, (C) that such Series 2000 Certificate or portion thereof is to be purchased on such Business Day,
(D) payment instructions, and (E) if such tender is through a Participant, the DTC participant number for
such Participant and the name, telephone number and telecopy number of a contact person at such Participant; and (iii) will automatically constitute (A) an irrevocable offer to sell the Series 2000
Certificate or portion thereof to which the notice relates on the Purchase Date to any purchaser selected
by the Remarketing Agent, at the Purchase Price, (B) an irrevocable authorization and instruction to the Trustee to effect transfer of such Series 2000 Certificate or portion thereof upon payment of such
Purchase Price to the Trustee on the Purchase Date, (C) an irrevocable authorization and instruction to the Trustee to effect the exchange of the Series 2000 Certificate to be purchased in whole or in part for other Series 2000 Certificates evidencing principal in an equal aggregate amount so as to facilitate the sale of
such Series 2000 Certificate or portion thereof, and (D) an acknowledgment that such Owner will have no further rights with respect to such Series 2000 Certificate or portion thereof upon payment of the Purchase Price by the Trustee on the Purchase Date, except for the right of such Owner to receive such Purchase
Price upon surrender of such Series 2000 Certificate to the Trustee.
Remarketing of Tendered Certificates While Daily Rate Mode or Weekly Rate Mode in Effect. The Remarketing Agent will offer for sale and use its best efforts to find purchasers for all Series 2000
Certificates or portions thereof properly tendered. The terms of any sale by the Remarketing Agent of tendered Series 2000 Certificates will provide for the purchase of the remarketed Series 2000 Certificates
at the Purchase Price and the payment of such Purchase Price to the Trustee by the Remarketing Agent in
immediately available funds against delivery of the remarketed Series 2000 Certificates to the Trustee at or before 11:15 a.m. on the Purchase Date. Notwithstanding the foregoing, the Remarketing Agent will
not offer for sale any Series 2000 Certificate if (i) notice of any optional or mandatory prepayment or any
conversion from the Daily Rate Mode or the Weekly Rate Mode, as applicable, to another Mode has been given to the Owner of such Series 2000 Certificate pursuant to the provisions of the Trust Agreement, or
(ii) any defeasance of such Series 2000 Certificate in accordance with the provisions of the Trust Agreement has occurred, unless the Remarketing Agent has advised the person in writing to whom the offer is made of such occurrence and the effect of the same on the rights of the Owner of such Series 2000
Certificate, including, but not limited to, the rights of such Owner to tender such Series 2000 Certificate, as described in the conversion notice from the Trustee to the Owner of such Series 2000 Certificate.
55621720.5 8
Mandatory Tender Provisions
On Conversion Dates. The Series 2000 Certificates are subject to mandatory tender for purchase
on each proposed Conversion Date for which notice of conversion has been given to the Owners of the Series 2000 Certificates in accordance with the provisions of the Trust Agreement, and the Owners shall
not be entitled to retain such Series 2000 Certificates. Notice of conversion to another Mode will be
given to the Owners in the manner provided with respect to optional conversion between Variable Rate Modes in the Trust Agreement. Notice of conversion to the Fixed Rate Mode will be given to the Owners
in the manner provided with respect to conversion to the Fixed Rate Mode therein. The provisions with respect to purchase of tendered Series 2000 Certificates therein will be applicable to the purchase, payment for and registration and delivery of tendered Series 2000 Certificates. Any Series 2000
Certificate not tendered for purchase on any such proposed Conversion Date, as required in the Trust Agreement will be deemed tendered and purchased on such proposed Conversion Date, and thereafter the Owner thereof will have no further rights under the Trust Agreement except to receive such Purchase
Price.
On the Business Day on which the notice is mailed, the Trustee shall notify the Remarketing Agent and the Provider by telephone, telegram, telecopy, telex or other similar communication of the
aggregate principal evidenced by Series 2000 Certificates to be tendered for purchase on the proposed Conversion Date.
The Remarketing Agent will offer for sale and use its best efforts to find purchasers for the Series
2000 Certificates to be tendered. The terms of any sale of such tendered Series 2000 Certificates by the Remarketing Agent will provide for the purchase of the remarketed Series 2000 Certificates at the
Purchase Price and the payment of such Purchase Price to the Trustee by the Remarketing Agent in
immediately available funds against delivery of the remarketed Series 2000 Certificates to the Trustee at or before 11:15 a.m. on the proposed Conversion Date.
Upon Expiration or Substitution of Standby Agreement or Event of Default with Respect Thereto. Prior to conversion of the Series 2000 Certificates to the Fixed Rate Mode, the Series 2000 Certificates shall be subject to mandatory tender for purchase at the Purchase Price:
(i) on the last Business Day which is at least five days prior to the stated expiration date of the Standby Agreement or any Alternate Standby Agreement (the “Standby Agreement”), or such stated expiration date as it may be extended from time to time as provided in the
Standby Agreement, or any earlier date on which the Standby Agreement shall terminate, expire or be cancelled (the “Expiration Date”).
(ii) on the fifth Business Day following the Trustee’s receipt of a Notice of Termination from
the Provider; and
(iii) if the Series 2000 Certificates are in the Daily Rate Mode or the Weekly Rate Mode, on
the last Business Day which is at least five days prior to the substitution of an Alternate
Standby Agreement for the Standby Agreement pursuant to the provisions of the Trust Agreement.
The Owners may not elect to retain their Series 2000 Certificates in the event of mandatory tender
upon expiration or substitution of liquidity facility or event of default, as described above.
Notice of mandatory tender of the Series 2000 Certificates, stating the date on which and time at
which the Series 2000 Certificates are required to be tendered for purchase, will be given by first class
mail, postage prepaid by the Trustee to the Owners of the Series 2000 Certificates not less than five Business Days prior to the date on which the Series 2000 Certificates are to be purchased pursuant to the
provisions of the Trust Agreement summarized under paragraph (i), (iii) or (iv) or as soon as practicable,
55621720.5 9
but in no event less than two Business Days, after the Trustee’s receipt of a Notice of Termination from
the Provider, with respect to a purchase pursuant to paragraph (ii) under “– Upon Expiration or
Substitution of Standby Agreement or Event of Default with Respect Thereto” above. A copy of such notice will be sent to the District, the Remarketing Agent and the Provider. Notice having been so given,
such mandatory tender will occur on the date provided in such notice whether or not an Alternate Standby
Agreement is provided after such initial notice has been given.
The Remarketing Agent will offer for sale and use its best efforts to find purchasers for the Series
2000 Certificates to be tendered and will inform prospective purchasers whether the Standby Agreement will be replaced with an Alternate Standby Agreement. In the case of replacement of the Standby Agreement, the Remarketing Agent will inform prospective purchasers of the identity of the Provider
providing such Alternate Standby Agreement and of the ratings to be in effect on the Series 2000 Certificates following such substitution. The terms of any sale by the Remarketing Agent of tendered Series 2000 Certificates will provide for the purchase of the remarketed Series 2000 Certificates at the
Purchase Price and the payment of such Purchase Price to the Trustee by the Remarketing Agent in immediately available funds against the delivery of the remarketed Series 2000 Certificates to the Trustee at or before 11:15 a.m. on the Purchase Date. Notwithstanding the foregoing, the Series 2000 Certificates
will not be offered for sale unless the Standby Agreement or an Alternate Standby Agreement is in place at the time of the remarketing.
Purchase of Series 2000 Certificates
At or before 10:30 a.m. on each Purchase Date for Series 2000 Certificates in the Daily Rate Mode optionally tendered pursuant to the Trust Agreement, the Remarketing Agent will notify by
telephone, telegram, telecopy, telex or other similar communication to the Trustee and the Provider of the
principal evidenced by tendered Series 2000 Certificates which have been remarketed and of the names, addresses and taxpayer identification numbers of the purchasers and the denominations of remarketed
Series 2000 Certificates to be delivered to each purchaser. At or before 3:30 p.m. on the Business Day immediately preceding each Purchase Date (other than a Purchase Date for Series 2000 Certificates in the Daily Rate Mode optionally tendered pursuant to the Trust Agreement), the Remarketing Agent will
notify by telephone, telegram, telecopy, telex or other similar communication to the Trustee and the Provider of the principal evidenced by tendered Series 2000 Certificates which have been remarketed and of the names, addresses and taxpayer identification numbers of the purchasers and the denominations of
remarketed Series 2000 Certificates to be delivered to each purchaser. On the Purchase Date, the Trustee will make a request for purchase in accordance with the terms of the Standby Agreement at the times and to the extent necessary to timely pay the Purchase Price with regard to the Series 2000 Certificates for
which remarketing proceeds have not been paid to the Trustee; and the Trustee will hold the moneys received pursuant to such draw under the Standby Agreement in trust in a separate segregated account for
the benefit of the Owners of such tendered Series 2000 Certificates.
The Remarketing Agent will pay to the Trustee, on the Purchase Date, all amounts representing proceeds of the remarketing of tendered Series 2000 Certificates, such payments to be made in the
manner and at the time specified in the Trust Agreement. All such proceeds will be held by the Trustee in
trust in a separate segregated account for the benefit of the person or entity which has delivered such moneys until the Series 2000 Certificates purchased with such moneys have been delivered to such person
or entity. The District and the Corporation will not have any right, title, or interest in or to remarketing proceeds held by the Remarketing Agent or the Trustee or proceeds of a draw on the Standby Agreement. The Provider has agreed under the Standby Agreement to pay, on or before 2:00 p.m. on the Purchase
Date (so long as the request for purchase thereunder is made prior to 11:30 a.m.), the Purchase Price to the Trustee of such Series 2000 Certificates that have not been remarketed.
Before 3:00 p.m. on the Purchase Date and upon receipt by the Trustee of 100% of the aggregate
Purchase Price of the tendered Series 2000 Certificates, the Trustee will pay the Purchase Price of such
55621720.5 10
Series 2000 Certificates to the Owners thereof at its Principal Office or by bank wire transfer. Such
payments will be made in immediately available funds. Payments of such Purchase Price are to be made
from the following sources in the order of priority indicated:
(i) the proceeds of the sale of the Series 2000 Certificates which have been
remarketed by the Remarketing Agent; and
(ii) moneys paid pursuant to the Standby Agreement to pay the Purchase Price of Series 2000 Certificates.
All Series 2000 Certificates to be purchased on any date will he required to be delivered to the
Principal Office of the Trustee at or before 11:15 a.m. on the Purchase Date. If the Owner of any Series 2000 Certificate or portion thereof that is subject to purchase pursuant to the Trust Agreement fails to
surrender such Series 2000 Certificate to the Trustee for purchase on the Purchase Date, and if the Trustee
is in receipt of the Purchase Price therefor, such Series 2000 Certificate or portion thereof will nevertheless be deemed purchased on the Purchase Date and ownership of such Series 2000 Certificate or
portion thereof will be transferred to the purchaser thereof as provided in the Trust Agreement. Any
Owner who fails to deliver a Series 2000 Certificate for purchase as required above will have no further rights with respect thereto except the right to receive the Purchase Price therefor upon presentation and
surrender of said Series 2000 Certificate to the Trustee.
All money held by the Trustee for the payment of the Purchase Price of Series 2000 Certificates will be held in separate segregated accounts and will be held uninvested.
Insufficient Funds for Purchases. If the moneys available for purchase of Series 2000 Certificates pursuant to the Trust Agreement are inadequate for the purchase of all Series 2000 Certificates which are tendered on any Purchase Date, each Series 2000 Certificate subject to such
purchase will continue in the same Mode as in effect with respect thereto on the day prior to the Purchase Date to the date on which the earliest of the following occurs:
(i) the date of conversion of the Series 2000 Certificates to the Fixed Rate Mode;
(ii) the date on which any default by the Provider under the Standby Agreement has
been cured; or
(iii) the date on which an Alternate Standby Agreement meeting the requirements of
the Trust Agreement has been obtained.
Upon the occurrence of an event listed above, (i) the Trustee will immediately (but no later than the end of the next succeeding Business Day) return all tendered Series 2000 Certificates to the Owners
thereof and notify all Owners of Series 2000 Certificates in writing of the Mode to be effective with respect thereto (which will be the rate applicable to the Mode in effect with respect to the Series 2000
Certificates on the day prior to the Purchase Date), and (ii) the Trustee will return all moneys received for
the purchase of such Series 2000 Certificates to the persons who provided such moneys.
Book-Entry Tenders. Notwithstanding any other provision of the Trust Agreement to the
contrary, all tenders for purchase during any period in which the Series 2000 Certificates are registered in
the name of the Nominee (or the nominee of any successor Depository) will be subject to the terms and conditions set forth in the Letter of Representations and any notices and regulations promulgated by DTC.
Subject to such terms, conditions, notices and regulations, the Series 2000 Certificates may be tendered
by means of a book-entry credit of such Series 2000 Certificates to the account of the Remarketing Agent; provided, however, that under certain circumstances notice of tender will be given by a Participant on
behalf of the beneficial owner of such Series 2000 Certificates, and, provided further, that, if the
Remarketing Agent notifies the Trustee that such Series 2000 Certificates have been remarketed pursuant to the Trust Agreement, such Series 2000 Certificates may be treated as being tendered upon a book-entry
55621720.5 11
transfer of such Series 2000 Certificates from the account of the tendering party to the credit of the
account of the purchaser of such Series 2000 Certificates.
Conversion to Other Modes
Optional Conversion Between Variable Rate Modes. Subject to the provisions of the Trust
Agreement, the District may convert the Series 2000 Certificates from the then current Variable Rate
Mode to another Variable Rate Mode. In the case of conversion from the Daily Rate Mode to another Variable Rate Mode, the Conversion Date shall be an Interest Payment Date for the Daily Rate Mode. In
the case of conversion from the Weekly Rate Mode to another Variable Rate Mode, the Conversion Date shall be an Interest Payment Date for the Weekly Rate Mode. In the case of a conversion from the Extended Rate Mode to another Variable Rate Mode, the Conversion Date will be the day following the
last day of the Extended Rate Period.
At the direction of the District, the Remarketing Agent will give written notice of any conversion to the Trustee and the Provider not less than five Business Days prior to the date on which the Trustee is
required to notify the Owners of the conversion pursuant to the Trust Agreement. Such notice will specify (i) the proposed Conversion Date, (ii) the Mode to which the conversion will be made, and (iii) in the case of conversion to the Extended Rate Mode, the initial Extended Rate Period.
Not less than 10 days prior to any such proposed Conversion Date, the Trustee will mail a written notice of the conversion to all of the Owners of Series 2000 Certificates. A copy of such notice will be
sent to the District and the Provider. Such notice will set forth (i) the information set forth above, (ii) the
Interest Payment Dates for the new Mode, (iii) in the case of conversion to the Extended Rate Mode, the initial Extended Rate Period, (iv) the dates on which the Remarketing Agent will determine and the
Trustee will notify the Owners of the Variable Rate for the Variable Rate Period commencing on the
Conversion Date, (v) that the Series 2000 Certificates are subject to mandatory tender for purchase (without the right to retain) on the proposed Conversion Date at a Purchase Price equal to the principal
evidenced thereby plus accrued interest evidenced thereby, and (vi) that the Series 2000 Certificates will be deemed purchased on the proposed Conversion Date, and thereafter the Owner will have no further rights under the Trust Agreement except to receive such Purchase Price.
The Variable Rate for the Variable Rate Period commencing on the Conversion Date will be determined by the Remarketing Agent in the manner and on the date provided in the Trust Agreement. In addition to determining the Extended Rate, the Remarketing Agent will determine a Weekly Rate at the
time specified in the Trust Agreement, and give notice thereof to the Trustee and the Provider, which Weekly Rate will take effect, if required, pursuant to the Trust Agreement.
Notwithstanding the delivery of notice of the conversion pursuant to the Trust Agreement,
conversion to a new Variable Rate Mode will not take effect if: (i) the Remarketing Agent fails to determine a Variable Rate for the new Variable Rate Mode; (ii) any notice required by the Trust
Agreement is not given when required; (iii) there is not delivered to the District, the Trustee and the
Provider an Opinion of Counsel, dated as of the Conversion Date, to the effect that such conversion will not, in and of itself, adversely affect the exclusion from gross income of interest evidenced by the Series
2000 Certificates for federal income tax purposes; (iv) such notice of conversion is rescinded by the
District by written notice of such rescission to the Trustee, the Provider and the Remarketing Agent, which written notice is delivered prior to the applicable Conversion Date (if the Trustee receives notice of
such rescission prior to the time the Trustee has given notice to the Owners of the Series 2000 Certificates, then such notice of conversion will be of no force and effect; if the Trustee receives notice of such rescission after the Trustee has given notice to the Owners of the Series 2000 Certificates, then the
Series 2000 Certificates will automatically convert to the Weekly Rate Mode; any purchases of Series 2000 Certificates scheduled or required to take place on the proposed effective date of any Mode (being also the effective date of the automatic conversion to the Weekly Rate Mode as provided in the Trust
55621720.5 12
Agreement) will take place on such date; no Opinion of Counsel will be required in connection with any.
automatic conversion to the Weekly Rate Mode as provided in the Trust Agreement); (v) upon such
conversion, the amount on deposit in the Reserve Fund, together with the amount available under all Reserve Facilities, would not be at least equal to the Reserve Requirement; (vi) in the case of conversion
to an Extended Rate Mode, any Series 2000 Certificates in the Extended Rate Mode would be Provider
Certificates, unless the Provider consents; or (vii) in the case of conversion to an Extended Rate Mode, the Trustee has not received a written notice from each of the Rating Agencies then maintaining a rating
of the Series 2000 Certificates that the conversion to such Extended Rate Mode will not have an adverse effect on such Rating Agency’s rating of the Series 2000 Certificates.
Except if notice of conversion is rescinded by the District, in any such event, the Certificates will
automatically be converted to the Weekly Rate Mode on the date such conversion was to be made, provided that any mandatory tender for purchase pursuant to the provisions of the Trust Agreement relating to mandatory tenders on Conversion Dates will nevertheless be carried out if notice of the
conversion pursuant to the Trust Agreement has been given to the Owners of the Series 2000 Certificates. No cancellation of a conversion pursuant to the Trust Agreement will constitute an event of default under the Trust Agreement. If the Remarketing Agent fails to determine the New Variable Rate, the Weekly
Rate for such Series 2000 Certificates will be the per annum rate of interest determined on each Wednesday (or if such day is not a Business Day, the immediately preceding Business Day) by the
Trustee which is 80% of the current bond equivalent yield for 91 day United States Treasury Bills sold at
the last United States Treasury auction occurring prior to such day, which yield will be calculated in accordance with standard practices in the banking industry on the basis of the discount rates at which such
bills were sold, but such rate must not exceed the Maximum Rate.
Not less than 20 days (or such shorter period approved by the parties to receive the same) prior to the proposed Conversion Date, the District will give written notice to the Trustee, the Remarketing Agent
and the Provider, setting forth (i) the election to convert the Series 2000 Certificates to the Fixed Rate Mode, and (ii) the proposed Conversion Date. As a condition of any such conversion, the Trustee, the Provider and the Remarketing Agent will receive concurrently with the notice, a letter from counsel that it
expects to be able to deliver on the Conversion Date an Opinion of Counsel to the effect that such conversion will not, in and of itself, adversely affect the exclusion from gross income of interest evidenced by the Series 2000 Certificates for federal income tax purposes.
The Trustee will mail a notice of the proposed conversion to all of the Owners of the Series 2000 Certificates. A copy of such notice will be sent to the District and the Provider. Such notice will be mailed not less than 10 days prior to the proposed Conversion Date. Such notice will set forth the
proposed Conversion Date and state (i) that the Series 2000 Certificates are subject to mandatory tender for purchase (without the right to retain) on the proposed Conversion Date at a Purchase Price equal to the
principal evidenced thereby plus accrued interest evidenced thereby, and (ii) that the Series 2000
Certificates will be deemed purchased on the proposed Conversion Date, and thereafter the Owner will have no further rights under the Trust Agreement except to receive such Purchase Price.
The Remarketing Agent will determine the Fixed Rate for the Series 2000 Certificates by not
later than 3:30 p.m. on the last Business Day that is at least five days prior to the Conversion Date. The Fixed Rate for Series 2000 Certificates will be the lowest rate (not in excess of the Maximum Rate)
which, in the judgment of the Remarketing Agent as of the date of determination and under prevailing market conditions, would cause the Series 2000 Certificates to produce as nearly as practicable a bid equal to the principal evidenced thereby, plus accrued interest evidenced thereby. Not later than 4:00
p.m. on the date of determination of the Fixed Rate, the Remarketing Agent will notify the Trustee by facsimile, electronic transmission or other similar means of communication (promptly confirmed in
writing) of the Fixed Rate so determined. Such determinations will be conclusive and binding upon the
District, the Trustee, the Provider and the Owners of the Series 2000 Certificates. The Trustee will notify
55621720.5 13
the District and the Provider by telephone (promptly confirmed in writing), telegram, telecopy, telex or
other similar means of communication of the Fixed Rate so determined.
The Remarketing Agent will offer for sale at par and use its best efforts to find purchasers for the Series 2000 Certificates required to be tendered upon conversion to the Fixed Rate Mode. The terms of
any sale by the Remarketing Agent of such Series 2000 Certificates will provide for the sale thereof at par
and the payment of the Purchase Price by the Remarketing Agent to the Trustee in immediately available funds against the delivery of the remarketed Series 2000 Certificates to the Trustee at or before 11:15 a.m.
on the Purchase Date.
Notwithstanding the delivery of notice of conversion, conversion to the Fixed Rate Mode will not take effect if:
(i) the District withdraws such notice of conversion not later than the Business Day
preceding the date on which the Fixed Rate is to be determined;
(ii) the Remarketing Agent fails to determine the Fixed Rate;
(iii) any notice required by the Trust Agreement is not given when required;
(iv) there is not delivered to the District, the Trustee and the Provider an Opinion of Counsel, dated as of the Conversion Date, to the effect that such conversion will
not, in and of itself, adversely affect the exclusion from gross income of interest
evidenced by the Series 2000 Certificates for federal income tax purposes;
(v) upon such conversion, the amount on deposit in the Reserve Fund, together with
the amount available under all Reserve Facilities, would not be at least equal to
the Reserve Requirement; or
(vi) upon such conversion, any Series 2000 Certificates in the Fixed Rate Mode
would be Provider Certificates, unless the Provider consents.
In any of such events, the Series 2000 Certificates will automatically be converted to a Weekly Rate Mode which will commence on the date such conversion was to be made, provided that the
mandatory tender for purchase in connection with such conversion will nevertheless be carried out if notice of the conversion to the Fixed Rate Mode has been given to the Owners of the Series 2000
Certificates. Withdrawal of a conversion notice will be given by the District to the Trustee, the
Remarketing Agent and the Provider, by telephone, promptly confirmed in writing. No cancellation of a conversion to the Fixed Rate Mode pursuant to the Trust Agreement will constitute an event of default
under the Trust Agreement. If the Series 2000 Certificates are converted to a Weekly Rate Mode, and the
Remarketing Agent fails to determine a Weekly Rate, the Weekly Rate will be the per annum rate of interest determined on each Wednesday (or if such day is not a Business Day, the immediately preceding
Business Day) by the Trustee which is 80% of the current bond equivalent yield for 91 day United States Treasury Bills sold at the last United States Treasury auction occurring prior to such day, which yield will be calculated in accordance with standard practices in the banking industry on the basis of the discount
rate at which such bills were sold, but must not exceed the Maximum Rate.
Once the District has effectively exercised its option to convert the Series 2000 Certificates to the Fixed Rate Mode pursuant to the Trust Agreement, the District will have no further option to convert the
Series 2000 Certificates to any other Mode, and the Series 2000 Certificates will no longer be subject to tender for purchase.
Prepayment Provisions
Optional Prepayment. While the Daily Rate Mode or the Weekly Rate Mode is in effect, the Series 2000 Certificates will be subject to prepayment prior to their stated Principal Payment Date, on any
55621720.5 14
Interest Payment Date, at the option of the District, as a whole or in part in Authorized Denominations pro
rata among Series 2000-A Certificates with a stated Principal Payment Date of August 1, 2029 and Series
2000-B Certificates with a stated Principal Payment Date of August 1, 2030 if such Series 2000 Certificates have a Mandatory Sinking Installment Date that is the same as the Installment Payment Date
of the Installment Payment so prepaid, from and to the extent of prepaid Installment Payments paid
pursuant to the Installment Purchase Agreement, at a prepayment price equal to the principal evidenced thereby, plus accrued interest evidenced thereby to the date fixed for prepayment, without premium.
Installment Payments evidenced by Provider Certificates shall be prepaid prior to the optional prepayment of any other Installment Payments pursuant to the Trust Agreement.
Prepayments Pursuant to Standby Agreement. The District shall optionally prepay Installment
Payments pursuant to the Installment Purchase Agreement at the times and in the amounts necessary to cause the prepayment of Provider Certificates as and when required by the Standby Agreement.
Mandatory Sinking Fund Account Prepayment. The Series 2000-A Certificates with a stated
Principal Payment Date of August 1, 2029 are subject to prepayment prior to their stated Principal Payment Date, in part, from Mandatory Sinking Account Payments, on each August 1 specified below, at a prepayment price equal to the principal evidenced thereby, plus accrued interest evidenced thereby to
the date fixed for prepayment, without premium. The principal evidenced by such Series 2000-A Certificates to be so prepaid and the dates therefor shall be as follows:
Date
(August 1)
Mandatory
Sinking Fund Amount Date
(August 1)
Mandatory
Sinking Fund
Amount
2011 $ 5,800,000 2021 $700,000
2012 5,300,000 2022 700,000
2013 6,300,000 2023 700,000
2014 5,700,000 2024 800,000
2015 5,900,000 2025 800,000
2016 8,300,000 2026 800,000
2017 10,900,000 2027 900,000
2018 11,400,000 2028 900,000
2019 11,800,000 2029 900,000 (1)
2020 12,300,000
___________________ (1)
Stated Principal Payment Date.
The amount of each such prepayment will be reduced in the event and to the extent that
Installment Payments payable on the corresponding Installment Payment Date are prepaid pursuant to the
Installment Purchase Agreement and applied to the prepayment of Series 2000-A Certificates with a stated Principal Payment Date of August 1, 2029, in accordance with the Installment Purchase
Agreement.
The Series 2000-B Certificates are subject to prepayment prior to their stated Principal Payment Date, in part, from Mandatory Sinking Account Payments, on each August 1 specified below, at a
prepayment price equal to the principal evidenced thereby, plus accrued interest evidenced thereby to the date fixed for prepayment, without premium. The principal evidenced by such Series 2000-B Certificates to be so prepaid and the dates therefor will be as follows:
55621720.5 15
Date
(August 1)
Mandatory Sinking Fund
Amount
Date
(August 1)
Mandatory Sinking Fund
Amount
2011 $ 6,500,000 2021 $ 700,000
2012 6,000,000 2022 800,000
2013 7,000,000 2023 800,000
2014 6,400,000 2024 800,000
2015 6,600,000 2025 800,000
2016 9,200,000 2026 900,000 2017 12,200,000 2027 900,000
2018 12,600,000 2028 1,000,000
2019 13,200,000 2029 1,000,000 2020 13,700,000 2030 2,000,000 (1)
______________ (1)
Stated Principal Payment Date.
The amount of each such prepayment will be reduced in the event and to the extent that Installment Payments payable on the corresponding Installment Payment Date are prepaid pursuant to the
Installment Purchase Agreement and applied to the prepayment of Series 2000-B Certificates in
accordance with the Installment Purchase Agreement.
Selection of Series 2000 Certificates for Prepayment. Whenever less than all the Outstanding
Series 2000-A Certificates are to be prepaid on any one date, the Trustee shall select such Series 2000-A Certificates to be prepaid by lot in any manner that the Trustee deems fair and appropriate, which decision shall be final and binding upon the District, the Corporation, the Provider and the Owners. Whenever less
than all the Outstanding Series 2000-B Certificates are to be prepaid on any one date, the Trustee shall select the Series 2000-B Certificates to be prepaid by lot in any manner that the Trustee deems fair and appropriate, which decision shall be final and binding upon the District, the Corporation, the Provider and
the Owners. Notwithstanding the foregoing, all Provider Certificates shall be prepaid prior to the prepayment of any other Series 2000 Certificates. The Trustee will promptly notify the District in writing
of the numbers of the Series 2000 Certificates so selected for prepayment on such date. For purposes of
such selection, any Series 2000 Certificate may be prepaid in part in Authorized Denominations.
Notice of Prepayment. When prepayment of Series 2000 Certificates is authorized pursuant to
the Trust Agreement, the Trustee will give notice, at the expense of the District, of the prepayment of the
Series 2000 Certificates. The notice of prepayment will specify the Series 2000 Certificates or designated portions thereof (in the case of prepayment of the Series 2000 Certificates in part but not in whole) which
are to be prepaid, the date of prepayment, the place or places where the prepayment will be made,
including the name and address of any paying agent, the prepayment price, the CUSIP numbers assigned to the Series 2000 Certificates to be prepaid, and the numbers of the Series 2000 Certificates to be prepaid
in whole or in part and, in the case of any Series 2000 Certificate to be prepaid in part only, the principal evidenced by such Series 2000 Certificates to be prepaid. Such notice of prepayment will further state that on the specified date there shall become due and payable upon each Series 2000 Certificate or portion
thereof being prepaid the prepayment price and that from and after such date interest evidenced thereby will cease to accrue and be payable.
The Trustee will take the following actions with respect to such notice of prepayment:
At least 30 but not more than 45 days prior to any prepayment date, notice of prepayment will be given to the respective Owners of Series 2000 Certificates designated for prepayment by first-class mail,
55621720.5 16
postage prepaid, at their addresses appearing on the registration books maintained by the Trustee as of the
close of business on the day before such notice of prepayment is given.
At least 30 days before each prepayment date, notice of prepayment will also be given by (a) first-class mail, postage prepaid, (b) confirmed facsimile transmission, or (c) overnight delivery
service, to the securities depository listed in the Trust Agreement.
At least 30 days before each prepayment date, notice of prepayment will also be given by (a) first-class mail, postage prepaid, or (b) overnight delivery service, to each of the information services
listed in the Trust Agreement.
The actual receipt by an Owner or by any of the securities depositories or information services specified in the Trust Agreement of any notice of such prepayment shall not be a condition precedent to
prepayment, and neither failure to receive such notice nor any defect therein shall affect the validity of the proceedings for the prepayment of such Series 2000 Certificates or the cessation of interest evidenced thereby on the date fixed for prepayment.
A certificate by the Trustee that notice of prepayment has been given to Owners or to any of the securities depositories or information services specified in the Trust Agreement as provided therein shall be conclusive as against all parties, and no Owner whose Series 2000 Certificate is called for prepayment
may object thereto or object to the cessation of interest evidenced thereby on the fixed prepayment date by any claim or showing that said Owner failed to actually receive such notice of prepayment.
The Trustee will give notice of prepayment of any Series 2000 Certificates to be prepaid upon
receipt of a Written Request of the District (which request will be given to the Trustee at least 45 days prior to the date fixed for prepayment).
Upon surrender of any Series 2000 Certificate prepaid in part only, the Trustee will execute and
deliver to the Owner thereof a new Series 2000 Certificate or Series 2000 Certificates evidencing the unprepaid principal of the Series 2000 Certificate surrendered.
If notice of prepayment has been duly given as aforesaid and funds for the payment of the prepayment price of the Series 2000 Certificates to be prepaid are held by the Trustee, then on the Prepayment Date designated in such notice, the Series 2000 Certificates so called for prepayment will
become payable at the prepayment price specified in such notice; and from and after the date so designated interest evidenced by the Series 2000 Certificates so called for prepayment will cease to accrue, such Series 2000 Certificates will cease to be entitled to any benefit or security under the Trust
Agreement and the Owners of such Series 2000 Certificates will have no rights in respect thereof except to receive payment of the prepayment price; and such moneys will be pledged to such prepayment. The Trustee will, upon surrender for payment of any of the Series 2000 Certificates to be prepaid, pay such
Series 2000 Certificates at the prepayment price thereof.
All Series 2000 Certificates prepaid pursuant to the provisions of the Trust Agreement will be
canceled by the Trustee and will not be redelivered.
Special Considerations Relating to the Series 2000 Certificates
The Remarketing Agent is Paid by the District. The responsibilities of the Remarketing Agent
include determining the interest rate from time to time and remarketing Series 2000 Certificates of the
applicable Series that are tendered by the owners thereof for optional or mandatory purchase (subject, in each case, to the terms of the Remarketing Agreement entered into by the Remarketing Agent), all as
further described in this Remarketing Memorandum. The Remarketing Agent is appointed by the District
55621720.5 17
and is paid by the District for its services. As a result, the interests of the Remarketing Agent may differ
from those of existing Owners and potential purchasers of Series 2000 Certificates.
The Remarketing Agent Routinely Purchases Series 2000 Certificates for its Own Account. The Remarketing Agent acts as a remarketing agent for a variety of variable rate demand obligations in
addition to the Series 2000 Certificates for which it serves as Remarketing Agent and, in its sole
discretion, routinely purchases such obligations for its own account. The Remarketing Agent is permitted, but not obligated, to purchase tendered Series 2000 Certificates for its own account and, in its sole
discretion, routinely acquires such tendered Series 2000 Certificates in order to achieve a successful remarketing of the Series 2000 Certificates (i.e., because there otherwise are not enough buyers to purchase the Series 2000 Certificates) or for other reasons. However, the Remarketing Agent is not
obligated to purchase Series 2000 Certificates, and may cease doing so at any time without notice. If the Remarketing Agent ceases to purchase Series 2000 Certificates, it may be necessary for the Trustee to draw on the Standby Agreement. The Remarketing Agent may also make a market in the Series 2000
Certificates by routinely purchasing and selling Series 2000 Certificates other than in connection with an optional or mandatory tender and remarketing. Such purchases and sales must be at fair market value, which may be at or below par. However, the Remarketing Agent is not required to make a market in any
Series 2000 Certificates. The Remarketing Agent may also sell any Series 2000 Certificates it has purchased to one or more affiliated investment vehicles for collective ownership or enter into derivative
arrangements with affiliates or others in order to reduce its exposure to the Series 2000 Certificates. The
purchase of Series 2000 Certificates by the Remarketing Agent may create the appearance that there is greater third party demand for the Series 2000 Certificates in the market than is actually the case. The
practices described above also may result in fewer Series 2000 Certificates being tendered in a
remarketing.
Series 2000 Certificates May Be Offered at Different Prices on Any Date. Pursuant to the
Remarketing Agreement, the Remarketing Agent is required to determine the minimum rate of interest which, in its opinion, under then-existing market conditions, would result in the sale of the applicable Series 2000 Certificates at a price equal to 100% of the principal amount thereof on the date the rate of
interest is determined. At the time a new interest rate becomes effective, the Remarketing Agent is required to use its best efforts to remarket the applicable Series 2000 Certificates at par. Each interest rate will reflect, among other factors, the level of market demand for the applicable Series 2000 Certificates
(including whether the Remarketing Agent is willing to purchase Series 2000 Certificates for its own account). There may or may not be Series 2000 Certificates tendered and remarketed on a date the rate of interest is determined, the Remarketing Agent may or may not be able to remarket any Series 2000
Certificates tendered for purchase on such date at par and the Remarketing Agent may sell Series 2000 Certificates at varying prices to different investors on such date or any other date. No Remarketing Agent
is obligated to advise purchasers in a remarketing if it does not have third party buyers for all of the Series
2000 Certificates at the remarketing price. If a Remarketing Agent owns any Series 2000 Certificates for its own account, it may, in its sole discretion in a secondary market transaction outside the tender process,
offer such Series 2000 Certificates on any date, including the date the rate of interest is determined, at a
discount to par to some investors.
The Ability to Sell Series 2000 Certificates other than through Tender Process May Be Limited. The Remarketing Agent may buy and sell Series 2000 Certificates other than through the tender process. However, the Remarketing Agent is not obligated to do so and may cease doing so at any time without notice and may require Owners that wish to sell their Series 2000 Certificates to instead tender their
Series 2000 Certificates through the Trustee with appropriate notice. Thus, investors who purchase the Series 2000 Certificates, whether in a remarketing or otherwise, should not assume that they will be able to sell their Series 2000 Certificates other than by tendering the Series 2000 Certificates in accordance
with the tender process.
55621720.5 18
Under Certain Circumstances, a Remarketing Agent May Be Removed, Resign or Cease Remarketing the Series 2000 Certificates, without a Successor Being Named. Under certain
circumstances, the Remarketing Agent may be removed, may resign or may cease its remarketing efforts, without a successor having been named, subject to the terms of the Remarketing Agreement and the
Standby Agreement.
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2000 CERTIFICATES
Installment Payments
Pursuant to the Installment Purchase Agreement, the acquisition, construction and installation of certain improvements to the District’s Wastewater System was 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 Series 2000 Certificates substantially all of its rights, title and interest in and to the Installment Purchase Agreement, including its right to receive
Installment Payments and the interest thereon.
Simultaneously with the remarketing of the Series 2000 Certificates with the support of the Standby Agreement, the Provider will consent to certain amendments to the Trust Agreement and the
Installment Purchase Agreement. Owners will purchase Series 2000 Certificates subject to such amendments. See APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Summary
of Amendments” attached hereto.
Limited Obligations
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 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
55621720.5 19
advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master
Agreement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2000
CERTIFICATES” herein.
Parity Obligations
The District has certain Existing Senior Obligations Outstanding payable from Net Revenues on a
parity with the Installment Payments under the Installment Purchase Agreement. The term “Existing Senior Obligations” as used in this Remarketing Memorandum refers to the 2000 Installment Purchase
Agreement, the 2003 Installment Purchase Agreement, the 2007A Installment Purchase Agreement, the 2007B Installment Purchase Agreement, the 2008A Installment Purchase Agreement, the 2008B Installment Purchase Agreement, the 2009A Installment Purchase Agreement, the 2009B Installment
Purchase Agreement and the 2010A Installment Purchase Agreement and the term “Senior Obligations” as used in this Remarketing Memorandum 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. 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.” The
District has no Subordinate Obligations currently outstanding. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2000 CERTIFICATES — Limitations on Issuance of Additional
Obligations” herein, “FINANCIAL OBLIGATIONS — Existing Indebtedness” herein and APPENDIX C
— “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement” attached hereto.
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. 1 thereto dated December 10, 1986, by and between
predecessor County Sanitation District No. 14 of Orange County and the Irvine Ranch 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
Stabilization 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 Stabilization 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. Any Federal
Subsidy payments received by the District will constitute Revenues as defined in the Master Agreement.
See “DISTRICT REVENUES — Additional Revenues” herein.
55621720.5 20
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
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, including, without limitation, installment, lease or other payments 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
55621720.5 21
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” above. 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 as 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, see 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 1 of each Fiscal Year, the District will file with the Trustee a copy of the adopted budget for such Fiscal Year. See APPENDIX C
— “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement” for additional information.
