HomeMy WebLinkAbout02-08-2012 Administration Committee Agenda
02/08/12 Administration Committee Agenda Page 1 of 3
Orange County Sanitation District Regular Meeting of the
Administration Committee
Wednesday, February 8, 2012
5:30 P.M.
Administration Building Board Room
10844 Ellis Avenue
Fountain Valley, CA (714) 593-7130
AGENDA
PLEDGE OF ALLEGIANCE:
DECLARATION OF QUORUM:
PUBLIC COMMENTS: If you wish to speak, please complete a Speaker’s Form and give it to the
Clerk of the Board. Speakers are requested to limit comments to three minutes.
REPORTS: The Committee Chair and the General Manager may present verbal reports on
miscellaneous matters of general interest to the Committee Members. These reports are for information
only and require no action by the Committee.
REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES:
· MISAC Award
· Integrated Emergency Response Plan (IERP)
CONSENT CALENDAR:
1. Approve Minutes of the December 14, 2011 Administration Committee Meeting.
ACTION ITEMS:
2. Recommend to the Board of Directors to:
A) Adopt Resolution No. OCSD 12-XX, authorizing the execution and delivery by
the Sanitation District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a Continuing Disclosure Agreement in
connection with the execution and delivery of Orange County Sanitation
District Wastewater Refunding Revenue Obligations, Series 2012A,
02/08/12 Administration Committee Agenda Page 2 of 3
authorizing the execution and delivery of such Revenue Obligations
evidencing principal in an aggregate amount of not to exceed $110,000,000, approving a Notice of Intention to Sell, authorizing the distribution of an Official Notice Inviting Bids and an Official Statement in connection with the
offering and sale of such Revenue Obligations and authorizing the execution
of necessary documents and related actions; and,
B) That the Orange County Sanitation District Financing corporation approve the documents supporting and authorizing the Revenue Obligations in an
aggregate amount not to exceed $110,000,000.
3. Recommend to the Board of Directors to:
Approve the budget assumptions to be used for the preparation of the FY 2012-13 and FY 2013-14 two year budget.
INFORMATIONAL ITEM:
4. Procurement Procedures for Professional Design Services and Construction
Contracts.
OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY:
ADJOURNMENT:
The next Administration Committee meeting is scheduled for Wednesday, March 14,
2012, at 5:30 p.m.
02/08/12 Administration Committee Agenda Page 3 of 3
Accommodations for the Disabled: Meeting Rooms are 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. Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda
has been posted outside the main gate of the Sanitation District’s Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, 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 the Board of Directors, are available for public inspection in the office of the Clerk of the Board. NOTICE TO DIRECTORS: To place items on the agenda for the Committee Meeting, items must be submitted to the Clerk of the Board 14 days before the meeting. Maria E. Ayala
Clerk of the Board (714) 593-7130 mayala@ocsd.com For any questions on the agenda, Committee members may contact staff at: General Manager Jim Ruth (714) 593-7110 jruth@ocsd.com
Assistant General Manager Bob Ghirelli (714) 593-7400 rghirelli@ocsd.com Assistant General Manager Jim Herberg (714) 593-7300 jherberg@ocsd.com Director of Finance and Administrative Services Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com Director of Human Resources Jeff Reed (714) 593-7144 jreed@ocsd.com
Page 1 of 5
ADMINISTRATION COMMITTEE Meeting Date 02/08/12 To Bd. of Dir. 02/22/12
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
SUBJECT: Wastewater Refunding Revenue Obligations, Series 2012A
GENERAL MANAGER'S RECOMMENDATION
A) Adopt Resolution No. OCSD12-XX, authorizing the execution and delivery by the
Sanitation District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a Continuing Disclosure Agreement in connection with the
execution and delivery of Orange County Sanitation District Wastewater Refunding
Revenue Obligations, Series 2012A, authorizing the execution and delivery of such
Revenue Obligations evidencing principal in an aggregate amount of not to exceed
$110,000,000, approving a Notice of Intention to Sell, authorizing the distribution of an Official Notice Inviting Bids and an Official Statement in connection with the
offering and sale of such Revenue Obligations and authorizing the execution of
necessary documents and related actions; and,
B) That the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Revenue Obligations in an aggregate
amount not to exceed $110,000,000
SUMMARY
Long-term tax-exempt interest rates are lower since the Sanitation District issued the
Wastewater Refunding Revenue Obligations, Series 2011A last October.
2.50
3.00
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5.00
5.50
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(%)
Date
2031-33 Maturities AAA MMD
January 1, 2011 to Present
2011A Pricing 9/15/2011
Page 2 of 5
With the decline in interest rates, the Sanitation District has the potential opportunity to refinance a portion of its outstanding debt to reduce interest costs.
Under current market conditions, the remaining maturities of the COP Series 2003 that
were not refunded with the Series 2011A issuance, equal to $108.18 million, may now be advance refunded to generate approximately $7.22 million in present value savings (or 6.7% of refunded par). With the recent movement in interest rates, a refunding
today would produce the minimum 3.0% percentage required by the Sanitation District’s
debt policy. At the time of issuance of the Series 2011A, a refunding of the $108.18
million would have produced negative present value savings (cost to Sanitation District) as interest rates were higher. Since the financing is interest rate sensitive and interest rates have been very volatile,
staff did not have the opportunity to bring forth this item to the January Administration
Committee for approval to proceed with the refunding. However, in the interest of
attempting to capture the savings from the recent rally in interest rates, staff discussed the potential refunding at the January Board meeting and informed the Board that staff was proceeding to pursue the financing. Approval of the recommended actions above
will direct staff to refund all of the outstanding $108.18 million COP Series 2003 for
interest cost savings utilizing the assistance of Public Resources Advisory Group
(PRAG), as financial advisor, and the bond counsel firm of Fulbright & Jaworski.
PRIOR COMMITTEE/BOARD ACTIONS
August 24, 2011: Adopted Resolution No. OCSD 11-14, authorizing the execution and delivery by the Sanitation District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a
Continuing Disclosure Agreement in connection with the execution
and delivery of Orange County Sanitation District Wastewater
Refunding Revenue Obligations, Series 2011A, authorizing the execution and delivery of such Revenue Obligations evidencing principal in an aggregate amount of not to exceed $305,000,000,
approving a Notice of Intention to Sell, authorizing the distribution of
an Official Notice Inviting Bids and an Official Statement in
connection with the offering and sale of such Revenue Obligations and authorizing the execution of necessary documents and related actions.
October 26, 2011: Adopted Resolution No. OCSD 11-16, authorizing the execution and delivery by the Sanitation District of an Installment Purchase Agreement, a Trust Agreement, and a Continuing Disclosure
Agreement in connection with the execution and delivery of Orange
County Sanitation District Revenue Refunding Certificate
Anticipation Notes, Series 2011B, such Notes evidencing principal in an aggregate amount of not to exceed $155,000,000, approving a Notice of Intention to Sell, authorizing the distribution of an
Official Notice Inviting Bids and an Official Statement in connection
Page 3 of 5
with the offering and sale of such Notes and authorizing the execution of necessary documents and related actions.
ADDITIONAL INFORMATION The Sanitation District currently has eleven series of debt issuances outstanding in the
par amount of $1.34 billion. The following table lists each issuance, the outstanding
amount, and the interest rate mode.
Outstanding Par Amount(1) Interest Rate Mode
Series 2011B(2) $ 143,205,000 Fixed Rate (one-year)
Series 2011A Refunding(3)(4) 147,595,000 Fixed Rate
Series 2010C(5) 157,000,000 Fixed Rate
Series 2010A(5) 80,000,000 Fixed Rate
Series 2009A(5) 191,265,000 Fixed Rate
Series 2008B Refunding(6) 26,550,000 Fixed Rate
Series 2008A Refunding(6) 25,710,000 Fixed Rate
Series 2007B(5) 279,250,000 Fixed Rate
Series 2007A Refunding(4) 92,845,000 Fixed Rate
Series 2003(5) 108,180,000 Fixed Rate
Series 2000 Refunding(6) 91,900,000 Daily Variable Rate
Total : $1,343,500,000
(1) As of February 2, 2012 (2) Series 2011B are fixed one-year certificate of anticipation notes (CANS), that refunded the Series 2010B CANS, that refunded the Series 2009B CANS, that refunded the 2008C CANS that were issued to refund the Series 2006 Daily Variable Rate that were supported by a weak liquidity facility bank.
(3) Refunded a portion of Series 2000 COPs (4) Refunded a portion of COP Series 2003 (5) New money debt issue (6) Series 2008B and Series 2008A refunded the Series 1993 and Series 1992 Synthetic Variable-to-Fixed Rate Debt issues that were supported by a failing insurance provider.
Series 1993 and 1992 refunded the Series 1986 and a portion of the Series “B” COPs. (7) Series 2000 COPs refunded the Series A, B, and C issued between 1990 and 1992.
Refunding Strategy
Under current market conditions, staff is proposing to refund all $108.18 million of outstanding COP Series 2003 maturing in years 2031 through 2033 with annual coupon
rates of 5.00%. Assuming no change in interest rates at the time of pricing, a refunding
of the COP Series 2003 would produce approximately $7.22 million in present value
savings (6.7% of refunded par). The actual savings from a refunding may be higher or
lower depending on the market rates at the time of issuance.
Page 4 of 5
If market conditions deteriorate, staff will postpone the refunding until each of the maturities can produce a minimum of 3.0% present value savings. Staff will not issue
refunding bond unless all the COP Series 2003 can be refunded and meet the minimum
percentage savings target in the debt policy of the Sanitation District.
Legal Authorization and Approvals
The Board of Directors and the Financing Corporation will each be required to adopt
separate Resolutions to complete this refunding. Drafts of these two Resolutions are available for review on the Sanitation District’s webpage, as describe in the
“Attachments” section below. A Financing Corporation is required by the structure of
the Revenue Obligations and was formed in April 2000 solely to satisfy this need. The
Board of Directors of the Corporation is the same as the Board of Directors of the
Sanitation District and the Corporation meets after an adjournment of the OCSD Board.
The OCSD Resolution authorizations the execution and delivery of certain legal
documents and the execution and delivery of Wastewater Refunding Revenue
Obligations, Series 2012A, evidencing principal in an aggregate amount of not to exceed $110,000,000 all as spelled out in the title as follows:
“A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY
SANITATION DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY BY THE SANITATION DISTRICT OF AN INSTALLMENT PURCHASE AGREEMENT, A TRUST
AGREEMENT, AN ESCROW AGREEMENT AND A CONTINUING DISCLOSURE
AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF
ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE
OBLIGATIONS, SERIES 2012A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE
AMOUNT OF NOT TO EXCEED $110,000,000, APPROVING A NOTICE OF
INTENTION TO SELL, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL
NOTICE INVITING BIDS AND AN OFFICIAL STATEMENT IN CONNECTION WITH
THE OFFERING AND SALE OF SUCH REVENUE OBLIGATIONS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND RELATED
ACTIONS.”
The Resolution of the Corporation is somewhat shorter and simpler. It authorizes three
actions that are similarly enumerated in the title as follows: “A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY
SANITATION DISTRICT FINANCING CORPORATION AUTHORIZING THE
EXECUTION AND DELIVERY BY THE CORPORATION OF AN INSTALLMENT PURCHASE AGREEMENT AND A TRUST AGREEMENT IN CONNECTION WITH
THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT
WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2012A,
AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE
OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $110,000,000 AND AUTHORIZING THE EXECUTION OF NECESSARY
DOCUMENTS AND RELATED ACTIONS.”
Page 5 of 5
Timeline
Since the proposed refunding is a fixed-rate debt issuance, staff is proposing to issue
the refunding through a competitive sale because it is the most expeditious way to access the market and it is expected to provide the lowest interest cost for this given structure.
February Ø Board approval of legal and disclosure documents
Ø Financing Corporation approval of legal and
disclosure documents
March
Ø Rating Agency discussions
Ø Publish Notice of Intention to Sell
Ø Marketing and Sale through a Competitive Sale
Process
Ø Closing
Ø Begin debt administration
All costs involved with the refunding, including costs for PRAG and Fulbright & Jaworski
will be paid from the proceeds of the new refunding issue.
CEQA
N/A
BUDGET/DELEGATION OF AUTHORITY COMPLIANCE
N/A
ATTACHMENTS
Bond documents may be viewed on OCSD’s webpage:
http://www.ocsd.com/about/boardofdirectors/agendanminutes.asp. Following are the bond documents included on the OCSD webpage:
1. Sanitation District Resolution
2. Corporation Resolution 3. Draft Trust Agreement
4. Draft Installment Purchase Agreement
5. Draft Escrow Agreement
6. Draft Continuing Disclosure Agreement
7. Draft Preliminary Official Statement 8. Draft Official Notice Inviting Bids
9. Draft Notice of Intention to Sell
JDR:LT:MW/jmf
77634768.3
RESOLUTION NO. OCSD 12-__
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE
COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION
AND DELIVERY BY THE DISTRICT OF AN INSTALLMENT PURCHASE AGREEMENT, A TRUST AGREEMENT, AN ESCROW AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE
COUNTY SANITATION DISTRICT WASTEWATER REFUNDING
REVENUE OBLIGATIONS, SERIES 2012A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $110,000,000, APPROVING A NOTICE OF INTENTION TO
SELL, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL
NOTICE INVITING BIDS AND AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH REVENUE OBLIGATIONS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND RELATED ACTIONS
WHEREAS, to finance the acquisition, construction and installation of certain
improvements to its wastewater system (the “Prior Project”), the Orange County Sanitation District (the “District”) has heretofore purchased the Prior Project from the Orange County
Sanitation District Financing Corporation (the “Corporation”), and the Corporation has
heretofore sold the Prior Project to the District, for the installment payments (the “Prior
Installment Payments”) made by the District pursuant to the Installment Purchase Agreement,
dated as of July 1, 2003 (the “Prior Installment Purchase Agreement”), each by and between the District and the Corporation;
WHEREAS, to provide the funds necessary to finance the Prior Project, the District
caused the execution and delivery of the Orange County Sanitation District Certificates of
Participation, Series 2003 (the “Prior Certificates”), evidencing direct, undivided fractional
interests in the Prior Installment Payments;
WHEREAS, the District desires to refinance the Prior Project by prepaying the
remaining Prior Installment Payments, and the interest thereon to the date of prepayment,
thereby causing the remaining Prior Certificates to be prepaid;
WHEREAS, to provide the funds necessary to prepay the remaining Prior Installment
Payments, the District and the Corporation desire that the Corporation purchase the Prior Project from the District and the District sell the Prior Project to the Corporation, and that the District
then purchase the Prior Project from the Corporation and the Corporation sell the Prior Project to
the District, for the installment payments (the “Installment Payments”) to be made by the District
pursuant to an Installment Purchase Agreement by and between the District and the Corporation
(such Installment Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the
“Installment Purchase Agreement”);
77634768.3 2
WHEREAS, the Corporation intends to assign without recourse certain of its rights
under and pursuant to the Installment Purchase Agreement to Union Bank, N.A., as trustee (the
“Trustee”), pursuant to a Trust Agreement by and among the Trustee, the Corporation and the
District (such Trust Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Trust Agreement”);
WHEREAS, in consideration of such assignment and the execution and delivery of the
Trust Agreement, the Trustee intends to execute and deliver the Orange County Sanitation
District Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”), evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon;
WHEREAS, the funds to pay the Prior Installment Payments to be prepaid relating to the
Prior Installment Purchase Agreement, and the Prior Certificates evidencing interests therein,
will be applied to such purpose pursuant to an Escrow Agreement by and between the District and Union Bank, N.A., as prior trustee and escrow agent (such Escrow Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to
this Resolution, being referred to herein as the “Escrow Agreement”);
WHEREAS, the District desires to provide for the public sale of the Revenue
Obligations;
WHEREAS, a form of the Notice of Intention to Sell to be published in connection with the public offering and sale of the Revenue Obligations has been prepared (such Notice of
Intention to Sell, in the form presented to this meeting, with such changes, insertions and
omissions as are made pursuant to this Resolution, being referred to herein as the “Notice of
Intention to Sell”);
WHEREAS, a form of the Official Notice Inviting Bids to be distributed in connection with the public offering and sale of the Revenue Obligations has been prepared (such Official
Notice Inviting Bids, in the form presented to this meeting, with such changes, insertions and
omissions as are made pursuant to this Resolution, being referred to herein as the “Notice
Inviting Bids”);
WHEREAS, a form of the Preliminary Official Statement to be distributed in connection with the public offering of the Revenue Obligations has been prepared (such Preliminary Official
Statement in the form presented to this meeting, with such changes, insertions and omissions as
are made pursuant to this Resolution, being referred to herein as the “Preliminary Official
Statement”);
WHEREAS, Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”), requires that the
underwriter thereof must have reasonably determined that the District has undertaken in a written
agreement or contract for the benefit of the holders of the Revenue Obligations to provide
disclosure of certain financial information and certain material events on an ongoing basis;
WHEREAS, to cause such requirement to be satisfied, the District desires to enter into a Continuing Disclosure Agreement with the Trustee (such Continuing Disclosure Agreement in
the form presented to this meeting, with such changes, insertions and omissions as are made
pursuant to this Resolution, being referred to herein as the “Continuing Disclosure Agreement”);
77634768.3 3
WHEREAS, there have been prepared and submitted to this meeting forms of:
(a) the Installment Purchase Agreement;
(b) the Trust Agreement;
(c) the Escrow Agreement;
(d) the Notice of Intention to Sell;
(e) the Notice Inviting Bids;
(f) the Preliminary Official Statement; and
(g) the Continuing Disclosure Agreement; and
WHEREAS, all acts, conditions and things required by the Constitution and laws of the State of California to exist, to have happened and to have been performed precedent to and in
connection with the consummation of the financing authorized hereby do exist, have happened
and have been performed in regular and due time, form and manner as required by law, and the
District is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such financing for the purpose, in the manner and upon the terms herein provided;
NOW, THEREFORE, the Board of Directors of the District DOES HEREBY
RESOLVE, DETERMINE AND ORDER:
Section 1. All of the recitals herein contained are true and correct and the Board of Directors of the District (the “Board”) so finds.
Section 2. The Installment Purchase Agreement, in substantially the form submitted
to this meeting and made a part hereof as though set forth herein, be and the same is hereby
approved. The Chair of the Board, and such other member of the Board as the Chair may
designate, the General Manager of the District, the Director of Finance and Administrative Services of the District, and such other 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
Installment Purchase Agreement in the form submitted to this meeting, with such changes,
insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Installment Purchase Agreement by such Authorized Officer; provided, however, that such changes,
insertions and omissions shall not result in an aggregate principal amount of Installment
Payments in excess of $110,000,000, shall not result in a true interest cost for the Installment
Payments in excess of 4.5% and shall not result in a final Installment Payment later than February 1, 2033.
77634768.3 4
Section 3. The Trust Agreement, in substantially the form submitted to this meeting
and made a part hereof as though set forth in full herein, be and the same is hereby approved.
The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the
name of the District, to execute and deliver the Trust Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the
execution of the Trust Agreement by such Authorized Officer.
Section 4. The execution and delivery of Revenue Obligations evidencing principal
in an aggregate amount of not to exceed $110,000,000, payable in the years and in the amounts, and evidencing principal of and interest on the Installment Payments as specified in the Trust Agreement as finally executed, are hereby authorized and approved.
Section 5. The prepayment of all or a portion of the remaining principal components
of the Prior Installment Payments, and the interest components thereof to the dates of
prepayment, and the Prior Certificates evidencing interests therein, as determined by any Authorized Officer, is hereby authorized and approved.
Section 6. The Escrow 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 Escrow 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 Escrow Agreement by such Authorized Officer.
Section 7. The form of Notice of Intention to Sell, in substantially the form submitted
to this meeting and made a part hereof as though set forth in full herein, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Notice of Intention to Sell in connection with the offering and sale
of the Revenue Obligations is hereby approved. The Authorized Officers are each hereby
authorized and directed, for and in the name and on behalf of the District, to cause the Notice of
Intention to Sell to be published once in The Bond Buyer (or in such other financial publication generally circulated throughout the State of California or reasonably expected to be disseminated among prospective bidders for the Revenue Obligations as an Authorized Officer shall approve
as being in the best interests of the District) at least five days prior to the date set for the opening
of bids in the Notice Inviting Bids, with such changes, insertions and omissions therein as an
Authorized Officer may require or approve, such requirement or approval to be conclusively evidenced by such publishing of the Notice of Intention to Sell.
Section 8. The Notice Inviting Bids, in substantially the form submitted to this
meeting and made a part hereof as though set forth herein, with such changes, insertions and
omissions therein as may be approved by an Authorized Officer, be and the same is hereby
approved, and the use of the Notice Inviting Bids in connection with the offering and sale of the Revenue Obligations is hereby authorized and approved. The terms and conditions of the offering and sale of the Revenue Obligations shall be as specified in the Notice Inviting Bids.
Bids for the purchase of the Revenue Obligations shall be received at the time and place set forth
77634768.3 5
in the Notice Inviting Bids. The Authorized Officers are each hereby authorized and directed, for
and in the name and on behalf of the District, to accept the bid for the Revenue Obligations with
the lowest true interest cost, or to reject all bids therefor, in accordance with the terms of the
Notice Inviting Bids.
Section 9. The Preliminary Official Statement, in substantially the form presented to this meeting and made a part hereof as though set forth in full herein, with such changes,
insertions and omissions therein as may be approved by an Authorized Officer, is hereby
approved, and the use of the Preliminary Official Statement in connection with the offering and
sale of the Revenue Obligations is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf of the District that the Preliminary Official Statement is deemed final as of its date, within the meaning of Rule 15c2-12 (except for the omission of
certain information permitted by Rule 15c2-12 to be omitted). The Authorized Officers are each
hereby authorized and directed to furnish, or cause to be furnished, to prospective bidders for the
Revenue Obligations a reasonable number of copies of the Preliminary Official Statement.
Section 10. The preparation and delivery of a final Official Statement (the “Official Statement”), and its use in connection with the offering and sale of the Revenue Obligations, be
and the same is hereby authorized and approved. The Official Statement shall be in substantially
the form of the Preliminary Official Statement, with such changes, insertions and omissions as
may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are, and each of them is, hereby authorized and directed to execute the final Official Statement and any amendment or
supplement thereto, for and in the name of the District.
Section 11. The Continuing Disclosure Agreement, in substantially the form submitted
to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the District, to execute and deliver the Continuing Disclosure Agreement in
the form submitted to this meeting, with such changes, insertions and omissions as the
Authorized Officer executing the same may require or approve, such requirement or approval to
be conclusively evidenced by the execution of the Continuing Disclosure Agreement by such Authorized Officer.
Section 12. 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 Revenue Obligations and the transactions contemplated by the notices, agreements and documents referenced in this Resolution.
Section 13. All actions heretofore taken by the officers and employees of the District
with respect to the execution, delivery and sale of the Revenue Obligations, or in connection
with or related to any of the agreements or documents referenced in this Resolution, are hereby
approved, confirmed and ratified.
Section 14. This Resolution shall take effect immediately upon its adoption.
77634768.3 6
PASSED AND ADOPTED at a regular meeting held on February 22, 2012.
Chair
ATTEST:
Clerk of the Board
APPROVED:
General Counsel
Orange County Sanitation District
77634768.3
STATE OF CALIFORNIA )
) ss
COUNTY OF ORANGE )
I, Maria E. Ayala, Clerk of the Board of Directors of the Orange County Sanitation
District, do hereby certify that the foregoing Resolution No. OCSD 12-__ was passed and
adopted at a regular meeting of said Board on the 22nd day of February, 2012, 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 22nd day of February, 2012.
Clerk of the Board of Directors Orange County Sanitation District
77634766.3
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 AN INSTALLMENT PURCHASE AGREEMENT AND A TRUST AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION
DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS,
SERIES 2012A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $110,000,000 AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS
AND RELATED ACTIONS.
WHEREAS, to finance the acquisition, construction and installation of certain improvements to its wastewater system (the “Prior Project”), the Orange County Sanitation
District (the “District”) has heretofore purchased the Prior Project from the Orange County
Sanitation District Financing Corporation (the “Corporation”), and the Corporation has
heretofore sold the Prior Project to the District, for the installment payments (the “Prior
Installment Payments”) made by the District pursuant to the Installment Purchase Agreement, dated as of July 1, 2003 (the “Prior Installment Purchase Agreement”), by and between the
District and the Corporation;
WHEREAS, to provide the funds necessary to finance the Prior Project, the District
caused the execution and delivery of the Orange County Sanitation District Certificates of
Participation, Series 2003 (the “Prior Certificates”), evidencing direct, undivided fractional interests in the related Prior Installment Payments;
WHEREAS, the District desires to refinance the Prior Project by prepaying the
remaining Prior Installment Payments, and the interest thereon to the date of prepayment,
thereby causing the remaining Prior Certificates to be prepaid;
WHEREAS, to provide the funds necessary to prepay the remaining Prior Installment Payments, the District and the Corporation desire that the Corporation purchase the Prior Project
from the District and the District sell the Prior Project to the Corporation, and that the District
then purchase the Prior Project from the Corporation and the Corporation sell the Prior Project to
the District, for the installment payments (the “Installment Payments”) to be made by the District
pursuant to an Installment Purchase Agreement by and between the District and the Corporation (such Installment Purchase Agreement, in the form presented to this meeting, with such changes,
insertions and omissions as are made pursuant to this Resolution, being referred to herein as the
“Installment Purchase Agreement”);
77634766.3 2
WHEREAS, the Corporation intends to assign without recourse certain of its rights
under and pursuant to the Installment Purchase Agreement to Union Bank, N.A., as trustee (the
“Trustee”), pursuant to a Trust Agreement by and among the Trustee, the Corporation and the
District (such Trust Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Trust Agreement”);
WHEREAS, in consideration of such assignment and the execution and delivery of the
Trust Agreement, the Trustee intends to execute and deliver the Orange County Sanitation
District Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”), evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon;
WHEREAS, there have been prepared and submitted to this meeting forms of:
(a) the Installment Purchase Agreement; and
(b) the Trust Agreement; and
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
Corporation is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such actions for the purpose, in the manner and upon the terms herein provided;
NOW, THEREFORE, the Board of Directors of the Corporation DOES HEREBY
RESOLVE, DETERMINE AND ORDER:
Section 1. All of the recitals herein contained are true and correct and the Board of Directors of the Corporation (the “Board”) so finds.
Section 2. The Installment Purchase Agreement, in substantially the form submitted
to this meeting and made a part hereof as though set forth herein, be and the same is hereby
approved. The President of the Corporation, the Vice-President of the Corporation, the Treasurer
of the Corporation and the Secretary of the Corporation, and such other 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 Installment Purchase Agreement in the form submitted to this meeting, with such changes,
insertions and omissions as the Authorized Officer executing the same may require or approve,
such requirement or approval to be conclusively evidenced by the execution of the Installment Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of Installment
Payments in excess of $110,000,000, shall not result in a true interest cost for the Installment
Payments in excess of 4.5% and shall not result in a final Installment Payment later than
February 1, 2033.
77634766.3 3
Section 3. The Trust Agreement, in substantially the form submitted to this meeting
and made a part hereof as though set forth in full herein, be and the same is hereby approved.
The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the
name of the Corporation, to execute and deliver the Trust Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by
the execution of the Trust Agreement by such Authorized Officer.
Section 4. The execution and delivery of Revenue Obligations evidencing principal
in an aggregate amount of not to exceed $110,000,000, payable in the years and in the amounts, and evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon, as specified in the Trust Agreement as finally executed, are hereby authorized and
approved.
Section 5. The officers and agents of the Corporation are, and each of them hereby is,
authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the execution and delivery of the Revenue Obligations and the transactions contemplated by the
agreements or documents referenced in this Resolution.
Section 6. All actions heretofore taken by the officers and agents of the Corporation
with respect to the execution, delivery and sale of the Revenue Obligations, or in connection with or related to any of the agreements or documents referenced in this Resolution, are hereby approved, confirmed and ratified.
Section 7. This Resolution shall take effect immediately upon its adoption.
77634766.3 4
PASSED AND ADOPTED at a meeting held on February 22, 2012.
President, Orange County Sanitation District Financing Corporation ATTEST:
Clerk of the Board, Orange County Sanitation District Financing Corporation
APPROVED:
General Counsel, Orange County
Sanitation District Financing Corporation
77634766.3
STATE OF CALIFORNIA )
) ss
COUNTY OF ORANGE )
I, Maria E. Ayala, Clerk of the Board of Directors of the Orange County Sanitation
District Financing Corporation, do hereby certify that the foregoing Resolution No. FC-______
was passed and adopted at a regular meeting of said Board on the 22nd day of February, 2012,
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 22nd day of February, 2012.
Clerk of the Board of Directors Orange County Sanitation District
Financing Corporation
DRAFT OF
01/27/12
77633181.2
TRUST AGREEMENT
by and among
UNION BANK, N.A., as Trustee,
ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION
and
ORANGE COUNTY SANITATION DISTRICT
Dated as of March 1, 2012
Relating to
$___________
Orange County Sanitation District
Wastewater Refunding Revenue Obligations Series 2012A
TABLE OF CONTENTS
Page
77633181.2 i
ARTICLE I
DEFINITIONS; EQUAL SECURITY
Section 1.01. Definitions........................................................................................................ 2
Section 1.02. Definitions in Installment Purchase Agreement .............................................. 9
Section 1.03. Equal Security .................................................................................................. 9
ARTICLE II
TERMS AND CONDITIONS OF REVENUE OBLIGATIONS
Section 2.01. Preparation and Delivery of Revenue Obligations .......................................... 9
Section 2.02. Denomination, Medium and Dating of Revenue Obligations ......................... 9
Section 2.03. Payment Dates of Revenue Obligations; Interest Computation .................... 10 Section 2.04. Form of Revenue Obligations ........................................................................ 11
Section 2.05. Execution of Revenue Obligations and Replacement Certificates. The
Revenue Obligations shall be executed by the Trustee by the manual
signature of an authorized signatory of the Trustee ....................................... 11
Section 2.06. Transfer and Payment of Revenue Obligations; Exchange of Revenue Obligations ..................................................................................................... 11
Section 2.07. Revenue Obligation Registration Books ........................................................ 11
Section 2.08. Temporary Revenue Obligations ................................................................... 12
Section 2.09. Revenue Obligations Mutilated, Lost, Destroyed or Stolen .......................... 12
Section 2.10. Book-Entry System ........................................................................................ 12
ARTICLE III
PROCEEDS OF REVENUE OBLIGATIONS
Section 3.01. Delivery of Revenue Obligations................................................................... 15
Section 3.02. Deposit of Proceeds of Revenue Obligations ................................................ 15
Section 3.03. Costs of Issuance Fund .................................................................................. 15 Section 3.04. Reserved ......................................................................................................... 15
ARTICLE IV
PREPAYMENT OF REVENUE OBLIGATIONS
Section 4.01. Optional Prepayment ..................................................................................... 15
Section 4.02. Reserved ......................................................................................................... 16 Section 4.03. Selection of Revenue Obligations for Optional Prepayment ......................... 16
Section 4.04. Notice of Prepayment .................................................................................... 16
Section 4.05. Partial Prepayment of Revenue Obligations .................................................. 17
Section 4.06. Effect of Prepayment ..................................................................................... 17
ARTICLE V ASSIGNMENT AND PLEDGE; FUNDS AND ACCOUNTS
Section 5.01. Assignment and Pledge .................................................................................. 17
Section 5.02. Installment Payment Fund ............................................................................. 18
Section 5.03. Reserved ......................................................................................................... 19
TABLE OF CONTENTS (continued)
Page
77633181.2 ii
Section 5.04. Investment of Moneys.................................................................................... 19
Section 5.05. Brokerage Confirmations ............................................................................... 19
ARTICLE VI
COVENANTS
Section 6.01. Compliance with Trust Agreement ................................................................ 20 Section 6.02. Compliance with Installment Purchase Agreement ....................................... 20
Section 6.03. Compliance with Master Agreement ............................................................. 20
Section 6.04. Observance of Laws and Regulations ............................................................ 20
Section 6.05. Other Liens..................................................................................................... 20
Section 6.06. Prosecution and Defense of Suits .................................................................. 20 Section 6.07. Accounting Records and Statements ............................................................. 21
Section 6.08. Tax Covenants ............................................................................................... 21
Section 6.09. Continuing Disclosure ................................................................................... 24
Section 6.10. Further Assurances......................................................................................... 24
ARTICLE VII DEFAULT AND LIMITATIONS OF LIABILITY
Section 7.01. Action upon Event of Default ........................................................................ 25
Section 7.02. Other Remedies of the Trustee ...................................................................... 25
Section 7.03. Non-Waiver.................................................................................................... 25
Section 7.04. Remedies Not Exclusive ................................................................................ 26 Section 7.05. Application of Amounts After Default .......................................................... 26
Section 7.06. Trustee May Enforce Claims Without Possession of Revenue
Obligations ..................................................................................................... 27
Section 7.07. Limitation on Suits ......................................................................................... 27
Section 7.08. No Liability by the Corporation to the Owners ............................................. 27 Section 7.09. No Liability by the District to the Owners..................................................... 27
Section 7.10. No Liability of the Trustee to the Owners ..................................................... 28
ARTICLE VIII
THE TRUSTEE
Section 8.01. Employment of the Trustee; Duties ............................................................... 28 Section 8.02. Removal and Resignation of the Trustee ....................................................... 28
Section 8.03. Compensation and Indemnification of the Trustee ........................................ 29
Section 8.04. Protection of the Trustee ................................................................................ 30
ARTICLE IX
AMENDMENT OF OR SUPPLEMENT TO TRUST AGREEMENT
Section 9.01. Amendment or Supplement ........................................................................... 31
Section 9.02. Disqualified Revenue Obligations ................................................................. 32
Section 9.03. Endorsement or Replacement of Revenue Obligations After
Amendment or Supplement ........................................................................... 32
Section 9.04. Amendment by Mutual Consent .................................................................... 33
TABLE OF CONTENTS (continued)
Page
77633181.2 iii
ARTICLE X
DEFEASANCE
Section 10.01. Discharge of Revenue Obligations and Trust Agreement ............................. 33
Section 10.02. Unclaimed Moneys ........................................................................................ 34
ARTICLE XI MISCELLANEOUS
Section 11.01. Benefits of Trust Agreement .......................................................................... 35
Section 11.02. Successor Deemed Included in all References to Predecessor ...................... 35
Section 11.03. Execution of Documents by Owners ............................................................. 35
Section 11.04. Waiver of Personal Liability .......................................................................... 35 Section 11.05. Acquisition of Revenue Obligations by District ............................................ 36
Section 11.06. Content of Certificates ................................................................................... 36
Section 11.07. Funds and Accounts ....................................................................................... 36
Section 11.08. Article and Section Headings, Gender and References ................................. 36
Section 11.09. Partial Invalidity............................................................................................. 37 Section 11.10. California Law ............................................................................................... 37
Section 11.11. Notices ........................................................................................................... 37
Section 11.12. Effective Date ................................................................................................ 38
Section 11.13. Execution in Counterparts.............................................................................. 38
EXHIBIT A – FORM OF REVENUE OBLIGATION
77633181.2
TRUST AGREEMENT
THIS TRUST AGREEMENT (this “Trust Agreement”), dated as of March 1, 2012, is
made by and among UNION BANK, N.A., a national banking association organized and existing
under the laws of the United States of America, as trustee (the “Trustee”), the ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION, a nonprofit public benefit corporation organized and existing under the laws of the State of California (the
“Corporation”), and the ORANGE COUNTY SANITATION DISTRICT, a county sanitation
district organized and existing under the laws of the State of California (the “District”).
WITNESSETH:
WHEREAS, to finance the acquisition, construction and installation of certain improvements to its wastewater system (the “Prior Project”), the District has heretofore
purchased the Prior Project from the Corporation, and the Corporation has heretofore sold the
Prior Project to the District, for the installment payments (the “Prior Installment Payments”)
made by the District pursuant to the Installment Purchase Agreement, dated as of July 1, 2003 (the “Prior Installment Purchase Agreement”), by and between the District and the Corporation;
WHEREAS, to provide the funds necessary to finance the Prior Project, the District
caused the execution and delivery of the Orange County Sanitation District Certificates of
Participation, Series 2003 (the “Prior Certificates”), evidencing direct, undivided fractional
interests in the related Prior Installment Purchase Agreement and the related Prior Installment Payments;
WHEREAS, the District desires to refinance all of the Prior Project (the “Project”) by
prepaying the remaining Prior Installment Payments, and the interest thereon to the dates of
prepayment, thereby causing the remaining Prior Certificates to be prepaid;
WHEREAS, to provide the funds necessary to prepay the remaining Prior Installment Payments, the District and the Corporation desire that the Corporation purchase the Prior Project from the District and the District sell the Prior Project to the Corporation, and that the District
then purchase the Prior Project from the Corporation and the Corporation sell the Prior Project to
the District, for the installment payments (the “Installment Payments”) to be made by the District
pursuant to the Installment Purchase Agreement, dated the date hereof (the “Installment Purchase Agreement”);
WHEREAS, the Corporation proposes to assign without recourse certain of its rights
under and pursuant to the Installment Purchase Agreement to the Trustee;
WHEREAS, in consideration of such assignment and the execution and delivery of this
Trust Agreement, the Trustee has agreed to execute and deliver Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”), which are certificates of participation, evidencing direct, undivided fractional interests in the
Installment Purchase Agreement and the related Installment Payments, and the interest thereon;
77633181.2 2
WHEREAS, a portion of the proceeds of the Revenue Obligations will be used to prepay
certain of the Prior Installment Payments; and
WHEREAS, all acts, conditions and things required by law to exist, to have happened
and to have been performed precedent to and in connection with the execution and delivery of this Trust Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute
and deliver this Trust Agreement;
NOW, THEREFORE, in consideration of the promises and of the mutual agreements
and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS; EQUAL SECURITY
Section 1.01. Definitions. Except as provided in Section 1.02 hereof or unless the context otherwise requires, the terms defined in this Section shall for all purposes hereof and of
any amendment hereof or supplement hereto and of the Revenue Obligations and of any
certificate, opinion, request or other document mentioned herein or therein have the meanings
defined herein, the following definitions to be equally applicable to both the singular and plural
forms of any of the terms defined herein:
“Authorized Corporation Representative” means the President, the Vice President, the
Treasurer and the Secretary of the Corporation, and any other Person authorized by the President
of the Corporation to act on behalf of the Corporation under or with respect to this Trust
Agreement.
“Authorized Denominations” means $5,000 and integral multiples thereof.
“Authorized District Representative” means the General Manager of the District, the Director of Finance and Administrative Services of the District, the Controller of the District and
any other Person authorized by the Director of Finance and Administrative Services of the
District to act on behalf of the District under or with respect to this Trust Agreement.
“Beneficial Owners” means those individuals, partnerships, corporations or other entities for which the Participants have caused the Depository to hold Book-Entry Certificates.
“Book-Entry Certificates” means the Revenue Obligations registered in the name of the
nominee of DTC, or any successor securities depository for the Revenue Obligations, as the
Owner thereof pursuant to the terms and provisions of Section 2.10 hereof.
“Business Day” means a day other than (a) Saturday or Sunday, (b) a day on which banking institutions in the city in which the Principal Office is located are authorized or required by law to be closed, and (c) a day on which the New York Stock Exchange is authorized or
obligated by law or executive order to be closed.
77633181.2 3
“Cede & Co.” means Cede & Co., the nominee of DTC, and any successor nominee of
DTC with respect to the Revenue Obligations.
“Certificate Year” means each twelve-month period beginning on February 2 in each
year and extending to the next succeeding February 1, both dates inclusive, except that the first Certificate Year shall begin on the Closing Date and end on February 1, 2013.
“Closing Date” means March __, 2012.
“Code” means the Internal Revenue Code of 1986.
“Continuing Disclosure Agreement” means the Continuing Disclosure Agreement,
dated as of the date hereof, by and between the District and Digital Assurance Certification LLC, as originally executed and as it may from time to time be amended in accordance with the terms thereof.
“Corporation” means the Orange County Sanitation District Financing Corporation, a
nonprofit public benefit corporation organized and existing under the laws of the State.
“Costs of Issuance” means all the costs of executing and delivering the Revenue Obligations, including, but not limited to, all printing and document preparation expenses in connection with this Trust Agreement, the Installment Purchase Agreement, the Revenue
Obligations and any preliminary official statement and final official statement pertaining to the
Revenue Obligations, fees of a financial advisor, rating agency fees, market study fees, legal fees
and expenses of counsel with respect to the execution and delivery of the Revenue Obligations, the initial fees and expenses of the Trustee and its counsel and other fees and expenses incurred in connection with the execution and delivery of the Revenue Obligations, to the extent such fees
and expenses are approved by the District.
“Costs of Issuance Fund” means the fund by that name established in accordance with
Section 3.03 hereof.
“Depository” means the securities depository acting as Depository pursuant to Section 2.10 hereof.
“District” means the Orange County Sanitation District, a county sanitation district
organized and existing under the laws of the State, and any successor thereto.
“DTC” means The Depository Trust Company, New York, New York and its successors.
“Escrow Agent” means Union Bank, N.A., a national banking association, duly organized and existing under and by virtue of the laws of the United States of America, its
successors and assigns, as escrow agent under the Escrow Agreement.
“Escrow Agreement” means the Escrow Agreement, dated as of March 1, 2012, by and
between the District and the Escrow Agent, providing for the defeasance and refunding of the Refunded Certificates.
77633181.2 4
“Escrow Fund” means the Escrow Fund established and held by the Escrow Agent
pursuant to the Escrow Agreement.
“Event of Default” shall have the meaning set forth in Section 6.01 of the Installment
Purchase Agreement.
“Government Obligations” means any of the following which are noncallable by the issuer thereof except to the extent not permitted by the laws of the State as an investment for the
moneys to be invested therein at the time of investment:
(i) (a) direct general obligations of the United States of America,
(b) obligations the payment of the principal of and interest on which are unconditionally guaranteed as to the full and timely payment by the United States of America, or (c) any fund or other pooling arrangement whose assets consist exclusively of the obligations
listed in clause (a) or (b) of this clause (i) and which is rated at least “P-1” by Moody’s;
provided that, such obligations shall not include unit investment trusts or mutual fund
obligations;
(ii) advance refunded tax-exempt obligations that (a) are rated by Moody’s and S&P, (b) are secured by obligations specified in clause (i), (c) are tax-exempt
because they are secured by obligations specified in clause (i), and (d) have the same
ratings as the obligations specified in clause (i);
(iii) bonds, debentures or notes issued by any of the following federal agencies: Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation or Fannie Mae; provided, that such bonds, debentures or notes shall be the senior
obligations of such agencies (including participation certificates) and have the same
ratings by Moody’s and S&P as the obligations specified in clause (i); and
(iv) bonds, debentures or notes issued by any Federal agency hereafter created by an act of Congress, the payment of the principal of and interest on which are unconditionally guaranteed by the United States of America as to the full and timely
payment; provided, that, such obligations shall not include unit investment trusts or
mutual fund obligations.
“Installment Payment Fund” means the fund by that name established in accordance with Section 5.02 hereof.
“Installment Payments” means the Installment Payments required to be made by the
District pursuant to Section 3.02 of the Installment Purchase Agreement.
“Installment Purchase Agreement” means the Installment Purchase Agreement, dated
as of the date hereof, by and between the District and the Corporation, as originally executed and as it may from time to time be amended in accordance with the provisions thereof.
“Interest Account” means the account by that name within the Installment Payment
Fund established in accordance with Section 5.02 hereof.
77633181.2 5
“Interest Payment Date” means February 1 and August 1 of each year, commencing
August 1, 2012.
“Letter of Representations” means the letter of the District delivered to and accepted by
the Depository on or prior to the delivery of the Revenue Obligations as Book-Entry Certificates setting forth the basis on which the Depository serves as depository for such Book-Entry Certificates, as originally executed or as it may be supplemented or revised or replaced by a
letter to a substitute Depository.
“Master Agreement” means the Master Agreement for District Obligations, dated as of
August 1, 2000, by and between the District and the Corporation, as originally executed and as it may from time to time be amended or supplemented in accordance with the terms thereof.
“Moody’s” means Moody’s Investors Service, a corporation organized and existing
under the laws of the State of Delaware, its successors and assigns, except that if such
corporation shall no longer perform the function of a securities rating agency for any reason, the
term “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the District.
“Nominee” means the nominee of the Depository, which may be the Depository, as
determined from time to time pursuant to Section 2.10 hereof.
“Opinion of Counsel” means a written opinion of Fulbright & Jaworski L.L.P. or any
other counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the District.
“Outstanding,” when used as of any particular time with reference to Revenue
Obligations, means (subject to the provisions of Section 9.02 hereof) all Revenue Obligations
except (a) Revenue Obligations previously canceled by the Trustee or delivered to the Trustee
for cancellation, (b) Revenue Obligations paid or deemed to have been paid within the meaning of Section 10.01 hereof, and (c) Revenue Obligations in lieu of or in substitution for which other Revenue Obligations shall have been executed and delivered by the Trustee pursuant to
Section 2.09 hereof.
“Owner” means any Person who shall be the registered owner of any Outstanding
Revenue Obligation as indicated in the registration books of the Trustee required to be maintained pursuant to Section 2.07 hereof.
“Participants” means those broker-dealers, banks and other financial institutions from
time to time for which the Depository holds Book-Entry Certificates as securities depository.
“Participating Underwriter” has the meaning ascribed thereto in the Continuing
Disclosure Agreement.
77633181.2 6
“Permitted Investments” means any of the following, except to the extent not permitted
by the laws of the State as an investment for the moneys to be invested therein at the time of
investment:
(1) Government Obligations;
(2) Bonds, debentures, notes, participation certificates or other evidences of indebtedness issued, or the principal of and interest on which are unconditionally
guaranteed, by the Federal Intermediate Credit Bank, the Federal Home Loan Bank
System, the Government National Mortgage Association or any other agency or
instrumentality of or corporation wholly owned by the United States of America when such obligations are backed by the full faith and credit of the United States for the full and timely payment of principal and interest;
(3) Obligations of any state of the United States or any political subdivision
thereof, which at the time of investment are rated “Aa3” or higher by Moody’s and
“AA-” or higher by S&P; or which are rated by Moody’s “VMIG 1” or better and by S&P “A-1+” or better with respect to commercial paper, or “VMIG 1” and “SP-1”, respectively, with respect to municipal notes;
(4) Bank time deposits evidenced by certificates of deposit, deposit accounts,
and bankers’ acceptances, issued by any bank, trust company or national banking
association insured by the Federal Deposit Insurance Corporation (including the Trustee); provided that (a) such bank, trust company or national banking association be rated “Aa3” or better by Moody’s and “AA-” or better by S&P; and (b) the aggregate of such
bank time deposits and bankers’ acceptances issued by any bank, trust company or
banking association does not exceed at any one time 10% of the aggregate of the capital
stock, surplus and undivided profits of such bank, trust company or banking association and that such capital stock, surplus and undivided profits shall not be less than $15,000,000;
(5) Repurchase agreements with any bank, trust company or national banking
association insured by the Federal Deposit Insurance Corporation (including the Trustee),
with subsidiaries (of a parent company), provided the obligations of the subsidiary under the agreement are unconditionally guaranteed by the parent, or with any government bond dealer recognized as a primary dealer by the Federal Reserve Bank of New York,
which agreements are fully and continuously secured by a valid and perfected first
priority security interest in obligations described in paragraph (1) or (2) of this definition,
provided that either such bank, trust company or national banking association which (or senior debt or claims paying ability of the financial entity’s guarantor) is rated, at the time of investment, “Aa3” or better by Moody’s and “AA-” or better by S&P;
(6) Repurchase agreements with maturities of not more than one year entered
into with financial institutions such as banks or trust companies organized under state law
or national banks or banking associations (including the Trustee), insurance companies or government bond dealers reporting to, trading with, and recognized as a primary dealer by, the Federal Reserve Bank of New York and a member of the Securities Investor
77633181.2 7
Protection Corporation or with a dealer or parent holding company that is rated, at the
time of investment, or whose long-term debt obligations (or senior debt or claims paying
ability of the financial entity’s guarantor) are rated, at the time of investment, “Aa3” or
better by Moody’s and “AA-” or better by S&P, provided such repurchase agreements are in writing, secured by obligations described in paragraphs (1) and (2) of this definition having a fair market value, exclusive of accrued interest, at least equal to the amount
invested in the repurchase agreements and in which the Trustee has a perfected first lien
in, and retains possession of, such obligations free from all third party claims;
(7) Investment agreements, forward purchase agreements and reserve fund put agreements with any corporation, including banking or financial institutions, or agreements entered into with subsidiaries (of a parent company), provided the obligations
of the subsidiary under the agreement are unconditionally guaranteed by the parent, the
corporate debt of which (or senior debt or claims paying ability of the financial entity’s
guarantor) is rated, at the time of investment, “Aa3” or better by Moody’s and “AA-” or better by S&P;
(8) Guaranteed investment contracts or similar funding agreements issued by
insurance companies, provided that either the long term corporate debt of such insurance
company, at the time of investment, is rated, at the time of investment, “Aa3” or better by
Moody’s and “AA-” or better by S&P or which agreements are fully and continuously secured by a valid and perfected first priority security interest in obligations described in paragraph (1) or (2) of this definition, or that the following conditions are met: (a) the
market value of the collateral is maintained at levels acceptable to Moody’s and S&P,
(b) the Trustee or a third party acting solely as agent for the Trustee has possession of the
collateral, (c) the Trustee has a perfected first priority security interest in the collateral, (d) the collateral is free and clear of third-party liens, and (e) failure to maintain the requisite collateral level will require the Trustee to liquidate collateral;
(9) Corporate commercial paper rated “P-1” or better by Moody’s and “A-1+”
or better by S&P at the time of investment;
(10) Taxable government money market portfolios which are rated “AAAm” or “AAAm-G” by S&P and “P-1” by Moody’s (including funds for which the Trustee or an affiliate provides investment advice or similar services);
(11) Deposits with the Local Agency Investment Fund of the State, as may
otherwise be permitted by law; and
(12) Shares in the Franklin Adjustable U.S. Government Securities Fund or any other similar fund having at least $1,000,000,000 in assets and invested solely in securities directly guaranteed by the U.S. government or its agencies and rated “AAAf”
by S&P or a comparable rating by Moody’s.
“Person” means an individual, corporation, limited liability company, firm, association,
partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.
77633181.2 8
“Prepayment Account” means the account by that name within the Installment Payment
Fund established in accordance with Section 5.02 hereof.
“Principal Account” means the account by that name within the Installment Payment
Fund established in accordance with Section 5.02 hereof.
“Principal Office” means the Trustee’s principal corporate trust office in Los Angeles, California.
“Principal Payment Date” means a date on which an Installment Payment evidenced by
the Revenue Obligations becomes due and payable.
“Project” has the meaning ascribed thereto in the recitals hereto.
“Record Date” means, with respect to the interest payable on any Interest Payment Date, the 15th day of the calendar month immediately preceding such Interest Payment Date, whether
or not such day is a Business Day.
“Refunded Certificates” means $_________ in aggregate principal amount of the Prior
Certificates maturing in the [year 2033].
“Revenue Obligations” means the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A, executed and delivered by the Trustee pursuant
hereto, which are certificates of participation, evidencing direct, undivided fractional interests in
the Installment Purchase Agreement and the related Installment Payments, and the interest
thereon.
“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York,
its successors and assigns, except that if such entity shall no longer perform the functions of a
securities rating agency for any reason, the term “S&P” shall be deemed to refer to any other
nationally recognized securities rating agency selected by the District.
“State” means the State of California.
“Trust Agreement” means this Trust Agreement, dated as of March 1, 2012, by and
among the Trustee, the Corporation and the District, as originally executed and delivered and as
it may from time to time be amended or supplemented in accordance with the provisions hereof.
“Trustee” means Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States of America, or any other bank or trust company which may at any time be substituted in its place as provided in Section 8.02 hereof.
“Written Certificate” and “Written Request” mean (a) with respect to the Corporation,
a written certificate or written request, respectively, signed in the name of the Corporation by an
Authorized Corporation Representative, and (b) with respect to the District, a written certificate or written request, respectively, signed in the name of the District by an Authorized District Representative. Any such certificate or request may, but need not, be combined in a single
77633181.2 9
instrument with any other instrument, opinion or representation, and the two or more so
combined shall be read and construed as a single instrument.
Section 1.02. Definitions in Installment Purchase Agreement. Except as otherwise
herein defined and unless the context otherwise requires, the terms defined in the Installment Purchase Agreement shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein have the meanings defined therein,
such definitions to be equally applicable to both the singular and plural forms of any of the terms
defined therein. With respect to any defined term which is given a different meaning under this
Trust Agreement than under the Installment Purchase Agreement, as used herein it shall have the meaning given herein.
Section 1.03. Equal Security. In consideration of the acceptance of the Revenue
Obligations by the Owners, this Trust Agreement shall be deemed to be and shall constitute a
contract between the Trustee and the Owners to secure the full and final payment of the interest
and principal evidenced by the Revenue Obligations which may be executed and delivered hereunder, subject to each of the agreements, conditions, covenants and terms contained herein;
and all agreements, conditions, covenants and terms contained herein required to be observed or
performed by or on behalf of the Trustee shall be for the equal and proportionate benefit,
protection and security of all Owners without distinction, preference or priority as to security or
otherwise of any Revenue Obligations over any other Revenue Obligations by reason of the number or date thereof or the time of execution or delivery thereof or for any cause whatsoever,
except as expressly provided herein or therein.
ARTICLE II
TERMS AND CONDITIONS OF REVENUE OBLIGATIONS
Section 2.01. Preparation and Delivery of Revenue Obligations. The Trustee is
hereby authorized, upon the Written Request of the District, to execute and deliver the Revenue
Obligations in the aggregate principal amount of $___________, evidencing the aggregate
principal amount of the Installment Payments and each evidencing a direct, fractional undivided
interest in the Installment Payments, and the interest thereon. The Installment Payments evidenced by each Revenue Obligation shall constitute the principal evidenced thereby and the
interest on such Installment Payments shall constitute the interest evidenced thereby. The
Revenue Obligations shall be numbered, with or without prefixes, as directed by the Trustee.
Section 2.02. Denomination, Medium and Dating of Revenue Obligations. The
Revenue Obligations shall be designated “Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A” and shall be prepared in the form of fully
registered Revenue Obligations, without coupons, in Authorized Denominations and shall be
payable in lawful money of the United States of America.
The Revenue Obligations shall be dated as of the Closing Date. Each Revenue
Obligation shall evidence interest from the Interest Payment Date next preceding its date of execution to which interest has been paid in full, unless such date of execution shall be after a
Record Date and on or prior to the following Interest Payment Date, in which case such Revenue
77633181.2 10
Obligation shall evidence interest from such Interest Payment Date, or unless such date of
execution shall be on or prior to July 15, 2012, in which case such Revenue Obligation shall
represent interest from the Closing Date. Notwithstanding, the foregoing, if, as shown by the
records of the Trustee, interest evidenced by the Revenue Obligations shall be in default, each Revenue Obligation shall evidence interest from the last Interest Payment Date to which such interest has been paid in full or duly provided for.
Section 2.03. Payment Dates of Revenue Obligations; Interest Computation.
(a) Method and Place of Payment. The principal evidenced by the Revenue Obligations shall
become due and payable, subject to prior prepayment, on February 1 of the years, in the amounts, and shall evidence interest accruing at the rates per annum set forth below:
Principal Payment Date
(February 1)
Principal
Component
Interest
Rate
Except as otherwise provided in the Letter of Representations, payments of interest
evidenced by the Revenue Obligations shall be made to the Owners thereof (as determined at the close of business on the Record Date next preceding the related Interest Payment Date) by check or draft of the Trustee mailed to the address of each such Owner as it appears on the registration
books maintained by the Trustee pursuant to Section 2.07 hereof, or to such other address as may
be furnished in writing to the Trustee by each such Owner. Except as otherwise provided in the
Letter of Representations, payment of principal and prepayment premium, if any, evidenced by the Revenue Obligations, on their stated Principal Payment Dates or on prepayment in whole or in part prior thereto, shall be made only upon presentation and surrender of the Revenue
Obligations at the Principal Office.
(b) Computation of Interest. The interest evidenced by the Revenue Obligations shall
be payable on each Interest Payment Date to and including their respective Principal Payment Dates or prepayment prior thereto, and shall represent the sum of the interest on the Installment Payments coming due on the Interest Payment Dates in each year. The principal evidenced by
the Revenue Obligations shall be payable on their respective Principal Payment Dates in each
year and shall represent the Installment Payments coming due on the Principal Payment Dates in
each year. Interest evidenced by the Revenue Obligations shall be computed on the basis of a 360-day year consisting of twelve 30-day months.
Section 2.04. Form of Revenue Obligations. The Revenue Obligations shall be in
substantially the form of Exhibit A hereto, with necessary or appropriate insertions, omissions
and variations as permitted or required hereby.
77633181.2 11
Section 2.05. Execution of Revenue Obligations and Replacement Certificates. The
Revenue Obligations shall be executed by the Trustee by the manual signature of an authorized
signatory of the Trustee. The Trustee shall deliver replacement Revenue Obligations in the
manner and as contemplated by this Article. Such replacement Revenue Obligations shall be executed as herein provided and shall be in Authorized Denominations.
Section 2.06. Transfer and Payment of Revenue Obligations; Exchange of Revenue Obligations. Each Revenue Obligation is transferable by the Owner thereof, in person or by his
attorney duly authorized in writing, at the Principal Office, on the registration books maintained
by the Trustee pursuant to the provisions of Section 2.07 hereof, upon surrender of such Revenue Obligation 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 Revenue
Obligation as the absolute owner of such Revenue Obligation for all purposes, whether or not the
principal or interest evidenced by such Revenue Obligation 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 Revenue Obligation shall be made only to such Owner, which payments shall be valid and effectual to satisfy and discharge the liability evidenced by such
Revenue Obligation to the extent of the sum or sums so paid.
Whenever any Revenue Obligation shall be surrendered for transfer, the Trustee shall
execute and deliver a new Revenue Obligation or Revenue Obligations evidencing principal in the same aggregate amount and having the same stated Principal Payment Date. The Trustee shall require the payment by any Owner requesting such transfer of any tax or other
governmental charge required to be paid with respect to such transfer.
Each Revenue Obligation may be exchanged at the Principal Office for Revenue
Obligations evidencing principal in a like aggregate principal amount having the same stated Principal Payment Date in such Authorized Denominations as the Owner thereof may request. The Trustee shall require the payment by the Owner requesting such exchange of any tax or
other governmental charge required to be paid with respect to such exchange.
Section 2.07. Revenue Obligation Registration Books. The Trustee shall keep at its
Principal Office sufficient books for the registration and transfer of the Revenue Obligations, which books shall be available for inspection and copying by the District at reasonable hours and under reasonable conditions; and upon presentation for such purpose the Trustee shall, under
such reasonable regulations as it may prescribe, register or transfer the Revenue Obligations on
such books as hereinabove provided.
Section 2.08. Temporary Revenue Obligations. The Revenue Obligations may be initially delivered in temporary form exchangeable for definitive Revenue Obligations when
ready for delivery, which temporary Revenue Obligations shall be printed, lithographed or
typewritten, shall be of such denominations as may be determined by the Trustee, shall be in
fully registered form and shall contain such reference to any of the provisions hereof as may be
appropriate. Every temporary Revenue Obligation shall be executed and delivered by the Trustee upon the same conditions and terms and in substantially the same manner as definitive
Revenue Obligations. If the Trustee executes and delivers temporary Revenue Obligations, it
shall prepare and execute definitive Revenue Obligations without delay, and thereupon the
77633181.2 12
temporary Revenue Obligations may be surrendered at the Principal Office in exchange for such
definitive Revenue Obligations, and until so exchanged such temporary Revenue Obligations
shall be entitled to the same benefits hereunder as definitive Revenue Obligations executed and
delivered hereunder.
Section 2.09. Revenue Obligations Mutilated, Lost, Destroyed or Stolen. If any Revenue Obligation shall become mutilated, the Trustee, at the expense of the Owner thereof,
shall execute and deliver a new Revenue Obligation evidencing a like principal amount and
having the same stated Principal Payment Date and number in exchange and substitution for the
Revenue Obligation so mutilated, but only upon surrender to the Trustee of the Revenue Obligation so mutilated. Every mutilated Revenue Obligation so surrendered to the Trustee shall
be canceled by it. If any Revenue Obligation shall be lost, destroyed or stolen, evidence of such
loss, destruction or theft may be submitted to the Trustee, and if such evidence is satisfactory to
the Trustee and indemnity satisfactory to the Trustee shall be given, the Trustee, at the expense
of the Owner thereof, shall execute and deliver a new Revenue Obligation evidencing a like principal amount and having the same stated Principal Payment Date, numbered as the Trustee
shall determine, in lieu of and in substitution for the Revenue Obligation so lost, destroyed or
stolen. The Trustee may require payment of a sum not exceeding the actual cost of preparing
each new Revenue Obligation executed and delivered by it under this Section and of the
expenses which may be incurred by it under this Section. Any Revenue Obligation executed and delivered under the provisions of this Section in lieu of any Revenue Obligation alleged to be
lost, destroyed or stolen shall be equally and proportionately entitled to the benefits hereof with
all other Revenue Obligations executed and delivered hereunder, and the Trustee shall not be
required to treat both the original Revenue Obligation and any replacement Revenue Obligation
as being Outstanding for the purpose of determining the amount of Revenue Obligations which may be executed and delivered hereunder or for the purpose of determining any percentage of
Revenue Obligations Outstanding hereunder, but both the original and replacement Revenue
Obligation shall be treated as one and the same. Notwithstanding any other provision of this
Section, in lieu of executing and delivering a new Revenue Obligation for a Revenue Obligation
which has been lost, destroyed or stolen and which evidences principal that is then payable, the Trustee may make payment of such Revenue Obligation to the Owner thereof if so instructed by
the District.
Section 2.10. Book-Entry System. (a) The Revenue Obligations shall be initially
executed and delivered as Book-Entry Certificates, and the Revenue Obligations for each stated
Principal Payment Date shall be in the form of a separate single fully registered Revenue Obligation (which may be typewritten). Upon initial execution and delivery, the ownership of
each Revenue Obligation shall be registered in the registration books maintained by the Trustee
in the name of the Nominee, as nominee of the Depository. Payment of principal or interest
evidenced by any Book-Entry Certificate registered in the name of the Nominee shall be made
on the applicable Interest Payment Date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee.
Such payments shall be made to the Nominee at the address which is, on the Record Date, shown
for the Nominee in the registration books maintained by the Trustee.
(b) With respect to Book-Entry Certificates, the District, the Corporation and the
Trustee shall have no responsibility or obligation to any Participant or to any Person on behalf of
77633181.2 13
which such a Participant holds an interest in such Book-Entry Certificates. Without limiting the
immediately preceding sentence, the District, the Corporation and the Trustee shall have no
responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the
Nominee or any Participant with respect to any ownership interest in Book-Entry Certificates, (ii) the delivery to any Participant or any other Person, other than an Owner as shown in the registration books maintained by the Trustee, of any notice with respect to Book-Entry
Certificates, including any notice of prepayment, (iii) the selection by the Depository and its
Participants of the beneficial interests in Book-Entry Certificates to be prepaid in the event
Revenue Obligations are prepaid in part, (iv) the payment to any Participant or any other Person, other than an Owner as shown in the registration books maintained by the Trustee, of any amount with respect to principal, premium, if any, or interest evidenced by Book-Entry
Certificates, or (v) any consent given or other action taken by the Depository as Owner.
(c) The District, the Corporation and the Trustee may treat and consider the Person in
whose name each Book-Entry Certificate is registered in the registration books maintained by the Trustee as the absolute Owner of such Book-Entry Certificate for the purpose of payment of principal, prepayment premium, if any, and interest evidenced by such Revenue Obligation, for
the purpose of selecting any Revenue Obligations, or portions thereof, to be prepaid, for the
purpose of giving notices of prepayment and other matters with respect to such Revenue
Obligation, for the purpose of registering transfers with respect to such Revenue Obligation, for the purpose of obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever, and the District, the Corporation and the Trustee shall not be affected by
any notice to the contrary.
(d) Reserved.
(e) The Trustee shall pay all principal, premium, if any, and interest evidenced by the Revenue Obligations to the respective Owner, as shown in the registration books maintained by the Trustee, or his respective attorney duly authorized in writing, and all such payments shall be
valid and effective to fully satisfy and discharge the obligations with respect to payment of
principal, premium, if any, and interest evidenced by the Revenue Obligations to the extent of
the sum or sums so paid. No Person other than an Owner, as shown in the registration books maintained by the Trustee, shall receive a Revenue Obligation evidencing principal, premium, if any, and interest evidenced by the Revenue Obligations. Upon delivery by the Depository to the
Owners, the Trustee and the District of written notice to the effect that the Depository has
determined to substitute a new nominee in place of the Nominee, and subject to the provisions
herein with respect to Record Dates, the word Nominee in this Trust Agreement shall refer to such nominee of the Depository.
(f) To qualify the Book-Entry Certificates for the Depository’s book-entry system,
the District shall execute and deliver to the Depository a Letter of Representations. The
execution and delivery of a Letter of Representations shall not in any way impose upon the
Corporation, the District or the Trustee any obligation whatsoever with respect to Persons having interests in such Book-Entry Certificates other than the Owners, as shown on the registration books maintained by the Trustee. Such Letter of Representations may provide the time, form,
content and manner of transmission, of notices to the Depository. In addition to the execution
and delivery of a Letter of Representations by the District, the District, the Corporation and the
77633181.2 14
Trustee shall take such other actions, not inconsistent with this Trust Agreement, as are
reasonably necessary to qualify Book-Entry Certificates for the Depository’s book-entry
program.
(g) If the District determines that it is in the best interests of the Beneficial Owners that they be able to obtain certificated Revenue Obligations and that such Revenue Obligations should therefore be made available and notifies the Depository and the Trustee of such
determination, the Depository will notify the Participants of the availability through the
Depository of certificated Revenue Obligations. In such event, the Trustee shall transfer and
exchange certificated Revenue Obligations as requested by the Depository and any other Owners in appropriate amounts. In the event (i) the Depository determines not to continue to act as securities depository for Book-Entry Certificates, or (ii) the Depository shall no longer so act and
gives notice to the Trustee of such determination, then the District shall discontinue the Book-
Entry system with the Depository. If the District determines to replace the Depository with
another qualified securities depository, the District shall prepare or direct the preparation of a new single, separate, fully registered Revenue Obligation for each stated Principal Payment Date of such Book-Entry Certificates, registered in the name of such successor or substitute qualified
securities depository or its nominee. If the District fails to identify another qualified securities
depository to replace the Depository, then the Revenue Obligations shall no longer be restricted
to being registered in the registration books maintained by the Trustee in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Revenue Obligations shall designate, in accordance with the provisions of
Sections 2.06 and 2.09 hereof. Whenever the Depository requests the District to do so, the
District will cooperate with the Depository in taking appropriate action after reasonable notice
(i) to make available one or more separate certificates evidencing the Book-Entry Certificates to any Participant having Book-Entry Certificates credited to its account with the Depository, and (ii) to arrange for another securities depository to maintain custody of certificates evidencing the
Book-Entry Certificates.
(h) Notwithstanding any other provision of this Trust Agreement to the contrary, if
DTC is the sole Owner of the Revenue Obligations, so long as any Book-Entry Certificate is registered in the name of the Nominee, all payments of principal, premium, if any, and interest evidenced by such Revenue Obligation and all notices with respect to such Revenue Obligation
shall be made and given, respectively, as provided in the Letter of Representations or as
otherwise instructed by the Depository.
(i) In connection with any notice or other communication to be provided to Owners pursuant to the Trust Agreement by the District, the Corporation or the Trustee, with respect to any consent or other action to be taken by Owners, the Trustee shall establish a record date for
such consent or other action and give the Depository notice of such record date not less than 15
calendar days in advance of such record date to the extent possible. Notice to the Depository
shall be given only when DTC is the sole Owner of the Revenue Obligations.
77633181.2 15
ARTICLE III
PROCEEDS OF REVENUE OBLIGATIONS
Section 3.01. Delivery of Revenue Obligations. The Trustee is hereby authorized to execute the Revenue Obligations and deliver the Revenue Obligations to the original purchaser
thereof upon receipt of a Written Request of the District and upon receipt of the proceeds of sale
thereof.
Section 3.02. Deposit of Proceeds of Revenue Obligations. The net proceeds received
by the Trustee from the sale of the Revenue Obligations in the amount of $__________ (which amount includes the security deposit for the Revenue Obligations in the amount of $__________) shall be deposited or transferred by the Trustee as follows:
(a) the Trustee shall deposit in the Costs of Issuance Fund the amount of
$__________; and
(b) the Trustee shall transfer to the Escrow Agent for deposit in the Escrow Fund the amount of $__________, to defease and refund the Refunded Certificates.
Section 3.03. Costs of Issuance Fund. The Trustee shall establish and maintain a
separate special fund to be held by the Trustee known as the Costs of Issuance Fund. There shall
be deposited in the Costs of Issuance Fund on the Closing Date the amount required to be
deposited therein pursuant to Section 3.02 hereof. The Trustee shall disburse moneys from the Costs of Issuance Fund on such dates and in such amounts as are necessary to pay Costs of Issuance, in each case upon the Written Request of the District stating the Person to whom
payment is to be made, the amount to be paid, the purpose for which the obligation was incurred
and that such payment is a proper charge against the Costs of Issuance Fund. On the date that is
six months after the Closing Date, the Trustee shall transfer any amounts then remaining in the Costs of Issuance Fund to the Installment Payment Fund. Upon such transfer, the Costs of Issuance Fund shall be closed.
Section 3.04. Reserved.
ARTICLE IV
PREPAYMENT OF REVENUE OBLIGATIONS
Section 4.01. Optional Prepayment. The Revenue Obligations are subject to optional
prepayment prior to their stated Principal Payment Dates, on any date on or after ________ 1,
2022, in whole or in part, in Authorized Denominations, from and to the extent of prepaid
Installment Payments paid pursuant to Section 4.01 of the Installment Purchase Agreement or from any other source of available funds, any such prepayment to be at a price equal to the principal evidenced by the Revenue Obligations to be prepaid, plus accrued interest evidenced
thereby to the date fixed for prepayment, without premium.
Section 4.02. Reserved.
77633181.2 16
Section 4.03. Selection of Revenue Obligations for Optional Prepayment. Whenever
less than all the Outstanding Revenue Obligations are to be prepaid on any one date pursuant to
Section 4.01 hereof, with respect to optional prepayment of Revenue Obligations, the Trustee
shall select the Revenue Obligations to be prepaid among Revenue Obligations with different Principal Payment Dates as directed in a Written Request of the District. Whenever less than all
the Outstanding Revenue Obligations with the same stated Principal Payment Date are to be
prepaid on any one date pursuant to Section 4.01 hereof, the Trustee shall select the Revenue
Obligations with such Principal Payment Date to be prepaid as directed in a Written Request of
the District, or at the discretion of the District by lot in any manner that the Trustee deems fair and appropriate, which decision shall be final and binding upon the District and the Owners. The
Trustee shall promptly notify the District in writing of the numbers of the Revenue Obligations
so selected for prepayment on such date. For purposes of such selection, any Revenue Obligation
may be prepaid in part in Authorized Denominations.
Section 4.04. Notice of Prepayment. When prepayment of Revenue Obligations is authorized pursuant to Section 4.01, the Trustee shall give notice, at the expense of the District,
of the prepayment of the Revenue Obligations. The notice of prepayment shall specify (a) the
Revenue Obligations or designated portions thereof (in the case of prepayment of the Revenue
Obligations in part but not in whole) which are to be prepaid, (b) the date of prepayment, (c) the
place or places where the prepayment will be made, including the name and address of any paying agent, (d) the prepayment price, (e) the CUSIP numbers assigned to the Revenue
Obligations to be prepaid, (f) the numbers of the Revenue Obligations to be prepaid in whole or
in part and, in the case of any Revenue Obligation to be prepaid in part only, the principal
evidenced by such Revenue Obligation to be prepaid, and (g) the interest rate and stated
Principal Payment Date of each Revenue Obligation to be prepaid in whole or in part. Such notice of prepayment shall further state that on the specified date there shall become due and
payable upon each Revenue Obligation or portion thereof being prepaid the prepayment price
and that from and after such date interest evidenced thereby shall cease to accrue and be payable.
With respect to any notice of prepayment of Revenue Obligations pursuant to Section 4.01
hereof, unless at the time such notice is given the Revenue Obligations to be prepaid shall be deemed to have been paid within the meaning of Section 10.01 hereof, such notice shall state that
such prepayment is conditional upon receipt by the Trustee, on or prior to the date fixed for such
prepayment, of moneys sufficient to pay for the prepayment price of the Revenue Obligations to
be prepaid, and that if such moneys shall not have been so received said notice shall be of no
force and effect and the District shall not be required to prepay such Revenue Obligations. If a notice of prepayment of Revenue Obligations contains such a condition and such moneys are not
so received, the prepayment of Revenue Obligations as described in the conditional notice of
prepayment shall not be made and the Trustee shall, within a reasonable time after the date on
which such prepayment was to occur, give notice to the persons and in the manner in which the
notice of prepayment was given, that such moneys were not so received and that there shall be no prepayment of Revenue Obligations pursuant to such notice of prepayment.
The Trustee shall, at least 20 but not more than 60 days prior to any prepayment date,
give notice of prepayment to the respective Owners of Revenue Obligations designated for
prepayment by first-class mail, 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.
77633181.2 17
The actual receipt by the Owner 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 Revenue
Obligations 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 as herein provided shall be conclusive as against all parties, and no Owner whose Revenue Obligation 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.
Section 4.05. Partial Prepayment of Revenue Obligations. Upon surrender of any Revenue Obligation prepaid in part only, the Trustee shall execute and deliver to the Owner
thereof a new Revenue Obligation or Revenue Obligations evidencing the unprepaid principal
with respect to the Revenue Obligation surrendered.
Section 4.06. Effect of Prepayment. If notice of prepayment has been duly given as aforesaid and moneys for the payment of the prepayment price of the Revenue Obligations to be
prepaid are held by the Trustee, then on the prepayment date designated in such notice, the
Revenue Obligations so called for prepayment shall become payable at the prepayment price
specified in such notice; and from and after the date so designated, interest evidenced by the
Revenue Obligations so called for prepayment shall cease to accrue, such Revenue Obligations shall cease to be entitled to any benefit or security hereunder and the Owners of such Revenue
Obligations shall have no rights in respect thereof except to receive payment of the prepayment
price thereof. The Trustee shall, upon surrender for payment of any of the Revenue Obligations
to be prepaid, pay such Revenue Obligations at the prepayment price thereof, and such moneys
shall be pledged to such payment. All Revenue Obligations prepaid pursuant to the provisions of this Article shall be canceled by the Trustee and shall not be redelivered.
ARTICLE V
ASSIGNMENT AND PLEDGE; FUNDS AND ACCOUNTS
Section 5.01. Assignment and Pledge. The Corporation hereby transfers, conveys and assigns to the Trustee, for the benefit of the Owners, all of the Corporation’s rights, title and
interest in and to the Installment Purchase Agreement (excepting its rights to indemnification
thereunder), including the right to receive Installment Payments, and the interest thereon, from
the District and the right to exercise any remedies provided therein in the event of a default by
the District thereunder. The Trustee hereby accepts said transfer, conveyance and assignment, solely in its capacity as Trustee, for the benefit of the Owners, subject to the provisions of this
Trust Agreement. All Installment Payments, and the interest thereon, shall be paid directly by
the District to the Trustee, and if received by the Corporation at any time shall be deposited by
the Corporation with the Trustee immediately upon the receipt thereof.
To secure the respective rights of the Owners to the payments required to be made thereto as provided herein, the Corporation and the District hereby irrevocably pledge to the Trustee, for
the benefit of the Owners, all of their right, title and interest, if any, in and to all amounts on
77633181.2 18
deposit from time to time in the funds and accounts established hereunder. This pledge shall
constitute a first lien on the amounts on deposit in such funds and accounts.
Section 5.02. Installment Payment Fund. (a) The Trustee shall establish and maintain
the Installment Payment Fund until all required Installment Payments, and the interest thereon, are paid in full pursuant to the Installment Purchase Agreement and until the first date upon which the Revenue Obligations are no longer Outstanding. The Trustee shall deposit in the
Installment Payment Fund all Installment Payments, and the interest thereon, paid by the District
and received by the Trustee. The moneys in the Installment Payment Fund shall be held in trust
by the Trustee for the benefit of the Owners and shall be used and disbursed only for the purposes and uses herein authorized.
(b) The Trustee shall transfer the amounts on deposit in the Installment Payment
Fund, at the times and in the manner hereinafter provided, to the following respective accounts
within the Installment Payment Fund, each of which the Trustee hereby agrees to establish and
maintain until all required Installment Payments, and the interest thereon, are paid in full pursuant to the Installment Purchase Agreement and until the first date upon which the Revenue Obligations are no longer Outstanding. The moneys in each of such accounts shall be held in
trust by the Trustee for the benefit of the Owners and shall be used and disbursed only for the
purposes and uses herein authorized.
(i) Interest Account. The Trustee, on each Interest Payment Date, shall deposit in the Interest Account that amount of moneys representing the interest on the Installment Payments coming due on such Interest Payment Date. Moneys in the Interest
Account shall be used by the Trustee for the purpose of paying the interest evidenced by
the Revenue Obligations when due and payable.
(ii) Principal Account. The Trustee, on each Principal Payment Date, shall deposit in the Principal Account that amount of moneys representing the Installment Payments coming due on such Principal Payment Date. Moneys in the Principal Account
shall be used by the Trustee for the purpose of paying the principal evidenced by the
Revenue Obligations when due and payable.
(iii) Prepayment Account. The Trustee, on the prepayment date specified in the Written Request of the District filed with the Trustee at the time that any prepaid Installment Payment is paid to the Trustee pursuant to the Installment Purchase
Agreement, shall deposit in the Prepayment Account that amount of moneys representing
such prepaid Installment Payment, the accrued interest thereon to the prepayment date
and any premium payable with respect thereto. The Trustee shall deposit in the Prepayment Account any other amounts made available by the District that the District, pursuant to a Written Request of the District, instructs the Trustee to apply to the
prepayment of Revenue Obligations pursuant to Section 4.01 hereof. Moneys in the
Prepayment Account shall be used by the Trustee for the purpose of paying the interest,
premium, if any, and principal evidenced by the Revenue Obligations to be prepaid pursuant to Section 4.01 hereof.
Section 5.03. Reserved.
77633181.2 19
Section 5.04. Investment of Moneys. Except as otherwise provided herein, all moneys
in any of the funds or accounts established pursuant to this Trust Agreement shall be invested by
the Trustee solely in Permitted Investments, as directed by the District pursuant to a Written
Request of the District at least two (2) Business Days prior to the making of such investment. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments
maturing not later than the date on which it is estimated that such moneys will be required for the
purposes specified in this Trust Agreement. Absent timely written direction from the District,
the Trustee shall invest any funds held by it in Permitted Investments described in clause (10) of
the definition thereof. Permitted Investments that are registerable securities shall be registered in the name of the Trustee. All interest, profits and other income received from the investment of
moneys in any fund or account established pursuant to this Trust Agreement shall be retained
therein.
Permitted Investments acquired as an investment of moneys in any fund or account
established under this Trust Agreement shall be credited to such fund or account. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund
shall be valued by the Trustee at the market value thereof, such valuation to be performed not
less frequently than semiannually on or before each January 15 and July 15.
The Trustee or an affiliate may act as principal or agent in the making or disposing of any
investment. The Trustee shall sell or present for redemption any Permitted Investment whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or
disbursement from the fund or account to which such Permitted Investment is credited, and the
Trustee shall not be liable or responsible for any loss resulting from any investment made or sold
pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any
of the funds and accounts established hereunder.
The Trustee is hereby authorized, in making or disposing of any investment permitted by
this Section, to deal with itself (in its individual capacity) or with any one or more of its
affiliates, whether or not such affiliate is acting as an agent of the Trustee or for any third Person
or dealing as principal for its own account.
Section 5.05. Brokerage Confirmations. The Trustee shall furnish the District periodic cash transaction statements which include detail for all investment transactions effected by the
Trustee or brokers selected by the District. Upon the District’s election, such statements will be
delivered via the Trustee’s Online Trust and Custody Service and upon electing such service,
paper statements will be provided only upon request. The District waives the right to receive
brokerage confirmations of securities transactions effected by the Trustee as they occur, to the extent permitted by law. The District further understands that trade confirmations for securities
transactions effected by the Trustee will be available upon request and at no additional cost and
other trade confirmations may be obtained from the applicable broker
77633181.2 20
ARTICLE VI
COVENANTS
Section 6.01. Compliance with Trust Agreement. The Trustee will not execute or deliver any Revenue Obligations in any manner other than in accordance with the provisions
hereof, and the Corporation and the District will not suffer or permit any default by them to
occur hereunder, but will faithfully comply with, keep, observe and perform all the agreements,
conditions, covenants and terms hereof required to be complied with, kept, observed and
performed by them.
Section 6.02. Compliance with Installment Purchase Agreement. The Corporation
and the District will faithfully comply with, keep, observe and perform all the agreements,
conditions, covenants and terms contained in the Installment Purchase Agreement required to be
complied with, kept, observed and performed by them and, together with the Trustee, will
enforce the Installment Purchase Agreement against the other party thereto in accordance with its terms.
Section 6.03. Compliance with Master Agreement. The Corporation and the District
will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants
and terms contained in the Master Agreement required to be complied with, kept, observed and
performed by them and, together with the Trustee, will enforce the Master Agreement against the other party thereto in accordance with its terms.
Section 6.04. Observance of Laws and Regulations. The Corporation and the District
will faithfully comply with, keep, observe and perform all valid and lawful obligations or
regulations now or hereafter imposed on them by contract, or prescribed by any law of the
United States of America or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise,
right or privilege now owned or hereafter acquired by them, including their right to exist and
carry on their respective businesses, to the end that such franchises, rights and privileges shall be
maintained and preserved and shall not become abandoned, forfeited or in any manner impaired.
Section 6.05. Other Liens. None of the Trustee, the Corporation or the District shall create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds
or accounts created hereunder, other than the pledge and lien hereof.
Section 6.06. Prosecution and Defense of Suits. The District will defend against every
action, suit or other proceeding at any time brought against the Trustee or any Owner upon any
claim arising out of the receipt, deposit or disbursement of any of the Installment Payments, or the interest thereon, or involving the rights of the Trustee or any Owner hereunder; provided,
however, that the Trustee or any Owner at its or his election may appear in and defend any such
action, suit or other proceeding.
Section 6.07. Accounting Records and Statements. The Trustee will keep proper
accounting records in which complete and correct entries shall be made of all transactions made by the Trustee relating to the receipt, deposit and disbursement of the Installment Payments, and
77633181.2 21
the interest thereon, and such accounting records shall be available for inspection by the
Corporation and the District at reasonable hours and under reasonable conditions. The Trustee
shall not be obligated to provide an accounting for any fund or account that (a) has a balance of
$0.00 and (b) has not had any activity since the last reporting date. The Trustee will, upon written request, make copies of the foregoing available to any Owner (at the expense of such Owner).
Section 6.08. Tax Covenants.
(a) Special Definitions. When used in this Section, the following terms shall have the
following meanings:
“Bond Counsel” means Fulbright & Jaworski L.L.P. or any other counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the
District and reasonably satisfactory to and approved by the Trustee.
“Computation Date” has the meaning set forth in section 1.148-1(b) of the Tax
Regulations.
“Computation Period” means, initially, that period commencing on the date of the execution and delivery of the Revenue Obligations and concluding on the initial Computation
Date and, thereafter, each period commencing on the day next following a Computation Date and
concluding on the immediately succeeding Computation Date.
“Gross Proceeds” of any issue of governmental obligations means any proceeds as defined in section 1.148-1(b) of the Tax Regulations (referring to sales, investment and transferred proceeds) of that issue, and any replacement proceeds as defined in section 1.148-
1(c) of the Tax Regulations, of that issue.
“Investment” has the meaning set forth in section 1.148-1(b) of the Tax Regulations.
“Nonpurpose Investment” means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of an issue are invested and that is not acquired to carry out the governmental purposes of that issue.
“Opinion of Bond Counsel” means a written opinion of Fulbright & Jaworski L.L.P. or
any other counsel of recognized national standing in the field of law relating to municipal bonds,
appointed and paid by the District and reasonably satisfactory to and approved by the Trustee.
“Prior Issue” shall refer to the Refunded Certificates (but in the case of any of the foregoing executed and delivered for multiple purposes, only to the portion thereof allocable
pursuant to section 1.148-9(h)(4) of the Tax Regulations to other than refunding purposes).
“Proceeds,” with respect to an issue of governmental obligations, has the meaning set
forth in has the meaning set forth in section 1.148-1(b) of the Tax Regulations (referring to sales, investment and transferred proceeds, but not replacement proceeds).
“Rebate Amount” has the meaning set forth in section 1.148-1(b) of the Tax Regulations.
77633181.2 22
“Tax Regulations” means the United States Treasury Regulations promulgated pursuant
to sections 103 and 141 through 150 of the Code.
“Yield” of (i) any Investment has the meaning set forth in section 1.148-5 of the Tax
Regulations and (ii) in respect of the Revenue Obligations has the meaning set forth in section 1.148-4 of the Tax Regulations.