55621720.5 22
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, equal to the least of (i) the maximum amount of remaining Installment Payments, and the interest thereon, coming due in any one
year; (ii) “10% of the proceeds of the issue” within the meaning of Section 148 of the Internal Revenue
Code of 1986 (the “Code”); and (iii) 125% of the average amount of remaining Installment Payments, and the interest thereon, coming due in each year; provided, however, that for purposes of calculating the
Reserve Requirement, interest on Installment Payments evidenced by Series 2000 Certificates in a Variable Rate Mode shall be deemed to accrue interest at a rate per annum of 5.75%. Amounts in the Reserve Fund may be used to pay principal of and interest with respect to the Series 2000 Certificates to
the extent that amounts in the Principal Account and Interest Account are insufficient therefor. The Reserve Fund is funded in an amount sufficient to satisfy the Reserve Requirement. 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
55621720.5 23
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 (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 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 end 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 (H) of the definition thereof. See APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS –
Definitions” 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
funds to refund or refinance such Obligations if (i) a portion (which may be all) 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 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
55621720.5 24
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 any 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 form 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 estimated Installment Payments, together with the estimated interest
thereon, assuming the only prepayments made are the mandatory prepayments described under “THE SERIES 2000 CERTIFICATES – Prepayment Provisions” herein. Also set forth are the payments due on
Outstanding Senior Obligations.
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55621720.5 25
Table 1 Estimated Installment Payments Relating to the Series 2000 Certificates
and Outstanding Senior Obligation Payments of the District
Fiscal Year Ending
Installment Payments Relating to the Series 2000
June 30
Certificates Outstanding Senior Obligation Payments (1)
Principal Interest (2) Principal Interest (2)
Total
2010 - $ 2,977,753.15
2011 $ 25,895,000 50,484,839.81
2012 26,670,000 49,383,659.32
2013 27,865,000 48,368,085.87
2014 43,040,000 47,219,558.42
2015 30,920,000 46,017,385.73
2016 32,080,000 44,911,567.64
2017 37,940,000 43,639,158.92
2018 35,310,000 42,361,793.91
2019 36,815,000 41,038,556.27
2020 38,455,000 39,664,846.66
2021 44,615,000 38,285,131.29
2022 40,170,000 37,151,365.84
2023 41,985,000 35,345,864.21
2024 43,860,000 33,465,824.79
2025 45,865,000 31,475,380.59
2026 47,925,000 29,414,545.21
2027 50,135,000 27,247,288.35
2028 52,315,000 25,077,888.07
2029 54,590,000 22,798,623.66
2030 57,785,000 20,434,248.98
2031 61,715,000 17,938,971.92
2032 62,540,000 15,174,667.95
2033 92,850,000 12,279,395.58
2034 38,775,000 7,882,743.83
2035 40,465,000 6,194,796.57
2036 42,230,000 4,429,901.37
2037 30,155,000 2,722,000.00
2038 11,845,000 1,214,250.00
2039 12,440,000 622,000.00
2040 - -
Total $1,207,250,000 $825,222,093.91 ______________ (1) The District intends to refinance its $165,865,000 Revenue Refunding Certificate Anticipation Notes, Series
2009B (“2009B Certificates”) on or before their maturity on December 1, 2010. Assumes principal of such refunding issue is amortized from 2022 through 2036 and a rate of interest of 3% per annum. See
“FINANCIAL OBLIGATIONS – Recent and Anticipated Financings” herein. (2)
Assumes a per annum interest rate of 3% for the Series 2000 Certificates. See “FINANCIAL OBLIGATIONS
– Existing Indebtedness” and APPENDIX A – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009” herein.
55621720.5 26
THE STANDBY AGREEMENT
The following information has been provided by the Provider for use in this Remarketing Memorandum. This information has not been independently verified by the District. No representation is made by the District as to the accuracy or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date hereof.
The Bank is a wholly-owned subsidiary of Lloyds Banking Group plc (“Lloyds Group”). The Bank and its subsidiaries comprise one of the leading United Kingdom-based financial services groups,
whose businesses provide a wide range of banking and financial services in the United Kingdom and overseas.
Availability of Public Information
The Bank will provide, upon request, to each person to whom this Official Statement is delivered a copy of the most recently available (i) Annual Report and Accounts of the Bank and Lloyds Group and (ii) Annual Report on Form 20F of Lloyds Group. Written requests should be directed to the Bank at
1095 Avenue of the Americas, 34th Floor, New York, New York 10036; Attention: Structured Finance. Additional information (including full copies of each such Report and Accounts) is available from the Lloyds Group web site at http://www.investorrelations.lloydsbankinggroup.com.
Alternate Standby Agreement
Under the Trust Agreement, the District may deliver to the Trustee an Alternate Standby
Agreement, together with certain opinions and evidence from each rating agency then rating the Series
2000 Certificates that the substitution of the Alternate Standby Agreement will not, in and of itself, result in a reduction, suspension or withdrawal of such rating agency’s rating on the Certificates. Notice of the
proposed substitution of an Alternate Standby Agreement must be given to Owners in accordance with
the Trust Agreement at least 45 days prior to the date of the proposed substitution.
LIMITATIONS OF STANDBY LIQUIDITY FACILITIES
The ability to obtain funds under the Standby Agreement in accordance with its terms may be
limited by federal or state law. Bankruptcy, conservatorship, receivership and similar laws governing financial institutions or any issuer of a standby facility may prevent or restrict payment under such
facility. To the extent the short-term rating on the Series 2000 Certificates depends in any manner on the rating of the Provider, the short-term ratings on such Series 2000 Certificates could be downgraded or withdrawn if the Provider were to be downgraded, placed on credit watch or have its ratings suspended or
withdrawn or were to refuse to perform under the Standby Agreement.
The obligation of the Provider under the Standby Agreement to purchase unremarketed Series 2000 Certificates is subject to the conditions and limitations set forth therein, and is also subject to all
rights and defenses available to contracting parties generally. The Standby Agreement is not a guaranty to pay the purchase price of the Series 2000 Certificates tendered for purchase. The Standby Agreement is
a general contract, subject to certain conditions and limitations, and is not a letter of credit. Purchasers of
any Series 2000 Certificates should consult their legal counsel for an explanation of the differences between a general contract and a letter of credit or guaranty. The following is included as a summary of
selected differences and does not purport to be complete or definitive.
In general, a letter of credit is an independent, special contract by a Provider to pay a third party such as a bond trustee holding the letter of credit for the benefit of owners of such bonds. Providers are
required by law to honor their letters of credit except in specified circumstances. If a dispute were to
develop between a bank and its borrower, except in limited circumstances, the dispute should not
55621720.5 27
jeopardize payment under the letter of credit because (a) the letter of credit would be independent of the
disputed contract between the borrower and the bank and (b) the beneficiary of the letter of credit
(typically, the bond trustee) would have direct rights under the letter of credit. Further, and although there are defenses to payment of letters of credit, such defenses are limited by law to specified circumstances.
In contrast, standby facilities providing liquidity are only general contracts. No law expressly
requires performance of the contract, although the non-breaching party would be entitled to allowable damages if there were a breach of contract. Although the Trustee is authorized to draw funds in
accordance with the Standby Agreement, the Provider has no independent obligation to the Trustee. If a dispute were to develop, the Provider would have all defenses allowed by law or in equity to its payment under or other performance of the Standby Agreement, including but not limited to disputes (whether
valid or not) regarding the authority of any party to enter into or perform under the Standby Agreement. Laws regarding contracts allow more of such defenses than laws regarding letters of credit do.
The Provider or the District may seek to have any future dispute resolved in court and appealed to
final judgment before it performs under the Standby Agreement. Further, even if the District were to prevail against the Provider, a court would not necessarily order the Provider to perform under the Standby Agreement; it could instead award damages for breach of contract to the District. Any such
award would not necessarily be in an amount sufficient to pay the purchase price of the Series 2000 Certificates.
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 more than 2.5 million people in the northern and central portion of the County by treating 211 mg/d of wastewater in Fiscal Year 2008-09.
The District serves approximately 81% of the County population in approximately 480 square miles, or 60% 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 et 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 the joint 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 then 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 governance 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.
55621720.5 28
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, their obligations to repay the then 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 are many
governmental entities, including the County, that operate within the District’s jurisdiction. These entities are exclusively responsible for 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 25 member Board of Directors is composed of representatives from 21 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 of Supervisors. 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, and 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 approximately 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 11 years.
Robert P. Ghirelli, D.Env. 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 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, and served 20
years in supervisory positions with the State Water Resources Control Board and Regional Water Quality Control Boards, including 13 years serving as Executive Officer of the California Regional Water Quality
Control Board, Los Angeles/Ventura 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
55621720.5 29
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 with 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 20 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. Torres served in a professional
capacity for the California State University System and TRW Electronics and Defense Sector. Mr. Torres has 24 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
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 inside cover of this Remarketing Memorandum 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 480
square-mile area including 23 of the County’s 33 cities and various unincorporated areas of the County. The District serves a population of more than 2.5 million residents and owns sanitary sewerage facilities
with a replacement value of approximately $6.92 billion.
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55621720.5 30
Table 2 below sets forth the estimated populations of cities and unincorporated areas served by
the District as of January 1, 2009.
Table 2 Estimated Populations of Cities and Unincorporated Areas Served by the Orange County Sanitation District
As of January 1, 2009
City
Population
Anaheim 348,470 Brea 40,180 Buena Park 83,390
Costa Mesa 116,480
Cypress 49,650
Fountain Valley 58,310 Fullerton 137,620 Garden Grove 174,720
Huntington Beach 202,480
Irvine 212,790
La Habra 62,820 La Palma 16,210 Los Alamitos 12,220
Newport Beach 86,250
Orange 141,630
Placentia 51,930 Santa Ana 355,660 Seal Beach 25,910
Stanton 39,480
Tustin 74,830
Villa Park 6,280 Westminster 93,280 Yorba Linda
Cities Subtotal
68,400
2,458,990
Unincorporated Areas (estimated)
Total
81,000
2,539,990
____________________ Sources: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties and the State,
2001-2009, with 2000 Benchmark. Sacramento, California, May 2009 for city population data; Orange County Sanitation District for population of unincorporated areas.
Employees
As of July 1, 2010, the District had 596 represented and non-represented employees. Most of the District’s employees are represented by recognized employee organizations, which include the following: the Orange County Employees Association (“OCEA”), representing administrative/clerical, technical
services and engineering employees since 1979, the International Union of Operating Engineers – Local 501 (“Local 501”), representing operations and maintenance employees since October 1985, and the
Peace Officers Counsel of California representing the Supervisor Group and the Professional Group
55621720.5 31
supervisory and professional employees since 1991. Total represented employees as of July 1, 2010
numbered 551 (92%) as follows: 96 (17.4%) were represented by the OCEA, 202 (36.6%) were
represented by Local 501 and 253 (46%) 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 501 agreements are in effect through June 30, 2011; the Supervisor and Professional Group
agreements are in effect through June 30, 2011. The Supervisor Group and Professional Group agreements expired June 30, 2010. Negotiations with these groups are currently in progress. The District
has historically enjoyed a good working relationship with its employee organizations and has experienced no work stoppages by represented personnel since the early 1980s.
Retirement Plan
The District participates in the Orange County Employees 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 Law 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 I or Tier II 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 their average salary for every year of service. Average salary is the highest consecutive 12 months of
compensation for Tier I 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, they will fully provide for all covered employees’ benefits by the time they
retire.
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55621720.5 32
A current comparison of OCERS costs for Fiscal Years 2004-05 through 2008-09 and projected
costs for Fiscal Years 2009-10 through 2010-11 is shown in the following table.
Table 3 Orange County Sanitation District Comparison of OCERS Costs for Fiscal Years 2004-05 through 2008-09
and Projected Costs for Fiscal Years 2009-10 through 2010-11
Fiscal Year Rate(1) Cost
(2)
2004-05 12.37% $ 5,524,673 2005-06 15.21 7,416,556
2006-07 19.78 9,848,854 2007-08 20.55 11,011,693 2008-09 21.34 12,193,601
2009-10 21.95 (3) 13,227,971 2010-11 24.20 (3) 14,577,978
____________________ (1) Required contribution as a percent of covered payroll. Includes amortization of Unfunded Actuarial Accrued Liability. (2) Amounts represent employer contributions made or to be made by the District. (3)
Source: Orange County Sanitation District.
Projected.
For Fiscal Years 2004-05 through 2008-09, the District’s required contribution was equal to the
contribution that the District actually made. As noted, the required contribution set forth above includes amortization of Unfunded Actuarial Accrued Liability (“UAAL”). For the Fiscal Year ended June 30,
2009, total payroll costs of employees covered by OCERS was $61,110,535. As of the December 31,
2008 valuation, OCERS has an aggregate UAAL ratio of 71.34%, for a total UAAL of $3.11 billion.
The District’s retirement program currently includes Additional Retiree Benefit Account
(“ARBA”) benefits. ARBA benefits provide a monthly payment to retirees towards the premium costs of
health insurance for the retiree and eligible dependents. The retiree is not required to use this amount for health insurance premium or to remain on the OCERS medical plan. Benefits vest upon retirement after
qualifying public service of ten years. The District pays 100% of the cost for the ARBA plan and utilizes
a pay-as-you-go method for funding the plan.
For more information regarding OCERS and the District’s retirement plan as of June 30, 2009,
see Note 6 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2009 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://www.ocers.org. The information on such website is not incorporated herein by such reference or otherwise. The District cannot predict whether the OCERS investment portfolio will experience
additional losses in the future; however, any future losses could result in material increases in the
District’s required contributions.
Other Post-Employment Benefits
In June 2004, Governmental Accounting Standards Board (“GASB”) issued Statement No. 45,
which requires state and local governmental employers to fund the actuarially determined annual required contribution (“ARC”) for its post-employment benefits other than pension benefits (known as other post-
employment benefits or “OPEB”) or record the entire amount of the unfunded liability of its OPEB in its
financial statements. OPEB includes healthcare and life insurance expenses and related liabilities, and an
55621720.5 33
annual required contribution to fund such liabilities. The District adopted Statement No. 45 for the fiscal
year beginning July 1, 2007, as required of a GASB “Phase l Agency.” According to the District’s
actuary, Demsey Filliger Associates (the “Actuary”), the unfunded OPEB liability as of July 1, 2009 is approximately $8.8 million. The ARC is $800,000 as of July 1, 2009. 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 annum. 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 the statutory limit. The self-insured portion for property damage covering
fire and other disasters is $250,000 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 self-insured for general
liability coverage up to $250,000 per occurrence (except that employment practice liability is $500,000), with excess general liability coverage up to $30 million.
During the past five 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 June 30, 2009 that would materially affect the financial position of
the District.
For more information regarding the District’s insurance coverage as of June 30, 2009, see Note 1 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year
Ended June 30, 2009 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, 15 off-plant pump stations, various interplant pipelines and connections, and the ocean outfall facilities. The District’s Wastewater System includes approximately 403 miles of sewers within 11 trunk sewer systems, 176 miles of local sewers located within a portion of
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 372 mg/d, 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 105 mg/d of secondary treated
effluent is conveyed to an Orange County Water District (the “OCWD”) plant for tertiary treatment prior
to reclamation and ground water recharge.
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.
55621720.5 34
The District employs several phases in the treatment of wastewater. The first phase, preliminary
treatment, removes debris such as eggshells, sand and other non-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 25 percent 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 75 percent is sent to secondary treatment for further processing. During secondary treatment, the wastewater is placed in aeration basins to which naturally occurring bacteria are used 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)
2008-09 Actual Existing Primary Treatment Flows
Existing Secondary TreatmentCapacity Capacity
Total Planned Secondary (1) Capacity
(2)
Plant No. 1 86 204 122 182
Plant No. 2 125 168 90
Aggregate Treatment Plant Facilities
150
211 372 212 332
____________________ (1) The existing secondary capacity is being expanded to meet secondary treatment standards by 2012. (1)
Source: Orange County Sanitation District.
The District’s “Planned Total Capacity” is based on the 2009 Facilities Master Plan for planned capacity by
2020, which estimated the District’s requirements to meet future expected primary and secondary capacity demands.
The District also 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. Another interplant facility allows gas generated during solids treatment to be transported between Plant No. 1 and Plant No. 2 and 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 utilization.
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
55621720.5 35
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% advanced primary and 50% 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 waiver received under Section 301(h).
Following the 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 December 2002. 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 was originally projected to take six years to complete, with completion
expected in December 2012. Because ocean discharge permits are issued for only five years, and the EPA has no authority to waive the discharge limit requirements or grant a longer permit (except in
accordance with Sec. 301(h)), the District decided 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, the 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 four of the seven milestones
within the specified deadlines required by the decree.
The District is also subject to the requirements of the Federal Clean Air Act (Clean Air Act) which mandates attainment with national ambient air quality standards for criteria pollutants (ozone,
particulate matter (PM10), carbon monoxide, lead, nitrogen dioxide, and sulfur dioxide). Criteria air pollutants cause adverse effects on human health and environment The South Coast Air Quality
Management District (AQMD) is the local air pollution control agency charged with implementing the
Federal Clean Air Act. In addition to criteria pollutants, AQMD also implements numerous federal and state requirements related to the toxic air pollutants which can cause cancer or other severe localized
health effects. The State’s Air Toxic Hot Spots Act, for example, requires facilities to conduct health risk
assessments and notify the neighboring communities if the health risk exceeds the regulatory thresholds.
Pursuant to AQMD’s requirements, the District must obtain permits before sewage treatment
improvement projects can be constructed and operated. Such permits are project specific and may contain conditions that govern design criteria, operating parameters, and emissions standards. Most of the District’s treatment facilities are enclosed in order to capture and treat emissions to meet regulatory
emissions standards and to minimize odor impact to the neighboring communities.
In addition, the District has developed the Air Toxic Emissions Reduction Strategic Plan in 2007
which evaluated the health risk impacts and risk reduction alternatives for Calendar Year 2012 when all
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treatment plant upgrades and improvements planned for completion were in place The District currently
has all necessary AQMD permits to operate the Wastewater System.
2009 Facilities Master Plan and Capital Improvement Program
The District’s 2009 Facilities Master Plan (the “Master Plan”) was completed and adopted by the
Board of Directors in December 2009. The Master Plan updated the planning processes set forth in the
1989 Master Plan, the 1999 Strategic Plan, and the 2002 Interim Strategic Plan Update. The Master Plan also incorporates and implements the levels of service defined by the OCSD Board of Directors that are
included in the District’s 2009 Five-Year Strategic Plan. The result is a plan that integrates research, facilities planning, water conservation and reclamation, sludge reuse, other wastewater programs and financial planning into a single unified approach. A key component of the Master Plan was the updating
of flow projections and the collection system hydraulic modeling. A capital improvement program was developed to implement the required sewer capacity and rehabilitation improvements through the year 2030.
The Master Plan continues to support the July 17, 2002 Board of Directors’ Resolution No. OCSD 02-14, “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, 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 complete these improvements by December 2012 at a total capital improvement cost of $627.1
million to reach secondary treatment discharge standards. In the interim, the District operates the plants
to maximize available secondary treatment and to reduce effluent biochemical oxygen demand and suspended solid discharges below currently allowed limits.
The District annually reviews and validates 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, anticipated
rehabilitations and replacements, additional treatment requirements, conservation, energy and other resource savings considerations, odor control improvements, and air quality protection needs. Through 2030, 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 15 of the District’s outlying pumping stations, and 26 trunk
sewer improvement projects;
• Reduce fence line odor to levels that do not generate odor complaints;
• Disinfect the District’s ocean discharge to reduce bacterial levels below State bathing
standards;
• Reclaim 70 mg/d of the District’s effluent, or nearly one-third of the total daily flow
(Groundwater Replenishment System); and
• Achieve full secondary treatment standards.
The 2010 CIP validation resulted in proposed revisions to the CIP. The proposed CIP currently
consists of 176 individual capital projects through Fiscal Year 2030-31 at a total cost of $3.255 billion,
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approximately $1.331 billion of which has been spent to date. The bulk of construction is scheduled
during the next five years, with average annual expenditures of $178 million. 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 proposed CIP for Fiscal Years 2010-11 through 2030-31 is set forth
in Table 5 below.
Table 5 Capital Improvement Program – Estimated Costs Fiscal Years 2010-11 through 2030-31
Project Cost
Collection System Capacity $ 163,714,400 Collection System Repair, Rehabilitation, Replacement 345,518,350 Treatment Plant Capacity 228,092,650
Additional Secondary Treatment 193,106,000 Improved Treatment 188,012,400
Treatment Plant Repair, Rehabilitation, Replacement 681,057,800
Support Facilities Total Validated Capital Improvement Program 125,180,400 $1,924,682,000
____________________
Source: 2010-12 Draft Budget, Orange County Sanitation District.
The proposed CIP contains expenditures of $182.0 million in Fiscal Year 2010-11 and $122.6 million in Fiscal Year 2011-12, respectively. The largest cash outlay planned for plant facilities in Fiscal
Year 2010-11 is $32.5 million for a new secondary treatment system at Reclamation Plant No. 1 (total
project cost is expected to be $260.3 million). The proposed CIP’s largest collection system project for Fiscal Year 2010-11 is $11.8 million for the replacement of Bitter Point Pump Station. The largest cash
outlay for plant facilities in Fiscal Year 2011-12 is $18.3 million for the rehabilitation of the digesters at
Reclamation Plant No. 1 (total project cost is expected to be $55.5 million). For Fiscal Year 2011-12, the largest project is $9.1 million for the upgrade of the Dover Drive Trunk.
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 urban 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.
Future expansions of this project could include connecting other dairies and other waste streams with the SARI line. [does the CIP include plans for such connections?]
Groundwater Replenishment System
The District has taken a multi-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 capital cost of this Phase was shared equally (50% shares) by each agency. The GWRS is a joint effort by the two agencies to provide
reclaimed water for replenishment of the Orange County Groundwater Basin and to augment the seawater
intrusion barrier. Phase I of the GWRS became operational in January of 2008 with an expected water production of 72,000 acre-feet per year once all secondary treatment facilities are online. In 2009, GWRS
produced a total of 61,000 acre-feet. Phase 2 expansion is under design to add about 33,000 acre-feet per
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year. Phase 2 and all future phases will be funded solely by OCWD and could expand capacity up to a
total capacity of 145,600 acre-feet per year.
Preferred Level of Treatment
In July 2002, the Board of Directors approved a change from the existing level of treatment, a
blend of 50% advanced primary and 50% 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, and (3) the clearly stated public 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 remaining chlorine prior to releasing the treated wastewater to the ocean. The District continues to take measures to limit the chlorine residual to a very low level prior to release. This mode of disinfection is
expected to continue 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 ranging from $5.3 million to $7.2 million for additional chemicals
from the operating budget of the District.
Following the 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 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 Other Regulations.”
Currently, the District estimates that it will take approximately two and one-half years and require approximately $330.5 million to complete the additional secondary treatment capacity project. 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 those currently allowed limits.
Biosolids Management
The District produces digested and dewatered biosolids. Biosolids production is anticipated to peak in 2013 at approximately 675 tons per day (tpd) when new secondary treatment processes are fully
operational, and then decline to approximately 625 – 650 tpd in 2014 when IRWD’s solids processing facilities commence operation and the installation of centrifuges is completed at the District.
The District relies on the following technologies and locations for the management of its
biosolids: land application of biosolids in Arizona, manufacturing composted soil amendment in Kern County, California, and La Paz County, Arizona, and conversion to a renewable coal substitute e-fuel in
Rialto, California. The District has fail-safe back-up options in Arizona that include land application
recycling and landfill disposal. Together, these options have the capacity to manage 7-8 times the District’s daily biosolids production to ensure consistent and reliable operations.
The District’s Long-Range Biosolids Management Plan (“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 high-grade biosolids products, and move into the energy and fuel production and compost markets.
55621720.5 39
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 biosolids composted at Synagro’s
South Kern Compost Manufacturing Facility. 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. The fuel product is being 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 began receiving biosolids from the District in November 2008 and is still in the commissioning phase of the project.
Currently, the balance of the biosolids not managed by either Synagro or EnerTech is being managed by Tule Ranch pursuant to a five-year contract by either land application or landfill disposal (as a fail-safe back-up) in Arizona.
As a result of the transition to compost and energy products the cost to the District for biosolids management increased from $13.5 million in Fiscal Year 2007-08 to an estimated $20.1 million in Fiscal Year 2011-12. However, biosolids management has not increased to the level that the District anticipated
because of various process improvements, new and rehabilitated facilities, and the nitrification project. The District recently reduced its projections of biosolids production by approximately 100 tons per day.
Urban Runoff
In June 2002, legislation was passed that allows the District’s charter to include permissive language authorizing the diversion and management of dry weather urban runoff flows. This legislation
allows the District to acquire, construct, operate, maintain, and furnish facilities for the diversion of urban
runoff 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.
The legislation allows the District to divert up to 10 million gallons a day and consider more extensive options, such as building artificial wetlands that would naturally filter the runoff, or building a runoff treatment plant.
Orange County’s’s beaches have been affected by storm water and urban runoff pollution. As a result, the Santa Ana Regional Water Quality Control Board has taken direct action to control discharges of pollutants to tributaries and recreational water bodies in Orange County by issuing a Storm Water
Permit to the County of Orange (Permittee) and cities within Orange County (as co-permittees). To comply with the provisions of the permit and help protect Orange County’s water resources, the County of Orange and such cities have increased resources to fund municipal storm water/urban runoff
management and treatment services.
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 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.
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 on the Newport-Inglewood fault zone, which includes Plant No. 2. An
55621720.5 40
M 8.3 earthquake on the southern San Andreas fault, while on the whole more destructive than the M 7.0
Newport-Inglewood fault, may 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 Master Plan stated that damage from such a major earthquake on the San Andreas fault 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 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 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. No assurance can be given that any such events would not have a material adverse impact on the Wastewater
System.
The Strategic Plan also makes recommendations regarding fire protection of the Wastewater System. Most of the structures at Plant No. 1 and Plant No. 2 are constructed of fire-resistant materials.
The IERP 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.
Five-Year Strategic Planning
In November 2008, the Board of Directors adopted a new comprehensive five-year strategic plan
(the “Five-Year Plan”) to drive the District’s efforts and engage the organization to envision service and
operations for the next five years. In October 2009, the staff-generated ideas were presented to the Board of Directors for discussion and deliberation of changes and additions to the Five-Year Plan. In November
2009, the Five-Year Plan was updated to continue looking at a five-year horizon. Following a similar
process that was used in the original November 2008 plan, the General Manager's Office initiated the planning effort with the District’s Executive Management Team, then solicited input and ideas from
managers and supervisors. Driven by the District’s mission, vision and core values, the updated Five-Year Plan continues the District’s efforts to meet the sanitation, health, and safety needs of its more than 2.5 million customers while protecting the environment.
55621720.5 41
In the past year, nearly 30 percent of the goals of the Five-Year Plan were achieved. The Fiscal
Year 2009-10 Five-Year Plan presents the following five new goals:
• Reaffirming the District’s commitment to expand the Groundwater Replenishment
System, including completion of the Steve Anderson Lift Station (which has been
completed) and studying the potential to include flows from the Santa Ana River Interceptor.
• Analyzing whether adding chlorine to disinfect effluent into the ocean is cost-effective in comparison to other alternatives that also maintain protection of public health and safety.
• Evaluating and promoting the District’s environmental initiatives and seeking additional opportunities to utilize emerging technologies.
• Continuing to assess and identify risks to the District, including political and financial
risks, and developing mitigation strategies.
• Developing a comprehensive human resources strategic plan to connect employees with
the overall mission, values, and vision of the organization and preparing employees for future leadership opportunities.
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 residential and industrial customers. 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 and remain currently in
use.
The Board of Directors establishes the annual sanitary sewer service charges by ordinance. The
sanitary sewer service charge 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 became 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.
55621720.5 42
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 quarterly fee payments from the Irvine 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 NOTES – Rate Covenant” herein.
Residential and Commercial Sewer Service Charges. Pursuant to the 2002 Ordinance, the District established residential Sewer Service Charges, except within Revenue Area No. 14, based on the
cost of services and facilities provided to each customer of the District,. The noticed public hearing held in connection with the 2002 Ordinance considered increases in the amount of the annual charges of approximately 20% per 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, the underlying basis for all sewer service charges, by 31%, from $115.00 to $151.00 for all ratepayers, except those located in Revenue Area No. 14. In June 2007, the Board of Directors adopted
Ordinance No. OCSD-32 increasing the Fiscal Year 2007-08 single family residential rate by 9.8%.
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, and for all commercial properties. The
Board increased the single family residential rate, which is the basis for all of the District’s sewer service charges, by 10.4% for Fiscal Year 2008-09, 10% 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.
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.
[Remainder of page intentionally left blank.]
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Table 6 Annual Sewer Service Charges
Single Family Residence Rate Five Year Rate Schedule Fiscal Years 2005-06 through 2009-10
Fiscal Year Effective Ordinance No. Sewer Service Date Percent Charge Increase
2005-06 OCSD-26 07/01/05 $151.00 31.3% 2006-07 OCSD-30B 07/01/06 165.80 9.8
2007-08 OCSD-32 07/01/07 182.00 9.8 2008-09 OCSD-35 07/01/08 201.00 10.4 2009-10 OCSD-35 07/01/09 221.00 10.0
_________________________ Source: Orange County Sanitation District.
Table 7 below sets forth total average annual Sewer Service Charges for single-family residences
within the District, together with comparable total average annual charges for wastewater service within
the jurisdictions of certain other cities and districts within the State as of July 1, 2009. The District’s projected SFR rate of $294 in Fiscal Year 2012-13 remains below the current average annual sewer rate
of $406 according to a Fiscal Year 2007-08 survey of 726 agencies encompassing all 58 counties in
California conducted by the State Water Resources Control Board.
Table 7 Comparison of Total Sewer Service Charges
For Single-Family Residences As of July 1, 2009
Average Dry Weather Flow Entity (mg/d)
Annual Sewer Service (3) Charge Treatment (1) Level Collection (2) (3) Responsibility Property Tax (3) Income
(3)
City of San Diego 168 $568 2 Yes No
City of Los Angeles 428 360 4 Yes No East Bay MUD 80 259 4 No Yes Sacramento 140 237 3 No Yes
Orange County Sanitation District 221 221 2 No Yes
Los Angeles County 497 128 4 No Yes ____________________ (1) Source: Information obtained from respective entities listed. (2)
“1” – Primary treatment. Treatment Level Categories:
“2” – Advanced primary or primary with some secondary treatment. “3” – Secondary treatment. “4” – Advanced secondary or secondary with some tertiary treatment. “5” – Tertiary treatment. (3)
Source: 2007-08 Wastewater User Charge Survey Report by the California State Water Resources Control Board.
55621720.5 44
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 2008-09 were approximately $99 million. Industrial Sewer Service
Charges are applied to both operating and capital funds.
The Sewer Service Charge increases described above are necessary to meet the District’s cash flow needs arising from the addition of disinfection treatment and other operating requirements. As
discussed under the caption “THE DISTRICT – Capital Improvement Program,” the CIP Validation Study in the Spring of 2005 (as further updated in the 2008 CIP Validation Study) 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 $2.51 billion, approximately $1.5 billion of which has been spent as of December 31, 2009. The bulk of the remaining construction is scheduled
during the next five years, with average annual expenditures of approximately $160 million.
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 Taxes. 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 $46.9
million in Fiscal Year 2003-04, $35.8 million in Fiscal Year 2004-05, $40.0 million in Fiscal Year 2005-06, $60.6 million in Fiscal Year 2006-07, $65.2 million in Fiscal Year 2007-08 and $66.4 million in
Fiscal Year 2008-09. 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% 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 for 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 –Proposition 1A.” This 40% reduction for Fiscal Year 2004-05 was somewhat offset by the then existing
strength in the real estate market. Total assessed valuations increased in the 2005-06 Fiscal Year by 10.3% over the 2004-05 Fiscal Year, and the full value of these increases was received on all non-secured
property tax distributions. The District received its full allotment of property tax revenues (no State
property tax shift) of $65.2 million in Fiscal Year 2007-08 and $66.4 million in Fiscal Year 2008-09. The District expects its property tax receipts to be approximately $60.3 million in Fiscal Year 2009-10. See
Table 15 below. The District currently projects its property tax receipts to remain approximately level
through Fiscal Year 2012-13. The apportionment of the ad valorem tax is pursuant to a revenue program adopted by the District in April 1979 to comply with EPA and RWQCB mandates, 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 California 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 $3,261 per residential unit (three-bedroom); however, under the current industrial use
55621720.5 45
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. For a summary of historical and projected revenues derived from Capital Facilities Capacity Charges, see Table 14 and Table 15 below.
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 of Capacity. 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 1970s. 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 mg/d of maximum regulated flow capacity rights in the District’s Santa Ana River Interceptor and 17 mg/d of monthly average flow capacity in the District’s wastewater treatment
plants. Projected revenues from SAWPA range from $6.3 million to $7.5 million over the next five years. Additional treatment plant capacity can be purchased in increments at the District’s current replacement cost.
Federal Subsidy Payments. In connection with Senior Obligations executed and delivered by the District in 2010 as “build America bonds,” the District will receive certain federal subsidy payments ranging from $_______ to $_______ annually, until 2040. Such subsidy payments will constitute
Revenues as defined in the Master Agreement.
Wastewater Treatment History
The average yearly influent flow to the District has remained relatively stable for the preceding
four years. The wastewater flows for Fiscal Year 2005-06 through Fiscal Year 2008-09 were 235 mg/d, 229 mg/d, 221 mg/d and 211 mg/d, respectively. The highest flow rate experienced was during El Niño
storm periods. Peak flows of 500 mg/d were recorded in December 1997 and February 1998. There were
no sewer failures or overflows during these events.
Customers
The historical number of customers served by the District for the Fiscal Years 2004-05 through
2008-09 and the projected number of customers served by the District for the Fiscal Years 2009-10 through 2013-14, identified in Equivalent Dwelling Units (“EDUs”), are set forth in Table 8 and Table 9
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 EDUs set forth in Table 8 equate to total Sewer Service Charge levies while the EDUs set forth in Table 9
equate to total sewer service charge collections.
55621720.5 46
Table 8 Historical and Projected Equivalent Dwelling Units
Fiscal Years 2004-05 through 2013-14
Historical Fiscal Year EDUs(1) Projected Fiscal Year
EDUs
2004-05 893,501 2009-10 930,164
2005-06 910,469 2010-11 925,037
2006-07
(2)
907,986 2011-12 927,8122007-08
(3) 911,033 2012-13 930,595
2008-09
(3)
921,782 2013-14 933,387
____________________
(3)
(1) With respect to such Fiscal Years, presentation in the Statistical Section of the District’s Comprehensive
Annual Financial Report set forth in Appendix A includes EDUs that equate to total Sewer Service Charge collections rather than levies. (2) EDUs projected in current budget, as of May 2009. (3)
Source: Orange County Sanitation District.
EDU growth during the projection period is estimated at approximately 0.4% per annum.
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 2004-05 through 2008-09
($ in Millions)
Residential/Commercial
Industrial
Number of Equivalent
Single- Family Fiscal Year Dwellings Total (1)
Percentage of Sewer
Service Charge Revenue
Number of Customer Revenues Total Accounts
Percentage of Sewer
Service Charge Revenue Revenues 2004-05 860,634 $ 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 2007-08 875,739 159.4 93 520 12.1 7 2008-09 910,637 183.0 95 515 9.9 5
____________________ (1)
Source: Orange County Sanitation District.
With respect to such Fiscal Years, presentation in the Statistical Section of the Comprehensive Annual
Financial Report set forth in Appendix A includes EDUs that equate to total Sewer Service Charge collections rather than levies.
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The ten largest principal sewer service customers of the District for the Fiscal Year ended
June 30, 2009 are shown in Table 10 below.
Table 10 Largest Principal Sewer Service Customers of the District for the Fiscal Year Ended June 30, 2009
Sewer Service User Charges Kimberly-Clark Worldwide, Inc. $1,091,757 MPC Foods, Inc. 1,045,850 Alstyle Apparel – A&G Inc. 849,942 Stremicks Heritage Foods, LLC 573,353 House Foods America Corp. 543,277 Ameripec Inc. 459,905 Pepsi-Cola Bottling Group 391,780
Nor-Cal Beverage Co. Inc. (NCB) 357,354 Orange City Mills Ltd. Partnership 346,794 Favorite Foods, Inc.
Total
324,637
$5,984,649
____________________ Source: Orange County Sanitation District.
Assessed Valuation
The assessed valuation of property in the County is established by the County Assessor, except
for public utility property which is assessed by the State Board of Equalization. Due to changes in assessment required under State Constitution Article XIIIA, the County assessment roll no longer
purports to be proportional to market value. See “LIMITATIONS ON TAXES AND REVENUES”
herein. Generally, property can be reappraised to market value only upon a change in ownership or completion of new construction. The assessed value of property that has not incurred a change of
ownership or new construction must be adjusted annually to reflect inflation at a rate not to exceed 2% per year based on the State consumer price index. In the event of declining property value caused by substantial damage, destruction, economic or other factors, the assessed value must be reduced
temporarily to reflect market value. For the definition of full cash value and more information on property tax limitations and adjustments, see “LIMITATIONS ON TAXES AND REVENUES” herein.
The County Assessor determines and enrolls a value for each parcel of taxable real property in the
County every year. The value review may result in a reduction in value. Taxpayers in the County also may appeal the determination of the County Assessor with respect to the assessed value of their property.
Table 11 below shows a five-year history of assessed valuations in the District since Fiscal Year
2005-06.
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Table 11 Assessed Valuations of Property in the District
Fiscal Years 2005-06 through 2009-10 ($ in Billions)
Fiscal Year Value % Change 2005-06 $241.8 10.30%
2006-07 270.7 11.93 2007-08 292.7 8.14 2008-09 307.6 5.08
2009-10 305.2 (0.98)
____________________ Source: County of Orange Auditor-Controller.
Prior to 2006, the housing market in Southern California experienced significant price appreciation. During this period, many homebuyers financed the purchase of their new homes using non-
conventional loans. Such loans were made with little or no down payment and included adjustable interest rates 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 ten 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, homebuyers may not be able to obtain replacement financing because the outstanding loan balances
exceed the value of their homes. Due to the limiting effect of Proposition 13 on assessed valuations,
declines in the market value of property in the County will not necessarily result in decreased property tax revenue in the near term. In fact, assessed valuations of property in the District for Fiscal Year 2008-09
increased by $14.9 billion, or 5.08%, over Fiscal Year 2007-08 valuations. For Fiscal Year 2009-10, however, the County reduced assessed valuations by 0.98% as a result of further decreases in market value, leading to decreased property tax collections. Assessed valuations tend to lag economic activity.
Given the severity of the recent recession, the sharp decline in the market value of real estate, and the complexity of the methodology by which property is assessed, the District cannot accurately forecast the
long-term impact of the recent recession on assessed valuations and property tax receipts.
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 1 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.
55621720.5 49
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%.
Table 12 below presents a five-year history of the District’s ad valorem total property tax and
Sewer Service Charge levies.
Table 12 Total Property Tax and Sewer Service Charge Levies
in the District for Fiscal Years 2004-05 through 2008-09 (In Thousands)
Total Tax and Sewer Fiscal Year Service Charge Levy 2004-05 $152,745 2005-06 191,290 2006-07 209,206 2007-08 228,622 2008-09 254,092
____________________ 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 annual budgets, with any revisions, in June 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.