(b) Exclusion of Interest from Gross Income. The District will take all actions
necessary to establish and maintain the exclusion pursuant to section 103(a) of the Code of
interest on the Revenue Obligations from the gross income of the owners thereof for federal
income tax purposes, and will not use, permit the use of, or omit to use Gross Proceeds of the Revenue Obligations or any other amounts (or any property the acquisition, construction or
improvement of which is to be refinanced directly or indirectly with Gross Proceeds) in a manner
that if made or omitted, respectively, would cause the interest on any Revenue Obligation to fail
to be excluded pursuant to section 103(a) of the Code from the gross income of the owners
thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Trustee receives a written Opinion of Bond Counsel to the effect that failure to
comply with such covenant will not adversely affect the exclusion pursuant to section 103(a) of
the Code of interest on any Revenue Obligation from the gross income of the owner thereof, the
District shall comply with this covenant and each of the specific covenants in this Section.
(c) No Private Use or Private Payments. Except as would not cause any Revenue Obligation to become a “private activity bond” within the meaning of section 141 of the Code
and the Tax Regulations and rulings thereunder, the District shall at all times prior to the
payment and cancellation of the last of the Revenue Obligations to be retired:
(i) exclusively own, operate and possess all property the acquisition,
construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Revenue Obligations and not use or permit the use
of such Gross Proceeds (including all contractual arrangements with terms different than
those applicable to the general public) or any property acquired, constructed or improved
with such Gross Proceeds or the Gross Proceeds of the Prior Issue in any activity carried
on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely
as a member of the general public; and
(ii) does not directly or indirectly impose or accept any charge or other
payment by any person or entity who is treated as using Gross Proceeds of the Revenue
Obligations or of the Prior Issue, or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such
Gross Proceeds, other than taxes of general application within the jurisdiction of the
District or interest earned on investments acquired with such Gross Proceeds pending
application for their intended purposes.
(d) No Private Loan. Except as would not cause any Revenue Obligation to become a “private activity bond” within the meaning of section 141 of the Code and the Tax Regulations
and rulings thereunder, the District shall not use of Gross Proceeds of the Revenue Obligations to
77633181.2 23
make or finance loans to any person or entity other than a state or local government. For
purposes of the foregoing covenant, such Gross Proceeds are considered to be “loaned” to a
person or entity if: (i) property acquired, constructed or improved with such Gross Proceeds is
sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (ii) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (iii) indirect benefits of such
Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or
improved with such Gross Proceeds, are otherwise transferred in a transaction that is the
economic equivalent of a loan. For purposes of this covenant, the District will treat any transaction constituting a loan of Gross Proceeds of the Prior Issue as resulting in a loan of Gross Proceeds of the Revenue Obligations.
(e) Not to Invest at Higher Yield. Except as would not cause any Revenue
Obligation to become an “arbitrage bond” within the meaning of section 148 of the Code and the
Tax Regulations and rulings thereunder, the District will not, at any time prior to the final cancellation of the last Revenue Obligation to be retired, directly or indirectly invest Gross Proceeds of the Revenue Obligations in any Investment, if as a result of that investment the yield
of any Investment acquired with Gross Proceeds of the Revenue Obligations, whether then held
or previously disposed of, would materially exceed the yield of the Revenue Obligations within
the meaning of said section 148.
(f) Not Federally Guaranteed. Except to the extent such action or failure to act would not pursuant to section 149(b) of the Code and the Tax Regulations and rulings
thereunder, adversely affect the exclusion pursuant to section 103(a) of interest on the Revenue
Obligations from the gross income of the owners thereof for federal income tax purposes, the
District will not take or omit to take any action that would cause any Revenue Obligation to be “federally guaranteed” within the meaning of section 149(b) of the Code and the Tax
Regulations and rulings thereunder.
(g) Information Report. The District will timely file any information necessary to the
exclusion pursuant to section 103(a) of the Code of interest on the Revenue Obligations required
by section 149(e) of the Code with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary of the Treasury may prescribe.
(h) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of
the Code and the Tax Regulations and rulings thereunder, the District will not at any time prior
to the final cancellation of the last of the Revenue Obligations to be retired, enter into any
transaction that reduces the amount required to be paid to the United States pursuant to section 148(f) of the Code because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm’s length and had the yield on the
Revenue Obligations not been relevant to either party.
(i) Revenue Obligations Satisfy Section 149(g). The District represents that neither
the Prior Issue nor the Revenue Obligations are or will become “hedge bonds” within the meaning of section 149(g) of the Code. Without limitation of the foregoing, with respect to the
Prior Issue, (i)(A) on the date of issuance of that issue the District reasonably expected (based
upon its own knowledge and upon representations made by other governmental persons upon the
77633181.2 24
issuance of those obligations) that within the three-year period commencing on such date no less
than 85% of the spendable proceeds of that issue would be expended for the governmental
purposes thereof and (B) the District believes and represents that at no time has more than 50%
of the proceeds of that issue been invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more, and with respect to the application of Proceeds of the Revenue Obligations other than for refunding purposes, (ii)(A) the District will
not deliver the Revenue Obligations unless on the date of the issuance of the Revenue
Obligations it reasonably expects that within the three-year period commencing on such date of
issuance at least 85% of such spendable proceeds of the Revenue Obligations will be expended for the governmental purpose of the Revenue Obligations and (B) at no time will more than 50% of such spendable proceeds of the Revenue Obligations be invested in Nonpurpose Investments
having a substantially guaranteed yield for a period of four years or more.
(j) Elections. The District hereby directs and authorizes any Authorized
Representative to make elections permitted or required pursuant to the provisions of the Code or the Tax Regulations, as such Authorized Representative (after consultation with Bond Counsel) deems necessary or appropriate in connection with the Revenue Obligations, in the Tax
Certificate (as defined below) or similar or other appropriate certificate, form or document.
(k) Tax Certificate. The District agrees to execute and deliver in connection with the
execution and delivery of the Revenue Obligations a Tax Certificate as to Arbitrage and the Provisions of Sections 141-150 of the Internal Revenue Code of 1986, or similar document containing additional representations and covenants pertaining to the exclusion of interest with
respect to the Revenue Obligations from the gross income of the owners thereof for federal
income tax purposes (the “Tax Certificate”), which representations and covenants are
incorporated as though expressly set forth herein.
Section 6.09. Continuing Disclosure. The District will comply with and carry out all of the provisions of the Continuing Disclosure Agreement applicable to it. Notwithstanding any
other provision of this Trust Agreement, failure of the District to comply with the Continuing
Disclosure Agreement shall not be considered an Event of Default; provided, however, the
Trustee at the request of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Revenue Obligations and upon being indemnified to its
reasonable satisfaction, shall, or any Owner or Beneficial Owner of Revenue Obligations may
take such actions as may be necessary and appropriate to compel performance, including seeking
mandate or specific performance by court order.
Section 6.10. Further Assurances. The District will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or
instruments and promptly do or cause to be done all such other and further things as may be
necessary or reasonably required in order to carry out the purposes and intentions of this Trust
Agreement and for preserving and protecting the rights and interests of the Owners.
77633181.2 25
ARTICLE VII
DEFAULT AND LIMITATIONS OF LIABILITY
Section 7.01. Action upon Event of Default. An Event of Default under the Installment Purchase Agreement shall constitute an Event of Default hereunder and an Event of Default
under the Master Agreement shall constitute an Event of Default hereunder. The Trustee may
give notice, as assignee of the Corporation, of an Event of Default under the Installment
Purchase Agreement to the District, and shall do so if directed to do so by the Owners of not less
than 5% of the aggregate principal evidenced by Revenue Obligations then Outstanding. In each and every case during the continuance of an Event of Default, the Trustee may and, at the
direction of the Owners of not less than a majority of the aggregate principal evidenced by
Revenue Obligations then Outstanding, shall, upon notice in writing to the District and the
Corporation (a) exercise any of the remedies granted to the Corporation under the Installment
Purchase Agreement, (b) exercise any of the remedies granted to the Trustee under the Master Agreement, and (c) take whatever action at law or in equity may appear necessary or desirable to
enforce its rights pursuant to this Trust Agreement, the Installment Purchase Agreement or the
Master Agreement or to protect and enforce any of the rights vested in the Trustee or the Owners
by this Trust Agreement, the Revenue Obligations, the Installment Purchase Agreement or the
Master Agreement, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or
equitable right, including any one or more of the remedies set forth in Section 7.02 hereof.
Section 7.02. Other Remedies of the Trustee. Subject to the provisions of Section 7.01
hereof, the Trustee shall have the right:
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Corporation or the District or any member, director, officer or employee
thereof, and to compel the Corporation or the District or any such member, director, officer or
employee to perform or carry out its or his or her duties under law and the agreements and
covenants required to be performed by it or him or her contained herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee; or
(c) by suit in equity upon the happening of any Event of Default hereunder to require
the Corporation and the District to account as the trustee of an express trust.
Section 7.03. Non-Waiver. A waiver of any default or breach of duty or contract by the
Trustee or the Owners shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No
delay or omission by the Trustee or the Owners to exercise any right or remedy accruing upon
any default or breach of duty or contract shall impair any such right or remedy or shall be
construed to be a waiver of any such default or breach of duty or contract or an acquiescence
therein, and every right or remedy conferred upon the Trustee or the Owners by law or by this Article may be enforced and exercised from time to time and as often as the Trustee shall deem
expedient.
77633181.2 26
If any action, proceeding or suit to enforce any right or to exercise any remedy is
abandoned or determined adversely to the Trustee or any Owner, then subject to any adverse
determination, the Trustee, such Owner, the Corporation and the District shall be restored to their
former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
Section 7.04. Remedies Not Exclusive. Subject to the provisions of Section 7.01
hereof, no remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of
any other remedy, and each such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy
conferred by any law. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other
appropriate right or remedy.
Section 7.05. Application of Amounts After Default. All damages or other payments received by the Trustee for the enforcement of any rights and powers of the Trustee under this
Article shall be deposited into the Installment Payment Fund and as soon as practicable and
thereafter applied:
(a) to the payment of all amounts due the Trustee under Section 8.03 hereof;
(b) unless the unpaid Installment Payments, and the interest thereon, shall have become, and shall remain, immediately due and payable pursuant to the Master Agreement:
(i) to the payment of all amounts then due for interest evidenced by the
Revenue Obligations, in respect of which, or for the benefit of which, money has been
collected (other than Revenue Obligations which have become payable prior to such
Event of Default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of interest evidenced by such Revenue Obligations due and payable; and
(ii) to the payment of all amounts then due for principal evidenced by the
Revenue Obligations, in respect of which, or for the benefit of which, money has been
collected (other than Revenue Obligations which have become payable prior to such Event of Default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of principal
evidenced by such Revenue Obligations due and payable.
(c) if the unpaid Installment Payments, and the interest thereon, shall have become,
and shall remain, immediately due and payable pursuant to the Master Agreement, to the payment of all amounts then due for principal and interest evidenced by the Revenue Obligations and, if the amount available therefor shall not be sufficient to pay in full the whole amount so
due and unpaid, then to the payment thereof ratably, without preference or priority of principal
over interest, or of interest over principal, or of any installment of interest over any other
installment of interest, or of any Revenue Obligation over any other Revenue Obligation, to the persons entitled thereto without any discrimination or preference.
77633181.2 27
Section 7.06. Trustee May Enforce Claims Without Possession of Revenue Obligations. All rights of action and claims under this Trust Agreement or the Revenue
Obligations may be prosecuted and enforced by the Trustee without the possession of any of the
Revenue Obligations or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Owners of the Revenue Obligations in respect of which such
judgment has been recovered.
Section 7.07. Limitation on Suits. No Owner shall have any right to institute any proceeding, judicial or otherwise, with respect to this Trust Agreement, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless (a) such Owner shall have
previously given written notice to the Trustee of a continuing Event of Default hereunder, (b) the
Owners of not less than a majority of the aggregate principal evidenced by Revenue Obligations then Outstanding shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder, (c) such Owner or
Owners shall have afforded to the Trustee indemnity reasonably satisfactory to the Trustee
against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the
Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such proceedings, and (e) no direction inconsistent with such written
request shall have been given to the Trustee during such 60-day period by the Owners of a
majority of the aggregate principal evidenced by Revenue Obligations then Outstanding; it being
understood and intended that no one or more Owners of Revenue Obligations shall have any
right in any manner whatever by virtue of, or by availing of, any provision of this Trust Agreement to affect, disturb or prejudice the rights of any other Owner of Revenue Obligations,
or to obtain or seek to obtain priority or preference over any other Owner or to enforce any right
under this Trust Agreement, except in the manner herein provided and for the equal and ratable
benefit of all the Owners of Revenue Obligations.
Section 7.08. No Liability by the Corporation to the Owners. Except as expressly provided herein, the Corporation shall not have any obligation or liability to the Owners with
respect to the payment when due of the Installment Payments, and the interest thereon, by the
District, or with respect to the performance by the District of the other agreements and covenants
required to be performed by it contained in the Installment Purchase Agreement, the Master
Agreement or herein, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein.
Section 7.09. No Liability by the District to the Owners. Except for the payment
when due of the Installment Payments, and the interest thereon, and the performance of the other
agreements and covenants required to be performed by it contained in the Installment Purchase
Agreement, the Master Agreement or herein, the District shall not have any obligation or liability to the Owners with respect to this Trust Agreement or the preparation, execution, delivery or transfer of the Revenue Obligations or the disbursement of the Installment Payments, and the
interest thereon, by the Trustee to the Owners, or with respect to the performance by the Trustee
of any right or obligation required to be performed by it contained herein.
77633181.2 28
Section 7.10. No Liability of the Trustee to the Owners. Except as expressly provided
herein, the Trustee shall not have any obligation or liability to the Owners with respect to the
payment when due of the Installment Payments, and the interest thereon, by the District, or with
respect to the performance by the Corporation or the District of the other agreements and covenants required to be performed by them, respectively contained in the Installment Purchase
Agreement or herein.
ARTICLE VIII
THE TRUSTEE
Section 8.01. Employment of the Trustee; Duties. The Corporation and the District
hereby appoint and employ the Trustee to receive, deposit and disburse the Installment
Payments, and the interest thereon, to prepare, execute, deliver and transfer the Revenue
Obligations and to perform the other functions contained herein, all in the manner provided
herein and subject to the conditions and terms hereof. By executing and delivering this Trust Agreement, the Trustee accepts the appointment and employment hereinabove referred to and
accepts the rights and obligations of the Trustee provided herein, subject to the conditions and
terms hereof. Other than when an Event of Default hereunder has occurred and is continuing, the
Trustee undertakes to perform such duties and only such duties as are specifically set forth in this
Trust Agreement, and no implied covenants or obligations shall be read into this Trust Agreement against the Trustee. In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this Trust Agreement, and use
the same degree of care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person’s own affairs.
Section 8.02. Removal and Resignation of the Trustee. The Corporation and the District may, by an instrument in writing, remove the Trustee initially a party hereto and any
successor thereto unless an Event of Default shall have occurred and then be continuing, and
shall remove the Trustee initially a party hereto and any successor thereto if at any time
(a) requested to do so by an instrument or concurrent instruments in writing signed by the
Owners of a majority of the aggregate principal evidenced by the Revenue Obligations at the time Outstanding (or their attorneys duly authorized in writing), or (b) the Trustee shall cease to
be eligible in accordance with the following sentence, and shall appoint a successor Trustee. The
Trustee shall be a bank having trust powers or a trust company in good standing in or
incorporated under the laws of the United States or any state thereof, having (or if such bank or
trust company is a member of a bank holding company system, its parent bank holding company shall have) a combined capital and surplus of at least $75,000,000, and be subject to supervision
or examination by federal or state banking authorities. If such bank or trust company publishes a
report of condition at least annually, pursuant to law or to the requirements of any supervising or
examining authority above referred to, then for the purposes of this Section the combined capital
and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
The Trustee may at any time resign by giving written notice of such resignation to the
Corporation and the District and by giving notice, by first class mail, postage prepaid, of such
resignation to the Owners at their addresses appearing on the registration books maintained by
77633181.2 29
the Trustee. Upon receiving such notice of resignation, the Corporation and the District shall
promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the
event the District and the Corporation do not appoint a successor Trustee within 30 days
following receipt of such notice of resignation, the resigning Trustee may, at the expense of the District, petition the appropriate court having jurisdiction to appoint a successor Trustee. Any resignation or removal of a Trustee and appointment of a successor Trustee shall become
effective only upon acceptance of appointment by the successor Trustee. Any successor Trustee
appointed under this Trust Agreement shall signify its acceptance of such appointment by
executing and delivering to the District and the Corporation and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers,
trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named
Trustee herein; but, nevertheless, at the written request of the District or of the successor Trustee,
such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of
such predecessor Trustee in and to any property held by it under this Trust Agreement and shall
pay over, transfer, assign and deliver to the successor Trustee any money or other property
subject to the trusts and conditions herein set forth.
Any corporation, association or agency into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate
trust business and assets as a whole or substantially as a whole, or any corporation or association
resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party,
provided that such entity meets the combined capital and surplus requirements of this Section, ipso facto, shall be and become successor trustee under this Trust Agreement and vested with all the trusts, powers, discretions, immunities, privileges and all other matters as was its
predecessor, without the execution or filing of any instrument or any further act, deed or
conveyance on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 8.03. Compensation and Indemnification of the Trustee. The District shall from time to time, subject to any written agreement then in effect with the Trustee, pay the
Trustee reasonable compensation for all its services rendered hereunder and reimburse the
Trustee for all its reasonable advances and expenditures (which shall not include “overhead
expenses” except as such expenses are included as a component of the Trustee’s stated annual fees or disclosed transaction fees) hereunder, including but not limited to advances to and
reasonable fees and reasonable expenses of accountants, agents, appraisers, consultants or other
experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys
retained by the Trustee, employed by it in the exercise and performance of its rights and
obligations hereunder; provided, however, that the Trustee shall not have any lien for such compensation or reimbursement against any moneys held by it in any of the funds or accounts
established hereunder. The Trustee may take whatever legal actions are lawfully available to it
directly against the Corporation or the District.
Except as otherwise expressly provided herein, no provision of this Trust Agreement
shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability
77633181.2 30
in the performance of any of its duties hereunder or in the exercise of any of its rights or powers
hereunder.
The District, to the extent permitted by law, agrees to indemnify and save the Trustee, its
directors, officers, employees and agents harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder, including but not limited to costs and expenses incurred in defending against any claim or liability, which are not due to its
negligence or willful misconduct.
Section 8.04. Protection of the Trustee. The Trustee shall be protected and shall incur
no liability in acting or proceeding in good faith upon any affidavit, bond, certificate, consent, notice, request, requisition, resolution, statement, waiver or other paper or document which it shall in good faith believe to be genuine and to have been adopted, executed or delivered by the
proper party or pursuant to any of the provisions hereof, and the Trustee shall be under no duty
to make any investigation or inquiry as to any statements contained or matters referred to in any
such instrument, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the
Owners of the Revenue Obligations pursuant to this Trust Agreement, unless such Owners shall
have offered to the Trustee security or indemnity, reasonably satisfactory to the Trustee, against
the reasonable costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Trustee may consult with counsel, who may be counsel to the Corporation or the District, with regard to legal questions, and the opinion of such counsel shall
be full and complete authorization and protection in respect to any action taken or suffered by it
hereunder in good faith in accordance therewith.
The Trustee shall not be responsible for the sufficiency of the Revenue Obligations or the Installment Purchase Agreement, or of the assignment made to it hereunder, or for statements made in the preliminary or final official statement relating to the Revenue Obligations.
The Trustee shall not be required to take notice or be deemed to have notice of any
default or Event of Default hereunder, except failure of any of the payments to be made to the
Trustee required to be made hereunder or under the Installment Purchase Agreement, unless the Trustee shall be specifically notified in writing of such default or Event of Default by the District, the Corporation or the Owners of not less than 5% of the aggregate principal evidenced
by the Revenue Obligations then Outstanding.
Whenever in the administration of its rights and obligations hereunder the Trustee shall
deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of
the District or a Written Certificate of the Corporation, and such certificate shall be full warrant
to the Trustee for any action taken or suffered under the provisions hereof upon the faith thereof,
but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it deems reasonable.
77633181.2 31
The Trustee may buy, sell, own, hold and deal in any of the Revenue Obligations and
may join in any action which any Owner may be entitled to take with like effect as if the Trustee
were not a party hereto. The Trustee, either as principal or agent, may also engage in or be
interested in any financial or other transaction with the Corporation or the District, and may act as agent, depository or trustee for any committee or body of Owners or of owners of obligations of the Corporation or the District as freely as if it were not the Trustee hereunder.
The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers
hereof and perform any rights and obligations required of it hereunder by or through agents,
attorneys or receivers, and shall be entitled to advice of counsel concerning all matters of trust and its rights and obligations hereunder, and the Trustee shall not be answerable for the negligence or misconduct of any such agent, attorney or receiver selected by it with reasonable
care; provided, however, that in the event of any negligence or misconduct of any such attorney,
agent or receiver, the Trustee shall diligently pursue all remedies of the Trustee against such
agent, attorney or receiver. The Trustee shall not be liable for any error of judgment made by it in good faith unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.
The Trustee shall not be answerable for the exercise of any trusts or powers hereunder or
for anything whatsoever in connection with the funds established hereunder, except only for its
own willful misconduct, negligence or breach of an obligation hereunder.
The Trustee may, on behalf of the Owners, intervene in any judicial proceeding to which the Corporation or the District is a party and which, in the opinion of the Trustee and its counsel,
affects the Revenue Obligations or the security therefor, and shall do so if requested in writing
by the Owners of at least 5% of the aggregate principal evidenced by Revenue Obligations then
Outstanding, provided the Trustee shall have no duty to take such action unless it has been indemnified to its reasonable satisfaction against all risk or liability arising from such action.
ARTICLE IX
AMENDMENT OF OR SUPPLEMENT TO TRUST AGREEMENT
Section 9.01. Amendment or Supplement. (a) This Trust Agreement and the rights and obligations of the Corporation, the District, the Owners and the Trustee hereunder may be
amended or supplemented at any time by an amendment hereof or supplement hereto which shall
become binding when the prior written consents of the Owners of a majority of the aggregate
principal evidenced by the Revenue Obligations then Outstanding, exclusive of Revenue
Obligations disqualified as provided in Section 9.02 hereof, are filed with the Trustee. No such amendment or supplement shall (i) extend the stated Principal Payment Date of any Revenue
Obligation or reduce the rate of interest evidenced thereby or extend the time of payment of such
interest or reduce the amount of principal evidenced thereby or change the prepayment terms and
provisions or the provisions regarding delivery of notice of prepayment without the prior written
consent of the Owner of each Revenue Obligation so affected, (ii) reduce the percentage of Owners whose consent is required for the execution of any amendment hereof or supplement
hereto without the prior written consent of the Owners of all Revenue Obligations then
Outstanding, (iii) modify any of the rights or obligations of the Trustee without the prior written
77633181.2 32
consent of the Trustee, or (iv) amend this Section without the prior written consent of the
Owners of all Revenue Obligations then Outstanding.
(b) This Trust Agreement and the rights and obligations of the Corporation, the
District, the Owners and the Trustee hereunder may also be amended or supplemented at any time by an amendment hereof or supplement hereto which shall become binding upon execution, without the written consents of any Owners, but only to the extent permitted by law and only for
any one or more of the following purposes:
(i) to add to the agreements, conditions, covenants and terms required by the
Corporation or the District to be observed or performed herein other agreements, conditions, covenants and terms thereafter to be observed or performed by the Corporation or the District, or to surrender any right or power reserved herein to or
conferred herein on the Corporation or the District;
(ii) to make such provisions for the purpose of curing any ambiguity or of
correcting, curing or supplementing any defective provision contained herein or in regard to questions arising hereunder which the Corporation or the District may deem desirable or necessary and not inconsistent herewith; or
(iii) for any other reason, provided such amendment or supplement does not
adversely affect the rights or interests of the Owners.
Section 9.02. Disqualified Revenue Obligations. Revenue Obligations owned or held by or for the account of the District (but excluding Revenue Obligations held in any pension or
retirement fund of the District) shall not be deemed Outstanding for the purpose of any consent
or other action or any calculation of Outstanding Revenue Obligations provided in this Article,
and shall not be entitled to consent to or take any other action provided in this Article, and the
Trustee may adopt appropriate regulations to require each Owner, before his consent provided for herein shall be deemed effective, to reveal if the Revenue Obligations as to which such
consent is given are disqualified as provided in this Section.
Section 9.03. Endorsement or Replacement of Revenue Obligations After
Amendment or Supplement. After the effective date of any action taken as hereinabove
provided in this Article, the Trustee may determine that the Revenue Obligations may bear a notation by endorsement in form approved by the Trustee as to such action, and in that case upon
demand of the Owner of any Outstanding Revenue Obligation and presentation of such Revenue
Obligation for such purpose at the Principal Office a suitable notation as to such action shall be
made on such Revenue Obligation. If the Trustee shall receive an Opinion of Counsel advising
that new Revenue Obligations modified to conform to such action are necessary, modified Revenue Obligations shall be prepared, and in that case upon demand of the Owner of any
Outstanding Revenue Obligations such new Revenue Obligations shall be exchanged at the
Principal Office without cost to each Owner for Revenue Obligations then Outstanding upon
surrender of such Outstanding Revenue Obligations.
77633181.2 33
Section 9.04. Amendment by Mutual Consent. The provisions of this Article shall not
prevent any Owner from accepting any amendment as to the particular Revenue Obligations
owned by such Owner, provided that due notation thereof is made on such Revenue Obligations.
ARTICLE X DEFEASANCE
Section 10.01. Discharge of Revenue Obligations and Trust Agreement. (a) If the
Trustee shall pay or cause to be paid or there shall otherwise be paid (i) to the Owners of all
Outstanding Revenue Obligations the interest and principal evidenced thereby at the times and in the manner stipulated herein and therein, and (ii) all other amounts due hereunder and under the Installment Purchase Agreement, then such Owners shall cease to be entitled to the pledge of and
lien on the amounts on deposit in the funds and accounts established hereunder, as provided
herein, and all agreements and covenants of the Corporation, the District, and the Trustee to such
Owners hereunder shall thereupon cease, terminate and become void and shall be discharged and satisfied.
(b) Any Outstanding Revenue Obligation shall be deemed to have been paid within
the meaning and with the effect expressed in this Section when the whole amount of the
principal, premium, if any, and interest evidenced by such Revenue Obligation shall have been
paid or when (i) in case said Revenue Obligation or portion thereof has been selected for prepayment in accordance with Section 4.03 hereof prior to its stated Principal Payment Date, the District shall have given to the Trustee irrevocable instructions to give, in accordance with
the provisions of Section 4.03 hereof, notice of prepayment of such Revenue Obligation, or
portion thereof, (ii) there shall be on deposit with the Trustee, moneys, or Government
Obligations, or any combination thereof, the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due the principal, premium, if any, and interest evidenced by such Revenue Obligation and due and
to become due on or prior to the prepayment date or its stated Principal Payment Date, as the
case may be, and (iii) in the event the stated Principal Payment Date of such Revenue Obligation
will not occur, and said Revenue Obligation is not to be prepaid, within the next succeeding 60 days, the District shall have given the Trustee irrevocable instructions to give notice, as soon as practicable in the same manner as a notice of prepayment given pursuant to Section 4.03 hereof,
to the Owner of such Revenue Obligation, or portion thereof, stating that the deposit of moneys
or Government Obligations required by clause (ii) of this subsection has been made with the
Trustee and that said Revenue Obligation, or portion thereof, is deemed to have been paid in accordance with this Section and stating such Principal Payment Date or prepayment date upon which moneys are to be available for the payment of the principal, premium, if any, and interest
evidenced by said Revenue Obligation, or portion thereof.
Neither the moneys nor the Government Obligations deposited with the Trustee pursuant
to this Section nor principal or interest payments on any such Government Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the payment of the principal, premium, if any, and interest evidenced by said Revenue Obligation, or
portions thereof. If payment of less than all of the Revenue Obligations is to be provided for in
the manner and with the effect expressed in this Section, the Trustee or the District, as
77633181.2 34
applicable, shall select such Revenue Obligations, or portions thereof, in the manner specified in
Section 4.03 hereof for selection for prepayment of less than all of the Revenue Obligations, in
the principal amounts designated to the Trustee by the District.
(c) After the payment of all the interest, prepayment premium, if any, and principal evidenced by all Outstanding Revenue Obligations and all other amounts due hereunder and under the Installment Purchase Agreement as provided in this Section, the Trustee shall execute
and deliver to the Corporation and the District all such instruments as may be necessary or
desirable to evidence the discharge and satisfaction of this Trust Agreement, the Trustee shall
pay over or deliver to the District all moneys or securities held by it pursuant hereto which are not required for the payment of the interest, prepayment premium, if any, and principal evidenced by such Revenue Obligations and all other amounts due hereunder and under the
Installment Purchase Agreement.
(d) Prior to any defeasance becoming effective under this Article, the District shall
cause to be delivered (i) an executed copy of a report, addressed to the Trustee and the District, in form and in substance acceptable to the Trustee and the District, of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Government
Obligations and cash, if any, satisfy the requirements of clause (ii) of subsection (b) of this
Section (a “Verification”), (ii) a copy of the escrow deposit agreement entered into in connection
with such defeasance, which escrow deposit agreement shall provide that no substitution of Government Obligations shall be permitted except with other Government Obligations and upon delivery of a new Verification and no reinvestment of Government Obligations shall be
permitted except as contemplated by the original Verification or upon delivery of a new
Verification, and (iii) a copy of an Opinion of Counsel, dated the date of such defeasance and
addressed to the Trustee and the District, in form and in substance acceptable to the District, to the effect that such Revenue Obligations have been paid within the meaning and with the effect expressed in this Trust Agreement, and all agreements and covenants of the Corporation, the
District and the Trustee to the Owners of such Revenue Obligations under this Trust Agreement
have ceased, terminated and become void and have been discharged and satisfied.
Section 10.02. Unclaimed Moneys. Any moneys held by the Trustee in trust for the payment and discharge of the interest or principal evidenced by any of the Revenue Obligations
which remain unclaimed for two years after the date when such interest or principal evidenced
by such Revenue Obligations have become payable, if such moneys were held by the Trustee at
such date, or for two years after the date of deposit of such moneys if deposited with the Trustee
after the date when the interest and principal evidenced by such Revenue Obligations have become payable, shall be repaid by the Trustee to the District as its absolute property free from
trust, and the Trustee shall thereupon be released and discharged with respect thereto and the
Owners shall look only to the District for the payment of the interest and principal evidenced by
such Revenue Obligations.
77633181.2 35
ARTICLE XI
MISCELLANEOUS
Section 11.01. Benefits of Trust Agreement. Nothing contained herein, expressed or implied, is intended to give to any Person other than the Corporation, the District, the Trustee
and the Owners any claim, remedy or right under or pursuant hereto, and any agreement,
condition, covenant or term required herein to be observed or performed by or on behalf of the
Corporation or the District shall be for the sole and exclusive benefit of the Trustee and the
Owners.
Section 11.02. Successor Deemed Included in all References to Predecessor.
Whenever the Corporation, the District or the Trustee, or any officer thereof, is named or
referred to herein, such reference shall be deemed to include the successor to the powers, duties
and functions that are presently vested in the Corporation, the District or the Trustee, or such
officer, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Corporation, the District or the Trustee, or any officer thereof,
shall bind and inure to the benefit of the respective successors thereof whether so expressed or
not.
Section 11.03. Execution of Documents by Owners. Any declaration, request or other
instrument which is permitted or required herein to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or his attorney of any
declaration, request or other instrument or of any writing appointing such attorney may be
proved by the certificate of any notary public or other officer authorized to take
acknowledgments of deeds to be recorded in the state or territory in which he purports to act that the Person signing such declaration, request or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such
notary public or other officer, or by such other proof as the Trustee may accept which it may
deem sufficient.
The ownership of any Revenue Obligations and the amount, payment date, number and date of owning the same may be proved by the registration books maintained by the Trustee pursuant to the provisions of Section 2.07 hereof.
Any declaration, request or other instrument in writing of the Owner of any Revenue
Obligation shall bind all future Owners of such Revenue Obligation with respect to anything
done or suffered to be done by the Corporation, the District or the Trustee in good faith and in accordance therewith.
Section 11.04. Waiver of Personal Liability. Notwithstanding anything contained
herein to the contrary, no member, officer or employee of the District or the Corporation shall be
individually or personally liable for the payment of any moneys, including without limitation, the
interest or principal evidenced by the Revenue Obligations, but nothing contained herein shall relieve any member, officer or employee of the District or the Corporation from the performance
77633181.2 36
of any official duty provided by any applicable provisions of law, by the Installment Purchase
Agreement or hereby.
Section 11.05. Acquisition of Revenue Obligations by District. All Revenue
Obligations acquired by the District, whether by purchase or gift or otherwise, shall be surrendered to the Trustee for cancellation.
Section 11.06. Content of Certificates. Every Written Certificate of the District and
every Written Certificate of the Corporation with respect to compliance with any agreement,
condition, covenant or term contained herein shall include (a) a statement that the Person making
or giving such certificate has read such agreement, condition, covenant or term and the definitions herein relating thereto, (b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in such certificate are based,
(c) a statement that, in the opinion of the signer, the signer has made or caused to be made such
examination or investigation as is necessary to enable the signer to express an informed opinion
as to whether or not such agreement, condition, covenant or term has been complied with, and (d) a statement as to whether, in the opinion of the signer, such agreement, condition, covenant
or term has been complied with.
Any Written Certificate of the District and any Written Certificate of the Corporation
may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless the
Person making or giving such certificate knows that the Opinion of Counsel with respect to the matters upon which each Person’s certificate may be based, as aforesaid, is erroneous, or in the
exercise of reasonable care should have known that the same was erroneous. Any Opinion of
Counsel may be based, insofar as it relates to factual matters, upon information which is in the
possession of the District or the Corporation upon a representation by an officer or officers of the
District or the Corporation, as the case may be, unless the counsel executing such Opinion of Counsel knows that the representation with respect to the matters upon which such counsel’s
opinion may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should
have known that the same was erroneous.
Section 11.07. Funds and Accounts. Any fund or account required to be established
and maintained herein by the Trustee may be established and maintained in the accounting records of the Trustee either as an account or a fund, and may, for the purposes of such accounting records, any audits thereof and any reports or statements with respect thereto, be
treated either as an account or a fund, but all such records with respect to all such funds and
accounts shall at all times be maintained in accordance with sound accounting practice and with
due regard for the protection of the security of the Revenue Obligations and the rights of the Owners. The Trustee may establish such funds and accounts as it deems necessary to perform its obligations hereunder.
Trustee may commingle any of the moneys held by it hereunder for investment purposes
only; provided, however, that the Trustee shall account separately for the moneys in each fund or
account established pursuant to this Trust Agreement.
Section 11.08. Article and Section Headings, Gender and References. The singular form of any word used herein, including the terms defined in Section 1.01 hereof, shall include
77633181.2 37
the plural, and vice versa, unless the context otherwise requires. The use herein of a pronoun of
any gender shall include correlative words of the other genders. The headings or titles of the
several Articles and Sections hereof and the table of contents appended hereto shall be solely for
convenience of reference and shall not affect the meaning, construction or effect hereof. All references herein to “Articles,” “Sections,” subsections or clauses are to the corresponding Articles, Sections, subsections or clauses hereof, and the words “hereby,” “herein,” “hereof,”
“hereto,” “herewith,” “hereunder” and other words of similar import refer to this Trust
Agreement as a whole and not to any particular Article, Section, subsection or clause thereof.
Section 11.09. Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the
Corporation, the District or the Trustee shall be contrary to law, then such agreement or
agreements, such condition or conditions, such covenant or covenants or such term or terms shall
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 Revenue Obligations, and the Owners shall retain all the benefit, protection and security
afforded to them under any applicable provisions of law. The Corporation, the District and the
Trustee hereby declare that they would have executed this Trust Agreement, and each and every
Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have
authorized the execution and delivery of the Revenue Obligations pursuant hereto irrespective of the fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or
phrases hereof or the application thereof to any Person or circumstance may be held to be
unconstitutional, unenforceable or invalid.
Section 11.10. California Law. This Trust Agreement shall be governed by and
construed in accordance with the laws of the State.
Section 11.11. Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be
given to the party entitled thereto at its address set forth below, or at such other address as such
party may provide to the other parties in writing from time to time, namely:
If to the District: Orange County Sanitation District 10844 Ellis Avenue
Fountain Valley, California 92708
Attention: Director of Finance and Administrative Services
If to the Corporation: Orange County Sanitation District Financing Corporation
c/o Orange County Sanitation District 10844 Ellis Avenue
Fountain Valley, California 92708
Attention: Treasurer
If to the Trustee: Union Bank, N.A.
120 South San Pedro Street, Suite 400 Los Angeles, California 90012
Attention: Alison Braunstein
77633181.2 38
Telephone: (213) 972-5674
Facsimile: (213) 972-5694
Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic
communication, e.g. facsimile or telecopier, upon the sender’s receipt of an appropriate written
acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited
with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any other means, upon delivery at the
address specified in this Section.
Section 11.12. Effective Date. This Trust Agreement shall become effective upon its
execution and delivery.
Section 11.13. Execution in Counterparts. This Trust Agreement may be simultaneously executed in several counterparts, each of which shall be deemed an original, and
all of which shall constitute but one and the same instrument.
77633181.2 39
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be
executed by their respective officers thereunto duly authorized, all as of the day and year first
written above.
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
UNION BANK, N.A., as Trustee
By: Authorized Officer
77633181.2 A-1
EXHIBIT A
FORM OF REVENUE OBLIGATION
No. R–__ ***$***
Unless this Revenue Obligation is presented by an authorized representative of The
Depository Trust Company to the Trustee for registration of transfer, exchange or payment, and
any Revenue Obligation executed and delivered is registered in the name of Cede & Co. or such
other name as requested by an authorized representative of The Depository Trust Company and
any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
Registered Owner hereof, Cede & Co., has an interest herein.
ORANGE COUNTY SANITATION DISTRICT
WASTEWATER REFUNDING REVENUE OBLIGATIONS
SERIES 2012A
Such revenue obligations are certificates of participation evidencing direct, undivided fractional interests in the Installment Purchase Agreement, dated as of March 1, 2012, by and between the
Orange County Sanitation District and the Orange County Sanitation District Financing Corporation and the related Installment Payments, and the interest thereon.
PRINCIPAL
PAYMENT DATE INTEREST RATE DATED DATE CUSIP
REGISTERED OWNER: Cede & Co.
PRINCIPAL AMOUNT: ______________________________________ DOLLARS
THIS IS TO CERTIFY that the Registered Owner of this Revenue Obligation (this
“Revenue Obligation”), as identified above, is the owner of a direct, fractional undivided interest
in certain installment payments (“Installment Payments”), and the interest thereon, payable under
and pursuant to the Installment Purchase Agreement, dated as of March 1, 2012 (the “Installment Purchase Agreement”), by and between the Orange County Sanitation District (the “District”), a county sanitation district organized and existing under the laws of the State of California, and the
Orange County Sanitation District Financing Corporation (the “Corporation”), a nonprofit public
benefit corporation organized and existing under the laws of the State of California. Certain of
the rights of the Corporation under the Installment Purchase Agreement, including the right to receive the Installment Payments, and the interest thereon, have been assigned without recourse by the Corporation to Union Bank, N.A., a national banking association duly organized and
existing under the laws of the United States of America, as trustee (the “Trustee”) under the
Trust Agreement, dated as of March 1, 2012 (the “Trust Agreement”), by and among the Trustee,
the District and the Corporation. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Trust Agreement.
77633181.2 A-2
The District has executed and delivered the Master Agreement for District Obligations,
dated as of August 1, 2000 (the “Master Agreement”), by and between the District and the
Corporation, pursuant to which the District establishes and declares the conditions and terms upon which obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest thereon, will be incurred and secured.
This Revenue Obligation is one of the duly authorized Orange County Sanitation District
Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”)
evidencing principal in the aggregate amount of $___________, executed pursuant to the terms of the Trust Agreement. The Revenue Obligations evidence direct, fractional undivided interests in the Installment Payments, and the interest thereon, payable under the Installment Purchase
Agreement. The Revenue Obligations are executed and delivered to refinance certain
improvements to the wastewater collection, treatment and disposal facilities of the District (the
“Wastewater System”) and to pay the costs of issuance incurred in connection therewith and to pay certain other related costs.
The Installment Payments, and the interest thereon, are to be paid by the District pursuant
to the Installment Purchase Agreement in consideration for the purchase of certain improvements
to the Wastewater System and for the other agreements and obligations undertaken by the
Corporation under the Installment Purchase Agreement and the Trust Agreement.
The income and revenue received by the District from the operation of the Wastewater System remaining after the payment of maintenance and operation or ownership costs of the
Wastewater System (as more fully described in the Installment Purchase Agreement, the “Net
Revenues”) are, pursuant to the Master Agreement, pledged to the payment of the Senior
Obligations and Reimbursement Obligations with respect to Senior Obligations (as such terms are defined in the Master Agreement).
The Installment Purchase Agreement constitutes a Senior Obligation and, as such, shall
be subject to the provisions of the Master Agreement, and shall be afforded all of the advantages,
benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement.
The Installment Purchase Agreement is payable on a parity with the other existing Senior Obligations. The District may at any time incur Senior Obligations in addition to existing Senior Obligations and the Installment Purchase Agreement payable from Net Revenues as provided in
the Master Agreement on a parity with all other Senior Obligations theretofore incurred, but only
subject to the conditions and upon compliance with the procedures set forth in the Master
Agreement.
The District is not required to advance any moneys derived from any source of income other than Net Revenues and the other funds provided in the Installment Purchase Agreement for
the payment of the Installment Payments, and the interest thereon, and other payments required
to be made by it under the Installment Purchase Agreement, or for the performance of any
agreements or covenants required to be performed by it contained therein. The obligation of the District to pay the Installment Payments, and the interest thereon, and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District
77633181.2 A-3
payable, in the manner provided in the Installment Purchase Agreement, solely from such Net
Revenues and other funds provided for therein, and does not constitute a debt of the District or of
the State of California, or of any political subdivision thereof, in contravention of any
constitutional or statutory debt limitation or restriction.
Reference is hereby made to the Master Agreement, the Installment Purchase Agreement and to the Trust Agreement and any and all amendments thereof and supplements thereto for a
description of the terms under which the District’s obligation to pay the Installment Payments,
and the interest thereon, is incurred, the Revenue Obligations are executed and delivered, the
provisions with regard to the nature and extent of the Net Revenues, and the rights of the Owners of the Revenue Obligations. All of the terms of the Master Agreement, the Installment Purchase Agreement and the Trust Agreement are hereby incorporated herein. The Trust Agreement
constitutes a contract among the District, the Corporation and the Trustee for the benefit of the
Owners of the Revenue Obligations, to all the provisions of which the Owner of this Revenue
Obligation, by acceptance hereof, agrees and consents.
The Registered Owner of this Revenue Obligation is entitled to receive, subject to the terms of the Trust Agreement and any right of prepayment as provided herein or therein, on the
Principal Payment Date set forth above, upon presentation and surrender of this Revenue
Obligation at the principal corporate trust office of the Trustee in Los Angeles, California (the
“Principal Office”), the Principal Amount specified above, evidencing the Owner’s interest in the Installment Payments coming due on the Principal Payment Date, and to receive on February 1 and August 1 of each year, commencing on August 1, 2012 (each an “Interest Payment Date”),
interest accrued thereon at the Interest Rate specified above, computed on the basis of a 360-day
year consisting of twelve 30-day months, until said Principal Amount is paid in full, evidencing
the Registered Owner’s interest in the interest evidenced by the Installment Payments coming due on each of said dates.
This Revenue Obligation shall evidence interest from the Interest Payment Date next
preceding its date of execution to which interest has been paid in full, unless such date of
execution shall be after the 15th day of the month next preceding an Interest Payment Date,
whether or not such day is a business day (each such date, a “Record Date”), and on or prior to the following Interest Payment Date, in which case this Revenue Obligation shall evidence interest from such Interest Payment Date, or unless such date of execution shall be on or prior to
the first Record Date, in which case this Revenue Obligation shall evidence interest from the
Dated Date specified above. Notwithstanding the foregoing, if, as shown by the records of the
Trustee, interest evidenced by the Revenue Obligations shall be in default, this Revenue Obligation shall evidence interest from the last Interest Payment Date to which interest has been paid in full or duly provided for.
Payments of interest evidenced by the Revenue Obligations shall be made to the Owners
thereof (as determined at the close of business on the Record Date next preceding the related
Interest Payment Date) by check or draft of the Trustee mailed to the address of each such Owner as it appears on the registration books maintained by the Trustee pursuant to the Trust Agreement, or to such other address as may be furnished in writing to the Trustee by such
Owner. Payment of principal and prepayment premium, if any, evidenced by the Revenue
Obligations, on their stated principal payment dates or on prepayment in whole or in part prior
77633181.2 A-4
thereto, shall be made only upon presentation and surrender of the Revenue Obligations at the
Principal Office. All such amounts are payable in lawful money of the United States of America.
The Revenue Obligations are authorized to be executed and delivered in the form of fully
registered certificates in denominations of $5,000 or any integral multiple thereof (“Authorized Denominations”).
This Revenue Obligation may be transferred or exchanged by the Registered Owner
hereof, in person or by his attorney duly authorized in writing, at the Principal Office, but only in
the manner, subject to the limitations and upon payment of the charges provided in the Trust
Agreement.
The Trustee shall not be required to transfer or exchange any Revenue Obligation during the period commencing on the date five days before the date of selection of Revenue Obligations
for prepayment and ending on the date of mailing of notice of such prepayment, nor shall the
Trustee be required to transfer or exchange any Revenue Obligation or portion thereof selected
for prepayment from and after the date of mailing the notice of prepayment thereof.
The Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, whether or not the principal or interest evidenced by this Revenue Obligation shall be
overdue, and the Trustee shall not be affected by any knowledge or notice to the contrary; and
payment of the principal and interest evidenced by this Revenue Obligation shall be made only
to such Registered Owner, which payments shall be valid and effectual to satisfy and discharge the liability evidenced by this Revenue Obligation to the extent of the sum or sums so paid.
The Revenue Obligations are subject to prepayment prior to their stated Principal
Payment Dates in accordance with the Trust Agreement.
To the extent and in the manner permitted by the terms of the Trust Agreement, the Trust
Agreement and the rights and obligations of the Corporation, the District, the Owners and the Trustee under the Trust Agreement may be amended or supplemented at any time by an amendment or supplement thereto which shall become binding when the prior written consents
of the Owners of a majority of the aggregate principal evidenced by the Revenue Obligations
then outstanding, exclusive of Revenue Obligations disqualified as provided under the Trust
Agreement, are filed with the Trustee. No such supplement or amendment shall (a) extend the stated Principal Payment Date of any Revenue Obligation or reduce the rate of interest evidenced thereby or extend the time of payment of such interest or reduce the amount of principal
evidenced thereby or change the prepayment terms and provisions or the provisions regarding
delivery of notice of prepayment without the prior written consent of the Owner of each Revenue
Obligation so affected, (b) reduce the percentage of Owners whose consent is required for the execution of any amendment of or supplement to the Trust Agreement without the prior written consent of the Owners of all Revenue Obligations then outstanding, (c) modify any of the rights
or obligations of the Trustee without the prior written consent of the Trustee, or (d) amend the
amendment provisions of the Trust Agreement without the prior written consent of the Owners
of all Revenue Obligations then outstanding.
77633181.2 A-5
To the extent and in the manner permitted by the terms of the Trust Agreement, the Trust
Agreement and the rights and obligations of the Corporation, the District, the Owners and the
Trustee under the Trust Agreement may also be amended or supplemented at any time by an
amendment or supplement thereto which shall become binding upon execution, without the written consents of any Owners, but only to the extent permitted by law and only (a) to add to the agreements, conditions, covenants and terms required by the Corporation or the District to be
observed or performed under the Trust Agreement other agreements, conditions, covenants and
terms thereafter to be observed or performed by the Corporation or the District, or to surrender
any right or power reserved therein to or conferred therein on the Corporation or the District, and which in either case shall not adversely affect the rights or interests of the Owners, (b) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or
supplementing any defective provision contained in the Trust Agreement or in regard to
questions arising thereunder which the Corporation or the District may deem desirable or
necessary and not inconsistent therewith or (c) for any other reason, provided such amendment or supplement does not adversely affect the rights or interests of the Owners.
THE DISTRICT HAS CERTIFIED that all acts, conditions and things required by the
statutes of the State of California and by the Trust Agreement to exist, to have happened and to
have been performed precedent to and in connection with the execution and delivery of this
Revenue Obligation do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Revenue Obligation.
IN WITNESS WHEREOF, this Revenue Obligation has been executed by the manual
signature of an authorized signatory of the Trustee as of the date set forth below.
Date: March __, 2012
UNION BANK, N.A., as Trustee
By: Authorized Officer
77633181.2 A-6
ASSIGNMENT
For value received, the undersigned do(es) hereby sell, assign and transfer unto
_____________________________________________ the within-mentioned Revenue
Obligation and hereby irrevocably constitute(s) and ________________________________________________ appoint(s)
_____________________________________________ attorney, to transfer the same on the
books of the Trustee with full power of substitution in the premises.
Dated: __________________
Note: The signature(s) on this Assignment must correspond with the name(s) as written on the
face of the within registered Revenue Obligation in every particular, without alteration
or enlargement or any change whatsoever.
Tax I.D. #: _____________________
Signature Guaranteed: _______________________
Note: Signature(s) must be guaranteed by an eligible guarantor. Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Revenue
Obligation in every particular without alteration or enlargement or any change whatsoever.
DRAFT OF
01/27/12
77633771.3
INSTALLMENT PURCHASE AGREEMENT
by and between
ORANGE COUNTY SANITATION DISTRICT
and
ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION
Dated as of March 1, 2012
Relating to
$__________
Orange County Sanitation District
Wastewater Refunding Revenue Obligations
Series 2012A
TABLE OF CONTENTS
Page
77633771.3 -i-
ARTICLE I DEFINITIONS ................................................................................................. 2
Section 1.01. Definitions............................................................................................ 2
Section 1.02. Definitions in Master Agreement and Trust Agreement...................... 3
ARTICLE II PURCHASE OF PROJECT BY, AND SALE THEREOF TO, THE
CORPORATION; PAYMENT OF PURCHASE PRICE ............................... 4 Section 2.01. Acquisition of the Project .................................................................... 4
Section 2.02. Payment of Purchase Price................................................................... 4
ARTICLE III PURCHASE OF PROJECT BY, AND SALE THEREOF TO, THE
DISTRICT; INSTALLMENT PAYMENTS ................................................... 4
Section 3.01. Purchase and Sale of Project ................................................................ 4 Section 3.02. Installment Payments ........................................................................... 4
Section 3.03. Reserved ............................................................................................... 5
Section 3.04. Obligation Absolute ............................................................................. 6
Section 3.05. Nature of Agreement............................................................................ 6
ARTICLE IV PREPAYMENT OF INSTALLMENT PAYMENTS ..................................... 6 Section 4.01. Prepayment of Installment Payments................................................... 6
Section 4.02. Notice ................................................................................................... 6
Section 4.03. Discharge of Obligations ..................................................................... 6
ARTICLE V COVENANTS ................................................................................................. 7
Section 5.01. Compliance with Master Agreement ................................................... 7 Section 5.02. Compliance with Installment Purchase Agreement ............................. 7
Section 5.03. Protection of Security and Rights ........................................................ 7
Section 5.04. Indemnification of Corporation ........................................................... 7
Section 5.05. Further Assurances............................................................................... 8
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES OF THE CORPORATION ............................................................................................. 8
Section 6.01. Events of Default ................................................................................. 8
Section 6.02. Remedies on Default ............................................................................ 8
Section 6.03. Non-Waiver.......................................................................................... 9
Section 6.04. Remedies Not Exclusive ...................................................................... 9
ARTICLE VII AMENDMENTS ............................................................................................. 9
Section 7.01. Amendments ........................................................................................ 9
ARTICLE VIII MISCELLANEOUS ...................................................................................... 10
Section 8.01. Liability of District Limited ............................................................... 10
Section 8.02. Limitation of Rights ........................................................................... 11 Section 8.03. Assignment ........................................................................................ 11
Section 8.04. Notices ............................................................................................... 11
Section 8.05. Successor Is Deemed Included in all References to Predecessor ...... 12
Section 8.06. Waiver of Personal Liability .............................................................. 12
Section 8.07. Article and Section Headings, Gender and References ..................... 12
TABLE OF CONTENTS (continued)
Page
77633771.3 -ii-
Section 8.08. Partial Invalidity................................................................................. 12
Section 8.09. Governing Law .................................................................................. 12
Section 8.10. Execution in Counterparts.................................................................. 12
EXHIBIT A DESCRIPTION OF PROJECT........................................................ A-1
77633771.3
INSTALLMENT PURCHASE AGREEMENT
THIS INSTALLMENT PURCHASE AGREEMENT (this “Installment Purchase
Agreement”), dated as of March 1, 2012, is by and between the ORANGE COUNTY SANITATION DISTRICT, a county sanitation district organized and existing under the laws of the State of California (the “District”), and the ORANGE COUNTY SANITATION DISTRICT
FINANCING CORPORATION, a nonprofit public benefit corporation organized and existing
under the laws of the State of California (the “Corporation”).
W I T N E S S E T H:
WHEREAS, to finance the acquisition, construction and installation of certain improvements to its wastewater system (the “Prior Project”), the District has heretofore
purchased the Prior Project from the Corporation, and the Corporation has heretofore sold the
Prior Project to the District, for the installment payments (the “Prior Installment Payments”)
made by the District pursuant to the Installment Purchase Agreement, dated as of July 1, 2003 (the “Prior Installment Purchase Agreement”), by and between the District and the Corporation;
WHEREAS, to provide the funds necessary to finance the Prior Project, the District
caused the execution and delivery of the Orange County Sanitation District Certificates of
Participation, Series 2003 (the “Prior Certificates”), evidencing direct, undivided fractional
interests in the related Prior Installment Payments;
WHEREAS, the District desires to refinance the Prior Project (the “Project”) by prepaying the remaining Prior Installment Payments, and the interest thereon to the dates of
prepayment, thereby causing the remaining Prior Certificates to be prepaid;
WHEREAS, to provide the funds necessary to prepay the remaining Prior Installment
Payments, the District and the Corporation desire that the Corporation purchase the Prior Project from the District and the District sell the Prior Project to the Corporation, and that the District then purchase the Prior Project from the Corporation and the Corporation sell the Prior Project to
the District, for the installment payments (the “Installment Payments”) to be made by the District
pursuant to this Installment Purchase Agreement;
WHEREAS, pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000, by and between the District and the Corporation, the District has established and declared the conditions and terms upon which obligations such as this Installment Purchase
Agreement, and the Installment Payments, and the interest thereon, are to be incurred and
secured;
WHEREAS, the Corporation proposes to assign without recourse certain of its rights under and pursuant to this Installment Purchase Agreement to Union Bank, N.A., as trustee (the “Trustee”);
WHEREAS, in consideration of such assignment and the execution and delivery of the
Trust Agreement, dated as of the date hereof, by and among the Trustee, the Corporation and the
77633771.3 2
District, the Trustee has agreed to execute and deliver the Orange County Sanitation District
Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”),
evidencing direct, undivided fractional interests in the Installment Payments, and the interest
thereon, payable hereunder;
WHEREAS, a portion of the proceeds of the Revenue Obligations will be used to prepay certain of the Prior Installment Payments; and
WHEREAS, all acts, conditions and things required by law to exist, to have happened
and to have been performed precedent to and in connection with the execution and delivery of
this Installment Purchase Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Installment Purchase Agreement;
NOW, THEREFORE, in consideration of the covenants and provisions herein set forth
and for other good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I DEFINITIONS
Section 1.01. Definitions. Except as provided in Section 1.02 hereof or unless the
context otherwise requires, the terms defined in this Section shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein or therein have the meanings defined herein, the following definitions to be equally
applicable to both the singular and plural forms of any of the terms defined herein:
“Business Day” means a day other than (a) Saturday or Sunday, (b) a day on which
banking institutions in the city in which the Principal Office is located are authorized or required by law to be closed, and (c) a day on which the New York Stock Exchange is authorized or obligated by law or executive order to be closed.
“Closing Date” means March __, 2012.
“Corporation” means the Orange County Sanitation District Financing Corporation, a
nonprofit public benefit corporation organized and existing under the laws of the State, and any successor thereto.
“District” means the Orange County Sanitation District, a county sanitation district
organized and existing under and by virtue of the laws of the State, and any successor thereto.
“Event of Default” means an event described in Section 6.01 hereof.
“Installment Payments” means the Installment Payments required to be made by the District pursuant to Section 3.02 hereof.
“Installment Payment Dates” means each February 1, commencing February 1, 2013.
77633771.3 3
“Installment Purchase Agreement” means this Installment Purchase Agreement, dated
as of March 1, 2012, by and between the District and the Corporation, as originally executed and
as it may from time to time be amended or supplemented in accordance with the terms hereof.
“Interest Payment Date” means February 1 and August 1 of each year, commencing August 1, 2012.
“Master Agreement” means the Master Agreement for District Obligations, dated as of
August 1, 2000, by and between the District and the Corporation, as originally executed and as it
may from time to time be amended or supplemented in accordance with the terms thereof.
“Person” means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.
“Principal Office” means the Trustee’s principal corporate trust office in Los Angeles,
California.
“Project” means the improvements to the Wastewater System, as described in Exhibit A hereto.
“Revenue Obligations” means the Orange County Sanitation District Wastewater
Refunding Revenue Obligations, Series 2012A, executed and delivered by the Trustee, which are
certificates of participation, evidencing direct, undivided fractional interests in the Installment
Payments, and the interest thereon, executed and delivered under and pursuant to the Trust Agreement.
“Trust Agreement” means the Trust Agreement, dated as of March 1, 2012, by and
among the Trustee, the Corporation and the District, as originally executed and as it may from
time to time be amended or supplemented in accordance with its terms.
“Trustee” means Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States of America, or any other bank or trust company which may at any time be substituted in its place as provided in the Trust Agreement.
Section 1.02. Definitions in Master Agreement and Trust Agreement. Except as
otherwise herein defined and unless the context otherwise requires, the terms defined in the
Master Agreement or the Trust Agreement shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein have the
meanings defined therein, such definitions to be equally applicable to both the singular and
plural forms of any of the terms defined therein. With respect to any defined term which is given
a different meaning under this Installment Purchase Agreement than under the Master
Agreement or the Trust Agreement, as used herein it shall have the meaning given herein.
ARTICLE II PURCHASE OF PROJECT BY, AND SALE THEREOF TO, THE CORPORATION;
PAYMENT OF PURCHASE PRICE
77633771.3 4
Section 2.01. Acquisition of the Project. The District represents and warrants that it is
the sole and exclusive owner of the Project. The Corporation hereby purchases from the District,
and the District hereby sells to the Corporation, the Project in accordance with the provisions of
this Installment Purchase Agreement. All right, title and interest in and to the Project shall immediately vest in the Corporation on the Closing Date without further action on the part of the
Corporation or the District.
Section 2.02. Payment of Purchase Price. On the Closing Date, the Corporation shall
pay to the District, as the purchase price of the Project, the amount of $__________, which
amount shall be paid from the proceeds of the Revenue Obligations.
ARTICLE III PURCHASE OF PROJECT BY, AND SALE THEREOF TO, THE DISTRICT;
INSTALLMENT PAYMENTS
Section 3.01. Purchase and Sale of Project. The District hereby purchases from the Corporation, and the Corporation hereby sells to the District, the Project in accordance with the
provisions of this Installment Purchase Agreement. All right, title and interest in and to the
Project shall immediately vest in the District on the Closing Date without further action on the
part of the District or the Corporation.
Section 3.02. Installment Payments. The District shall, subject to any rights of prepayment provided in Article IV hereof, pay to the Corporation, solely from Net Revenues and
from no other sources, the purchase price of the Project in Installment Payments, with interest
thereon, as provided herein. The Installment Payments and the interest thereon shall be payable
on the Business Day immediately preceding each of the Installment Payment Dates in the
amounts and at the interest rates per annum set forth in the following schedule:
77633771.3 5
Installment
Payment Date
Installment
Payment
Principal
Interest on
Installment Payment
Total
Interest
Rate
8/1/2012 2/1/2013
8/1/2013 2/1/2014
8/1/2014
2/1/2015 8/1/2015
2/1/2016
8/1/2016 2/1/2017
8/1/2017
2/1/2018 8/1/2018
2/1/2019
8/1/2019 2/1/2020
8/1/2020 2/1/2021 8/1/2021
2/1/2022 8/1/2022
2/1/2023
8/1/2023 2/1/2024 8/1/2024
2/1/2025 8/1/2025
2/1/2026
8/1/2026 2/1/2027
8/1/2027
2/1/2028 8/1/2028
2/1/2029
8/1/2029 2/1/2030
8/1/2030 2/1/2031 8/1/2031
2/1/2032 8/1/2032
2/1/2033
TOTAL
77633771.3 6
The Installment Payments shall accrue interest from the Closing Date, at the rates set
forth above, payable on the Interest Payment Dates in each year. Such interest shall accrue on
the basis of a 360-day year consisting of twelve 30-day months. Each Installment Payment, and
each payment of interest thereon, shall be deposited with the Trustee, as assignee of the Corporation, no later than the Business Day next preceding the Installment Payment Date or Interest Payment Date on which such Installment Payment or payment of interest is due, in
lawful money of the United States of America, in immediately available funds. If and to the
extent that, on any such date, there are amounts on deposit in the Installment Payment Fund
established under the Trust Agreement, or in any of the accounts therein, which amounts are not being held for the payment of specific Revenue Obligations, such amounts shall be credited against the Installment Payment, or payment of interest thereon, as applicable, due on such date.
Section 3.03. Reserved.
Section 3.04. Obligation Absolute. The obligation of the District to make the
Installment Payments, and payments of interest thereon, and other payments required to be made by it under this Article, solely from Net Revenues, is absolute and unconditional, and until such time as the Installment Payments, payments of interest thereon, and such other payments shall
have been paid in full (or provision for the payment thereof shall have been made pursuant to
Article IV), the District shall not discontinue or suspend any Installment Payments, or payments
of interest thereon, or other payments required to be made by it hereunder when due, whether or not the Project or any part thereof is operating or operable or has been completed, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such
Installment Payments, payments of interest thereon, and other payments shall not be subject to
reduction whether by offset or otherwise and shall not be conditional upon the performance or
nonperformance by any party of any agreement for any cause whatsoever.
Section 3.05. Nature of Agreement. This Installment Purchase Agreement constitutes a Senior Obligation and, as such, shall be subject to the provisions of the Master Agreement and
shall be afforded all of the advantages, benefits, interests and security afforded Senior
Obligations pursuant to the Master Agreement.
ARTICLE IV PREPAYMENT OF INSTALLMENT PAYMENTS
Section 4.01. Prepayment of Installment Payments. (a) The Installment Payments
shall be subject to prepayment prior to their respective Installment Payment Dates as provided in
Article IV of the Trust Agreement.
(b) The District may prepay, from any source of available funds, all or any portion of
the Installment Payments by depositing with the Trustee moneys or securities as provided, and
subject to the terms and conditions set forth, in Article X of the Trust Agreement sufficient to
pay such Installment Payments, and the interest thereon, when due or to pay such Installment
Payments, and the interest thereon, through a specified date on which the District has a right to prepay such Installment Payments pursuant to subsection (a) of this Section, and to prepay such
77633771.3 7
Installment Payments on such prepayment date, at a prepayment price determined in accordance
with subsection (a) of this Section.
(c) If less than all of the Installment Payments are prepaid then, as of the date of such
prepayment pursuant to subsection (a) of this Section, or the date of a deposit pursuant to subsection (b) of this Section, the schedule of Installment Payments shall be recalculated to take such prepayment into account.
Section 4.02. Notice. The District shall give written notice to the Trustee specifying the
date on which the prepayment will be made prior to making any prepayment pursuant to this
Article, which date shall be not less than 25 nor more than 60 days from the date such notice is given to the Trustee, unless such time period shall be waived by the Trustee.
Section 4.03. Discharge of Obligations. If all Installment Payments, and the interest
thereon, shall be paid as and when due in accordance with the terms hereof, or prepaid in
accordance with Section 4.01 hereof, and if all Revenue Obligations shall be fully paid, or
provision therefor made in accordance with Article X of the Trust Agreement, and the Trust Agreement shall be discharged by its terms, then all agreements, covenants and other obligations
of the District hereunder shall thereupon cease, terminate and become void and be discharged
and satisfied.
ARTICLE V
COVENANTS
Section 5.01. Compliance with Master Agreement. The District will faithfully
observe and perform all the agreements, conditions, covenants and terms contained in the Master
Agreement required to be observed and performed by it and will not cause, suffer or permit any
default to occur thereunder.
Section 5.02. Compliance with Installment Purchase Agreement. The District will
punctually pay the Installment Payments, and interest thereon, and other payments required to be
made by it hereunder in strict conformity with the terms hereof, and will faithfully observe and
perform all the agreements, conditions, covenants and terms contained herein required to be
observed and performed by it, will not cause, suffer or permit any default to occur hereunder and will not terminate this Installment Purchase Agreement for any cause including, without limiting
the generality of the foregoing, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Project, commercial frustration of purpose, any
change in the tax or other laws of the United States of America or of the State or any political
subdivision of either or any failure of the Corporation to observe or perform any agreement, condition, covenant or term contained herein required to be observed and performed by it,
whether express or implied, or any duty, liability or obligation arising out of or connected
herewith or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the
Corporation or any force majeure, including acts of God, tempest, storm, earthquake, war,
rebellion, riot, civil disorder, acts of public enemies, blockade or embargo, strikes, industrial disputes, lock outs, lack of transportation facilities, fire, explosion, or acts or regulations of
governmental authorities.
77633771.3 8
Section 5.03. Protection of Security and Rights. The District will preserve and protect
the security hereof and the rights of the Trustee, as assignee of the Corporation, to the
Installment Payments, and interest thereon, and other payments required to be made by the
District hereunder and will warrant and defend such rights against all claims and demands of all Persons.
Section 5.04. Indemnification of Corporation. To the extent permitted by law, the
District hereby agrees to indemnify and hold the Corporation and its members and officers
harmless against any and all liabilities which might arise out of or are related to the Project, this
Installment Purchase Agreement or the Revenue Obligations, and the District further agrees to defend the Corporation and its members and officers in any action arising out of or related to the
Project, this Installment Purchase Agreement or the Revenue Obligations.
Section 5.05. Further Assurances. The District will adopt, deliver, execute and make
any and all further assurances, instruments and resolutions as may be reasonably necessary or
proper to carry out the intention or to facilitate the performance hereof and for the better assuring and confirming unto the Corporation, or unto the Trustee, as assignee of the Corporation, the rights and benefits provided herein to the Corporation, or to the Trustee, as assignee of the
Corporation.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES OF THE CORPORATION
Section 6.01. Events of Default. The following shall be Events of Default under this
Installment Purchase Agreement, and “Event of Default” shall mean any one or more of the
following events:
(a) if default shall be made by the District in the due and punctual payment of or on account of any Senior Obligation as the same shall become due and payable;
(b) if default shall be made by the District in the performance of any of the
agreements or covenants required herein, in the Trust Agreement or in the Master Agreement to
be performed by it (other than as specified in (a) above), and such default shall have continued
for a period of 30 days after the District shall have been given notice in writing of such default by the Corporation or the Trustee; provided, however, that the party or parties giving such notice
may agree in writing to a reasonable extension of such period prior to the expiration of such 30
day period and, provided further, that if the District shall proceed to take curative action which,
if begun and prosecuted with due diligence, cannot be completed within such a period of 30
days, then such period shall be increased without such written extension to such extent as shall be necessary to enable the District to diligently complete such curative action and such default
shall not become an Event of Default for so long as shall be necessary to diligently complete
such curative action; or
(c) if the District shall file a petition or answer seeking arrangement or reorganization
under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or
77633771.3 9
without the consent of the District seeking arrangement or reorganization under the federal
bankruptcy laws or any other applicable law of the United States of America or any state therein,
or if under the provisions of any other law for the relief or aid of debtors any court of competent
jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property.
Section 6.02. Remedies on Default. Upon the occurrence of an Event of Default, the
Trustee, as assignee of the Corporation, shall have the right:
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce
its rights against the District and to compel the District to perform and carry out its duties under applicable law and the agreements and covenants required to be performed herein;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the
rights of the Trustee, as assignee of the Corporation;
(c) by suit in equity to require the District to account as the trustee of an express trust;
and to have a receiver or receivers appointed for the Wastewater System and of the issues, earnings, income, products and profits thereof, pending such proceedings, with such powers as
the court making such appointment shall confer.
Section 6.03. Non-Waiver. Nothing in this Article or in any other provision hereof
shall affect or impair the obligation of the District, which is absolute and unconditional, to pay
the Installment Payments, and the interest thereon, to the Trustee, as assignee of the Corporation, at the respective due dates from the Net Revenues and the other funds herein committed for such
payment, or shall affect or impair the right of the Trustee, as assignee of the Corporation, which
is also absolute and unconditional, to institute suit to enforce such payment by virtue of the
contract embodied herein.
A waiver of any default or breach of duty or contract by the Trustee, as assignee of the Corporation, shall not affect any subsequent default or breach of duty or contract or impair any
rights or remedies on any such subsequent default or breach of duty or contract. No delay or
omission by the Trustee, as assignee of the Corporation, to exercise any right or remedy accruing
upon any default or breach of duty or contract shall impair any such right or remedy or shall be
construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Trustee, as assignee of the Corporation, by
applicable law or by this Article may be enforced and exercised from time to time and as often as
shall be deemed expedient by the Trustee, as assignee of the Corporation.
If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned
or determined adversely to the Trustee, as assignee of the Corporation, the District and the Trustee, as assignee of the Corporation, shall be restored to their former positions, rights and
remedies as if such action, proceeding or suit had not been brought or taken.
Section 6.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved
to the Trustee, as assignee of the Corporation, is intended to be exclusive of any other remedy,
and each such remedy shall be cumulative and shall be in addition to every other remedy given
77633771.3 10
hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be
exercised without exhausting and without regard to any other remedy conferred by law.
ARTICLE VII
AMENDMENTS
Section 7.01. Amendments. (a) This Installment Purchase Agreement and the rights
and obligations of the District, the Corporation and the Trustee, as assignee of the Corporation,
may be amended or modified from time to time and at any time by a written amendment hereto
executed by the District, the Corporation and the Trustee, as assignee of the Corporation, with the written consent of the Owners of a majority of the aggregate principal evidenced by Revenue
Obligations then Outstanding. No such amendment shall (i) extend the payment date of any
Installment Payment or reduce the amount of any Installment Payment, or the interest rate
applicable thereto, without the prior written consent of the Owner of each affected Revenue
Obligation, or (ii) reduce the percentage of Owners of the Revenue Obligations whose consent is required to effect any such amendment or modification, without the prior written consent of the
Owners of all Revenue Obligations then Outstanding.
(b) This Installment Purchase Agreement and the rights and obligations of the
District, the Corporation and the Trustee, as assignee of the Corporation, may be amended or
modified from time to time and at any time by a written amendment hereto executed by the District, the Corporation and the Trustee, as assignee of the Corporation, without the written
consents of any Owners of the Revenue Obligations, but only to the extent permitted by law and
only for any one or more of the following purposes:
(i) to add to the agreements, conditions, covenants and terms required by the
District, the Corporation or the Trustee, as assignee of the Corporation, to be observed or performed herein other agreements, conditions, covenants and terms thereafter to be
observed or performed by the District, the Corporation or the Trustee, as assignee of the
Corporation, or to surrender any right or power reserved herein to or conferred herein
on the District, the Corporation or the Trustee, as assignee of the Corporation;
(ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or in
regard to questions arising hereunder which the District, the Corporation or the Trustee,
as assignee of the Corporation, may deem desirable or necessary and not inconsistent
herewith; and
(iii) to make such other changes herein or modifications hereto as the District, the Corporation or the Trustee, as assignee of the Corporation, may deem desirable or
necessary, and which shall not materially adversely affect the interests of the Owners of
the Revenue Obligations.
ARTICLE VIII
MISCELLANEOUS
77633771.3 11
Section 8.01. Liability of District Limited. Notwithstanding anything contained herein
to the contrary, the District shall not be required to advance any moneys derived from any source
of income other than Net Revenues and the other funds provided herein for the payment of the
Installment Payments, and the interest thereon, and other payments required to be made by it hereunder, or for the performance of any agreements or covenants required to be performed by it
contained herein. The District may, however, but in no event shall be obligated to, advance
moneys for any such purpose so long as such moneys are derived from a source legally available
for such purpose and may be legally used by the District for such purpose.
The obligation of the District to pay the Installment Payments, and the interest thereon, and other payments required to be made by it hereunder is a special obligation of the District
payable, in the manner provided herein, solely from Net Revenues and other funds provided for
herein, and does not constitute a debt of the District or of the State, or of any political
subdivision thereof, in contravention of any constitutional or statutory debt limitation or
restriction. Neither the faith and credit nor the taxing power of the District or the State, or any political subdivision thereof, is pledged to the payment of the Installment Payments, or the
interest thereon, or other payments required to be made hereunder.
Section 8.02. Limitation of Rights. Nothing in this Installment Purchase Agreement
expressed or implied is intended or shall be construed to give to any Person other than the
District, the Corporation and the Trustee, as assignee of the Corporation, any legal or equitable right, remedy or claim under or in respect of this Installment Purchase Agreement or any
covenant, condition or provision therein or herein contained, and all such covenants, conditions
and provisions are and shall be held to be for the sole and exclusive benefit of the District, the
Corporation and the Trustee, as assignee of the Corporation.
Section 8.03. Assignment. The District and the Corporation hereby acknowledge the transfer, conveyance and assignment by the Corporation to the Trustee of all of the Corporation’s
rights, title and interest in and to this Installment Purchase Agreement (excepting its rights to
indemnification hereunder), including the right to receive Installment Payments, and the interest
thereon, from the District, pursuant to the Trust Agreement.
Section 8.04. Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be
given to the party entitled thereto at its address set forth below, or at such other address as such
party may provide to the other parties in writing from time to time, namely:
If to the District: Orange County Sanitation District
10844 Ellis Avenue Fountain Valley, California 92708
Attention: Director of Finance and Administrative Services
If to the Corporation: Orange County Sanitation District Financing Corporation
c/o Orange County Sanitation District
10844 Ellis Avenue Fountain Valley, California 92708
Attention: Treasurer
77633771.3 12
If to the Trustee: Union Bank, N.A.
120 South San Pedro Street, Suite 400
Los Angeles, California 90012
Attention: Alison Braunstein Each such notice, statement, demand, consent, approval, authorization, offer, designation,
request or other communication hereunder shall be deemed delivered to the party to whom it is
addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic
communication, whether by facsimile or telecopier, upon the sender’s receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such
notice is deposited with the United States mail, (d) if given by overnight courier, with courier
charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any other
means, upon delivery at the address specified in this Section.
Section 8.05. Successor Is Deemed Included in all References to Predecessor. Whenever the District or the Corporation is named or referred to herein, such reference shall be
deemed to include the successor to the powers, duties and functions that are presently vested in
the District or the Corporation, and all agreements and covenants required hereby to be
performed by or on behalf of the District or the Corporation shall bind and inure to the benefit of the respective successors thereof whether so expressed or not.
Section 8.06. Waiver of Personal Liability. No official, officer or employee of the
District shall be individually or personally liable for the payment of the Installment Payments, or
the interest thereon, or other payments required to be made by the District hereunder, but nothing
contained herein shall relieve any official, officer or employee of the District from the performance of any official duty provided by any applicable provisions of law or hereby.
Section 8.07. Article and Section Headings, Gender and References. The headings
or titles of the several Articles and Sections hereof and the table of contents appended hereto
shall be solely for convenience of reference and shall not affect the meaning, construction or
effect hereof, and words of any gender shall be deemed and construed to include all genders. All references herein to “Articles,” “Sections” and other subsections or clauses are to the
corresponding articles, sections, subsections or clauses hereof; and the words “hereby,” “herein,”
“hereof,” “hereto,” “herewith” and other words of similar import refer to this Installment
Purchase Agreement as a whole and not to any particular Article, Section, subdivision or clause
hereof.
Section 8.08. Partial Invalidity. If any one or more of the agreements or covenants or
portions thereof required hereby to be performed by or on the part of the District or the
Corporation shall be contrary to law, then such agreement or agreements, such covenant or
covenants or such portions thereof shall be null and void and shall be deemed separable from the
remaining agreements and covenants and portions thereof and shall in no way affect the validity hereof.
Section 8.09. Governing Law. This Installment Purchase Agreement shall be construed
and governed and construed in accordance with the laws of the State.
77633771.3 13
Section 8.10. Execution in Counterparts. This Installment Purchase Agreement may
be executed in several counterparts, each of which shall be deemed an original, and all of which
shall constitute but one and the same instrument.
77633771.3 14
IN WITNESS WHEREOF, the parties hereto have executed this Installment Purchase
Agreement by their officers thereunto duly authorized as of the day and year first written above.
ORANGE COUNTY SANITATION DISTRICT
By:
Chair of the Board of Directors
(S E A L)
Attest:
By:
Clerk of the Board of Directors
ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION
By: Treasurer
77633771.3 A-1
EXHIBIT A
DESCRIPTION OF PROJECT
An allocable portion of $108,180,000 to the following:
Improvements to the Wastewater System including the District's two wastewater
treatment plants, the Ocean Outfall and Back Bay Sewer, and the acquisition, construction,
installation, rehabilitation or repair of the Orange Western Subtrunk Relief Sewer, the Bushard
Trunk Sewer, Headworks Improvements at Plant 2; Rehab Trickling Filters at Plant 1; Solids
Storage and Truck Loading Facility; Effluent Pump Station Annex; Standby Power and Reliability Modifications; Groundwater Replenishment System; Bacteria Reduction Facilities;
Rehabilitate Digesters at Plant 2; Ocean Outfall Rehabilitation; Replace Back Bay Sewer;
Chemical Facility Modifications at Plant 1; Replace Outfall Flow Meter; Odor Scrubber
Monitoring and Control; and Replace HVAC Equipment at Plants 1 and 2, originally financed
with the proceeds of the 2003 Certificates.
DRAFT OF
01/27/12
77634769.3
ESCROW AGREEMENT
by and between
ORANGE COUNTY SANITATION DISTRICT
and
UNION BANK, N.A.,
as Escrow Agent and Prior Trustee Dated as of March 1, 2012
Orange County Sanitation District
Certificates of Participation
Series 2003
77634769.3
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this “Escrow Agreement”), dated as of March 1,
2012, is by and between the ORANGE COUNTY SANITATION DISTRICT, a county
sanitation district organized and existing under the laws of the State of California (the “District”), and UNION BANK, N.A., a national banking association organized and existing
under the laws of the United States of America, as escrow agent (the “Escrow Agent”) and as
trustee under the Prior Trust Agreement referenced below (the “Prior Trustee”).
WITNESSETH:
WHEREAS, to finance the acquisition, construction and installation of certain improvements to its wastewater system (the “Prior Project”), the District has heretofore
purchased the Prior Project from the Orange County Sanitation District Financing Corporation
(the “Corporation”), and the Corporation has heretofore sold the Prior Project to the District, for
the installment payments (the “Prior Installment Payments”) to be made by the District pursuant
to the Installment Purchase Agreement, dated as of July 1, 2003 (the “Prior Installment Purchase Agreement”), by and between the District and the Corporation;
WHEREAS, to provide the funds necessary to finance the Prior Project, the District
caused the execution and delivery of the Orange County Sanitation District Certificates of
Participation, Series 2003 (the “Prior Certificates”), evidencing direct, undivided fractional
interests in the related Prior Installment Payments, pursuant to the Trust Agreement, dated as of July 1, 2003 (the “Prior Trust Agreement”), by and among the Prior Trustee, the Corporation and
the District;
WHEREAS, the District desires to refinance the Prior Project by prepaying all of the
remaining principal components of the Prior Installment Payments (the “Refunded Installment
Payments”), and the interest components thereof to the date of prepayment, thereby causing the currently outstanding Prior Certificates, which mature in the [year 2033], to be prepaid (the
“Refunded Certificates”);
WHEREAS, to provide the funds necessary to prepay the Refunded Installment
Payments, the District has caused to be executed and delivered the Orange County Sanitation
District Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”), evidencing principal in the aggregate amount of $___________, pursuant to the Trust
Agreement, dated as of March 1, 2012, by and among Union Bank, N.A., as trustee, the
Corporation and the District;
WHEREAS, the District has determined to apply a portion of the proceeds of the
Revenue Obligations to prepay all of the outstanding Refunded Installment Payments; and
WHEREAS, in accordance with the Prior Trust Agreement, the prepayment of the
Refunded Installment Payments will be applied to the payment of principal and interest
evidenced by the Refunded Certificates to and including August 1, 2013 (the “Prepayment
Date”) and to the prepayment of the outstanding Refunded Certificates on the Prepayment Date
at a prepayment price equal to the principal amount thereof plus accrued interest thereon, without premium (the “Prepayment Price”), pursuant to this Escrow Agreement;
77634769.3 2
NOW THEREFORE, in consideration of the premises and of the mutual agreements
and covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:
Section 1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Prior Trust Agreement.
Section 2. The Escrow Fund. (a) There is hereby established a fund (the “Escrow
Fund”) to be held as an irrevocably pledged escrow by the Escrow Agent, which the Escrow
Agent shall keep separate and apart from all other funds of the District and the Escrow Agent
and to be applied solely as provided in this Escrow Agreement. Pending application as provided in this Escrow Agreement, amounts on deposit in the Escrow Fund are hereby pledged solely to
the payment of the principal and interest evidenced by the Refunded Certificates to and including
the Prepayment Date and the payment of the Prepayment Price on the Prepayment Date, which
amounts shall be held in trust by the Escrow Agent for the Owners of the Refunded Certificates.
(b) The Prior Trustee is hereby instructed to liquidate $____________ of the investments held in the Reserve Fund established under Section 5.03 of the Prior Trust
Agreement (the “Prior Reserve”). As reflected in the report of the nationally recognized firm of
independent certified public accountants delivered in connection herewith, upon the execution
and delivery of the Revenue Obligations, there shall be deposited in the Escrow Fund
$____________ received from the proceeds of the sale of the Revenue Obligations and $____________ from the Prior Reserve and the subaccounts held in the Installment Payment
Fund for the Refunded Certificates for a total of $____________.
(c) The District has determined or caused to be determined that upon the deposit of
moneys pursuant to Section 2(b) hereof, the moneys on deposit in the Escrow Fund will be
invested in the Government Obligations specified in Schedule I hereto which, together with the uninvested cash specified in said Schedule I shall be sufficient to make the payments required by
Section 4 hereof.
Section 3. Use of Moneys in Escrow Fund. (a) The Escrow Agent hereby
acknowledges deposit of the moneys described in Section 2(b) hereof and agrees to invest such
moneys credited to the Escrow Fund in the Government Obligations specified in Schedule I hereto.
(b) The Owners of the Refunded Certificates shall have a first and exclusive lien on
the moneys and Government Obligations credited to the Escrow Fund until such moneys and
Government Obligations are used and applied as provided in this Escrow Agreement and the
Prior Trust Agreement to pay principal and interest evidenced by the Refunded Certificates to and including the Prepayment Date and to prepay in full then outstanding Refunded Certificates
on the Prepayment Date.
(c) The Escrow Agent shall not be held liable for investment losses resulting from
compliance with the provisions of this Escrow Agreement.
77634769.3 3
Section 4. Payment of Refunded Certificates. From the uninvested money and
proceeds of maturing Government Obligations held in the Escrow Fund, the Escrow Agent shall
apply such amounts to the payment of the principal and interest evidenced by the Refunded
Certificates to and including the Prepayment Date and to the payment of the Prepayment Price of the Refunded Certificates on the Prepayment Date, all as set forth in Schedule II hereto. To the
extent that the amount on deposit in the Escrow Fund on the Prepayment Date is in excess of the
amount necessary to make the required payments with respect to the Refunded Certificates, such
excess shall be transferred to the Trustee for deposit in the Installment Payment Fund established
under the Prior Trust Agreement.
Section 5. Irrevocable Instructions to Mail Notices. The District hereby designates
the Refunded Certificates for prepayment on the Prepayment Date and hereby irrevocably
instructs the Prior Trustee, to give, in accordance with the provisions of Section 4.03 of the Prior
Trust Agreement, notice of prepayment of such Refunded Certificates to the Owners thereof,
substantially in the form set forth in Exhibit A hereto.
Section 6. Performance of Duties; Acknowledgement with Respect to Irrevocable Instructions. The Escrow Agent hereby agrees to perform the duties set forth
herein and agrees that the irrevocable instructions to the Escrow Agent herein provided are in a
form satisfactory to it.
Section 7. Substitution of Government Obligations. (a) Upon the written direction of the District, subject to the conditions and limitations set forth in paragraph (c) below, the
Escrow Agent shall sell, transfer and request the redemption of or otherwise dispose of the initial
Government Obligations held in and credited to the Escrow Fund; provided that, subject to
paragraph (c) below, there are substituted therefor and delivered to the Escrow Agent other
Government Obligations as hereinafter provided.
(b) Upon the written direction of the District, subject to the conditions and limitations
set forth in paragraph (c) below, the Escrow Agent shall reinvest cash balances in the Escrow
Fund in Government Obligations; provided, that any such securities purchased pursuant to this
paragraph (b) shall mature (1) on the next Interest Payment Date for any of the Refunded
Certificates or (2) as on such other date or dates necessary to meet the requirements of Section 4 hereof, as certified by a nationally recognized firm of independent certified public accountants.