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Prior year reserves or fund balances may be appropriated to fund items not previously included in the
adopted budget. Reserves or fund balances exceeding minimum 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.
Reserves
The District has an established reserve policy with eight separate categories for its reserve funds. Collectively, these individual reserve requirements total over $448 million for each year of the current
ten-year cash flow forecast. Financial Management staff and the Board of Directors have concluded that given the nature of the likely events that may cause a withdrawal from the District’s reserves and the degree of overlap among reserve categories, the total amount reserved need not equal the sum of each
separate reserve category. As a result, the District adjusted the application of its reserve policy, leading to a reduction of $40 million of the accumulated total, or approximately 8 percent. The following table sets forth actual reserves at June 30, 2008 and June 30, 2009, and projected reserves at June 30, 2010, for each
fund. Reserve levels are calculated in accordance with the District’s reserve policy.
Table 13 Actual and Projected Reserves
June 30, 2008 through 2010
(In Millions)
June 30, 2008 June 30, 2009 June 30, 2010Cash Flow Requirements Reserve —
(1) Operating Expenses $ 70 $ 73 $ 68 Certificates of Participation Payments 65 84 89 Operating Contingencies Reserve 14 15 14 Capital Improvement Program Reserve 165 116 75 Catastrophe and Self Insurance 57 58 57 Capital Replacement and Refurbishment 54 55 56 Debt Service Required Reserves 108 133 129Overlapping Reserve Adjustment
(2) - - Total (40) $ 533 $ 534 $ 448
____________________ (1) Projected. (2)
Source: Orange County Sanitation District.
$90.7 million of such amount is restricted by covenant for specific obligations. A portion of this $90.7 million amount is available to pay the Series 2000 Certificates. [how much?]
All of the categories of District reserve funds described above are available to pay principal of and interest with respect to the Series 2000 Certificates if Net Revenues are insufficient, other than a
portion of the $90.7 million in Debt Service Required Reserves that are restricted by covenant for other
obligations of the 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
55621720.5 51
budget. 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 $6.92 billion. The initial reserve level for this fund was established at $50 million
and is augmented by interest earnings and a portion of the annual Sewer Service Charges. Debt Service Required Reserves (or Obligation Reserve Funds as defined in the Master Agreement) are controlled by a trustee pursuant to the provisions of certificates of participation issues and are not available for the
general needs of the District. The Rate Stabilization Reserve accumulates all available funds which exceed the targets for all other reserves. The Rate Stabilization Reserve is a separate fund from the Rate Stabilization Account established under the Trust Agreement. These funds are applied to future years’
needs and must be maintained at specified levels. There is currently no established target for this reserve and, because the reserves of all other funds have not been exceeded, the reserve level for this reserve fund
is zero for Fiscal Years 2005-06 through 2008-09. See APPENDIX A — “COMPREHENSIVE
ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009.”
Summary of Operating Data
Set forth in Table 14 below is a summary of historic operating results for the District for Fiscal Years 2004-05 through 2008-09. The information presented in the summary should be read in conjunction
with the financial statements and notes. See APPENDIX A — “COMPREHENSIVE ANNUAL
FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009.”
[Remainder of page intentionally left blank.]
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Table 14 Summary of Historical District Revenues and Expenses
and Other Financial Information For Fiscal Years 2004-05 through 2008-09 ($ in Millions)
2004-05 2005-06 2006-07 2007-08 Revenues: 2008-09 Sewer Service Charges $ 99.0 (1) $ 132.0 $143.8 $159.4 $183.0 Industrial Sewer Service Charges 10.5 12.2 13.4 12.1 9.9 Revenue Area No. 14 Fees 6.9 5.3 5.2 7.1 10.3 Ad Valorem Taxes 35.8 40.0 60.6 65.2 66.4 Interest Earnings 15.1 10.4 22.2 20.2 14.8 Capital Facilities Capacity Charges (“CFCC”) 9.8 15.6 31.3 19.8 9.8 Other Revenues 6.1 9.2 8.3 6.9 Total Revenues 5.8 $183.2 $224.7 $284.8 $290.7 $300.0 Operations and Maintenance Expenses $(2) $101.8 $105.6 $112.2 131.9 $164.6
(5) Net Revenues $ 71.6 (3) $103.5 $141.3 $139.0 $125.6 Debt Service $ 37.9 $ 41.9 $ 48.6 $ 42.8 $ 57.6 Coverage Ratios 1.89x (3) 2.47x 2.90x 3.25x 2.18x CIP Outlay $187.9 $260.8 $287.5 $275.5 $254.9 Ending Reserves $407.0 (4) $406.0 $287.0 $434.0 $439.0 ____________________________________ (1) Net of rebates, if any, to commercial users. (2) Excludes depreciation and amortization expenses. (3) Calculated in accordance with the Master Agreement, which excludes CFCC from Net Revenues. (4) Excludes Debt Service Required Reserves in accordance with the District’s reserve policy. (5)
Source: Orange County Sanitation District.
During the fiscal year ended June 30, 2009, independent agreed-upon procedures were conducted on Revenue Area 14 to substantiate the Irvine Ranch Water District’s owner equity interest in the District. As a result, a one-time other operating expense of $29 million was charged to the Consolidated Revenue Area for the year ended June 30, 2009. See APPENDIX A – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009 – Note 8.”
Projected Operating Data
Set forth in Table 15 below are projected operating results for the District for Fiscal Years 2009-
10 through 2013-14. These projections assume the number of projects and scheduled build out set forth in the 2010 CIP Validation Study, and reflect Board-approved annual increases in sewer service rates of
10%, 10%, 9.8% and 9.8% over the first four years and an estimated 7% (which has not yet been approved by the Board) for Fiscal Year 2013-2014. Principal expenditure components of these projections are derived from the 2010 CIP Validation Study, which identified 176 individual capital projects through
Fiscal Year 2030-31 at a total cost of $3.255 billion, approximately $1.331 billion of which has been spent to date. The bulk of construction is scheduled during the next five years, with average annual
expenditures of $178 million. The District’s CIP cash flow budget for Fiscal Year 2009-10 is $259.1
million. This CIP budget finances joint works treatment and disposal system improvement projects, and collection system improvement projects. The preparation of such projections was based upon certain
assumptions and certain forecasts with respect to conditions that may occur in the future. While the
District believes that these assumptions and forecasts are reasonable for the purposes of the projected
55621720.5 53
selected operating data, it makes no representations that they will in fact occur. To the extent that actual
future conditions differ from those assumed herein, the data will vary.
Table 15 Summary of Projected District Revenues and Expenses and Other Financial Information
for Fiscal Years 2009-10 through 2013-14 ($ in Millions)
2009-10 2010-11 2011-12 2012-13
Revenues:
2013-14
Residential & Commercial Sewer Service Charges $202.4 $226.5 $251.0 $279.4 $299.5
Industrial Sewer Service Charges 11.1 11.6 12.7 14.0 15.0
Revenue Area No. 14 Fees 23.5 15.9 13.3 14.3 14.9 Ad Valorem Taxes 60.3 60.3 60.3 60.3 63.3
Interest Earnings 13.5 9.3 9.8 19.3 21.5
Capital Facilities Capacity Charges 9.5 6.5 6.8 7.3 8.0
Other Revenues 16.2 11.9 18.3 10.7 Total Revenues 34.2 $336.5 $342.0 $372.2 $405.3 $456.4
Operations and Maintenance Expenses 136.2 150.0 156.1 173.6
Net Revenues
183.3
$190.8 (1) $185.5 $209.3 $224.4 $265.1
Debt Proceeds (excluding refundings) $ 80.0 $157.0 $ 50.0 $120.0 $ 40.0
Debt Service $ 65.7 (2) $ 89.7 $ 97.1 $102.7 $121.6
CIP Outlays $249.3 $180.1 $122.4 $195.6 $188.2
Ending Reserves $319.7 (3) $346.8 $359.8 $395.2 $397.4
Coverage Ratios 2.90x (1) 2.07x 2.16x 2.19x 2.18x
_________________ Assumptions: (a) Annual growth in equivalent dwelling units is projected to increase 0.25% over the next five years. (b) The Residential and Commercial Sewer Service Charge and the Industrial Sewer Service Charges are forecasts based on the total projected equivalent dwelling units, the actual 10% increase for 2009-10, 10% increase for 2010-11, 9.8% increase for 2011-12 and 9.8% increase for 2012-13. (c) The Capital Facilities Capacity Charge forecast is based on the total projected equivalent dwelling units along with a 5.0% project 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. (e) Ad valorem tax revenues are projected to remain level through 2012-13 and increase 5.0% in 2013-14. (f) Interest earnings are projected as 2.0% of average annual cash balances through 2012-13 and 3.75% in 2013-14. (g) Operating and Maintenance Expenses are projected to increase 7.0% per year. (h) Annual CIP Outlays based on the cash flow projections developed from the CIP Validation Study. (1) Calculated in accordance with the Trust Agreement, which excludes CFCC from Net Revenues. (2) Assumes the refinancing of the 2009B Certificates with Senior Obligations amortizing over a term of approximately 25 years. (3)
Source: Orange County Sanitation District. Excludes Debt Service Required Reserves in accordance with the District’s reserve policy.
55621720.5 54
Management’s Discussion and Analysis of Operating Data
The District’s Fiscal Year 2009-10 total operating and capital improvement budget is $486.2
million, a 19.1% decrease over the prior year budget of $601.0 million. The District’s Fiscal Year 2009-10 budget includes $259.1 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 Directors’ July 2002 resolution and in keeping with the terms and conditions of its ocean discharge permit and related Consent Decree. Numbers presented under this heading “Management’s
Discussion and Analysis of Operating Data” are budget-based and may differ from the projections set forth on Table 15 herein.
The Fiscal Year 2009-10 operations budget for the collection, treatment, and disposal of
wastewater is $156.1 million, a $7.4 million increase from the prior year budget of $148.7 million. This increase is primarily attributable to the increase in personnel costs and are necessary to be in compliance with the terms of the existing employee contract agreements as the authorized full time equivalent staffing
levels have remained at approximately 640. Personnel costs increased $8.0 million, or 9.5%. The contractual services budget remained flat at $28.5 million. The major component of this category is biosolids removal and transport costs totaling $20.6 million. Contracts have been executed with firms for
agricultural reuse of residual solids. The utility budget of $9.8 million increased by only 1.0%, as utility rates are expected to remain basically flat in comparison with the prior year. Electricity is the largest
utility cost incurred by the District and is used to run the plant processes.
In preparation for the Fiscal Year 2008-09 budget, strategic planning workshop were held by the Board of Directors to layout a capital program to deliver the levels of service desired by the Board. These
levels of service and resulting capital projects are included in the District’s Five-Year Strategic Plan, and
include approximately $50 million of new CIP over the next ten years. In addition, District staff reviewed each ongoing CIP project to ensure that the scope of the project remains appropriate, and that the cost
estimates have been accurately updated. The Fiscal Year 2009-10 CIP cash flow budget was approved at $259.1 million. The Fiscal Year 2009-10 CIP includes three projects totaling $627 million over the life of the CIP to upgrade the District’s treatment plants to meet secondary treatment standards. This CIP also
includes the identification of 21 new future rehabilitation and replacement projects based on the District’s condition assessment program. These future CIP needs will increase the amount of the overall CIP Program by $118 million but will not further impact future user rates as these rehabilitations, renewals,
and replacements have already been anticipated in the District’s current ten year cash flows. Over this 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 mg/d of the District’s effluent, or nearly one-third of the total daily flow
through the Groundwater Replenishment System; and
• Secondary treatment standards by December 2012.
The 2008 CIP Validation Study reaffirmed the need for further rate increases in future years.
Based on the results of the CIP Validation Study and the Five-Year Plan, the Board of Directors adopted Ordinance No. OCSD-35 which increased the sanitary sewer service charges by approximately 10% each year for the five years beginning in Fiscal Year 2008-09. These rate increases were approved by a vote of
55621720.5 55
two-thirds of the members of the Board of Directors and are not subject to reaffirmation in any of the
future fiscal years covered by this five-year period. This action increased the single family residence user
rate, the basis for all sewer user fee rates, from $201 to $221 in Fiscal Year 2009-10. 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, commercial
paper, 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 as the District’s independent custodian bank for its investment program. Callan Associates (“Callan”) serves as the
District’s independent advisor.
As of March 1, 2010, the District’s externally managed fund consisted of a short-term investment portfolio of $54.7 million with an average maturity of 55 days, and a long-term investment portfolio of
$223.0 million with average maturities of 2.7 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 repurchase 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% 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 return 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 investment.
FINANCIAL OBLIGATIONS
Existing Indebtedness
Currently, the District has Senior Obligations Outstanding payable on a parity with the Installment Payment under the Installment Purchase Agreement. The table below describes the District’s
outstanding certificates of participation as of August 1, 2010. The payment obligations in connection with each series of these certificates constitute Senior Obligations, subject to the provisions of the Master
Agreement and shall be afforded all of the benefits, interests and security afforded Senior Obligations
pursuant to the Master Agreement. The District has no outstanding general obligation bonds.
55621720.5 56
Table 16 Outstanding Certificates of Participation
As of August 1, 2010
Original Principal Issue
Amount
Outstanding
Date
Final
Balance Maturity
2000 Certificates $218,600,000 08/31/00 $194,000,000 08/01/30
2003 Certificates 280,000,000 08/26/03 191,500,000 02/01/33 2007A Certificates 95,180,000 05/22/07 93,265,000 02/01/30
2007B Certificates 300,000,000 12/20/07 290,130,000 02/01/37 2008A Certificates 77,165,000 05/29/08 30,535,000 08/01/13 2008B Certificates 27,800,000 09/11/08 26,975,000 08/01/16
2009A Certificates 200,000,000 05/07/09 197,770,000 02/01/39 2009B Certificates(1)165,865,000 12/01/09 165,865,000 12/01/10
2010A Certificates
(1)
05/18/10 80,000,000 02/01/40 80,000,000
Total Long-Term Debt $1,444,610,000 $1,270,040,000 ________________________ (1)
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.
The District expects to refund the 2009B Certificates with Senior Obligations amortizing over a term of
approximately 25 years.
Variable Rate Obligations
In August 2000, the District caused the execution and delivery of the 2000-A Certificates and the 2000-B Certificates in the original aggregate principal amount of $218,600,000, of which $194,000,000 is
currently 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, 2000 (the “2000 Standby Agreement”), by and among the
District, the Trustee and Dexia Crédit Local, acting through its New York Agency. The 2000 Standby
Agreement currently expires on August 31, 2010 and is being replaced with the Standby Agreement to be delivered by the Provider on or about August 25, 2010.
The Standby Agreement constitutes a Credit Facility Agreement under the Master Agreement.
The obligation of the District to repay amounts drawn on or paid under the Standby Agreement, 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.
Anticipated Financings
From time to time the District expects to incur other obligations to finance portions of the CIP.
Over the next three years, the District expects to incur further Additional Senior Obligations in an aggregate principal amount of approximately $235 million for the purpose of funding the capital improvement program. The District may also refinance outstanding obligations from time to time.
Direct and Overlapping Bonded Debt
Table 17 below presents the aggregate direct and overlapping bonded debt of the District as of
April 1, 2010.
55621720.5 57
Table 17 Direct and Overlapping Bonded Debt of the District
as of April 1, 2010
2009-10 Assessed Valuation (Land & Improvements Only):
ORANGE COUNTY SANITATION DISTRICT
$305,155,184,199
Redevelopment Incremental Valuation: Adjusted Assessed Valuation: 38,978,436,382 $266,176,747,817
OVERLAPPING TAX AND ASSESSMENT DEBT
(Based on redevelopment adjusted all property assessed valuation of $271,322,083,143):
% Applicable
Metropolitan Water District of Southern California
Debt 4/1/10
14.976% $ 39,569,587 Coast Community College District 99.478 332,971,635 North Orange County Joint Community College District 96.848 214,619,043
Rancho Santiago Community College District 98.989 310,484,687 Brea-Olinda and Laguna Beach Unified School Districts 99.942 &
15.247
28,543,429
Los Alamitos Unified School District School Facilities Improvement District No. 1 98.993 26,711,910
Newport Mesa Unified School District 100. 163,568,480
Placentia-Yorba Linda Unified School District 98.601 211,727,526 Saddleback Valley Unified School District 12.391 17,061,168
Santa Ana Unified School District 100. 253,458,366
Tustin Unified School District School Facilities Improvement District No. 2002-1 & 2008-1 99.947 89,961,468
Anaheim Union High School District 100. 117,363,955
Fullerton Joint Union High School District 89.949 53,306,395 Huntington Beach Union High School District 98.850 227,117,758
School Districts 97.131-100. 299,235,416
City of Anaheim 99.073 4,215,556 Irvine Ranch Water District Improvement Districts Various 389,682,618
Rossmoor Community Services District Special Tax Obligations 100. 525,000 Bonita Canyon Community Facilities District No. 98-1 100. 41,275,000 Irvine Unified School District Community Facilities Districts 99.998-100. 434,403,688
Tustin Unified School District Community Facilities Districts 100. 228,330,345 Orange County Community Facilities District No. 87-4 99.959 51,523,273
Other Community Facilities Districts 99.051-100. 386,725,660
Orange County Assessment Districts 100. 108,827,296 City of Irvine 1915 Act Bonds 100. 866,054,968
City of Tustin 1915 Act Bonds 100. 42,685,000
Other 1915 Act bonds 100. TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 21,068,000 $4,961,017,227
DIRECT AND OVERLAPPING GENERAL FUND DEBT: % Applicable
Orange County General Fund Obligations
Debt 4/1/10
72.453% $ 298,453,469
Orange County Pension Obligations 72.453 42,988,815
Orange County Board of Education Certificates of Participation 72.453 14,077,618 South Orange County Community College District Certificates of 36.854 6,945,136
55621720.5 58
Participation
Brea-Olinda Unified School District Certificates of Participation 99.942 27,778,879
Orange Unified School District Certificates of Participation and Benefit Obligations 97.915 141,257,075
Placentia-Yorba Linda Unified School District Certificates of
Participation
98.601 85,595,839
Santa Ana Unified School District Certificates of Participation 100. 53,953,747
Other Unified School District Certificates of Participation Various 37,309,371
Union High School District Certificates of Participation Various 119,576,010 School District Certificates of Participation Various 61,836,748
City of Anaheim General Fund Obligations 99.073 637,933,489 City of Costa Mesa General Fund Obligations 100. 40,440,000 City of Garden Grove General Fund Obligations 100. 30,490,000
City of Huntington Beach General Fund and Judgment Obligations 99.974 68,207,262 City of La Habra General Fund Obligations 100. 19,930,000 City of Santa Ana General Fund Obligations 100. 107,145,000
Other City General Fund Obligations Various 122,683,713
Orange County Sanitation District Certificates of Participation 100. 0
Irvine Ranch Water District Certificates of Participation
(1)
89.916 76,558,978 Municipal Water District of Orange County Water Facilities
Corporation
67.529 10,781,005
Yorba Linda County Water District Certificates of Participation 97.595 9,198,329 Orange County Fire Authority 51.765
TOTAL GROSS OVERLAPPING GENERAL FUND DEBT
1,858,364
$2,014,998,847
Less: City of Anaheim self-supporting obligations 625,063,906 Other City self-supporting obligations 34,092,184
MWDOC Water Facilities Corporation (100% self-supporting)
TOTAL NET OVERLAPPING GENERAL FUND DEBT
10,781,005
$1,345,061,752
GROSS COMBINED TOTAL DEBT $6,976,016,074
NET COMBINED TOTAL DEBT
(2)
$6,306,078,979
(1) Excludes wastewater revenue certificates of participation. Previously classified certificates of participation have been reclassified as district revenue supported issues and are no longer included as direct debt in the debt statement. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity. ________________________
Source: California Municipal Statistics.
55621720.5 59
Ratios to 2009-10 Land and Improvement :
Assessed Valuation
Total Overlapping Tax and Assessment Debt 1.63% Adjusted Adjusted All Property Land & Improvement
Gross Combined Total Debt
Assessed Valuation
2.62% 2.57% Net Combined Total Debt 2.37% 2.32%
STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/09 : $0
THE CORPORATION
The Corporation was organized on 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 staff support to the Corporation.
The Corporation has not entered into any material financing arrangements other than those
referred to in this Remarketing Memorandum. 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 full 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 annually to reflect inflation at a
rate not to exceed 2% per year or to reflect a reduction in the consumer price index or comparable data for
55621720.5 60
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 any other law, local agencies may not levy any 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 any 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 property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in
the “taxing 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 Remarketing
Memorandum is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.
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 terms, the appropriations limit is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities’ revenues in any year exceed the
amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.
“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 borne 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.
55621720.5 61
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
government. 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 111, 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 111 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.
Proposition 1A
Proposition 1A (“Proposition 1A”), 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 Years 2004-05 and 2005-06.
Proposition 1A 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 1A 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 governments within a county must be approved by two-thirds of both houses of the
Legislature.
Proposition 1A provides, however, that beginning in Fiscal Year 2008-09, 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. Such a shift may not occur more than twice in any ten-year period. The State may
also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county.
For Fiscal Year 2009-10, approximately $5 million of the District’s property tax revenues were diverted to the State as a result of a Proposition 1A suspension. The District participated in a Proposition 1A Securitization Program (the “Program”) sponsored by the California Statewide Communities
Development Authority. The Program allowed the District to exchange its anticipated State property tax receivable for cash.
55621720.5 62
Proposition 1A 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 1A requires the State 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.
Article XIIIC and Article XIIID 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 California Constitution, creating additional requirements for the imposition by most local governments of
“general 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 1, 1997, and certain of its provisions purport to apply to any tax imposed for general
governmental purposes (i.e., “general taxes”) imposed, extended or increased on or after January 1, 1995 and prior to November 6, 1996.
Article XIIID imposes substantive and procedural requirements on the imposition, extension or
increase of any “fee” or “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 for 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. Verjil, 39 Cal.4th 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.
55621720.5 63
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 Bighorn, 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 a 15% rate increase per 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. The Board of Directors considered this increase 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 June 2007, the Board of Directors adopted Ordinance No. OCSD-32 increasing the Fiscal Year 2007-
08 single family residential rate by 9.8%. In February 2008, after a noticed public hearing, the Board of
Directors adopted Ordinance No. OCSD-35, which provides for annual increases in the single family residential rate of 10.4%, 10%, 10%, 9.8% and 9.8%, respectively, for Fiscal Years 2008-09 through
2012-13.
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
55621720.5 64
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.
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
On the original date of execution and delivery of the Series 2000 Certificates, Orrick, Herrington & Sutcliffe LLP, rendered its opinion as to the validity and enforceability of the Series 2000 Certificates. The opinion of Orrick, Herrington & Sutcliffe LLP has not been updated as of the date of this
Remarketing Memorandum. A copy of the approving opinion of Orrick, Herrington & Sutcliffe LLP delivered in connection with the original issuance of the Series 2000 Certificates is attached as APPENDIX E hereto. Fulbright & Jaworski L.L.P. is serving as Bond Counsel and Disclosure Counsel
to the District. As Bond Counsel to the District, Fulbright & Jaworski L.L.P. is not providing any opinion to the Owners with respect to the validity and enforceability of the Series 2000 Certificates or with
respect to any tax matters in connection with Series 2000 Certificates. 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., Los Angeles, California,
Disclosure Counsel to the District. Certain legal matters will be passed on for the Provider by Nixon
Peabody LLP, as domestic counsel to the Provider, and ___________, as foreign counsel to the Provider.
FINANCIAL ADVISOR
The District has retained Public Resources Advisory Group as financial advisor (the “Financial Advisor”) in connection with the remarketing of the Series 2000 Certificates. The Financial Advisor has not been engaged, nor have they undertaken, to audit, authenticate or otherwise verify the information set
forth in the Remarketing Memorandum, 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 Remarketing Memorandum but makes no guaranty, warranty or other representation
respecting accuracy and completeness of the information contained in this Remarketing Memorandum.
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 Series 2000 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 Series 2000 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 Remarketing Memorandum, or contesting the powers of the District or its authority with respect to the Series 2000 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.
55621720.5 65
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 Remarketing
Memorandum have been audited by Mayer Hoffman McCann P.C., independent certified public accountants. See APPENDIX A – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009” 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 Remarketing Memorandum, and no opinion is expressed by Mayer Hoffman
McCann P.C. with respect to any event subsequent to its report dated October 22, 2009.
TAX MATTERS
On the date of original execution and delivery of the Series 2000 Certificates, Orrick, Herrington
& Sutcliffe LLP, rendered its opinion that based upon an analysis of existing laws, regulations, rulings, and court decisions, interest on the Series 2000 Certificates 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. A complete copy of such opinion is attached as APPENDIX E hereto. Such opinion will not be updated in connection with the remarketing of the Series 2000 Certificates
hereunder.
NO CONTINUING DISCLOSURE
The Series 2000 Certificates are currently exempt from the rules of the SEC relating to continuing
disclosure of annual financial information and certain material events. In connection with the issuance of prior issues of certificates of participation, the District has covenanted to provide or cause to be provided to the Repositories for purposes of Rule 15c2-12 adopted by the SEC certain annual financial information
and operating data relating to the District and, in a timely manner, notice of certain material events. Owners may obtain from the Repositories such information provided by the District.
RATINGS
Standard & Poor’s Ratings Group, a Division of The McGraw-Hill Companies, Inc. (“S&P”), has assigned its ratings of “___”/“____” and Fitch Ratings (“Fitch”) has assigned its ratings of
“___”/“____” based on the delivery by the Provider of the Standby Agreement. Such ratings reflect only
the views of the rating agencies, and do not constitute a recommendation to buy, sell or hold the Series 2000 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 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 Series 2000 Certificates.
55621720.5 66
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 Remarketing Memorandum involving
matters of opinion, whether or not expressly so stated, are intended as such and not as representations of
fact. This Remarketing Memorandum is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Series 2000 Certificates.
The execution and delivery of this Remarketing Memorandum has been duly authorized by the District.
ORANGE COUNTY SANITATION DISTRICT
By: Chair of the Board of Directors /s/ Larry Crandall
55621720.5 A-1
APPENDIX A
COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY
SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009
55621720.5 B-1
APPENDIX B
THE COUNTY OF ORANGE – ECONOMIC AND DEMOGRAPHIC INFORMATION
55621720.5 C-1
APPENDIX C
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
55621720.5 D-1
APPENDIX D
BOOK-ENTRY SYSTEM
The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Series 2000 Certificates, payment of principal and interest evidenced by the Series 2000 Certificates to Participants or Beneficial Owners, confirmation and transfer of beneficial
ownership interests in the Series 2000 Certificates, and other Series 2000 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 “Series 2000 Certificates”). The Series 2000 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 was executed and
delivered for each series of the Series 2000 Certificates in the aggregate principal amount of such issue, and was deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking Law, a
“banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial
Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds 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 Clearing 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 Series 2000 Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2000 Certificates on DTC’s records. The ownership
interest of each actual purchaser of each Series 2000 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 Series 2000 Certificates are to be accomplished by entries made on
55621720.5 D-2
the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their ownership interests in the Series 2000 Certificates, except
in the event that use of the book-entry system for the Series 2000 Certificates is discontinued.
To facilitate subsequent transfers, all Series 2000 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 Series 2000 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 Series 2000 Certificates; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2000 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 Series 2000 Certificates may
wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2000 Certificates, such as prepayments, tenders, defaults, and proposed amendments to the
security documents. For example, Beneficial Owners of Series 2000 Certificates may wish to ascertain
that the nominee holding the Series 2000 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 less than all of the Series 2000 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 Series 2000 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 Series 2000 Certificates are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Prepayments with respect to the Series 2000 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, nor 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.
55621720.5 D-3
DTC may discontinue providing its services as securities depository with respect to the Series
2000 Certificates at any time by giving reasonable notice to the District or the Trustee. Under such
circumstances, in the event that a successor securities depository is not obtained, Series 2000 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, Series 2000 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 Series 2000 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 Series 2000 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 Series 2000 Certificate for each of the maturities of the Series 2000 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 Series 2000 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 Series 2000 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 Agreement, 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 Series 2000 Certificate as the absolute owner of such Series 2000 Certificate for all purposes, whether or not such Series 2000 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 Series 2000 Certificate shall be made only to such Owner, which payments shall be valid and effectual to satisfy and discharge the liability evidenced by such Series 2000 Certificate to the extent of the sum or sums so paid.
Whenever any Series 2000 Certificates shall be surrendered for transfer, the Trustee shall execute and deliver new Series 2000 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. Series 2000 Certificates may be presented for exchange at the Principal Office of the Trustee for a like aggregate principal amount
of Series 2000 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 Series 2000
Certificate during the period in which the Trustee is selecting Series 2000 Certificates for prepayment, nor shall the Trustee be required to transfer or exchange any Series 2000 Certificate or portion thereof selected for prepayment from and after the date of mailing the notice of prepayment thereof.
55621720.5 E-1
APPENDIX E
APPROVING OPINION
B-1
APPENDIX B
THE COUNTY OF ORANGE – ECONOMIC AND DEMOGRAPHIC INFORMATION
Fulbright & Jaworski L.L.P. – Draft 07/07/10
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 2001 through 2010, the population of the County increased by approximately 9.5%, compared to 12.2% for the State and 8.6% for the United States.
TABLE B-1
COUNTY OF ORANGE, STATE OF CALIFORNIA AND UNITED STATES POPULATION GROWTH
Year Orange County
State of (1) California
United States (1) of America
2001
(2)
2,890,473 34,430,970 285,226,284
2002 2,938,331 35,063,959 288,125,973
2003 2,980,547 35,652,700 290,796,023 2004 3,016,874 36,199,342 293,638,158
2005 3,044,980 36,676,931 296,507,061
2006 3,063,159 37,080,191 299,398,484 2007 3,080,383 37,472,074 301,621,157
2008 3,107,500 37,833,992 304,797,870
2009 3,134,858 38,255,508 307,006,550 2010 3,166,461 38,648,090 309,641,208
____________________ (1) As of January 1 of each year. (2)
Source: Orange County and State of California Statistics – California State Department of Finance, Demographic Research Unit; United States Statistics – Population Estimates Program, Population Division, U.S. Census Bureau.
As of July 1 of each year.
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 2008-09 academic year, the largest district in the County, the Santa Ana Unified School District, reported a student
enrollment of 57,439 (excluding charter schools). Public school enrollment for the academic calendar
years 2004-05 through 2008-09 is presented in Table B-2.
B-2
TABLE B-2 COUNTY OF ORANGE
PUBLIC SCHOOL ENROLLMENT
2004-05 2005-06 2006-07 2007-08
Grade Level
2008-09
K-8 354,841 350,096 340,566 336,432 335,218 9-12 158,903 160,018 163,389 166,793 Total Enrollment 168,918 513,744 510,114 503,955 503,225 504,136 ____________________ Source: California Department of Education, 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
2005 through 2009 by industry.
TABLE B-3 COUNTY OF ORANGE INDUSTRY EMPLOYMENT AND LABOR FORCE - ANNUAL AVERAGE
2005 2006 2007 2008
Farm
2009
5,600 5,300 5,000 4,700 3,400 Natural Resources and Mining 700 600 600 600 600
Construction 99,900 106,600 103,700 91,200 79,000 Manufacturing 182,900 182,700 180,300 173,800 163,800
Wholesale Trade 83,000 82,700 87,100 85,900 79,200
Retail Trade 158,100 160,800 160,700 155,700 144,800
Transportation, Warehousing Utilities 28,700 28,200 28,700 29,400 28,600
Information 32,800 31,900 31,300 30,100 27,800
Financial Activities 138,400 138,200 128,500 113,700 108,600
Professional and Business Services 264,300 274,500 272,300 267,900 256,300
Educational and Health Services 133,500 137,700 141,600 149,600 149,300
Leisure and Hospitality 165,000 169,600 171,600 176,800 176,000
Other Services 48,200 47,900 47,600 48,000 47,700
Government 155,300 156,500 159,200 162,100
Total All Industries
159,800
1,496,500 (1) 1,524,300 1,518,000 1,489,500 1,419,000
____________________ (1)
Source: California Employment Development Department. Data may not add due to rounding.
B-3
Major Employers
The following table lists the major employers in the County for 2009.
TABLE B-4 COUNTY OF ORANGE MAJOR EMPLOYERS
2009
Employer Name
Walt Disney Company
Number of Employees
20,000 County of Orange 18,668 University of California, Irvine 17,500 St. Joseph Health System 10,656 Boeing Company 8,100 YUM! Brands Inc. 7,000 Target Corp. 6,100 Supervalu Inc. 6,082 California State University, Fullerton 5,768 Bank of America Corporation 5,500
____________________ Source: Orange County Sanitation District Comprehensive Annual Financial Report (June 30, 2009).
Labor Force, Employment and Unemployment
Table B-5 summarizes the labor force, employment and unemployment figures over the period
2005 through 2009 for the County and the State.
TABLE B-5 COUNTY OF ORANGE AND STATE OF CALIFORNIA
LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT YEARLY AVERAGE
Year and Area Labor Force Employment Unemployment Unemployment Rate
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 1,623,700 1,568,300 55,400 3.4 California 17,907,200 17,029,900 877,300 4.9 2007 Orange County 1,633,100 1,568,800 64,300 3.9 California 18,188,100 17,208,900 979,200 5.4 2008 Orange County 1,638,600 1,552,300 86,200 5.3 California 18,391,800 17,059,600 1,332,300 7.2 2009 Orange County 1,594,200 1,451,000 143,200 9.0 California 18,250,200 16,163,900 2,086,200 11.4 ____________________ Source: California Employment Development Department.
B-4
Personal Income and other Demographic Information
Table B-6 summarizes the personal income, per capita personal income, median family income,
public school enrollment and unemployment rate for the County of Orange.
TABLE B-6 COUNTY OF ORANGE
DEMOGRAPHIC INFORMATION
Fiscal
(1)
Total Personal
Year Income (in thousands
Per Capita
) Personal
Median
Income Family Income
Public
(3) School Enrollment Unemployment (4) Rate
(5)
1999-00 106,003,904 37,484 (2) 69,310 483,000 2.9%
2000-01 109,010,278 37,851 (2) 70,577 494,000 3.0
2001-02 111,750,294 38,010 (2) 72,998 503,000 4.1
2002-03 117,722,500 39,517 (2) 73,572 512,000 4.0
2003-04 125,798,400 41,697 (2) 70,900 517,000 3.6
2004-05 135,070,500 44,329 (3) 73,545 514,000 3.9
2005-06 145,435,600 47,342 (3) 76,443 510,114 3.7 2006-07 150,214,300 48,613 (3) 79,639 503,955 3.9 2007-08 153,833,900 49,496 (3) 79,814 503,225 5.3
2008-09 154,348,400 49,171 (3),(6) 78,331 504,136 (6) 9.3
____________________ (1) 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. (2) 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. (5) State of California, Employment Development Department as of June 30 of each fiscal year. (6)
Forecasted.
B-5
Taxable Sales
Table B-7 summarizes the annual volume of taxable transactions in the County from 2004
through 2009(1)
TABLE B-7 COUNTY OF ORANGE
TAXABLE TRANSACTIONS (in Thousands)
.
Type of Business 2005 2006 2007 2008) 2008
Apparel stores group
(1)
$2,062,892 $2,152,410 $2,217,996 $2,340,116 $1,233,959
General merchandise group 5,467,357 5,741,912 5,856,810 5,493,287 1,955,260
Specialty stores group 6,028,089 6,514,211 --* --* --*
Food stores group 1,716,228 1,781,284 1,815,201 1,745,903 919,154
Eating and drinking groups 4,798,676 5,051,841 5,296,863 5,245,480 2,508,023
Household group 2,269,650 2,202,194 2,079,957 1,900,543 403,426
Building material group 3,000,086 3,029,741 2,798,938 2,370,154 1,044,881
Automotive group 11,283,156 11,490,939 11,439,589 5,804,517 2,350,552
All other retail stores group 1,046,700 1,109,919 7,452,873* 6,242,035
RETAIL STORES TOTALS
4,176,447
$37,672,834 $39,074,451 $38,988,227 $35,768,595 $14,591,702
Business and Personal Services 2,938,129 2,987,539 2,968,831 2,828,005 245,167
All Other Outlets 14,452,283 15,140,757 15,336,413 15,010,229
TOTAL ALL OUTLETS
7,179,944
$55,063,246 $57,202,747 $57,293,471 $53,606,829 $22,016,813
____________________ * As of 2007, the “Specialty stores group” is no longer a calculated sub-category; its figures are now included in “All other retail stores group.” (1)
Source: California State Board of Equalization. Through first two quarters of 2009.
Housing Characteristics
The total number of housing units in the County was estimated by the California State
Department of Finance to be 1,040,544 as of January 1, 2010. This compares to 1,035,536 reported by the Department of Finance in January of 2009. According to the Southern California Multiple Listing
Service, the median sale price of single-family dwelling units in Orange County was $548,500 in May of
2010, an 11.9% increase from the prior year.
Building Permits
The total valuation of building permits issued in the County reached $1.8 billion in 2009. Table B-8 provides a summary of residential building permit valuations and the number of new dwelling units authorized in the County during the period 2005 through 2009.
B-6
TABLE B-8 COUNTY OF ORANGE
BUILDING PERMIT ACTIVITY 2005 through 2009 ($ in Thousands)
2005 2006 2007 2008 2009
Valuation: Residential $2,100,436 $2,316,948 $1,792,270 $1,037,713 $855,193
Non-Residential 1,494,759 2,400,569 2,005,198 1,439,120
Total
952,480
$3,595,195 $4,717,517 $3,797,468 $2,476,833 $1,807,673
New Housing Units:
Single Family 4,058 3,121 2,182 1,295 1,376
Multiple Family 3,148 5,219 4,890 1,864
Total 824 7,206 8,371 7,072 3,159 2,200
____________________ 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 (“MWDOC”), 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 2000 through 2009.
B-7
TABLE B-9 COUNTY OF ORANGE
CONVENTION ACTIVITY
Year Conventions
2000
Attendance
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 749 1,197,168 2008 766 1,156,000 2009 584 1,168,311 2010 314 552,949____________________
(1)
Source: Anaheim/Orange County Visitor and Convention Bureau, 2010. (1) As of June 30, 2010. Transportation
The County is situated in the most heavily populated area in California 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 near 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, Irvine, 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 2007, approximately 10 million passengers were served.
B-8
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 uses. 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 Irvine 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 1 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.