(c) The District, by this Escrow Agreement, hereby covenants and agrees that it will
not request the Escrow Agent to exercise any of the powers described in paragraph (a) or (b)
above in any manner, which if such exercise of powers had been reasonably expected on the date
of delivery of the Refunded Certificates, would cause any of the Refunded Certificates to be arbitrage bonds within the meaning of section 103(c) of the Internal Revenue Code of 1986, as
amended (the “Code”), and the regulations thereunder in effect on the date of such request and
applicable to obligations issued on the date of such Refunded Certificates. Any purchase of
substitute securities by the Escrow Agent shall be accomplished in accordance with paragraph
(a) above to the extent such purchases are to be made with the proceeds derived from the sale, transfer, redemption or other disposition of the Government Obligations. Such sale, transfer,
redemption or other disposition of the Government Obligations and such substitution may be
effected only by a simultaneous transaction and only if (i) a nationally recognized firm of
77634769.3 4
independent certified public accountants shall certify that (a) such substitute securities, together
with the Government Obligations and cash which will continue to be held in the Escrow Fund,
will mature in such principal amounts and earn interest in such amounts and at such times so that
sufficient moneys will be available from such maturing principal and interest to pay, as the same become due, all principal, premium and interest payable with respect to the Refunded Certificates which have not previously been paid, and (b) the amounts and dates of the
anticipated payments by the Escrow Agent of the principal, premium and interest payable with
respect to the Refunded Certificates will not be diminished or postponed thereby, (ii) the Escrow
Agent shall have received an opinion of nationally recognized bond counsel to the effect that the sale, transfer, redemption or other disposition and substitution of the Government Obligations does not cause interest on either the Revenue Obligations or the Refunded Certificates to be
subject to federal income taxation under relevant provisions of the Code and the regulations
thereunder in effect on the date of such sale, transfer, redemption or other disposition and
substitution and applicable to obligations issued on the date of execution and delivery of the Revenue Obligations.
Section 8. Escrow Agent’s Authority to Make Investments. Except as expressly
provided in Sections 3 and 7 hereof, the Escrow Agent shall have no power or duty to invest any
funds held under this Escrow Agreement. The Escrow Agent shall have no power or duty to
transfer or otherwise dispose of the moneys held hereunder except as provided herein.
Section 9. Indemnity. To the extent permitted by law, the District hereby assumes liability for, and hereby agrees to indemnify, protect, save and keep harmless the Escrow Agent
and its respective successors, assigns, agents, employees and servants, from and against any and
all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and
disbursements (including reasonable legal fees, expenses and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any
time in any way relating to or arising out of the execution, delivery and performance of this
Escrow Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the
moneys deposited therein, and any payment, transfer or other application of moneys by the
Escrow Agent in accordance with the provisions of this Escrow Agreement; provided, however, that the District shall not be required to indemnify the Escrow Agent against the Escrow Agent’s
own negligence or willful misconduct or the negligence or willful misconduct of the Escrow
Agent’s respective successors, assigns, agents and employees or the material breach by the
Escrow Agent of the terms of this Escrow Agreement. In no event shall the District or the
Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this Section. The indemnities contained in this Section shall
survive the termination of this Escrow Agreement.
Section 10. Responsibilities of Escrow Agent. The Escrow Agent makes no
representation as to the sufficiency of the funds deposited in accordance with Section 2(b) and
invested pursuant to Section 3(a) and earnings thereof, if any, to accomplish the prepayment of the Refunded Certificates pursuant to the Prior Trust Agreement or to the validity of this Escrow
Agreement as to the District and, except as otherwise provided herein, the Escrow Agent shall
incur no liability in respect thereof. The Escrow Agent shall not be liable in connection with the
performance of its duties under this Escrow Agreement except for its own negligence, willful
misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by
77634769.3 5
the express provisions of this Escrow Agreement. The Escrow Agent may consult with counsel,
who may or may not be counsel to the District, and in reliance upon the written opinion of such
counsel shall have full and complete authorization and protection in respect of any action taken,
suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Escrow Agreement, such matter (except the matters
set forth herein as specifically requiring a certificate of a nationally recognized firm of
independent certified public accountants or an opinion of counsel of recognized standing in the
field of law relating to municipal bonds) may be deemed to be conclusively established by a written certification of the District.
The Escrow Agent undertakes to perform only such duties as are expressly set forth in
this Agreement and no implied duties, covenants or obligations shall be read into this Agreement
against the Escrow Agent.
The Escrow Agent may resign by giving written notice to the District, and upon receipt of such notice the District shall promptly appoint a successor Escrow Agent. If the District does not appoint a successor Escrow Agent within thirty (30) days of receipt of such notice, the
resigning Escrow Agent may petition a court of competent jurisdiction for the appointment of a
successor Escrow Agent, which court may thereupon, upon such notice as it shall deem proper,
appoint a successor Escrow Agent. Upon acceptance of appointment by a successor Escrow Agent, the resigning Escrow Agent shall transfer all amounts held by it in the Escrow Fund to such successor Escrow Agent and be discharged of any further obligation or responsibility
hereunder.
Section 11. Amendments. The District and the Escrow Agent may (but only with the
consent of the Owners of all of the Refunded Certificates) amend this Escrow Agreement or enter into agreements supplemental to this Escrow Agreement.
Section 12. Term. This Escrow Agreement shall commence upon its execution and
delivery and shall terminate on the date upon which the Refunded Certificates have been paid in
accordance with this Escrow Agreement.
Section 13. Compensation. The District shall from time to time pay or cause to be paid to the Escrow Agent the agreed upon compensation for its services to be rendered
hereunder, and reimburse the Escrow Agent for all of its reasonable advances in the exercise and
performance of its duties hereunder; provided, however, that under no circumstances shall the
Escrow Agent be entitled to any lien whatsoever on any moneys or obligations in the Escrow
Fund for the payment of fees and expenses for services rendered or expenses incurred by the Escrow Agent under this Escrow Agreement or otherwise.
Section 14. Severability. If any one or more of the covenants or agreements provided
in this Escrow Agreement on the part of the District or the Escrow Agent to be performed should
be determined by a court of competent jurisdiction to be contrary to law, such covenants or
agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Escrow Agreement.
77634769.3 6
Section 15. Counterparts. This Escrow Agreement may be executed in several
counterparts, all or any of which shall be regarded for all purposes as an original but all of which
shall constitute and be but one and the same instrument.
Section 16. Governing Law. This Escrow Agreement shall be construed under the laws of the State of California.
77634769.3 7
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as
of the date first above written.
UNION BANK, N.A.,
as Escrow Agent and Prior Trustee
By: ____________________________________
Authorized Officer
ORANGE COUNTY SANITATION DISTRICT
By: ____________________________________
Lorenzo Tyner, Director of Finance
and Administrative Services
77634769.3 I-1
SCHEDULE I
INITIAL GOVERNMENT OBLIGATIONS IN ESCROW FUND
[See attached.]
77634769.3 II-1
SCHEDULE II
PAYMENT REQUIREMENTS OF THE REFUNDED CERTIFICATES
[See attached.]
77634769.3 A-1
EXHIBIT A
NOTICE OF PREPAYMENT
ORANGE COUNTY SANITATION DISTRICT CERTIFICATES OF PARTICIPATION
SERIES 2003
Principal Payment Date
(February 1) Interest Rate Principal Outstanding
CUSIP
Number*
NOTICE IS HEREBY GIVEN that the Orange County Sanitation District Certificates of Participation, Series 2003, in the maturities and principal amounts specified above (the
“Refunded Certificates”) are hereby subject to prepayment on August 1, 2013 (the “Prepayment
Date”) at a price equal to the principal evidenced by the Refunded Certificates, plus accrued
interest evidenced thereby to the Prepayment Date, without premium (the “Prepayment Price”).
On the Prepayment Date there will become due and payable with respect to each of the Refunded Certificates the Prepayment Price thereof, and from and after such Prepayment Date, the interest
evidenced thereby shall cease to accrue and be payable. The Refunded Certificates shall be
surrendered at the address of Union Bank, N.A., as Trustee, set forth below.
_____________________________
_____________________________ _____________________________
Dated: March __, 2012
By: Union Bank, N.A.,
as Trustee on behalf of the Orange County Sanitation District
Notice * The District and Trustee shall not be responsible for the use of the CUSIP numbers selected, nor is any representation made as to their correctness indicated in the notice or as printed on any certificate. They are included
solely for the convenience of the Securityholders.
52005180.2
1
Fulbright & Jaworski LLP – Draft 01/27/12
CONTINUING DISCLOSURE AGREEMENT
THIS CONTINUING DISCLOSURE AGREEMENT (this “Disclosure Agreement”), dated as of March 1, 2012, is by and between the ORANGE COUNTY SANITATION DISTRICT, a county
sanitation district organized and existing under the laws of the State of California (the “District”), and
DIGITAL ASSURANCE CERTIFICATION LLC, as Dissemination Agent (the “Dissemination Agent”).
WITNESSETH:
WHEREAS, the District has caused to be executed and delivered Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”), evidencing principal in the aggregate amount of $_______, pursuant to a Trust Agreement, dated as of the
date hereof (the “Trust Agreement”), by and among Union Bank, N.A., as trustee (the “Trustee”), the Orange County Sanitation District Financing Corporation (the “Corporation”) and the District; and
WHEREAS, this Disclosure Agreement is being executed and delivered by the District and the
Dissemination Agent for the benefit of the owners and beneficial owners of the Revenue Obligations and in order to assist the purchaser of the Revenue Obligations in complying with the Rule (as defined herein);
NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows:
Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings
ascribed thereto in the Trust Agreement or, if not defined therein, in the Master Agreement, dated as of August 1, 2000, by and between the District and the Corporation. In addition, the following capitalized
terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the District pursuant to, and as described in, Sections 2 and 3 hereof.
“Annual Report Date” means the date in each year that is eight months after the end of the
Fiscal Year, which date, as of the date of this Disclosure Agreement, is March 1.
“Disclosure Representative” means the Director of Finance and Administrative Services of the
District, or such other officer or employee of the District as the District shall designate in writing to the Dissemination Agent and the Trustee from time to time.
“Dissemination Agent” means an entity selected and retained by the District, or any successor
thereto selected by the District. The initial Dissemination Agent shall be Digital Assurance Certification LLC.
“EMMA” shall mean Electronic Municipal Market Access system, maintained on the internet at
http://emma.msrb.org by the MSRB.
52005180.2 2
“Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next
succeeding June 30, or any twelve-month or fifty-two week period hereafter selected by the District, with
notice of such selection or change in fiscal year to be provided as set forth herein.
“Listed Events” means any of the events listed in Section 4 hereof and any other event legally
required to be reported pursuant to the Rule.
“MSRB” means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 or any other entity designated or authorized by
the SEC to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the SEC, filings with the MSRB are to be made through EMMA.
“Official Statement” means the Official Statement, dated March __, 2012, relating to the
Revenue Obligations.
“Participating Underwriter” means any of the original purchaser(s) of the Revenue Obligations required to comply with the Rule in connection with the offering of the Revenue Obligations.
“Repository” means, until otherwise designated by the SEC, EMMA.
“Rule” means Rule 15c2-12 adopted by the SEC under the Securities Exchange Act of 1934, as the same has been or may be amended from time to time.
“SEC” shall mean the United States Securities and Exchange Commission.
Section 2. Provision of Annual Reports.
(a) The District shall provide, or shall cause the Dissemination Agent to provide, to MSRB,
through EMMA, not later than 15 days prior to the Annual Report Date, an Annual Report which is consistent with the requirements of Section 3 of this Disclosure Agreement. The Annual Report must be
submitted in electronic format, accompanied by such identifying information as provided by the MSRB.
The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 3 of this Disclosure
Agreement. Not later than 15 Business Days prior to such date, the District shall provide the Annual
Report to the Dissemination Agent. If the Fiscal Year changes for the District, the District shall give notice of such change in the manner provided under Section 4(e) hereof.
(b) If by 15 Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, through EMMA, the Dissemination Agent has not received a copy of the Annual Report the Dissemination Agent shall contact the District to determine if the District is in
compliance with subsection (a). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon
such certification of the District and shall have no duty or obligation to review such Annual Report.
(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided
to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the
MSRB in substantially the form attached as Exhibit A.
52005180.2 3
(d) The Dissemination Agent shall:
(i) determine the electronic filing address of, and then-current procedures for
submitting Annual Reports to, the MSRB each year prior to the date for providing the Annual Report; and
(ii) (if the Dissemination Agent is other than the Trustee), to the extent appropriate
information is available to it, file a report with the Authority certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided.
Section 3. Content of Annual Reports. The District’s Annual Report shall contain or
incorporate by reference the following:
(a) Audited financial statements prepared in accordance with generally accepted accounting
principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to subsection (a) of Section 2 hereof, the Annual Report
shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.
(b) The principal evidenced by the Revenue Obligations Outstanding as of the January 1 next preceding the Annual Report Date and the principal amount of other Senior Obligations outstanding as of
the January 1 next preceding the Annual Report Date.
(c) A summary report showing in reasonable detail Revenues, Operating Revenues, Maintenance and Operation Costs, Net Revenues, Net Operating Revenues and debt service with respect
to the Senior Obligations for the Fiscal Year ended the June 30 next preceding the Annual Report Date.
(d) An update, for the Fiscal Year ended the June 30 next preceding the Annual Report Date, of the information contained in the Official Statement in Table Nos. 2, 4, 6 (only with respect to
information on 6 under the headings Fiscal Year and Sewer Service Charge), 8 (not to include projections), 9, 10, 11, 12, 13, 14 and 16.
(e) In addition to any of the information expressly required to be provided under subsections
(a), (b), (c) and (d) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the District is an “obligated person” (as defined by the Rule), which are available to the public on EMMA or filed with the SEC. The District
shall clearly identify each such document to included by reference.
Section 4. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 4, the District shall give, or cause to be given,
notice of the occurrence of any of the following events with respect to the Revenue Obligations, in a timely manner not more than ten (10) Business Days after the event:
(1) principal and interest payment delinquencies;
52005180.2 4
(2) defeasances;
(3) tender offers;
(4) rating changes;
(5) adverse tax opinions or the issuance by the Internal Revenue Service of
proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form
5701-TEB) or other material notices or determinations with respect to the tax- status of the Revenue Obligations;
(6) unscheduled draws on the debt service reserves reflecting financial difficulties;
(7) unscheduled draws on credit enhancements reflecting financial
difficulties;
(8) substitution of credit or liquidity providers or their failure to perform; or
(9) bankruptcy, insolvency, receivership or similar proceedings.
For these purposes, any event described in the immediately preceding paragraph (9) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state
or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing
governing body and officials or officers in possession but subject to the supervision and orders of a court
or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all
of the assets or business of the District.
(b) Pursuant to the provisions of this Section 4, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Revenue Obligations, if
material:
(1) mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated persons or their termination;
(2) appointment of a successor or additional Trustee or the change of the name of a Trustee;
(3) nonpayment related defaults;
(4) modifications to the rights of Owners;
(5) a notices of prepayment; or
(6) release, substitution or sale of property securing repayment of the
Revenue Obligations.
52005180.2 5
(c) Whenever the District obtains knowledge of the occurrence of a Listed Event, described
in subsection (b) of this Section 4, the District shall as soon as possible determine if such event would be
material under applicable federal securities law.
(d) If the District determines that knowledge of the occurrence of a Listed Event described in
subsection (b) of this Section 4 would be material under applicable federal securities law, the District
shall promptly notify the Dissemination Agent in writing and instruct the Dissemination Agent to report the occurrence to the Repository in a timely manner not more than ten (10) Business Days after the event.
(e) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB.
Section 5. Filings with the MSRB. All information, operating data, financial statements,
notices and other documents provided to the MSRB in accordance with this Disclosure Agreement shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB.
Section 6. Termination of Reporting Obligation. The District’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Revenue Obligations. If such termination occurs prior to the final maturity of the Revenue
Obligations, the District shall give notice of such termination in the same manner as for a Listed Event under Section 4 hereof.
Section 7. Dissemination Agent. The District may, from time to time, appoint or engage
another Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination
Agent. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the
Dissemination Agent; provided it shall receive written notice of such designation at the time of such designation. Notwithstanding any other provision to this Disclosure Agreement to the contrary, the
District may provide any Annual Report to Beneficial Owners by means of posting such Annual Report
on an internet site that provides open access to Beneficial Owners.
Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Agreement, the District may amend this Disclosure Agreement, provided no amendment increasing or affecting the obligations or duties of the Dissemination Agent shall be made without the consent of such party, and any provision of this Disclosure Agreement may be waived if such amendment or waiver is
supported by an opinion of counsel expert in federal securities laws acceptable to the District and the Dissemination Agent to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof
but taking into account any subsequent change in or official interpretation of the Rule.
Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set
forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is
required by this Disclosure Agreement. If the District chooses to include any information in any Annual
Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Disclosure Agreement to update
such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
52005180.2 6
Section 10. Default. In the event of a failure of the District or the Dissemination Agent to
comply with any provision of this Disclosure Agreement, the Trustee, at the written direction of any
Participating Underwriter or the holders of at least 25% of the aggregate amount of principal evidenced by Outstanding Revenue Obligations and upon being indemnified to its reasonable satisfaction, shall, or
any holder or beneficial owner of the Revenue Obligations may, take such actions as may be necessary
and appropriate, including seeking mandate or specific performance by court order, to cause the District, Trustee or the Dissemination Agent, as the case may be, to comply with its obligations under this
Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the District, the Trustee or the Dissemination Agent to comply with this Disclosure
Agreement shall be an action to compel performance.
Section 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Trust Agreement is hereby made applicable to this Disclosure Agreement as if this
Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement. Neither the Trustee nor the Dissemination Agent shall be responsible for the form or content of any Annual Report or notice of Listed Event. The Dissemination Agent shall receive reasonable compensation for its services
provided under this Disclosure Agreement. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in
this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its
officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the
costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding
liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment
of the Revenue Obligations.
Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Trustee, the Dissemination Agent, the Participating Underwriter and holders and beneficial
owners from time to time of the Revenue Obligations, and shall create no rights in any other person or entity.
Section 13. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the same
instrument.
52005180.2 7
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the
date first above written.
ORANGE COUNTY SANITATION DISTRICT
By:
Lorenzo Tyner Director of Finance and Administrative Services
DIGITAL ASSURANCE CERTIFICATION LLC, as Dissemination Agent
By: Authorized Representative
Acknowledged and Accepted:
UNION BANK, N.A., as Trustee
By: Authorized Officer
52005180.2 8
EXHIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: Orange County Sanitation District
Name of Issue: Orange County Sanitation District
Wastewater Refunding Revenue Obligations, Series 2012A
Date of Execution and Delivery: March __, 2012
NOTICE IS HEREBY GIVEN that the Orange County Sanitation District (the “District”) has not
provided an Annual Report with respect to the above-captioned Revenue Obligations as required by Section 6.09 of the Trust Agreement, dated as of October 1, 2011, by and among Union Bank, N.A., as Trustee, the Orange County Sanitation District Financing Corporation and the District. [The District
anticipates that the Annual Report will be filed by ______________.]
Dated: ORANGE COUNTY SANITATION DISTRICT
By:
cc: Trustee
Dissemination Agent
Fulbright & Jaworski L.L.P. – Draft 02/01/12
55814493.5
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PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY __, 2012
NEW ISSUE—BOOK-ENTRY-ONLY RATINGS:
S&P: “___” Fitch: “___” (See “RATINGS” herein.)
In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel, under existing
statutes, regulations, rulings and court decisions, and assuming compliance with the tax covenants described herein, the interest component of each Installment Payment, and the allocable portion thereof distributable in respect of any Revenue Obligation, is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax. It is also the opinion of Special Counsel that under existing law interest on the Revenue Obligations is exempt from personal income taxes of the State of California. See, however, “TAX MATTERS” herein.
[District Logo] $____________* [DAC Logo] ORANGE COUNTY SANITATION DISTRICT
WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2012A
Dated: Date of Delivery Due: as shown on the inside cover
The $_________* Orange County Sanitation District Wastewater Refunding Revenue Obligations
Series 2012A (the “Revenue Obligations”) are certificates of participation that 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 Orange County Sanitation District (the “District”) pursuant to the Installment Purchase Agreement, dated as of March 1, 2012 (the “Installment Purchase Agreement”), by and between the
District and the Orange County Sanitation District Financing Corporation (the “Corporation”). Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000 (the “Master Agreement”), by and between
the District and the Corporation, the District has established conditions and terms upon which obligations such 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 REVENUE OBLIGATIONS” 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 REVENUE OBLIGATIONS” herein.
The proceeds of the Revenue Obligations will be used to (i) prepay all of the District’s Certificates of
Participation, Series 2003, currently outstanding in the aggregate principal amount of $108,180,000 (the “Refunded Certificates”), and (ii) pay the costs incurred in connection with the execution and delivery of the Revenue
Obligations. See “REFUNDING PLAN” herein.
Interest evidenced by the Revenue Obligations will be payable semiannually on February 1 and August 1 of
each year, commencing on August 1, 2012. See “THE REVENUE OBLIGATIONS” herein. The Revenue Obligations initially will be delivered only in book-entry form and will be registered in the name of Cede & Co., as
nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Revenue Obligations. Individual purchases of the Revenue Obligations will be made in book-entry form
only. Purchasers of Revenue Obligations will not receive physical certificates representing their ownership interests in the Revenue Obligations purchased. The Revenue Obligations will be delivered in denominations of $5,000 and
any integral multiple thereof. Payments of principal and interest evidenced by the Revenue Obligations are payable
* Preliminary, subject to change.
55814493.5
directly to DTC by Union Bank, N.A., as trustee (the “Trustee”). Upon receipt of payments of such principal and
interest, DTC will in turn distribute such payments to the beneficial owners of the Revenue Obligations. See
APPENDIX E — “BOOK-ENTRY SYSTEM” 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 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 REVENUE OBLIGATIONS” HEREIN.
This cover page contains information intended for quick reference only. It is not a summary of this
issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision.
BIDS FOR THE PURCHASE OF THE BONDS WILL BE RECEIVED BY THE DISTRICT UNTIL [11:00] A.M. NEW YORK TIME ON MARCH ____, 2012 UNLESS POSTPONED OR CANCELLED AS SET FORTH IN THE OFFICIAL NOTICE INVITING BIDS.
The Revenue Obligations are offered when, as and if executed and delivered and received by __________________, as the Initial Purchaser, subject to the approval of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel and Disclosure Counsel to the District, and certain other conditions. Certain legal matters will be passed upon for the District and the Corporation by Woodruff, Spradlin & Smart, a Professional Corporation, Costa Mesa, California. Public Resources Advisory Group, Los Angeles, California, has served as financial advisor to the District in connection with the execution and delivery of the Revenue Obligations. It is anticipated that the Revenue Obligations in definitive form will be available for delivery through the book-entry facilities of DTC on or about March __, 2012.
Dated: March __, 2012
55814493.5
MATURITY SCHEDULE
February 1 Principal Amount Interest Rate Yield Price CUSIP†
(Base No. ____)
$ % %
_______________________
† CUSIP is a registered trademark of the American Bankers Association. CUSIP data 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. None of the
District, the Initial Purchaser or the Financial Advisor is responsible for the selection or correctness of the CUSIP numbers set forth herein.
55814493.5
[MAP]
55814493.5
ORANGE COUNTY SANITATION DISTRICT
Board of Directors
Larry Crandall — (Chair) — Fountain Valley Troy Edgar — (Vice Chair) — Los Alamitos
Gail Eastman — Anaheim Jon Dumitru — Orange Don Schweitzer — Brea Scott Nelson — Placentia
Fred Smith — Buena Park Sal Tinajero — Santa Ana
Prakash Narain — Cypress Michael Levitt — Seal Beach Sharon Quirk-Silva — Fullerton David Shawver — Stanton
Bill Dalton — Garden Grove John Nielsen – Tustin
Joe Carchio — Huntington Beach Brad Reese — Villa Park Jeffrey Lalloway — Irvine John Anderson — Yorba Linda
Tom Beamish — La Habra James M. Ferryman — Costa Mesa Sanitary District
Mark Waldman — La Palma John Withers — Irvine Ranch Water District Steven Rosansky — Newport Beach Joy L. Neugebauer — Midway City Sanitary District
Janet Nguyen — Member of the Orange County Board of Supervisors
Executive Management of the District
James D. Ruth, General Manager
Robert P. Ghirelli, D.Env., Assistant General Manager
James Herberg, Assistant General Manager and Director of Engineering Lorenzo Tyner, Director of Finance and Administrative Services
Ed Torres, Director of Operations and Maintenance
Nick Arhontes, Director of Facilities Support Services Jeff Reed, Director of Human Resources
Special Services
Special Counsel and Disclosure Counsel Fulbright & Jaworski L.L.P.
Los Angeles, California
District General Counsel Bradley R. Hogin
Woodruff, Spradlin & Smart, a Professional Corporation Costa Mesa, California
Financial Advisor
Public Resources Advisory Group Los Angeles, California
Trustee
Union Bank, N.A. Los Angeles, California
Verification Agent
Causey Demgen & Moore Inc. Denver, Colorado
55814493.5 ii
This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Revenue Obligations 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 Orange County Sanitation District (the “District”) and other sources that are
believed by the District to be reliable. No dealer, broker, salesperson or other person has been authorized
to give any information or to make any representations other than those contained in this Official Statement. If given or made, such other information or representations must not be relied upon as having
been authorized by the District, the Corporation or the Initial Purchaser in connection with any reoffering.
This Official Statement is not to be construed as a contract with the purchasers of the Revenue Obligations. Statements contained in this Official Statement which involve estimates, projections,
forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such
and are not to be construed as representations of facts.
The information and expressions of opinion herein are subject to change without notice and
neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the District or the Corporation since the date hereof. This Official Statement is submitted with respect to the sale of the Revenue Obligations
referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the District. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Preparation
of this Official Statement and its distribution have been duly authorized and approved by the District and the Corporation.
In connection with the offering of the Revenue Obligations, the Initial Purchaser in connection
with any reoffering may over-allot or effect transactions which stabilize or maintain the market price of the Revenue Obligations at a level above that which might otherwise prevail in the open market. Such
stabilizing, if commenced, may be discontinued at any time. The Initial Purchaser in connection with any
reoffering may offer and sell the Revenue Obligations to certain dealers, institutional investors and others at prices lower than the public offering prices stated on the inside cover page hereof and such public
offering prices may be changed from time to time by the Initial Purchaser.
Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as
“plan,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to
be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
TABLE OF CONTENTS
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55814493.5
INTRODUCTION ......................................................................................................................... 1
General ............................................................................................................................... 1
The District ........................................................................................................................ 2
Security and Sources of Payment for the Revenue Obligations ........................................ 2 Continuing Disclosure ....................................................................................................... 3 Miscellaneous .................................................................................................................... 3
REFUNDING PLAN ..................................................................................................................... 4
ESTIMATED SOURCES AND USES OF FUNDS ..................................................................... 4
THE REVENUE OBLIGATIONS ................................................................................................ 5
General ............................................................................................................................... 5 Prepayment Provisions....................................................................................................... 5
SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS ............ 7
Installment Payments ......................................................................................................... 7
Available Funds of the District .......................................................................................... 8 Net Revenues ..................................................................................................................... 8 Rate Stabilization Account ................................................................................................ 9
Allocation of Revenues .................................................................................................... 10
Rate Covenant .................................................................................................................. 10
Limitations on Issuance of Additional Obligations ......................................................... 11 Insurance .......................................................................................................................... 13 Allocation of Installment Payments ................................................................................. 13
THE DISTRICT ........................................................................................................................... 15
Background ...................................................................................................................... 15
Services ............................................................................................................................ 17 Service Area ..................................................................................................................... 17 Employees ........................................................................................................................ 18
Retirement Plan ................................................................................................................ 19
Other Post-Employment Benefits .................................................................................... 21
Risk Management ............................................................................................................ 21 Existing Facilities............................................................................................................. 21 Permits, Licenses and Other Regulations ........................................................................ 22
2009 Facilities Master Plan and Capital Improvement Program ..................................... 24
Groundwater Replenishment System ............................................................................... 26
Preferred Level of Treatment ........................................................................................... 26 Biosolids Management..................................................................................................... 27 Urban Runoff ................................................................................................................... 27
Integrated Emergency Response Program ....................................................................... 28
Five-Year Strategic Planning ........................................................................................... 29
TABLE OF CONTENTS (continued)
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DISTRICT REVENUES .............................................................................................................. 30
Sewer Service Charges .................................................................................................... 30
Additional Revenues ........................................................................................................ 32 Wastewater Treatment History ........................................................................................ 34 Customers ........................................................................................................................ 34
Assessed Valuation .......................................................................................................... 35
Tax Levies and Delinquencies ......................................................................................... 37
Budgetary Process ............................................................................................................ 37 Reserves ........................................................................................................................... 38 Summary of Operating Data ............................................................................................ 40
Projected Operating Data ................................................................................................. 42
Management’s Discussion and Analysis of Operating Data............................................ 44
Investment of District Funds ............................................................................................ 45
FINANCIAL OBLIGATIONS .................................................................................................... 45
Existing Indebtedness ...................................................................................................... 45
Variable Rate Obligations ................................................................................................ 46
Anticipated Financings .................................................................................................... 46
Direct and Overlapping Bonded Debt.............................................................................. 46
THE CORPORATION ................................................................................................................ 47
LIMITATIONS ON TAXES AND REVENUES........................................................................ 47
Article XIIIA of the California Constitution ................................................................... 47
Legislation Implementing Article XIIIA ......................................................................... 47
Article XIIIB of the California Constitution .................................................................... 48 Proposition 1A ................................................................................................................. 49 Article XIIIC and Article XIIID of the California Constitution ...................................... 49
Other Initiative Measures ................................................................................................. 51
LEGAL MATTERS ..................................................................................................................... 52
FINANCIAL ADVISOR ............................................................................................................. 52
ABSENCE OF LITIGATION ..................................................................................................... 52
FINANCIAL STATEMENTS ..................................................................................................... 52
TAX MATTERS .......................................................................................................................... 53
VERIFICATION OF MATHEMATICAL COMPUTATIONS .................................................. 55
CONTINUING DISCLOSURE ................................................................................................... 55
RATINGS .................................................................................................................................... 56
PURCHASE AND REOFFERING ............................................................................................. 56
MISCELLANEOUS .................................................................................................................... 56
TABLE OF CONTENTS (continued)
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APPENDIX A – COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE
COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED
JUNE 30, 2011 ................................................................................................... A-1 APPENDIX B – THE COUNTY OF ORANGE – ECONOMIC AND DEMOGRAPHIC
INFORMATION ............................................................................................... B-1
APPENDIX C – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ................................... C-1 APPENDIX D – FORM OF CONTINUING DISCLOSURE AGREEMENT ............................. D-1
APPENDIX E – BOOK-ENTRY SYSTEM ................................................................................. E-1 APPENDIX F – FORM OF APPROVING OPINION OF SPECIAL COUNSEL ....................... F-1
55814493.5
OFFICIAL STATEMENT
$___________*
ORANGE COUNTY SANITATION DISTRICT
WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2012A
INTRODUCTION
This introduction contains only a brief summary of certain of the terms of the Revenue Obligations being offered and a brief description of the Official Statement. All statements contained in
this introduction are qualified in their entirety by reference to the entire Official Statement. 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. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings set forth in the Trust Agreement, the Installment Purchase Agreement and the Master Agreement (each, as hereinafter defined). See APPENDIX C –
“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Definitions” herein.
General
This Official Statement, including the cover page and all appendices hereto, provides certain
information concerning the sale and delivery of $__________* aggregate principal amount of the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue
Obligations”), which are certificates of participation evidencing direct, fractional undivided interests in certain installment payments (the “Installment Payments”) and the interest thereon, to be made by the Orange County Sanitation District (the “District”) pursuant to the Installment Purchase Agreement,
dated as of March 1, 2012 (the “Installment Purchase Agreement”), by and between the District and the
Orange County Sanitation District Financing Corporation (the “Corporation”). Unless the context clearly indicates to the contrary, a reference herein to either of the Installment Purchase Agreement or the
Revenue Obligations is intended to refer to the corresponding interest in the Installment Purchase Agreement. Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000 (the “Master Agreement”), by and between the District and the Corporation, the District has established and
declared the conditions and terms upon which obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest thereon, will be incurred and secured. Installment Payments under the Installment Purchase Agreement are payable solely from Net Revenues (as defined
hereinafter) as provided in the Installment Purchase Agreement, consisting primarily of all income and revenue received by the District from the operation or ownership of the Wastewater System of the District (the “Wastewater System”) remaining after payment of Maintenance and Operation Costs, as further
described in “SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS” herein.
* Preliminary, subject to change.
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The Revenue Obligations are to be executed and delivered pursuant to a Trust Agreement, dated
as of March 1, 2012 (the “Trust Agreement”), by and among the District, the Corporation and Union
Bank, N.A., as trustee (the “Trustee”). Proceeds from the sale of the Revenue Obligations will be used to (i) prepay all of the District’s Certificates of Participation, Series 2003, currently outstanding in the
aggregate principal amount of $108,180,000 (the “Refunded Certificates”) and (ii) pay the costs incurred
in connection with the execution and delivery of the Revenue Obligations. See “REFUNDING PLAN” herein.
The Revenue Obligations will be executed and delivered in the form of fully registered certificates of participation, dated as of the date of initial delivery thereof and will mature on February 1 or August 1, as applicable, in each such year as set forth on the inside cover page hereof. Interest
evidenced by the Revenue Obligations will be payable semiannually on February 1 and August 1 of each year, commencing on August 1, 2012. See “THE REVENUE OBLIGATIONS” herein. The Revenue Obligations initially will be delivered only in book-entry form and will be registered in the name of Cede
& Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Revenue Obligations. The Revenue Obligations will be delivered in denominations of $5,000 and any integral multiple thereof. So long as the Revenue Obligations are in the
DTC book-entry system, the interest, principal, purchase price and prepayment premiums, if any, due with respect to the Revenue Obligations will be payable by the Trustee, or its agent, to DTC or its
nominee. DTC, in turn, will make payments pursuant to its procedures as described under APPENDIX E
– “BOOK–ENTRY SYSTEM” herein.
The District
The District is a public agency responsible for regional wastewater collection, treatment and
disposal. The District is the sixth largest wastewater discharger in the United States. The District provides service to an area with a population of approximately 2.5 million people in the northern and
central portion of the County of Orange (the “County”), in a service area of approximately 463 square miles, treating an average of 207 million gallons per day (“mg/d”) of wastewater in Fiscal Year 2010-11. See “THE DISTRICT,” “DISTRICT REVENUES” and “FINANCIAL OBLIGATIONS” herein.
Security and Sources of Payment for the Revenue Obligations
The Revenue Obligations, which are certificates of participation, 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.
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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 REVENUE OBLIGATIONS – 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 REVENUE OBLIGATIONS” herein.
Continuing Disclosure
The District has covenanted for the benefit of holders and beneficial owners of the Revenue
Obligations (a) to provide certain financial information and operating data (the “Annual Report”) relating to the District and the property in the District not later than eight months after the end of the District’s Fiscal Year (which currently would be March 1), commencing with the report for the 2011-12 Fiscal
Year, and (b) to provide notices of the occurrence of certain enumerated events. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is set forth in the Continuing Disclosure Agreement. See “CONTINUING DISCLOSURE” herein and APPENDIX D
– “FORM OF CONTINUING DISCLOSURE AGREEMENT.”
Miscellaneous
The descriptions herein of the Trust Agreement, the Master Agreement, the Installment Purchase
Agreement, the Continuing Disclosure Agreement and any other agreements relating to the Revenue Obligations are qualified in their entirety by reference to such documents. Copies of the Trust
Agreement, the Master Agreement and the Installment Purchase Agreement are on file and available for
inspection at the corporate trust office of Union Bank, N.A., Los Angeles, California Attention: Corporate Trust.
55814493.5 4
REFUNDING PLAN
A portion of the net proceeds of from the sale of the Revenue Obligations, together with other
available moneys, will be used to prepay all of the remaining installment payments (the “Refunded Installment Payments”) to be made by the District pursuant to the Installment Purchase Agreement, dated
as of July 1, 2003, by and between the District and the Corporation, which was executed and delivered in
connection with the Refunded Certificates. The Refunded Certificates consist of the February 1, 2033 maturity, currently outstanding in the aggregate principal amount of $108,180,000. Pursuant to the terms
of the Trust Agreement, dated as of July 1, 2003 (the “2003 Trust Agreement”), by and among the District, the Corporation and Union Bank, N.A., as trustee thereunder, the prepayment of the Refunded Certificates will be effected by depositing a portion of the proceeds of the Revenue Obligations, together
with other available moneys, in an escrow fund (the “Escrow Fund”) to be created and established under the Escrow Agreement, dated as of March 1, 2012, by and between the District and Union Bank, N.A., as escrow agent thereunder. Such deposit by the District in the Escrow Fund, will be invested in
Government Obligations (as defined in the 2003 Trust Agreement). The Government Obligations will be scheduled to mature in such amounts and at such times and will pay interest at such rates as to provide amounts sufficient to pay interest with respect to the applicable Refunded Installment Payments due and
payable through August 1, 2013 and to pay on August 1, 2013 (the “Prepayment Date”) the principal component of the Refunded Installment Payments with respect to the Refunded Certificates at a
prepayment price equal to the principal amount thereof (the “Prepayment Price”), without premium. See
“VERIFICATION OF MATHEMATICAL COMPUTATIONS” herein.
The amounts deposited in the Escrow Fund will be held in trust solely for the Refunded
Certificates and will not be available to pay the principal and interest evidenced by the Revenue
Obligations or any obligations other than the Refunded Certificates.
ESTIMATED SOURCES AND USES OF FUNDS
The estimated sources and uses of funds and other amounts in connection with the execution and delivery of the Revenue Obligations are presented below.
Sources
Principal Amount of Revenue Obligations $ [Premium/Discount]
Amounts released from 2003 Trust Agreement relating to the Refunded Certificates
Total Sources $
Uses Deposit to Escrow Fund $
Initial Purchaser’s Discount Costs of Issuance(1)
Total Uses(2) $
____________________ (1) Costs of Issuance include, among other things, fees of rating agencies, Special Counsel and Disclosure Counsel
fees and expenses, verification fees and the initial fees of the Trustee. (2) Totals may not add due to rounding.
55814493.5 5
THE REVENUE OBLIGATIONS
General
The Revenue Obligations will be prepared in the form of fully registered certificates of participation in denominations of $5,000 and any integral multiple thereof. The Revenue Obligations will
be dated as of the date of initial delivery thereof and will mature on February 1 or August 1, as applicable,
in such years as set forth on the inside cover page hereof. Interest evidenced by the Revenue Obligations will be payable semiannually on February 1 and August 1 of each year, commencing on August 1, 2012.
The Revenue Obligations initially will be delivered only in book-entry form and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Revenue Obligations. Individual purchases of the Revenue
Obligations will be made in book-entry form only. Purchasers of Revenue Obligations will not receive physical certificates representing their ownership interests in the Revenue Obligations purchased.
The interest evidenced by the Revenue Obligations shall be payable on each Interest Payment
Date to and including their respective Principal Payment Dates or prepayment prior thereto, and shall represent the sum of the interest on the Installment Payments coming due on the Interest Payment Dates in each year. The principal evidenced by the Revenue Obligations shall be payable on their respective
Principal Payment Dates in each year and shall represent the Installment Payments coming due on the Principal Payment Dates in each year. Each Revenue Obligation shall evidence interest from the Interest
Payment Date next preceding its date of execution to which interest has been paid in full, unless such date
of execution shall be after a Record Date and on or prior to the following Interest Payment Date, in which case such Revenue Obligation shall evidence interest from such Interest Payment Date, or unless such
date of execution shall be on or prior to July 15, 2012, in which case such Revenue Obligation shall
represent interest from its date of initial delivery. Notwithstanding, the foregoing, if, as shown by the records of the Trustee, interest evidenced by the Revenue Obligations shall be in default, each Revenue
Obligation shall evidence interest from the last Interest Payment Date to which such interest has been paid in full or duly provided for. Interest evidenced by the Revenue Obligations shall be computed on the basis of a 360-day year consisting of twelve 30-day months. See APPENDIX C — “SUMMARY OF
PRINCIPAL LEGAL DOCUMENTS — Trust Agreement.”
Payments of principal and interest evidenced by the Revenue Obligations are payable directly to DTC by Union Bank, N.A., as trustee. Upon receipt of payments of such principal and interest, DTC will
in turn distribute such payments to the beneficial owners of the Revenue Obligations. So long as the Revenue Obligations are held in the DTC book-entry system, the interest, principal, purchase price and prepayment premiums, if any, due with respect to the Revenue Obligations will be payable by the
Trustee, or its agent, to DTC or its nominee. DTC, in turn, will make payments pursuant to its procedures as described under APPENDIX E – “BOOK-ENTRY SYSTEM” herein.
Prepayment Provisions
Optional Prepayment. The Revenue Obligations with stated Principal Payment Dates prior to February 1, 20__ are not subject to optional prepayment prior to their stated Principal Payment Dates. The
Revenue Obligations with stated Principal Payment Dates on or after February 1, 20__ are subject to
optional prepayment prior to their stated Principal Payment Dates, on any date on or after February 1, 2022, in whole or in part, in Authorized Denominations, from and to the extent of prepaid Installment
Payments paid pursuant to the Installment Purchase Agreement or from any other source of available funds, any such prepayment to be at a price equal to the principal evidenced by the Revenue Obligations to be prepaid, plus accrued interest evidenced thereby to the date fixed for prepayment, without premium.
55814493.5 6
Selection of Revenue Obligations for Prepayment. Whenever less than all the Outstanding
Revenue Obligations are to be prepaid on any one date pursuant to provisions of the Trust Agreement
with respect to optional prepayment of Revenue Obligations, the Trustee shall select the Revenue Obligations to be prepaid among Revenue Obligations with different Principal Payment Dates as directed
in a Written Request of the District. Whenever less than all the Outstanding Revenue Obligations with
the same stated Principal Payment Date are to be prepaid on any one date in accordance with the Trust Agreement, the Trustee shall select the Revenue Obligations with such Principal Payment Date to be
prepaid as directed in a Written Request of the District, or at the discretion of the District by lot in any manner that the Trustee deems fair and appropriate, which decision shall be final and binding upon the District and the Owners. The Trustee shall promptly notify the District in writing of the numbers of the
Revenue Obligations so selected for prepayment on such date. For purposes of such selection, any Revenue Obligation may be prepaid in part in Authorized Denominations.
Notice of Prepayment. When prepayment of Revenue Obligations is authorized pursuant to the
Trust Agreement, the Trustee shall give notice, at the expense of the District, of the prepayment of the Revenue Obligations. The notice of prepayment shall specify (a) the Revenue Obligations or designated portions thereof (in the case of prepayment of the Revenue Obligations in part but not in whole) which are
to be prepaid, (b) the date of prepayment, (c) the place or places where the prepayment will be made, including the name and address of any paying agent, (d) the prepayment price, (e) the CUSIP numbers
assigned to the Revenue Obligations to be prepaid, (f) the numbers of the Revenue Obligations to be
prepaid in whole or in part and, in the case of any Revenue Obligation to be prepaid in part only, the principal evidenced by such Revenue Obligation to be prepaid, and (g) the interest rate and stated
Principal Payment Date of each Revenue Obligation to be prepaid in whole or in part. Such notice of
prepayment shall further state that on the specified date there shall become due and payable upon each Revenue Obligation or portion thereof being prepaid the prepayment price and that from and after such
date interest evidenced thereby shall cease to accrue and be payable. With respect to any notice of optional prepayment of Revenue Obligations, unless at the time such notice is given the Revenue Obligations to be prepaid shall be deemed to have been paid within the meaning of the Trust Agreement,
such notice shall state that such prepayment is conditional upon receipt by the Trustee, on or prior to the date fixed for such prepayment, of moneys sufficient to pay for the prepayment price of the Revenue Obligations to be prepaid, and that if such moneys shall not have been so received said notice shall be of
no force and effect and the District shall not be required to prepay such Revenue Obligations. In the event a notice of prepayment of Revenue Obligations contains such a condition and such moneys are not so received, the prepayment of Revenue Obligations as described in the conditional notice of prepayment
shall not be made and the Trustee shall, within a reasonable time after the date on which such prepayment was to occur, give notice to the persons and in the manner in which the notice of prepayment was given,
that such moneys were not so received and that there shall be no prepayment of Revenue Obligations
pursuant to such notice of prepayment.
The Trustee shall, at least 20 but not more than 60 days prior to any prepayment date, give notice
of prepayment to the respective Owners of Revenue Obligations designated for prepayment by first-class
mail, 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.
The actual receipt by the Owner 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 Revenue Obligations or the cessation of interest
evidenced thereby on the date fixed for prepayment.
Effect of Prepayment. If notice of prepayment has been duly given as aforesaid and moneys for the payment of the prepayment price of the Revenue Obligations to be prepaid are held by the Trustee,
then on the prepayment date designated in such notice, the Revenue Obligations so called for prepayment
shall become payable at the prepayment price specified in such notice; and from and after the date so
55814493.5 7
designated, interest evidenced by the Revenue Obligations so called for prepayment shall cease to accrue,
such Revenue Obligations shall cease to be entitled to any benefit or security hereunder and the Owners
of such Revenue Obligations shall have no rights in respect thereof except to receive payment of the prepayment price thereof. The Trustee shall, upon surrender for payment of any of the Revenue
Obligations to be prepaid, pay such Revenue Obligations at the prepayment price thereof, and such
moneys shall be pledged to such payment.
SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS
Installment Payments
Pursuant to the Installment Purchase Agreement, the Project will be reacquired 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 Revenue Obligations 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.
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 Official Statement 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 2010A Installment Purchase Agreement, the 2010C Installment Purchase Agreement, the 2011A Installment Purchase Agreement and
the 2011B Installment Purchase Agreement and the term “Senior Obligations” as used in this Official
Statement refers to the Existing Senior Obligations and to 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 incurred as provided in the Master Agreement, are referred to collectively as the “Obligations.” The District has no Subordinate Obligations currently
outstanding. See “FINANCIAL OBLIGATIONS — Existing Indebtedness” herein and APPENDIX C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement” attached hereto.
The Revenue Obligations will defease the 2003 Installment Purchase Agreement. See
“REFUNDING PLAN” herein.
55814493.5 8
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
advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. See “SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS” herein.
Available Funds of the District
As Senior Obligations under the Master Agreement, the Installment Payments are payable from and secured by a pledge of Net Revenues. Should Net Revenues prove insufficient, the Installment
Purchase Agreement further provides that the Installment Payments are payable from any other lawfully available funds of the District. The primary lawfully available funds of the District are its reserve funds,
other than trustee-held amounts required to be in any Obligation Reserve Fund securing certain of the
District’s Senior Obligations, as described in the Master Agreement. At June 30, 2011, the District’s Debt Service Required Reserves totaled $142 million, of which $90.2 million were trustee-held amounts
in Obligation Reserve Funds as required under the Master Agreement. See APPENDIX C – “SUMMARY
OF PRINCIPAL LEGAL DOCUMENTS - Master Agreement” attached hereto. District reserve funds are maintained in accordance with the District's reserve policy. See “DISTRICT REVENUES -
Reserves.” District reserve funds, excluding Debt Service Required Reserves (see Table 13), are referred to herein as “Available Reserves.” Available Reserves at June 30, 2011 were approximately $419 million. Available Reserves at June 30, 2012 and June 30, 2013 are projected to be approximately $435
million and $496 million, respectively. See “DISTRICT REVENUES — Reserves,” “— Summary of Operating Data” and “— Projected Operating Data.”
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 (the “IRWD Agreement”), by and between predecessor County Sanitation District No. 14 of Orange County and the Irvine Ranch Water District (the “IRWD”) 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);
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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.
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, issued, executed 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 as provided in the Master Agreement; provided, however, that prior to incurring such Subordinate Obligations, the District shall 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
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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
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 (the Revenue Obligations are not secured by any Reserve Fund);
(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
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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.
The District has an established reserve policy with eight separate reserve fund categories. Over the next ten years, the year ending reserve total for each year is projected not to fall below $482 million as indicated in the District’s ten-year cash flow forecast for fiscal years 2011-12 through 2020-21. At its
election, the District may use unrestricted reserves to help satisfy the rate covenant described above. See “DISTRICT REVENUES — Reserves” herein.
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
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are incurred, 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; 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 District is not required to comply with the provisions described above in paragraph (2) 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 District is not required to comply with the
provisions described in paragraph (2) above for such portion of Senior Obligations incurred for the purpose of providing funds to refund or refinance Senior Obligations if (i) 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 (ii) 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
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Obligations, or debt service on the Related Bonds of such Obligations, is not disregarded pursuant to
clause (L) of the definition of Assumed Debt Service). See APPENDIX C — “SUMMARY OF
PRINCIPAL LEGAL DOCUMENTS — Master Agreement” attached hereto for additional information.
The District may at 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. There are currently no Subordinate Obligations outstanding.
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
Set forth in Table 1 are the principal and interest payments on the Revenue Obligations. Also set forth are the payments due on Existing Senior Obligations, excluding the Refunded Certificates.
[Remainder of page intentionally left blank.]
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Table 1 Estimated Installment Payments Relating to the Revenue Obligations
and Existing Senior Obligations of the District
Fiscal Year Ending
June 30
Installment Payments Relating to Revenue Obligations Other Senior Obligations(1)
Total Principal Interest Principal Interest(2)
2012(3)
2013 2014
2015 2016 2017
2018 2019 2020
2021 2022
2023
2024 2025
2026
2027 2028
2029
2030 2031
2032 2033 2034
2035 2036
2037
2038 2039 2040
2041 2042
2043
2044 Total
______________ (1) Preliminary, subject to change. The District intends to refinance its Revenue Refunding Certificate Anticipation Notes, Series 2011B (“2011 Notes”) on or before their maturity on November 9, 2012. Assumes principal is amortized from 2022
through 2036 and an interest rate of 3% per annum. See “FINANCIAL OBLIGATIONS – Recent and Anticipated Financings” herein. Excludes principal and interest of the Refunded Certificates. (2) Assumes a per annum interest rate of 3% for all variable rate obligations. See “FINANCIAL OBLIGATIONS – Existing
Indebtedness” and APPENDIX A – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011” herein. (3) Excludes payments due prior to [February 2], 2012.
55814493.5 15
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 an average of 207 mg/d of wastewater in Fiscal Year 2010-11. The District serves approximately 81% of the County population in approximately 463
square miles, or approximately 60% of the County’s area.
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 1920s 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.
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 25 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 171 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.
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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. 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 637 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 an Assistant General Manager of the District, and has served in that
capacity since July 2006. Mr. Ghirelli previously served as Director of Technical Services for the District since his joining the District in 1998. Prior to joining the District, Mr. Ghirelli served for just over a year
as managing principal of the Los Angeles office of a national environmental consulting firm, 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.
James Herberg, P.E. is an Assistant General Manager of the District and has served in this capacity since February 2011. He also retains the position of 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.
Lorenzo Tyner is the District’s Director of Finance and Administrative Services. In
September 2005, Mr. Tyner joined the District with approximately 20 years of public finance and
budgeting experience, most recently serving as the Los Angeles Unified School District Budget Director and Deputy Chief Financial Officer. Mr. Tyner previously worked in large government organizations
including the City of Los Angeles and the Los Angeles County Metropolitan Transportation Authority
and with private sector companies IBM Global Services and Northrop.
Ed Torres is the District’s Director of Operations and Maintenance for the District. He has
served the District since 1991. Prior to joining the District, Mr. Torres served in a professional capacity for the California State University System and TRW Electronics and Defense Sector. Mr. Torres has approximately 25 years of public and private sector experience in protecting public health and the
environment.
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Nick Arhontes, P.E. is the District’s Director of Facilities Support Services 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.
Jeff Reed is the District’s Director of Human Resources. He has worked for the District since
1987. Mr. Reed serves as the District’s Employee Relations Officer, administering to employer-employee
relations between the District and its local public employee organizations. In addition to human resources, Mr. Reed has served the District in leadership roles in both safety and operations.
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 work is performed 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 Official Statement shows the District’s boundaries and
selected cities located within the District. District boundaries were originally established in 1947 and 1948 based on drainage basins. As the existing cities have grown and new areas have incorporated, city
limits have come to overlap District boundaries. The District currently serves an approximately 463 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.
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Set forth in Table 2 below are estimated populations of cities and unincorporated areas served by
the District as of January 1, 2011.
Table 2 Estimated Populations of Cities and Unincorporated Areas Served by the Orange County Sanitation District
As of January 1, 2011
City Population
Anaheim 341,034 Brea 40,065
Buena Park 80,868 Costa Mesa 110,146
Cypress 47,907
Fountain Valley 55,423 Fullerton 135,574 Garden Grove 171,327
Huntington Beach 190,377 Irvine 219,156
La Habra 60,432
La Palma 15,596 Los Alamitos 11,474
Newport Beach 85,376
Orange 136,995 Placentia 50,665
Santa Ana 325,228
Seal Beach 24,215 Stanton 38,317
Tustin 75,781 Villa Park 5,823 Westminster 89,937
Yorba Linda 64,855 Cities Subtotal 2,376,571 Unincorporated Areas (estimated) 81,000
Total 2,457,571 ____________________ Sources: State of California Department of Finance, Demographic Research Unit for city population data; Orange
County Sanitation District for population of unincorporated areas.
Employees
As of February 1, 2012, the District had 591 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
supervisory and professional employees since 1991. Total represented employees as of February 1, 2012
numbered 551 as follows: 94 were represented by the OCEA, 207 were represented by Local 501 and 250 were represented by the Supervisor and Professional Groups. The Supervisor and Professional
Groups agreements with the District were renegotiated in 2011 and expire on June 30, 2013. The OCEA
and Local 501 agreements with the District were renegotiated in 2011 and expire on June 30, 2014. The
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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, except the General Manager, participate in OCERS. Contributions are based on an OCERS actuarial-determined rate structure and age at time of employment;
contributions are deducted on a pre-tax basis. Most employees do not pay into Social Security with the exception of 1.45% of gross income, which is paid into the Medicare portion of Social Security. 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 Plan B, G or H member. Plan B applies to supervisor and professional employees hired on or after October 1, 2010, Local 501 employees hired on
or after July 1, 2011 and Orange County Employees Association (“OCEA”) employees hired on or after August 1, 2011. Under Plan B, final average salary is based on highest consecutive thirty-six months.
Plan G applies to employees hired on or before September 21, 1979. Under Plan G, final average salary
is based on the highest consecutive twelve months. Plan H applies to employees hired on or after September 21, 1979 and prior to the eligibility dates for Plan B. Under Plan H, final average salary is
based on the highest consecutive thirty-six months. Effective July 1, 2005, employees retiring at age 55
or older receive 2.5% of their final compensation for every year of service. The District entered into a memorandum of understanding with all represented groups that (effective on October 1, 2010 for the
Supervisor and Professional Group and unrepresented employees, effective on July 1, 2011 for the Local 501 Group, and effective on August 1, 2011 for the OCEA Group) reduced the benefit formula for new employees. Employees hired into the groups after the respective effective dates are subject to a benefit
formula of 1.667% at age 57.5 under Plan B for every year of service. “Final compensation” is the highest consecutive 12 months of compensation for Plan G members and the highest consecutive 36 months of compensation divided by three for Plan B and H members. Benefits fully vest under the
OCERS retirement plan upon reaching five years of service. Employees who retire at or after age 50 with ten or more years of service are eligible to receive an annual retirement allowance, but at a reduced benefit for those employees retiring prior to age 57.5 for Plan B members or prior to age 55 for Plan G
and H members. 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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Set forth in Table 13 below is a current comparison of OCERS costs for Fiscal Years 2006-07
through 2010-11 and projected costs for Fiscal Years 2011-12 and 2012-13.
Table 3 Orange County Sanitation District Comparison of OCERS Costs for Fiscal Years 2006-07 through 2010-11
and Projected Costs for Fiscal Years 2011-12 and 2012-13
Fiscal Year Rate(1) Cost(2)
2006-07 19.78% $ 9,848,854 2007-08 20.55 11,011,693
2008-09 21.14 12,193,601 2009-10 21.50 13,029,795 2010-11 24.20 14,176,989
2011-12(3) 25.68 16,346,155 2012-13(3) 27.47 17,485,548
____________________ (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) Projected.
Source: Orange County Sanitation District.
For Fiscal Years 2006-07 through 2010-11, 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,
2011, total payroll costs of employees covered by OCERS was $58,582,598. As of the December 31,
2010 valuation, OCERS has an aggregate UAAL ratio of 69.79%, for a total UAAL of $3.75 billion.
The District’s retirement program 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. The District paid $248,410 in ARBA benefits during Fiscal Year 2010-11. Effective August 1, 2011, ARBA benefits are no longer available to new OCEA Group
employees of the District.
For more information regarding OCERS and the District’s retirement plan as of June 30, 2011, see Note 6 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for
Fiscal Year Ended June 30, 2011 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.
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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 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 $819,692 for Fiscal Year 2010-11. 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 at its plants and pump stations. The
District is self-insured for portions of workers’ compensation, property damage and general liability. The self-insurance portion of workers’ compensation is $750,000 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 claim administrators. The District believes that there are no unrecorded claims as of December 31, 2011 that would materially affect the financial position of
the District.
For more information regarding the District’s insurance coverage as of June 30, 2011, see Note 1 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year
Ended June 30, 2011 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
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effluent is conveyed to an Orange County Water District (the “OCWD”) plant for tertiary treatment prior
to reclamation and groundwater recharge. See “Groundwater Replenishment System” below.
Treatment Plant No. 2 (“Plant No. 2”) is located in the City of Huntington Beach, 1,500 feet from the ocean, at the mouth of the Santa Ana River. Secondary treatment capabilities are provided by a pure
oxygen activated sludge plant.
The District employs several phases in the treatment of wastewater. The first phase, preliminary treatment, removes debris such as eggshells, 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. Substantially all of the wastewater received by the District is sent to secondary treatment for further processing because of the recent completion of the secondary expansion at Treatment Plant No. 2. During secondary treatment, the wastewater is treated with naturally occurring
bacteria 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.
Set forth in Table 4 below are the treatment plants’ approximate current and future treatment capacities.
Table 4
Wastewater System Treatment Capacities (mg/d)
2010-11
Actual Flows
Existing Primary
Treatment Capacity
Existing Secondary
Treatment Capacity(1)
Total Planned
Secondary Capacity(2)
Plant No. 1 99 204 122 182 Plant No. 2 108 168 150 150
Aggregate Treatment 207 372 272 332 ____________________ (1) The existing secondary capacity is being expanded to meet secondary treatment standards by December 2012. (2) 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. Source: Orange County Sanitation District.
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 District is subject to laws, rules and permits issued by federal, state, regional and local regulatory bodies. 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 primarily
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administered by the United States Environmental Protection Agency (the “EPA”), the California Air
Resources Board, the Santa Ana Regional Water Quality Control Board (“RWQCB”), and the South
Coast Air Quality Management District (“AQMD”). Regulations of these agencies deal primarily with the quality of effluent which may be discharged from the treatment plants and air quality emissions. The
Clean Water Act directs the EPA to monitor and to regulate the discharge of pollution into navigable
waterways and to enforce the requirements that all wastewater treatment plants in the nation provide full secondary treatment for sewage. In 1977, Congress amended the Clean Water Act to allow waivers of
secondary treatment standards for certain ocean dischargers if they can demonstrate, to the satisfaction of the EPA that significant adverse environmental impacts would not occur. The District currently has all applicable permits and licenses necessary to operate its facilities.
The District has discharged treated wastewater into the Pacific Ocean under a permit issued by the EPA and the RWQCB. The discharge permit included a waiver under the 301(h) provisions of the Clean Water Act, allowing for less than full secondary treatment based on an ocean discharge of
sufficient depth, distance and dilution. The permit was initially issued in 1985 and was the first modified Section 301(h) permit issued to a major wastewater treatment facility. The permit was re-issued on May 6, 1998 and expired on June 8, 2003.
On July 17, 2002, the Board of Directors adopted 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 District to meet Clean Water Act secondary
treatment standards with the expressed purposes of eliminating the need for the permit waiver received under Section 301(h). The District currently estimates that it will complete these improvements by
December 2012 at a total capital improvement cost of $623.1 million. 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.
Following the determination by the Board of Directors on 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 the need for a waiver. Achieving secondary treatment standards was originally projected to take nine 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 Section 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 Consent Decree contains seven construction
milestones and interim effluent limitations. The District is in compliance with the Consent Decree and has successfully completed five of the seven milestones within the specified deadlines required by the Consent Decree. The District expects to complete all seven milestones ahead of schedule, prior to
December 31, 2012.
The District is also subject to the requirements of the Federal 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
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adverse effects on human health and environment. 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. The District’s treatment plants are also subject to the requirements of Title V of the Federal Clean Air Act amendments. The Title V permit is a single air quality permit for a facility that consolidates and replaces all of the air
permits for individual pieces of equipment previously issued by the local air quality district. The permit contains all of the applicable local, state, and federal requirements, including periodic self-certification of compliance and mandatory self-reporting of permit deviation.
All Title V permit related reporting and documents submitted to the AQMD must be signed by the highest District official – in this case the General Manager. The Title V program also demands
facilities to organize and conduct extensive training of the staff involved, including the field operation and
maintenance staff. Another Title V important feature is a possibility of the public active participation and intervention in the cases of potential emission limits and monitoring violations. The District Title V
permits did not receive any negative public responses or comments during the required public review
period. The District received initial Title V permits for both treatment plants in January 2009.
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 and has been updated from time to time. 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 services defined by the District’s 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 District also 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 Fiscal Year 2030-31, the District’s current 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 nine 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; and
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• Achieve full secondary treatment standards.
The 2011 CIP validation study resulted in revisions to the CIP. The CIP currently consists of 145
individual capital projects through Fiscal Year 2030-31 with remaining outlays of $1.8 billion. Over the next five years, the CIP contemplates average annual capital expenditures of $180 million.
Implementation of full secondary treatment standards is scheduled to be completed on or before
December 31, 2012. Set forth in Table 5 below is a summary of total estimated capital costs for the CIP for Fiscal Years 2011-12 through 2030-31.
Table 5
Capital Improvement Program – Estimated Capital Costs Fiscal Years 2011-12 through 2030-31
Project Cost Collection System Capacity $ 164,128,000
Collection System Repair, Rehabilitation, Replacement 335,590,000 Treatment Plant Capacity 227,253,000
Additional Secondary Treatment 141,163,000
Improved Treatment 156,503,000 Treatment Plant Repair, Rehabilitation, Replacement 646,871,000
Support Facilities 143,815,000
Total Validated Capital Improvement Program $1,815,323,000 ___________________
Source: 2011-12 Budget Update, Orange County Sanitation District.
The CIP included budgeted expenditures of $129.2 million in Fiscal Year 2011-12. The largest
cash outlay planned for plant facilities in Fiscal Year 2011-12 is $16.6 million for the Digester Rehabilitation at Reclamation Plant No. 1 (total project cost is expected to be $55.5 million).
Commissioning of Reclamation Plant No. 1 using wastewater is scheduled from February through June
2012, with final completion of the project anticipated in July 2012. The CIP’s largest collection system project for Fiscal Year 2011-12 is $9.7 million for the rehabilitation of Magnolia Trunk Sewer, which is
now substantially complete.
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 2010, GWRS produced approximately 68,000 acre-feet. The Phase II expansion started construction in November 2011
to add approximately 33,000 acre-feet per year. The District expects the Phase II expansion to be
completed in the fall of 2014. The Phase II expansion and all future phases will be funded solely by OCWD and OCSD has committed 168,000 acre-feet per year of secondary effluent to these future
expanded operations. The District and OCWD amended the 2001 agreement in 2010 to dedicate the
water supply from the District to OCWD for these future phases; however, no capital funding is anticipated or dedicated from the District for these future expansion phases.
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OCWD and the District have agreed to share equally in the cost of the Joint GWRS
Microfiltration Backwash Redirection Project which will increase the quantity of water delivered during
the night when the flows are low. This project will save the District operational costs in the form of reduced primary treatment chemical usage. The District’s total estimated budget for this project is
$1,311,000.
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 OCWD, 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.”
The District estimates that the two remaining secondary treatment capacity projects will be completed by December 31, 2012 at a total cost of approximately $12.1 million. 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 for beneficial use. By 2013, the District’s biosolids production is anticipated to peak at approximately 788 wet tons per day (“tpd”) when new secondary treatment processes are fully operational, and then is projected to decline to approximately 710
tpd by 2017 when the IRWD’s solids processing facilities and the District’s centrifuges commence operations. The Fiscal Year 2011-12 budget is $18.5 million.
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The District has a diversified biosolids management portfolio:
Contractor Location Product
Contract
(tons per day and term)
Synagro Kern County, CA and La
Paz County, AZ Compost
250 tpd – 10 years with two
five-year renewals, expires
7/1/2024
EnerTech City of Rialto San Bernardino County, CA
Conversion to a
renewable coal substitute
225 tpd – 25 years with a one
five-year option to renew, expires 12/1/2038
Tule Ranch Dateland and Yuma Counties, AZ Land application 175-225 tpd – One (1) year expires 12/31/2012
The District’s contractors provide back-up biosolids management options in Arizona that include land application recycling and landfill disposal. Together, these options have the capacity to manage
more than ten times the District’s daily biosolids production to ensure sustainable, 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. As a result of the LRBMP recommendations,
Synagro’s existing biosolids management contract was amended in April 2004, committing 250 tons per
day of biosolids to be composted at Synagro’s South Kern Compost Manufacturing Facility, which started operations in late 2006.
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 “Rialto Slurry-Carb facility”). The EnerTech solution is a new, patented heat treatment process that
reduces the energy needs to dry the biosolids in a conventional dryer, which creates the fuel pellets. The renewable fuel pellets, called eFuel, are sold to cement manufacturers that use the pellets as fuel to heat their kilns, with the residual ash from the fuel combustion becoming part of the cement product, resulting
in no residual waste byproducts. EnerTech started commissioning in October 2008 and is scheduled to complete the commissioning of the Rialto Slurry-Carb facility by March 13, 2012. If the project is not successful, the District expects to enter into a replacement contract that will dispose of such biosolids at a
lower cost.
Under the 2011 Strategic Plan update, District staff is working with Orange County Waste &
Recycling to negotiate a contract to allow for the use of local landfills for biosolids management.
Finalizing this contract is the final step towards managing up to 12% of the District’s annual biosolids production locally.
Urban Runoff
The Board of Directors, recognizing that the beaches of the County were being affected by pollution carried by urban runoff, adopted Resolution No. OCSD 00-04 on April 26, 2000, agreeing to
temporarily accept dry weather urban runoff into the Wastewater System. A subsequent revision to this
initial policy, OCSD 00-22 adopted September 27, 2000, added an aggregate 10 million gallons per day (“MGD”) capacity limit for the urban runoff flows. In addition, the resolution declares that the District
will initially waive fees and charges associated with authorized discharges of dry weather urban runoff to the Wastewater System until the total volume of all runoff discharges exceeds 4 MGD calculated on a monthly average, or until the District modifies this provision of its policy. Resolution No. OCSD 01-07
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was adopted March 28, 2001 to clarify the District’s indemnification liability. In June 2002, legislation
was enacted to formally allow the District’s charter to include the treatment of urban runoff flows.
There are a total of 19 active urban runoff diversion structures, four owned and operated by the County, 11 owned and operated by the City of Huntington Beach, one owned and operated by the City of
Newport Beach, two owned and operated by the IRWD, and one owned and operated by The Irvine
Company. From July 1, 2010 through June 30, 2011, the District received a daily average urban runoff flow ranging between 0.334 and 3.31 MGD with a cumulative total of 555 million gallons for this period.
The daily urban runoff volume remained at less than half of the 4 MGD fee threshold for ten months out of the twelve month period. At the existing operations and maintenance cost of $1,311.79 per million gallons (2010-11 rate), the cost to the District for treating these flows was $727,501.
The District’s Environmental Compliance Division administers the Dry Weather Urban Runoff Program through the issuance of a discharge permit for each of the diversion structures. The permit functions as a control mechanism to establish discharge limits, constituent monitoring, and flow metering
requirements, as well as provide requirements that specifically prohibit storm runoff and authorizes discharge only during periods of dry weather. In addition, the District conducts quarterly sampling and analysis of the urban runoff discharges to ensure discharge limit compliance for the various regulated
constituents.
The Dry Weather Urban Runoff Program’s effectiveness is measured by improvements in the
quality of recreational waters of the County as manifested by a decline in beach advisories and closures.
The most recent report on beach quality by Orange County Health Agency, 2009 Annual Ocean, Harbor, & Bay Water Quality Report details the total number of Beach Mile Days that were posted due to AB 411
standards violations between April 1 and October 31. Although 2010 posted the highest number of Rain
Advisory Days due to elevated levels of bacteria in local waters, the total number of Beach Mile Days posted in 2010 was still the lowest total on record [(87.6)] for the 10-year period from 2001–2010. In
addition, the total number of Beach Mile Days posted has declined in the County for five consecutive years.
Since inception of the program, the areas directly benefitting from the urban runoff diversions,
Huntington State Beach and Huntington City Beach, have had significant reductions in Beach Posting Days and Beach Mile Days, with the exception of a spike at Huntington State in 2007. Though there are numerous variables impacting water quality at any given instant, the dry weather diversion appears to
have contributed positively to the overall downward trend in beach closures at these locations. As a consequence, the Dry Weather Urban Runoff Program appears to have benefitted the beach going public as well as all the clean environment stakeholders of the County.
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 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
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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 2007, the Board of Directors adopted a new comprehensive strategic plan to steer the District’s efforts and engage the organization to envision service levels and operational needs for the
next five years. The Strategic Plan has been updated annually to continue looking at a five-year horizon (each, a “Five-Year Plan”). Since 2007, approximately 72% percent of the strategic goals have been
completed. The November 2010 update to the Strategic Plan focused on internal operations for economy
and efficiency. The General Manager’s Office initiated an effort, known as the “Beyond 2012 Strategic Planning Framework,” to guide all future planning and more tightly integrate our priorities, strategic
planning and budget implementation. Working with the executive team of the District, the General
Manager solicited input from District managers then held a workshop with the Board of Directors in October 2010. At this workshop the Board of Director members discussed and deliberated changes and
additions to the plan. The 2010 Strategic Plan Update that derived from this process continues an aggressive effort by the District to meet the sanitation, health, and safety needs of its more than 2.5 million customers while protecting the environment. As a result of the discussion at the October 2010
workshop, one new goal was added to the Strategic Plan, “Full-Cost Recovery,” which is a
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comprehensive review of the Sanitation District’s urban runoff diversion program to ensure a fair share
recovery of costs for services.
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 23 and to
provide for gradual rate increases in seven of the nine Revenue Areas. 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.
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 IRWD which
directly collects fees from customers through a monthly billing procedure in Revenue Area No. 14.
The District currently participates in the County’s Teeter Plan under which the District receives annually 100% of the secured property tax levies to which it otherwise is entitled, regardless of whether
the County has actually collected the levies.
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
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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, 10.0% for Fiscal Year 2009-10, 10.4% for Fiscal Year 2010-11, 9.4% for Fiscal Year 2011-12 and 10.1% for Fiscal Year 2012-13.
Set forth in Table 6 below is a five-year comparison of the Sewer Service Charge rate for single family residences.
Table 6 Annual Sewer Service Charges Single Family Residence Rate Five Year Rate Schedule
Fiscal Years 2008-09 through 2012-13
Fiscal Year Sewer Service Charge Percent Increase
2008-09 $201.00 10.4%
2009-10 221.00 10.0
2010-11 244.00 10.4 2011-12 267.00 9.4
2012-13 294.00 10.1
_________________________ Source: Orange County Sanitation District. Set forth in Table 7 below are the total average annual Sewer Service Charges for single family
residences (“SFR”) 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 the
dates indicated. The District’s projected SFR rate of $294 in Fiscal Year 2012-13 remains below the 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.
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Table 7 Comparison of Total Sewer Service Charges
For Single family Residences As of July 1, 2011 (Sacramento as of October 1, 2011)
Entity
Average Dry
Weather Flow (mg/d)(3)
Annual
Sewer Service Charge(1) Treatment Level(2)(3) Collection Responsibility(3) Property Tax Income(3)
City of San Diego 168 $608 2 Yes No
City of Los Angeles 428 360 4 Yes No East Bay MUD 80 288 4 No Yes Sacramento 140 264 3 No Yes
Orange County Sanitation District 221 267 2 No Yes
Los Angeles County 497 143 4 No Yes ____________________ (1) Source: Information obtained from respective entities listed. (2) Treatment Level Categories: “1” – Primary treatment. “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: Wastewater User Charge Survey Report by the California State Water Resources Control Board. Industrial Sewer Service Charges. The District charges industrial Sewer Service Charges to customers discharging high-strength or high-volume wastes into the sewer systems. Customers subject to
industrial Sewer Service Charges are billed directly by the District. The fee charged to each customer is
based on the customer’s sewage volume, the concentration of suspended solids and biochemical oxygen demand. Pursuant to the 2002 Ordinance, rates for each component factor were revised for certain
industrial users in order to be consistent with the rates charged to residential users. Total industrial Sewer
Service Charges in Fiscal Year 2010-11 were approximately $10.1 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 – 2009 Facilities Master Plan and Capital Improvement
Program,” the 2011 CIP Validation Study developed the capital improvement program to ensure secondary treatment standards are met as quickly as possible while providing for increased flows and rehabilitation and refurbishment of existing facilities. As projected through Fiscal Year 2030-31, the cash
flow needs of the CIP total approximately $1.8 billion. Over the next five years the CIP contemplates average annual capital expenditures of $180 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 $60.6 million in Fiscal Year 2006-07, $65.2 million in Fiscal Year 2007-08, $66.4 million in Fiscal Year 2008-
09, $64.8 million in Fiscal Year 2009-10 and $64.3million in Fiscal Year 2010-11. In Fiscal Years 2003-
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04 and 2004-05 the State implemented a two-year 40% secured property tax shift away from independent
special districts due to the fiscal crisis occurring at that time. 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. See “LIMITATIONS ON TAXES AND
REVENUES –Proposition 1A.” 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) beginning in Fiscal Year 2006-07. See Table 14 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 made 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 Director’s policy.
Capital Facilities Capacity Charges. Capital Facilities Capacity Charges (commonly referred to 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. The District currently has Capital Facilities Capacity
Charges of $3,341 per residential unit (three-bedroom); however, under the current industrial use
ordinance, additional Capital Facilities Capacity Charges can be imposed on industrial users who place larger than average demand on the Wastewater System. Member cities and sanitary districts collect
Capital Facilities Capacity Charges for the District when building permits are issued. Capital Facilities
Capacity Charges are reviewed annually to reflect the changes in the value of the Wastewater System to which a new customer is connecting.
On December 15, 1999, the Board of Directors approved District Ordinance No. OCSD 99-11 (the “1999 Ordinance”) which established a comprehensive Capital Facilities Capacity Charge. The 1999 Ordinance, effective as of January 1, 2000, renamed connection fees as Capital Facilities Capacity
Charges and provided a more equitable schedule of fees among industrial, commercial and residential users. Pursuant to the 1999 Ordinance, Capital Facilities Capacity Charges were revised for high demand industrial users in five incremental increases from 1999 through 2001. 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 $7.2 million over the next four
years. Additional treatment plant capacity can be purchased in increments at the District’s current replacement cost.
Federal Subsidy Payments. In connection with the District’s Revenue Obligations, Series 2010A
(the “2010A Certificates”) and the District’s Revenue Obligations, Series 2010C (the “2010C
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Certificates”), issued as “Build America Bonds,” the District will receive certain federal subsidy
payments of approximately $5.1 million annually through 2031 and lesser amounts thereafter until 2044.
Subsidy payments with respect to the 2010A Certificates and the 2010C Certificates will constitute Revenues as defined in the Master Agreement. In its financial reports, the District accounts for subsidy
payments received in connection with the 2010A Certificates and the 2010C Certificates as a reduction in
interest expense with respect to such obligations.
Wastewater Treatment History
The wastewater flows for Fiscal Year 2006-07 through Fiscal Year 2010-11 were 229 mg/d, 221 mg/d, 211 mg/d, 196 mg/d and 207 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 2006-07 through
2010-11 and the projected number of customers served by the District for the Fiscal Years 2011-12 through 2015-16, 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.” Set forth in Table 8 below are the EDUs that equate to total Sewer Service Charge levies, while the EDUs set forth in
Table 9 equate to total sewer service charge collections.
Table 8 Historical and Projected Equivalent Dwelling Units Fiscal Years 2006-07 through 2015-16
Fiscal Year Historical EDUs(1) Fiscal Year Projected EDUs
2006-07 907,986 2011-12 926,990(2) 2007-08 911,033 2012-13 929,401(3)
2008-09 921,782 2013-14 931,910(3) 2009-10 930,164 2014-15 934,519(3) 2010-11 924,622 2015-16 937,229(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 June 2011. (3) EDU growth during the projection period is estimated at approximately 2.6% to 2.9% per annum.
Source: Orange County Sanitation District.
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Set forth in Table 9 below are 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 2006-07 through 2010-11 ($ in Millions)
Residential/Commercial
Industrial
Fiscal Year
Number of
Equivalent Single- Family
Dwellings
Total
Revenue
Percentage
of Sewer Service Charge
Revenues
Number of Customer
Accounts
Total
Revenue
Percentage
of Sewer Service Charge
Revenues 2006-07 867,035 $143.8 91% 531 $13.4 9% 2007-08 875,739 159.4 93 520 12.1 7 2008-09 882,747 177.4 95 515 9.9 5 2009-10 875,442 193.5 95 487 10.8 5 2010-11 874,130 213.3 95 479 10.1 5
____________________ Source: Orange County Sanitation District.
Set forth in Table 10 below are the ten largest principal sewer service customers of the District
for the Fiscal Year ended June 30, 2011.
Table 10 Largest Principal Sewer Service Customers of the District
for the Fiscal Year Ended June 30, 2011
User Sewer Service Charges Kimberly-Clark Worldwide, Inc. $ 1,533,243
MCP Foods, Inc. 1,036,648 Alstyle Apparel-A&G Inc. 909,188 Stremicks Heritage Foods, LLC 756,778 House Foods America Corp. 588,739 Pepsi-Cola Bottling Group 440,707 Jazz Semiconductor 344,671 Dean Foods Co. of CA Inc. 316,641 Schreiber Foods Inc. 298,157 Pulmuone Wildwood, Inc. 293,669 Total $6,518,441
____________________ Source: Orange County Sanitation District.
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Assessed Valuation
The assessed valuation of property in the County is established by the County Assessor, except
for public utility property which is assessed by the State Board of Equalization. Due to changes in assessment required under State Constitution Article XIIIA, the County assessment roll no longer
purports to be proportional to market value. See “LIMITATIONS ON TAXES AND REVENUES”
herein. Generally, property can be reappraised to market value only upon a change in ownership or completion of new construction. The assessed value of property that has not incurred a change of
ownership or new construction must be adjusted annually to reflect inflation at a rate not to exceed 2% per year based on the State consumer price index. In the event of declining property value caused by substantial damage, destruction, economic or other factors, the assessed value must be reduced
temporarily to reflect market value. For the definition of full cash value and more information on property tax limitations and adjustments, see “LIMITATIONS ON TAXES AND REVENUES” herein.
The County Assessor determines and enrolls a value for each parcel of taxable real property in the
County every year. The value review may result in a reduction in value. Taxpayers in the County also may appeal the determination of the County Assessor with respect to the assessed value of their property.
Set forth in Table 11 below is a five-year history of assessed valuations in the District since Fiscal
Year 2007-08.
Table 11 Assessed Valuations of Property in the District
Fiscal Years 2007-08 through 2011-12 ($ in Billions)
Fiscal Year Value % Change 2007-08 $292.7 8.14%
2008-09 307.6 5.08 2009-10 305.2 (0.98) 2010-11 304.3 (0.27)
2011-12 308.7 1.43
____________________
Source: County of Orange Auditor-Controller.
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. 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
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years, the County has experienced delinquencies of Sewer Service Charges in the District of
approximately 2%.
Set forth in Table 12 below is 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 2007-08 through 2011-12 (In Thousands)
Fiscal Year Total Tax and Sewer Service Charge Levy 2007-08 $228,622 2008-09 254,092 2009-10 272,050 2010-11 292,646 2011-12 315,186
____________________ Source: Orange County Auditor-Controller’s Office.
Budgetary Process
The District’s operating fund budget relies on revenues from Sewer Service Charges and property
taxes, 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.
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
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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 $482 million for each year of the current
ten-year cash flow forecast. In Fiscal Year 2009-10, Financial Management staff and the Board of Directors 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.
Reserve levels are calculated in accordance with the District’s reserve policy. Set forth in Table 13 below are the actual reserves at June 30, 2009, June 30, 2010 and June 30, 2011 and the District’s projected reserves at June 30, 2012, for each fund.
Table 13 Cash Reserves June 30, 2009 through 2011
Projected June 30, 2012 (In Millions)
Actual Projected
2009
(June 30)
2010
(June 30)
2011
(June 30)
2012
(June 30) Cash Flow Requirements Reserve —
Operating Expenses $ 73 $ 78 $ 75 $ 76 Certificates of Participation Payments 84 92 97 92
Operating Contingencies Reserve 15 15 15 15 Capital Improvement Program Reserve 116 86 118 89
Catastrophe and Self Insurance 58 57 57 57 Capital Replacement and Refurbishment 55 56 57 59
Debt Service Required Reserves(1) 133 129 142 138 Overlapping Reserve Adjustment - (40) - (40)
Total $534 $473 $561 $486 ____________________ (1) “Debt Service Required Reserves” constitute all amounts held in Obligation Reserve Funds, together with additional amounts held by the District that may be used for the payment of debt service on District obligations
in accordance with the District’s reserve policy. As of June 30, 2011, $142 million of Debt Service Required Reserves were held in Obligation Reserve Funds, of which $90.7 million is restricted by covenant for the specific
obligations for which such Obligation Reserve Funds were established. Source: Orange County Sanitation District.
The District has the following reserves:
· 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.
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· The Operating Contingencies Reserve was established to provide for non-recurring
expenditures that were not anticipated when the annual budget and Sewer Service Charges were adopted. The level of this reserve is equal to 10% of the District’s annual operating
budget.
· 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 $6.26 billion.
The initial reserve level for this fund was established at $50 million and is augmented by interest earnings and a portion of the annual Sewer Service Charges.
· Debt Service Required Reserves include trustee-held amounts in any Obligation Reserve Fund and additional amounts held by the District for the payment of debt service in
accordance with the District’s reserve policy. The District’s current policy is to maintain reserves (including trustee-held reserves) for debt service in the amount of 10% of the principal amount of the District’s outstanding debt obligations.
· The Rate Stabilization Reserve accumulates all available funds which exceed the targets for
all other reserves. The Rate Stabilization Reserve is a separate fund from the Rate
Stabilization Account established under the Trust Agreement. There is currently no established target for this reserve and, because the reserves of all other funds have not been
exceeded, the reserve level for this reserve fund is zero for Fiscal Year 2011-12.
Summary of Operating Data
Set forth in Table 14 below is a summary of historic operating results for the District for Fiscal
Years 2006-07 through Fiscal Year 2010-11. The information presented in the summary should be read in conjunction with the financial statements and notes. See APPENDIX A — “COMPREHENSIVE
ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011.”
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Table 14 Summary of Historical District Revenues and Expenses
and Other Financial Information For Fiscal Years 2006-07 through 2010-11 ($ in Millions)
Audited
2006-07 2007-08 2008-09 2009-10 2010-11 Revenues: Residential & Commercial
Sewer Service Charges(1) Regional $143.8 $159.4 $177.4 $193.5 $213.3
Local - - 5.6 5.6 5.7
Industrial Sewer Service Charges 13.4 12.1 9.9 10.8 10.1 Revenue Area No. 14 Fees 5.2 7.1 10.3 10.2 11.7
Ad Valorem Taxes 60.6 65.2 66.4 64.8 64.3
Interest Earnings 22.2 20.2 14.8 19.2 10.1 Other Revenues 8.3 6.9 5.8 12.5 5.8
Total Revenues $253.5 $270.9 $290.2 $316.6 $321.0
Operations and Maintenance
Expenses (2) 112.2 131.9 164.6(4) 138.1 138.9
Net Revenues $141.3 $139.0 $125.6 $178.5 $182.1
Debt Service $ 48.8 $ 42.8 $ 57.6 $ 77.3 $ 83.6
Coverage Ratios 2.90x 3.25x 2.18x 2.31x 2.18x
CIP Outlay $287.5 $259.4 $290.1 $251.1 $160.7
Ending Reserves (3) $293.0 $425.0 $401.0 $344.0 $419.0 ____________________________________ (1) Net of rebates, if any, to commercial users. Local sewer service fees were not established until Fiscal Year 2008-09. (2) Excludes depreciation and amortization expenses. (3) Excludes debt service reserves in accordance with the District’s Debt Service Required Reserves Policy. (4) During the fiscal year ended June 30, 2009, independent agreed-upon procedures were conducted on Revenue Area 14 to substantiate the IRWD’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. Source: Orange County Sanitation District.