Fulbright & Jaworski L.L.P. – Draft 07/07/10
90099294.3
FIRST AMENDMENT TO TRUST AGREEMENT
by and among
U.S. BANK NATIONAL ASSOCIATION
and
ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION
and
ORANGE COUNTY SANITATION DISTRICT
Dated as of August 1, 2010
Relating To
$218,600,000
Orange County Sanitation District
Refunding Certificates of Participation Series 2000-A and Series 2000-B
90099294.3
FIRST AMENDMENT TO TRUST AGREEMENT
THIS FIRST AMENDMENT TO TRUST AGREEMENT (this “First Amendment”),
is made and entered into as of August 1, 2010, by and among U.S. BANK NATIONAL
ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America, as successor 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, the District financed and refinanced the acquisition, construction and
installation of certain improvements to its wastewater system including, but not limited to the
prepayment of certain prior obligations (the “Project”), by entering into an Installment Purchase
Agreement, dated as of August 1, 2000 (the “Installment Purchase Agreement”), by and between the District and the Corporation;
WHEREAS, in connection with the Project, the District, the Corporation and the Trustee
entered into a Trust Agreement, dated as of August 1, 2000 (the “Trust Agreement”), under
which the Trustee executed and delivered $218,600,000 Orange County Sanitation District
Refunding Certificates of Participation Series 2000-A and Series 2000-B (collectively, the “Series 2000 Certificates”), evidencing direct, undivided fractional interests in certain installment payments and the interest thereon payable under the Installment Purchase
Agreement; and
WHEREAS, the District and the Corporation desire to amend the Trust Agreement as
provided herein in connection with a remarketing of the Series 2000 Certificates;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
AMENDMENTS
Section 1.01. Amendment to Section 1.01
““Alternate Standby Agreement” means an agreement provided in
accordance with Section 6.02 hereof.”
. The definition of “Alternate Standby
Agreement” in Section 1.01 of the Trust Agreement is hereby amended and restated in its
entirety as follows:
Section 1.02. Amendment to Section 2.06(b). The last sentence of Section 2.06(b) of
the Trust Agreement is hereby amended and restated as follows:
90099294.3 2
“Any Provider Certificates transferred by the Provider to a transferee in
accordance with the terms of the Standby Agreement and this Trust Agreement
shall evidence interest as provided in the Standby Agreement until the earlier of
(i) the date such Provider Certificates are remarketed, (ii) the date the Provider Certificate Holder elects not to sell Provider Certificates which the Remarketing Agent is able to remarket pursuant to Section 5.07 hereof, or (iii) the date such
Provider Certificates are prepaid in full.”
Section 1.03. Amendment to Section 4.02
“(d) Notwithstanding anything to the contrary in this Section 4.02,
Provider Certificates shall be prepaid in accordance with the terms of the Standby
Agreement.”
. Section 4.02 of the Trust Agreement is
hereby amended by adding a new Section 4.02(d) as follows:
Section 1.04. Deletion of Section 5.09
Section 1.05.
. Section 5.09 of the Trust Agreement is hereby
deleted in its entirety and replaced with “Reserved.”
Deletion of Section 6.02(a)(v)
Section 1.06.
. Section 6.02(a)(v) of the Trust Agreement is hereby deleted in its entirety and replaced with “Reserved.”
Amendment to Section 6.02(b)
Section 1.07.
. Section 6.02(b) of the Trust Agreement
is hereby amended and restated in part to delete “45 days” on line three thereof and replace such
deletion with “5 Business Days.”
Amendment to Section 7.06(a)
Section 1.08.
. The last sentence of Section 7.06(a) of
the Trust Agreement is hereby amended in part to delete the word “Swap.”
Amendment to Section 13.12
If to the District: Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, California 92708
Attention: Director of Finance and Administrative Services
. Section 13.12 is hereby amended and
restated in part as follows:
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 633 West Fifth Street, 24th
Los Angeles, California 90071 Floor
Attention: Corporate Trust Services
Telephone: (213) 615-6052
Facsimile: (213) 615-6199
90099294.3 3
If to the Remarketing Agent:
Bank of America Merrill Lynch
350 South Grand Avenue, Suite 2800 Los Angeles, California 90071 Attention: Jeffrey Bower
If to the Provider: At the address set forth in the Standby Agreement.
If to Moody’s: Moody’s Investors Service 7 World Trade Center 250 Greenwich Street
New York, New York 10007
Attention: MSPG Surveillance
If to Standard & Poor’s:
Standard & Poor’s 55 Water Street
New York, New York 10004
Attention: Public Finance Structured Finance
Surveillance Department
If to Fitch, Inc.: Fitch, Inc. One State Street Plaza
New York, New York 10004
Attention: U.S. Public Finance
ARTICLE II MISCELLANEOUS
Section 2.01. Article and Section Headings, Gender and References
Section 2.02.
. The singular
form of any word used herein shall include the plural, and vice versa, unless the context
otherwise requires. The headings or titles of the several Articles and Sections hereof shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof.
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 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 Series 2000 Certificates, and the Owners and the Provider shall retain all the benefit,
protection and security afforded to them under any applicable provisions of law. The
90099294.3 4
Corporation, the District and the Trustee hereby declare that they would have executed this First
Amendment, and each and every Article, Section, paragraph, subsection, sentence, clause and
phrase hereof and would have authorized the execution and delivery of the Series 2000
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 2.03. California Law
Section 2.04.
. This First Amendment shall be construed and governed
in accordance with the laws of the State of California.
Execution in Counterparts. This First Amendment 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.
90099294.3
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment 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:
Clerk of the Board of Directors
90099105.3
Fulbright & Jaworski L.L.P. – Draft 07/07/10
FIRST AMENDMENT TO INSTALLMENT PURCHASE AGREEMENT
by and between the
ORANGE COUNTY SANITATION DISTRICT
and the
ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION
Dated as of August 1, 2010
Relating To
$218,600,000
Orange County Sanitation District
Refunding Certificates of Participation Series 2000-A and Series 2000-B
90099105.3 1
FIRST AMENDMENT TO INSTALLMENT PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO INSTALLMENT PURCHASE AGREEMENT
(this “First Amendment”), is made and entered into as of August 1, 2010, 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”).
W I T N E S S E T H :
WHEREAS, the District financed and refinanced the acquisition, construction and installation of certain improvements to its wastewater system, including, but not limited to the
prepayment of certain prior obligations (the “Project”), by entering into an Installment Purchase
Agreement, dated as of August 1, 2000 (the “Installment Purchase Agreement”), by and between
the District and the Corporation; and
WHEREAS, the District and the Corporation desire to amend the Installment Purchase Agreement as provided herein;
NOW, THEREFORE, in consideration of the covenants and provisions herein set forth
and for other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I AMENDMENTS
Section 1.1. Amendment to Section 1.1
““Alternate Standby Agreement” means an agreement provided in
accordance with Section 6.02 of the Trust Agreement.”
. The definition of “Alternate Standby
Agreement” in Section 1.1 of the Installment Purchase Agreement is hereby amended and
restated in its entirety as follows:
Section 1.2. Amendment to Section 4.02
“Section 4.02.
. Section 4.02 of the Installment Purchase
Agreement is hereby amended and restated in its entirety as follows:
Prepayments of Provider Certificates
Section 1.3.
. The District shall prepay Provider Certificates pursuant to the terms of the Standby Agreement.”
Amendment to Section 9.07
“If to the Provider: At the address provided in the Standby Agreement.”
. Section 9.07 of the Installment Purchase
Agreement is hereby amended and restated with respect to notices to the Provider as follows:
90099105.3 2
ARTICLE II
MISCELLANEOUS
Section 2.1. Article and Section Headings, Gender and References
Section 2.2.
. The headings or titles of the several Articles and Sections hereof shall be solely for convenience of reference and
shall not affect the meaning, construction or effect hereof.
Partial Invalidity
Section 2.3.
. 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 or portions thereof and shall in no way affect the validity
hereof.
Law Governing
Section 2.4.
. This First Amendment shall be construed and governed
in accordance with the laws of the State.
Execution in Counterparts. This First Amendment 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.
90099105.3
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment 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: _______________________________
Clerk of the Board of Directors
ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION
By: ____________________________________
Treasurer
NIXON DRAFT OF 7/2/10
13046282.6
STANDBY CERTIFICATE PURCHASE AGREEMENT
By and Between
ORANGE COUNTY SANITATION DISTRICT
and
LLOYDS TSB BANK plc, acting through its NEW YORK BRANCH
dated as of August [__], 2010
Relating to
$[218,600,000]
Orange County Sanitation District Refunding Certificates of Participation,
Series 2000-A and Series 2000-B
13046282.5 i
TABLE OF CONTENTS Page
ARTICLE I DEFINITIONS ...................................... ERROR! BOOKMARK NOT DEFINED.
SECTION 1.01 Definitions ...................................................................................................... 2 SECTION 1.02 Accounting Matters ...................................................................................... 11
SECTION 1.03 Interpretation ................................................................................................ 11
SECTION 1.04 Relation to Other Documents ....................................................................... 11
ARTICLE II COMMITMENT TO PURCHASE CERTIFICATES ............................................ 11
SECTION 2.01 Commitment to Purchase Certificates.......................................................... 11 SECTION 2.02 Bank Certificates; Excess Bank Certificate Interest .................................... 12
SECTION 2.03 Method of Purchasing .................................................................................. 13
SECTION 2.04 Mandatory Reductions of Available Commitment ...................................... 14
SECTION 2.05 Sale of Bank Certificates.............................................................................. 14
SECTION 2.06 Rights of Bank Certificateowners ................................................................ 16 SECTION 2.07 Fees .............................................................................................................. 16
SECTION 2.08 Net of Taxes, Etc .......................................................................................... 17
SECTION 2.09 Default Rate ................................................................................................. 18
SECTION 2.10 Yield Equivalency ........................................................................................ 18
SECTION 2.11 Computations; Method of Payment ............................................................. 20 SECTION 2.12 Maintenance of Accounts............................................................................. 21
SECTION 2.13 Voluntary Termination ................................................................................. 21
ARTICLE III BANK CERTIFICATES........................................................................................ 21
SECTION 3.01 Interest; Prepayment; CUSIP Numbers and Ratings ................................... 21
ARTICLE IV CONDITIONS PRECEDENT TO EFFECTIVENESS ......................................... 22
SECTION 4.01 District Resolutions ...................................................................................... 23
SECTION 4.02 Regulatory Approvals .................................................................................. 23
SECTION 4.03 Incumbency Certificates .............................................................................. 23
SECTION 4.04 Opinion of Counsel for the District .............................................................. 23
SECTION 4.05 Opinion of Special Counsel ......................................................................... 23 SECTION 4.06 Opinion of Bank’s Domestic Counsel ......................................................... 23 SECTION 4.07 Opinion of Bank’s Foreign Counsel ............................................................ 23
SECTION 4.08 Related Documents ...................................................................................... 23
SECTION 4.09 Ratings ......................................................................................................... 24
SECTION 4.10 District Certificate ........................................................................................ 24 SECTION 4.11 Payment of Fees and Expenses .................................................................... 24 SECTION 4.12 Trustee’s Incumbency Certificate ................................................................ 24
SECTION 4.13 Termination of Prior Agreement .................................................................. 24
SECTION 4.14 Financial Information ................................................................................... 24
SECTION 4.15 CUSIPs and Bank Certificate Ratings ......................................................... 24 SECTION 4.16 Other Documents ......................................................................................... 24
ARTICLE V REPRESENTATIONS AND WARRANTIES ....................................................... 25
SECTION 5.01 Representations and Warranties ................................................................... 25
13046282.5 ii
ARTICLE VI COVENANTS ....................................................................................................... 28
SECTION 6.01 Compliance With Law; Tax-Exempt Status ................................................ 29
SECTION 6.02 Accounting and Reports ............................................................................... 29
SECTION 6.03 Notices ......................................................................................................... 30 SECTION 6.04 Maintenance of Approvals, Filings, Etc....................................................... 31
SECTION 6.05 Access to Records ........................................................................................ 31
SECTION 6.06 Taxes and Liabilities .................................................................................... 31
SECTION 6.07 Existence ...................................................................................................... 31
SECTION 6.08 Incorporation of Covenants; Restrictions on Parity Debt ............................ 31 SECTION 6.09 Related Documents ...................................................................................... 32
SECTION 6.10 Accounting Methods .................................................................................... 33
SECTION 6.11 Remarketing Agent ...................................................................................... 33
SECTION 6.12 Amendments ................................................................................................ 33
SECTION 6.13 Investments .................................................................................................. 33 SECTION 6.14 Use of Proceeds; Federal Reserve Regulations............................................ 33
SECTION 6.15 Interest Rate Swaps ...................................................................................... 34
SECTION 6.16 Transfer of Assets ........................................................................................ 34
SECTION 6.17 Selection of Certificates for Prepayment ..................................................... 34
SECTION 6.18 Conversions; Defeasance ............................................................................. 34 SECTION 6.19 Further Assurances ....................................................................................... 34
SECTION 6.20 Bank Disclosure ........................................................................................... 34
SECTION 6.21 Liquidity ....................................................................................................... 34
SECTION 6.22 Appointment of Successors .......................................................................... 35
SECTION 6.23 No Sovereign Immunity ............................................................................... 35 SECTION 6.24 Compliance with Documents ....................................................................... 35
SECTION 6.25 Accounting Method...................................................................................... 35
ARTICLE VII CONDITIONS PRECEDENT TO PURCHASE ................................................. 35
SECTION 7.01 Conditions .................................................................................................... 35
ARTICLE VIII EVENTS OF DEFAULT .................................................................................... 36
SECTION 8.01 Payments ...................................................................................................... 36
SECTION 8.02 Other Payments ............................................................................................ 36
SECTION 8.03 Representations ............................................................................................ 36
SECTION 8.04 Certain Covenants ........................................................................................ 37
SECTION 8.05 Other Covenants ........................................................................................... 37 SECTION 8.06 Judgments..................................................................................................... 37
SECTION 8.07 Insolvency .................................................................................................... 37
SECTION 8.08 Invalidity ...................................................................................................... 37
SECTION 8.09 Ratings Downgrade ...................................................................................... 39
SECTION 8.10 Cross Default................................................................................................ 39 SECTION 8.11 Remedies ...................................................................................................... 39
ARTICLE IX NATURE OF OBLIGATIONS; INDEMNIFICATION ....................................... 43
SECTION 9.01 Obligations Absolute.................................................................................... 43
SECTION 9.02 Continuing Obligation.................................................................................. 43
13046282.5 iii
SECTION 9.03 Liability of the Bank .................................................................................... 43
SECTION 9.04 Indemnification ............................................................................................ 44
ARTICLE X MISCELLANEOUS ............................................................................................... 45
SECTION 10.01 Right of Setoff ............................................................................................ 45 SECTION 10.02 Amendments and Waivers ......................................................................... 45
SECTION 10.03 No Waiver; Remedies ................................................................................ 45
SECTION 10.04 Notices ....................................................................................................... 45
SECTION 10.05 Severability ................................................................................................ 46
SECTION 10.06 GOVERNING LAW; JURY TRIAL ......................................................... 46 SECTION 10.07 Headings..................................................................................................... 46
SECTION 10.08 Participations; Assignment ........................................................................ 46
SECTION 10.09 Extension .................................................................................................... 47
SECTION 10.10 Counterparts ............................................................................................... 47
SECTION 10.11 Completed and Controlling Agreement ..................................................... 47 SECTION 10.12 Term of the Agreement; Survival .............................................................. 48
SECTION 10.13 USA Patriot Act ......................................................................................... 48
SECTION 10.14 Revenue Obligation.................................................................................... 48
EXHIBIT A – NOTICE OF BANK PURCHASE (OPTIONAL TENDER)…………………..A-1 EXHIBIT B – NOTICE OF BANK PURCHASE (MANDATORY TENDER)………………B-1
EXHIBIT C – FORM OF EXTENSION REQUEST…………………………………………..C-1
EXHIBIT D – FORM OF EXTENSION NOTICE…………..………………………………...D-1
EXHIBIT E – FORM OF OPINION OF DISTRICT COUNSEL……………………………...E-1
NIXON DRAFT OF 7/2/10
13046282.6 1
STANDBY CERTIFICATE PURCHASE AGREEMENT
THIS STANDBY CERTIFICATE PURCHASE AGREEMENT, dated as of August
[__], 2010 (as amended and supplemented from time to time, the “Agreement”), by and
between ORANGE COUNTY SANITATION DISTRICT, a county sanitation district organized and existing under the laws of the State of California (including its successors and
assigns, the “District”), and LLOYDS TSB BANK plc, acting through its New York Branch
(including its successors and assigns, the “Bank”). All capitalized terms used herein and not
otherwise defined in connection with such use shall have the meanings set forth in Article I.
WHEREAS, the District and Orange County Sanitation District Financing Corporation, a nonprofit public benefit corporation organized and existing under the laws of the State of
California (including its successors and assigns, the “Corporation”), have entered previously
into a Master Agreement for District Obligations, dated as of August 1, 2000 (as amended and
supplemented from time to time, the “Master Agreement”), in order to establish and declare the
conditions and terms upon which the District may incur obligations payable from the net revenues of its wastewater system and upon which such obligations are to be secured; and
WHEREAS, pursuant to the Master Agreement, the District and the Corporation have
entered previously into an Installment Purchase Agreement, dated as of August 1, 2000 (as
amended and supplemented from time to time, the “Installment Purchase Agreement”),
pursuant to which the District has purchased from the Corporation, and the Corporation has sold to the District, certain improvements to the District’s wastewater system; and
WHEREAS, the Corporation has assigned, without recourse, certain of its rights under
and pursuant to the Installment Purchase Agreement to U.S. Bank National Association, as
successor trustee to State Street Bank and Trust Company of California, N.A. (including any
successors and assigns, the “Trustee”) under the Trust Agreement referred to hereinbelow; and
WHEREAS, pursuant to the Trust Agreement, dated as of August 1, 2000 (as amended
and supplemented from time to time, the “Trust Agreement”), by and among the Trustee, the
District and the Corporation, the Trustee has previously executed and delivered Orange County
Sanitation District Certificates of Participation, Series 2000-A and Series 2000-B (collectively,
the “Certificates”) evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon, payable by the District under the Installment Purchase Agreement; and
WHEREAS, the Certificates may be tendered for purchase at the option of the owners
thereof and, in certain circumstances, are subject to mandatory tender for purchase from such
owners; and
WHEREAS, liquidity support for the Certificates has been provided previously through that certain standby certificate purchase agreement, dated as of August 1, 2000 (as amended and
supplemented to the date hereof, the “Prior Agreement”), pursuant to which Dexia Public
Finance Bank, acting through its New York Agency (the “Prior Bank”), agreed to pay the
Purchase Price of the Certificates that were tendered, but not remarketed, as and to the extent
provided in the Prior Agreement; and
13046282.5 2
WHEREAS, the District has decided to replace the Prior Agreement and has requested
the Bank, and the Bank has agreed and is willing, upon the occurrence of certain events, to enter
into this Agreement with the District in order to continue to provide liquidity for the purchase of
Certificates tendered by the owners thereof which are not remarketed.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to
induce the Bank to enter into this Agreement and purchase Certificates as provided herein, the
District and the Bank hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. As used herein, capitalized terms used and not
otherwise defined herein have the meanings assigned thereto in the Trust Agreement, the
Installment Purchase Agreement or the Master Agreement and the following terms have the
following meanings:
“Accountant” means an independent certified public accountant of a firm of independent certified public accountants, selected by the District and satisfactory to the Bank.
“Act” means Chapter 3 of Part 3 of Division 5, Section 4700 et seq. of the California
Health and Safety Code, as amended from time to time.
“Affiliate” means any other Person controlling or controlled by or under common control with the District. For purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly
or indirectly, whether by contract or otherwise.
“Agreement” has the meaning set forth in the introductory paragraph hereto.
“Alternate Standby Agreement” has the meaning set forth in the Trust Agreement.
“Amortization Commencement Date” means, with respect to any Bank Certificate, the earlier of (a) the 181st day after the Purchase Date with respect to such Bank Certificate and (b)
the Expiration Date; provided that the requirements of Section 3.01(b) shall be met as of such
date.
“Amortization End Date” means, with respect to any Bank Certificate, the earliest of (a) the third (3rd) anniversary of the Amortization Commencement Date, (b) the date an Alternate Standby Agreement first becomes effective, (c) the Maturity Date related to such Bank
Certificate or the date that such Bank Certificate is redeemed, defeased or remarketed, (d) the
Conversion Date, (e) the date that the Available Commitment is permanently reduced to zero or
the District terminates this Agreement, in either case, without delivery of an Alternate Standby Agreement or (f) the date that a Special Event of Default hereunder first occurs.
13046282.5 3
“Amortization Payment Date” means, with respect to any Bank Certificate, (a) the first
Business Day of the third month immediately following the Amortization Commencement Date,
(b) the first Business Day of each third month after the day described in clause (a), and (c) the
Amortization End Date.
“Available Commitment” as of any day means the sum of the Available Principal
Commitment and the Available Interest Commitment, in each case, as of such day.
“Available Interest Commitment” initially means $[2,168,548], which initial amount
equals thirty-four (34) days interest on the initial amount of the Available Principal Commitment
based upon an assumed rate of interest of twelve percent (12%) per annum and a three hundred sixty-five (365) day year and, thereafter, means such initial amount adjusted from time to time as
follows: (a) downward by an amount that bears the same proportion to such initial amount as the
amount of any reduction in the Available Principal Commitment in accordance with clause (a) or
(b) of the definition herein of “Available Principal Commitment” bears to the initial Available
Principal Commitment and (b) upward by an amount that bears the same proportion to such initial amount as the amount of any increase in the Available Principal Commitment in
accordance with clause (c) of the definition herein of “Available Principal Commitment” bears to
the initial Available Principal Commitment.
“Available Principal Commitment” initially means the aggregate principal amount of
the Certificates Outstanding, that is $[194,000,000] and, thereafter, means such initial amount adjusted from time to time as follows: (a) downward by the amount of any mandatory reduction
of the Available Principal Commitment pursuant to Section 2.04 hereof, (b) downward by the
principal amount of any Certificates purchased by the Bank pursuant to Section 2.01 hereof and
(c) upward by the principal amount of any Certificates theretofore purchased by the Bank
pursuant to Section 2.01 hereon which are remarketed (or deemed to be remarketed pursuant to Section 2.05(c) hereof) by the Remarketing Agent (regardless of the Purchase Price received for
such Certificates). Any adjustments to the Available Principal Commitment pursuant to clause
(a), (b) or (c) hereof shall occur simultaneously with the occurrence of the events described in
such clauses.
“Bank” has the meaning set forth in the introductory paragraph hereto.
“Bank Certificate” means any Certificate that has been purchased by the Bank pursuant
to this Agreement until such Certificate has been repaid or defeased in full or has been
remarketed, or deemed to be remarketed, pursuant to Section 2.05(c) hereof in accordance with
the Trust Agreement.
“Bank Certificate Interest Payment Date” has the meaning set forth in Section 3.01(a).
“Bank Certificateowner” means the Bank but only in its capacity as owner (which as
used herein means beneficial owner if at the relevant time Bank Certificates are Book-Entry
Certificates) of Bank Certificates pursuant to this Agreement and any other Person to whom the
Bank has sold Bank Certificates pursuant to Section 2.05(a) hereof.
“Banking Arrangements” means (a) the agreements of the Bank and the District set forth in this Agreement and the Fee Letter and the transactions contemplated hereby and thereby
13046282.5 4
including, without limitation, (i) any commitment to provide any liquidity facility, to purchase
any obligation of or for the benefit of the District, or to extend any other financial
accommodation, (ii) any issuance, extension or maintenance of any of the foregoing and (iii) any
pledge, purchase or carrying of any obligation of or for the benefit of the District, and (b) any participation agreement or similar arrangement entered into in connection with the foregoing.
“Bank Rate” means the following fluctuating interest rates per annum for the following
period from and including the last day of the period or the dates on which amounts bearing such
rates are due to be repaid in full hereunder and under the Fee Letter:
Period Bank Rate Purchase Date through the 180th day
immediately following the Purchase Date
Base Rate
181st day immediately following the
Purchase Date and the last day of the
Commitment Period, whichever occurs first
Base Rate plus 2.00% (the “Term Loan
Rate”)
provided, however, that (a) upon and following the occurrence of an Event of Default hereunder,
all amounts due hereunder and under the Fee Letter shall bear interest in an amount equal to the
Default Rate, (b) at no time shall the Bank Rate exceed the Maximum Rate and (c)
notwithstanding the time periods set forth above, the Bank Rate shall be applicable with respect to all Eligible Certificates purchased by the Trustee with monies advanced by the Bank on the
last day of the Commitment Period from and including such day.
“Base Rate” means, for any day, the highest of: (a) the Prime Rate; (b) the Federal Funds
Rate plus one hundred fifty (150) basis points per annum; (c) the sum of three hundred (300)
basis points per annum plus the LIBOR Reference Rate; and (d) 7.00% per annum. Any change in the Base Rate shall take effect on the date specified in the announcement of such change. Each
determination of the Base Rate by the Bank will be conclusive and binding on the District,
absent manifest error.
“Board” means the Board of Directors of the District.
“Business Day” means a day other than (a) Saturday or Sunday, (b) a day on which banking institutions in the city or cities in which the Principal Office of the Trustee is located,
the principal office of the Remarketing Agent is located or the office of the Bank 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. If the date for
making any payment or the last date for performance (if any act or the exercising of any right, as provided in the Trust Agreement or the Installment Purchase Agreement, shall not be a Business
Day, such payment may be made or act performed or right exercised on the next succeeding
Business Day, with the same force and effect as if done on the nominal date provided in the
Trust Agreement or the Installment Purchase Agreement and, unless otherwise specifically
provided in the Trust Agreement, the Installment Purchase Agreement or the Standby Agreement, interest shall accrue for the period from and after such nominal date.
“Certificates” has the meaning set forth in the recitals hereto.
13046282.5 5
“Change of Law” means the adoption, after the Effective Date, of any rule, regulation or
statute of any Governmental Authority or the application or requirements thereof, or any change
in the interpretation of any rule, regulation or statute by any Governmental Authority.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and all rules and regulations from time to time promulgated thereunder.
“Commitment Period” means the period from the Effective Date hereof to and
including the earliest of (a) the Expiration Date, (b) the date on which the Bank receives notice
from the Trustee that no Certificates are Outstanding, (c) 4:00 p.m. (New York City time) on the
Business Day immediately following the Conversion Date, (d) 4:00 p.m. (New York City time) on the thirtieth (30th) day following the date on which a Notice of Termination is received by the
District and the Trustee pursuant to Section 8.11(c) hereof or, if such thirtieth (30th) day is not a
Business Day, the next succeeding Business Day, (e) the date on which the Bank receives notice
from the Trustee that the Available Commitment has been reduced to zero pursuant to Section
2.04, (f) the date on which there shall occur a Special Event of Default, (g) the date on which the District terminates the Available Commitment pursuant to Section 2.13 hereof, and (h) at 4:00
p.m. (New York City time) on the Business Day immediately following the Substitution Date.
“Conversion Date” means the first date on which none of the Certificates evidence
interest at a Covered Rate.
“Corporation” has the meaning set forth in the recitals hereto.
“Covered Rate” means the Daily Rate or the Weekly Rate.
“Daily Rate” has the meaning set forth in the Trust Agreement.
“Debt” means, with respect to any Person, at any date, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by
Certificates, debentures, notes or other similar instruments, (c) all noncontingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of
credit or similar instrument if such amounts were in respect of borrowed money the payment of
which has not been accelerated, (d) all obligations of such Person as lessee under capital leases,
(e) any final judgment or order for the payment of money in excess of $5,000,000 rendered
against such Person which is not satisfied or stayed within thirty (30) days and (vi) all Debt of others Guaranteed by such Person.
“Default” means any condition or event which constitutes an Event of Default or which,
with the giving of notice or lapse of time or both would, unless cured or waived, become an
Event of Default.
“Default Rate” means Base Rate plus 3.00% per annum.
“Default Tender” means a mandatory tender of the Certificates as a result of the Bank’s
delivery of a Notice of Termination to the Trustee.
13046282.5 6
“Differential Interest Amount” means the excess of (a) interest evidenced by Bank
Certificates accruing at the Bank Rate, as determined in accordance with Section 2.02 hereof, up
to but excluding the Business Day on which such Bank Certificates are purchased from the Bank
Certificateowners pursuant to Section 2.05(c), less (b) interest evidenced by such Certificates received by the Bank Certificateowners as part of the Sale Price.
“District” has the meaning set forth in the introductory paragraph hereto.
“Dollars”, “US$”, and “U.S. Dollars” means the lawful currency of the United States of
America.
“DTC” means The Depository Trust Company and its successors.
“Effective Date” has the meaning set forth in Article IV.
“Eligible Certificates” has the meaning set forth in Section 2.01 hereof.
“Environmental Laws” means any and all federal, state, local, and foreign statutes,
laws, regulations, ordinances, or rules, and all judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, permits, agreements or governmental restrictions relating to air, water or land pollution, wetlands, or the protection of the environment or the release of any
materials into the environment, including air, water or land and those related to Hazardous
Materials, air emissions and discharges to waste or public systems.
“Environmental Liability” means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the District or any of its Affiliates directly or indirectly resulting from or based upon (a) violation of
any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any contract,
agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and all rules and regulations from time to time promulgated thereunder.
“Event of Default” has the meaning set forth in Article VIII.
“Excess Bank Certificate Interest” has the meaning set forth in Section 2.02(b).
“Expiration Date” means the later of (a) 5:00 p.m. (New York City time) on August __,
2012 or, if such day is not a Business Day, the Business Day next preceding such day and (b)
5:00 p.m. (New York City time) on the last day of any extension of such date pursuant to Section
10.09 or, if such day is not a Business Day, the Business Day next preceding such day.
“Extension Notice” is the written notice substantially in the form of Exhibit D hereto.
“Extension Request” is the written request substantially in the form of Exhibit C hereto.
13046282.5 7
“Federal Funds Rate” means, for any day, the per annum rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication, published by the
Federal Reserve Board (including any such successor, “H.15(519)”) for such day opposite the
caption “Federal Funds (Effective)”. If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated
as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor
publication, published by the Federal Reserve Bank of New York (including any such successor,
the “Composite 3:30 p.m. Quotation”) for such day under the caption “Federal Funds Effective
Rate”. If on any relevant day the appropriate rate for such previous day is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day will be the
arithmetic mean as determined by the Bank of the rates for the last transaction in overnight
federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three
leading brokers of federal funds transactions in New York City selected by the Bank. Each
determination of the Federal Funds Rate by the Bank shall be deemed conclusive and binding on the District, absent manifest error.
“Fee Letter” means the letter of even date herewith from the Bank to the District.
“Fitch” means Fitch Inc., or any successor rating agency.
“Governmental Authority” means any national, supra-national, state or local
government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, administrative, public or statutory instrumentality,
authority, body, agency, commission, bureau, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory, fiscal, monetary or administrative powers or
functions of or pertaining to government), or any arbitrator with authority to bind a party at law.
“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);
provided that the term Guarantee shall not include endorsement for collection or deposit in the
ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature regulated pursuant
to any Environmental Law.
“Indemnified Party” has the meaning set forth in Section 9.04.
13046282.5 8
“Installment Purchase Agreement” has the meaning set forth in the recitals hereto.
“Interest Component” has the meaning set forth in Section 2.01.
“Interest Payment Date” has the meaning set forth in the Trust Agreement.
“Investment Grade” means any rating in one of the four highest rating categories of any Rating Agency without regard to numerical designations or the symbols “+” and “-” (i.e.,
currently a rating of “BBB-” (or its equivalent) or better by S&P and Fitch).
“LIBOR Banking Day” means any Business Day on which commercial banks are open
for international business (including dealings in dollar deposits) in London.
“LIBOR Reference Rate” means the “London Interbank Offered Rate” applicable to a three-month interest period on a principal amount approximately equal to the principal amount of
the Bank Certificates, which means the average (rounded upward, if necessary, to the next one
thousandth of 1%) of the rate per annum at which deposits in dollars are offered to the principal
London office of the Bank in the London interbank market at approximately 11:00 a.m. (London
time) on the relevant date of determination, which date shall be a LIBOR Banking Day and, if such date is not a LIBOR Banking Day, the next preceding LIBOR Banking Day.
“Mandatory Purchase” means a mandatory purchase of the Certificates (a) on a
Conversion Date, (b) on each date on which the Certificates are converted from a Daily Rate to a
Weekly Rate or from a Weekly Rate to a Daily Rate and for which notice of said conversion has
been given to the Owners of the Certificates in accordance with the Section 5.03 of the Trust Agreement, and (c) pursuant to Section 5.05 of the Trust Agreement, (i) on the last Business Day
which is at least five (5) days prior to the Expiration Date, (ii) on the fifth (5th) Business Day
following the Trustee’s receipt of a Notice of Termination from the Bank pursuant to Section
8.02 and (iii) if the Certificates are in the Daily Rate or the Weekly Rate, on the last Business
Day which is at least five (5) days prior to the substitution of an Alternate Standby Agreement for this Agreement pursuant to Section 6.02(b) of the Trust Agreement. Notwithstanding the
foregoing, in the event the Commitment Period terminates as a result of a Special Event of
Default, the Certificates shall not be subject to a Mandatory Purchase.
“Master Agreement” has the meaning set forth in the recitals hereto.
“Maturity Date” means the date when the final principal amount is due and payable with respect to a Certificate.
“Maximum Rate” means 12.00% per annum.
“MSRB” means the Municipal Securities Rulemaking Board and any successor thereto.
“Notice of Bank Purchase” means (a) in the case of a purchase of Certificates by the
Bank as a result of an optional tender, a notice in the form of Exhibit A attached hereto and incorporated herein by this reference, or (b) in the case of a purchase of Certificates by the Bank
as a result of a Mandatory Purchase, a notice in the form of Exhibit B attached hereto and
incorporated herein by this reference.
13046282.5 9
“Notice of Termination” has the meaning set forth in Section 8.11(c) hereof.
“Other Debt Documents” has the meaning set forth in Section 6.08.
“Other Taxes” has the meaning set forth in Section 2.08.
“Outstanding” has the meaning set forth in the Trust Agreement.
“Parity Creditor” has the meaning set forth in Section 6.08.
“Participant” means any bank or other financial institution which may purchase a
participation interest from the Bank in this Agreement and certain of the Related Documents
pursuant to a participation agreement between the Bank and the Participant.
“Patriot Act” has the meaning set forth in Section 10.13.
“Person” means any natural person, corporation, partnership, limited liability company,
association, trust, joint venture, public body or other legal entity.
“Plan” means any employee benefit plan, program, arrangement, practice or contract
maintained for employees or former employees of the District or any Affiliate.
“Prime Rate” means, for any day, the rate per annum announced by the Bank from time to time as its “prime rate” for U.S. Dollar loans, or equivalent in the United States, as is in effect
on such day, any change in such rate to be effective on the date such change is effective, it being
understood that such rate shall not necessarily be the best or lowest rate of interest available to
such Bank’s best or most preferred prime, large commercial customers. Each determination of
the Prime Rate by the Bank will be conclusive and binding on the District, absent manifest error.
“Prior Agreement” has the meaning set forth in the recitals hereto.
“Prior Bank” has the meaning set forth in the recitals hereto.
“Purchase Date” has the meaning set forth in Section 2.03.
“Purchase Notice” has the meaning set forth in Section 2.05(b).
“Purchase Price” means with respect to any Certificates or portion thereof bearing interest at a Covered Rate, the unpaid principal amount thereof, plus interest accrued thereon, from the prior Interest Payment Date to but excluding the Purchase Date thereof, in each case,
without premium; provided that accrued interest will not be taken into account in the
computation of the Purchase Price if the applicable Purchase Date is an Interest Payment Date
and provided further that the aggregate amount of Purchase Price constituting the Interest Component shall not exceed the amount specified in Section 2.01.
“Purchaser” has the meaning set forth in Section 2.05(b).
“Rating Agency” means S&P or Fitch.
13046282.5 10
“Rating Category” means one of the rating categories of any of the Rating Agencies,
without regard to any refinement or graduation of such rating category by a numerical modifier,
plus or minus, or otherwise.
“Related Documents” means the Trust Agreement, the Master Agreement, the Installment Purchase Agreement, the Fee Letter, the Remarketing Agreement and the Certificates
and shall include all amendments and supplements thereto.
“Remarketing Agent” means the remarketing agent at the time serving as such under
the Remarketing Agreement, initially Merrill Lynch, Pierce, Fenner & Smith Incorporated.
“Remarketing Agreement” means the Remarketing Agreement dated of even date herewith between the District and the Remarketing Agent, including such amendments and
supplements thereto as are permitted pursuant to Section 6.12.
“Remarketing Memorandum” means the Remarketing Memorandum relating to the
Certificates (including the cover page and all summary statements, appendices and other
materials included or incorporated by reference or attached thereto), as amended or supplemented, or any other offering document of the District used with respect to the
remarketing of the Certificates or any supplement thereto.
“Sale Date” has the meaning set forth in Section 2.05(b).
“Sale Price” has the meaning set forth in Section 2.05(b).
“S&P” means Standard & Poor’s Ratings Services, Inc., a division of The McGraw Hill Companies, Inc., or any successor rating agency.
“Senior Obligations” means Senior Bonds and Senior Certificates (other than the
Certificates), as both of said terms are defined in the Master Agreement, and shall include
regularly scheduled payments made pursuant to Financial Contracts (as such term is defined in
the Master Agreement) entered into with respect to Senior Bonds, Senior Certificates and the Certificates.
“Series 2000 Creditor” has the meaning set forth in Section 6.08.
“Special Event of Default” means any Event of Default specified in Section 8.01(a),
8.06, 8.07(a), 8.07(d), 8.07(e), 8.08(a), 8.08(b), 8.08(c), 8.08(f), 8.09 or 8.10(b) hereof, subject to
any limitations thereon as provided in Sections 8.11(a) and 8.11(b) hereof.
“State” means the State of California.
“Subordinate Obligations” shall have the meaning assigned thereto in the Master
Agreement.
“Substitution Date” means the date that an Alternate Standby Agreement has been
delivered to the Trustee and become effective pursuant to the Trust Agreement with respect to the Certificates in replacement of this Agreement.
13046282.5 11
“Suspension Event” means an Event of Default as described in Section 8.07(b)(i),
8.08(d) or 8.08(e) hereof or a Default as described in Section 8.07(b)(ii) or 8.07(c) hereof,
subject to the provisions of Section 8.11(b) hereof.
“Taxes” has the meaning set forth in Section 2.08.
“Term Loan Rate” means the Base Rate plus 2.00% per annum.
“Termination Date” has the meaning assigned to such term in Section 8.11(b)(i) hereto.
“Trust Agreement” has the meaning assigned thereto in the recitals hereof, including
such amendments and supplements thereto as are permitted pursuant to Section 6.12.
“Trustee” has the meaning set forth in the recitals hereto.
“Weekly Rate” has the meaning set forth in the Trust Agreement.
“Withheld Funds Rate” means the higher of (a) Prime Rate plus one hundred (100)
basis points per annum and (b) the sum of four hundred (400) basis points per annum plus the
LIBOR Reference Rate.
SECTION 1.02 Accounting Matters. All accounting terms used herein without definition shall be interpreted in accordance with generally accepted accounting principles, and
except as otherwise expressly provided herein all accounting determinations required to be made
pursuant to this Agreement shall be made in accordance with generally accepted accounting
principles.
SECTION 1.03 Interpretation. All words used herein shall be construed to be of such gender or number as the circumstances require. Reference to any document means such
document as amended or supplemented from time to time as permitted hereunder. References
herein to Articles or Sections shall be references to the corresponding Articles and Sections of
the Agreement unless otherwise provided.
SECTION 1.04 Relation to Other Documents. Nothing in this Agreement shall be deemed to amend, or relieve the District of any of its obligations under, any Related Document.
To the extent any provision of this Agreement conflicts with any provision of any other
Related Document to which the District and the Bank are parties, the provisions of this
Agreement shall control.
ARTICLE II COMMITMENT TO PURCHASE CERTIFICATES
SECTION 2.01 Commitment to Purchase Certificates. Subject to the terms and
conditions of this Agreement, the Bank hereby agrees from time to time during the Commitment
Period to purchase, at the Purchase Price, with immediately available funds, Certificates which evidence interest at a Covered Rate and which are not Bank Certificates or Certificates owned by
13046282.5 12
or on behalf of, or for the account of, the District or any of its Affiliates or their successors and
assigns (“Eligible Certificates”) which are tendered pursuant to (i) an optional tender or (ii) a
Mandatory Purchase and which the Remarketing Agent has been unable to remarket. The Bank
will pay said Purchase Price with its own funds. The aggregate principal amount (or portion thereof) of any Certificate purchased on any Purchase Date shall be an Authorized Denomination
and, in any case, the aggregate principal amount of all Certificates purchased on any Purchase
Date shall not exceed the Available Principal Commitment (calculated without giving effect to
any purchase of Certificates by the Bank on such date) at 10:00 a.m. (New York City time) on
such date. The aggregate amount of the Purchase Price comprising interest on Certificates (the “Interest Component”) purchased on any Purchase Date shall not exceed the lesser of (a) the
Available Interest Commitment on such date and (b) the actual aggregate amount of interest
evidenced by each such Certificate through and including such Purchase Date.
SECTION 2.02 Bank Certificates; Excess Bank Certificate Interest.
(a) Any Certificates purchased by the Bank pursuant to Section 2.01 shall thereupon constitute Bank Certificates and have all of the characteristics of Bank Certificates as
set forth herein, including in Section 3.01, and in the Trust Agreement. All Bank Certificates
shall evidence interest at the Bank Rate for the period commencing from the Purchase Date and
continuing until such Certificate is paid in full or remarketed as provided herein.
(b) In the event that the average Bank Rate accruing on any Bank Certificates during any period exceeds the Maximum Rate for such period, the Bank shall receive interest on
account of Bank Certificates only at the Maximum Rate for such period (the difference between
(a) the interest payable to the Bank if the Bank Certificates had continuously borne interest at the
Bank Rate and (b) the interest actually paid to the Bank at the Maximum Rate is referred to
below as the “Excess Bank Certificate Interest”). Notwithstanding any subsequent reduction in the Bank Rate, Bank Certificates shall continue to evidence interest from and after the date on
which any Excess Bank Certificate Interest would have accrued but for the limitation on interest
accruing above the Maximum Rate, at the Maximum Rate until the date on which the interest
paid to the Bank on Bank Certificates in excess of the Bank Rate equals such Excess Bank
Certificate Interest; provided, that, upon termination of this Agreement, in consideration for the limitation of the rate of interest otherwise payable hereunder and under the Fee Letter, the
District shall pay from the sources described in Section 5.01(k) and Section 10.14 hereof, to the
extent permitted by law, the Bank a fee equal to the amount of all unpaid Excess Bank
Certificate Interest. To the extent permitted by law, interest evidenced by Bank Certificates shall
accrue on, and be payable by the District from Installment Payments with respect to, all unpaid Excess Bank Certificate Interest at a rate per annum equal to the Bank Rate. The District shall
pay Installment Payments in such amounts so as to pay to the Bank Certificateowner accrued
interest, including any accrued but unpaid Excess Bank Certificate Interest, evidenced by Bank
Certificates as provided in Section 3.1 hereof. On any date on which Excess Bank Certificate
Interest is due and payable, the Bank shall notify the District and the Trustee as to the amount of such Excess Bank Certificate Interest due on such date, together with any interest accrued and
payable thereon; provided, that the failure of the Bank to so notify the District or the Trustee
shall not affect the accrual of or obligation of the District to pay such Excess Bank Certificate
Interest.
13046282.5 13
(c) All amounts owed to the Bank with respect to Bank Certificates (including
unpaid Excess Bank Certificate Interest, if any) shall become immediately due and payable on
the final day of the Commitment Period.
SECTION 2.03 Method of Purchasing.
(a) The Trustee shall give notice by telephone or telecopier, promptly
confirmed by a written Notice of Bank Purchase in the form of Exhibit A or Exhibit B, as
appropriate, to the Bank, pursuant to an optional tender or a Mandatory Purchase, no later than
11:30 a.m. (New York City time) on the Business Day on which Certificates are subject to an
optional tender or Mandatory Purchase. If the Bank receives such notice as provided above, and subject, in each case, to the satisfaction of the conditions set forth in Section 7.01, the Bank will
transfer to the Trustee not later than 2:00 p.m. (New York City time) on such date (a “Purchase
Date”), in immediately available funds, an amount equal to the aggregate Purchase Price of all
or such portion of such Eligible Certificates as requested from the Trustee. The Bank shall have
no responsibility for, nor incur any liability in respect of, any act, or any failure to act, by the Trustee which results in the failure of the Trustee to effect the purchase of Certificates for the
account of the Bank with such funds pursuant to this Section 2.03(a) or otherwise. Certificates
purchased pursuant to this Section 2.03(a) shall be registered in the name of the Bank or, if
directed in writing by the Bank, its nominee or designee on the Certificate Register and shall be
held in trust by the Trustee for the benefit of the Bank. If the Certificates purchased pursuant to this Section 2.03(a) are Book-Entry Certificates, the beneficial ownership of such Certificates
shall be credited to the account of the Bank or, if directed in writing by the Bank, a nominee or
designee of the Bank, maintained at DTC, and such Certificates shall be registered in the name of
the Bank or its nominee or designee on the Certificate Register. Prior to the sale of any Bank
Certificate by the Bank as provided in Section 2.05(a), the Bank agrees to give all notices in the manner and by the time required by DTC to exclude such Bank Certificate from Mandatory
Purchases of Certificates. The Interest Component of such Certificates shall be paid to the Bank
as provided in Section 3.01.
(b) If the Bank receives a Notice of Bank Purchase after 11:30 a.m. (New
York City time) on a Purchase Date from the Trustee, the Bank, subject to satisfaction of the conditions provided in Section 7.01 hereof, will transfer to the Trustee at or before 2:00 p.m.
(New York City time) on the Business Day immediately following the Purchase Date specified
in such notice, in immediately available funds, an amount equal to the aggregate Purchase Price
of Eligible Certificates tendered or deemed tendered on such Purchase Date. In such event, all
other provisions of Section 2.03(a) shall apply to the purchase and registration of Bank Certificates after the delivery of a Notice of Bank Purchase and transfer of funds as set forth
herein.
(c) In the event that any funds paid by the Bank to the Trustee pursuant to
Section 2.03(a) shall not be required to be applied to purchase Certificates as provided herein,
such funds shall be held and be returned to the Bank as soon as practicable by the Trustee and, until so returned, shall be held in trust by the Trustee for the account of the Bank. In the event
that such funds are not returned to the Bank in immediately available funds by 4:00 p.m. (New
York City time) on the same day on which such funds were advanced, the District shall pay or
cause to be paid to the Bank interest on such funds, payable on demand, at the Withheld Funds
13046282.5 14
Rate, if repaid within one (1) Business Day of the date when due and, thereafter, at the Default
Rate. The Bank shall notify the District in the event any such funds are not returned on the day
on which such funds were advanced.
(d) Notwithstanding any provisions of this Section 2.03 to the contrary, the Bank and DTC may cause the transfer of funds and the transfer of any Bank Certificate as
described in this Section 2.03 on the basis of delivery versus payment or by such other means as
shall be acceptable to the Bank, the Trustee and DTC and not contrary to the Trust Agreement.
SECTION 2.04 Mandatory Reductions of Available Commitment.
(a) Upon (i) any redemption, repayment or other payment of all or any portion of Installment Payments by the District so that a commensurate principal amount of the
Certificates shall cease to be Outstanding, the aggregate Available Principal Commitment shall,
subject to Section 2.04(c) below, be reduced by the principal amount of such Certificates so
prepaid or otherwise deemed paid, as the case may be, or (ii) the close of business no sooner than
the Business Day immediately following the Conversion Date, the aggregate Available Principal Commitment shall, subject to Section 2.04(c) below, be reduced to zero and, in the case of either
clause (i) or (ii) above, the Available Interest Commitment shall also be simultaneously reduced
as provided in the definition thereof in Article I hereof; provided, however, that (y) in the event
any action described in clause (i) or (ii) above results in a reduction of the Available
Commitment to zero, all obligations of the District hereunder and under the Fee Letter including, without limitation, all principal and interest evidenced by Bank Certificates and all amounts
payable under Article III hereof, shall be paid to the Bank up to and including the time of said
reduction as described in the notice set forth in Section 2.04(c) below and (z) in the event any
action described in clause (i) or (ii) above results in a reduction of the Available Commitment to
less than zero, all obligations of the District under the Fee Letter shall be paid to the Bank up to and including the time of said reduction as described in the Fee Letter.
(b) The Available Commitment shall, subject to Section 2.04(c) below,
terminate at the close of business no sooner than the Business Day immediately following the
Substitution Date. The District shall comply with the requirements of the Trust Agreement with
respect to the delivery of an Alternate Standby Agreement.
(c) In connection with any reduction or termination of the Available
Commitment as described in Sections 2.04(a) and (b) above, the Trustee shall provide the Bank
with written notice of the effective date of such reduction or termination and, unless and until
said notice is received by the Bank, the Available Commitment shall not be deemed reduced
and/or terminated pursuant to the terms of Sections 2.04(a) and (b).
(d) Except as specifically provided in this Section 2.04 and Section 2.13, the
District shall have no right to reduce or terminate the Available Commitment
SECTION 2.05 Sale of Bank Certificates.
(a) Right to Sell Bank Certificates. The Bank expressly reserves the right to
sell, at any time, Bank Certificates subject, however, to the express terms of this Agreement and the Trust Agreement. The Bank agrees that such sales (other than sales made pursuant to Section
13046282.5 15
2.05(c)) will be made only to institutional investors or other entities or individuals which
customarily purchase commercial paper or tax-exempt securities in large denominations. The
Bank agrees to notify the District, the Trustee and the Remarketing Agent promptly of any such
sale (other than a sale made pursuant to Section 2.05(c)) and, if such Bank Certificate is a Book-Entry Certificate, specifying the account at DTC to which such Bank Certificate is credited; and
to notify the transferee in writing that such Certificate is no longer an Eligible Certificate and
may not carry a short-term rating from any Rating Agency so long as it remains a Bank
Certificate. Any Bank Certificateowner purchasing a Bank Certificate from the Bank shall be
deemed to have agreed (i) not to sell such Bank Certificate to any Person except the Bank, a Person to whom the Bank is permitted to sell such Bank Certificates or a Purchaser identified by
the Remarketing Agent pursuant to Section 2.05(b) and (ii) if such Bank Certificate is a Book-
Entry Certificate, to give all notices in the manner and by the time required by DTC to exclude
such Bank Certificate from Mandatory Purchases of Certificates while it remains a Bank
Certificate. Prior to selling a Bank Certificate to a Bank Certificateowner, the Bank shall obtain a written acknowledgment from such Bank Certificateowner stating that such Bank
Certificateowner has no right to tender the Bank Certificate except as provided herein and that
the Remarketing Agent is authorized to sell such Bank Certificates on behalf of such Bank
Certificateowner pursuant to Sections 2.06 and 5.07 of the Trust Agreement.
(b) Purchase Notices. Prior to 12:00 noon (New York City time) on any Business Day on which a Bank Certificateowner holds Bank Certificates, unless the Bank has delivered a Notice of Termination, the Remarketing Agent may deliver a notice (a “Purchase
Notice”) to a Bank Certificateowner as registered on the Certificate Register and to the Bank,
stating that it has located a purchaser (the “Purchaser”) for some or all of such Bank Certificates
and that such Purchaser desires to purchase on the Business Day following the date on which a Bank Certificateowner receives a Purchase Notice (a “Sale Date”) an Authorized Denomination of such Certificates at a price of par plus unpaid accrued interest thereon from and including the
Purchase Date to but excluding the Sale Date at the interest rate or rates applicable during such
period to Certificates which are not Bank Certificates (the “Sale Price”).
(c) Sale of Bank Certificates. A Bank Certificateowner shall decide whether to sell any Bank Certificates to any Purchaser and shall give notice of such decision to the District and the Remarketing Agent by 4:00 p.m. (New York City time) on the Business Day
preceding the Sale Date. In the event such notice is not timely delivered by a Bank
Certificateowner, such Bank Certificateowner shall be deemed to have determined to sell such
Bank Certificates to a Purchaser on the Sale Date (subject to receipt by it of the funds called for by the next following sentence). If a Bank Certificateowner determines or is deemed to have determined to sell such Bank Certificates to a Purchaser, such Bank Certificateowner shall
deliver such Bank Certificates to the Trustee (or, in the case of Bank Certificates which are
Book-Entry Certificates, shall cause the beneficial ownership thereof to be credited to the
account of the Remarketing Agent at DTC) by 10:00 a.m. (New York City time) on the Sale Date against receipt of the Sale Price therefor in immediately available funds at the Bank’s address referred to in Section 2.11 hereof or at the Bank Certificateowner’s address listed in the
Certificate Register, and such Certificates shall thereupon no longer be considered Bank
Certificates and such Certificates shall cease to evidence interest at the Bank Rate and shall
evidence interest at the rate provided for in the Trust Agreement and the Certificates for Certificates which are not Bank Certificates. When Bank Certificates are purchased in
13046282.5 16
accordance with this Section 2.05(c), the Trustee shall, upon receipt of such Bank Certificates
and upon receipt by such Bank Certificateowner of the Sale Price, notify the District that such
Certificates are no longer Bank Certificates. The Differential Interest Amount of such
Certificates shall be paid to the Bank as provided in Section 3.01. The Bank hereby agrees to provide notice to the Trustee (which may be by telecopy) when it has received the Sale Price of
Bank Certificates that are sold pursuant to this Section 2.05(c) that states that it has received
payment in full in immediately available funds of the Sale Price of Bank Certificates that have
been remarketed pursuant to the provisions of the Trust Agreement, and that the Available
Commitment has been increased in an amount equal to the principal evidenced by such Bank Certificates, plus interest evidenced thereby at the rate and for the number of days specified
herein, and that such Bank Certificates may be released. Any sale of a Bank Certificate pursuant
to this Section 2.05 shall be without recourse to the seller and without representation or warranty
of any kind. If a Bank Certificateowner notifies the Trustee and the Remarketing Agent, as
provided in the first sentence of this Section 2.05(c), that it will not sell its Bank Certificates, the Trustee shall notify the District, the Remarketing Agent, the Bank and such Bank
Certificateowner that, as of the Sale Date, such Certificate or Certificates shall no longer
constitute Bank Certificates and such Certificates shall be deemed to have been remarketed and
the Available Commitment shall be appropriately increased and the Bank shall provide written
notification to the Trustee.
(d) Continuing Obligation. Following any sale of Bank Certificates pursuant
to Section 2.05(c) or otherwise or any election to retain Certificates pursuant to Section 2.05(c),
the Bank and each Bank Certificateowner shall retain the right to receive Installment Payments
from the District evidencing unpaid Differential Interest Amount as provided in Section 3.1
hereof and in the Trust Agreement.
(e) Delivery Versus Payment. Notwithstanding any provisions of this
Section 2.05 to contrary, the Bank and DTC may cause the transfer of any Bank Certificate and
the transfer of any funds described in this Section 2.05 on the basis of delivery versus payment or
by such other means as shall be acceptable to the Bank, the Trustee and DTC and not contrary to
the Trust Agreement.
SECTION 2.06 Rights of Bank Certificateowners.
Upon purchasing Bank Certificates, Bank Certificateowners shall be entitled to and,
where necessary, shall be deemed assigned all rights and privileges accorded Certificateholders,
except to the extent such rights and privileges conflict with this Agreement, in which case, the
terms of this Agreement shall prevail and govern. Upon purchasing Bank Certificates, Bank Certificateowners shall be recognized by the District and the Trustee as the true and lawful
owners (or, in the case of Book-Entry Certificates, beneficial owners) of the Bank Certificates,
free from any claims, liens, security interests, equitable interests and other interests of the
District, except as such interests might exist under the terms of the Bank Certificates with respect
to all owners (or, in the case of Book-Entry Certificates, beneficial owners).
SECTION 2.07 Fees.
13046282.5 17
The District shall pay to the Bank the fees, expenses and other amounts described in the
Fee Letter at the times specified in the Fee Letter, the terms of which are hereby incorporated by
reference.
SECTION 2.08 Net of Taxes, Etc.
(a) Taxes. To the maximum extent permitted by law, any and all payments to
the Bank by the District hereunder and under the Fee Letter shall be made free and clear of and
without deduction for any and all taxes, levies, imposts, deductions, charges or withholdings
imposed as a result of a Change of Law, and all liabilities with respect thereto, excluding taxes
imposed on or measured by the net income or capital of the Bank by any jurisdiction or any political subdivision or taxing authority thereof or therein solely as a result of a connection
between the Bank and such jurisdiction or political subdivision, other than a connection resulting
solely from executing, delivering or performing its obligations or receiving a payment under, or
enforcing, this Agreement and the Fee Letter (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If, as a result of a Change of Law, the District shall be required by law to withhold or deduct any
Taxes imposed by the United States or any political subdivision thereof from or in respect of any
sum payable hereunder or under the Fee Letter to the Bank to the maximum extent permitted by
law, (i) the sum payable shall be increased as may be necessary so that, after making all required
deductions (including deductions applicable to additional sums payable under this Section 2.08 and under the Fee Letter), the Bank receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the District shall make such deductions and (iii) the
District shall pay the full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law. If the District shall make any payment under this Section 2.08
or under the Fee Letter to or for the benefit of the Bank with respect to Taxes and if the Bank shall receive any refund in respect of such Taxes, then the Bank shall pay, to the maximum
extent permitted by law, to the District an amount equal to the amount of such refund; provided
that the aggregate amount payable by the Bank pursuant to this sentence shall not exceed the
aggregate amount previously paid by the District with respect to such Taxes. In addition, to the
maximum extent permitted by law, the District agrees to pay any present or future stamp, recording or documentary taxes and, if as a result of a Change of Law, any other excise or
property taxes, charges or similar levies that arise under the laws of the United States of America
or the State of California from any payment made hereunder and the Fee Letter or from the
execution or delivery or otherwise with respect to this Agreement and the Fee Letter (hereinafter
referred to as “Other Taxes”). The Bank shall provide to the District, within sixty (60) days of receipt by the Bank, a copy of any written notification with respect to Other Taxes owing by the
District to the Bank hereunder or under the Fee Letter; provided that the Bank’s failure to send
such notice shall not relieve the District of its obligation to pay such amounts hereunder and
under the Fee Letter.
(b) Stamp Taxes, etc. The District shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery,
filing and recording of this Agreement, the Related Documents and such other documents and
agrees to save the Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
13046282.5 18
(c) Indemnity. The District shall, to the maximum extent permitted by law,
indemnify the Bank for the full amount of Taxes and Other Taxes including any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this Section 2.08 paid by the Bank
or any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted; provided
that the District shall not be obligated to indemnify the Bank for any penalties, interest or
expenses relating to Taxes or Other Taxes arising from the Bank’s gross negligence or willful
misconduct. The Bank agrees to give notice to the District of the assertion of any claim against
the Bank relating to such Taxes or Other Taxes as promptly as is practicable after being notified of such assertion; provided that the Bank’s failure to notify the District promptly of such
assertion shall not relieve the District of its obligation under this Section 2.08; except to the
extent that such failure has prejudiced the ability of the District to defend such claim, payments
by the District pursuant to this indemnification shall be made within thirty (30) days from the
date the Bank makes written demand therefor, which demand shall be accompanied by a certificate describing in reasonable detail the basis thereof. The Bank agrees to repay to the
District any refund (including that portion of any interest that was included as part of such
refund) with respect to Taxes or Other Taxes paid by the District pursuant to this Section 2.08
received by the Bank for Taxes or Other Taxes that were paid by the District pursuant to this
Section 2.08.
(d) Notice. Within sixty (60) days after the date of any payment of Taxes by
the District, the District shall furnish to the Bank the original or a certified copy of a receipt
evidencing payment thereof. To the extent permitted by law, the District shall compensate the
Bank for all reasonable losses and expenses sustained by the Bank as a result of any failure by
the District to so furnish such copy of such receipt.
(e) Survival of Obligation. The obligations of the District under this Section
2.08 and the Fee Letter shall survive the termination of this Agreement.
SECTION 2.09 Default Rate. The District agrees to pay to the Bank interest on
any and all amounts owed by it under this Agreement and the Fee Letter from and after the
earlier of (a) the occurrence of an Event of Default and (b) the date such amounts are due and payable but not paid until payment thereof in full, at a fluctuating interest rate per annum
(computed on the basis set forth in Section 2.11 hereof) equal to the Default Rate.
SECTION 2.10 Yield Equivalency.
(a) Costs. In the event that, after the Effective Date, the application,
enactment or adoption of, or any change in, any law, rule, regulation, treaty, guideline or directive, or the occurrence of the effective date of any law, rule, regulation, treaty, guideline or
directive, or any provision thereof enacted or adopted on the date of the execution hereof but
which has not yet become effective, or the application, interpretation or enforcement of any of
the foregoing by any court, central bank, administrative or governmental authority charged with
the administration thereof (whether or not having the force of law) shall:
(i) limit the deductibility of interest on funds obtained by the Bank to
pay any of its liabilities or subject the Bank to any tax, duty, charge, deduction or
13046282.5 19
withholding on or with respect to payments relating to the Certificates or any Banking
Arrangements, or any amount paid or to be paid by the Bank hereunder and under the Fee
Letter (other than any tax measured by or based upon the overall net income of the Bank
imposed by any jurisdiction having authority over the Bank);
(ii) impose, modify, require, make or deem applicable to the Bank any
reserve requirement, capital requirement, special deposit requirement, insurance
assessment or similar requirement against any assets held by, deposits with or for the
account of, or loans or commitments by, a domestic office of the Bank;
(iii) change the basis of taxation of payments due the Bank under this Agreement and the Fee Letter, the Certificates or any Banking Arrangements (other than
by a change in taxation of the overall net income of the Bank); or
(iv) impose upon the Bank any other condition with respect to any
amount paid or payable to or by the Bank or with respect to this Agreement and the Fee
Letter, the Certificates or any Banking Arrangements;
and the result of any of the foregoing shall be to increase the cost to the Bank of extending,
issuing or maintaining any of the Banking Arrangements or to reduce any amount (or the
effective return on any amount) received or receivable by the Bank in connection with the
Banking Arrangements (which increase in cost or reduction in yield shall be the result of the
Bank’s reasonable allocation, in a nondiscriminatory manner among borrowers having obligations to the Bank similar to those of the District, of the aggregate of such cost increases or
yield reductions resulting from such event), then, within thirty (30) days of written demand by
the Bank, the District shall pay to the Bank, from time to time as specified by the Bank,
additional amounts which shall be sufficient to compensate the Bank for all such increased costs
or reductions in yield. Notwithstanding the foregoing, no Participant shall be entitled to any such additional amount from the District in excess of that to which the Bank would have been
entitled had the Bank not granted such Participant a participation in this Agreement. The Bank
shall submit to the District, at or prior to the making of each such demand, a certificate setting
forth in reasonable detail such increased costs or yield reduction incurred by the Bank or such
Participant as a result of any of the foregoing.
(b) Capital Adequacy. If the Bank shall have determined that the adoption
after the date hereof of any applicable law, rule, regulation or guideline adopted pursuant to or
arising out of the August 1988 report of the Basle Committee on Banking Regulations and
Supervisory Practices entitled “International Convergence of Capital Measurement and Capital
Standards,” or the adoption of any other law, rule, regulation or guideline (whether or not having the force of law) regarding capital adequacy by any Governmental Authority having regulatory
jurisdiction over the Bank, or any change in applicable law, rule, regulation or guideline, as the
case may be, or any change in the enforcement or interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration thereof, or compliance
by the Bank (or any lending office thereof) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, has or
would have the effect of reducing the rate of return on capital of the Bank as a consequence of its
obligations hereunder or its purchase of Eligible Certificates pursuant hereto to a level below that
13046282.5 20
which the Bank could have achieved but for such adoption, change or compliance (taking into
consideration the policies of the Bank with respect to capital adequacy) by an amount deemed by
the Bank to be material, then within thirty (30) days after demand by the Bank, the District shall
pay to the Bank from time to time, as specified by the Bank, such additional amount or amounts as will compensate the Bank for such reduction from the date of such adoption, change or
compliance with respect to such law, rule, regulation, guideline, request or directive, together
with interest on each such amount from the date payment is due until the earlier of the date of
payment in full thereof or the thirtieth (30th) day after which such payment is due, at the Bank
Rate and, thereafter, at the Default Rate.
(c) Payment. Each demand for compensation pursuant to Section 2.10(a) or
2.10(b) shall be accompanied by a certificate of the Bank in reasonable detail setting forth the
computation of such compensation (including the reason therefor), which certificate shall be
conclusive, absent manifest error, as against all other Persons, including, without limitation, the
District and any Participant. The amounts owed by the District as compensation to the Bank pursuant to this Section 2.10 shall be calculated as though the Bank were the holder of all Bank
Certificates and without regard to any sales of Bank Certificates by the Bank pursuant to Section
2.05 or to any assignments or participations made by the Bank with regard to its obligations or
rights hereunder or with regard to Bank Certificates.
(d) Continuing Costs. If such costs are to be incurred on a continuing basis and the District shall be so notified by the Bank in writing as to the amount thereof, then such costs shall be payable by the District to the Bank on each Bank Certificate Interest Payment Date
to the extent therefore incurred.
(e) Survival of Obligations. The obligations of the District under this
Section 2.10 shall survive the termination of this Agreement and the payment in full of the Bank Certificates and the other obligations of the District hereunder and under the Fee Letter.
SECTION 2.11 Computations; Method of Payment. Fees, interest (including
interest on Bank Certificates) and other amounts payable hereunder and under the Fee Letter
shall be computed on the basis of the actual number of days elapsed and a year of 365 or 366
days, as the case may be; provided, that the Facility Fee (as defined in the Fee Letter) shall be computed on the basis of a 360-day year over the actual number of days elapsed. All payments
by the District to the Bank hereunder shall be nonrefundable and made in lawful currency of the
United States and in immediately available funds. Amounts payable to the Bank hereunder shall
be transferred to: Lloyds TSB Bank plc, New York, c/o Bank of America, New York, 100 W.
33rd Street, New York, NY [ZIP CODE TO COME], ABA # 026009593, for the account of Lloyds TSB Bank plc (Acct. #6550101938), Ref: Orange County Sanitation District
(CUSTOMER #: [________]) (or to such other account of the Bank as the Bank may specify by
written notice to the District and the Trustee) not later than 4:00 p.m. (New York City time) on
the date payment is due. Any payment received by the Bank after 4:00 p.m. (New York City
time) shall be deemed to have been received by the Bank on the next Business Day. If any payment hereunder and under the Fee Letter is due on a day that is not a Business Day, then such
payment shall be due on the immediately succeeding Business Day.
13046282.5 21
SECTION 2.12 Maintenance of Accounts. The Bank shall maintain in accordance
with its usual practice an account or accounts evidencing the obligations of the District and the
amounts payable and paid from time to time hereunder and under the Fee Letter. In any legal
action or proceeding in respect of this Agreement, the entries made in such account or accounts shall be presumptive evidence of the existence and amounts of the obligations of the District
therein recorded. The failure to record any such amount shall not, however, limit or otherwise
affect the obligations of the District hereunder and under the Fee Letter to repay all amounts
owed hereunder and under the Fee Letter, together with all interest accrued thereon, as provided
in this Article II.
SECTION 2.13 Voluntary Termination. Upon (a) providing the Bank with fifteen
(15) days prior written notice, (b) paying to the Bank all costs, fees and payments due hereunder
and under the Fee Letter and (c) paying to the Bank all principal and interest evidenced by any
Bank Certificates (including, without limitation, any Differential Interest Amount and Excess
Bank Certificate Interest then due and owing), the District cause the Commitment Period to end. In addition to satisfying the conditions to such termination as set forth in the immediately
preceding sentence, the District shall comply with the requirements of the Trust Agreement with
respect to the termination of Available Commitment.
ARTICLE III
BANK CERTIFICATES
SECTION 3.01 Interest; Prepayment; CUSIP Numbers and Ratings.
(a) Interest due on Bank Certificates. Notwithstanding anything to the
contrary contained in such Certificate, the District agrees that, each purchase of an Eligible
Certificate by the Bank pursuant to Section 2.03 hereof shall result in the creation of a Bank Certificate. Interest evidenced by any Bank Certificate will accrue as set forth in Section 2.02
hereof and be due and payable on the first Business Day of each month and, if applicable, on the
Amortization End Date (each such date being referred to herein as a “Bank Certificate Interest
Payment Date”). The Bank shall use its best efforts to notify the District and the Trustee of the
amount of interest evidenced by each Bank Certificate on the Business Day prior to the date on which such amount is due.
(b) Mandatory Prepayment of Bank Certificates. If, on an Amortization
Commencement Date, (i) the representations and warranties contained in Article V of this
Agreement and in each other Related Document and certificate or other writing delivered to the
Bank pursuant hereto in connection with the transactions contemplated by this Agreement shall be true and correct, and (ii) no Event of Default or Default shall have occurred and be continuing hereunder, the District will prepay Installment Payments pursuant to Section 4.02 of the
Installment Purchase Agreement so that the Bank Certificates held on such Amortization
Commencement Date, for which no prior Amortization Commencement Date has occurred, shall
be subject to mandatory prepayment by the District in eleven (11) substantially equal installments of principal payable on each applicable Amortization Payment Date with the final prepayment being due no later than the applicable Amortization End Date. If either of the
conditions specified in clause (i) or (ii) of this subsection (b) is not satisfied on the applicable
13046282.5 22
Amortization Commencement Date, no Amortization Commencement Date with respect to such
Bank Certificates will be deemed to have occurred and the District will be obligated to make
Installment Payments pursuant to the Installment Purchase Agreement in order to prepay such
Bank Certificates on such Amortization Commencement Date and, thereafter, said Bank Certificates shall evidence interest at a Default Rate until prepaid or repaid in full.
(c) Optional Prepayment of Bank Certificates. Any Bank Certificate may
be prepaid by the District, without premium or penalty, upon one (1) Business Day’s prior
written, facsimile or telephonic notice to the Bank (which notice, if facsimile or telephonic, shall
be promptly confirmed in writing), in whole or in part but, if in part, in a minimum aggregate principal amount of $100,000 and integral multiples of $5,000 in excess thereof. Any
prepayment by the District of principal evidenced by Installment Payments resulting in a
prepayment of a Bank Certificate (including any prepayment pursuant to the sinking fund
requirements associated with the related Bank Certificate) shall be credited against the next
succeeding payment due on the Amortization Payment Date or Dates, as applicable, with respect to such Bank Certificate.
(d) Differential Interest Amount. In addition to payment of the interest and
principal evidenced by each Bank Certificate as set forth in this Agreement, any amount
representing Differential Interest Amount unpaid by the District on a Sale Date will be paid on
the next succeeding Bank Certificate Interest Payment Date and, in any event, shall be paid no later than the final day of the Amortization End Date. Any Differential Interest Amount that is
not repaid on the Bank Certificate Interest Payment Date next succeeding the related Sale Date
shall, subject to State laws relevant thereto, evidence interest at the Default Rate.
(e) CUSIPs and Ratings. On or prior to the Effective Date, the District will
provide, or cause the Trustee to provide, (i) a CUSIP number for any Bank Certificates that is different from any CUSIP number assigned to Eligible Certificates that are not Bank Certificates
and (ii) a long-term rating applicable to the Bank Certificates from a Rating Agency that is
Investment Grade or better. During such time as Bank Certificates remain Outstanding, have not
been remarketed and are deemed treated as Bank Certificates hereunder and under the Trust
Agreement, the District will take all reasonable action necessary to ensure that the following information is available on the Bloomberg Municipal Bond Description Screen: (y) the CUSIP
number(s) assigned to the Bank Certificates, and (z) a long term rating on the Bank Certificates
from a Rating Agency then rating the Eligible Certificates, which long-term rating shall be no
lower than the long-term rating described in sub-clause (ii) of this Section 3.01(e) and, in any
event, which long-term rating shall be Investment Grade or better.
ARTICLE IV CONDITIONS PRECEDENT TO EFFECTIVENESS
The obligation of the Bank to enter into this Agreement shall become effective on the
date (August [__], 2010, also referred to herein as the “Effective Date”) that each of the following conditions precedent have been fulfilled to the satisfaction of the Bank. The execution and delivery of this Agreement by the Bank shall be deemed satisfaction of all conditions
specified in this Article IV or waiver thereof by the Bank.
13046282.5 23
SECTION 4.01 District Resolutions. Copies of the resolutions of the District
approving this Agreement and the Fee Letter, the other Related Documents to which the District
is a party (including resolutions authorizing any amendments and supplements thereto) and the
other matters contemplated hereby, and copies of all other documents evidencing any other necessary corporate action, certified by the Clerk of the Board (or Assistant Clerk of the Board)
(which certificate shall state that such copies are true, accurate and complete and such
resolutions are in full force and effect on the Effective Date).
SECTION 4.02 Regulatory Approvals. Certified copies of all approvals or
authorizations by, or consents of, or notices to or registrations with, any governmental body or agency, if any, required for the District to enter into and confirming the validity and
enforceability of this Agreement and the Fee Letter and certified copies of all such approvals,
authorizations, consents, notices or registrations required to be obtained or made prior to the
Effective Date in connection with the transactions contemplated by the Related Documents.
SECTION 4.03 Incumbency Certificates. A certificate of the Clerk of the Board (or Assistant Clerk of the Board) certifying the names and true signatures of the officers of the
District authorized to sign this Agreement, the Fee Letter and the other Related Documents to
which it is a party.
SECTION 4.04 Opinion of Counsel for the District. A favorable opinion,
addressed to the Bank, of Woodruff, Spradlin & Smart, counsel to the District, dated the Effective Date, substantially in the form of Exhibit E hereto.
SECTION 4.05 Opinion of Special Counsel. A favorable opinion, addressed to
the Bank or upon which the Bank may rely, of Fulbright & Jaworski L.L.P., Special Counsel,
dated the Effective Date, in form and substance satisfactory to the Bank.
SECTION 4.06 Opinion of Bank’s Domestic Counsel. Legal opinion of Nixon Peabody LLP, special counsel to the Bank, addressed to the District, the Trustee and the
Remarketing Agent and as to such matters incident to this Agreement and the transactions
contemplated hereby as the parties hereto shall have reasonably requested.
SECTION 4.07 Opinion of Bank’s Foreign Counsel. Legal opinion of foreign
counsel to the Bank, addressed to the Authority, the Trustee and the Remarketing Agents and as to such matters incident to this Agreement and the transactions contemplated hereby as the
parties hereto shall have reasonably requested.
SECTION 4.08 Related Documents. Executed counterparts of this Agreement and
the Fee Letter, signed by each party hereto and thereto, together with a specimen of the
Certificates and a copy of the Remarketing Memorandum and executed originals or certified copies of the Related Documents (excluding the Prior Agreement) and all other opinions,
certificates and other documents delivered at the time that the Certificates were initially
delivered, together with all amendments and supplements thereto that have been executed and
delivered by the parties since initial delivery of said Certificates, if any, which amendments and
supplements shall be in full force and effect on the Effective Date.
13046282.5 24
SECTION 4.09 Ratings. Rating letters from S&P and Fitch which confirm that the
Certificates have received long-term ratings equal to “AAA” and “AAA”, respectively, and
short-term ratings at least equal to the respective short-term ratings of the Bank.
SECTION 4.10 District Certificate. A certificate signed by duly authorized officers of the District, dated the Effective Date, stating that: (a) the representations and
warranties of the District contained in Article V are correct in all material respects on and as of
the Effective Date as though made on and as of such date; and (b) no Default or Event of Default
has occurred and is continuing, or would result from the execution of this Agreement or the
Related Documents.
SECTION 4.11 Payment of Fees and Expenses. The District shall have paid the
Bank’s fees and expenses due on the Effective Date as set forth in the Fee Letter.
SECTION 4.12 Trustee’s Incumbency Certificate. The Trustee shall have
delivered an incumbency certificate with respect to the officers or agents of the Trustee who are
authorized to execute any amendments and supplements, if any, to respective Related Documents to which the Trustee is a party.
SECTION 4.13 Termination of Prior Agreement. Evidence satisfactory to the
Bank, which evidence may be in the form of a certificate from the Trustee or the Remarketing
Agent, dated the Effective Date, that the Prior Agreement has been terminated and that all
amounts due and owing to the Prior Bank in connection therewith and in connection with any Certificates purchased by said Prior Bank have been re-paid in full and that said Certificates have
been (or will be concurrently with delivery of this Agreement) remarketed.
SECTION 4.14 Financial Information. Certified copies of (a) audited financial
statements of the District for the Fiscal Years concluding [June 30, 2007], [June 30, 2008] and
[June 30, 2009], respectively, (b) the annual budget for the current Fiscal Year including all amendments thereto since its initial adoption, and (c) projected operating and financial
information for the District and the Wastewater System for the Fiscal Years ending [June 30,
2007], [June 30, 2008] and [June 30, 2009], respectively, which information shall include,
without limitation, (y) the District’s projections regarding the rates and charges to be established,
levied, maintained and collected during each of those Fiscal Years pursuant to Section 4.04 and Section 4.05 of the Master Agreement and (z) the District’s projections during each of those
Fiscal Years regarding Debt Service on the Certificates and Senior Obligations.
SECTION 4.15 CUSIPs and Bank Certificate Ratings. Evidence satisfactory to
the Bank that a CUSIP number has been obtained and reserved for Bank Certificates and that a
long-term rating applicable to Bank Certificates has been obtained and is Investment Grade.
SECTION 4.16 Other Documents. Such other documents, certificates,
instruments, approvals and, if requested by the Bank, certified duplicates of executed copies
thereof, and opinions as the Bank may reasonably request.
In addition to the foregoing, the Bank shall have determined, as of the Effective Date,
that (A) no law, regulation, ruling or other action of the United Kingdom, the United States of America, the State of New York or the State of California or any state or any political
13046282.5 25
subdivision or authority therein or thereof shall be in effect or shall have occurred, the effect of
which would be to prevent the Bank from fulfilling its obligations hereunder, and (B) no change
in (i) the financial condition of the District, the Corporation or the Wastewater System, or (ii) the
capital or financial markets of the United States has occurred and is continuing that could reasonably be expected to have a material adverse effect on the transactions contemplated by this
Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01 Representations and Warranties. To induce the Bank to enter into
this Agreement and the Fee Letter the District hereby represents and warrants to, and agrees
with, the Bank as follows (which representations, warranties and agreements shall survive the
execution and delivery of this Agreement):
(a) Organization, Powers, Etc. The District (i) was, at all relevant times, and is a county sanitation district duly organized and existing under and by virtue of the Act and other applicable laws of the State of California, (ii) had, at all relevant times, and has full power
and authority to own its properties and carry on its business as now conducted and (iii) had, at all
relevant times, and has full power and authority to execute, deliver and perform this Agreement,
the Fee Letter and each of the other Related Documents to which it is a party.