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Projected Operating Data
Set forth in Table 15 below are projected operating results for the District for Fiscal Years
2011-12 through 2015-16. These projections assume the number of projects and scheduled build out set forth in the 2011 CIP Validation Study, and reflect Board-approved annual rate increases over the next
two years of 9.4%, and 10.1%, respectively. The following three years thereafter are projected at 7.0%
for each year. Principal expenditure components of these projections are derived from the 2011 CIP Validation Study, which identified 176 individual capital projects through Fiscal Year 2030-31 with
remaining outlays of $1.8 billion. Much of the construction is scheduled during the next five years, with average annual expenditures of $180 million. The District’s CIP cash flow budget for Fiscal Year 2010-11 was $179.6 million. The District’s CIP cash flow budget for Fiscal Year 2011-12 is $129.2.
This CIP budget finances joint works treatment and disposal system improvement projects, and collection system improvement projects. The preparation of such projections was based upon certain assumptions and certain forecasts with respect to conditions that may occur in the future. While the District believes
that these assumptions and forecasts are reasonable for the purposes of the projected selected operating data, it makes no representation that they will in fact occur. To the extent that actual future conditions differ from those assumed herein, the data will vary.
[Remainder of page intentionally left blank.]
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Table 15 Summary of Projected District Revenues and Expenses
and Other Financial Information for Fiscal Years 2011-12 through 2015-16 ($ in Millions)(3)
2011-12 2012-13 2013-14 2014-15 2015-16 Revenues Residential & Commercial
Sewer Service Charges $248.5 $276.9 $299.5 $321.0 $344.2 Industrial Sewer Service Charges 11.4 12.5 13.4 14.4 15.4 IRWD Assessments 13.9 14.6 15.6 15.4 16.2 SAWPA Assessments 4.4 4.5 4.6 4.7 4.9
Ad Valorem Taxes 63.4 63.4 66.5 69.9 73.4 Interest Earnings 11.7 12.0 15.2 17.1 16.1 Other Revenues 1.3 1.7 1.7 1.7 1.8 Total Revenues $354.6 $385.6 $416.5 $444.2 $472.0 Add: Build America Bonds Federal Subsidy 5.1 5.1 5.1 5.1 5.1
Operations and Maintenance Expenses (152.5) (169.5) (179.0) (189.4) (202.0) Net Revenues (1) $207.2 $221.2 $242.6 $259.9 $275.1
Debt Service $ 92.2 $ 96.1 $113.8 $100.6 $100.5 Build America Bonds Federal Subsidy 5.1 5.1 5.1 5.1 5.1 Gross Debt Service $ 97.3 $101.2 $118.9 $105.7 $105.6
Coverage Ratios (1) 2.13x 2.19x 2.04x 2.46x 2.61x CIP Outlays $129.2 $169.0 $212.3 $173.4 $214.3 Debt Proceeds $ - $120.0 $ - $ - $ - Ending Reserves (2) $573.4 $643.4 $585.2 $572.2 $514.8 _________________ (1) Calculated in accordance with the Master Agreement and the Installment Purchase Agreement. (2) Excludes debt service reserves in accordance with the District’s Debt Service Required Reserve Policy. (3) 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 are based on the total projected equivalent dwelling units, and the actual board approved annual rate increases over the next two years of 9.4%, and 10.1%, respectively. The following three years thereafter are projected at 7.0% for each year.
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
IRWD. e) Ad Valorem Taxes are projected to remain level through Fiscal Year 2012-13, with 5% annual increases thereafter. f) Interest earnings are projected to average 2.5% of annual cash balances.
g) Operating and Maintenance Expenses are forecasted with a base increase of 7.0% per year with adjustments for known periodic outlays that do not occur annually. h) Annual CIP Outlays are based on the cash flow projections developed from the CIP Validation Study.
Source: Orange County Sanitation District.
Management’s Discussion and Analysis of Operating Data
The District’s Fiscal Year 2011-12 total operating, capital improvement, debt service, and other
financing requirement budget is $405.8 million, an 11.6 percent decrease over the prior year budget of $459.0 million. The decrease in the Fiscal Year 2011-12 budget is primarily due to the timing of the construction schedules on the implementation of the overall 20-year $1.8 billion CIP. The District’s
55814493.5 43
Fiscal Years 2011-12 budgets include $129.2 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.
The Fiscal Year 2011-12 operations budget for the collection, treatment, and disposal of
wastewater is $154.7 million, a $2.2 million or 1.4 percent increase over the prior year budget of $152.5 million. Although individual expense categories will increase or decrease slightly, the overall increase to
the operating budget is primarily attributable to an increase in personnel costs which will increase $2.7 million, or 2.8 percent as a result of existing employee contract agreements as staffing has been reduced by 4 full -time equivalent (“FTE”) positions in Fiscal Year 2011-12 to an authorized staffing level of 637
FTE positions. Contractual services have been budgeted at an increase of $1.5 million, or 6.4 percent, due primarily to a $0.75 million, 4.5 percent increase in solids removal. Biosolids production is estimated to increase at both plants by 8.3 percent in Fiscal Year 2011-12 to 287,000 wet tons due to increases in
secondary treatment as new secondary treatment processes become operational. Operating materials and supplies are being proposed to decrease $1.6 million, or 6.5 percent, over the prior year due primarily to the increases in chemical coagulants, odor control, and disinfection being less than anticipated. Utility
costs were increased by $0.4 million, or 4.3 percent over the prior year, primarily due to the increased usage of electricity as secondary treatment facilities continue to become operational.
In preparation for the Fiscal Year 2010-12 budget, a strategic planning workshop was held by the
Board of Directors to review the capital program to deliver the level of services desired by the Board. These levels of services and associated capital projects are included in the District’s Five-Year Strategic
Plan. 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 2011-12 CIP cash flow budget was approved at $129.2 million. The Fiscal Year 2010-12 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 23 recommended projects identified in the 2009 Facilities Master Plan (the “Master Plan”). The result was the addition of $169.3 million to the
overall CIP through the year 2030. Over this period, the CIP is expected to 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 up to 150 mg/d of the District’s effluent; and
· Secondary treatment standards by December 2012.
The 2009 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, increasing the sanitary sewer service charges by approximately 10 percent each year for a five-year period beginning in Fiscal Year 2008-09. These rate increases were approved by a
vote of 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 $221 to $244 in Fiscal Year 2010-11, and to $267 in
Fiscal year 2011-12. See “DISTRICT REVENUES – Sewer Service Charges.”
55814493.5 44
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 December 31, 2011, the District’s externally managed fund consisted of a short-term investment portfolio of $54.7 million with an average maturity of 110 days, and a long-term investment portfolio of $390.5 million with average maturities of 2.8 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 Revenue Obligations. The table below describes the District’s outstanding parity certificates of participation as of February 2, 2012. The payment obligations in connection with each series of these certificates of
participation 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 general obligation bonds or subordinate bonds outstanding.
55814493.5 45
Table 16 Outstanding Senior Obligations
As of February 2, 2012
Original Principal Amount Issue Date Outstanding Balance Final Maturity
2000 Certificates $ 218,600,000 08/31/00 $ 91,900,000 08/01/30
2003 Certificates 280,000,000 08/26/03 108,180,000(1) 02/01/33
2007A Certificates 95,180,000 05/22/07 92,845,000 02/01/30 2007B Certificates 300,000,000 12/20/07 279,250,000 02/01/37
2008A Certificates 77,165,000 05/29/08 25,710,000 08/01/13 2008B Certificates 27,800,000 09/11/08 26,550,000 08/01/16 2009A Certificates 200,000,000 05/07/09 191,265,000 02/01/39
2010A Certificates 80,000,000 05/18/10 80,000,000 02/01/40 2010C Certificates 157,000,000 11/29/10 157,000,000 02/01/44
2011A Certificates 147,595,000 10/03/11 147,595,000 02/01/26
2011B Certificates 143,205,000 11/10/11 143,205,000(2) 11/09/12(2) Total Senior Obligations $1,726,545,000 $1,343,500,000
________________________ (1) Includes the Refunded Certificates. See “REFUNDING PLAN” herein. (2) The District expects to refund the 2011B Certificates (referenced herein as the 2011 Notes) with Senior
Obligations amortizing over a term of approximately 24 years.
In connection with the execution and delivery of the above-referenced outstanding certificates of
participation, the District entered into certain installment purchase agreements, or equivalent documents, providing for the payment of installment payments or similar payments.
Variable Rate Obligations
In August 2000, the District caused the execution and delivery of the Orange County Sanitation District Refunding Certificates of Participation, Series 2000-A (the “2000-A Certificates”) and the
Orange County Sanitation District Refunding Certificates of Participation, Series 2000-B (the “2000-B
Certificates” and, together with the 2000-A Certificates, the “2000 Certificates”) in the original aggregate principal amount of $218,600,000, of which $91,900,000 is currently outstanding. The payment of the
purchase price of tendered 2000 Certificates is supported by a Standby Certificate Purchase Agreement,
dated as of August 1, 2010 (the “Standby Agreement”), by and between the District and Lloyds TSB Bank plc, acting through its New York Branch. The Standby Agreement currently expires on August 24,
2012.
Anticipated Financings
From time to time the District expects to incur other obligations to finance portions of the CIP. In
Fiscal Year 2012-13, the District expects to incur further Additional Senior Obligations in an aggregate principal amount of approximately $120 million for the purpose of funding the capital improvement program. The District may also refinance outstanding obligations from time to time. [TO BE REVISED]
Direct and Overlapping Bonded Debt
The aggregate direct and overlapping bonded debt of the District as of June 30, 2011 is set forth
on page 54 of Appendix B.
55814493.5 46
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 Official Statement. Further information concerning the Corporation may be obtained from the Orange County Sanitation District office at 10844 Ellis Avenue, Fountain Valley, California,
92708-7018.
LIMITATIONS ON TAXES AND REVENUES
Article XIIIA of the California Constitution
On June 6, 1978, California voters approved Proposition 13 (“Proposition 13”), which added Article XIIIA to the State Constitution (“Article XIIIA”). Article XIIIA, as amended, limits the amount
of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) (as a result of an amendment to Article XIIIA approved by State voters on June 3, 1986)
on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-third of the voters on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction,
rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Article XIIIA defines 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 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
55814493.5 47
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 Official Statement
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.
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.
55814493.5 48
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 an equal amount of cash.
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
55814493.5 49
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.
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
55814493.5 50
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%, 10.0%, 10.4%, 9.4% and 10.1%, 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 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.
55814493.5 51
LEGAL MATTERS
The validity of the Revenue Obligations and certain other legal matters are subject to the
approving opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel to the District. A complete copy of the proposed form of Special Counsel opinion is attached as Appendix F
hereto. Special Counsel, in its capacity as Special Counsel to the District, undertakes no responsibility for
the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed on 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., Disclosure Counsel to the District.
FINANCIAL ADVISOR
The District has retained Public Resources Advisory Group as financial advisor (the “Financial
Advisor”) in connection with the execution and delivery of the Revenue Obligations. The Financial Advisor has not been engaged, nor have they undertaken, to audit, authenticate or otherwise verify the information set forth in the Official Statement, or any other related information available to the District,
with respect to accuracy and completeness of disclosure of such information. The Financial Advisor has reviewed this Official Statement but makes no guaranty, warranty or other representation respecting accuracy and completeness of the information contained in this Official Statement.
ABSENCE OF LITIGATION
There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any
court, regulatory agency, public board or body, pending or, to the best knowledge of the District,
threatened against the District affecting the existence of the District or the titles of its directors or officers to their offices or seeking to restrain or to enjoin the sale or delivery of the Revenue Obligations, 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 Revenue Obligations, the Trust Agreement, the Master Agreement, the Installment Purchase Agreement or any action of the District contemplated by any of said
documents, or in any way contesting the completeness or accuracy of this Official Statement, or contesting the powers of the District or its authority with respect to the Revenue Obligations or any action of the District contemplated by any of said documents, nor, to the knowledge of the District is there any
basis therefor.
There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body pending or, to the best knowledge of the District,
threatened against the District contesting or affecting the ability of the District to collect amounts from which Installment Payments are payable, or which would have a material adverse effect on the District’s ability to make Installment Payments.
FINANCIAL STATEMENTS
The basic financial statements of the District included in Appendix A to this Official Statement
have been audited by McGladrey & Pullen, LLP, independent certified public accountants. See
APPENDIX A – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011” herein. The District has
received the Government Finance Officer’s Association Certificate of Achievement for “Excellence in
Financial Reporting” for 17 consecutive years. The audited financial statements, including the footnotes thereto, should be reviewed in their entirety. McGladrey & Pullen, LLP, the District’s independent
auditor, has not been engaged to perform, and has not performed, since the date of its report included in Appendix A, any procedures on the financial statements addressed in that report. McGladrey & Pullen, LLP also has not performed any procedures relating to this official statement.
55814493.5 52
TAX MATTERS
The Internal Revenue Code of 1986 (the “Code”), imposes certain requirements that must be met
subsequent to the execution and delivery of the Revenue Obligations for the interest component of each Installment Payment (the “Interest Component”), and the allocable portion thereof distributable in respect
of each Revenue Obligation (the “Certificate Interest Distribution”), to be and remain excluded pursuant
to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause such amounts to be included in gross
income for federal income tax purposes retroactive to the date of delivery of the Installment Purchase Agreement and the Revenue Obligations. The District and the Corporation have covenanted to maintain the exclusion of the interest on the Revenue Obligations from the gross income of the owners thereof for
federal income tax purposes. In rendering its opinions with respect to the Revenue Obligations as described below, Special Counsel will rely upon representations and covenants of the District and the Corporation (including such covenant noted above) made in connection with the execution and delivery
of the Revenue Obligations, and will assume that all such representations are true and correct and that the District and the Corporation will comply with all such covenants.
In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel, under
existing statutes, regulations, rulings and court decisions, the Interest Component allocable to and the Certificate Interest Distributions in respect of a Revenue Obligation is exempt from personal income taxes
of the State of California and, assuming compliance with the aforementioned covenant, the Interest
Component allocable to and the Certificate Interest Distributions in respect of a Revenue Obligation is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal
income tax purposes. In the further opinion of Special Counsel, under existing statutes, regulations,
rulings and court decisions, the Revenue Obligations are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, the Interest Component allocable to and the
Certificate Interest Distributions in respect of a Revenue Obligation will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of the Interest Component allocable to and the Certificate Interest Distributions in
respect of a Revenue Obligation owned by a corporation may affect the computation of the alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed.
To the extent that a purchaser of a Revenue Obligation acquires that Revenue Obligation at a price in excess of its “stated redemption price at maturity” (within the meaning of section 1273(a)(2) of the Code), such excess will constitute “bond premium” under the Code. Section 171 of the Code, and the
Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized over the remaining term of the obligation (or a shorter period in the case of
certain callable obligations); the amount of premium so amortized will reduce the owner’s basis in such
obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. Such reduction in basis will increase the amount of any gain (or decrease the
amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable
disposition of the obligation. The amount of premium that is amortizable each year by a purchaser is determined by using such purchaser's yield to maturity. The rate and timing of the amortization of the
bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when its Revenue Obligation is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Revenue Obligation to the owner. Purchasers of Revenue Obligations at
a price that includes bond premium should consult their own tax advisors with respect to the computation and treatment of such bond premium, including, but not limited to, the calculation of gain or loss upon the sale, redemption or other disposition of the Revenue Obligation.
The excess, if any, of the stated redemption price at maturity of Revenue Obligations of a maturity over the initial offering price to the public of the Revenue Obligations of that maturity is
55814493.5 53
“original issue discount.” Original issue discount accruing on a Revenue Obligation is treated as interest
excluded from the gross income of the owner thereof for federal income tax purposes and is exempt from
California personal income tax to the same extent as would be stated interest on that Revenue Obligation. Original issue discount on any Revenue Obligation purchased at such initial offering price and pursuant to
such initial offering will accrue on a semiannual basis over the term of the Revenue Obligation on the
basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Revenue Obligation accruing during each period is added
to the adjusted basis of such Revenue Obligation to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Revenue Obligation. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of Revenue
Obligation who purchase such Revenue Obligation other than at the initial offering price and pursuant to the initial offering. Purchasers of Revenue Obligation of a maturity having original issue discount should consult their own tax advisors with respect to the tax consequences of ownership of Revenue Obligation
with original issue discount.
Pursuant to the Trust Agreement and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141-150 of the Internal Revenue Code of 1986, to be delivered by the
District and the Corporation in connection with the issuance of the Revenue Obligations, the District and the Corporation will make representations relevant to the determination of, and will make certain
covenants regarding or affecting, the exclusion of interest on the Revenue Obligations from the gross
income of the owners thereof for federal income tax purposes. In reaching its opinions described above, Special Counsel will assume the accuracy of such representations and the present and future compliance
by the District and the Corporation with such covenants. Further, except as stated above, Special Counsel
will express no opinion as to any federal or state tax consequences of the receipt of interest on, or the ownership or disposition of, the Revenue Obligations.
Special Counsel has not undertaken to advise in the future whether any events after the date of execution and delivery of the Installment Purchase Agreement and the Revenue Obligations may affect the tax status of the Interest Component or the Certificate Interest Distributions. No assurance can be
given that future legislation, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of such amounts from personal income taxation by the State of California or of the exclusion of the interest on the Revenue Obligations from the gross income of the
owners thereof for federal income tax purposes. Furthermore, Special Counsel will express no opinion as to any federal, state or local tax law consequences with respect to the Installment Purchase Agreement, the Revenue Obligations, the Interest Component or Certificate Interest Distributions, if any action is
taken with respect to the Installment Purchase Agreement, the Revenue Obligations or the proceeds thereof, or the Trust Agreement predicated or permitted upon the advice or approval of other counsel.
Although Special Counsel is of the opinion that Interest Component and Certificate Interest
Distributions in respect of a Revenue Obligation are exempt from California personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner’s
federal, state or local tax liability may be otherwise affected by the ownership or disposition of the
Revenue Obligations. The nature and extent of these other tax consequences will depend upon the owner’s other items of income or deduction. Without limiting the generality of the foregoing, prospective
purchasers of the Revenue Obligations should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Revenue Obligations and the Code contains additional limitations on interest deductions applicable to financial institutions that
own tax-exempt obligations (such as the Revenue Obligations), (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for
loss reserves by 15% of the sum of certain items, including Interest Component and Certificate Interest
Distributions in respect of the Revenue Obligations, (iii) Interest Component and Certificate Interest Distributions accrued in respect of Revenue Obligations owned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code,
55814493.5 54
(iv) passive investment income, including Interest Component and Certificate Interest Distributions
accrued in respect of Revenue Obligations, may be subject to federal income taxation under section 1375
of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive
investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain
Railroad Retirement benefits to take into account, in determining the taxability of such benefits, Interest Distributions and Certificate Interest Distributions accrued in respect of Revenue Obligations owned by
such recipients for federal income tax purposes, and (vi) under section 32(i) of the Code, receipt of investment income, including Interest Component and Certificate Interest Distributions accrued in respect of Revenue Obligations, may disqualify the recipient thereof from obtaining the earned income credit.
Special Counsel has expressed no opinion regarding any such other tax consequences.
Special Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the
representations and covenants of the District and the Corporation described above. No ruling has been sought from the Internal Revenue Service (the “Service”) with respect to the matters addressed in the opinion of Special Counsel, and Special Counsel’s opinion is not binding on the Service. The Service has
an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Revenue Obligations is commenced, under current procedures the Service is likely to treat the
District as the “taxpayer,” and the owners would have no right to participate in the audit process. In
responding to or defending an audit of the tax-exempt status of the Interest Component and Certificate Interest Distributions accrued in respect of Revenue Obligations, the District may have different or
conflicting interest from the owners. Public awareness of any future audit of the Revenue Obligations
could adversely affect the value and liquidity of the Revenue Obligations during the pendency of the audit, regardless of its ultimate outcome.
Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the Interest Component and Certificate Interest Distributions accrued in respect of Revenue Obligations from gross income for federal income tax purposes. Any proposed legislation or
administrative action, whether or not taken, could also affect the value and marketability of the Revenue Obligations. Prospective purchasers of the Revenue Obligations should consult with their own tax advisors with respect to any proposed or future changes in tax law.
A copy of the form of opinion of Special Counsel to be delivered at the closing of the Revenue Obligations is included in Appendix F.
VERIFICATION OF MATHEMATICAL COMPUTATIONS
Causey Demgen & Moore Inc., certified public accountants (the “Verification Agent”), will deliver a report stating that the firm has verified (i) the accuracy of mathematical computations
concerning the adequacy of the cash and Government Obligations initially deposited in the Escrow Fund
to pay the principal and interest due with respect to the Refunded Certificates to and including the Prepayment Date, and to pay on the Prepayment Date the Prepayment Price thereof and (ii) certain
mathematical computations supporting the conclusion that the Revenue Obligations are not “arbitrage
bonds” under the Code, which will be used in part by Special Counsel in concluding that the Interest Payments and Certificate Interest Distributions are excluded from gross income for federal income tax
purposes under present law, including applicable provisions of the Code, existing court rulings, regulations and Internal Revenue Service rulings.
The report of the Verification Agent will include the statement that the scope of its engagement
was limited to verifying the mathematical accuracy of the computations contained in such schedules provided to it and that the Verification Agent has no obligation to update its report because of events occurring, or data or information coming to its attention, after the date of its report.
55814493.5 55
CONTINUING DISCLOSURE
The District has covenanted for the benefit of holders and beneficial owners of the Revenue
Obligations (a) to provide certain financial information and operating data (the “Annual Report”) relating to the District and the property in the District not later than eight months after the end of the District’s
Fiscal Year (which currently would be March 1), commencing with the report for the 2011-12 Fiscal
Year, and (b) to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the Trustee on behalf of the District, with the Municipal Securities Rulemaking Board. The
notices of enumerated events will be filed by the Trustee on behalf of the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is set forth in the Continuing Disclosure Agreement. See
APPENDIX D – “FORM OF CONTINUING DISCLOSURE AGREEMENT.” These covenants have been made in order to assist the Initial Purchaser in complying with S.E.C. Rule 15c2-12 (the “Rule”). During the past five years, the District has never failed to comply in all material respects with any
previous undertaking with respect to the Rule to provide annual reports or notices of enumerated events.
RATINGS
The Revenue Obligations will be rated “___” by Standard & Poor’s Financial Services LLC
(“S&P”), and “___” by Fitch Ratings (“Fitch”). Such ratings reflect only the views of the rating agencies, and do not constitute a recommendation to buy, sell or hold the Revenue Obligations. Explanation of the
significance of such ratings may be obtained only from the respective organizations at: Standard &
Poor’s Ratings Services, 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 Revenue Obligations.
PURCHASE AND REOFFERING
____________ (the “Initial Purchaser”) has purchased the Revenue Obligations from the District
at a competitive sale for a purchase price of $___________ (representing the aggregate principal amount of the Revenue Obligations, [plus/less] a [premium/discount] of $________, and less an Initial Purchaser’s discount of $_________). The public offering prices may be changed from time to time by
the Initial Purchaser. The Initial Purchaser may offer and sell Revenue Obligations to certain dealers and others at prices lower than the offering prices shown on the inside cover page hereof.
MISCELLANEOUS
Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and
complete statements of the contents thereof. Any statements in this Official Statement involving matters
of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the
purchasers or Owners of any of the Revenue Obligations.
The execution and delivery of this Official Statement has been duly authorized by the District.
ORANGE COUNTY SANITATION DISTRICT
55814493.5 56
By:
Chair of the Board of Directors
55814493.5 A-1
APPENDIX A
COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY
SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011
55814493.5 B-1
APPENDIX B
THE COUNTY OF ORANGE – ECONOMIC AND DEMOGRAPHIC INFORMATION
55814493.5 C-1
APPENDIX C
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
55814493.5 D-2
APPENDIX D
FORM OF CONTINUING DISCLOSURE AGREEMENT
55814493.5 E-1
APPENDIX E
BOOK-ENTRY SYSTEM
The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Revenue Obligations, payment of principal and interest evidenced by the Revenue Obligations to Participants or Beneficial Owners, confirmation and transfer of beneficial
ownership interests in the Revenue Obligations, and other Revenue Obligation-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 “Revenue Obligations”). The Revenue Obligations will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for
the Revenue Obligations in the aggregate principal amount of such issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking Law, a
“banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial
Code, and a “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 a Standard & Poor’s rating of “AA+.” 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. The information on such website is not
incorporated herein by such reference or otherwise.
Purchases of Revenue Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Revenue Obligations on DTC’s records. The ownership
interest of each actual purchaser of each Revenue Obligation (“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 Revenue Obligations are to be accomplished by entries made on
55814493.5 E-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 Revenue Obligations, except in
the event that use of the book-entry system for the Revenue Obligations is discontinued.
To facilitate subsequent transfers, all Revenue Obligations 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 Revenue Obligations 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 Revenue Obligations; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Revenue Obligations 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 Revenue Obligations may wish to take certain steps to augment transmission to them of notices of significant events with respect to the
Revenue Obligations, such as prepayments, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Revenue Obligations may wish to ascertain that the
nominee holding the Revenue Obligations 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 Revenue Obligations 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 Revenue Obligations 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 Revenue Obligations are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Prepayments with respect to the Revenue Obligations 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.
55814493.5 E-3
DTC may discontinue providing its services as securities depository with respect to the Revenue
Obligations 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, Revenue Obligations 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, Revenue Obligations 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 Revenue Obligations, (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 Revenue Obligations 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 Revenue Obligation for each of the maturities of the Revenue Obligations, 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 Revenue Obligations 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 Revenue Obligations 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 Revenue Obligation as the absolute
owner of such Revenue Obligation for all purposes, whether or not such Revenue Obligation 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 Revenue Obligation shall be made only to such Owner,
which payments shall be valid and effectual to satisfy and discharge the liability evidenced by such Revenue Obligation to the extent of the sum or sums so paid.
Whenever any Revenue Obligations shall be surrendered for transfer, the Trustee shall execute
and deliver new Revenue Obligations 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. Revenue Obligations may
be presented for exchange at the Principal Office of the Trustee for a like aggregate principal amount of Revenue Obligations 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 Revenue Obligation during the period in which the Trustee is selecting Revenue Obligations for prepayment, nor shall the
Trustee be required to transfer or exchange any Revenue Obligation or portion thereof selected for prepayment from and after the date of mailing the notice of prepayment thereof.
55814493.5 F-1
APPENDIX F
FORM OF APPROVING OPINION OF SPECIAL COUNSEL
Upon the execution and delivery of the Revenue Obligations, Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel to the District, will render its final approving opinion with respect to the Revenue Obligations in substantially the following form:
[Date of Delivery]
Orange County Sanitation District
10844 Ellis Avenue
Fountain Valley, California 92708-7018
$__________
Orange County Sanitation District Wastewater Refunding Revenue Obligations
Series 2012A
Ladies and Gentlemen:
We have acted as Special Counsel in connection with the $____________ aggregate principal amount of Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”) which are certificates of participation that evidence direct, fractional
undivided interests of the Owners thereof in the installment payments (the “Installment Payments”), and the interest thereon, to be made by the Orange County Sanitation District (the “District”) pursuant to the Installment Purchase Agreement, dated as of March 1, 2012 (the “Installment Purchase Agreement”), by
and between the District and the Orange County Sanitation District Financing Corporation (the “Corporation”). Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000
(the “Master Agreement”), by and between the District and the Corporation, the District has established
conditions and terms upon which obligations such 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 provided in the Installment Purchase Agreement, consisting
primarily of all income and revenue received by the District from the operation or ownership of the Wastewater System of the District (the “Wastewater System”) remaining after payment of Maintenance
and Operation Costs. Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to such terms in the Installment Purchase Agreement.
The Revenue Obligations are to be executed and delivered pursuant to a Trust Agreement, dated
as of March 1, 2012 (the “Trust Agreement”), by and among the District, the Corporation and Union Bank, N.A., as trustee (the “Trustee”). Proceeds from the sale of the Revenue Obligations will be used to (i) prepay the District’s Certificates of Participation, Series 2003 (the “Refunded Certificates”) and
(ii) pay the costs incurred in connection with the execution and delivery of the Revenue Obligations.
As Special Counsel, we have examined copies certified to us as being true and complete copies of the Master Agreement, the Trust Agreement and the Installment Purchase Agreement and the proceedings
of the District in connection with the execution and delivery of the Revenue Obligations. We have also
55814493.5 F-2
examined such certificates of officers of the District, the Corporation and others as we have considered
necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Master Agreement, the Installment Purchase Agreement and the Trust
Agreement each has been duly and validly authorized, executed and delivered by the District and,
assuming the Master Agreement, the Installment Purchase Agreement and the Trust Agreement each constitutes the legally valid and binding obligation of the other parties thereto, each
constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its respective terms.
2. The obligation of the District to pay the Installment Payments, and the interest
thereon, and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided in the Installment Purchase Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase
Agreement lawfully available therefor.
3. Assuming due authorization, execution and delivery of the Trust Agreement and the Revenue Obligations by the Trustee, the Revenue Obligations are entitled to the benefits of
the Trust Agreement.
4. Under existing statutes, regulations, rulings and court decisions, and, assuming
compliance with the covenants mentioned below, the component of each payment designated as
interest in the Installment Purchase Agreement (the “Interest Component”), and the allocable portion thereof distributable in respect of any Revenue Obligation (the “Certificate Interest
Distribution”), is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the
“Code”) from the gross income of the owners thereof for federal income tax purposes. We are further of the opinion that under existing statutes, regulations, rulings and court decisions, the
Revenue Obligations are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, the Interest Component and the Certificate Interest Distributions will not be treated as an item of tax preference for purposes of computing the
alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of the Interest Component, and the Certificate Interest Distribution, owned by a corporation may affect the computation of the alternative minimum taxable income of that corporation. A corporation’s
alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed. We are further of the opinion that the Interest Component allocable to and the Certificate Interest Distributions in respect of a Revenue
Obligation, are exempt from personal income taxes of the State of California under present state law.
Pursuant to the Trust Agreement and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141-150 of the Internal Revenue Code of 1986, to be delivered by the District and the Corporation in connection with the execution and delivery of the
Revenue Obligations, the District and the Corporation will each make representations relevant to
the determination of, and will make certain covenants regarding or affecting, the exclusion of the Interest Component and the Certificate Interest Distribution from the gross income of the owners
thereof for federal income tax purposes. In reaching the opinions described in the immediately preceding paragraph, we have assumed the accuracy of such representations and the present and future compliance by the District and the Corporation with such covenants.
55814493.5 F-3
Except as stated in the preceding two paragraphs, we express no opinion as to any federal
or state tax consequences of the ownership or disposition of the Installment Purchase Agreement
or the Revenue Obligations. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Installment Purchase Agreement, Revenue Obligations,
Interest Component, or Certificate Interest Distributions, if any action is taken with respect to the
Installment Purchase Agreement, the Master Agreement, the Trust Agreement, the Revenue Obligations, or the proceeds thereof if, permitted or predicated on the advice or approval of
counsel if such advice or approval is given by counsel other than us.
The rights of the owners of the Revenue Obligations and the enforceability of the Revenue Obligations, the Master Agreement, the Trust Agreement and the Installment Purchase Agreement may be
subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. The enforceability of the Revenue Obligations, the Master Agreement, the Trust
Agreement and the Installment Purchase Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a
proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California.
No opinion is expressed herein on the accuracy, completeness or fairness of the Official
Statement or other offering material relating to the Revenue Obligations.
Our opinions are based on existing law, which is subject to change. Such opinions are further
based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our
opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a
guarantee of result; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.
Respectfully submitted,
Fulbright & Jaworski L.L.P. – Draft 01/27/12
55816165.3
OFFICIAL NOTICE INVITING BIDS
$_____________*
ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2012A
(Book-Entry-Only)
NOTICE IS HEREBY GIVEN that bids will be received by the Orange County Sanitation District (the “District”) for the purchase of $___________* original principal amount of Orange County
Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A Evidencing Direct, Fractional Undivided Interests of the Owners Thereof in Installment Payments to be Made by the Orange County Sanitation District to the Orange County Sanitation District Financing Corporation (the “Revenue
Obligations”). Bids for less than all of the Revenue Obligations will not be accepted. The bids will be received in the form, in the manner and up to the time specified below (unless postponed as described herein):
Date: __________________, 2012 11:00 a.m., New York Time
Electronic Bids: Electronic proposals may be submitted to Ipreo LLC, at
www.newissuehome.i-deal.com and the Parity bid delivery system (the “Electronic Service”). The Electronic Service will act as agent of the
bidder and not of the District in connection with the submission of bids
and the District assumes no responsibility or liability for bids submitted through the Electronic Service. See “Information Regarding Electronic
Proposals” herein.
No facsimile, hand delivery or sealed bids will be accepted.
Terms of the Revenue Obligations
The Preliminary Official Statement for the Revenue Obligations, dated February ___, 2012, including the cover page and all appendices thereto (the “Preliminary Official Statement”), provides certain information concerning the sale and delivery of $___________* aggregate principal amount of the
Revenue Obligations, which are certificates of participation evidencing direct, undivided fractional interests in the Installment Payments (the “Installment Payments”), and the interest thereon, payable by the District pursuant to the Installment Purchase Agreement, dated as of March 1, 2012 (the “Installment
Purchase Agreement”), by and between the District and the Orange County Sanitation District Financing Corporation (the “Corporation”). Each bidder must have obtained and reviewed the Preliminary Official Statement prior to bidding for the Revenue Obligations. This Official Notice Inviting Bids contains
certain information for quick reference only, is not a summary of the issue and governs only the terms of the sale of, bidding for and closing procedures with respect to the Revenue Obligations. Bidders must
read the entire Preliminary Official Statement to obtain information essential to making an informed
investment decision.
Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000 (the
“Master Agreement”), by and between the District and the Corporation, the District has established and
* Preliminary, subject to change.
55816165.3 2
declared the conditions and terms upon which obligations such as the Installment Purchase Agreement,
and the Installment Payments and the interest thereon, will be incurred and secured. Installment
Payments under the Installment Purchase Agreement are payable solely from Net Revenues, as provided in the Master Agreement and the Installment Purchase Agreement, consisting primarily of all income and
revenue received by the District from the operation or ownership of the Wastewater System of the District
(the “Wastewater System”) remaining after payment of Maintenance and Operation Costs.
The Issue
The proceeds from the sale of the Revenue Obligations will be used to: (i) prepay all or a portion of certain outstanding certificates of participation of the District and (ii) pay costs of execution and delivery of the Revenue Obligations. The Revenue Obligations are to be executed and delivered pursuant
to a Trust Agreement, dated as of March 1, 2012 (the “Trust Agreement”), by and among the District, the Corporation and Union Bank, N.A., as trustee (the “Trustee”). Capitalized terms not defined herein shall have the same definitions as used in the Trust Agreement or the Master Agreement.
Authorization
On February 22, 2012, the District and the Corporation authorized the execution and delivery of the Installment Purchase Agreement, the Trust Agreement and the Revenue Obligations.
Outstanding Senior Obligations
The District has outstanding Senior Obligations payable on a parity with the Installment
Payments under the Installment Purchase Agreement. The term “Existing Senior Obligations” as used in
the Preliminary Official Statement 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 2010A Installment Purchase Agreement, the 2010C Installment Purchase Agreement, the 2011A Installment Purchase Agreement and the 2011B
Installment Purchase Agreement.
The Revenue Obligations will defease the 2003 Installment Purchase Agreement.
Security and Source of Payments
The Revenue Obligations are certificates of participation which evidence direct, undivided fractional interests in the Installment Payments, and the interest thereon, paid by the District pursuant to the Installment Purchase Agreement. The obligation of the District to pay the Installment Payments and
the interest thereon and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided under the Installment Purchase Agreement, solely from Net Revenues and other funds as provided in the Installment Purchase
Agreement. Net Revenues generally consist of all income and revenue received by the District from the operation or ownership of the Wastewater System remaining after payment of Maintenance and Operation
Costs, all as further provided in the Master Agreement.
The District’s obligation to make Installment Payments from Net Revenues is on a parity with the District’s obligation to make payments with respect to its other outstanding obligations described as
Senior Obligations and all Reimbursement Obligations with respect to Senior Obligations, as provided in
the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests
55816165.3 3
and security for Senior Obligations pursuant to the Master Agreement. Pursuant to the Master
Agreement, the District pledges all Net Revenues to the payment of the Senior Obligations and
Reimbursement Obligations with respect to Senior Obligations, and the Net Revenues will not be used for any other purpose while any of the Senior Obligations or Reimbursement Obligations with respect to
Senior Obligations remain unpaid; provided, however, that out of the Net Revenues there may be
apportioned such sums for such purposes as are expressly permitted by the Master Agreement. This pledge constitutes a first lien on the Net Revenues for the payment of the Senior Obligations and
Reimbursement Obligations with respect to Senior Obligations. The term Senior Obligations, generally means all revenue bonds or notes (including bond anticipation notes and commercial paper) of the District authorized, executed, issued and delivered under and pursuant to applicable law, the Installment Purchase
Agreement and all other contracts (including financial contracts) or leases of the District authorized and executed by the District under and pursuant to applicable law, the installment, lease or other payments which are, in accordance with the provisions of the Master Agreement, payable from Net Revenues on a
parity with the payments under the Master Agreement.
The District may at any time incur Subordinate Obligations; provided, however, that prior to incurring such Subordinate Obligations, the District will have determined that the incurrence thereof will
not materially adversely affect the District’s ability to comply with the requirements of the Master Agreement. The District may at any time incur Reimbursement Obligations with respect to Subordinate
Obligations. Currently, there are no Subordinate Obligations outstanding. For a description of the
District’s outstanding Senior Obligations, see “FINANCIAL OBLIGATIONS — Existing Indebtedness” in the Preliminary Official Statement.
The District may, in connection with the incurrence of Subordinate Obligations, pledge Net
Revenues to the payment of Subordinate Obligations and Reimbursement Obligations with respect to Subordinate Obligations; provided, however, that such pledge, and any lien created thereby, shall be
junior and subordinate to the pledge of, and lien on, Net Revenues for the payment of Senior Obligations and Reimbursement Obligations with respect to Senior Obligations.
Pursuant to the Master Agreement, the District is required, to the extent permitted by law, to fix,
prescribe and collect fees and charges for the services and facilities of the Wastewater System which will be at least sufficient to yield during each Fiscal Year (a) Net Revenues equal to 125% of Debt Service on Senior Obligations for such Fiscal Year and (b) Net Operating Revenues equal to 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 SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS — Rate
Covenant” in the Preliminary Official Statement.
Additional Obligations
In addition to the Existing Senior Obligations, the District may at any time incur Obligations
payable on a parity or on a subordinate basis to the payment by the District of the Installment Payments
upon satisfaction of conditions provided in the Master Agreement. No Obligations payable on such a subordinate basis are currently outstanding. See “SECURITY AND SOURCES OF PAYMENT FOR
THE REVENUE OBLIGATIONS — Limitations on Issuance of Additional Obligations” in the Preliminary Official Statement.
55816165.3 4
Book-Entry-Only
The Revenue Obligations will be executed and delivered in the form of fully registered
certificates payable in lawful money of the United States of America. The Revenue Obligations will be initially delivered only in book-entry form and will be registered in the name of Cede & Co., as nominee
of The Depository Trust Company, New York, New York (“DTC”), which will act as securities
depository for the Revenue Obligations. Individual purchases of the Revenue Obligations will be made in book-entry form only. Purchasers of Revenue Obligations will not receive physical certificates
representing their ownership interests in the Revenue Obligations purchased. The Revenue Obligations will be delivered in Authorized Denominations of $5,000 and any integral multiple thereof. Payments of principal and interest evidenced by the Revenue Obligations are payable directly to DTC by the Trustee.
Upon receipt of payments of such principal and interest, DTC will in turn distribute such payments to the beneficial owners of the Revenue Obligations. So long as the Revenue Obligations are in the DTC book-entry system, the interest, principal and prepayment premiums, if any, due with respect to the Revenue
Obligations will be payable by the Trustee, or its agent, to DTC or its nominee.
Principal and Interest Payments
The Revenue Obligations will be dated as of the date of initial delivery and will evidence interest
from that date (computed on the basis of a 360-day year of twelve 30-day months). Interest evidenced by the Revenue Obligations is payable semiannually on February 1 and August 1 of each year, commencing
on August 1, 2012. Payment of principal and prepayment premium, if any, evidenced by the Revenue
Obligations will be paid in lawful money of the United States of America upon presentation and surrender thereof at the Principal Office of the Trustee.
Principal Amortization
The Revenue Obligations will be executed and delivered in the original principal amount of
$____________* and will be subject to principal amortization through serial maturities on February 1 in
the years ____ through ____ in the amounts set forth in the Official Bid Form.
Mandatory Sinking Account Prepayment
If the successful bidder designates principal amounts to be combined into one or more term
maturities, each such term maturity shall be subject to mandatory sinking account payments commencing
on February 1 of the first year which has been combined to form such term maturities and continuing on February 1 in each year thereafter until the stated maturity date of that term maturity, provided that no
term maturity maturing on or after February 1, 20__ may have sinking fund payments prior to February 1,
20__. Principal amounts due on or prior to February 1, 20__ are not eligible to be combined into term bonds. The prepayment price will be equal to the principal amount for such year set forth in the Official
Bid Form, plus accrued interest evidenced thereby to the date fixed for prepayment, without premium. The amount of each such prepayment shall be reduced in the event and to the extent that Installment Payments payable on the corresponding Installment Payment Date are prepaid pursuant to provisions of
the Installment Purchase Agreement governing optional prepayment.
Optional Prepayment
The Revenue Obligations with stated Principal Payment Dates prior to February 1, 20__ are not
subject to optional prepayment prior to their stated Principal Payment Dates. The Revenue Obligations with stated Principal Payment Dates on or after February 1, 20__ are subject to optional prepayment prior
to their stated Principal Payment Dates, on any date on or after August 1, 20__, in whole or in part, in
55816165.3 5
Authorized Denominations, from and to the extent of prepaid Installment Payments paid pursuant to the
Installment Purchase Agreement or from any other source of available funds, any such prepayment to be
at a price equal to the principal evidenced by the Revenue Obligations to be prepaid, plus accrued interest evidenced thereby to the date fixed for prepayment, without premium.
Selection of Revenue Obligations for Prepayment
Whenever less than all the Outstanding Revenue Obligations are to be prepaid on any one date pursuant to provisions of the Trust Agreement with respect to optional prepayment of Revenue
Obligations, the Trustee shall select the Revenue Obligations to be prepaid among Revenue Obligations with different Principal Payment Dates as directed in a Written Request of the District. Whenever less than all the Outstanding Revenue Obligations with the same stated Principal Payment Date are to be
prepaid on any one date pursuant to the Trust Agreement, the Trustee shall select the Revenue Obligations with such Principal Payment Date to be prepaid as directed in a Written Request of the District, or at the discretion of the District by lot in any manner that the Trustee deems fair and
appropriate, which decision shall be final and binding upon the District and the Owners. The Trustee shall promptly notify the District in writing of the numbers of the Revenue Obligations so selected for prepayment on such date.