(b) Governmental Consent or Approval. The execution, delivery and
performance of this Agreement, the Fee Letter and the other Related Documents to which the
District is a party (or any of them), and the validity and enforceability of this Agreement, the Fee
Letter and such other Related Documents (or any of them), did not, do not and will not require
registration with, or the consent or approval of, or any other action by, any Federal, state or other governmental authority or regulatory body.
(c) Authorization, Absence of Conflicts, Etc. The execution, delivery and
performance of this Agreement, the Fee Letter and each of the other Related Documents to
which the District is a party (i) have been duly authorized by the District, (ii) did not, do not and
will not conflict with, or result in violation of, any provision of law (Federal or state), including the Act, or any order, rule or regulation of any court or other agency of government (Federal or
state) and (iii) did not, do not and will not conflict with, result in a violation of or constitute a
default under any resolution or other agreement or instrument to which the District is a party or
by which the District or any of its assets is bound and will not result in the creation or the
imposition of any security interest, lien, charge or encumbrance of any of its assets pursuant to the provisions of any of the foregoing except as provided therein. The execution and delivery of
this Agreement and the Fee Letter are not subject to referendum.
(d) No Defaults. No Default or Event of Default has occurred and is
continuing, and no event of default or condition, event or act which with notice or lapse of time
or both would become or constitute a default or event of default under, or as such term or terms is defined in, this Agreement, the Fee Letter or any of the other Related Documents to which the
13046282.5 26
District is a party (or any of them), has occurred and is continuing nor will it occur as a result of
the entering into this Agreement, the Fee Letter or any other Related Document.
(e) Binding Obligation. This Agreement, the Fee Letter and the Related
Documents to which the District is a party are legal, valid and binding obligations of the District in accordance with their respective terms except as enforcement may be limited by bankruptcy, moratorium, insolvency, reorganization, fraudulent conveyance and other similar laws relating to
the enforcement of creditors’ rights. The Related Documents, to the extent entered into prior to
the Effective Date, remain in full force and effect.
(f) Remarketing Memorandum. The Remarketing Memorandum (other than the financial statements therein), true copies of which have heretofore been delivered to the Bank, did not as of the respective dates thereof and as of the Effective Date, do not contain any
untrue statement of a material fact and did not, as of the respective dates thereof and do not, as of
the Effective Date, omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which made, not misleading, except no representation is made as to information furnished in writing by the Bank or DTC expressly for inclusion therein.
(g) Litigation. There is no action or investigation pending or, to the best
knowledge of the District, threatened against the District before any court or administrative
agency which questions the existence or powers of the District or which, if adversely determined,
might result in any material adverse change in the financial condition, operations or prospects of the District, or which questions the validity of any proceeding held or action taken by the District
in connection with the execution and delivery of this Agreement, the Fee Letter or any of the
other Related Documents to which the District is a party or wherein an unfavorable decision,
ruling or finding would in any way materially adversely affect the transactions contemplated by
this Agreement, the Fee Letter or any of the other Related Documents or which in any way would adversely affect the validity or enforceability of the Agreement, the Fee Letter or any of
the other Related Documents to which the District is a party, against the District.
(h) Financial Information. The annual audit report of the District for the
Fiscal Year ended [June 30, 2009], reported on by [Mayer Hoffman McCann P.C.], a copy of
which has been delivered to the Bank, is complete and correct in all material respects and fairly presents the financial position of the District at such date and the results of its operations and
changes in financial position for the Fiscal Year then ended, in conformity with generally
accepted accounting principles consistently applied. Since the date of such annual audit reports,
there has been no material adverse change in the business, assets, prospects, financial position or
results of operations of the District which has not been disclosed to the Bank in writing.
(i) Complete and Correct Information. No fact is known to the District
which materially and adversely affects or, in the future, is likely to (so far as it can reasonably
foresee) materially and adversely affect the business, assets or liabilities, financial condition,
results of operations, or its business prospects which has not been set forth in the financial
information referred to in paragraph (h) above or in other written materials provided to the Bank.
(j) Employee Benefit Plans. The District does not maintain or contribute to,
and has not maintained or contributed to, any Plan that is subject to Title IV of ERISA.
13046282.5 27
(k) Sources of Payments. Notwithstanding anything contained herein, the
District shall not be required to advance any moneys derived from any source of income other
than Net Revenues to pay any payments required to be made by it under this Agreement or the
Fee Letter, or for the performance of any agreements or covenants required to be performed by it contained herein.
The obligation of the District to pay any payments required to be made by it hereunder
and under the Fee Letter is a special obligation of the District payable, in the manner provided
herein, solely from Net Revenues, 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
District or the State of California, or any political subdivision thereof, is pledged to the payment
of the payments required to be made by the District under this Agreement.
This Agreement and the Fee Letter constitute Reimbursement Obligations entered into
with respect to a Senior Obligation and, as such, this Agreement and the Fee Letter constitute Senior Contracts and, consequently, Senior Obligations 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. [BOND
COUNSEL TO CONFIRM THIS SUB-PARAGRAPH (k) AND SECTION 10.14]
Capitalized undefined terms used in this Section 5.01(k) shall have the meanings ascribed thereto in the Master Agreement.
(l) No Sovereign Immunity. The defense of sovereign immunity is not
available to the District in any proceedings by the Bank to enforce any of the obligations of the
District under this Agreement, the Fee Letter or any other Related Document to which the
District is a party and, to the extent permitted by applicable law, the District consents to the initiation of any such proceedings in any court of competent jurisdiction in the State of
California and agrees not to assert the defense of sovereign immunity in any such proceedings.
(m) Incorporation of Representations and Warranties. The representations
and warranties made by the District in each of the Related Documents to which it is a party are
hereby incorporated herein by this reference and are hereby reaffirmed and restated by the District for the benefit of the Bank as if fully set forth at this point. No amendment to such
representations and warranties or defined terms made pursuant to any such Related Document
shall be effective to amend such representations and warranties or defined terms as incorporated
by reference herein without the prior written consent of the Bank.
(n) Full Disclosure. All information heretofore furnished (including pursuant to any representation or warranty) by the District to the Bank for purposes of or in connection
with this Agreement, the Fee Letter or any other Related Document or any transaction
contemplated hereby or thereby is, and all such information hereafter furnished by the District to
the Bank will be, true and accurate in all material respects on the date as of which such
information is stated or certified. The District has disclosed to the Bank in writing (including specifically the Remarketing Memorandum) any and all facts which materially and adversely
affect or may (to the extent the District can now reasonably foresee) materially and adversely
13046282.5 28
affect the business, operations or financial condition of the District or the ability of the District to
perform its obligations under this Agreement, the Fee Letter, the Certificates or any other
Related Document.
(o) No Proposed Legal Changes. There is currently no amendment or, to the knowledge of the District, proposed amendment to the Constitution of the State or any administrative interpretation of the Constitution of the State or any State law, or any judicial
decision interpreting any of the foregoing, the effect of which could reasonably be expected to
have a material adverse effect on the Certificates, the security for the Certificates or the District’s
obligations hereunder or under any of the other Related Documents, or the District’s ability to repay when due its obligations under this Agreement, the Fee Letter, the Certificates and the other Related Documents.
(p) Assignment of Certificates. The Bank Certificates purchased pursuant to
Article II will be transferred to the Bank free and clear of all liens, security interests or claims of
any Person other than the Bank, except for consensual liens or other security interests as may be created by the Bank.
(q) Trustee and Remarketing Agent. U.S. Bank National Association (or a
successor or assign approved in writing by the Bank) is the duly appointed and acting Trustee
and Merrill Lynch, Pierce, Fenner & Smith Incorporated (or a successor or assign approved in
writing by the Bank) is the duly appointed and acting Remarketing Agent.
(r) Tax Exempt Securities. The District has not taken any action or omitted
to take any action, and knows of no action taken or omitted to be taken by any other Person,
which action, if taken or omitted, would cause interest with respect to the Certificates to be
includible in gross income for Federal income tax purposes under the Code.
(s) Federal Reserve Regulations. No part of the proceeds of the Certificates has been used for the purpose, whether immediate, incidental or ultimate, to purchase or carry any margin stock (within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended from time to time), or to extend credit to others for the purpose of
purchasing or carrying any margin stock, or for any other purpose which would violate any of
the regulations of said Board of Governors.
(t) Permitted Investments. As of the Effective Date, the District has no
knowledge that it has made any material investment, or entered into any agreement for the
purpose of effecting any such investment, which is not permitted to be made pursuant to the Act
or the Trust Agreement.
ARTICLE VI COVENANTS
During the Commitment Period, or any period in which any amount is due or owing to
the Bank under this Agreement, the Fee Letter or any other Related Document, the District will
comply with each of the following covenants unless the Bank shall otherwise consent in writing:
13046282.5 29
SECTION 6.01 Compliance With Law; Tax-Exempt Status. The District shall
comply with all laws, ordinances, orders, rules and regulations that may be applicable to it
including, but not limited to, Environmental Laws. The District shall not take any action that, or
omit to take any action that, if taken or not taken (as the case may be), would cause the Certificates to be “arbitrage bonds”, as that term is defined in Section 148 of the Code or that
would result in loss of the exclusion from gross income for Federal income tax purposes of
interest on the Certificates under the Code.
SECTION 6.02 Accounting and Reports.
(a) Annual Audit Report. The District will maintain a standard system of accounting in accordance with generally accepted accounting principles consistently applied and furnish to the Bank within two hundred ten (210) days after the end of each Fiscal Year one copy
of the annual audit report of the District, certified to the District as having been prepared in
accordance with generally accepted accounting principles consistently applied by an Accountant,
together with the written statement of such Accountant that in making their audit they obtained no knowledge of any Default or Event of Default or, if they did, specifying the nature of such Default or Event of Default, the period of its existence, the nature and status thereof and any
remedial steps taken or proposed to correct such Default or Event of Default. [Q: HAVE THE
ACCOUNTANTS BEEN COMPLYING WITH THE REQUIREMENTS OF THIS
PARAGRAPH BEYOND THEIR REVIEW LETTER?]
(b) Other Information. The District will provide the following additional
information:
(i) Simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a certificate from an Authorized District
Representative stating that, to the best knowledge of such Authorized District Representative, there exists on the date of such certificate no Default or Event of Default
or, if any Default or Event of Default then exists, setting forth the details thereof and the
action which the District is taking or proposes to take with respect thereto;
(ii) Immediately following any dissemination, distribution or provision
thereof to any Person or to the MSRB through its Electronic Municipal Market Access System, a copy of any “Material Event Notice” or any other information required to be
delivered disseminated, distributed or provided in satisfaction of or as may be required by
the provisions of Rule 15c2-12 promulgated pursuant to the Securities Exchange Act of
1934, as amended (17 C.F.R. Sec. 240-15c2-12), or any successor or similar legal
requirement, delivery of such information to the Bank;
(iii) Promptly after approval thereof, the annual budget of the District
containing estimates of expenditures and anticipated Revenues and “Maintenance and
Operations Costs” (as such terms are defined in the Master Agreement) for the Fiscal
Year that is the subject thereof (which shall include the payment of all amounts due
hereunder and under the Fee Letter);
13046282.5 30
(iv) Upon request of the Bank, confirmation of the amount of funds on
deposit in each fund or account established under the Trust Agreement and the
Installment Purchase Agreement;
(v) On or prior to the date of execution and delivery of any Senior Obligations, written notice of the change in the aggregate principal amount of Senior
Obligations outstanding, together with a copy of the final official statement or other final
disclosure statement prepared with respect to such additional Senior Obligations and a
certification that any limitations or covenants set forth in the Related Documents with
respect to the incurrence of such Senior Obligations have been met with respect thereto; and
(vi) With reasonable promptness, such other information and data with
respect to the business, properties, condition (financial or otherwise), operations or
prospects of the District and the Wastewater System as from time to time may be
reasonably requested by the Bank.
As and to the extent the information required by this Section 6.02 has been properly and timely
filed with the MSRB through its Electronic Municipal Market Access System, the District will be
deemed to have complied with the provisions of this Section; provided, however, that (y) the
District shall have delivered written notice to the Bank of such filing and (z) the Bank has access
to the information so filed.
SECTION 6.03 Notices.
(a) Notice of Default. As soon as possible and, in any event, within one (1)
Business Day after the occurrence of each Event of Default or Default continuing on the date of
such statement, a statement of an Authorized District Representative setting forth details of such
Event of Default or Default and the action which is being taken or proposed to be taken with respect thereto.
(b) Notice of Plan. The District shall provide written notice to the Bank in
the event that any Plan maintained by it or to which it contributes becomes subject to Title IV of
ERISA.
(c) Litigation. The District shall provide to the Bank written notice of the commencement of any litigation to which the District is a party and which, if decided adversely
to the District, would have a material adverse effect upon the ability of the District to meet its
obligations hereunder or under any Related Document to which it is a party. The District shall
also provide to the Bank, at the time the financial information described in Section 6.02(a) is
delivered to the Bank, a copy of the letter prepared annually by General Counsel to the District with respect to the period referenced in such financial information which is addressed to the
District’s auditors and which describes any pending litigation involving the District.
(d) Resignations. Promptly after the receipt or giving thereof, copies of all
notices of resignation by or removal of the Trustee, the Remarketing Agent or the Tender Agent
which are received or given by the District.
13046282.5 31
(e) Miscellaneous Notices. In addition to the foregoing, the District shall
provide, or cause to be provided, the following: (i) notice of the occurrence of any Event of
Default or Default as defined herein or in the Installment Purchase Agreement and the Master
Agreement, (ii) notice of the failure by the Remarketing Agent to perform any of its obligations under the Remarketing Agreement or the Trustee to perform any of its obligations under any
Related Document to which it is subject, (iii) notice of any proposed substitution of this
Agreement, (iv) notice of any downgrade, withdrawal, or suspension of the long-term rating
assigned by a Rating Agency to the Certificates or any other Senior Obligations or the placement
of the Certificates or any other Senior Obligations on credit watch by a Rating Agency or, if a Rating Agency then maintaining ratings on the Certificates or any such Senior Obligations
expresses in writing a negative outlook as to the long-term rating of the Certificates or any such
Senior Obligations, and (v) copies of any communications delivered or received by it under any
of the Related Documents (unless, with respect to communications received by it under any of
the Related Documents, the same are required to be furnished by the sender thereof directly to the Bank under the terms of such Related Documents), or from any taxing authority, the
Securities and Exchange Commission or the Municipal Securities Rulemaking Board with
respect to the transactions contemplated hereby.
SECTION 6.04 Maintenance of Approvals, Filings, Etc. The District shall at all
times maintain in effect, renew and comply with all the terms and conditions of all consents, licenses, approvals and authorizations as may be necessary or appropriate under any applicable
law or regulation for its execution, delivery and performance of this Agreement and the other
Related Documents to which it is a party.
SECTION 6.05 Access to Records. At all reasonable times, and as often as the
Bank may reasonably request, the District will permit any authorized representative designated by the Bank to have access to the financial records of the District and other records relating to
the operation of the District and to permit such representatives to discuss such records and
related matters with representatives of the District, the Corporation or their respective
accountants or financial advisors.
SECTION 6.06 Taxes and Liabilities. The District will pay all its indebtedness and obligations promptly and in accordance with their terms (including, without limitation,
amounts payable by the District under this Agreement, the Fee Letter and the Related
Documents) and pay and discharge or cause to be paid and discharged promptly all taxes,
payments-in-lieu of taxes, assessments and governmental charges or levies imposed upon it or
upon its income and profits, or upon any of its property, real, personal or mixed, or upon any party thereof, before the same shall become in default.
SECTION 6.07 Existence. The District shall maintain its existence as a county
sanitation district within the State of California.
SECTION 6.08 Incorporation of Covenants; Restrictions on Parity Debt. (a) The
covenants of the District set forth in the Related Documents to which it is a party (as the same provide on the date hereof) are hereby incorporated herein by reference and are hereby
reaffirmed and restated by the District for the benefit of the Bank as if fully set forth at this point.
Except as provided in Section 6.12, the District hereby agrees to comply with such covenants
13046282.5 32
without taking into account any amendment thereto or waiver thereof or consent to the departure
therefrom unless such amendment, consent or waiver is consented to in writing by the Bank.
(b) In the event that the District shall agree or covenant to provide materially
different covenants pursuant to documentation entered into by the District with any trustee, credit facility provider or other obligee (each such Person being referred to herein as a “Parity
Creditor”) that is party to an instrument, contract, financing document or other agreement
relating to any Senior Obligation (each such instrument, contract, financing document or
agreement being referred to herein as an “Other Debt Document”), the District shall
(simultaneously with the execution of such Other Debt Document) notify the Bank of such covenant or covenants and, to the extent such covenant or covenants are determined by the Bank,
in its sole discretion, by written notice to the District to be more restrictive than the covenants set
forth in this Agreement, the District shall comply with the covenants contained in the Other Debt
Documents for the benefit of the Bank under this Agreement, and the District and the Bank
hereby agree that such covenants, together with the related definition of terms contained therein, are hereby incorporated by reference in this Agreement with the same effect as if each and every
such covenant and definition were set forth herein in its entirety, and such more restrictive
covenants shall replace and supersede the covenants contained herein. Each and every
amendment or waiver of such covenants or definitions made pursuant to Other Debt Documents,
or the release, termination or other discharge of such Other Debt Documents, shall not be effective to amend, release, terminate or discharge (as applicable) such covenants and definitions
as incorporated by reference herein without the written consent of the Bank.
(c) In addition to the foregoing, the District represents and warrants to, and
covenants with, the Bank, as follows: (i) no Other Debt Document shall contain a pledge of Net
Revenues, allocation of Net Revenues or rights and remedies to, in favor of or for the benefit of any Parity Creditor which provides to such Parity Creditor (A) any preference or priority with
respect to the pledge of Net Revenues or the allocation of Net Revenues as compared to the
pledge and allocation to, in favor, or for the benefit, of the Trustee, as the assignee of the
Corporation, and the Bank (each, a “Series 2000 Creditor”) or (B) any additional or materially
different rights and remedies as compared to the rights and remedies of the Series 2000 Creditors as set forth in the Installment Purchase Agreement, the Trust Agreement, the Master Agreement
and this Agreement and, in particular but not in limitation of the foregoing, in no event shall any
Parity Creditor be granted, hold or exercise any right or remedy that is not provided to the Series
2000 Creditors under the Trust Agreement, the Installment Purchase Agreement, the Master
Agreement or this Agreement, and (ii) no Parity Creditor shall have the right to exercise any right or remedy with respect to the Net Revenues except solely for the ratable benefit of all
Parity Creditors and the Series 2000 Creditors, nor be granted any collateral or security except
such collateral and security as is granted to all Parity Creditors and to the Series 2000 Creditors
under the Trust Agreement, the Installment Purchase Agreement and the Master Agreement.
SECTION 6.09 Related Documents. With respect to the Related Documents to which it is a party, the District will take all such action as may be reasonably requested by the
Bank to strictly enforce the obligations under such Related Documents of each of the other
parties thereto.
13046282.5 33
SECTION 6.10 Accounting Methods. The District shall not adopt, permit or
consent to any change in its accounting practices other than as permitted by generally accepted
accounting principles and other applicable accounting standards.
SECTION 6.11 Remarketing Agent. The District will not appoint, or permit to be appointed, any successor Remarketing Agent without the prior written consent of the Bank
(which consent shall not be unreasonably withheld) and at no time will the District permit the
position of Remarketing Agent to be vacant. With respect to subsequent Remarketing Agents
and Remarketing Agreements applicable to the Certificates, the District will require: (a) the
Remarketing Agent that is party thereto to use its best efforts to remarket the Certificates (including any Bank Certificates) and to set a rate for the Certificates up to and including the
Maximum Rate, if necessary, such that it will be able to fully remarket such Certificates; (b) that
if the Remarketing Agent is unable to remarket all or any material portion of the Certificates for
a period of thirty (30) consecutive days, or is otherwise in default of its obligations under the
Remarketing Agreement or the Trust Agreement, then, at the written request of the Bank to the District, the District will use their best efforts to replace the existing Remarketing Agent with a
financial institution that is satisfactory to the Bank; and (c) that at no time may the position of
Remarketing Agent be vacant without the prior written consent of the Bank.
SECTION 6.12 Amendments. The District shall not amend, modify or
supplement, nor agree to any amendment or modification of, or supplement to, or any waiver of compliance with, any Related Document. Notwithstanding the foregoing, without the consent of
the Bank (a) the Master Agreement may be supplemented to provide for the incurrence of
additional Senior Obligations or Subordinate Obligations in accordance with the Master
Agreement and (b) any Related Document may be amended or supplemented in any respect so
long as the amendment or supplement does not relate to the tender provisions or payment terms of or security for the Certificates and will not adversely affect the ability of the District to meet
its obligations hereunder and under the Master Agreement, the Installment Purchase Agreement,
the Fee Letter and the Trust Agreement. The District shall give the Bank ten (10) Business
Days’ prior written notice of any such proposed amendment or supplement.
SECTION 6.13 Investments. The District shall not engage in any of the following investment practices:
(a) increase or compound the dollar amount of funds available for investment
by obtaining loans or purchasing securities on margin; or
(b) deviate from the investment policies of the District as in effect from time
to time; or
(c) invest in any entity or pooled investment program employing any
investment strategy prohibited by clauses (a) or (b) above.
SECTION 6.14 Use of Proceeds; Federal Reserve Regulations. The District shall
cause (a) the proceeds from draws made pursuant to this Agreement to be used solely for the
purposes set forth hereunder and under the Trust Agreement and (b) the proceeds derived from the remarketing of the Certificates to be used solely for the purposes set forth in the Remarketing
13046282.5 34
Agreement and the Trust Agreement. No proceeds from moneys received under this Agreement
shall be used by the District and/or the Trustee in violation of Regulation U, as amended,
promulgated by the Board of Governors of the Federal Reserve System.
SECTION 6.15 Interest Rate Swaps. Any Financial Contract hereafter entered into by the District in accordance with the Master Agreement with respect to the Certificates or
other Senior Obligations shall provide that termination payments thereunder are subordinate to
the Senior Obligations; provided, however, that any such payment owing at any time may be
paid on parity with the Certificates if the District is then able to demonstrate that, taking into
account such payment, it would satisfy the applicable tests under the Master Agreement for the incurrence of at least $1.00 of additional Senior Obligations.
SECTION 6.16 Transfer of Assets. The District shall not dissolve nor shall it sell,
lease, assign, transfer or otherwise dispose of all or 51% or more of its operational assets.
SECTION 6.17 Selection of Certificates for Prepayment. The District shall select,
or cause to be selected, for prepayment any and all Bank Certificates prior to selecting, or causing to be selected, for prepayment any Certificates that are not Bank Certificates
SECTION 6.18 Conversions; Defeasance. The District (a) will promptly furnish,
or cause to be furnished, to the Bank, not later than its furnishing the same to the Remarketing
Agent, a copy of any written notice furnished by the District to the Remarketing Agent pursuant
to the Trust Agreement indicating a proposed conversion of the interest rate with respect to the Certificates; and (b) shall not permit a conversion of the Certificates to Certificates at an interest
rate other than a Covered Rate without the prior written consent of the Bank if, after giving effect
to such conversion, any Certificates remain as Bank Certificates. In addition, the District will
not defease, nor allow the defeasance of, any of the Certificates without having first satisfied all
of its obligations hereunder and under the Fee Letter.
SECTION 6.19 Further Assurances. The District shall execute, acknowledge
where appropriate, and deliver, and cause to be executed, acknowledged where appropriate, and
delivered, from time to time promptly at the request of the Bank, all such instruments and
documents as in the reasonable judgment of the Bank are necessary or advisable to carry out the
intent and purpose of this Agreement and the other Related Documents.
SECTION 6.20 Bank Disclosure. The District shall not include in an offering
document for any Debt any information concerning the Bank that is not supplied in writing, or
otherwise consented to, by the Bank expressly for inclusion therein.
SECTION 6.21 Liquidity.
(a) The District shall use its best efforts to obtain an Alternate Standby Agreement to replace this Agreement in the event (i) the Bank shall decide not to extend the
Expiration Date pursuant to Section 10.09 hereof or the District fails to request such an extension
on a timely basis, (ii) the District terminates the Available Commitment pursuant to Section 2.04
or 2.13 hereof, (iii) the Bank shall furnish a Notice of Termination pursuant to Section 8.11(c)
hereof or (iv) a Default Tender shall have been effected with any funds made available hereunder; provided that an Alternate Standby Agreement shall not be necessary in the event that
13046282.5 35
the District has caused the Certificates to be prepaid or restructured to evidence interest at a
Fixed Rate or defeased, in full.
(b) The District agrees that any Alternate Standby Agreement will require, as
a condition to the effectiveness of the Alternate Standby Agreement, that the District or the issuer of the Alternate Standby Agreement will provide funds to the extent necessary, in addition
to other funds available, on the proposed Substitution Date, for the purchase of all Bank
Certificates at par plus all interest evidenced thereby (plus any Differential Interest Amount and
Excess Bank Certificate Interest due and payable through the proposed Substitution Date) and
all other amounts owing to the Bank hereunder and under the Fee Letter. On such proposed Substitution Date, any and all amounts due hereunder and under the Fee Letter to the Bank shall
be payable in full to the Bank.
(c) The District shall not permit an Alternate Standby Agreement to become
effective with respect to less than all of the Certificates bearing interest at a Covered Rate
without the prior written consent of the Bank.
SECTION 6.22 Appointment of Successors. The District shall not, without the
prior written consent of the Bank, (i) cause or permit the appointment of a successor Trustee or
(ii) remove the Trustee.
SECTION 6.23 No Sovereign Immunity. To the fullest extent permitted by law,
any sovereign immunity of the District with respect to its contractual obligations under this Agreement, the Fee Letter and the other Related Documents is hereby irrevocably waived by the
District and, consistent therewith, to the fullest extent permitted by law, the District hereby
irrevocably agrees not to assert the defense of sovereign immunity in any legal proceeding to
enforce or collect upon the obligations of the District under this Agreement, the Fee Letter, the
Certificates, the other Related Documents or the transactions contemplated hereby or thereby.
SECTION 6.24 Compliance with Documents. The District will perform and
comply with each and every covenant and agreement required to be performed or observed by it
in the Related Documents.
SECTION 6.25 Accounting Method. The District will not materially change its
method of accounting relating to Revenues, or the times of commencement or termination of Fiscal Years or other accounting periods relating to Revenues without first disclosing in writing
such change to the Bank.
ARTICLE VII
CONDITIONS PRECEDENT TO PURCHASE
SECTION 7.01 Conditions.
The obligation of the Bank to purchase Certificates hereunder on any date is subject to
the satisfaction of the following conditions, unless waived in writing by the Bank:
13046282.5 36
(a) No Special Event of Default or Suspension Event shall have occurred and
be continuing and the Bank’s obligations hereunder shall not otherwise have been terminated or
suspended. If and to the extent that a Suspension Event shall have been cured (as and to the
extent provided in Section 8.11(b) hereof), the condition described in this Section 7.01(a) will be deemed satisfied; and;
(b) The Bank shall have timely received the Notice of Bank Purchase, as
provided in Section 2.03; provided that if the Notice of Bank Purchase is not received in a timely
manner, the Bank will be obligated to purchase Eligible Certificates on the Business Day
following receipt thereof.
Each notification delivered pursuant to clause (b) of this Section 7.0.1 shall constitute a
representation and warranty by the District on each Purchase Date that the condition described in
the clause (a) of this Section 7.01 has been satisfied on such Purchase Date.
As promptly as possible after satisfaction of the conditions set forth in (a) and (b) hereof
and, in any event, simultaneously with the Bank’s wiring of the funds requested by the related Notice of Bank Purchase, the Bank Certificates to be purchased by the Bank on such Purchase
Date shall be executed and delivered in accordance with the Trust Agreement and this
Agreement. If the Certificates purchased pursuant hereto are Book-Entry Certificates, the
beneficial ownership of such Certificates shall be credited to the account of the Bank or, if
directed in writing by the Bank, a nominee or designee of the Bank maintained at DTC, and such Certificates shall be registered in the name of the Bank or its nominee or designee on the records
maintained by the Trustee and, prior to the sale of any Certificate by the Bank as provided in
Section 2.05, the Bank agrees to give all notices in the manner and by the time required by DTC.
ARTICLE VIII
EVENTS OF DEFAULT
The occurrence of any of the following events (including the expiration of any specified
time) shall constitute an “Event of Default,” unless waived by the Bank in writing:
SECTION 8.01 Payments. The District shall fail to pay when due (a)(i) any
Installment Payment resulting in a failure to provide the principal or sinking fund requirement evidenced by any Certificate (including any Bank Certificate) and (ii) any Installment Payment
resulting in a failure to pay interest evidenced by any Certificate (including any Bank
Certificate), or (b) any other amount owed to the Bank pursuant to Section 2.02 or Section 3.01
hereof (other than amounts described in (a)(i) and (a)(ii) above); or
SECTION 8.02 Other Payments. The District shall fail to pay when due any amount owing under Section 2.08, Section 2.10 or Section 9.04 hereof or under the Fee Letter; or
SECTION 8.03 Representations. Any material representation or warranty made
by or on behalf of the District in this Agreement, the Trust Agreement or in any other Related
Document or in any certificate or statement delivered hereunder or thereunder shall be incorrect
or untrue in any material respect when made or deemed to have been made; or
13046282.5 37
SECTION 8.04 Certain Covenants. The District shall fail to observe or perform
any covenant or agreement contained in Section 6.07, 6.08(b), 6.08(c), 6.12, 6.15 or 6.18; or
SECTION 8.05 Other Covenants. The District shall materially default in the due
performance or observance of any other term, covenant or agreement contained in this Agreement (other than those referred to in Sections 8.01, 8.02, 8.03 and 8.04 hereof), the Trust
Agreement or any other Related Document and such default shall remain unremedied for a
period of thirty (30) days after the District shall have received notice thereof; or
SECTION 8.06 Judgments. One or more final, unappealable judgment(s) against
the District for the payment of money, which judgment(s) is not covered by insurance, and which judgment(s) is to be enforced pursuant to a lien upon, or an attachment against, any or all of the
Net Revenues, the operation or result of which judgment(s), individually or in the aggregate,
equal or exceed $10,000,000 and which judgment(s) shall remain unpaid, undischarged,
unbonded or undismissed for a period of sixty (60) days; or
SECTION 8.07 Insolvency. (a) The District shall commence any case, proceeding or other action (i) under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it, or seeking to declare a moratorium with respect to the Certificates or the Senior Obligations, or (ii) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets or for all or any portion of the
Net Revenues, or the District shall make a general assignment for the benefit of its creditors; or
(b) there shall be commenced against the District any case, proceeding or other action of a nature
referred to in clause (a) above which (i) results in an order for such relief or in the appointment of a receiver or similar official or (ii) remains undismissed, undischarged or unbonded for a
period of sixty (60) days; or (c) there shall be commenced against the District, any case,
proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets or for all or any portion of the Net
Revenues, which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry
thereof; or (d) the District shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (a), (b) or (c) above; or (e) the
District shall admit in writing its inability to pay its debts as they become due or becomes
insolvent within the meaning of Section 101(32) of the United States Bankruptcy Code of 1978, as it may be amended from time to time (Title 11 of the United States Code), and any successor
statute thereto; or
SECTION 8.08 Invalidity.
(a) The District, pursuant to official action on the part of its Board (which
shall include the action of anyone to whom such power has been delegated by its Board), contests in an administrative or judicial proceeding, repudiates or otherwise denies (including,
without limitation, authorizing the filing of a claim to such effect in an administrative or judicial
proceeding) that it has any further liability or obligation under or with respect to any provision of
13046282.5 38
the Act, this Agreement, the Trust Agreement, the Installment Purchase Agreement, the Master
Agreement, the Certificates or the Senior Obligations relating to (i) the ability or the obligation
of the District to pay, when due, an Installment Payment evidencing the principal of or interest
due on the Certificates (including any Bank Certificates) or on any Senior Obligation or (ii) the pledge of the Net Revenues securing said Certificates and Senior Obligation; or
(b) The District, pursuant to official action on the part of its Board (which
shall include the action of anyone to whom such power has been delegated by its Board),
contests in an administrative or judicial proceeding, repudiates or otherwise denies (including,
without limitation, authorizing the filing of a claim to such effect in an administrative or judicial proceeding) the legality, validity or enforceability of any provision of this Agreement, the
Certificates, the Act, the Trust Agreement, the Installment Purchase Agreement, the Master
Agreement or any Senior Obligation relating to (i) the ability or the obligation of the District to
pay, when due, an Installment Payment evidencing the principal of or interest due on the
Certificates (including any Bank Certificates) or on any Senior Obligation or (ii) the pledge of the Net Revenues securing said Certificates and Senior Obligation; or
(c) Any provision of the Act, this Agreement, the Trust Agreement, the
Installment Purchase Agreement, the Master Agreement or the Certificates relating to (i) the
ability or the obligation of the District to pay, when due, an Installment Payment evidencing the
principal of or interest due on the Certificates (including any Bank Certificates) or (ii) the Net Revenues securing said Certificates shall, at any time, and for any reason, cease to be valid and
binding on the District, or shall be declared to be null and void, invalid or unenforceable, in each
case, as the result of a final nonappealable judgment by any federal or state court or as a result of
any legislative or administrative action by any Governmental Authority having jurisdiction over
the District; or
(d) Any Governmental Authority with jurisdiction to rule on the legality,
validity or enforceability of this Agreement, the Certificates, the Act, the Installment Purchase
Agreement, the Master Agreement or the Trust Agreement shall find or rule, in a judicial or
administrative proceeding, that any provision of this Agreement, the Certificates, the Act or the
Trust Agreement, as the case may be, relating to (i) the ability or the obligation of the District to pay, when due, an Installment Payment evidencing the principal of or interest due on the
Certificates (including any Bank Certificates) or (ii) the pledge of the Net Revenues securing
said Certificates, is not valid or not binding on, or enforceable against, the District; or
(e) The State shall (1) have taken any official action, or has duly enacted any
statute, (2) make a claim in a judicial or administrative proceeding or (3) contest in a judicial or administrative proceeding that (A) the District has no further liability or obligation hereunder,
under the Certificates, the Act, the Installment Purchase Agreement, the Master Agreement or
the Trust Agreement to pay, when due, an Installment Payment evidencing the principal of or
interest due on the Certificates (including any Bank Certificates) or (B) any provision of this
Agreement, the Certificates, the Act, the Installment Purchase Agreement, the Master Agreement or the Trust Agreement relating to or otherwise affecting (i) the District’s ability or obligation to
pay, when due, an Installment Payment evidencing the principal of or interest due on the
Certificates (including any Bank Certificates) or (B) the pledge of the Net Revenues securing
said Certificates is illegal, invalid or unenforceable against the District; or
13046282.5 39
(f) A debt moratorium or comparable extraordinary restriction on repayment
of an Installment Payment evidencing the principal or interest due on any debt shall have been
declared or imposed (whether or not in writing) with respect to the Certificates (including any
Bank Certificate) by a Governmental Authority with proper jurisdiction over the District; or
SECTION 8.09 Ratings Downgrade. S&P and Fitch shall have (a) assigned the
Certificates or any Senior Obligation a long-term rating below “BBB-” (or its equivalent) by
S&P and “BBB-” (or its equivalent) by Fitch, (b) withdrawn their long-term ratings of the
Certificates or any Senior Obligation for any credit related reasons or (c) suspended their long-
term ratings of the Certificates or any Senior Obligation for any credit related reasons; provided, however, that any downgrade, withdrawal or suspension described in any of the foregoing
provisions of this Section 8.09 shall not be deemed an Event of Default hereunder if said
downgrade, withdrawal or suspension, as the case may be, shall be attributable to the downgrade,
withdrawal or suspension of the long-term ratings assigned to any certificate insurance or other
credit enhancement provided by a Person other than the District; or
SECTION 8.10 Cross Default.
(a) Except as otherwise provided in clause (b) below, any “Event of Default”
as defined in Section 6.01 of the Installment Purchase Agreement or Section 5.01 of the Master
Agreement shall occur and be continuing or any “Event of Default” shall occur and be
continuing under any other agreement between the District and the Bank regarding Senior Obligations, if any; or (b) the District shall fail to make any payment in respect of an Installment
Payment evidencing principal or interest due on any Senior Obligation, issued and outstanding or
to be issued, when due (i.e., whether upon said Senior Obligation’s scheduled maturity, required
prepayment, acceleration, upon demand or otherwise, except as such payments may be
accelerated, demanded or required to be prepaid under this Agreement), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument
relating to such Senior Obligation; or (c) any Governmental Authority with jurisdiction to rule on
the legality, validity or enforceability of any Senior Obligation shall find or rule, in a judicial or
administrative proceeding, that any provision of the Act, the Installment Purchase Agreement,
the Master Agreement or the Trust Agreement, as the case may be, relating to (i) the ability or the obligation of the District to pay, when due, an Installment Payment evidencing the principal
of or interest due on any Senior Obligation or (ii) the Net Revenues securing said Senior
Obligation, is not valid or not binding on, or enforceable against, the District; or (d) the State
shall (1) have taken any official action, or has duly enacted any statute, (2) make a claim in a
judicial or administrative proceeding or (3) contest in a judicial or administrative proceeding that (A) the District has no further liability or obligation under any Senior Obligation to pay, when
due, an Installment Payment evidencing the principal of or interest due on said Senior Obligation
or (B) any provision of the Act, the Installment Purchase Agreement, the Master Agreement or
the Trust Agreement relating to or otherwise affecting (i) the District’s ability or obligation to
pay, when due, an Installment Payment evidencing the principal of or interest due on any Senior Obligation or (ii) the pledge of the Net Revenues securing said Senior Obligation is illegal,
invalid or unenforceable against the District.
SECTION 8.11 Remedies.
13046282.5 40
(a) In the case of any Special Event of Default, the Available Commitment
shall immediately be reduced to zero, in which case the obligations of the Bank under Article II
of this Agreement shall immediately terminate and expire without requirement of notice by the
Bank; provided, that (i) the Event of Default described in Section 8.01(a) will not qualify as a “Special Event of Default” hereunder if the failure to pay an Installment Payment evidencing the
principal of, or interest on, a Bank Certificate is due solely to an acceleration of all of the Bank
Certificates by the Bank for any reason other than nonpayment as described in Section 8.01(a)
hereof and (ii) the Suspension Events described in Section 8.11(b) hereof will not qualify as
“Special Events of Default” unless and until the conditions described in said Section 8.11(b) for such qualification have been satisfied. After such termination or expiration, the Bank shall
deliver promptly to the District, the Trustee and the applicable Remarketing Agent written notice
of such termination or expiration; provided, however, that failure to provide such written notice
shall have no effect on the validity or enforceability of such termination or expiration.
(b) In the case of a Suspension Event, the obligation of the Bank to purchase Eligible Certificates under this Agreement shall be immediately suspended without notice or
demand and, thereafter, the Bank shall be under no obligation to purchase Eligible Certificates
until the Available Commitment is reinstated as described below. Promptly upon the occurrence
of any such Suspension Event, the Bank shall notify the District, the Trustee and the applicable
Remarketing Agent of such suspension and the effective date of such suspension in writing by facsimile, promptly confirmed by regular mail; provided, that the Bank shall incur no liability of
any kind by reason of its failure to give such notice and such failure shall in no way affect the
suspension of the Available Commitment or its obligation to purchase Eligible Certificates
pursuant to this Agreement.
(i) Upon the occurrence of an Event of Default described in Section 8.07(b)(i), the Bank’s obligation to purchase Eligible Certificates shall be suspended
immediately and automatically and remain suspended until said case, proceeding or other
action referred to therein is either dismissed, discharged or bonded or the date on which
the Bank’s obligations hereunder have terminated or expired in accordance with the terms
hereof (the “Termination Date”) occurs, whichever is first. In the event that said Event of Default shall have been dismissed, discharged or bonded prior to the Termination
Date, then the Available Commitment and the obligation of the Bank to purchase Eligible
Certificates shall be reinstated and the terms of this Agreement shall continue in full force
and effect as if there had been no such suspension (unless the Commitment Period shall
otherwise have been terminated, suspended or expired as provided in this Agreement). In the event that said Suspension Event shall not have been dismissed, discharged or bonded
prior to the Termination Date, then the Available Commitment and the obligation of the
Bank to purchase Eligible Certificates shall terminate on such Termination Date without
notice or demand and, thereafter, the Bank shall be under no obligation to purchase
Eligible Certificates.
(ii) Upon the occurrence of a Default described in Section 8.07(b)(ii),
the Bank’s obligations to purchase Eligible Certificates shall be immediately and
automatically suspended and remain suspended until the case, proceeding or other action
referred to therein is either dismissed, discharged or bonded within sixty (60) days from
the commencement of such case, proceeding or action, or the Termination Date occurs,
13046282.5 41
whichever is first. In the event that said Suspension Event shall have been dismissed,
discharged or bonded within the sixty (60) day period described therein and prior to the
Termination Date, then the Available Commitment and the obligation of the Bank to
purchase Eligible Certificates shall be reinstated and the terms of this Agreement shall continue in full force and effect as if there had been no such suspension (unless the
Commitment Period shall otherwise have been terminated, suspended or expired as
provided in this Agreement). In the event that said Suspension Event shall not have been
dismissed, discharged or bonded within such sixty (60) day period when the Termination
Date occurs, then the Available Commitment and the obligation of the Bank to purchase Eligible Certificates shall terminate on the Termination Date without notice or demand
and, thereafter, the Bank shall be under no obligation to purchase Eligible Certificates.
(iii) Upon the occurrence of a Default described in Section 8.07(c), the
Bank’s obligations to purchase Eligible Certificates shall be immediately and
automatically suspended and remain suspended until the case, proceeding or other action referred to therein is either vacated, discharged, or stayed or bonded pending appeal
within sixty (60) days from the commencement of such case, proceeding or action, or the
Termination Date occurs, whichever is first. In the event that said Suspension Event shall
have been vacated, discharged, or stayed or bonded pending appeal within the sixty (60)
day period described therein and prior to the Termination Date, then the Available Commitment and the obligation of the Bank to purchase Eligible Certificates shall be
reinstated and the terms of this Agreement shall continue in full force and effect as if
there had been no such suspension (unless the Commitment Period shall otherwise have
been terminated, suspended or expired as provided in this Agreement). In the event that
said Suspension Event shall not have been vacated, discharged, or stayed or bonded pending appeal within such sixty (60) day period when the Termination Date occurs, then
the Available Commitment and the obligation of the Bank to purchase Eligible
Certificates shall terminate on such Termination Date without notice or demand and,
thereafter, the Bank shall be under no obligation to purchase Eligible Certificates.
(iv) Upon the occurrence of an Event of Default described in Section 8.08(d) or 8.08(e), the Bank’s obligations to purchase Eligible Certificates shall be
immediately and automatically suspended and remain suspended unless and until a court
with jurisdiction to rule on such an Event of Default shall enter a final and nonappealable
judgment that any of the material provisions of the Act or any other document described
in Section 8.08(d) are not valid or not binding on, or enforceable against, the District or that a claim or contest described in Section 8.08(e) shall have been upheld in favor of the
State or the District in accordance with a final and nonappealable judgment, then, in each
such case, the Available Commitment and the obligation of the Bank to purchase Eligible
Certificates shall immediately terminate without notice or demand and, thereafter, the
Bank shall be under no obligation to purchase Eligible Certificates. If a court with jurisdiction to rule on such an Event of Default shall find or rule by entry of a final and
nonappealable judgment that the material provision of the Act or any other document
described in Section 8.08(d) is valid and binding on, or enforceable against, the District
or that the claim or contest described in Section 8.08(e) shall have been dismissed
pursuant to a final and nonappealable judgment, then the Available Commitment and the obligations of the Bank under this Agreement shall, in each such case, thereupon be
13046282.5 42
reinstated (unless the Commitment Period shall otherwise have been terminated,
suspended or expired as provided in this Agreement). Notwithstanding the foregoing, if
the suspension of the obligations of the Bank pursuant to any Event of Default described
in Section 8.08(d) or 8.08(e) remains in effect and litigation is still pending and a determination regarding same shall not have been dismissed or otherwise made pursuant
to a final and non-appealable judgment, as the case may be, when the Termination Date
occurs, then the Available Commitment and the obligation of the Bank to purchase
Eligible Certificates shall terminate on the Termination Date without notice or demand
and, thereafter, the Bank shall be under no obligation to purchase Eligible Certificates.
In the case of each Suspension Event, the Trustee shall subsequently notify all
Certificateholders of the suspension and/or termination of both the Available
Commitment and the obligation of the Bank to purchase Eligible Certificates.
(c) Upon the occurrence of any Event of Default, the Bank shall have all
remedies provided at law or equity, including, without limitation, specific performance; and in addition, the Bank, in its sole discretion, may do one or more of the following: (i) declare all
obligations of the District to the Bank hereunder and under the Fee Letter (other than payments
of principal and redemption price of and interest on the Bank Certificates unless said Bank
Certificates have otherwise become subject to acceleration pursuant to Section 6.01 of the
Installment Purchase Agreement or Section 5.01 of the Master Agreement) to be immediately due and payable, and the same shall thereupon become due and payable without demand,
presentment, protest, notice of intent to accelerate, notice of acceleration or further notice of any
kind, all of which are hereby expressly waived; (ii) the Bank may give written notice of such
Event of Default and termination of the Available Commitment (a “Notice of Termination”) to
the Trustee, the District and the Remarketing Agents requesting a Default Tender; provided, that the obligation of the Bank to purchase Eligible Certificates shall terminate on the thirtieth (30th)
day (or if such day is not a Business Day, the next following Business Day) after such Notice of
Termination is received by the Trustee and, on such date, the Available Commitment shall
terminate and the Bank shall be under no obligation hereunder to purchase Eligible Certificates;
(iii) exercise any right or remedy available to it under any other provision of this Agreement; or (iv) exercise any other rights or remedies available under the Trust Agreement and any other
Related Document, any other agreement or at law or in equity; provided, further, however, the
Bank shall not have the right to terminate its obligation to purchase Eligible Certificates except
as provided in this Section 8.11. Notwithstanding anything to the contrary herein, no failure or
delay by the Bank in exercising any right, power or privilege hereunder, under the Trust Agreement and any other Related Document or under the Certificates and no course of dealing
between the District and the Bank shall operate as a waiver hereof or thereof nor shall any single
or partial exercise hereof or thereof preclude any other or further exercise hereof or thereof or the
exercise of any other right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies which the Bank would otherwise have.
(d) In addition to the foregoing, upon the occurrence of any Event of Default
hereunder, all obligations due and payable hereunder shall bear interest at the Default Rate.
13046282.5 43
ARTICLE IX
NATURE OF OBLIGATIONS; INDEMNIFICATION
SECTION 9.01 Obligations Absolute. Subject to Section 10.13, and to the maximum extent permitted by law, the obligations of the District under this Agreement to pay in
full the funds provided by the Bank hereunder and under the Fee Letter shall be absolute,
unconditional and irrevocable, and shall not be subject to any right of setoff or counterclaim
against the Bank or any Participant and shall be paid and performed strictly in accordance with
the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances
(a) any lack of validity or enforceability of this Agreement or any of the
Related Documents;
(b) any amendment or waiver of any provision of all or any of the Related
Documents;
(c) the existence of any claim, setoff, defense or other rights which the
District may have at any time against the Trustee, the Remarketing Agent, the Bank (other than
the defense of payment to the Bank in accordance with the terms of this Agreement), any
Participant or any other Person, whether in connection with this Agreement, the Related
Documents or any transaction contemplated thereby or any unrelated transaction;
(d) any statement or any other document presented hereunder proving to be
forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever; or
(e) any other circumstance or happening whatsoever, whether or not similar to
any of the foregoing.
SECTION 9.02 Continuing Obligation. This Agreement is a continuing
obligation and shall (a) be binding upon the District and its successors and assigns, and (b) inure
to the benefit of and be enforceable by the Bank and its successors, transferees and assigns;
provided that the District may not assign all or any part of this Agreement without the prior
written consent of the Bank.
SECTION 9.03 Liability of the Bank. With respect to the Bank only, and to the
maximum extent permitted by law, the District assumes all risks of the acts or omissions of the
Trustee with respect to this Agreement or any amounts made available by the Bank hereunder.
Neither the Bank nor any of its officers or directors shall be liable or responsible for (a) the use
which may be made of this Agreement or for any acts or omissions of the Trustee or the Remarketing Agent in connection therewith; (b) the validity, sufficiency or genuineness of
documents (other than the validity and enforceability of the Bank’s obligations hereunder), or of
any endorsement(s) thereon, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; or (c) any other circumstances whatsoever in
making or failing to make payment hereunder, except only that the District shall have a claim against the Bank, and the Bank shall be liable to the District, to the extent, but only to the extent,
13046282.5 44
of any direct, as opposed to consequential or punitive, damages suffered by the District which
the District proves were caused by the Bank’s gross negligence, willful misconduct or willful
failure to make payment hereunder in accordance with terms hereof; provided, however, that the
maximum amount of damages recoverable by the District as provided above is expressly limited to the amount of the Available Commitment. The District assumes all risks associated with the
acceptance by the Bank of documents received by telecommunication, it being agreed that the
use of telecommunication devices is for the benefit of the District and that the Bank assumes no
liabilities or risks with respect thereto.
SECTION 9.04 Indemnification. To the maximum extent permitted by law, in addition to any and all rights of reimbursement, indemnification, subrogation or any other rights
pursuant hereto or under law or equity, the District agrees to indemnify and hold harmless the
Bank and each Participant and their respective officers, directors, employees and agents (each an
“Indemnified Party”) from and against any and all claims, damages, losses, liabilities,
reasonable costs or expenses whatsoever that any Indemnified Party may incur (or which may be claimed against any Indemnified Party, by any person or entity whatsoever) that arises out of the
transactions contemplated by this Agreement, any Related Documents or the Certificates,
including, without limitation, (a) the remarketing or resale of the Certificates (including, without
limitation, by reason of any untrue statement or alleged untrue statement of any material fact
contained or incorporated by reference in any official statement or any other offering circular or document used in connection therewith, or in any supplement or amendment thereof, or the
omission or alleged omission to state therein a material fact necessary to make such statement, in
light of the circumstances under which they are, or were, made, not misleading or the failure to
deliver any official statement or any other offering circular or document to any offeree or
purchaser of Certificates), (b) the execution and delivery of, or payment or failure to pay under, this Agreement and (c) the use of the proceeds of the sale of the Certificates; provided that the
District shall not be required to indemnify an Indemnified Party for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful
misconduct or gross negligence of the Indemnified Party, (ii) the material inaccuracy of any
information included in any official statement or any offering circular or document related to the Certificates concerning the Bank that was furnished in writing by the Bank expressly for
inclusion therein or (iii) the Bank’s willful failure to make payment hereunder in accordance
with the terms hereof. If any proceeding shall be brought or threatened against any Indemnified
Party by reason of or in connection with the event described above (and except as otherwise
provided above), such Indemnified Party shall promptly notify the District in writing and the District shall, to the maximum extent permitted by law, assume the defense thereof, including the
employment of counsel and the payment of all reasonable costs of litigation; provided however,
that the District may not settle any proceeding with respect to which it has assumed the defense
thereof without the prior written consent of the Bank. Notwithstanding the preceding sentence,
an Indemnified Party shall have the right to employ its own counsel and to determine its own defense of such action in any such case, but the fees and expenses of such counsel shall be at the
sole expense of such Indemnified Party unless (1) the employment of such counsel shall have
been authorized in writing by the District or (2) the District, after due notice of the action, shall
have unreasonably failed to employ counsel to take charge of such defense, in either of which
events the reasonable fees and expenses of counsel for such Indemnified Party shall be borne by the District. The District shall not be liable for any settlement of any such action effected
13046282.5 45
without its express written consent. The parties hereto agree that the provisions of this Section
shall survive the termination of this Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Right of Setoff. Upon the occurrence of an Event of Default, the
Bank and any Participant may, at any time and from time to time, without notice to the District
or any other person (any such notice being expressly waived), set off and appropriate and apply,
against and on account of, any obligations and liabilities of the District to the Bank or any such Participant arising under or connected with this Agreement and the Related Documents to which
the District is a party, without regard to whether or not the Bank or any such Participant shall
have made any demand therefor, and although such obligations and liabilities may be contingent
or unmatured, any and all deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other indebtedness at any time held or owing by the Bank or any such
Participant to or for the credit or the account of the District (excluding amounts payable in
respect of the Purchase Price of Certificates).
SECTION 10.02 Amendments and Waivers. No waiver of any provision of this
neither Agreement nor consent to any departure by the District from any such provision shall in any event be effective unless the same shall be in writing and signed by the Bank. No
amendment of this Agreement shall be effective unless the same is in writing and signed by all of
the parties hereto. Any such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. In the event any agreement contained in this
Agreement should be breached by the District and thereafter waived by the Bank, such waiver shall be limited to the particular breach so waived for the specific period set out in such waiver
and such waiver shall not constitute a waiver of such breach for any other period and shall not
waive any other or similar breach hereunder.
SECTION 10.03 No Waiver; Remedies. No failure on the part of the Bank to
exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver of such right; nor shall any single or partial exercise of any right under this Agreement preclude any
other further exercise of such right or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 10.04 Notices. Unless specifically indicated otherwise herein, all notices
and other communications provided for hereunder shall be in writing and, if to the District, addressed to it at:
Orange County Sanitation District
10844 Ellis Avenue
Fountain Valley, California 92708
Attention: Telephone No.: (714) 962-2411
Telecopy No.: (714) 962-3954
13046282.5 46
or if to the Bank, addressed to it at:
LLOYDS TSB BANK plc,
New York Branch
[TEXT TO COME]
or if to the Trustee, addressed to it at:
U.S. Bank National Association
[TEXT TO COME]
or as to each party at such other address as shall be designated by such party in a written notice to the other parties.
Any notice or other communication shall be sufficiently given and shall be deemed given
when delivered to the addressee in writing or when given by telephone immediately confirmed in
writing by telecopier or other telecommunication device.
SECTION 10.05 Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or unauthorization, without
invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of
such provision in any other jurisdiction.
SECTION 10.06 GOVERNING LAW; JURY TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK AND APPLICABLE FEDERAL LAW WITHOUT REGARD TO CHOICE OF LAW RULES, EXCEPT THAT THE OBLIGATIONS OF
THE DISTRICT HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA AND APPLICABLE FEDERAL LAW WITHOUT REGARD TO CHOICE OF LAW RULES.
(b) TO THE EXTENT PERMITTED BY LAW, THE DISTRICT AND THE BANK
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE FEE LETTER OR THE
OTHER RELATED DOCUMENTS TO WHICH THE DISTRICT OR THE BANK IS A PARTY.
SECTION 10.07 Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not have any effect for purposes of interpretation or
construction of the terms of this Agreement.
SECTION 10.08 Participations; Assignment. (a) The District acknowledges and agrees that the Bank may sell participations in its rights and obligations hereunder and under the
Bank Certificates, this Agreement, the Fee Letter and any other Related Documents (collectively,
the “Participated Obligations”) to any Participant and, to the maximum extent permitted by
13046282.5 47
law, waives any notice of such Participated Obligations. The District further acknowledges and
agrees that, upon any such participation, the Participants would become owners of a pro rata
portion of the Participated Obligations and the District waives any right of setoff it may at any
time have against the Bank or any Participant with regard to the Participated Obligations. Any participation granted as described above in this Section shall not limit the obligations of the Bank
hereunder. Notwithstanding anything to the contrary in this Agreement, no Participant shall be
entitled to any payment in excess of that to which the Bank would have been entitled had it not
granted such participation.
(b) The Bank may assign and pledge all or any portion of the obligations owing to it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any Operation
Circular issued by such Federal Reserve Bank; provided, that any payment in respect of such
assigned obligations made by the District to the Bank in accordance with the terms of this
Agreement shall satisfy the District’s obligations hereunder in respect of such assigned obligation to the extent of such payment. No such assignment shall release the Bank from its
obligations hereunder.
(c) The District may not assign its rights and obligations under this Agreement or the
Fee Letter without the prior written consent of the Bank, such consent to be at the Bank’s sole
discretion.
SECTION 10.09 Extension. Upon the written request of the District received by the
Bank no earlier than one hundred twenty (120) days prior to the Expiration Date then in effect, or
such other date to which the Bank may consent in writing, the Bank shall, within thirty (30) days
after its receipt of such request, give written notice (in substantially the form of Exhibit D) to the
District and the Trustee whether or not it will extend the scheduled Expiration Date. Any extension shall be at the sole and absolute discretion of the Bank. If the Bank fails to deliver said
notice to the District within such 30-day period, the Bank shall be deemed to have rejected such
request. Any such request by the District for an extension of the Expiration Date shall be
substantially in the form of Exhibit C hereto (or in such other form to which the Bank may
consent in writing) and, unless the Bank shall otherwise consent, shall include (i) a statement of the aggregate principal amount of Installment Payments due in order to repay or prepay the
outstanding principal amount thereof evidenced by the Certificates, (ii) a reasonably detailed
description of any and all Events of Default and all conditions, events and acts which with notice
or lapse of time or both would become an Event of Default, and (iii) any other pertinent
information requested by the Bank.
SECTION 10.10 Counterparts. This Agreement may be signed in any number of
counterpart copies, but all such copies shall constitute one and the same instrument.
SECTION 10.11 Completed and Controlling Agreement. This Agreement and the
other Related Documents completely set forth the agreements between the Bank and the District
and fully supersede all prior agreements, both written and oral, between the Bank and the District relating to all matters set forth herein and in the Related Documents.
13046282.5 48
SECTION 10.12 Term of the Agreement; Survival. (a) The term of this Agreement
shall be until the later of (i) the last day of the Commitment Period and (ii) the payment in full of
the Installment Payments evidencing the principal of and interest due on all Bank Certificates
and all obligations due hereunder and under the Fee Letter.
(b) The obligations of the District under Sections 2.08, 2.10 and 9.04 hereof
and under the Fee Letter, including all Obligations set forth herein and in the Fee Letter, shall
survive the termination of this Agreement.
SECTION 10.13 USA Patriot Act. (a) The Bank hereby notifies the District that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107 56 (signed into law October 26, 2001)) (as amended from time to time, the “Patriot Act”), the Bank is required to
obtain, verify and record information that identifies the District, which information includes the
name and address of the District and other information that will allow the Bank to identify the
District in accordance with the Patriot Act, and the District hereby agrees to take any action
necessary to enable the Bank to comply with the requirements of the Patriot Act.
(b) The District shall ensure that (i) no person who controls the District is or
shall be listed on the Specially Designated Nationals and Blocked Person List or other similar
lists maintained by the Office of Foreign Assets Control, the Department of the Treasury or
included in any Executive Orders, that prohibits or limits the Bank from making any advance or
extension of credit to the District or from otherwise conducting business with the District, and (ii) the proceeds of the Certificates shall not be used to violate any of the foreign asset control
regulations of Office of Foreign Assets Control or any enabling statute or Executive Order
relating thereto. Further, the District shall comply with all applicable Bank Secrecy Act laws and
regulations, as amended. The District agrees to provide documentary and other evidence of
District’s identity as may be requested by the Bank at any time to enable the Bank to verify the District’s identity or to comply with any applicable law or regulation, including, without
limitation, Section 326 of the Patriot Act.
SECTION 10.14 Revenue Obligation.
(a) Notwithstanding anything contained herein, the District shall not be
required to advance any moneys derived from any source of income other than Net Revenues to pay any payments required to be made by it under this Agreement, or for the performance of any
agreements or covenants required to be performed by it contained herein.
(b) The obligation of the District to pay any payments required to be made by
it hereunder and under the Fee Letter is a special obligation of the District payable, in the manner
provided herein, solely from Net Revenues, 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 District or the State of California, or any political subdivision thereof, is
pledged to the payment of the payments required to be made by the District under this
Agreement.
13046282.5 49
This Agreement and the Fee Letter constitute Reimbursement Obligations entered into
with respect to a Senior Obligation; this Agreement and the Fee Letter, therefore, constitute
Senior Contracts and, consequently, Senior Obligations 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.
Capitalized undefined terms used in this Section 10.14 shall have the meanings ascribed
thereto in the Master Agreement.
[Remainder of page intentionally left blank]
13046282.5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as of the date first
above written.
ORANGE COUNTY SANITATION DISTRICT
By:
Name:
Title: Chair of the Board of Directors
[SEAL]
Attest By:
Clerk of the Board of Directors
13046282.5
LLOYDS TSB BANK plc, acting through its New
York Branch
By:
Name: __________ Title: _______________
By:
Name: ______________
Title: ____________
13046282.5 A-1
EXHIBIT A
NOTICE OF BANK PURCHASE
(Optional Tender)
The undersigned, a duly authorized officer of Deutsche Bank National Trust Company, as trustee (the “Trustee”), hereby certifies to Lloyds TSB Bank plc, acting through its New York
Branch (the “Bank”), in accordance with the Standby Certificate Purchase Agreement, dated as
of August [__], 2010 (as the same may be amended and supplemented from time to time, the
“Agreement”), by and between Orange County Sanitation District (the “District”) and the Bank
(all capitalized terms herein having the meanings ascribed thereto in the Standby Purchase Agreement), that:
1. Notice of a tender of Eligible Certificates for purchase, pursuant to Section [5.01/
5.02][* - Trustee to specify the applicable section] of the Trust Agreement, has been received.
2. Insufficient moneys are available for such purchase pursuant to Section 5.06 of
the Trust Agreement.
3. The total principal amount of Eligible Certificates for which there is not sufficient
moneys referred to above is [$__________], which amount does not exceed the Available
Principal Commitment.
4. Accrued, but unpaid, interest evidenced by such Certificates, computed in
accordance with the terms of the Certificates and the Trust Agreement, as of the date of delivery hereof to the Bank is [$__________](1), which amount does not exceed the Available Interest
Commitment.
5. The Eligible Certificates referred to above are hereby tendered to the Bank for
purchase pursuant to the Standby Purchase Agreement on the date hereof for an aggregate
purchase price of [$__________](2), which amount does not exceed the Available Commitment.
6. Upon completion of purchase, the Trustee will [register such Certificates, or if a
Certificate for which notice of tender for purchase pursuant to Section [5.01(b)/5/02(b)] [* -
Trustee to specify the applicable section] of the Trust Agreement has been given is not delivered,
a new Certificate issued in replacement of the undelivered Certificate, in the name of the Bank
or, if directed in writing by the Bank, its nominee or designee on the Certificate Register] [cause the beneficial ownership of such Certificates to be credited to the account of the Bank or, if
directed in writing by the Bank, its nominee or designee with DTC and register such Certificates
in the name of the Bank or its nominee or designee on the Certificate Register] [, and will
promptly deliver such Certificates to the Bank or as the Bank may otherwise direct in writing,
and prior to such delivery will hold such Certificates in trust for the benefit of the Bank].
7. The Purchase Date is ____________________.
8. The Purchase Price for such Eligible Certificates is to be paid to the Trustee as
follows:
13046282.5 A-2
[insert wire transfer instructions]
9. To the best of our knowledge, no Special Event of Default has occurred and is
continuing.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of _____________________.
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
Name: Title:
13046282.5 B-1
EXHIBIT B
NOTICE OF BANK PURCHASE
(Mandatory Purchase)
The undersigned, a duly authorized officer of Deutsche Bank National Trust Company, as trustee (the “Trustee”), hereby certifies to Lloyds TSB Bank plc, acting through its New York
Branch (the “Bank”), in accordance with the Standby Certificate Purchase Agreement, dated as
of August [__], 2010 (as the same may be amended and supplemented from time to time, the
“Agreement”), by and between Orange County Sanitation District (the “District”) and the Bank
(all capitalized terms herein having the meanings ascribed thereto in the Standby Purchase Agreement), that:
1. Eligible Certificates have been tendered or deemed tendered for mandatory
purchase pursuant to a Mandatory Purchase.
2. Insufficient moneys are available for such purchase pursuant to Section 5.06 of
the Trust Agreement.
3. The total principal amount of Eligible Certificates for which there is not sufficient
money’s referred to above is $_________, which amount does not exceed the Available Principal
Commitment.
4. Accrued, but unpaid, interest evidenced by such Certificates, computed in
accordance with the terms of the Certificates and the Trust Agreement, as of the date of delivery hereof to the Bank is [$__________](3), which amount does not exceed the Available Interest
Commitment.
5. The Eligible Certificates referred to above are being delivered to the Bank for
purchase pursuant to the Standby Purchase Agreement on the date hereof for an aggregate
purchase price of [$__________](4), which amount does not exceed the Available Commitment.
6. Upon completion of purchase, the Trustee will [register such Certificates, or if a
Certificate subject to mandatory purchase pursuant to Section [5.03/5.04] [* - Trustee to specify
the applicable section] of the Trust Agreement is not delivered, a new Certificate issued in
replacement of the undelivered Certificate, in the name of the Bank or, if directed in writing by
the Bank, its nominee or designee on the Certificate Register] [cause the beneficial ownership of such Certificates to be credited to the account of the Bank or, if directed in writing by the Bank
,its nominee or designee with the DTC and register such Certificates in the name of the Bank or
its nominee or designee on the Certificate Register] [, and will promptly deliver such Certificates
to the Bank or as the Bank may otherwise direct in writing, and prior to such delivery will hold
such Certificates in trust for the benefit of the Bank].
7. The Purchase Date is __________________.
8. The Purchase Price for such Certificates is to be paid to the Trustee as follows:
[insert wire transfer instructions]
13046282.5 B-2
9. To the best of our knowledge, no Special Event of Default has occurred and is
continuing.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of
_______________________________.
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
Name:
Title:
13046282.5 C-1
EXHIBIT C
FORM OF EXTENSION REQUEST
LLOYDS TSB BANK plc, New York Branch
[TO COME]
Dear Sir or Madam:
Reference is hereby made to that certain Standby Certificate Purchase Agreement, dated
as of August [__], 2010 (as the same may be amended and supplemented from time to time, the
“Agreement”), by and between Orange County Sanitation District (the “District”) and Lloyds
TSB Bank plc, acting through its New York Branch (the “Bank”). All capitalized terms
contained herein which are not specifically defined shall be deemed to have the definitions set forth in the Agreement. The District hereby requests, pursuant to Section 10.09 of the
Agreement, that the Expiration Date for the Commitment Period be extended by [___]
days/[___] year[s] to [DATE]. Pursuant to Section 10.09 of the Agreement, we have enclosed
along with this request the following information:
1. The aggregate principal amount of Installment Payments due in order to repay or prepay the outstanding principal amount evidenced by the
Certificates;
2. The nature of any and all Events of Default and all conditions, events and
acts which with notice or lapse of time or both would become an Event of
Default; and
3. Any other pertinent information previously requested by the Bank.
The Bank is required to notify the District and the Trustee of its decision with respect to
this request for extension within thirty (30) days of the date of receipt hereof. If the Bank fails to
notify the District of its decision within such 30-day period, the Bank shall be deemed to have
rejected such request.
ORANGE COUNTY SANITATION DISTRICT
Date: By:_______________________________
Name:
Title:
13046282.5 D-1
EXHIBIT D
FORM OF EXTENSION NOTICE
ORANGE COUNTY SANITATION DISTRICT 10844 Ellis Avenue
Fountain Valley, California 92708
ATTN: [_______________]
Dear Sir or Madam:
1. Pursuant to Section 10.09 of the Standby Certificate Purchase Agreement, dated
as of August [__], 2010 (as the same may be amended and supplemented from time to time, the
“Agreement”), by and between Orange County Sanitation District (the “District”) and Lloyds
TSB Bank plc, acting through its New York Branch (the “Bank”), entered into in connection with the “$200,000,000 Orange County Sanitation District Certificates of Participation, Series
2000-A and Series 2000-B”, and your written request pursuant thereto dated __________, the
undersigned hereby notifies you that [, subject to your acceptance of the terms described in
paragraph 2 below,] [*use bracketed phrase only if applicable] it has agreed to an extension of
the Expiration Date thereunder to ___________________.
2. The additional or different terms to be applicable to the extension are specified
below [*to be completed if necessary]:
3. Except as specified in paragraphs 1 and 2 above, the Agreement is unchanged and
remains in full force and effect.
LLOYDS TSB BANK plc, acting through its New York Branch
Date: By:________________________________
Name:
Title:
By:________________________________ Name: Title:
NIXON DRAFT OF 7/2/10
13052951.6
EXHIBIT E FORM OF OPINION OF DISTRICT COUNSEL
Orange County Sanitation District
Refunding Certificates of Participation. Series 2000-A and Series 2000-B
Ladies and Gentlemen:
We have acted as Counsel to the Orange County Sanitation District (the “District”) in connection with the execution and delivery of the Standby Certificate Purchase Agreement,
dated as of August __, 2010 (the “Standby Certificate Purchase Agreement”), by and between
the District and Lloyds TSB Bank plc, acting through its New York Branch (the “Bank”), and the
Remarketing Memorandum relating to the Orange County Sanitation District Refunding Certificates of Participation, Series 2000 (the “Certificates”), dated August __, 2010 (the “Remarketing Memorandum”). Capitalized terms used but not defined herein shall have the
meanings ascribed thereto in the Standby Certificate Purchase Agreement.
In such connection we have examined such certificates of public officials, such
certificates of officers of the District, and copies, certified to our satisfaction, of such municipal documents and records of the District and of such other documents, as we have deemed relevant and necessary as a basis for our opinions hereinafter set forth. We have relied upon such
certificates of public officials and of officers of the District with respect to the accuracy of
material factual matters contained therein which were not independently established.
On the basis of the foregoing, we are of the opinion that:
1. The District is a county sanitation district of the State of California duly organized and validly existing under the Constitution and the laws of the State of California;
2. Except as disclosed in the Remarketing Memorandum, there is no action, suit,
proceeding or investigation at law or in equity before or by any court, public board or body,
pending or threatened against or affecting the District, which would materially and adversely impact the District’s ability to complete the transactions described in and contemplated by the Remarketing Memorandum, to restrain or enjoin the payments under the Installment Purchase
Agreement, or in any way contesting or affecting the validity of the Standby Certificate Purchase
Agreement, the Certificates or the transactions relating to the Project as described and defined in the Remarketing Memorandum or in any way contesting or affecting the powers of the District in connection with any action contemplated by the Remarketing Memorandum and the Standby
Certificate Purchase Agreement;
3. The adoption of the resolution by the Board of Directors of the District, adopted
by the Board on August [__], 2010 (the “District Resolution”), authorizing the preparation and delivery of the Remarketing Memorandum and the execution and delivery of the Standby Certificate Purchase Agreement by the District and the performance by the District of its
obligations under the Standby Certificate Purchase Agreement will not conflict with or result in a
breach of any of the terms, conditions or provisions of any agreement or instrument to which the
13052951.6 3
District is a party or by which it is bound or constitute a default thereunder and all consents,
approvals, authorizations and orders of a governmental or regulatory authority, if any, which are
required to be obtained by the District for the consummation of the transactions contemplated by
the Remarketing Memorandum or as conditions precedent to the execution and delivery of the Certificates have been obtained; provided, however, that no opinion is expressed as to any action
required under state securities or blue sky laws;
4. The Standby Certificate Purchase Agreement has been duly authorized, executed
and delivered by the District, and, assuming the due authorization, execution and delivery by the
Bank, constitutes a legal, valid and binding agreement of the District enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating to or limiting
creditors’ rights generally and by the application of equitable principles if equitable remedies are
sought and by the limitations on legal remedies imposed on actions against public bodies such as
the District in the State of California;
5. No authorization, approval, consent, or other order of the State of California or
any other governmental authority or agency within the State of California is required for the
valid authorization, execution and delivery of the Standby Certificate Purchase Agreement and
the approval of the preparation and delivery of the Remarketing Memorandum; and
6. Based upon examinations which we have made and our discussions in conferences with certain officials of the District and others with respect to the Remarketing
Memorandum and without having undertaken to determine independently the accuracy,
completeness or fairness of the statements contained in the Remarketing Memorandum
(including the appendices attached thereto), nothing has come to our attention which would lead
us to believe that the Remarketing Memorandum (other than financial and statistical data therein and incorporated therein by reference, and other than information relating to the Bank, the
Standby Certificate Purchase Agreement and the DTC Book-Entry System, or information
provided by the Remarketing Agent for inclusion in the Remarketing Memorandum, as to which
no opinion need be expressed) contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
We are licensed to practice law in the State of California, and we do not purport to be
experts on any law other than the law of the State of California and the federal law of the United
States of America. We do not express any opinion herein concerning any law other than the
substantive law of the State of California and of the United States of America (as applicable, without regard to conflict of law principles). With respect to any agreement that by its terms is
governed by the laws of a state other than the State of California, we have assumed for purposes
hereof that the applicable laws of such state are the same as the applicable laws of the State of
California.
Sincerely, WOODRUFF, SPRADLIN & SMART
By:
13052951.6 4
EXHIBIT F
FEE LETTER
August ___, 2010
Orange County Sanitation District
10844 Ellis Avenue
Fountain Valley, California 92708
Ladies and Gentlemen:
Reference is made to the Standby Certificate Purchase Agreement, dated as of August __,
2010 (as amended and supplemented from time to time, the “Agreement”), by and between the
Orange County Sanitation District (the “District”) and Lloyds TSB Bank plc, acting through its
New York Branch (the “Bank”), relating to $[218,600,000] in outstanding aggregate principal amount of the District’s Refunding Certificates of Participation, Series 2000-A and Series 2000-
B, [$194,000,000 of which is currently outstanding] (the “Certificates”). Any capitalized term
below that is defined in the Agreement shall have the same meaning when used herein. This
letter is the Fee Letter described in the Agreement.
In order to induce the Bank to enter into the Agreement and to purchase the Certificates pursuant to the Agreement, the District agrees to make, or cause to be made, the following
payments at the following times:
(A) Facility Fee. (1) The District shall pay to the Bank an annual fee (the “Facility Fee”),
computed on the basis set forth hereinbelow, at a rate per annum equal to forty-nine basis
points per annum (0.49%), as said Facility Fee may be adjusted in accordance with the table below, on the Available Commitment, for the period from the Effective Date to the
Expiration Date:
Level S&P
Rating
Fitch
Rating
Facility Fee
Level 1 AAA AAA 0.49 %
Level 2 AA+ AA+ 0.54 %
Level 3 AA AA 0.59 %
Level 4 AA- AA- 0.64 %
Level 5 A+ A+ 0.74 %
Level 6 A A 0.84 %
Level 7 A- A- 0.94 %
Level 8 BBB+ BBB+ 1.14 %
Level 9 BBB BBB 1.34 %
Level
10
BBB- BBB- 1.54 %
Level
11
Below
BBB-
Below
BBB-
1.84 %
13052951.6 5
(2) The Facility Fee for any date shall be determined by reference to the rating of the
District assigned by S&P and Fitch listed above for such date (the “District Rating”). A downgrade in the District Rating (excluding any downgrade due to a reduction of the long-term credit rating relating to a bond insurer or other credit
enhancer) will result in an increase in the Facility Fee as indicated above but only
at such time as the Rating Agencies have assigned such District Rating described at
a specific level set forth above; provided, however, that (i) if and when there is a
split in the District Rating, then the Facility Fee will be set at the Level represented by the lowest of the three District Ratings (e.g., if, on any given day, Fitch has
assigned a District Rating of “A+” (or its equivalent) and S&P has assigned a
District Rating of “A” (or its equivalent), then the Facility Fee will be set at the
Level associated with the “A” level) and (ii) notwithstanding the provisions of sub-
clause (i) hereof, in the event of a split rating as indicated at Level 1 and Level 2 above, the Facility Fee will be as specified at Level 1 or Level 2, as applicable. If
any Rating Agency shall withdraw or suspend its District Rating for any reason
(other than the reduction of the long-term credit rating related to a bond insurer or
other credit enhancer), then the Facility Fee shall increase automatically and
immediately to Level 11 and shall remain in effect for so long as such withdrawal or suspension remains in effect.
(3) In addition to the foregoing, upon the occurrence of any Event of Default, and for
so long as said Event of Default has not been cured or waived by the Bank, the
Facility Fee shall increase automatically and immediately by one hundred fifty
basis points (1.50%) per annum above the Facility Fee in effect immediately prior to the occurrence of said Event of Default until the same has been cured or waived
by the Bank.
(4) Any change in the Facility Fee resulting from a change, cancellation, downgrade,
upgrade, withdrawal or suspension of a rating shall be and become effective as of
and on the date of the public announcement of the change, cancellation, downgrade, upgrade, withdrawal or suspension of such rating. Any change in the
Facility Fee resulting from an Event of Default shall become effective as of and on
the date such Event of Default first occurs and said change in the Facility Fee shall
remain in effect until the Bank has provided a written waiver thereof or said Event
of Default has been cured to the satisfaction of the Bank. References to the ratings above are references to the rating categories of Fitch and S&P as presently
determined by the respective Rating Agency and, in the event of adoption of any
new or changed rating system by Fitch or S&P, or in the event that another Rating
Agency is included by the District or replaces one of the rating agencies then rating
the Certificates, the ratings from the applicable Rating Agency shall be deemed to refer to the rating category under the new rating system which most closely
approximates the applicable rating category as then currently in effect or, in the
case of a substitute Rating Agency, shall be deemed to refer to the rating category
that most closely approximates the applicable rating categories that were in effect
on the date hereof.
13052951.6 6
(5) The Facility Fee shall be payable quarterly in arrears on each [October 1, January
1, April 1 and July 1], commencing on [October 1], 2010, with the final such
payment being payable on the final day of the Commitment Period. [OCSD AND
BANK TO CONFIRM THAT THESE ARE ACCEPTABLE PAYMENT DATES.]