Notice of Prepayment
The Trustee shall, at least 20 but not more than 60 days prior to any prepayment date, give notice
of prepayment to the respective Owners of Revenue Obligations designated for prepayment by first-class
mail, 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. The actual receipt by the
Owner 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 Revenue Obligations or the cessation of interest evidenced thereby on the date fixed
for prepayment.
Interest Rates, Reoffering Prices, Premium or Discount Bids and Certificate of Initial Purchaser
Bidders must bid to purchase all and not part of the Revenue Obligations and must submit their
bids on the Official Bid Form. Bidders must specify a rate of interest for each maturity of the Revenue Obligations. The rates of interest must be expressed in multiples of one-one thousandths (1/1000) of one percent (1%), and no interest rate can exceed 5.0% per annum. All Revenue Obligations of the same
maturity must evidence interest at the same rate.
The successful bidder will, within 30 minutes after being notified of the award of the Revenue Obligations, advise the District of the initial bona fide public reoffering prices of each maturity of the
Revenue Obligations on the date of award. The successful bidder will also be required to furnish to the District a certificate (“Certificate of Initial Purchaser”) in the form of the Certificate of Initial Purchaser attached hereto (with such modifications as may be acceptable to Special Counsel). At any time before or
after delivery of the Revenue Obligations to the successful bidder, that successful bidder also may be required by the District or Special Counsel to clarify any discrepancies between the Certificate of Initial
Purchaser and publicly available information relating to trades of the Revenue Obligations that might
suggest that the initial sale of a substantial portion of any maturity of the Revenue Obligations to the public was at a materially higher price than the price stated for that maturity in the Certificate of Initial
Purchaser.
55816165.3 6
Bidders may bid to purchase the Revenue Obligations from the District at a discount or with a
premium; however, no bid will be considered if the bid is to purchase Revenue Obligations at an
aggregate price less than [108]% or more than [115]% of the aggregate principal amount of the Revenue Obligations.
No bid will be accepted that contemplates the waiver of any interest or other concession by the
bidder as substitute for payment in full of the purchase price. Bids that do not conform to the terms of this section may be rejected. See “Right to Reject Bids, Waive Irregularities” below.
Adjustment of Principal Amounts After Receipt of Bids
The principal amounts of the Revenue Obligations set forth in the Official Bid Form reflect estimates of the District as to the likely interest rates of the winning bid and the premium or discount
contained in the winning bid. After selecting the winning bid, the amortization schedule for the Revenue Obligations may be adjusted in $5,000 increments if the District elects to do so, to reflect the actual interest rates and any discount or premium in the winning bid to properly fund the prepayment escrow
and to accommodate certain other requirements or preferences of the District. Such adjustments will not change any Revenue Obligation in any year by more than 10% of the principal amount for such year. The dollar amount bid for the Revenue Obligations by the winning bidder will be adjusted to reflect any such
adjustment in the applicable amortization schedule. Any such adjustment will change the total (but not the per Revenue Obligation) dollar amount of purchaser’s discount and original issue discount or premium, if
any, provided in such bid. Any such adjustment will be communicated to the winning bidder within 24
hours after receipt of such bid by the District. Changes in the amortization schedule made as described in this paragraph will not affect the determination of the winning bidder or give the winning bidder any right
to reject the Revenue Obligations.
No Insurance
THE SUCCESSFUL BIDDER SHALL NOT PURCHASE MUNICIPAL BOND INSURANCE
IN CONNECTION WITH THE REVENUE OBLIGATIONS.
Form of Bid
BIDS FOR LESS THAN ALL OF THE REVENUE OBLIGATIONS WILL NOT BE
ACCEPTED. Each bid must be on the Official Bid Form. All electronic proposals shall be deemed to incorporate the provisions of the Official Bid Form and must be unconditional and irrevocable. In addition, each bidder is requested to supply an estimate of the true interest cost resulting from its bid,
computed as prescribed below under the caption “Award, Delivery and Payment,” which shall be considered as informative only and not binding on either the bidder or the District. Each bid must be in accordance with the terms and conditions set forth in this Official Notice Inviting Bids.
The District will make its best efforts to accommodate electronic bids; however, the District, the Financial Advisor (Public Resources Advisory Group) and Special Counsel assume no responsibility for any error contained in any electronic bid, or for the failure of any electronic bid to be transmitted or
received at the official time for receipt of such bids. The official time for receipt of bids will be determined by the District at the place of the bid opening, and the District shall not be required to accept
the time kept by Electronic Service as the official time. The District assumes no responsibility for
informing any bidder prior to the deadline that its bid is incomplete, or not received.
If multiple timely bids are received from a single bidder the District shall accept the best of such
bids and each bidder agrees, by submitting any bid, to be bound by its best bid.
55816165.3 7
Information Regarding Electronic Proposals
Electronic proposals must be submitted through the Electronic Service. If any provision of this
Official Notice Inviting Bids conflicts with information provided by the Electronic Service, this Official Notice Inviting Bids shall control. The District is not responsible for the proper operation of, and shall
have no liability for any delays or interruptions of or any damages caused by the Electronic Service. The
District is using the Electronic Service as a communication mechanism and not as the District’s agent to conduct electronic bidding for the Revenue Obligations. The District is not bound by any advice of or
determination by the Electronic Service to the effect that any particular bid complies with the terms of this Official Notice Inviting Bids. All costs and expenses incurred by prospective bidders in connection with their submission of bids through the Electronic Service are the sole responsibility of such bidders
and the District is not responsible for any such costs or expenses. Further information about the Electronic Service, including any fee charged, may be obtained from Ipreo LLC, 1359 Broadway, Second Floor, New York, NY 10018 (212-849-5023). The District assumes no responsibility or liability for bids
submitted through the Electronic Service. The District shall be entitled to assume that any bid submitted through the Electronic Service has been made by a duly authorized agent of the bidder.
Bid Security Deposit
Each bidder must provide with its bid (i) a financial surety bond (“Surety Bond”) in the amount of $__________ (the “Bid Security Deposit”) issued by an insurance company rated in one of the top two
rating categories by Moody’s Investors Service, Fitch Ratings or Standard & Poor’s Ratings Services,
without regard to any modification of the rating, and licensed to issue such a bond in the State of California, naming the District as the beneficiary and identifying the bidder whose deposit is guaranteed
by the Surety Bond or (ii) a wire transfer of immediately available federal funds.
Surety Bonds. If the successful bidder has provided a Surety Bond, such bidder shall wire transfer to the District the amount of the Bid Security Deposit in immediately available federal funds not
later than 3:00 p.m. (New York Time) on the business day next succeeding the day of acceptance of the bid, which amount shall be deposited in an escrow fund or account or a similar fund and applied to the purchase price of the Revenue Obligations at the time of delivery of the Revenue Obligations. If the
District has not received such federal funds wire transfer by the time stated, the District may draw upon the Surety Bond to satisfy the successful bidder’s Bid Security Deposit requirements.
Wire Transfers. Any Bid Security Deposit wire transfers must be received in federal funds prior
to the deadline for examination of the bids, and should be directed as follows:
Union Bank, N.A. ABA 122000496
37130196431/TRUSDG Acct: OCSD 2012A Acct No. 67119612
The wire transfers of unsuccessful bidders will be returned promptly on the bid date after the
examination of bids. The wire transfer of the successful bidder will be retained by the District and
applied to the purchase price at the time of delivery of the Revenue Obligations. The District disclaims any liability for funds sent by wire transfer, except for any willful misconduct or reckless disregard for its
duties.
If after the award of the Revenue Obligations, the successful bidder fails to complete the purchase on the terms stated in its bid, unless such failure of performance shall be caused by any act or omission of
55816165.3 8
the District, the Bid Security Deposit, whether paid by federal funds wire or pursuant to the Surety Bond
procedure set forth above, shall be retained by the District as stipulated liquidated damages. No interest
will be paid upon any Bid Security Deposit.
Official Statement
The District has approved a Preliminary Official Statement for the Revenue Obligations, dated
February ___, 2012, which the District has “deemed final” for purposes of Rule 15c2-12 promulgated by the Securities and Exchange Commission, as amended (the “Rule”), although subject to revision,
amendment and completion in conformity with the Rule. The District will provide the successful bidder such reasonable number of printed copies of the final Official Statement as such bidder may reasonably request no later than seven business days after the day the Revenue Obligations are awarded. Up to 50
copies of the final Official Statement will be furnished without cost to the successful bidder and further copies, if desired, will be made available at the successful bidder’s expense. The successful bidder shall file the final Official Statement with a nationally recognized municipal securities information repository
on a timely basis. The successful bidder shall, by accepting the award, agree at all times to comply with the provisions of the Rule and with all applicable rules of the Municipal Securities Rulemaking Board.
Award, Delivery and Payment
If satisfactory bids are received, the Revenue Obligations will be awarded to the highest responsible bidder not later than two hours after the time established for the receipt of bids. The highest
bidder shall be the bidder submitting the best price for the Revenue Obligations, which best price shall be
that resulting in the lowest true interest cost with respect to the Revenue Obligations. The true interest cost shall be computed by doubling the semi-annual interest rate (compounded semi-annually) necessary
to discount the debt service payments from their respective payment dates to the date of the Revenue
Obligations and to the price bid. If two or more bidders have bid the same true interest cost, the award shall be made at the sole discretion of the District.
Delivery of the Revenue Obligations is expected to occur on or about March ___, 2012. The Revenue Obligations will be delivered through the facilities of DTC, New York, New York. The successful bidder shall pay for the Revenue Obligations on the date of delivery in Los Angeles, California
in immediately available federal funds. Any expenses of providing federal funds shall be borne by the purchaser. Payment on the delivery date shall be made in an amount equal to the price bid for the Revenue Obligations less the amount of the bid security deposit.
Right to Reject Bids, Waive Irregularities
The District reserves the right to reject any and all bids, and to the extent permitted by law, to waive any irregularity or informality in any bid.
CUSIP Numbers
It is anticipated that CUSIP numbers will be printed on the Revenue Obligations, but the District
will assume no obligation for the assignment or printing of such numbers on the Revenue Obligations or
for the correctness of such numbers, and neither the failure to print such numbers on any Revenue Obligation nor any error with respect thereto shall constitute cause for a failure or refusal by the
purchasers thereof to accept delivery of and make payment for the Revenue Obligations. The cost for the
assignment of CUSIP numbers to the Revenue Obligations will be the responsibility of the successful bidder.
55816165.3 9
California Debt and Investment Advisory Commission
The successful bidder will be required to pay all fees due to the California Debt and Investment
Advisory Commission (“CDIAC”) under California law. CDIAC will invoice the successful bidder after the delivery of the Revenue Obligations.
Legal Opinions
The District will furnish to the successful bidder at the closing of the Revenue Obligations the legal opinion of Special Counsel to the effect that, in the opinion of Special Counsel, based upon an
analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the
accuracy of certain representations and compliance with certain covenants, the interest component of each Installment Payment and the allocable portion thereof distributable in respect of each Revenue Obligation
is excluded from gross income for federal income tax purposes under section 103 of the Internal Revenue Code of 1986 and is not a specific preference item for purposes of the federal alternative minimum tax and is exempt from State of California personal income taxes. Special Counsel will express no opinion
regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Revenue Obligations.
Change in Tax Exempt Status
At any time before the Revenue Obligations are tendered for delivery, the successful bidder may disaffirm and withdraw its proposal if the interest on municipal securities of the same type and character
as that evidenced by the Revenue Obligations (as determined by Special Counsel) shall be declared to be
includable in gross income under federal income tax laws, either by a ruling of the Internal Revenue Service or by a final decision of any federal court, or shall be declared taxable by the terms of any federal
income tax law enacted subsequent to the date of this Official Notice Inviting Bids.
Closing Documents
The District will furnish to the successful bidder at the time of delivery of the Revenue
Obligations: (1) a certificate certifying (i) that as of and at the time of delivery of the Revenue
Obligations, there is no action, suit, proceeding or investigation, pending or, to the best knowledge of the District, threatened against or affecting the District, (A) which affects or seeks to prohibit, restrain or
enjoin the execution and delivery of the Revenue Obligations or the Trust Agreement, (B) in any way contesting the validity of the Revenue Obligations, the Installation Purchase Agreement or the Trust Agreement or the powers of the District to enter into or perform its obligations under such documents to
which it is a party or the existence of the District, or (C) wherein an unfavorable decision, ruling or finding would materially and adversely affect the District, or the validity or enforceability of the Revenue Obligations, the Installation Purchase Agreement or the Trust Agreement or the ability of the District to
perform its obligations under such documents to which it is a party, (ii) that the Preliminary Official Statement did not on the date of sale of the Revenue Obligations and the Official Statement does not on
the date of delivery contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, and (2) a receipt of the District showing that the purchase price of the
Revenue Obligations has been received by the District.
Continuing Disclosure
To assist the successful bidder in complying with the Rule, the District will undertake, pursuant
to the Continuing Disclosure Agreement, to provide certain annual financial information, and notices of
55816165.3 10
the occurrence of certain enumerated events. A description of the Continuing Disclosure Agreement is
set forth in the Preliminary Official Statement and will be set forth in the final Official Statement.
Additional Information
Electronic copies of the Trust Agreement, the Installment Purchase Agreement, the Master
Agreement, this Official Notice Inviting Bids, the Official Bid Form, and the Preliminary Official
Statement will be furnished to any potential bidder upon request made to the District’s Financial Advisor at: Public Resources Advisory Group, 11500 West Olympic Boulevard, Suite 502, Los Angeles, CA
90064, 310-477-8487, via e-mail at lchoi@pragla.com.
Right to Modify or Amend
The District reserves the right to modify or amend this Official Notice Inviting Bids, including
but not limited to the right to adjust and change the principal amount of the Revenue Obligations being offered; provided, however, that such notifications or amendments shall be made not later than February [29], 2012, by 4:00 p.m., New York Time and communicated through Thomson Municipal News
(available at http://www.tm3.com) and by facsimile transmission to any qualified bidder timely requesting such notice. Bidders are required to bid for the Revenue Obligations as so modified.
Cancellation or Postponement
The District reserves the right to cancel or postpone, from time to time, the date established for the receipt of bids for any reason at any time. Any such postponement will be announced by Thomson
Municipal News. If any date fixed for the receipt of bids and the sale of the Revenue Obligations is
postponed, any alternative sale date will be announced via Thomson Municipal News at least 24 hours prior to such alternative sale date and will be provided by facsimile transmission to any qualified bidder
timely requesting such notice. On any such alternative sale date, any bidder may submit a sealed bid for
the purchase of the Revenue Obligations in conformity in all respects with the provisions of this Official Notice Inviting Bids except for the date of sale and except for the changes announced by Thomson
Municipal News at the time the sale date and time are announced.
Dated: February ____, 2012
55816165.3
EXHIBIT A
FORM OF CERTIFICATE OF INITIAL PURCHASER
March ___, 2012
Orange County Sanitation District
Fountain Valley, California
Fulbright & Jaworski L.L.P. Los Angeles, California
Ladies and Gentlemen:
We have served as the Underwriter in connection with the execution and delivery on behalf of the Orange County Sanitation District (the “District”) of $___________ Orange County Sanitation District
Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”).
We hereby certify that:
(i) March __, 2012 was the first day on which there was a binding contract in writing for the
sale or exchange of the Revenue Obligations by the District to the Underwriter, and on that day (the “Sale Date”), the Underwriter undertook pursuant to such contract to make
a bona fide public offering of all of the Revenue Obligations. On the Sale Date all of
each maturity of the Revenue Obligations was offered in a bona fide initial offering to the general public at the initial offering price or initial offering yield (the “Initial Offering
Price”) shown, for such maturity on the inside cover page of the Official Statement dated
March ___, 2012 relating to such offering (the “Official Statement”). The Initial Offering Price for each maturity represented: (i) the Underwriter’s reasonable
determination of a fair market value on the Sale Date of that maturity of the Revenue Obligations; and (ii) the price at which the Underwriter reasonably expected to sell all the Revenue Obligations of that maturity to the general public;
(ii) based upon our records and other information available to us that we believe to be correct, the first price at which a substantial portion (but in no event less than ten percent) of each maturity of the Revenue Obligations[, (except for the Revenue Obligations
maturing in _______ (the “Unsold Maturity”),] was sold by the Underwriter (or by other excluded persons) to the general public was the Initial Offering Price in respect of that maturity as described above. [For [the] [each] Unsold Maturity, on the Sale Date we
reasonably expected that a substantial portion (at least ten percent) of that Unsold Maturity would be sold at the initial offering price or yield in respect of that maturity];
(iii) at the time that the Underwriter agreed to purchase the Revenue Obligations, based upon
then prevailing market conditions, the Underwriter had no reason to believe that the first sale of any of the Revenue Obligations to a member of the general public would be at an
initial offering price greater than or an initial offering yield less than the fair market value
thereof;
55816165.3 2
(iv) taking into account the aggregate amount of each maturity, and treating the Initial
Offering Price as the issue price of each Revenue Obligation of that maturity, the
aggregate issue price of the Revenue Obligations is $_________; and
(v) we provided the yield proof attached hereto as Exhibit A to Special Counsel; we make no
legal representations regarding its sufficiency.
For purposes of this Certificate, the term “excluded person” refers to: the Underwriter; any affiliate of the Underwriter; any fund or other person that the Underwriter believed would purchase such
Revenue Obligations with the intention of immediate resale; or any bond house, broker or similar person or organization acting in the capacity of an underwriter or wholesaler. Further, for purposes of this Certificate, the term “general public” does not include bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters or wholesalers.
The undersigned understands that the statements made herein will be relied upon by the District in its efforts to comply with the conditions imposed by the Internal Revenue Code of 1986 (the “Code”),
and will be relied upon by Special Counsel in rendering its legal opinion, concerning the exclusion from gross income for federal income tax purposes of interest with respect to the Revenue Obligations.
[INITIAL PURCHASER],
as Underwriter
By: ________________________________
Title:________________________________
55816165.3 3
Exhibit A
Yield Proof
(See attached)
55816165.3
OFFICIAL BID FORM
$____________** ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS
SERIES 2012A
March ___, 2012
Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, CA 92708-7018
Attn: Lorenzo Tyner
Ladies and Gentlemen:
We hereby offer to purchase all of the $____________* aggregate principal amount of the Orange
County Sanitation District (the “District”) Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue Obligations”), more particularly described in the Official Notice Inviting Bids, dated
February ____, 2012 (the “Official Notice Inviting Bids”), which is incorporated herein by reference, and
made a part thereof, at a purchase price of $____________ (which purchase price is not less than [108]% or more than [115]% of the aggregate principal amount of the Revenue Obligations). This offer is for
Revenue Obligations evidencing interest at the rates and in the form of serial maturities or term maturities
with mandatory sinking account prepayments as set forth in the table on the following page.
The bid is subject to acceptance not later than two hours after the expiration of the time established for the
final receipt of bids.
Our calculation of the true interest cost, computed in accordance with the instructions in the Official Notice Inviting Bids, and which is considered to be informative only and not a part of the bid, is
________%.
(PLEASE CHECK ONE OF THE FOLLOWING TWO PARAGRAPHS)
[ ] A surety bond has been provided to the District in the amount of $_______ issued by an
insurance company rated in one of the top two rating categories by Moody’s Investors Service, Fitch Ratings or Standard & Poor’s Ratings Services, without regard to any modification of the rating, and licensed to issue such a bond in the State of California, naming the District as the beneficiary and
indentifying our bidding syndicate whose deposit is guaranteed by the surety bond.
[ ] With this bid we are providing the District a wire transfer in immediately available federal
funds in the amount of $__________ to an account specified by the District or its representative, in
accordance with the Official Notice Inviting Bids.
We have noted that payment of the purchase price is to be made in immediately available Federal Funds
at the time of delivery of the Revenue Obligations. If we are the successful bidder, we will (1) within 30
minutes after being notified of the verbal award of the Revenue Obligations, advise the District of the initial public offering prices of the Revenue Obligations; and (2) prior to delivery of the Revenue
* Preliminary, subject to change.
55816165.3 2
Obligations furnish a certificate, acceptable to Special Counsel, Fulbright & Jaworski L.L.P., as to the
“issue price” of the Revenue Obligations in the form specified in the Official Notice Inviting Bids.
Maturity
Principal
Amount*
Interest
Rate
Serial
Maturity
Sinking Account
Prepayment
(Check one column)
$
We represent that we have full and complete authority to submit this bid on behalf of our bidding syndicate and the undersigned will serve as the lead manager for the group if the Revenue Obligations are awarded pursuant to this bid. We certify (or declare) under penalty of perjury under the laws of the State
of California that this proposal is genuine, and not a sham or collusive, nor made in the interest of or on behalf of any person not herein named, and that the bidder has not directly or indirectly induced or
solicited any other bidder to put in a sham bid or any other person, firm or corporation to refrain from
bidding, and that the bidder has not in any manner sought by collusion to secure for himself an advantage over any other bidder.
Respectfully Submitted,
Account Manager:
By:
Address:
City:
State:
Telephone:
Following (or attached) is a list of the members of our account on whose behalf this bid is made.
* Preliminary, subject to change.
DRAFT OF
01/18/12
55816168.2
NOTICE OF INTENTION TO SELL
$______________* Orange County Sanitation District Wastewater Refunding Revenue Obligations
Series 2012A
NOTICE IS HEREBY GIVEN that the Orange County Sanitation District (the “District”)
intends to receive electronic bids until 11:00 a.m., New York time, on _____________,
March ___, 2012,
through the use of an electronic bidding service offered by Ipreo LLC; at www.newissuehome.i-deal.com and the Parity bid delivery service, for the purchase of all of the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012A (the “Revenue
Obligations”), dated as of the date of initial delivery, and maturing on such dates as described in
the related Official Notice Inviting Bids (the “Notice”). No bids will be accepted by facsimile.
Bids for less than all of the Revenue Obligations will not be accepted. The District reserves the right to postpone the date established for the receipt of bids as more fully described under the paragraph “Cancellation or Postponement” in the Notice.
NOTICE IS HEREBY FURTHER GIVEN that electronic copies of the Notice and the
Preliminary Official Statement issued in connection with the sale of the Revenue Obligations
may be obtained from the District’s financial advisor, Public Resources Advisory Group, 11500 West Olympic Boulevard, Suite 502, Los Angeles, California 90064, 310-477-8487, via e-mail: lchoi@pragla.com.
Orange County Sanitation District
Dated: February ___, 2012
* Preliminary, subject to change.
Page 1
ADMINISTRATION COMMITTEE Meeting Date
02/08/12
To Bd. of Dir.
02/22/12
AGENDA REPORT Item Number 3 Item Number
Orange County Sanitation District
FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance & Administrative Services
GENERAL MANAGER'S RECOMMENDATION
Approve the budget assumptions to be used for the preparation of the FY 2012-13 and
FY 2013-14 two-year budget.
SUMMARY
For the budget update process, the Administration Committee establishes the Budget Assumptions and approves the Budget Calendar.
Staff will make a brief presentation at the Committee meeting.
PRIOR COMMITTEE/BOARD ACTIONS
None.
ADDITIONAL INFORMATION
Currently, there are no proposed changes to the Sanitation District Fiscal Policy. The
Fiscal Policy is published in the FY 2010-11 and 2011-12 Budget document (Section 3,
Pages 1-8), and is available on the Sanitation District’s website.
ATTACHMENTS
1. Preliminary Budget Assumptions (Page 2-6) 2. Budget Update Calendar (Pages 7-10)
JR:LT:MW
FY 2012-13 & 2013-14 Preliminary Budget Assumptions
Page 2
Economic Assumptions
· Inflation for Orange County in FY 2012-13 is projected to be 2.9 percent based on
the 2012 projected percentage change in consumer price index obtained from the
December 2011 Economic and Business Review report prepared by Chapman University. A 2.9 percent inflation factor will also be used for 2013-14.
Revenue Assumptions
· Year 5 of the five-year Proposed Sewer Service Fee Rate Schedule has been ratified by the Board.
· For FY 2012-13 the Sanitation District-wide rate for a single-family residence (SFR) will increase 10.1% to $294.00.
· This rate increase will not exceed the maximum amount possible for year five of the five-year schedule that was included in the last public notification. Note that each $1
increase in rates generates approximately $900,000 in annual revenue. · Year 1 of a new five-year Proposed Sewer Service Fee Rate Schedule will be ratified
by the Board. · For FY 2013-14 the Sanitation District-wide rate for a single-family residence (SFR) is currently projected to increase 7.0% to $314.58. · A Proposition 218 rate increase notification will be required to be mailed to all Revenue Areas except 14 regarding the new proposed rate schedule. · The capital facilities capacity charge (CFCC) fee captures only those infrastructure costs that relate to additional capacity. Other infrastructure costs such as improved
treatment, rehabilitation, refurbishment, and replacement, will be supported through user fees. Given the new Facilities Master Plan adopted in December 2009, a new rate study
was completed in April 2010 to ensure that the CFCC fee methodology remains equitable and to confirm that an appropriate share of system costs would be
recovered from new development. Revenues will be budgeted to reflect a decline in Equivalent Dwelling Unit (EDU) connections that have averaged 4,000 EDU’s over the past ten years.
· Permit user rates for flow, Biochemical Oxygen Demand (BOD) and Total Suspended Solids (TSS) will follow the most recent Rate Study.
· Annexation fees capture both the net current assets and the equivalent property tax allocations totaling $4,235 per acre.
· Annexable property in the Sanitation District’s service area sphere is minimal; consequently, no FY 2012-13 or FY 2013-14 income from annexation fees is anticipated.
· Property tax revenues are proposed to remain unchanged from FY 2011-12 in FY 2012-13 and FY 2013-14.
FY 2012-13 & 2013-14 Preliminary Budget Assumptions
Page 3
A 2% annual increase in Assessed Value is authorized by the state constitution and
is included in the proposal noted above. An offsetting decrease is incorporated, however, due to anticipated reductions in Assessed Value to reflect recent market
trends. · Earnings on the investment of the Sanitation District’s operating cash and reserves
will be budgeted at 1.0% of the average cash and investment balance projected for
each fiscal year. Staff has consulted with the Sanitation District’s money manager PIMCO to get estimates for the next year’s rate of return on investments.
· A $120 million Certificates of Participation (COP) debt issuance is scheduled for FY 2012-13 in order to assist in the funding of the $170 million and $213 million CIP
outlay scheduled for FY 2012-13 and FY 2013-14, respectively.
· No additional debt issuance is scheduled for FY 2013-14.
Operating Assumptions
· During FY 2012-13 dry weather urban runoff up to 4 mgd will continue to be treated
at no charge. Above this threshold, there is a charge of $1,440.42 per mgd up to a maximum of 10 mgd permitted.
· In FY 2013-14 when the new rate structure is in place, charges for dry weather urban runoff will be established at a level sufficient to recover the full cost of treatment.
· Secondary treatment facilities will be operated and maintained in accordance with the Levels of Service and the Operational Plan – January 2009 Update.
· Interim short-term disinfection facilities will continue to be operated and maintained with decreased costs at P2 due to new trickling filters coming on-line.
· Operating expenses are expected to increase as a result of increases in personnel salaries, electricity, natural gas, chemicals, and biosolids management. Additional power and chemical costs are also anticipated due to the new headworks and
trickling filters at P2 coming on-line.
· Average daily flow for FY 2012-13 and FY 2013-14 is projected to be 206 mgd and
208 mgd respectively. This projection reflects an expected increase of 1 percent per year based on increased economic activity and the potential for moderate rainfall. The FY 2012-13 estimate is 4 mgd above the actual for the first 5 months of the
current year. The final actual flow for FY 2010-11 was 206 mgd.
· Staffing level is expected to remain flat.
· Vacant positions as of 12/31/11 will be projected and expensed at 50% of step 1 for the rest of FY 2011-12.
· A 3% vacancy factor on authorized positions will be budgeted for FY 2012-13 and FY 2013-14 (a reduction from the actual 7.8% vacancy factor in FY 2010-11). This
vacancy factor accounts for time spent for recruitment and turnover.
FY 2012-13 & 2013-14 Preliminary Budget Assumptions
Page 4
· The MOU for the Supervisor and Professional (SPMT) group expires June 30, 2013. A salary adjustment based on the current MOU for SPMT includes a range
adjustment of 2% as of the first pay period beginning in July of FY 2012-13.
Additionally, employees within the SPMT bargaining unit not already at the top step will be budgeted to receive a 5.0% step/range increase in FY 2012-13.
· The MOUs for both OCEA and Local 501 will expire June 30, 2014. Salary adjustments based on the current MOUs for OCEA and Local 501 include range
adjustments of 0.5% and 0% respectively as of the first pay period beginning in July
of FY 2012-13 and 2% and 2.5% respectively as of the first pay period beginning in July of FY 2013-14. Additionally, employees within the OCEA and Local 501
bargaining units not already at the top step will be budgeted to receive 5.0%
step/range increases in FY 2012-13 and FY 2013-14.
· Pending the completion of the negotitation process, no salary adjustments will be
included in the budget (neither for COLA nor for step increases) for periods beyond expiration of current MOUs.
· For FY 2012-13 retirement costs for employees enrolled in OCERS Plans G and H have been assessed at a rate of 30.97% of the employee’s base salary and for
employees enrolled in OCERS Plan B at a rate of 26.69% of the employee’s base
salary, up from 29.18% and 24.89% respectively in FY 2011-12. These percentages will also be assumed at this time for FY 2013-14. Interns are not enrolled in OCERS
so their retirement benefits are calculated at 7.65% (FICA rate). · Medical and dental insurances will be budgeted to increase 11% and 8% each year
respectively based on preliminary renewal information. The cost for vision care
insurance is expected to be unchanged. A moderate but unknown increase for life, and disability insurances will be included for both FY 2012-13 and FY 2013-14.
· The proposed operating budget will continue to reflect an emphasis on safety,
technical, and management training. The proposed FY 2012-13 and FY 2013-14
budgets will include a budget for training based on recent actual costs rather than on a percentage of regular salaries and wages.
· An amount equal to half of one percent of the Operating materials and supplies budget will be a contingency for prior year re-appropriations. Since the current
year’s budget lapses on June 30, a contingency is needed in the succeeding budget
year for goods or services ordered at the end of one budget year but not delivered until the following year.
· An amount equal to half of one percent of the Operating materials and supplies budget will be the General Manager’s contingency budget. These funds will be
allocated to appropriate line items during the year after requests and justifications for
unanticipated needs are approved by the General Manager.
· Resource needs for strategic initiatives will be included in each fiscal year’s budget.
Capital Improvement Program Assumptions
· The FY 2012-13 and 2013-14 cash flow budgets are the amounts based on the most
FY 2012-13 & 2013-14 Preliminary Budget Assumptions
Page 5
current Validated Capital Improvement Program (CIP). · The baseline CIP cash flow for FY 2012-13 is $170 million and for FY 2013-14 is
$213 million. · The budget will reflect any new recommendations of the CIP Ad Hoc Committee or the General Manager that are approved by the Board. · Continual evaluation of the CIP by the Asset Management Team may result in deferral or reduction of some projects and a resultant increase in O&M repair costs
for materials and services, if the net cash flow impact is a decrease.
· The FY 2012-13 and FY 2013-14 CIP budgets will increase only for critical projects
not previously identified in the Strategic Plan Update.
· At the midpoint of FY 2011-12, $37.3 million, or 28.9% of the $129.2 million CIP
budget, was expended. The total projected annual outlay is expected to approximate budget at year-end.
· For FY 2010-11, $135.9 million of the $175.7 million CIP projected cash flow, approximately 75.6%, was expended. Debt Financing
· The Sanitation District will issue new debt in the form of Certificates of Participation as needed to fund the CIP and to maintain reserves.
· A $120 million COP debt issuance is scheduled for FY 2012-13 in order to assist in the funding of the $170 million and $213 million CIP outlay scheduled for FY 2012-13
and FY 2013-14, respectively.
· No additional debt issuance is scheduled for FY 2013-14.
· Debt will only be used for CIP, not for operating expenses.
· Capital financing plans which include fewer future borrowings and higher user fees
after FY 2013-14 will be considered.
· Borrowing is proposed only for facilities which do not add capacity and that are
funded by all users for replacement, rehabilitation, and improved treatment.
Reserve Assumptions
· The current reserve policy was reviewed by Public Resources Advisory Group
and the Board during FY 2003-04. No changes were proposed and direction was given to continue to maintain reserve levels at a level that is adequate to offset exposure to variable rate COPs due to interest rate increases. · The current reserve policy is summarized as follows: ► A cash flow reserve will be established to fund operations, maintenance and
certificates of participation expenses for the first half of the fiscal year, prior to receipt of the first installment of the property tax allocation and sewer service
FY 2012-13 & 2013-14 Preliminary Budget Assumptions
Page 6
user fees which are collected as a separate line item on the property tax bill.
The level of this reserve will be established as the sum of an amount equal to six months operations and maintenance expenses and the total of the annual
debt (COP) service payments due in August each year. ► An operating contingency reserve will be established to provide for non-recurring expenditures that were not anticipated when the annual budget and
sewer service fees were considered and adopted. The level of this reserve will be established at an amount equal to ten percent of the annual operating budget. ► A capital improvement reserve will be maintained to fund annual increments
of the capital improvement program. The long-term target is for one half of the capital improvement program to be funded from borrowing and for one
half to be funded from current revenues and reserves. With this program in mind, the target level of this reserve has been established at one-half of the average annual capital improvement program through the year 2020. ► Catastrophic loss, or self-insurance, reserves will be maintained for property damage including fire, flood and earthquake, for general liability and for
workers' compensation. These reserves are intended to work with purchased
insurance policies, FEMA disaster reimbursements and State disaster reimbursements. The potential infrastructure loss from a major earthquake,
of which the Sanitation District currently has no outside insurance coverage,
has been estimated to be as high as $1.3 billion. The level of this reserve has been set at $57 million should such a catastrophic event occur. This
reserve amount will assist the Sanitation District with any short-term funding needs until Federal and State assistance becomes available. ► Accumulated capital funds will be set aside for certain specific, short-term
capital improvements as the need and availability arise. ► A capital replacement/renewal reserve policy has been established to provide thirty percent of the funding to replace or refurbish the current collection,
treatment and disposal facilities at the end of their useful economic lives. Based on the FY 2011-12 Asset Management Plan, the current replacement value of these facilities is estimated to be $3.14 billion for the collection
facilities and $3.12 billion for the treatment and disposal facilities. The initial reserve level has been established at $50 million, which will be augmented by
interest earnings and a small portion of the annual sewer user fee, in order to
meet projected needs through the year 2030. ► Provisions of the various certificate of participation (COP) issues require debt
service reserves to be under the control of the Trustee for that issue. These
reserve funds are not available for the general needs of the Sanitation District and must be maintained at specified levels. The current level of required
COP service reserves is projected to be $242.9 million. ► Accumulated funds exceeding the levels specified by Sanitation District policy will be maintained in a rate stabilization fund. These funds will be applied to
FY 2012-13 & 2013-14 Preliminary Budget Assumptions
Page 7
future years' needs in order to maintain rates or to moderate annual
fluctuations. There is no established target for this reserve.
FY 2012-13 & 2013-14 Budget Calendar
Page 8
Tasks Responsibility Event/Due Date
PHASE I – BUDGET PREPARATION
CIP – Call for Projects Issued Engineering Planning 10/25/11
CIP – Project Description/Justification Submitted to Engineering Planning (via SharePoint only) Project Requester 11/17/11
CIP – Training for FY 2012-13 CIP Business Case Preparation Jim Burror As Needed
CIP – Project Business Case Preparation Project Requester 12/01/11 – 12/15/11
CIP – Research Projects: Request Sent to Research
Technical Advisory Group (TAG)
Engineering Planning 12/05/11
CIP – Business Cases, Life Cycle Costs Submitted to
Engineering Planning
Project Requester 12/15/11
Preliminary Budget Assumptions Identified Financial Planning 01/06/12
Preliminary Budget Assumptions Presented to EMT Financial Planning 01/09/12
Draft Budget Calendar Presented to EMT Financial Planning 01/09/12
Update to Strategic Initiatives Finalized MT & EMT 01/16/12
Preparation for Budget Kickoff / Training Session:
· Salary and benefits downloaded to Excel worksheets
· Develop line item worksheets with mid-year actual expense
· Prepare/update budget instruction manual
Financial Planning 01/19/12
CIP – CIP Database Opened for Input Financial Planning 01/23/12
CIP - Budget Preparation Training (CIP Database) Financial Planning As Needed
Budget Kickoff / Training Session:
· Distribute budget instruction manual update
· Conduct budget training session
· Review submission deadlines
Financial Planning 01/24/12
Operating Divisional Budgets: New Position/Additional
Employee Decision Packages Due to Financial Planning
(Edith Smith, Ext. 7568)
Divisional Budget
Coordinators
02/06/12
Operating Divisional Budgets: Equity Adjustment &
Position Reclassification Decision Packages Due to Human Resources (Richard Spencer, Ext. 7164)
Divisional Budget
Coordinators
02/06/12
Operating Budget: Training Request Forms Due to
Human Resources (Richard Spencer, Ext. 7164)
Divisional Budget
Coordinators
02/06/12
Operating Budget: Promotional Items Request Forms
Due to Public Affairs (Michael Gold, Ext. 7529)
Divisional Budget
Coordinators
02/06/12
FY 2012-13 & 2013-14 Budget Calendar
Page 9
Tasks Responsibility Event/Due Date
Capital Equipment Budget: Vehicle Capital Equipment Decision Packages Due to Fleet Services (Chuck
Forman, Ext. 7647)
Divisional Budget Coordinators 02/06/12
Capital Equipment Budget: Computer Capital
Equipment Decision Packages Due to Information
Technology (Rich Castillon, Ext. 7283)
Divisional Budget
Coordinators
02/06/12
Budget Assumptions Presented to Admin Committee Budget Team 02/08/12
Mid-Year Financial Report to Administration Committee Admin Services
Department
02/08/12
Division Budget Packages Due to Financial Planning:
· Projection of current year actual operating costs
· Proposed operating costs for 2012-13 & 2013-14
· Operating Budget Expense Detail
· Preliminary Contractual Material & Services Form
· Capital equipment decision Packages (other than computer and vehicle decision packages which were due on 02/06/12)
· New program decision packages
(Financial Planning will collate and bind these items –
along with salary information - into the Preliminary
Division Budget Document for use during the budget review process.)
Divisional Budget
Coordinators
02/21/12
Critical Goals, Strategic Planning and Five Year Staffing Plan – Steering Committee Meeting EMT 02/22/12
Mid-Year Financial Report to Board Finance Department 02/22/12
Complete the Compilation of the Preliminary Division
Budget Document
Financial Planning 02/24/12
CIP – New Project Numbers Assigned Planning Division 02/24/12
CIP – Project Request with Project Information Entered
in CIP Database Completed
CIP Budget
Coordinators
02/28/12
CIP – Completed CIP Budget Delivered to Finance CIP Budget Coordinators
03/02/12
Departmental Narrative Updates for Budget Executive Summary Due to Financial Planning (Cristina Stanford,
Ext. 7565)
EMT 04/12/12
PHASE II - BUDGET REVIEW
CIP – New Project Presentations to Clearinghouse (Initial Review) CIP Budget Coordinators 01/12/12
FY 2012-13 & 2013-14 Budget Calendar
Page 10
TASKS Responsibility Event/Due Date
CIP – New Project Recommendations to EMT Developed – Special CIP Clearinghouse Engineering Planning 01/26/12
CIP – New Project Recommendations Sent to EMT – Special CIP Clearinghouse Projects Clearinghouse 02/02/12
CIP – Present New Projects to EMT CIP Budget Coordinators 02/16/12
Divisional Budgets - Distribution of Preliminary Line Item Requested Budgets to Department Heads and Managers along with Analysis/Questions for Review
Financial Planning 02/29/12
CIP – EMT New Project “Go/No Go” Decisions EMT 03/01/12
Operating Budget - Budget Review Meetings with Finance and Department Representatives Financial Planning & Department
Representatives
03/05/12 – 03/08/12
CIP - Committee Review Operations Committee 03/07/12
Capital Equipment Budget – Requests Reviewed Projects Clearinghouse 03/08/12
Operating Budget – Recommendations to General Manager Financial Planning 03/13/12
Final Operating Budget – General Manager Review of Budget Recommendations Financial Planning, GM, & Department Heads 03/15/12 – 03/20/12
Divisional Budgets – Performance Budget Documents
Due to Financial Planning (Edith Smith):
· Organization Charts
· Performance Results (2011-12)
· Performance Measures (2012-13 & 2013-14)
Divisional Budget
Coordinators
03/16/12
CIP Schedules Through 2022 Completed Engineering 03/22/12
Divisional Budgets - Completion of Preliminary Budget
and Compilation into Departmental Budgets
Financial Planning 03/23/12
PHASE III - BUDGET PRESENTATION
CIP - Final CIP Budget Document Preparation and Incorporation into Final Budget Document
Financial Planning 04/12/12
Initial - Proposed Budget finalized Financial Planning 04/26/12
Initial - Proposed 2012-13 & 2013-14 Budget Presented to Committees Financial Planning Ops – 05/02/12 Admin – 05/09/12
General Manager’s Budget Message Completed General Manager/
Financial Planning
05/02/12
Approval of General Manager’s Budget Message General Manager 05/07/12
Final - Proposed Budget to Printer Financial Planning 05/09/12
FY 2012-13 & 2013-14 Budget Calendar
Page 11
TASKS Responsibility Event/Due Date
PHASE IV - BUDGET DELIBERATIONS
Final Draft - Proposed 2012-13 & 2013-14 Budget Presented to Committees Financial Planning
Ops – 06/06/12
Admin – 06/13/12
Public Hearing & Board Adoption Board of Directors 06/27/12
PHASE V – DISTRIBUTION OF BUDGET
Final line item budget and equipment budgets posted in
H:\ntglobal
Financial Planning 07/06/12
PHASE VI - BUDGET DEBRIEFING
Budget Debriefing E-mail Message
· Global changes that occurred in this year’s budget.
· Changes since the Departments’ original submittal.
· Changes that occurred as a result of Board action.
· Results of Budget Survey.
· Overview of Budget Monitoring with Oracle (JD Edwards) One World Xe Software and review of
Budget Coordinator’s Responsibility.
· Overview of CIP Budget Monitoring.
· Suggestions for Budget Process Improvements.
Financial Planning 07/13/12
ADMINISTRATION COMMITTEE Meeting Date 02/08/12 To Bd. of Dir.
AGENDA REPORT Item Number 4 Item Number
Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Jim Herberg, Assistant General Manager
SUBJECT: Procurement Procedures for Professional Design Services and
Construction Contracts
GENERAL MANAGER'S RECOMMENDATION
Information only item
SUMMARY
Staff will present an overview of OCSD’s procedures for procurement of professional
design services and construction contracts.
PRIOR COMMITTEE/BOARD ACTIONS
N/A
ADDITIONAL INFORMATION
N/A
CEQA
N/A
BUDGET / DELEGATION OF AUTHORITY COMPLIANCE
N/A