(6) The District hereby acknowledges that, as of the Effective Date, the Facility Fee is
being determined in accordance with Level 1 of the chart set forth above.
(B) Fees.
(1) On or before the Effective Date, the Authority will pay to the Bank the reasonable out-of-pocket expenses of the Bank (not to exceed $5,000) and fees of its foreign
counsel incurred in connection with the preparation and execution of this Fee
Letter and the Agreement (not to exceed $5,000); and
(2) On or before the Effective Date, the District shall pay the fees and expenses of
Nixon Peabody LLP, counsel to the Bank, in an amount equal to $[_______].
(C) Draws. Upon each demand for purchase, the District shall pay a “Draw Fee” equal to
$500 per drawing payable on the date of such draw.
(D) Amendment Fee. Upon any amendment, supplement or modification of the Agreement in
accordance with its respective terms, or upon the request of the District or the Trustee for
action on the part of the Bank in connection with an amendment, supplement, waiver, consent or other modification of any Related Document, the District shall pay to the
Bank an “Amendment Fee” equal to $5,000 per amendment, supplement or modification
plus, in each case, the reasonable fees and disbursements of counsel to the Bank in
connection with such amendment, supplement or modification.
(E) Transfer Fee. In connection with the written request by the District or the Trustee for the transfer of the rights and obligations of the District or the Trustee under the Agreement,
the District shall pay or cause to be paid to the Bank a sum equal to $2,500 plus, in each
case, the reasonable fees and expenses of counsel to the Bank.
(F) Voluntary Termination Fee; Reduction Fee.
(1) If the District terminates the Commitment Period prior to the first anniversary of the Effective Date, then the District shall pay the Bank a termination fee in an
amount equal to the Facility Fee payable pursuant to paragraph (A) hereof (based
upon the Available Commitment as of the Effective Date) for one full calendar
year from and including the Effective Date at the rate in effect for the Facility Fee
as of the date of such termination, less the actual amount of Facility Fees the District has previously paid to the Bank pursuant to paragraph (A) hereof (the
“Termination Fee”); provided however that no Termination Fee will be required
to be paid by the District if, prior to the first anniversary of the Effective Date, the
short-term rating assigned to the Certificates by Fitch or S&P shall have been
lowered below “F-1” or “A-1”, as applicable, as a result of a reduction,
13052951.6 7
suspension or withdrawal by said Rating Agency of the unsecured short-term
rating of the Bank. Regardless of whether a Termination Fee is due and payable
as described in the immediately preceding sentence, on or prior to the date of
termination, the District will pay, or arrange for payment of, without limitation, all principal and interest evidenced by Bank Certificates, and all amounts payable
under the Agreement and this Fee Letter shall be paid to the Bank at or prior to
the time of termination. In addition, the Authority shall comply with the
requirements of the Trust Agreement with respect to terminating the Agreement.
(2) If the District reduces the Available Commitment (without terminating same in full) prior to the first anniversary of the Effective Date, then the District shall pay
the Bank, on or prior to the date upon which the reduction is to become effective,
a fee (the “Reduction Fee”) equal to the Facility Fee payable pursuant to
paragraph (A) hereof that would have accrued on the amount of the Available
Commitment to be reduced had no such reduction taken place, said Reduction Fee to be computed for the period from and including the date said reduction is to
become effective through the first anniversary of the Effective Date; provided
however that no Reduction Fee will be required to be paid by the District if, prior
to the first anniversary of the Effective Date, the short-term rating assigned to the
Certificates by Fitch or S&P shall have been lowered below “F-1” or “A-1”, as applicable, as a result of a reduction, suspension or withdrawal by said Rating
Agency of the unsecured short-term rating of the Bank.. Regardless of whether a
Reduction Fee is due and payable as described in the immediately preceding
sentence, on or prior to the date of reduction, the District will pay, or arrange for
payment of, all other amounts payable under the Agreement and this Fee Letter which are payable to the Bank at or prior to the time of reduction. In addition, the
Authority shall comply with the requirements of the Trust Agreement with respect
to reducing the Available Commitment.
All amounts paid pursuant to this Fee Letter shall be non-refundable and will be deemed
earned when paid. Computations of the Facility Fee shall be made on the basis of a 360-day year and actual days elapsed. All other amounts due and payable hereunder and in connection with
interest due and payable on the Bank Certificates will be made on the basis of a 365-day year and
actual days elapsed. All amounts paid pursuant to this Fee Letter shall be paid in the manner set
forth in the Agreement.
This Fee Letter may not be amended or waived except by an instrument in writing signed by the Bank and the District.
The payment obligations of this Fee Letter shall be subject to Section 5.01(k) and Section
10.14 of the Agreement, and the governing law with respect to this Fee Letter shall be subject to
the provisions of Section 10.06 of the Agreement.
This Fee Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of
an executed signature page of this Fee Letter by electronic transmission shall be effective as
delivery of a manually executed counterpart hereof.
13052951.6 8
This Fee Letter is delivered to the District on the understanding that neither this Fee
Letter nor any of its terms shall be disclosed, directly or indirectly, to any other person except
(a) to your officers, directors, employees, accountants, attorneys, agents and advisors who are
directly involved in the consideration of this matter on a confidential and need-to-know basis and for whom the District shall be responsible for any breach by any of them of this confidentiality
undertaking or (b) under compulsion of law (whether by interrogatory, subpoena, civil
investigative demand or otherwise) or by order of any court or governmental or regulatory body;
provided that, to the extent permitted, the District shall give the Bank reasonable prior notice of
such disclosure.
[Signature Page Follows]
13046282.5 E-1
Please confirm that the foregoing is our mutual understanding by signing and returning to
the Bank an executed counterpart of this Fee Letter. This Fee Letter shall become effective as of
the date first above referenced upon our receipt of an executed counterpart of this Fee Letter
from the District.
Very truly yours,
LLOYDS TSB BANK plc, acting through its New
York Branch
By: ______________________________________
Name: Title:
By: ______________________________________
Name:
Title:
Accepted and agreed to as of the date first
written above by:
ORANGE COUNTY SANITATION
DISTRICT
By:
Name:
Title:
Page 1
ADMINISTRATION COMMITTEE Meeting Date
07/14/10
To Bd. of Dir.
07/28/10
AGENDA REPORT Item Number 5 Item Number
Orange County Sanitation District
FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
GENERAL MANAGER'S RECOMMENDATION
Adopt Resolution No. OCSD 10-XX, Authorizing the Orange County Sanitation District’s
Treasurer to Invest and/or Reinvest District’s Funds; Adopting District’s Investment
Policy Statement and Performance Benchmarks for FY 2010-11; and Repealing Resolution No. OCSD 09-10.
SUMMARY This agenda item presents the annual review of the Orange County Sanitation District's
Investment Policy Statement to the Administration Committee for consideration in the
Committee's capacity as the oversight committee for the Investment Policy (Section
16.2). With adoption of the Resolution, the Board of Directors would readopt the Sanitation District's current Investment Policy Statement, portfolio performance benchmarks, and monitoring and reporting requirements for FY 2010-11.
The Sanitation District's Investment Policy Statement is recommended for adoption for
FY 2010-11 with no changes made to the State Government Code since the adoption of the FY 2009-10 Investment Policy.
Staff will continue to monitor pending legislative and regulatory proposals in the public
finance area for their potential impact on the Sanitation District’s existing financial
programs. The Sanitation District’s Investment Policy Statement has received the Investment Policy
Certification of Excellence Award from the Municipal Treasurer’s Association of the
United States and Canada.
PRIOR COMMITTEE/BOARD ACTIONS
July 22, 2009 – Board adopted Resolution No. OCSD 09-10, Authorizing the Orange
County Sanitation District’s Treasurer to Invest and/or Reinvest District’s Funds; Adopting District’s Investment Policy Statement and Performance Benchmarks for FY 2009-10; and, Repealing Resolution No. OCSD 08-13.
Page 2
ADDITIONAL INFORMATION Background
The Investment Policy governs the investment activities of Pacific Investment
Management Company (PIMCO), the Sanitation District's external money manager, on behalf of the District. On April 25, 2005, the Sanitation District's Investment Policy Statement received the Investment Policy Certification of Excellence Award from the
Municipal Treasurer's Association of the United States and Canada. A copy of the letter
of certification is included each year in the annual Investment Policy document. The
Sanitation District received its first Award of Excellence for the Investment Policy Statement in December 1996.
The Investment Policy document itself consists of the Investment Policy Statement and
the following eight appendices:
A. Summary of Investment Authorization B. Treasury Management Procedures
C. Investment Manager Certification
D. Investment Pool Questionnaire (LAIF)
E. Board Resolution No. OCSD-09-10 F. Sample Monthly & Quarterly Investment Program Monitoring Reports G. Sections of the California Government Code Pertinent to Investing Public
Funds
H. Glossary of Investment Terms
This document will be updated and delivered to Administration Committee members following the adoption of the Sanitation District’s investment policy statement.
Annual Review of Investment Policy
The Investment Policy includes the requirement that the Sanitation District shall review its Investment Policy annually (Sections 1.2 and 16.1).
Annual Delegation of Investment Authority
Effective January 1, 1997, Section 53607 of the Code states that governing boards of local agencies may only delegate authority to invest and/or reinvest agency funds to the
agency's Treasurer for a one-year period.
With adoption of the Resolution, the Board of Directors would renew its delegation of investment authority to the Director of Finance/Treasurer for a one-year period in compliance with the requirements of Section 53607. Each year, the Board of Directors
will consider similar actions along with the annual reconsideration of the Sanitation
District's Investment Policy.
Page 3
CEQA N/A
BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A
ATTACHMENTS
1. Exhibit A - OCSD FY 2009-10 Investment Policy Statement
2. Exhibit B - Performance Monitoring & Reporting Summary
JDR:LT:MW:lc
ORANGE COUNTY SANITATION
DISTRICT
INVESTMENT
POLICY
STATEMENT
Proposed for
Review and Approval
By
Administration Committee
On
July 14, 2010
And for Adoption
By
Board of Directors
On
July 28, 2010
TABLE OF CONTENTS
Section Topic Page
1.0 Policy ......................................................................................1
2.0 Scope ......................................................................................1
3.0 Standard of Prudence .............................................................1
4.0 Investment Objectives .............................................................2
5.0 Delegation of Authority ............................................................2
6.0 Ethics and Conflicts of Interest ................................................3
7.0 Authorized Financial Dealers and Institutions .........................4
8.0 Authorized and Suitable Investments ......................................5
9.0 Collateralization.......................................................................9
10.0 Safekeeping and Custody .......................................................9
11.0 Diversification ..........................................................................9
12.0 Maximum Maturities .............................................................. 11
13.0 Internal Control...................................................................... 12
14.0 Performance Objectives and Benchmarks ............................ 12
15.0 Reporting .............................................................................. 12
16.0 Investment Policy Adoption and Revision ............................. 13
Appendix
A. Summary of Investment Authorization
B. Treasury Management Procedures
C. Investment Manager Certification
D. Investment Pool Questionnaire (LAIF)
E. Board Resolution No. OCSD-10-XX, Authorizing the District's Treasurer to Invest
and/or Reinvest District Funds, and Adopting Investment Policy and Performance Benchmarks
F. Quarterly Investment Program Monitoring Reports
G. Sections of the California Government Code Pertinent to Investing Public Funds
H. Glossary of Investment Terms
Page 1 of 13
ORANGE COUNTY SANITATION DISTRICT
INVESTMENT POLICY STATEMENT
1.0 Policy:
It is the policy of the Orange County Sanitation District (OCSD) to invest public funds in
a manner which ensures the safety and preservation of capital while meeting
reasonably anticipated operating expenditure needs, achieving a reasonable rate of
return and conforming to all state and local statutes governing the investment of public funds.
1.1. This Investment Policy is set forth by OCSD for the following purposes:
1.1.1. To establish a clear understanding for the Board of Directors, OCSD management, responsible employees and third parties of the
objectives, policies and guidelines for the investment of the OCSD’s idle
and surplus funds.
1.1.2. To offer guidance to investment staff and any external
investment advisors on the investment of OCSD funds (see Appendix "A").
1.1.3. To establish a basis for evaluating investment results.
1.2. OCSD establishes investment policies which meet its current investment
goals. OCSD shall review this policy annually, and may change its
policies as its investment objectives change.
2.0 Scope:
This Investment Policy applies to all financial assets of OCSD; except for the proceeds
of OCSD's capital projects financing program, which are invested in accordance with
provisions of their specific bond indentures; and such other funds excluded by law or other Board-approved covenant or agreement.
These funds are accounted for by OCSD as Enterprise Funds as represented in
OCSD's Comprehensive Annual Financial Report.
3.0 Standard of Prudence
:
The standard of prudence to be used by OCSD internal staff, and any authorized
investment advisor(s), shall be as described in Section 53600.3 of the California Government Code as follows: Except as provided in subdivision (a) of Section
27000.3, all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing public funds
Page 2 of 13
pursuant to this chapter are trustees and therefore fiduciaries subject to the
prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but
not limited to, the general economic conditions and the anticipated needs of the
agency, that a prudent person acting in a like capacity and familiarity with those
matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an
overall strategy, investments may be acquired as authorized by law.
4.0 Investment Objectives:
The primary objectives of OCSDs investment activities, in priority order, and as
described in Section 53600.5 of the California Government Code, shall be:
4.1 Safety: The safety and preservation of principal is the foremost objective of the investment program of OCSD. Investments shall be selected in a
manner that seeks to ensure the preservation of capital in OCSD's overall
portfolio. This will be accomplished through a program of diversification,
more fully described in Section 11.0, and maturity limitations, more fully described in Section 12.0, in order that potential losses on individual securities do not exceed the income generated from the remainder of the
portfolio.
4.2 Liquidity: The investment program will be administered in a manner that will ensure that sufficient funds are available for OCSD to meet its reasonably anticipated operating expenditure needs.
4.3 Return on Investments: The OCSD investment portfolio will be
structured and managed with the objective of achieving a rate of return throughout budgetary and economic cycles, commensurate with legal, safety, and liquidity considerations.
5.0 Delegation of Authority: 5.1 Authority to manage OCSD’s investment program is derived from the
California Government Code Sections 53600 et seq. and Sections 53635
et seq. The Board of Directors hereby delegates management
responsibility for the OCSD investment program to its Director of Finance and Administrative Services/Treasurer, who shall establish written procedures for the operation of the investment program, consistent with
this Policy. The Controller/Assistant Treasurer shall be responsible for
day-to-day administration, monitoring, and the development of written
administrative procedures for the operation of the investment program, consistent with this Policy. The current treasury management procedures
Page 3 of 13
are presented in Appendix "B." No person may engage in an investment
transaction except as provided under the terms of this Policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken by OCSD internal staff, and
shall establish a system of controls to regulate the activities of internal
staff and external investment advisors engaged in accordance with
Section 5.3. 5.2 The administrative procedures for the operation of OCSD's investment
program will provide for, but not be limited to, the following:
5.2.1 Formats for monthly and quarterly reports to the Administration Committee, and the Board of Directors.
5.2.2 Compliance with generally accepted accounting principles of
the Government Accounting Standards Board.
5.2.3 Establishment of benchmarks for performance measurement.
5.2.4 Establishment of a system of written internal controls.
5.2.5 Establishment of written procedures for competitive bids and offerings of securities that may be purchased or sold by internal OCSD staff.
5.2.6 Establishment of a Desk Procedures Manual for treasury
operations and management. 5.3 The Board of Directors of OCSD may, in its discretion, engage the
services of one or more registered investment advisors to assist in the
management of OCSD’s investment portfolio in a manner consistent with
OCSD’s objectives. Such external investment advisors, which shall be selected through a competitive process, shall be granted discretion to purchase and sell investment securities in accordance with this
Investment Policy. Such advisors must be registered under the
Investment Advisers Act of 1940, or be exempt from such registration.
6.0 Ethics and Conflicts of Interest:
6.1 Officers and employees of OCSD involved in the investment process shall
refrain from personal business activities that could conflict with proper execution of OCSD's investment program, or which could impair their ability to make impartial investment decisions. Employees and investment
officials shall disclose to the General Manager any material financial
interests in financial institutions that conduct business within OCSD's
boundaries, and they shall further disclose any large personal
Page 4 of 13
financial/investment positions, the performance of which could be related
to the performance of positions in OCSD’s portfolio.
Page 5 of 13
7.0 Authorized Financial Dealers and Institutions:
7.1 For investment transactions conducted by OCSD internal staff, the Treasurer will maintain a list of financial institutions authorized to provide
investment services to OCSD, including "primary" or regional dealers that
qualify under Securities and Exchange Commission Rule 15C3-1 (Uniform
Net Capital rule), and Federal or State of California chartered banks. No public deposit shall be made except in a qualified public depository as established by State law.
All financial institutions which desire to become qualified bidders for
investment transactions with OCSD must supply the following for evaluation by the Treasurer:
7.1.1. Audited financial statements for the institution’s three (3) most
recent fiscal years.
7.1.2. A statement, in the format prescribed by the Government Finance Officers Association (GFOA), certifying that the institution has
reviewed OCSD’s Investment Policy and that all securities offered to the
Districts shall comply fully and in every instance with all provisions of the
California Government Code and with this Investment Policy. The current statement is presented in Appendix "C."
7.1.3. A statement describing the regulatory status of the dealer, and
the background and expertise of the dealer's representatives.
Selection of financial institutions, broker/dealers, and banks authorized to engage in transactions with OCSD shall be made through a competitive
process. An annual review of the financial condition of qualified
institutions will be conducted by the Treasurer.
7.2 Selection of broker/dealers used by external investment advisors retained by OCSD, shall be in compliance with contract provisions between OCSD
and any external investment advisors, and shall be in substantially the
following form:
Use of Securities Brokers: Neither the Investment Advisor nor any parent, subsidiary or related firm shall act as a securities broker with respect to
any purchases or sales of securities which may be made on behalf of
OCSD, provided that this limitation shall not prevent the Investment
Advisor from utilizing the services of a securities broker which is a parent, subsidiary or related firm, provided such broker effects transactions on a "cost only" or "nonprofit" basis to itself and provides competitive execution.
The Investment Advisor shall provide the Districts with a list of suitable
independent brokerage firms (including names and addresses) meeting
the requirements of Government Code Section 53601.5, and, unless otherwise directed by OCSD, the Investment Advisor may utilize the
Page 6 of 13
Page 7 of 13
service of any of such independent securities brokerage firms it deems
appropriate to the extent that such firms are competitive with respect to price of services and execution.
8.0 Authorized and Suitable Investments:
All investments shall be made in accordance with the California Government Code
including Sections 16429.1 et seq., 53600 et seq., and 53684, and as described within
this Investment Policy. Permitted investments under this Policy shall include:
8.1 Securities, obligations, participations, or other instruments of, or
issued by, or fully guaranteed as to principal and interest by the US
Government, a federal agency, or a US Government-sponsored
enterprise pursuant to Section 53601 (e) of the California Government Code. Investment in mortgage-backed bonds and CMOs is not governed
by this Section 8.1, even if such bonds are issued by agencies of the US
Government. See Section 8.2 for conditions of purchase of mortgage-
backed securities. See Section 8.12 for conditions of purchase of CMOs.
8.2 Mortgage-backed securities issued by an agency of the US
Government, which are backed by pools of mortgages guaranteed by the
full faith and credit of the U.S. Government, or an agency thereof.
Purchase of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and RE-
REMICs (Real Estate Mortgage Investment Conduits), is hereby
prohibited.
8.3 Commercial paper of "prime" quality and rated "P1" by Moody’s Investor Services (Moody’s), and rated "A1" by Standard & Poor’s Corporation
(S&P), and issued by a domestic corporation organized and operating in
the United States with assets in excess of $500 million and having a rating
of "A" or better on its long-term debt as provided by Moody's or S&P.
Purchases of eligible commercial paper may not exceed 270 days to maturity from the date of purchase. Purchases of commercial paper shall
not exceed 15% of the market value of the portfolio, except that a
maximum of 25% of the market value of the portfolio may be invested in
commercial paper, so long as the average maturity of all commercial
paper in the portfolio does not exceed 31 days. No more than 5% of the market value of the portfolio, or 10% of the issuer's outstanding paper,
may be invested in commercial paper issued by any one (1) eligible
corporation.
8.4 Banker’s acceptances issued by institutions, the short-term obligations of which are rated a minimum of "P1" by Moody’s, or "A1" by S&P provided
that: (a) the acceptance is eligible for purchase by the Federal Reserve
System; (b) the maturity does not exceed 180 days; (c) no more than 40%
of the total portfolio may be invested in banker’s acceptances; and (d) no
more than 30% of the total portfolio may be invested in the banker's
Page 8 of 13
acceptances of any one (1) commercial bank.
8.5 Medium term (or corporate) notes of a maximum of five (5) years maturity issued by corporations organized and operating within the United
States, or issued by depository institutions licensed by the United States,
or any state, and operating within the United States with assets in excess
of $500 million, and which is rated in a rating category of “A” or better on its long-term debt as provided by Moody’s or S&P. Notes eligible for investment under this section shall be rated at least “A3” or better by
Moody's, or “A-“or better by S&P. If, at the time of purchase, an eligible
note is rated in a rating category of “A” or better by only one rating agency,
the note shall also be rated at least “BBB” by the other rating agency. If, after purchase, the rating of an eligible note in a rating category of "A" or better, is downgraded to "BBB," the external investment advisor shall
notify the District of the downgrade, and shall present an analysis and
recommendations as to the disposition of the note consistent with the
investment objectives of this Investment Policy. The above restrictions pertain to the “direct issuer” and do not extend to the parent corporation of the direct issuer. No more than 35% of the portfolio may be invested in
both medium term notes, as described here in 8.5, and notes, bonds, or
other obligations, as described in 8.6.
8.6 Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by
California Government Code Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at least
equal to that required by California Government Code Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a
trust company or the trust department of a bank that is not affiliated with
the issuer of the secured obligation, and the security interest shall be
perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. No more than 35% of the portfolio may be
invested in securities described in 8.5 and 8.6.
8.7 Shares of mutual funds investing in securities permitted under this policy and under Section 53601 (k) of the California Government Code. Such funds must either: (1) attain the highest ranking, or the highest letter and
numerical rating, provided by not less than two of the three largest
nationally recognized rating services; or (2) have an Investment Advisor
registered with the Securities and Exchange Commission with not less than five (5) years of experience investing in the securities and obligations authorized under this Policy and under California Government Code
Section 53601, and with assets under management in excess of $500
million. The purchase price of shares of beneficial interest purchased
pursuant to this policy, and the California Government Code may not include any commission that the companies may charge, and shall not
Page 9 of 13
exceed 15% of the District’s surplus money that may be invested pursuant
Page 10 of 13
to this section. However, no more than 10% of the District’s surplus funds
may be invested in shares of beneficial interest of any one (1) mutual fund pursuant to this section.
8.8 Certificates of deposit:
8.8.1 Secured (collateralized) time deposits issued by a nationally or state-chartered bank or state or federal savings and loan association, as
defined by Section 5102 of the California Financial Code, and having a net
operating profit in the two (2) most recently completed fiscal years.
Collateral must comply with Chapter 4, Bank Deposit Law, Section 16500 et seq., and Chapter 4.5, Savings and Loan Association and Credit Union
Deposit Law, Section 16600 et seq., of the California Government Code.
8.8.2 Negotiable certificates of deposit (NCDs) issued by a nationally
or state-chartered bank or state of federal savings and loan association, as defined by Section 5102 of the California Financial Code; and which
shall have a rating of "A" or better on its long-term debt as provided by
Moody's or S&P; or which shall have the following minimum short-term
ratings by at least two (2) rating services: "P1" for deposits by Moody's,
"A1" for deposits by S&P, or comparably rated by a nationally recognized rating agency which rates such securities; or as otherwise approved by the District's Board of Directors.
8.8.3 To be eligible to receive local agency money, a bank, savings
association, federal association, or federally insured individual loan company shall have received an overall rating of not less than “satisfactory” in its most recent evaluation by the appropriate federal
financial supervisorial agency of its record of meeting the credit needs of
California’s communities, including low and moderate income
neighborhoods, pursuant to Section 2906 of Title 12 of the United States Code.
8.9 Taxable or tax-exempt municipal bonds issued by any of the 50 United
States. Such securities must be rated "A3" or higher by Moody's, or "A-"
or higher by S&P; or as otherwise approved by the Districts’ Board of Directors.
8.10 The State of California Local Agency Investment Fund (LAIF). The
LAIF is an investment alternative for California's local governments and
special districts managed by the State Treasurer's Office. LAIF is more fully described in the Glossary (See Appendix "H.") The District shall use LAIF as a short-term cash management facility. Investment of District
funds in LAIF shall be subject to investigation and due diligence prior to
investing, and on a continual basis to a level of review pursuant to Section
3.0, Standard of Prudence, of this Policy. See Appendix "D" for investment pool questionnaire.
Page 11 of 13
8.11 The Orange County Treasurer's Money Market Commingled Investment Pool (OCCIP). The OCCIP is a money market investment pool managed by the Orange County Treasurer's Office. OCCIP is more
fully described in the Glossary. (See Appendix "H.") The District has no
funds invested in OCCIP at this time. Investment of District funds in
OCCIP would be subject to investigation and due diligence prior to investing, and on a continual basis to a level of review pursuant to Section 3.0, Standard of Prudence, of this Policy.
8.12 Collateralized mortgage obligations (CMOs) issued by agencies of the
US Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset-backed securities rated "Aaa" by Moody's and "AAA" by S&P.
Selection of mortgage derivatives, which include interest-only payments
(IOs) and principal-only payments (POs); inverse floaters, and RE-
REMICS (Real Estate Mortgage Investment Conduits), is hereby prohibited. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of
"A" or higher. Combined purchases of mortgage-backed securities, CMOs
and asset-backed securities as authorized under within Section 8.0, may
not exceed 20% of the total Long-Term Operating Monies portfolio. 8.13 Repurchase agreements provided that:
8.13.1 All repurchase agreements shall be collateralized with
securities eligible for purchase under this Policy. In order to anticipate market changes and to provide a level of security for all repurchase agreement transactions, collateralization shall be maintained at a level of
at least 102% of the market value of the repurchase agreements, and
shall be adjusted no less than weekly.
8.13.2 All repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the
repurchase agreement. The Master Repurchase Agreement shall be
substantially in the form developed by The Bond Market Association.
8.14 Reverse repurchase agreements provided that:
8.14.1 No more than five percent (5%) of OCSD’s portfolio shall be
invested in reverse repurchase agreements, and there shall be no long-
term reverse repurchase agreements unless otherwise authorized by the Districts’ Board of Directors.
8.14.2 The maximum maturity of reverse repurchase agreements shall
be ninety (90) days.
8.14.3 Reverse repurchase agreements shall mature on the exact
Page 12 of 13
date of a known cash flow which will be unconditionally available to repay
the maturing reverse repurchase agreement. 8.14.4 Proceeds of reverse repurchase agreements shall be used
solely to supplement portfolio income or to provide portfolio liquidity, and
shall not be used to speculate on market movements.
8.14.5 All reverse repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the
reverse repurchase agreement. The Master Repurchase Agreement shall
be substantially in the form developed by The Bond Market Association.
8.15 Sales of OCSD-owned securities in the secondary market may incur losses in order to improve the risk or return characteristics of the portfolio,
to prevent anticipated further erosion of principal, or when trading for
securities that result in an expected net economic gain to OCSD.
8.16 If securities owned by the OCSD are downgraded by either Moody’s or S&P to a level below the quality required by this Investment Policy, it shall
be OCSD’s policy to review the credit situation and make a determination
as to whether to sell or retain such securities in the portfolio. If a decision
is made to retain the downgraded securities in the portfolio, their presence in the portfolio will be monitored and reported monthly to the OCSD General Manager, the Administration Committee and Board of Directors.
9.0 Collateralization: Generally, the value to secure deposits under this Policy shall comply with Section
53652 of the California Government Code. Collateralization will be required for secured
time deposits, as more fully described in Section 8.7.1; and repurchase agreements, as
more fully described in Section 8.12.1. Collateral will always be held by an independent third-party, as more fully described in Section 10.1. The right of collateral substitution is granted.
10.0 Safekeeping and Custody: 10.1 All securities transactions, including collateral for repurchase agreements,
entered into by, or on behalf of OCSD, shall be conducted on a
delivery-versus-payment (DVP) basis. Securities will be held by
OCSD's third-party custodian bank, which shall be selected through a competitive process, or that agent's representative, or in the agent's account at the Federal Reserve Bank, or within clearing corporations in
the U.S., and evidenced by book entry statements.
11.0 Diversification:
Page 13 of 13
OCSD will diversify its investments by security type, issuer, and financial institution in accordance with the following: 11.1 There is no limit on investment in securities issued by or guaranteed by
the full faith and credit of the U.S. government.
11.2 No more than 20% of the portfolio may be invested in securities of a single agency of the U.S. government, which does not provide the full faith and credit of the U.S. government.
11.3 No more than 5% of the portfolio may be invested in securities of any one
issuer, other than the U.S. government or its agencies. Investment in mutual funds is not governed by this Section 11.3. See Section 11.8 for conditions of purchase of mutual funds.
11.4 No individual holding shall constitute more than 5% of the total debt
outstanding of any issuer. 11.5 No more than 40% of the portfolio may be invested in banker’s
acceptances.
11.6 No more than 15% of the portfolio may be invested in commercial paper, except that 25% of the portfolio may be so invested so long as the average maturity of all commercial paper in the portfolio does not exceed
31 days.
11.7 No more than 30% of the portfolio may be invested in medium-term (corporate) notes.
11.8 No more than 15% of the portfolio may be invested in mutual funds.
However, no more than 10% of the District’s portfolio may be invested in
shares of beneficial interest of any one (1) mutual fund. 11.9 No more than 30% of the portfolio may be invested in negotiable
certificates of deposit.
11.10 No more than 10% of the portfolio may be invested in eligible municipal bonds.
11.11 No more than 20% of the Long Term Operating Monies portfolio may be
invested in a combination of mortgage-backed securities, CMOs and
asset-backed securities. Mortgage-backed securities, CMOs and asset-backed securities may only be purchased by the Districts’ external money managers, Pacific Investment Management Company (PIMCO), with prior
Board approval (authorized by Board Minute Order, January 22, 1997),
and may not be purchased by the District's staff.
11.12 No more than the lesser of 15% of the portfolio or the statutory maximum
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may be invested in LAIF.
11.13 No more than 15% of the portfolio may be invested in the Orange County Investment Pool.
11.14 No more than 20% of the portfolio may be invested in repurchase
agreements.
11.15 No more than 5% of the portfolio may be invested in reverse repurchase agreements.
12.0 Maximum Maturities:
To the extent possible, OCSD will attempt to match its investments with reasonably
anticipated cash flow requirements. The Treasurer shall develop a five-year cash flow
forecast, which shall be updated quarterly. Based on this forecast, the Treasurer shall designate, from time-to-time, the amounts to be allocated to the investment portfolio.
OCSD monies invested in accordance with this Policy are divided into two (2)
categories:
12.1 Liquid Operating Monies. Funds needed for current operating and
capital expenditures are known as Liquid Operating Monies.
12.1.1 The maximum final stated maturity of individual securities in the Liquid Operating Monies account portfolio shall be one (1) year from the
date of purchase.
12.1.2 The average duration of the Liquid Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts’ cash flow requirements, but may never exceed 180 days.
12.2 Long Term Operating Monies. Funds needed for longer term purposes
are known as the Long Term Operating Monies. 12.2.1 Except for the purchase of securities by the District’s external
money manager, PIMCO, the maximum final stated maturity of individual
securities in the Long Term Operating Monies account portfolio shall be
five (5) years from the date of purchase. PIMCO may purchase any security that is permitted under Section 8.0 of this policy, including those which may have a stated maturity of more than five (5) years from the date
of purchase when, in the opinion of PIMCO, such an investment meets the
investment objectives of this portfolio and the duration requirements are
met below.
12.2.2 The duration of the Long Term Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts’
five-year cash flow forecast, but may never exceed 60 months.
12.2.3 The duration of the Long Term Operating Monies account
portfolio shall never exceed 120% of the duration as established in
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accordance with Section 12.2.2.
12.2.4 The duration of the Long Term Operating Monies account portfolio shall never be less than 80% of the duration as established in
accordance with Section 12.2.2
13.0 Internal Control:
13.1 The Treasurer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring
compliance with policies and procedures. The current treasury
management procedures are presented in Appendix "B."
14.0 Performance Objectives and Benchmarks:
14.1 Overall objective. The investment portfolio of OCSD shall be designed with the overall objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and
reasonably anticipated cash flow needs.
14.2 The Liquid Operating Monies. The investment performance objective for the Liquid Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index approved by
the Administration Committee, and by the District's Board of Directors,
when the duration of the portfolio is established. This market index is more
fully described in Board Resolution No. OCSD-00-16 (see Appendix "E"). 14.3 The Long Term Operating Monies. The investment performance
objective for the Long Term Operating Monies shall be to earn a total rate
of return over a market cycle which exceeds the return on a market index
selected by the Administration Committee and approved by the Districts’ Board of Directors, when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-00-16
(See Appendix "E").
15.0 Reporting:
15.1 Quarterly investment reports shall be submitted by the Treasurer to the
Administration Committee which shall forward the reports to the District's Board of Directors. The quarterly reports shall be submitted to the
Administration Committee within 30 days of the end of the month in
accordance with California Government Code Sections 53607, 53646, and
this Investment Policy. The quarterly reports shall provide clear and
concise status information on the District's portfolios at the end of each reporting period, including performance measures using the benchmarks
described in Section 14.0 of this Investment Policy. Sample quarterly
reports are presented in Appendix "F." These reports shall contain listings
of individual securities held at the end of each reporting period, and shall
disclose, at a minimum, the following information about the risk
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characteristics of OCSD’s portfolio:
15.1.1 Cost and accurate and complete market value of the portfolio.
15.1.2 Modified duration of the portfolio compared to Benchmark.
15.1.3 Dollar change in value of the portfolio for a one-percent (1%) change in interest rates.
15.1.4 Percent of portfolio invested in reverse repurchase
agreements, and a schedule which matches the maturity of such reverse
repurchase agreements with the cash flows which are available to repay them at maturity.
15.1.5 For the Liquid Operating Monies account only, the percent of
portfolio maturing within 90 days.
15.1.6 Average portfolio credit quality.
15.1.7 Percent of portfolio with credit ratings below "A" by any rating
agency, and a description of such securities.
15.1.8 State that all investments are in compliance with this policy and the California Government Code, or provide a listing of any transactions or
holdings which do not comply with this policy or with the California
Government Code.
15.1.9 Time-weighted total rate of return for the portfolio for the prior three months, twelve months, year to date, and since inception compared
to the Benchmark returns for the same periods.
15.1.10 State that sufficient funds are available for OCSD to meet its
operating expenditure requirements for the next six months, or if not, state
the reasons for the shortfall.
15.2 OCSD’s Treasurer shall meet quarterly with the Administration Committee
to review investment performance, proposed strategies and compliance
with this Investment Policy. External investment advisors may be required
to attend said meetings at the discretion of the Chairman of the Administration Committee.
16.0 Investment Policy Adoption and Revision: 16.1 The Investment Policy of OCSD shall be reviewed by the Administration
Committee and shall be adopted by resolution of the Board of Directors of
OCSD. The Policy shall be reviewed on an annual basis in accordance
with California Government Code Section 53646, and this Investment Policy, by the Administration Committee, which shall recommend
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revisions, as appropriate, to the Board of Directors. Any modifications
made thereto shall be approved by the Board of Directors. 16.2 The Administration Committee shall serve as the oversight committee for
the District's Investment program and shall adopt guidelines for the
ongoing review of duration, quality and liquidity of the District's portfolio.
APPENDIX "A"
SUMMARY OF INVESTMENT AUTHORIZATION
INTERNAL AND EXTERNAL MANAGERS
SHORT TERM OPERATING FUND INVESTMENT INTERNAL EXTERNAL
U.S. Treasuries OK OK
Federal Agencies Fixed coupon, fixed mat. OK
Mortgage-backed NO NO
Commercial paper OK OK
Banker’s Accept. OK OK
Medium Term Notes Fixed coupon, fixed mat.* OK
Mutual Funds Money Market Only** Money Market Only
Negotiable CDs Fixed coupon, fixed mat.* OK
Municipal Bonds OK* NO
LAIF OK NO
OCIP OK NO
CMOs NO NO
Asset-backed NO NO
Repurchase Agree. OK OK
Reverse Repos OK* OK
LONG TERM OPERATING PORTFOLIO INVESTMENT INTERNAL EXTERNAL
U.S. Treasuries OK OK
Federal Agencies Fixed coupon, fixed mat. OK
Mortgage-backed NO OK
Mutual Funds Money Market Only** OK
Negotiable CDs Fixed coupon, fixed mat.* OK
Municipal Bonds OK* OK
LAIF OK NO
OCIP OK NO
CMOs NO With Board Approval
Asset-backed NO With Board Approval
Repurchase Agree. OK OK
Reverse Repos OK* OK
*With prior approval of the Administration Committee.
**Using financial institutions approved by the Administration Committee.
C:\Users\Crane\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\7LN9YV6D\InvestmentPolicy_BOD72810.docx
EXHIBIT "B"
ORANGE COUNTY SANTIATION DISTRICT PERFORMANCE MONITORING & REPORTING SUMMARY
FOR THE
DISTRICT'S INVESTMENT PROGRAM
POLICY REFERENCE PERFORMANCE CHARACTERISTIC REPORTING PARTY*
PIMCO MELLON CALLAN
15.1.1 Cost and market value of the portfolio (monthly mark-to-market). M, Q M, Q Q
15.1.2 Modified duration of the portfolio compared to benchmark. M, Q Q
15.1.3 Dollar change in value of the portfolio for a 1% change in interest rate. M, Q Q
15.1.4 Percent of portfolio invested in reverse repurchase agreements, and a schedule which matches the maturity of such reverse repurchase agreements with the cash flows which
are available to repay them at maturity.
M, Q
15.1.5 For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days.
M, Q Q
15.1.6 Average portfolio credit quality. M, Q Q
15.1.7 Percent of portfolio with credit ratings below "A" by any rating agency, and a description
of such securities.
M, Q Q
15.1.8 Listing of any transaction or holdings which do not comply with this policy or with the California Government Code.
M, Q
15.1.9 Time-weighted total rate of return for the portfolio for the prior three months, twelve
months, year-to-date, and since inception compared to the benchmark returns for the same periods.
M, Q Q
ADDL** Comparison of portfolio performance to market index benchmark. M, Q Q
ADDL** Comparison of Manager's performance to peer group benchmark. Q
ADDL** Monitoring of organizational and structural changes of investment management firm. Q
ADDL** Audit portfolios for compliance with investment policy guidelines. Q
15.1.10 OCSD will report if sufficient funds are available for it to meet operating expenditure requirements for the next six months, or if not, state the reason for the shortfall.
Notes
*M = Monthly *Q = Quarterly
**ADDL = Monitoring of Additional Performance Characteristics